RidgeWorth Funds
As filed with the Securities and Exchange Commission on January 30, 2015
Securities Act File No. 033-45671
Investment Company Act File No. 811-06557
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION
STATEMENT
UNDER
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THE SECURITIES ACT OF 1933 |
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Post-Effective Amendment No. 95 |
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and/or
REGISTRATION STATEMENT
UNDER
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THE INVESTMENT COMPANY ACT OF 1940 |
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Amendment No. 97 |
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RIDGEWORTH FUNDS
(Exact
Name of Registrant as Specified in Charter)
3333 Piedmont
Road, Suite 1500
Atlanta, GA 30305
(Address of Principal Executive Office) (Zip Code)
Registrants Telephone Number, including Area Code: 1-888-784-3863
Julia Short
President
RidgeWorth Funds
3333 Piedmont Road, Suite 1500
Atlanta, GA 30305
(Name
and Address of Agent for Service)
Copies to:
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W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP |
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Thomas S. Harman, Esq.
Morgan, Lewis & Bockius LLP |
2020 K Street, NW
Washington, DC 20006 |
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2020 K Street, NW
Washington, DC 20006 |
It is proposed that this filing will become effective (check appropriate box):
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Immediately upon filing pursuant to paragraph (b) |
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On pursuant to paragraph (b) |
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60 days after filing pursuant to paragraph (a)(1) |
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On pursuant to paragraph (a)(1) |
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75 days after filing pursuant to paragraph (a)(2) |
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On 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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INVESTMENTS® |
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SEIX FLOATING RATE HIGH INCOME FUND A,
C, I & IS SHARES PROSPECTUS January 30, 2015
Investment Adviser: RidgeWorth Investments®
Subadviser: Seix Investment Advisors LLC |
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A Shares |
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C Shares |
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I Shares |
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IS Shares |
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Seix Floating Rate High Income Fund |
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SFRAX |
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SFRCX |
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SAMBX |
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SFRZX |
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The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of
this prospectus. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
January 30, 2015
RidgeWorth Investments® is the trade name of RidgeWorth Capital Management LLC
SEIX FLOATING RATE HIGH INCOME FUND
Summary Section
A Shares, C Shares,
I Shares and IS Shares
Investment Objective
The Seix Floating Rate High Income Fund (the Fund) attempts to provide a high level of current income.
Fees and Expenses of the Fund
This table describes the
fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in RidgeWorth Funds. More information about these
and other discounts is available from your financial professional and in Sales Charges on page 14 of the Funds prospectus and Rights of Accumulation on page 59 of the Funds statement of additional information.
Shareholder Fees
(fees paid directly from
your investment)
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A Shares |
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C Shares |
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I Shares |
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IS Shares |
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Maximum Sales Charge (load) Imposed on Purchases (as a % of offering price) |
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2.50 |
% |
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None |
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None |
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None |
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Maximum Deferred Sales Charge (load) (as a % of net asset value) |
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None |
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1.00 |
% |
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None |
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None |
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
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A Shares |
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C Shares |
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I Shares |
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IS Shares |
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Management Fees |
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0.40 |
% |
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0.40 |
% |
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0.40 |
% |
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0.40 |
% |
Distribution (12b-1) Fees |
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0.30 |
% |
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1.00 |
% |
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None |
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None |
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Other Expenses |
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0.20 |
% |
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0.12 |
% |
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0.21 |
% |
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0.12 |
% |
Total Annual Fund Operating Expenses |
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0.90 |
% |
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1.52 |
% |
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0.61 |
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0.52 |
% |
Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated. The example also assumes that your investment has a 5% return each year, that the Funds operating expenses remain the same and that you reinvest all dividends and distributions. The
example reflects contractual fee waivers and reimbursements, if any, for the first year only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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A Shares |
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$ |
340 |
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$ |
530 |
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$ |
736 |
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$ |
1,330 |
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C Shares |
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$ |
255 |
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$ |
480 |
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$ |
829 |
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$ |
1,813 |
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I Shares |
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$ |
62 |
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$ |
195 |
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$ |
340 |
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$ |
762 |
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IS Shares |
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$ |
53 |
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$ |
167 |
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$ |
291 |
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$ |
653 |
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You would pay the following expenses if you did not redeem your Shares:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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A Shares |
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$ |
340 |
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$ |
530 |
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$ |
736 |
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$ |
1,330 |
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C Shares |
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$ |
155 |
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$ |
480 |
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$ |
829 |
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$ |
1,813 |
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I Shares |
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$ |
62 |
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$ |
195 |
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$ |
340 |
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$ |
762 |
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IS Shares |
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$ |
53 |
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$ |
167 |
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$ |
291 |
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$ |
653 |
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Portfolio Turnover
The
Fund pays transaction costs when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 47% of the average value of its
portfolio.
Principal Investment Strategies
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a combination of first- and second-lien senior floating rate loans and other floating rate debt securities.
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These loans are loans made by banks and other large financial institutions to various companies and are senior
in the borrowing companies capital structure. Coupon rates are generally floating, not fixed, and are tied to a benchmark lending rate, the most popular of which is the London Interbank Offered Rate (LIBOR) or are set at a
specified floor, whichever is higher. LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The interest rates of these floating
rate debt securities vary periodically based upon a benchmark indicator of prevailing interest rates.
The Fund invests all or substantially all of its
assets in floating rate loans and debt securities that are rated below investment grade by the Merrill Composite Rating or Standard & Poors Financial Services LLC or in comparable unrated securities. The Fund may also invest up to 20%
of its net assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed-rate bonds, investment grade fixed income debt obligations, asset-backed securities
(such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. The Fund may invest a portion of its assets in securities that are restricted as to resale.
In selecting investments for purchase and sale, the Funds Subadviser, Seix Investment Advisors LLC (Seix or the Subadviser),
will emphasize securities which are within the segment of the high yield market it has targeted, which are securities rated below investment grade or unrated securities that the Subadviser believes are of comparable quality.
The Fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of the portfolios loans
are non-U.S. dollar denominated. The Fund may also engage in certain hedging transactions.
Some types of senior loans in which the Fund may invest
require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the
loan) to fund the revolving portion of the loan at the
borrowers discretion, the Fund must have funds sufficient to cover its contractual obligation. Therefore the Fund will maintain, on a daily basis, high-quality, liquid assets in an amount
at least equal in value to its contractual obligation to fulfill the revolving senior loan. The Fund will not encumber any assets that are otherwise encumbered. The Fund will limit its investments in such obligations to no more than 25% of the
Funds total assets.
In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as swaps, including
credit default swaps, futures, credit linked notes, options and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest
rate or credit risks. The Fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of first-
and second-lien senior floating rate loans and other floating rate debt securities.
Principal Investment Risks
You may lose money if you invest in the Fund. A Fund share is not a bank deposit and it is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Below Investment Grade Securities Risk: Securities that are rated below investment grade
(sometimes referred to as junk bonds, including those bonds rated lower than BBB- by Standard & Poors Financial Services LLC and Fitch, Inc. or Baa3 by Moodys Investors Service), or that are
unrated but judged by the Subadviser to be of comparable quality at the time of purchase, involve greater risk of default and are more volatile than investment grade securities and are considered speculative. Below investment grade securities may
also be less liquid than higher quality securities, and may cause income and principal losses for the Fund.
Debt Securities Risk: Debt securities,
such as bonds, involve credit risk. Credit risk is the risk that the borrower will not make timely payments of principal or interest or will default. Changes in an issuers credit rating or the markets perception of an issuers
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creditworthiness may also affect the value of the Funds investment in that issuer. The degree of credit risk depends on the issuers financial condition and on the terms of the
securities. Debt securities are also subject to interest rate risk, which is the risk that the value of a debt security may fall when interest rates rise. In general, the market price of debt securities with longer maturities will go up or down more
in response to changes in interest rates than the market price of shorter term securities.
Derivatives Risk: In the course of pursuing its
investment strategies, the Fund may invest in certain types of derivatives including swaps, foreign currency forward contracts and futures. The Fund is exposed to additional volatility and potential loss with these investments. Losses in these
investments may exceed the Funds initial investment. Derivatives may be difficult to value, may become illiquid and may not correlate perfectly with the overall securities market.
Floating Rate Loan Risk: The value of the collateral securing a floating rate loan can decline, be insufficient to meet the obligations of the
borrower, or be difficult to liquidate. As a result, a floating rate loan may not be fully collateralized and can decline significantly in value. Floating rate loans generally are subject to contractual restrictions on resale. The liquidity of
floating rate loans, including the volume and frequency of secondary market trading in such loans, varies significantly over time and among individual floating rate loans. During periods of infrequent trading, valuing a floating rate loan can be
more difficult; and buying and selling a floating rate loan at an acceptable price can also be more difficult and delayed. Difficulty in selling a floating rate loan can result in a loss. In addition, floating rate loans generally are subject to
extended settlement periods, which may impair the Funds ability to sell or realize the full value of its loans in the event of a need to liquidate such loans.
Foreign Currency Forward Contracts Risk: The technique of purchasing foreign currency forward contracts to obtain exposure to currencies or manage
currency risk may not be effective. In addition, currency markets generally are not as regulated as securities markets.
Foreign Securities and
Companies Risk: Foreign securities and dollar denominated securities of
foreign issuers involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Foreign
securities also involve risks such as currency fluctuations and delays in enforcement of rights. All of these risks are increased for investments in emerging markets.
Futures Contract Risk: The risks associated with futures include: the Subadvisers ability to manage these instruments, the potential inability to
terminate or sell a position, the lack of a liquid secondary market for the Funds position, the risk that the counterparty to the transaction will not meet its obligations, mispricing or improper valuation and that the other party to a
derivative transaction will not meet its obligations. The prices of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility and unexpected losses.
A liquid secondary market may not always exist for the Funds derivative positions at any time. In fact, many over-the-counter instruments (instruments
not traded on exchange) may not be liquid. Over-the-counter instruments also involve the risk that the other party to the derivative transaction will not meet its obligations.
Prepayment and Call Risk: During periods of falling interest rates, an issuer of a callable bond held by the Fund may call or prepay the
bond before its stated maturity date. When mortgages and other obligations are prepaid and when securities are called, the Fund may have to reinvest the proceeds in securities with a lower yield or fail to recover additional amounts paid for
securities with higher interest rates, resulting in an unexpected capital loss and/or a decline in the Funds income.
Restricted Securities Risk:
Certain debt securities may be restricted securities, which are not registered with the SEC and thus may not be sold publicly until registration has been made. Therefore, there is the absence of a public market and there is limited investor
information.
Senior Loan Risk: Economic and other market events may reduce the demand for certain senior loans held by the Fund, which may
adversely impact the net asset value of the Fund.
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Swap Risk: The Fund may enter into swap agreements, including credit default and interest rate swaps, for
purposes of attempting to gain exposure to a particular asset without actually purchasing that asset or to hedge a position. Credit default swaps may increase or decrease the Funds exposure to credit risk and could result in losses if the
Subadviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Swap agreements may also subject the Fund to the risk that the counterparty to the transaction may not meet its obligations.
U.S. Government Securities Risk: U.S. Treasury securities are backed by the full faith and credit of the U.S. government, while other types of
securities issued or guaranteed by federal agencies, instrumentalities, and U.S. government-sponsored entities may or may not be backed by the full faith and credit of the U.S. government. U.S. government securities may underperform other segments
of the fixed income market or the fixed income market as a whole.
Performance
The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Funds past performance (before
and after taxes) does not indicate how the Fund will perform in the future. The Fund began operating on March 1, 2006. Performance information for the A Shares and C Shares prior to their inception on May 8, 2006 and
August 2, 2007, respectively, is that of the I Shares of the Fund. The performance of I Shares has not been adjusted to reflect the Funds A Share or C Share expenses. If it had been, the performance would have
been lower. As of the fiscal year ended March 31, 2014, the Fund had not issued IS Shares. Performance information for IS shares will be included after the share class has been in operation for one complete calendar year. Updated performance
information is available by contacting the RidgeWorth Funds at 1-888-784-3863 or by visiting www.ridgeworth.com. The annual returns in the bar chart which follows are for the I Shares without reflecting payment of any sales charge; if they did
reflect such payment of sales charges, annual returns would be lower.
This bar chart shows the changes in performance of the Funds I Shares from year to year.*
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Best Quarter |
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Worst Quarter |
12.47% |
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-18.40% |
(6/30/2009) |
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(12/31/2008) |
* |
The performance information shown above is based on a calendar year. The Funds total return for the six months ended June 30, 2014 was 2.19%. |
The following table compares the Funds average annual total returns for the periods indicated with those of a broad measure of market performance.
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AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 2014) |
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1 Year |
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5 Years |
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Since Inception* |
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A Shares Returns Before Taxes |
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0.51 |
% |
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5.03 |
% |
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4.01 |
% |
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C Shares Returns Before Taxes |
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-0.08 |
% |
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4.36 |
% |
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3.49 |
% |
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I Shares Returns Before Taxes |
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0.81 |
% |
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5.35 |
% |
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4.31 |
% |
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I Shares Returns After Taxes on Distributions |
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-1.04 |
% |
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3.40 |
% |
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2.16 |
% |
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I Shares Returns After Taxes on Distributions and Sale of Fund Shares |
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0.47 |
% |
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3.35 |
% |
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2.46 |
% |
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Credit Suisse Institutional Leveraged Loan Index (reflects no deduction for fees, expenses or taxes)** |
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2.17 |
% |
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5.33 |
% |
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3.25 |
% |
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* |
Since inception of the I Shares of the Fund on March 1, 2006. Benchmark return since February 28, 2006 (benchmark returns available only on a month end basis). |
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Index returns reflect the returns of the Credit Suisse First Boston Leveraged Loan Index, the Funds former benchmark index, through January 31, 2010 and the Credit Suisse Institutional Leveraged Loan Index
thereafter. |
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After-tax returns are calculated using the historical highest individual U.S. federal marginal income tax rates
and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through
tax-advantaged arrangements, such as 401(k) plans or individual retirement accounts (IRAs). After-tax returns are shown for only the I Shares. After-tax returns for other share classes will vary.
Investment Adviser and Subadviser
RidgeWorth Investments
is the Funds investment adviser (the Adviser). Seix Investment Advisors LLC is the Funds Subadviser.
Portfolio Management
Mr. George Goudelias, Managing Director and Head of Leveraged Finance of Seix, has managed the Fund since its inception. Mr. Vincent
Flanagan, Vice President and Portfolio Manager of Seix, has co-managed the Fund since 2011.
Purchasing and Selling Your Shares
You may purchase or redeem Fund shares on any business day. You may purchase and redeem A, C, I, and IS Shares of the Fund through financial institutions or
intermediaries that are authorized to place transactions in Fund shares for their customers or for their own accounts.
The minimum initial investment
amounts for each share class are shown below, although these minimums may be reduced or waived in some cases.
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Class |
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Dollar Amount |
A Shares |
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$2,000 |
C Shares |
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$5,000 ($2,000 for IRAs or other tax-advantaged accounts) |
I Shares |
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None |
IS Shares |
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$2,500,000 |
Subsequent investments in A or C Shares must be made in amounts of at least $1,000. The Fund may accept investments of smaller
amounts for either class of shares at its discretion. There are no minimums for subsequent investments in I or IS Shares.
Tax Information
The Funds distributions are generally taxable as ordinary income or capital gains unless you are investing through a tax-advantaged arrangement, such as
a 401(k) plan or an IRA, which may be taxed upon withdrawal.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Fund through a financial intermediary, such as a broker-dealer or investment adviser, the Fund, the Adviser or the Distributor
may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your salesperson to recommend the Fund over another
investment. Ask your financial intermediary or visit your financial intermediarys website for more information.
MORE INFORMATION
More Information About Principal Investment Strategies
Please see the section entitled Principal Investment Strategies in the Summary Section for each Fund for a complete discussion of the
Funds principal investment strategies.
More Information About Principal Risks
Below Investment Grade Securities Risk
Securities that
are rated below investment grade (commonly referred to as junk bonds, including those bonds rated lower than BBB- by Standard & Poors Financial Services LLC and Fitch, Inc. or Baa3 by Moodys
Investors Service), or are unrated but judged by the Subadviser to be of comparable quality at the time of purchase, may be more volatile than higher-rated securities of similar maturity.
High yield securities may also be subject to greater levels of credit or default risk than higher-rated securities. The value of high yield securities can be
adversely affected by overall economic conditions, such as an economic downturn or a period of rising interest rates, and high yield securities may be less
5
liquid and more difficult to sell at an advantageous time or price or to value than higher-rated securities.
In particular, high yield securities are often issued by smaller, less creditworthy or highly leveraged (indebted) issuers, which are generally less able than
more financially stable issuers to make scheduled payments of interest and principal.
Debt Securities Risk
The prices of a Funds fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally, a Funds fixed income securities will decrease in value if interest rates rise and vice versa. Treasury Inflation Protected Securities (TIPS) can also exhibit
such price movements as a result of changing inflation expectations and seasonal inflation patterns.
Long-term debt securities generally are more
sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk.
Debt securities
are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower-rated
securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations.
Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Funds income to decline. Income risk
is generally higher for short-term bonds.
An additional risk of debt securities is reinvestment risk, which is the possibility that a Fund may not be
able to reinvest interest or dividends earned from an investment in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the
same rate of return as the original bond.
Derivative Related Risks
Derivatives Risks. A derivative is a financial contract whose value adjusts in accordance with the value of one or more underlying assets, reference
rates or indices. Derivatives (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) may be used to attempt to achieve investment objectives or to offset certain investment risks. These positions may be established for
hedging, substitution of a position in the underlying asset or for speculation purposes. Hedging involves making an investment (e.g., in a futures contract) to reduce the risk of adverse price movements in an already existing investment position.
Because leveraging is inherent in derivatives, the use of derivatives also involves the risk of leveraging. Risks involved with hedging and leveraging activities include:
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The success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets, and movements in interest rates. |
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A Fund may experience losses over certain market movements that exceed losses experienced by a Fund that does not use derivatives. |
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There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives used to hedge those positions. |
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There may not be a liquid secondary market for derivatives. |
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Trading restrictions or limitations may be imposed by an exchange. |
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Government regulations may restrict trading in derivatives. |
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The other party to an agreement (e.g., options or swaps) may default. |
Because premiums or totals paid or
received on derivatives are small in relation to the market value of the underlying investments, buying and selling derivatives can be more speculative than investing directly in securities. In addition, many types of derivatives have limited
investment lives and may expire or necessitate being sold at inopportune times.
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The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are
generally taxed to shareholders at ordinary income tax rates.
Leverage may cause a Fund to be more volatile than if the Fund had not been leveraged. This
is because leverage tends to exaggerate the effect of any increase or decrease on the value of a Funds portfolio securities. To limit leveraging risk, a Fund observes asset segregation requirements to cover fully its future obligations. By
setting aside assets equal only to its net obligations rather than the full notional amount under certain derivative instruments, a Fund will have the ability to employ leverage to a greater extent than if it were required to segregate assets equal
to the full notional value of such derivative instruments.
Swap Risks. Each Fund may enter into swap agreements, including credit default and
interest rate swaps, for purposes of attempting to gain exposure to a particular asset without actually purchasing that asset or to hedge a position. Credit default swaps may increase or decrease the Funds exposure to credit risk and could
result in losses if the Subadviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Swap agreements may also subject the Fund to the risk that the counterparty to the transaction may not meet
its obligations.
Floating Rate Loan Risk
Investments in floating rate loans are subject to interest rate risk although the risk is less because the interest rate of the loan adjusts periodically.
Investments in floating rate loans are also subject to credit risk. Many floating rate loans are rated below investment grade or are unrated. Therefore, a Fund relies heavily on the analytical ability of the Funds Subadviser. Many floating
rate loans share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate loans are often
subject to restrictions on resale which can result in reduced liquidity. The risk is greater for the Seix Floating Rate High Income Fund, because of its concentration in these types of instruments. Borrowers may repay principal faster than the
scheduled due date which may result in a Fund
replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be collateralized
fully which may cause the loan to decline significantly in value.
Seix currently serves as collateral manager to six collateralized loan obligation
(CLO) funds that invest in bank loans. In addition to the CLO funds, Seix serves as subadviser to an unaffiliated registered fund and as investment manager to three unregistered funds that may invest in bank loans. As a result of
multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund. Seix, the Subadviser to the Seix Floating Rate High
Income Fund, has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments
or receive equal or better individual investment allocations at any given time.
Foreign Securities and Companies Risk
Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic,
political or economic developments, including nationalization or appropriation, unique to a country or region will affect those markets and their issuers. Foreign securities markets generally have less trading volume and less liquidity than
U.S. markets.
The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Funds investment. Foreign
currency exchange rates may fluctuate significantly. They are determined by supply and demand in the foreign exchange markets, the relative merits of investments in different countries, actual or perceived changes in interest rates, and other
complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political
7
developments. Currency movements may happen separately from, and in response to, events that do not otherwise affect the value of the security in the issuers home country.
Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable
to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements
of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received
from the securities comprising the portfolio.
All of these risks are increased for investments in emerging markets. Emerging markets may be more likely
to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in
other countries. Emerging market countries are generally countries covered by the Bank of America Merrill Lynch Emerging Markets Diversified Corporate Index.
Restricted Securities Risk
Non-publicly traded
securities may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly traded securities and the Fund may take longer to liquidate these positions than would be the
case for publicly traded securities. Companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded. The Funds
investments in restricted securities are subject to the risk that should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Funds
net assets could be adversely affected.
Senior Loan Risk
Portfolio transactions in loans may settle in as short as seven days but typically can take up to two or three weeks, and in some cases much longer. Unlike the
securities markets, there is no central clearinghouse for loan trades, and the loan market has not established enforceable settlement standards or remedies for failure to settle. Credit risk is heightened for loans in which the Fund invests because
companies that issue such loans may be leveraged and thus are more susceptible to the risks of interest deferral, default and/or bankruptcy.
U.S.
Government-Related Risks
With respect to each Fund U.S. Treasury obligations may differ in their interest rates, maturities, times of issuance and
other characteristics. Similar to other issuers, changes to the financial condition or credit rating of the U.S. government may cause the value of its Treasury obligations to decline. Obligations of U.S. government agencies and authorities are
supported by varying degrees of credit, but generally are not backed by the full faith and credit of the U.S. government. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a
whole.
Risk Information Common to RidgeWorth Funds
Each Fund is a mutual fund. A mutual fund pools shareholders money and, using professional investment managers, invests it in securities.
Each Fund has its own investment objective and strategies for reaching that objective. The Adviser or Subadviser invests Fund assets in a way that it believes
will help a Fund achieve its objective. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its objective. The Advisers or Subadvisers judgments about the markets, the economy or companies may
not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser or Subadviser does, you could lose money on your
investment in a Fund, just as you could with other investments. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to
8
economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a
Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings.
Each Funds investment objective may be changed without shareholder approval. Shareholders will be given notice of any change in investment objective.
Before investing, make sure that the Funds objective matches your own.
The Fund is not managed to achieve tax efficiency.
MORE INFORMATION ABOUT INDICES
An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a
mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower.
The Credit Suisse Institutional Leveraged Loan Index is a sub-index of the Credit Suisse Leveraged Loan Index, which contains only institutional loan
facilities priced above 90, excluding TL and TLA facilities and loans that are rated CC or C or are in default. It is designed to more closely reflect the investment criteria of institutional investors. The Index reflects reinvestment of all
distributions and changes and market prices.
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Funds primary strategies, and the Fund will normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in the Funds Statement of Additional Information (SAI).
The investments and strategies described in this prospectus are those that the Funds use under normal
conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would
not ordinarily be consistent with a Funds objectives. Temporary defensive investments may limit a Funds ability to meet its investment objective. In addition, each Fund may shorten its average-weighted maturity to as little as
90 days. A Fund will do so only if the Adviser or its Subadviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment objective.
Each Fund may invest in other mutual funds for cash management purposes. When a Fund invests in another mutual fund, in addition to directly bearing expenses
associated with its own operations, it will bear a pro rata portion of the other mutual funds expenses.
INFORMATION
ABOUT PORTFOLIO HOLDINGS
A description of the Funds policies and procedures with respect to the circumstances under which the Fund disclose its
portfolio securities is available in the SAI. The Fund publicly discloses its portfolio holdings on its website at www.ridgeworth.com.
MANAGEMENT
The Board of Trustees (the Board) is responsible for the overall supervision and management of the business and affairs
of the Fund. The Board supervises the Adviser and Subadvisers and establishes policies that the Adviser and Subadvisers must follow in their fund-related management activities. The day-to-day operations of the Fund are the responsibility of the
officers and various service organizations retained by the Fund.
Investment Adviser
(RIDGEWORTH LOGO)
RidgeWorth Investments, located
at 3333 Piedmont Road, Suite 1500, Atlanta, GA 30305 (RidgeWorth or the Adviser), serves as the investment adviser to
9
the Fund. In addition to being an investment adviser registered with the Securities and Exchange Commission (the SEC), RidgeWorth is a money-management holding company with multiple
style-focused investment boutiques. As of June 30, 2014, the Adviser had approximately $48.7 billion in assets under management. The Adviser is responsible for overseeing the Subadvisers to ensure compliance with each Funds investment
policies and guidelines, and monitors each Subadvisers adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Fund.
In addition, under a manager of managers arrangement, the Adviser may enter into or materially modify a subadvisory agreement with an unaffiliated subadviser,
subject to approval by the Board and certain other conditions, without approval from the Funds shareholders. Any significant change in a Funds subadvisory arrangement will be communicated to shareholders.
The Adviser may use its affiliates as brokers for Fund transactions.
An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement,
the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Advisers, and thus each Funds, Proxy Voting Policies and Procedures is provided in the SAI. A copy of the Advisers Proxy Voting Policies
and Procedures may be obtained by contacting the Funds at 1-888-784-3863 or by visiting www.ridgeworth.com.
For the fiscal year ended March 31,
2014, the Fund paid the Adviser advisory fees (after waivers) of 0.40% of the Funds average daily net assets.
The Adviser and each Subadviser have
contractually agreed to waive fees and reimburse expenses until at least August 1, 2015, in order to keep total annual operating expenses of the Fund from exceeding the applicable expense cap shown. If at any point before August 1, 2017,
total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements.
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Expense Limitation |
|
Fund |
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A |
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C |
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I |
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IS |
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Seix Floating Rate High Income |
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1.00 |
% |
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1.60 |
% |
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0.70 |
% |
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0.60 |
% |
The following breakpoints are used in computing the advisory fee:
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Average Daily Net Assets |
|
Discount From Full Fee |
First $500 million |
|
None Full Fee |
Next $500 million |
|
5% |
Next $4 billion |
|
10% |
Over $5 billion |
|
15% |
Based on average daily net assets as of March 31, 2014, the asset levels of the Fund had reached a breakpoint in the
advisory fee.* Had the Fund asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees of 0.45%
* |
Fund expenses in the Annual Fund Operating Expenses tables shown earlier in this prospectus reflect the advisory breakpoints. |
A discussion regarding the basis for the Boards approval of the continuance of the investment advisory agreement with the Adviser appears in the
Funds annual report to shareholders for the period ended March 31, 2014.
Investment Subadvisers
The Subadviser is responsible for managing the portfolios of the Fund on a day-to-day basis and selecting the specific securities to buy, sell and hold for the
Fund under the supervision of the Adviser and the Board. A discussion regarding the basis for the Boards approval of the continuance of the investment subadvisory agreements appears in the Funds annual report to shareholders for the
period ended March 31, 2014.
Information about the Subadviser and the individual portfolio managers of the Fund is discussed below. The SAI provides
additional information regarding the portfolio managers compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers ownership of securities in the Fund.
10
(SEIX INVESTMENT ADVISORS LOGO)
Seix Investment Advisors LLC (Seix)
10 Mountainview Road, Suite C-200
Upper
Saddle River, New Jersey 07458
www.seixadvisors.com
Seix, established in 2008 as a wholly-owned subsidiary of RidgeWorth, is an investment adviser registered with the SEC. Its predecessor, Seix Investment
Advisors, Inc., was founded in 1992 and was independently owned until 2004 when the firm joined RidgeWorth as the institutional fixed income management division. As of June 30, 2014, Seix had approximately $30.2 billion in assets under
management.
Seix is a fundamental, credit driven fixed income boutique specializing in investment grade and high yield bond and leveraged loan
management. Seix has employed its bottom-up, research-oriented approach to fixed income management for over 20 years. Seix is focused on delivering superior, risk-adjusted investment performance for its clients. Seix selects, buys and sells
assets for the Funds it subadvises under the supervision of the Adviser and the Board.
Seix utilizes a team management approach for the Funds for which
it acts as Subadviser. Seix is organized into teams of portfolio managers and credit analysts along sectors and broad investment categories, including government securities, corporate bonds, securitized assets, high yield bonds, high yield loans,
emerging market debt, non-U.S. securities and global currencies. The senior portfolio managers are responsible for security selection, portfolio structure and rebalancing, compliance with stated investment objectives, and cash flow monitoring.
The following individuals are primarily responsible for the day-to-day management of the Fund:
Mr. Vincent Flanagan currently serves as Vice President, Portfolio Manager and Senior High Yield Analyst of Seix. He has been associated with Seix, an
affiliate or predecessor since 2006. Mr. Flanagan has co-managed the Seix Floating Rate High Income Fund since 2011. He has more than 17 years of investment experience.
Mr. George Goudelias currently serves as Managing Director, Senior Portfolio Manager and Head of Leveraged
Finance of Seix. He has been associated with Seix, an affiliate or predecessor since 2004. Mr. Goudelias has managed the Seix Floating Rate High Income Fund since its inception. He has more than 28 years of investment experience.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called redeem) and exchange A Shares, C Shares, I Shares and IS Shares of
the Funds. Investors purchasing or selling shares through a pension or 401(k) plan should also refer to their Plan documents.
Participants in retirement
plans must contact their Employee Benefits Office or their Plans Administrator for information regarding the purchase, redemption or exchange of shares. Plans may require separate documentation and the plans policies and procedures may
be different than those described in this prospectus. Participants should contact their employee benefits office or plan administrator for questions about their specific accounts.
If your I Shares or IS Shares are held in a retirement plan account, the rules and procedures you must follow as a plan participant regarding the
purchase, redemption or exchange of I Shares or IS Shares may be different from those described in this prospectus. Review the information you have about your retirement plan.
How to Purchase Fund Shares
Purchasing
A Shares and C Shares
You may purchase A Shares and C Shares of the Funds through financial institutions or intermediaries that
are authorized to place transactions in Fund shares for their customers. Please contact your financial institution or intermediary directly and follow its procedures for Fund share transactions. Your financial institution or intermediary may charge
a fee for its services, in addition to the fees charged by a Fund. You will also, generally, have to address your correspondence or questions regarding a Fund to your financial institution or intermediary.
11
Your investment professional can assist you in opening a brokerage account that will be used for purchasing
shares of RidgeWorth Funds.
Shareholders who purchase shares directly from the Funds may purchase additional Fund shares by:
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Telephone (1-888-784-3863) |
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Automated Clearing House (ACH) |
The Funds do not accept cash, credit card checks, third-party
checks, travelers checks, money orders, bank starter checks, or checks drawn in a foreign currency, as payment for Fund shares.
If you pay with a
check or ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Funds or its transfer agent, and the Funds can redeem
shares you own in any of the Funds or in another identically registered RidgeWorth Funds account as reimbursement.
Purchasing I Shares
The Funds offer I Shares to financial institutions and intermediaries for their own accounts or for the accounts of customers for whom they act as
fiduciary, agent, investment adviser, or custodian. Financial intermediaries include brokers, dealers, banks (including bank trust departments), trust companies, registered investment advisers, financial planners, retirement plan administrators,
insurance companies, and any other institution having a service, administration, or any similar arrangement with the Funds or their service providers. These accounts primarily consist of:
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assets of a bona fide trust, |
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assets of a business entity possessing a tax identification number, |
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assets of an employee benefit plan, |
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assets held within select fee-based programs, or |
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assets held within certain non-discretionary intermediary no-load platforms.
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Employee benefit plans generally include profit sharing, 401(k) and 403(b) plans. Employee benefit plans
generally do not include IRAs; SIMPLE, SEP, SARSEP plans; plans covering self-employed individuals and their employees; or health savings accounts unless you, as a customer of a financial institution or intermediary, meet the Funds established
criteria as described above.
As a result, you, as a customer of a financial institution or intermediary, may, under certain circumstances that meet the
Funds established criteria, be able to purchase I Shares through accounts made with select financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary.
Depending upon the terms of your account, you may have, or be given, the right to vote your I Shares. Financial institutions or intermediaries may impose eligibility requirements for each of their clients or customers investing in the Funds,
including investment minimum requirements, which may differ from those imposed by the Funds. Please contact your financial institution or intermediary for complete details for purchasing I Shares.
I Shares may also be purchased directly from the Funds by officers, directors or trustees, and employees and their immediate families (strictly limited to
current spouses/domestic partners and dependent children) of RidgeWorth Funds, the Adviser and Subadvisers to the RidgeWorth Funds.
Validation of current
employment/service will be required upon establishment of the account. The Funds, in their sole discretion, may determine if an applicant qualifies for this program.
Purchasing IS Shares
IS Shares are offered to the
following investors, provided that these investors do not require the Fund or an affiliate of the Fund (including the Funds Adviser and any affiliate of the Adviser) to make, and the Fund or affiliate does not pay, any type of servicing,
administrative, or revenue sharing payments with respect to IS Shares:
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qualified retirement plans, including, but not limited to, 401(k) plans, 457 plans, employer sponsored 403(b) plans, defined benefit plans and other
accounts or plans whereby IS Shares |
12
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are held on the books of the Fund through omnibus accounts (either at the plan level or the level of the plan administrator); |
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bank and trust companies; |
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registered investment companies; |
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non-qualified deferred compensation plans; and |
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other institutional investors that: |
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meet a $2,500,000 minimum initial investment requirement; and |
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hold interests in the Fund through a single plan level account held directly through the Fund and not traded through an intermediary. |
Such availability will be subject to managements determination of the eligibility of investment in IS Shares.
The $2,500,000 minimum initial investment amount may be waived subject to managements discretion, and/or purchased by or through:
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certain registered open-end investment companies whose shares are distributed by the Distributor; |
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accounts held by, or for the benefit of, an affiliate of the Fund; or |
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investments made in connection with certain reorganizations as approved by the Adviser. |
If the value of your
account falls below the minimum initial investment requirements for IS Shares as a result of share redemptions or you no longer meet one of the waiver criteria set forth above, your account may be subject to involuntary conversion or involuntary
redemption, as applicable. You will be notified prior to any such conversions or redemptions.
In-Kind Purchases A Shares, C Shares, I
Shares and IS Shares
Payment for shares of a Fund may, at the discretion of the Adviser, be made in the form of securities that are permissible
investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the
securities: (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to
transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing
methods used by the Fund. For further information about this form of payment, please call 1-888-784-3863.
When Can You Purchase Shares?
A Shares, C Shares, I Shares and IS Shares
The Funds are open for business on days when the New York Stock Exchange (the NYSE)
is open for regular trading (a Business Day). The RidgeWorth Funds reserve the right to open one or more Funds on days that the principal bond markets (as recommended by the Securities Industry and Financial Markets Association) are
open, even if the NYSE is closed. Each Fund calculates its net asset value per share (NAV) once each Business Day at the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time).
If a Fund or its authorized agent receives your purchase or redemption request in proper form before 4:00 p.m. Eastern Time, your transaction will be
priced at that Business Days NAV. If your request is received after 4:00 p.m. Eastern Time, it will be priced at the next Business Days NAV.
The time at which transactions and shares are priced and the time until which orders are accepted may be changed if the NYSE closes early or if the principal
bond markets close early on days when the NYSE is closed. For those Funds that open on days when the NYSE is closed, these times will be the time the principal bond markets close.
The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions.
You may be required to transmit your purchase, sale and exchange orders to your financial institutions or intermediaries at an earlier time for your
transaction to become effective that day. This allows your financial institution or intermediary time to process your order and transmit it to the transfer agent in time to meet
13
the above stated Fund cut-off times. For more information about how to purchase, sell or exchange Fund shares, including your financial institutions or intermediarys internal order
entry cut-off times, please contact your financial institution or intermediary directly.
A Fund may reject any purchase order.
How the Funds Calculate NAV A Shares, C Shares, I Shares and IS Shares
The NAV is calculated by adding the total value of a Funds investments and other assets, subtracting its liabilities, and then dividing that figure by
the number of outstanding shares of the Fund.
In calculating the NAV, each Fund generally values its investment portfolio at market price. If market
prices are not readily available, or a Fund reasonably believes that market prices or amortized cost valuation methods are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant
market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board. A Funds determination of a securitys fair value price often involves the consideration of a number
of subjective factors, and is, therefore, subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the securitys value would be if a reliable market quotation for the security was readily
available.
With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration
in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly
affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not
be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the
U.S., or other relevant information as related to the securities.
When valuing fixed income
securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities
expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the securitys amortized cost. Amortized cost and the use of a pricing matrix in
valuing fixed income securities are forms of fair value pricing. Fair value prices may be determined in good faith using methods approved by the Board.
Minimum/Maximum Purchases A Shares, C Shares, I Shares and IS Shares
To purchase shares for the first time, you must invest in any Fund at least:
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Class |
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Dollar Amount |
A Shares |
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$2,000 |
C Shares |
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$5,000 ($2,000 for IRAs or other tax-advantaged accounts) |
I Shares |
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No minimum |
IS Shares |
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$2,500,000 |
Your subsequent investments must be made in amounts of at least $1,000. The Funds reserve the right to waive and/or reduce the
minimum investment amounts for certain A and C Share purchases.
For investors who qualify to purchase I Shares, there are no minimum or maximum
requirements for initial or subsequent purchases.
Officers, directors or trustees, and employees and their immediate families (strictly limited to
current spouses/domestic partners and dependent children) of the Funds, Adviser and the Subadvisers may also purchase I Shares. There is no minimum investment.
Systematic Investment Plan A Shares and C Shares
If you have a checking or savings account with a bank, you may purchase A Shares and C Shares automatically through regular deductions from your bank
account. With a $500 minimum initial
14
investment, you may begin regularly-scheduled investments of $50 or more once or twice a month. If you are buying C Shares, you should plan on investing at least $5,000 per Fund during the
first two years. The Funds may close your account if you do not meet this minimum investment requirement at the end of two years. Shareholders should contact their financial intermediaries for more information on how to take advantage of this
feature.
Customer Identification
Foreign
Investors
To purchase A Shares, C Shares and IS Shares of the Funds, you must be a U.S. citizen, a U.S. resident alien, or a
U.S. entity, with a U.S. tax identification number, and reside in the U.S. or its territories (which includes U.S. military APO or FPO addresses). If you owned shares on July 31, 2006, you may keep your account open even if
you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges.
The Funds do not generally accept
investments in I Shares by non-U.S. citizens or entities. Investors in I Shares generally must reside in the U.S. or its territories (which includes U.S. military APO or FPO addresses) and have a U.S. tax identification
number.
Customer Identification and Verification
To
help the government fight the funding of terrorism and money laundering activities, U.S. federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
When you open an account, you will be asked to provide your name, residential street address, date of birth, and Social Security Number or tax identification
number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund
account.
In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your
application will be
used solely to establish and verify a customers identity.
The Funds are required by law to
reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this
information is unable to be obtained within a timeframe established at the sole discretion of the Funds, your application will be rejected.
Upon receipt
of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined.
However, the Funds reserve the right to close your account at the then-current days price if the Funds are unable to verify your identity. Attempts to
verify your identity will be performed within a timeframe established at the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current days price
and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding
tax implications.
Anti-Money Laundering Program
Customer identification and verification is part of the Funds overall obligation to deter money laundering under U.S. federal law. The Funds have adopted
an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase
or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, at the
sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority.
15
Sales Charges A Shares and C Shares
Front-End Sales Charges A Shares
The
offering price of A Shares is the NAV next calculated after a Fund receives your request in proper form, plus the front-end sales charge.
The amount
of any front-end sales charge included in your offering price varies, depending on the amount of your investment.
For the Funds listed below, the
immediately following table applies:
Seix Floating Rate High Income Fund
|
|
|
|
|
|
|
|
|
If Your Investment is: |
|
Your Sales Charge as a Percentage of Offering Price* |
|
|
Your Sales Charge as a Percentage of Your Net Investment |
|
Less than $50,000 |
|
|
2.50 |
% |
|
|
2.56 |
% |
|
|
|
|
|
|
|
|
|
$50,000 but less than $100,000 |
|
|
2.25 |
% |
|
|
2.30 |
% |
|
|
|
|
|
|
|
|
|
$100,000 but less than $250,000 |
|
|
2.00 |
% |
|
|
2.04 |
% |
|
|
|
|
|
|
|
|
|
$250,000 but less than $500,000 |
|
|
1.75 |
% |
|
|
1.78 |
% |
|
|
|
|
|
|
|
|
|
$500,000 but less than $1,000,000 |
|
|
1.50 |
% |
|
|
1.52 |
% |
|
|
|
|
|
|
|
|
|
$1,000,000 and over |
|
|
None |
|
|
|
None |
|
|
|
|
|
|
|
|
|
|
* |
The Distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the Distributor may pay dealer
commissions ranging from 0.25% to 0.50%. |
Investments of $1,000,000 or more. You do not pay an initial sales charge when you buy
$1,000,000 or more of A Shares in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 0.50% if you redeem any of these
A Shares within two years of purchase. The deferred sales charge may be waived from time to time for certain broker-dealers that waive payment of compensation to them. The deferred sales charge is calculated based on the lesser of (i) the NAV
of the shares at the time of
purchase or (ii) the NAV of the shares next calculated after the Fund receives your redemption request. The deferred sales charge does not apply to shares you purchase through reinvestment
of dividends or capital gains distributions.
Waiver of Front-End Sales Charge A Shares
The front-end sales charge may be waived on A Shares purchased:
|
|
|
through reinvestment of dividends and distributions; |
|
|
|
through an account managed by an affiliate of the Adviser; |
|
|
|
by persons repurchasing shares they redeemed within the last 180 days (see Repurchase of A Shares); |
|
|
|
by employees, and members of their immediate family (spouse/domestic partner, mother, father, mother-in-law, father-in-law, and children, including step-children, under the age of 21 years), of the Adviser and its
affiliates; |
|
|
|
by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with the Adviser acted in a fiduciary, administrative, custodial or investment
advisory capacity is closed; |
|
|
|
through financial intermediaries or institutions; retirement plans, plan administrators or record-keepers; asset allocation, or wrap programs or self-directed investment brokerage accounts; that, under the terms of
their respective agreements with the Distributor or otherwise, agree to either (i) not charge the front-end sales charge, or (ii) do not receive compensation derived from the front-end sales charge, but may or may not charge a transaction
fee to their customers; or |
|
|
|
by Trustees and officers of the RidgeWorth Funds. |
Repurchase of A Shares
You may repurchase any amount of A Shares of any Fund at the NAV (without the normal front-end sales charge), up to the limit of the value of any amount
of A Shares (other than those which were purchased
16
with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the
front-end sales charge. Such repurchases may be subject to special tax rules. See the Taxes section of the SAI for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your
redemption. In addition, you must notify the Fund when you send in your purchase order that you are repurchasing shares.
Reduced Sales
Charges A Shares
Rights of Accumulation. You may take into account your accumulated holdings in all share classes of
RidgeWorth Funds to determine the initial sales charge you pay on each purchase of A Shares. In calculating the appropriate sales charge rate, this right allows you to add the market value (at the close of business on the day of the current
purchase) of your existing holdings in any class of shares to the amount of A Shares you are currently purchasing. The Funds may amend or terminate this right at any time. Please see the Funds SAI for details.
Letter of Intent. A Letter of Intent allows you to purchase A Shares over a 13-month period and receive the same sales charge as if you had purchased
all the shares at the same time. The Funds will hold a certain portion of your investment in escrow until you fulfill your commitment. Please see the SAI for details.
Combined Purchase/Quantity Discount Privilege. When calculating the appropriate sales charge rate, the Funds will combine same day purchases of shares
of any class made by you, your spouse/domestic partner and your minor children (under age 21). This combination also applies to A Shares you purchase with a Letter of Intent.
You can also obtain information about sales charges, rights of accumulation and letters of intent on the Funds website at www.ridgeworth.com.
Contingent Deferred Sales Charges (CDSC) C Shares
You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But, if you sell your
shares
within the first year after your purchase, you will pay a CDSC equal to 1% of either (i) the NAV of the shares at the time of purchase, or (ii) the NAV of the shares next calculated
after the Funds receive your sale request, whichever is less. The Funds will use the first-in, first-out (FIFO) method to determine the holding period. You never pay a CDSC on any increase in your investment above the initial offering price. The
CDSC does not apply to shares you purchase through reinvestment of dividends or distributions or to exchanges of C Shares of one Fund for C Shares of another Fund.
Waiver of CDSC
The CDSC will be waived if you sell your
C Shares for the following reasons:
|
|
|
Death or Post-purchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code Code of 1986, as amended (the Internal Revenue Code)) |
|
|
|
You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; |
|
|
|
You die or become disabled after the account is opened; |
|
|
|
Redemption must be made within 1 year of such death/disability; |
|
|
|
The Funds must be notified in writing of such death/disability at time of redemption request; and |
|
|
|
The Funds must be provided with satisfactory evidence of death (death certificate) or disability (doctors certificate specifically referencing disability as defined in 72(m)(7) of the Internal Revenue Code).
|
|
|
|
Shares purchased through dividend and capital gains reinvestment. |
|
|
|
Participation in the Systematic Withdrawal Plan described below: |
|
|
|
Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period. The 10% amount will be calculated as of the date of the
initial Systematic Withdrawal Plan and recalculated annually on the 12 month anniversary date. Shares
|
17
|
|
purchased through dividend or capital gains reinvestment, although not subject to the CDSC, will be included in calculating the account value and 10% limitation amount. |
|
|
|
If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan
for the period will be subject to the applicable sales charge. In the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment. |
|
|
|
To qualify for the CDSC waiver under the Systematic Withdrawal Plan, a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains
distributions. |
|
|
|
Required mandatory minimum withdrawals made after 70 1⁄2 under any retirement plan qualified under Sections 401, 408 or
403(b) of the Internal Revenue Code or resulting from the tax free return of an excess distribution to an IRA. Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator
certificate (certain distributions under plan requirements). |
|
|
|
Permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. |
|
|
|
Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. |
To take
advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of
the Funds.
The C Shares CDSC will be waived for certain retirement plan providers that have entered into administrative agreements with the Funds.
Please see the SAI for more information on this program.
The CDSC may also be waived from time to time for certain broker-dealers that waive payment of compensation to
them.
Offering Price of Fund Shares A Shares, C Shares, I Shares and IS Shares
The offering price of A Shares is the NAV next calculated after the transfer agent receives your request, in proper form, plus any front-end sales charge.
The offering price of C Shares, I Shares and IS Shares is simply the next calculated NAV.
You can also obtain information about sales charges,
rights of accumulation and letters of intent on the Funds website at www.ridgeworth.com.
How to Sell Your Fund Shares
Selling A Shares and C Shares
If you own your
A Shares or C Shares through an account with a broker or other financial institution or intermediary, contact that broker, financial institution or intermediary to sell your shares. Your broker, financial institution or intermediary may
charge a fee for its services, in addition to the fees charged by the Funds.
Shareholders who purchased shares directly from the Funds may sell their
Fund shares by:
|
|
|
Telephone (1-888-784-3863) |
Selling I Shares and IS Shares
You may sell your I Shares and IS Shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or
intermediary will give you information about how to sell your shares including any specific cut-off times required.
Holders of I Shares and IS
Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The
18
sale price of each share will be the next NAV determined after the Funds receive your request in proper form.
Signature Authentication A Shares, C Shares, I Shares and IS Shares
This section describes the Funds Medallion Signature Guarantee and Signature Validation Program (SVP) policies. If you purchased your shares through a
financial institution or intermediary, the below policies may not apply. Please contact your financial institution or intermediary for additional information on their signature authentication policy.
For certain financial and non-financial transactions, the Funds require proof that your signature is authentic and you have the authority to provide the
instruction(s) contained in the request. This verification can be provided by either a Medallion Signature Guarantee Stamp for financial transactions or an SVP Stamp for non-financial transactions.
Both types of stamps can be obtained from a financial institution such as a domestic bank, trust company, broker/dealer, clearing agency, savings association,
or other financial institution that participates in the Medallion Signature Guarantee Program or SVP. Please visit www.ridgeworth.com for a Letter of Instruction Form that you can provide to your financial institution to obtain the appropriate
stamp. Please note a notarized signature is not an acceptable substitute for a Medallion Signature Guarantee or an SVP Stamp. The Funds reserve the right, at their sole discretion, to waive such requirements for a specific request.
Financial Transactions
An original document containing a
Medallion Signature Guarantee is required for certain types of financial transactions. Examples include:
|
|
|
Redemption proceeds payable or sent to any person, address, or bank account other than the one currently on record. |
|
|
|
Redemption requests sent to an address or bank account of record that has been changed within the last 30 days. |
|
|
|
Registration or ownership changes to your account. Ownership changes may include but
|
|
|
are not limited to, certain types of transfers, gifting shares, beneficial inheritance, and loan collateral agreements. |
Non-Financial Transactions
For certain non-financial
transactions, the Funds will accept an original document containing an SVP Stamp. In the event an SVP Stamp is not used by the financial institution, you should request that it use its Medallion Signature Guarantee in lieu of the SVP Stamp. Examples
include:
|
|
|
Requests to add or change banking information that the Funds have on file. |
|
|
|
Updates to authorized signers on your account. |
Sale Price of Fund Shares A Shares,
C Shares, I Shares and IS Shares
The sale price of each share will be the next NAV determined after the Funds receive your request, in
proper form, less, in the case of C Shares, any applicable CDSC.
Systematic Withdrawal Plan A Shares and C Shares
If you have at least $10,000 in your account, you may use the Systematic Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual or
annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, may be electronically transferred to your account. Please check
with your bank. Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under Waiver of the CDSC. Shareholders should contact their financial intermediaries for more
information on how to take advantage of this feature.
Receiving Your Money A Shares, C Shares, I Shares and IS Shares
Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a Fund may take up
to seven days to pay the sale proceeds if making immediate payments
19
would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). Your sale proceeds can be wired to your bank account (subject to a
fee) or sent to you by check. If you recently purchased your shares by check or through ACH, redemption proceeds may not be available until your funds have cleared (which may take up to 10 calendar days from your date of purchase).
Each Fund tries to manage large redemptions of positions in the Fund. However, a large redemption by a shareholder holding a significant investment in a Fund
may have an adverse impact on the remaining shareholders in the Fund. For example, such a redemption may cause the Fund to (i) utilize outside sources of liquidity, which may be more costly, or (ii) liquidate securities that otherwise
would not have been sold, potentially impacting the Funds performance and generating capital gains distributions.
Redemptions
In-Kind A Shares, C Shares, I Shares and IS Shares
The Funds generally pay redemption proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection of the Funds remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption
price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains
recognized in the redemption or in the sale of the securities distributed to you.
Involuntary Sales of Your Shares A Shares,
C Shares, I Shares and IS Shares
If your account balance drops below the required minimum as a result of redemptions you may be required to
sell your shares. The account balance minimums are:
|
|
|
Class |
|
Dollar Amount |
A Shares |
|
$2,000 |
C Shares |
|
$5,000 ($2,000 for IRAs or other tax-advantaged accounts) |
I Shares |
|
No minimums |
IS Shares |
|
$2,500,000 |
The Funds will always give you at least 60 days written notice to give you time to add to your account and
avoid the sale of your shares.
Shareholders should contact their financial intermediary regarding minimum investment requirements.
Suspension of Your Right to Sell Your Shares A Shares, C Shares, I Shares and IS Shares
A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More
information about this is in the Funds SAI.
Exchanging or Converting Your Shares
Exchanging Your Shares A Shares, C Shares, I Shares and IS Shares
You may exchange your Fund shares for the same class of shares of any other RidgeWorth Fund. Your sales price and purchase price will be based on the NAV next
calculated after the Funds receive your exchange request in proper form.
Cross Class Conversions
You may convert your shares for shares of a different class of the same Fund based on the NAV of each class next calculated after the Fund receives your
exchange request in proper form. If you have held your current shares for less than one year, your financial intermediary may assess any applicable CDSC on your shares when you make the conversion.
Instructions for Exchanging and Converting Shares
You
may exchange or convert your shares on any Business Day by contacting the Funds at 1-888-784-3863 or the financial institution or intermediary through which your shares are held.
Exchanges into the State Street Liquid Reserves Fund Investment Class
At any time, you may exchange your A, C or I Shares of a Fund for shares of the State Street Institutional Liquid Reserves FundInvestment Class.
Further,
20
qualifying shares of the State Street Institutional Liquid Reserves FundInvestment Class may be exchanged for A, C or I Shares of any Fund. You should read the State Street Institutional
Liquid Reserves FundInvestment Class prospectus prior to investing in that mutual fund. You can obtain a prospectus State Street Institutional Liquid Reserves FundInvestment Class by calling 1-888-784-3863 or by visiting our website at
www.ridgeworth.com. Qualifying exchanges between the Funds A and C Shares and the State Street Institutional Liquid Reserves FundInvestment Class are eligible for exchange into the Funds A and/or C Shares without the imposition of
the applicable front-end sales charge and/or CDSC.
If you purchased shares though a financial institution or intermediary please contact your financial
institution or intermediary regarding the availability of this exchange privilege.
Notes on Exchanges and Conversions
You must meet investor eligibility requirements applicable to the share class into which you are exchanging. The Funds may accept investments of smaller
amounts at its discretion. The Funds will treat any cross class conversion between classes of shares of the same Fund as a tax-free event. An exchange between the same classes of shares of different Funds generally is treated as a taxable event.
For the purpose of computing the CDSC applicable to C Shares, the length of time you have owned your shares will be measured from the original date of
purchase and will not be affected by any exchange.
The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange
activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to
revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (i) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or
(ii) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under Market Timing Policies and Procedures below.
If you recently purchased shares by check or through ACH, you may not be able to exchange your shares until your
funds have cleared (which may take up to 10 calendar days from your date of purchase).
Systematic Exchange Plan A Shares and C Shares
For investors who qualify, a systematic exchange feature may be added to your account. Shareholders should contact their financial intermediary for
more information about how to take advantage of this feature and the minimum investment requirements.
Telephone Transactions
A Shares, C Shares, I Shares and IS Shares
Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient,
but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone
instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or
terminate telephone transaction privileges at any time.
To redeem shares by telephone:
|
|
|
redemption checks must be made payable to the registered shareholder; and |
|
|
|
redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. |
MARKET TIMING POLICIES AND PROCEDURES
The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in market timing or other types of
excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include
interfering with the
21
efficient implementation of the Funds investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher
cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known
as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security
is traded and the time at which the Fund calculates its NAV.
The Funds and/or their service providers will take steps reasonably designed to detect and
deter frequent trading by shareholders pursuant to the Funds policies and procedures described in this prospectus and approved by the Funds Board. The Funds seek to discourage short-term trading by using fair value pricing procedures to
fair value certain investments under some circumstances. For purposes of applying these policies, the Funds service providers may consider the trading history of accounts under common ownership or control. The Funds policies and
procedures include:
|
|
|
Restrictions on shareholders from making more than one (1) round trip into and out of a Fund within 14 days or more than two (2) round trips within any continuous 90 day
period. If a shareholder exceeds either round trip restriction, he or she may be deemed a Market Timer, and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds
define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, the Adviser, the Subadviser or a shareholder servicing agent may be notified in
writing of their designation as a Market Timer; and |
|
|
|
Reserving the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or the Adviser reasonably believes that the trading
activity would be harmful or disruptive to the Funds. |
The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly
and in a manner they believe is consistent with the interests of the Funds long-term shareholders.
Although these policies are designed to deter
frequent trading, none of these measures alone, nor all of them taken together eliminate, the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through
omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. Purchase and redemption transactions submitted to the Funds by these intermediaries reflect the transactions of multiple beneficial owners whose
individual transactions are not automatically disclosed to the Funds. Therefore, the Funds rely in large part on the intermediaries who maintain omnibus arrangements (which may represent a majority of Fund shares) to aid in the Funds efforts
to detect and deter short-term trading. The Funds monitor trading activity at the omnibus account level and look for activity that indicates potential short-term trading. If they detect suspicious trading activity, the Funds contact the
intermediaries to determine whether the short-term trading policy has been violated and may request and receive personal identifying information and transaction histories for some or all beneficial owners to make this determination. If a Fund
believes that a shareholder has violated the short-term trading policy, it will take further steps to prevent any future short-term trading by such shareholder in accordance with the policy. The Funds cannot guarantee the accuracy of the
information provided by the intermediaries and may not always be able to track short-term trading affected through these intermediaries. A Fund has the right to terminate an intermediarys ability to invest in a Fund if excessive trading
activity persists and a Fund or its Adviser or Subadviser reasonably believes that such termination would be in the best interests of long-term shareholders. In addition to the Funds market timing policies and procedures described above, you
may be subject to the market timing policies and procedures of the intermediary through which you invest. Please consult with your intermediary for additional information regarding its frequent trading restrictions.
22
DISTRIBUTION OF FUND SHARES
Distribution of Fund Shares Generally
From their own
assets, the Adviser, the Subadviser or their affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for
eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser or Subadviser. Furthermore, the Adviser, the Subadviser or their affiliates
may pay fees from their own capital resources to financial intermediaries (such as brokers, banks, financial advisers and retirement plan service providers) to compensate them for providing distribution-related or shareholder services, for marketing
expenses they incur, for travel and lodging in connection with educational events or to pay for the opportunity to have them distribute the Funds.
The
amount of these payments is determined by the Adviser or the Subadviser and may differ among financial intermediaries. Such payments may provide incentives for financial intermediaries to make shares of the Funds available to their customers, and
may allow the Funds greater access to such financial intermediaries and their customers than would be the case if no payments were made. You may wish to consider whether such arrangements exist when evaluating any recommendation to purchase shares
of the Funds.
Please refer to the SAI for more information regarding these arrangements.
Distribution Plan A Shares and C Shares
The
A Shares and C Shares of each Fund have adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are
paid out of a Funds assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
Broker-dealers who initiate and are responsible for selling C Shares may receive an initial payment at the time of sale of 1.00% and annual 12b-1 payout
effective in the 13th month of 1.00%. Through the
distribution plan, the Funds Distributor is reimbursed for these payments, as well as other distribution related services provided by the Distributor. For A Shares, each Funds
distribution plan authorizes payment of up to the amount shown under Maximum Fee in the table that follows. Currently, however, the Board has only approved payment of up to the amount shown under Current Approved Fee in the
table that follows. Fees are shown as a percentage of average daily net assets of the Funds A Shares.
|
|
|
|
|
|
|
|
|
|
|
Maximum Fee |
|
|
Current Approved Fee |
|
Seix Floating Rate High Income Fund |
|
|
0.35 |
% |
|
|
0.30 |
% |
For C Shares, the maximum distribution fee is 1.00% of the average daily net assets of a Funds C Shares.
The Fund may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the Financial Industry Regulatory Authority.
SHAREHOLDER SERVICING PLANS
With respect to the A Shares and I Shares of certain of the Funds, the A Shares and I Shares Shareholder Servicing Plan permits the
A Shares and I Shares of that Fund to pay financial intermediaries for shareholder support services they provide, at a rate of up to 0.20% of the average daily net assets of each of the A Shares and I Shares of that Fund.
Financial intermediaries include brokers, dealers, banks (including bank trust departments), trust companies, registered investment advisers, financial planners, retirement plan administrators, insurance companies, and any other institution having a
service, administration, or any similar arrangement with the Funds or their service providers. The shareholder support services may include, among others, providing general shareholder liaison services (including responding to shareholder
inquiries), providing information on shareholder investments, and establishing and maintaining shareholder accounts and records.
23
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least
annually. If you own Fund shares on a Funds record date, you will be entitled to receive the distribution.
You will receive dividends and
distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and
distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice.
Shareholders of the Funds
are entitled to receive dividends declared starting on the next business day after a purchase is received in good order.
Shareholders of the Funds are
entitled to receive dividends declared on the day their shares are redeemed.
401(k) plan participants will receive dividends and distributions in the
form of additional Fund shares if the participant owns shares of a Fund on the date the dividend or distribution is allocated by the 401(k) plan. Therefore, a participant will not receive a dividend or distribution if the participant does not own
shares of the applicable Fund on the date the dividend or distribution is allocated.
HOUSEHOLD MAILINGS
To reduce expenses, we may mail only one copy of the Funds prospectus and each annual and semi-annual report to those addresses shared by two or more
accounts. If you wish to receive individual copies of these documents, please call us at 1-888-784-3863 (or contact your financial institution). We will begin sending you individual copies thirty days after receiving your request.
TAXES
Please consult your tax advisor regarding your specific questions about U.S. federal, state, local, and foreign tax considerations relating to any
investment in any Fund.
Summarized below are some important tax issues that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change. More information on taxes is in the Funds SAI.
Each Fund will distribute substantially all of its net investment income
and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable
whether or not you reinvest them in additional shares.
Income distributions are generally taxable as ordinary income. Capital gains distributions (i.e.,
distributions of the excess of net long-term capital gain over net short-term capital loss, if any) are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are generally taxable to noncorporate shareholders
at rates of up to 20%. Distributions from a Funds net short-term capital gains are generally taxable as ordinary income. A high portfolio turnover rate and the use of certain derivatives may cause a Fund to recognize higher amounts of
short-term capital gains.
If a Fund declares a dividend in October, November or December, payable to shareholders of record in such a month, and pays it
in January of the following year, you will be taxed on the dividend as if you received it in the year in which it was declared.
If you invest in a Fund
shortly before a capital gain distribution, generally you will pay a higher price per share and, unless you are exempt from tax, you will pay taxes on the amount of the distribution.
Distributions from a Fund and capital gains on a disposition of Fund shares are subject to a 3.8% U.S. federal Medicare contribution tax on all or a portion
of the net investment income of individuals with
24
incomes exceeding $200,000 ($250,000 if married and filing jointly). This 3.8% tax also applies to all or a portion of the undistributed net investment income of certain shareholders that are
estates and trusts. Net investment income for this purpose does not include exempt-interest dividends (described below).
Each Fund in which
you invest will inform you shortly after the close of each calendar year of the amounts of your distributions that may qualify as ordinary income dividends, exempt-interest dividends, and capital gain distributions.
You must provide your social security number or other taxpayer identification number to a Fund along with any certifications required by the Internal Revenue
Service. If you do not, or if it is otherwise legally required to do so, a Fund will apply backup withholding tax on your dividends (including exempt-interest dividends) and other distributions, sale proceeds and any other payments to
you that are subject to backup withholding. The backup withholding rate is 28%.
Dividends and distributions will accumulate on a tax-deferred basis if
you are investing through a 401(k) plan or any other employer-sponsored retirement or savings plan that qualifies for tax-advantaged treatment under federal income tax laws. Generally, you will not owe taxes on these distributions until you begin
withdrawals from the plan. Withdrawals from the plan are subject to numerous complex and special tax rules and may be subject to a penalty tax in the case of premature withdrawals. You should consult your tax advisor or plan administrator regarding
the tax rules governing your retirement or savings plan.
Certain Funds may be able to pass along a tax credit for foreign income taxes they pay. In such
event, the applicable Fund will provide you with the information necessary to reflect such foreign taxes on your federal income tax return.
25
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Funds financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial
information has been audited by PricewaterhouseCoopers LLP. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds financial statements and related notes, are included in the Funds Annual
Reports to Shareholders for such periods. The 2014 Annual Report is available upon request and without charge by calling 1-888-784-3863 or on the Funds website at www.ridgeworth.com.
Information is not shown for IS Shares of the Seix Floating Rate High Income Fund, as these shares commenced operations after March 31, 2014.
The Funds financial information set forth below for the six-month period ended September 30, 2014 is unaudited and includes all adjustments that
the Adviser considers necessary for a fair presentation of such information. All such adjustments are of a normal recurring nature.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Period |
|
|
Net Investment Income (Loss) |
|
|
Net Realized and Unrealized Gains (Losses) on Investments |
|
|
Total from Operations |
|
|
Dividends from Net Investment Income |
|
|
Distributions from Tax Return of Capital |
|
|
Distributions from Realized Capital Gains |
|
|
Total Dividends and Distributions |
|
|
Payments by Affiliates |
|
|
Net Asset Value, End of Period |
|
|
Net Assets End of Period (000) |
|
|
Total Return(a) |
|
|
Ratio of Net Expenses to Average Net Assets |
|
|
Ratio of Expenses to Average Net Assets (Excluding Waivers and Reimbursements) |
|
|
Ratio of Net Investment Income to Average Net Assets |
|
|
Portfolio Turnover Rate |
|
Seix Floating Rate High Income Fund |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended September 30, 2014^ |
|
$ |
9.06 |
|
|
$ |
0.19 |
(d) |
|
$ |
(0.14 |
) |
|
$ |
0.05 |
|
|
$ |
(0.19 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.19 |
) |
|
$ |
|
|
|
$ |
8.92 |
|
|
$ |
7,088,115 |
|
|
|
0.54 |
% |
|
|
0.61 |
% |
|
|
0.61 |
% |
|
|
4.17 |
% |
|
|
15 |
% |
Year Ended March 31, 2014 |
|
|
9.06 |
|
|
|
0.38 |
(d) |
|
|
(0.01 |
) |
|
|
0.37 |
|
|
|
(0.37 |
) |
|
|
|
|
|
|
|
|
|
|
(0.37 |
) |
|
|
|
|
|
|
9.06 |
|
|
|
8,965,312 |
|
|
|
4.16 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
|
4.13 |
|
|
|
47 |
|
Year Ended March 31, 2013 |
|
|
8.83 |
|
|
|
0.46 |
(d) |
|
|
0.20 |
|
|
|
0.66 |
|
|
|
(0.43 |
) |
|
|
|
|
|
|
|
|
|
|
(0.43 |
) |
|
|
|
|
|
|
9.06 |
|
|
|
5,780,847 |
|
|
|
7.67 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
|
5.13 |
|
|
|
70 |
|
Year Ended March 31, 2012 |
|
|
9.01 |
|
|
|
0.50 |
(d) |
|
|
(0.22 |
) |
|
|
0.28 |
|
|
|
(0.46 |
) |
|
|
|
|
|
|
|
|
|
|
(0.46 |
) |
|
|
|
|
|
|
8.83 |
|
|
|
3,419,351 |
|
|
|
3.31 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
|
5.69 |
|
|
|
72 |
|
Year Ended March 31, 2011 |
|
|
8.80 |
|
|
|
0.59 |
(d) |
|
|
0.15 |
|
|
|
0.74 |
|
|
|
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
(0.53 |
) |
|
|
|
|
|
|
9.01 |
|
|
|
3,078,972 |
|
|
|
8.64 |
|
|
|
0.51 |
|
|
|
0.51 |
|
|
|
6.62 |
|
|
|
98 |
(e) |
Year Ended March 31, 2010 |
|
|
7.37 |
|
|
|
0.53 |
|
|
|
1.40 |
|
|
|
1.93 |
|
|
|
(0.50 |
) |
|
|
|
|
|
|
|
|
|
|
(0.50 |
) |
|
|
|
|
|
|
8.80 |
|
|
|
1,173,308 |
|
|
|
26.68 |
|
|
|
0.50 |
|
|
|
0.50 |
|
|
|
7.08 |
|
|
|
117 |
|
A Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended September 30, 2014^ |
|
$ |
9.06 |
|
|
$ |
0.18 |
(d) |
|
$ |
(0.14 |
) |
|
$ |
0.04 |
|
|
$ |
(0.18 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.18 |
) |
|
$ |
|
|
|
$ |
8.92 |
|
|
$ |
192,055 |
|
|
|
0.39 |
|
|
|
0.91 |
|
|
|
0.91 |
|
|
|
3.88 |
|
|
|
15 |
|
Year Ended March 31, 2014 |
|
|
9.06 |
|
|
|
0.35 |
(d) |
|
|
(0.01 |
) |
|
|
0.34 |
|
|
|
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
(0.34 |
) |
|
|
|
|
|
|
9.06 |
|
|
|
212,336 |
|
|
|
3.86 |
|
|
|
0.89 |
|
|
|
0.89 |
|
|
|
3.82 |
|
|
|
47 |
|
Year Ended March 31, 2013 |
|
|
8.83 |
|
|
|
0.43 |
(d) |
|
|
0.21 |
|
|
|
0.64 |
|
|
|
(0.41 |
) |
|
|
|
|
|
|
|
|
|
|
(0.41 |
) |
|
|
|
|
|
|
9.06 |
|
|
|
99,040 |
|
|
|
7.39 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
4.85 |
|
|
|
70 |
|
Year Ended March 31, 2012 |
|
|
9.01 |
|
|
|
0.48 |
(d) |
|
|
(0.22 |
) |
|
|
0.26 |
|
|
|
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
(0.44 |
) |
|
|
|
|
|
|
8.83 |
|
|
|
51,185 |
|
|
|
3.05 |
|
|
|
0.85 |
|
|
|
0.85 |
|
|
|
5.47 |
|
|
|
72 |
|
Year Ended March 31, 2011 |
|
|
8.80 |
|
|
|
0.55 |
(d) |
|
|
0.16 |
|
|
|
0.71 |
|
|
|
(0.50 |
) |
|
|
|
|
|
|
|
|
|
|
(0.50 |
) |
|
|
|
|
|
|
9.01 |
|
|
|
69,159 |
|
|
|
8.29 |
|
|
|
0.84 |
|
|
|
0.84 |
|
|
|
6.22 |
|
|
|
98 |
(e) |
Year Ended March 31, 2010 |
|
|
7.38 |
|
|
|
0.50 |
|
|
|
1.39 |
|
|
|
1.89 |
|
|
|
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
(0.47 |
) |
|
|
|
|
|
|
8.80 |
|
|
|
22,298 |
|
|
|
26.11 |
|
|
|
0.81 |
|
|
|
0.81 |
|
|
|
6.81 |
|
|
|
117 |
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Period |
|
|
Net Investment Income (Loss) |
|
|
Net Realized and Unrealized Gains (Losses) on Investments |
|
|
Total from Operations |
|
|
Dividends from Net Investment Income |
|
|
Distributions from Tax Return of Capital |
|
|
Distributions from Realized Capital Gains |
|
|
Total Dividends and Distributions |
|
|
Payments by Affiliates |
|
|
Net Asset Value, End of Period |
|
|
Net Assets End of Period (000) |
|
|
Total Return(a) |
|
|
Ratio of Net Expenses to Average Net Assets |
|
|
Ratio of Expenses to Average Net Assets (Excluding Waivers and Reimbursements) |
|
|
Ratio of Net Investment Income to Average Net Assets |
|
|
Portfolio Turnover Rate |
|
C Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended September 30, 2014^ |
|
$ |
9.07 |
|
|
$ |
0.15 |
(d) |
|
$ |
(0.15 |
) |
|
$ |
|
|
|
$ |
(0.15 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.15 |
) |
|
$ |
|
|
|
$ |
8.92 |
|
|
$ |
78,659 |
|
|
|
(0.02 |
) |
|
|
1.51 |
|
|
|
1.51 |
|
|
|
3.28 |
|
|
|
15 |
|
Year Ended March 31, 2014 |
|
|
9.06 |
|
|
|
0.29 |
(d) |
|
|
0.01 |
|
|
|
0.30 |
|
|
|
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
(0.29 |
) |
|
|
|
|
|
|
9.07 |
|
|
|
83,149 |
|
|
|
3.33 |
|
|
|
1.51 |
|
|
|
1.51 |
|
|
|
3.21 |
|
|
|
47 |
|
Year Ended March 31, 2013 |
|
|
8.83 |
|
|
|
0.38 |
(d) |
|
|
0.20 |
|
|
|
0.58 |
|
|
|
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
(0.35 |
) |
|
|
|
|
|
|
9.06 |
|
|
|
40,493 |
|
|
|
6.69 |
|
|
|
1.51 |
|
|
|
1.51 |
|
|
|
4.22 |
|
|
|
70 |
|
Year Ended March 31, 2012 |
|
|
9.02 |
|
|
|
0.42 |
(d) |
|
|
(0.23 |
) |
|
|
0.19 |
|
|
|
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
(0.38 |
) |
|
|
|
|
|
|
8.83 |
|
|
|
30,132 |
|
|
|
2.26 |
|
|
|
1.52 |
|
|
|
1.52 |
|
|
|
4.77 |
|
|
|
72 |
|
Year Ended March 31, 2011 |
|
|
8.81 |
|
|
|
0.50 |
(d) |
|
|
0.15 |
|
|
|
0.65 |
|
|
|
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
(0.44 |
) |
|
|
|
|
|
|
9.02 |
|
|
|
22,234 |
|
|
|
7.57 |
|
|
|
1.50 |
|
|
|
1.50 |
|
|
|
5.65 |
|
|
|
98 |
(e) |
Period Ended March 31, 2010 |
|
|
7.37 |
|
|
|
0.45 |
|
|
|
1.41 |
|
|
|
1.86 |
|
|
|
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
(0.42 |
) |
|
|
|
|
|
|
8.81 |
|
|
|
7,402 |
|
|
|
25.59 |
|
|
|
1.49 |
|
|
|
1.49 |
|
|
|
6.35 |
|
|
|
117 |
|
27
NOTES TO FINANCIAL HIGHLIGHTS
(a) |
Total return excludes sales charge. Not annualized for periods less than one year. |
(d) |
Per share data calculated using average shares outstanding method. |
(e) |
The amount previously reported has been adjusted to exclude an overstatement of mortgage-backed transactions and/or other corporate actions. |
(h) |
Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and
the returns based on those net asset values may differ from the net asset values and returns reported in the managements discussion of Fund performance. |
28
Investment Adviser:
RidgeWorth Investments
3333 Piedmont Road, Suite 1500
Atlanta, GA 30305
www.ridgeworth.com
Investment Subadviser:
Seix Investment Advisors LLC
10 Mountainview Road,
Suite C-200
Upper Saddle River, NJ 07458
www.seixadvisors.com
More information about the RidgeWorth Funds is available without charge through the following:
Statement of Additional Information (SAI):
The SAI
includes detailed information about the RidgeWorth Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus.
Annual and Semi-Annual Reports:
These reports list each
Funds holdings and contain information from the Funds managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds.
To Obtain an SAI, Annual or Semi-Annual Report, or More Information:
Telephone:
Shareholder Services
1-888-784-3863
Mail:
RidgeWorth Funds
P.O. Box 8053
Boston, MA 02266-8053
Website:
www.ridgeworth.com
SEC:
You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the RidgeWorth Funds, from the EDGAR Database on the
SECs website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-551-8090). You may request documents by mail from
the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-1520. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at
publicinfo@sec.gov.
The RidgeWorth Funds Investment Company Act registration number is 811-06557.
INVESTMENTS®
RidgeWorth Investments® is the trade name of RidgeWorth Capital Management LLC
RFPRO-SFR-0115
STATEMENT OF ADDITIONAL INFORMATION
RIDGEWORTH FUNDS
January 30, 2015
Investment Adviser:
RIDGEWORTH INVESTMENTS
(the Adviser)
This Statement
of Additional Information (SAI) is not a prospectus. It is intended to provide additional information regarding the activities and operations of RidgeWorth Funds (the Trust) and should be read in conjunction with the
Trusts current prospectus dated January 30, 2015 as such prospectus may be supplemented from time to time (the Prospectus). This SAI relates to each class of the following series of the Trust (the Fund):
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A Shares |
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C Shares |
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I Shares |
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IS Shares |
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Seix Floating Rate High Income Fund |
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SFRAX |
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SFRCX |
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SAMBX |
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SFRZX |
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The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds are collectively referred to herein as the Fixed
Income Funds.
This SAI is incorporated by reference into the Funds Prospectus. Capitalized terms not defined herein are defined in the
Prospectus. A Prospectus may be obtained by writing to the Trust or calling toll-free 1-888-784-3863.
TABLE OF CONTENTS
THE TRUST
Each Fund is a separate series of the Trust, an open-end management investment company established under Massachusetts law as a Massachusetts business trust
under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate series of units of beneficial interest (shares) and different classes of shares of each Fund. The Trust reserves the
right to create and issue shares of additional funds and/or classes. The Fund is diversified, as that term is defined in the Investment Company Act of 1940, as amended (the 1940 Act).
DESCRIPTION OF PERMITTED INVESTMENTS
The Funds respective investment objectives and principal investment strategies are described in the Prospectuses. The following information supplements,
and should be read in conjunction with, the Prospectuses. Following are descriptions of the permitted investments and investment practices discussed in the Funds applicable Prospectus. The Funds respective investment subadvisers (each, a
Subadviser and collectively, the Subadvisers) will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with and permitted by the
Funds stated investment policies:
American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs) and
Global
Depositary Receipts (GDRs) (collectively, Depositary Receipts). Depositary Receipts are securities, typically issued by a U.S. financial institution or a non-U.S. financial institution in the case of an EDR or GDR (a
depositary). The institution has ownership interests in a security, or a pool of securities, issued by a foreign issuer and deposited with the depositary.
Depositary Receipts may be available through sponsored or unsponsored facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary. An unsponsored facility may be established by a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. Securities issued by foreign
companies incorporated outside of the United States, but whose
securities are publicly traded in the United States, directly or through sponsored and unsponsored ADRs or GDRs, are not defined as Foreign Securities.
Acquisitional/equipment lines (delayed-draw term loans). Acquisitional/equipment lines (delayed-draw term loans) are credits that may be drawn down for
a given period to purchase specified assets or equipment or to make acquisitions. The issuer pays a fee during the commitment period (a ticking fee). The lines are then repaid over a specified period (the term-out period). Repaid amounts may not be
re-borrowed. To avoid any leveraging concerns, a Fund will segregate or earmark liquid assets with the Funds custodian in an amount sufficient to cover its repurchase obligations.
Asset-Backed Securities. Asset-backed securities are securities backed by non-mortgage assets such as company receivables, truck and auto loans,
leases, and credit card receivables and mortgage-like assets such as home equity loans or manufactured housing.
These securities may be traded
over-the-counter and typically have a short-intermediate maturity structure depending on the pay down characteristics of the underlying financial assets which are passed through to the security holder.
These securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets.
Asset-backed securities may also be debt obligations, which are known as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning these assets and issuing debt obligations.
Asset-backed securities that are
backed by a single type of asset are pooled together by asset type for purposes of calculating a Funds industry concentration levels.
Asset-backed
securities are not issued or guaranteed by the U.S. government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and, for a certain period, by a letter of
credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of
asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. There also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support
payments on those securities.
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Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally
less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the cardholder.
For purposes of calculating Annual Fund Operating Expenses in a Funds Prospectus, direct or indirect fees associated with investing in structured
products such as asset-backed securities are not included.
Bank Obligations. A Fund may invest in obligations issued by banks and other savings
institutions.
Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such
investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks.
These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of
foreign deposits, currency controls, interest limitations, or other governmental restrictions, which might affect the payment of principal or interest on the securities held by a Fund.
Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks.
The Funds may invest in U.S. dollar-denominated obligations of domestic branches
of foreign banks and foreign branches of domestic banks only when a Subadviser believes that the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following:
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Bankers Acceptances. Bankers acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Corporations use bankers acceptances to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. |
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Certificates of Deposit. Certificates of deposit are interest-bearing instruments with a specific maturity. They are issued by banks and savings and
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loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be
considered illiquid. |
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Time Deposits. Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time;
however, it cannot be traded in the secondary market. Time deposits with a withdrawal penalty or that mature in more than seven days are considered to be illiquid securities. |
The Funds are not prohibited from investing in bank obligations issued by clients of the Funds administrator or distributor or their respective parent
or affiliated companies. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. A Fund will not purchase obligations issued by the Adviser, Subadvisers,
or their affiliates.
Below Investment Grade Securities. High yield securities may be subject to greater levels of credit or default risk than
higher-rated securities.
The value of high yield securities can be adversely affected by overall economic conditions, such as an economic downturn or a
period of rising interest rates, and high yield securities may be less liquid and more difficult to sell at an advantageous time or price or to value than higher-rated securities.
In particular, high yield securities are often issued by smaller, less creditworthy or highly leveraged (indebted) issuers, which are generally less able than
more financially stable issuers to make scheduled payments of interest and principal.
Borrowing. As required by the 1940 Act, a Fund must maintain
continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed.
If, at any time, the value of the Funds assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Funds borrowings to the extent necessary to meet this 300% coverage.
Maintenance of this percentage
limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. Investment strategies that either obligate a Fund to purchase securities or require a
Fund to segregate assets are not considered to be borrowing.
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In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary
or emergency purposes in amounts not in excess of 5% of the value of a Funds total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement.
Borrowing may subject the Funds to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Funds may
borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. Borrowing can involve leveraging when securities are purchased with the borrowed money.
Collateralized Debt Obligations. Collateralized Debt Obligations (CDOs) are securitized interests in pools of assets. Assets called
collateral usually comprise loans or debt instruments.
A CDO may be called a collateralized loan obligation (CLO) or collateralized bond
obligation (CBO) if it holds only loans or bonds, respectively. Investors bear the credit risk of the collateral.
Multiple tranches of
securities are issued by the CDO, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according to their degree of credit risk.
If there are defaults or the CDOs collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine
tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches.
Senior and mezzanine tranches are
typically rated, with the former receiving ratings of A to AAA/Aaa and the latter receiving ratings of B to BBB/Baa. The ratings reflect both the credit quality of underlying collateral as well as how much protection a given tranche is afforded by
tranches that are subordinate to it.
Commercial Paper. Commercial paper is the term used to designate unsecured short term promissory notes issued
by corporations and other entities. Maturities on these issues vary from a few to 270 days.
Contingent Capital Securities. Contingent capital securities (sometimes referred to as CoCos) are debt or preferred securities with loss absorption characteristics built into
the terms of the security, for example a mandatory conversion into common stock of the issuer under certain circumstances, such as the issuers capital ratio falling below a certain level.
Since the common stock of the issuer may not pay a dividend, investors in these instruments could experience a reduced income rate, potentially to zero, and
conversion would deepen the subordination of the investor, hence worsening a Funds standing in a bankruptcy. Some CoCos provide for a reduction in the value or principal amount of the security under such circumstances. In addition, most CoCos
are considered to be high yield or junk securities and are therefore subject to the risks of investing in below investment grade securities.
Convertible Bonds. Convertible bonds are bonds, which may be converted, at the option of either the issuer or the holder, into a specified amount of
common stock of the issuer, or in the case of exchangeable bonds, into the common stock of another corporation.
Convertible bonds are generally
subordinate to other publicly held debt of the issuer, and therefore typically have a lower credit rating than nonconvertible debt of the issuer. Convertible bonds generally carry a lower coupon rate than the issuer would otherwise pay at issuance
in exchange for the conversion feature.
In addition to the interest rate risk factors generally associated with fixed income investments, the market risk
of a convertible bond is determined by changes in the credit quality of the issuer and price changes and volatility of the stock into which the bond may be converted. The conversion feature may cause a convertible bond to be significantly more
volatile than other types of fixed income investments.
Convertible bonds for which the value of the conversion feature is deemed worthless are generally
referred to as busted convertibles, and the associated risk more closely approximates that of similar debt without the conversion feature.
Corporate Issues. Corporate issues refer to debt instruments issued by private corporations or other business entities. Notes, bonds, debentures and
commercial paper are the most prevalent types of corporate issues. Corporate issues may also be issued by master limited partnerships and real estate investment trusts (REITs).
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In addition, the credit risk of an issuers debt security may vary based on its priority for repayment. For
example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. The credit risks of corporate issues may vary widely among issuers. A Fund will buy corporate issues
subject to any quality constraints. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may
receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example,
insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Credit Linked Notes. A credit linked note (CLN) is a type of hybrid instrument in which a special purpose entity issues a structured note
(the Note Issuer) that in general is intended to replicate a single bond, a portfolio of bonds, or with respect to the unsecured credit of an issuer (the Reference Instrument).
The purchaser of the CLN (the Note Purchaser) invests a par amount and receives a payment during the term of the CLN that equals a fixed or
floating rate of interest equivalent to a high rated funded asset (such as a bank certificate of deposit) plus an additional premium that relates to taking on the credit risk of the Reference Instrument.
Upon maturity of the CLN, the Note Purchaser will receive a payment equal to:
(i) the original par amount paid to the Note Issuer, if there is neither a designated event of default (an Event of Default) with
respect to the Reference Instrument nor a restructuring of the issuer of the Reference Instrument (a Restructuring Event) or
(ii) the value of the Reference Instrument, if an Event of Default or Restructuring Event has occurred.
Depending upon the terms of the CLN, it is also possible that the Note Purchaser may be required to take physical delivery of the Reference Instrument in the
event of an Event of Default or a Restructuring Event. Most CLNs use a corporate bond (or a portfolio of corporate bonds) as the Reference Instrument(s). However, almost any type of fixed income security (including foreign government securities) or
derivative contract (such as a credit default swap) can be used as the Reference Instrument.
In addition to being subject to the risks relating to the Reference Instrument, the purchaser of a CLN may be
subject to the credit risk of the Note Issuer. Also, there may not be a secondary market for the CLN even though such a market exists for the Reference Instrument.
Custodial Receipts. A custodial receipt represents an indirect interest in a tax-exempt bond that is deposited with a custodian.
For example, custodial receipts may be used to permit the sale of the deposited bond in smaller denominations than would otherwise be permitted. Frequently,
custodial receipts are issued to attach bond insurance or other forms of credit enhancement to the deposited tax-exempt bond.
Note, because a
separate security is not created by the issuance of a receipt, many of the tax advantages bestowed upon holders of the deposited tax-exempt bond are also conferred upon the custodial receipt holder.
Debt Securities. Debt securities (e.g., bonds, notes, debentures) represent money borrowed that obligates the issuer (e.g., a
corporation, municipality, government, government agency) to repay the borrowed amount at maturity (when the obligation is due and payable) and usually to pay the holder interest at specific times.
Derivatives. A derivative is a financial contract whose value adjusts in accordance with the value of one or more underlying assets, reference rates or
indices.
Derivatives (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) may be used to attempt to achieve investment
objectives or to offset certain investment risks.
These positions may be established for hedging, substitution of a position in the underlying asset or
for speculation purposes. Hedging involves making an investment (e.g., in a futures contract) to reduce the risk of adverse price movements in an already existing investment position.
Because leveraging is inherent in derivatives, the use of derivatives also involves the risk of leveraging. Risks involved with hedging and leveraging
activities include:
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The success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets, and movements in interest rates.
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A Fund may experience losses over certain market movements that exceed losses experienced by a fund that does not use derivatives. |
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There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives used to hedge those positions. |
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There may not be a liquid secondary market for derivatives. |
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Trading restrictions or limitations may be imposed by an exchange. |
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Government regulations may restrict trading in derivatives. |
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The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by the creditworthiness of the counterparty and/or using an exchange as an
intermediary. |
Because premiums or totals paid or received on derivatives are small in relation to the market value of the underlying
investments, buying and selling derivatives can be more speculative than investing directly in securities.
In addition, many types of derivatives have
limited investment lives and may expire or necessitate being sold at inopportune times.
The use of derivatives may cause a Fund to recognize higher
amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates.
Leverage may cause a Fund to be more
volatile than if the Fund had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease on the value of a Funds portfolio securities.
To limit leveraging risk, a Fund observes asset segregation requirements to cover fully its future obligations. By setting aside assets equal only to its net
obligations rather than the full notional amount under certain derivative instruments, a Fund will have the ability to employ leverage to a greater extent than if it were required to segregate assets equal to the full notional value of such
derivative instruments.
To the extent a Fund invests in derivatives subject to regulation by the Commodity Futures Trading Commission
(CFTC), such as futures and options on futures, it will do so in accordance with Regulation 4.5 under the Commodity Exchange Act (CEA).
The Trust, on behalf of the Funds, has filed with the National Futures Association a notice claiming an exclusion from the definition of the term
commodity pool operator (CPO) under the CEA and the regulations of the CFTC promulgated thereunder with respect to the Funds operations. The Trust is not subject to registration or regulation as a CPO and does not
intend to operate in a manner that would trigger CFTC regulation.
If a Fund were to operate subject to CFTC regulation, it may incur additional expenses.
Dollar Rolls. Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller contracts to repurchase
substantially similar securities on a specified future date. Any difference between the sale price and the purchase price (plus interest earned on the cash proceeds of the sale) is applied against the past interest income on the securities sold to
arrive at an implied borrowing rate.
Dollar rolls may be renewed prior to cash settlement and initially may involve only a firm commitment agreement by
the Fund to buy a security.
Dollar rolls involve selling securities (e.g., mortgage-backed securities or U.S. Treasury securities) and
simultaneously entering into a commitment to purchase those or similar (same collateral type, coupon and maturity) securities on a specified future date and price. Mortgage dollar rolls and U.S. Treasury rolls are types of dollar rolls.
A Fund foregoes principal and interest paid on the securities during the roll period. A Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase of the securities as well as the interest earned on the cash proceeds of the initial sale.
Dollar rolls involve the risk that the market value of the securities a Fund is obligated to repurchase may decline below the repurchase price or that the
transaction costs may exceed the return earned by a Fund from the transaction.
Dollar rolls also involve risk to a Fund if the other party should default
on its obligation and a Fund is delayed or prevented from completing the transaction. In the event that the buyer of securities under a dollar roll files for bankruptcy or becomes insolvent, a
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Funds use of proceeds of the dollar roll may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce a Funds obligation to repurchase
the securities. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction.
If the broker-dealer to whom a Fund sells the security becomes insolvent, the Funds right to repurchase the security may be restricted. Other risks
involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund
originally held.
To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Funds custodian in an amount
sufficient to cover its repurchase obligations. A Fund may also cover the transaction by means of an offsetting transaction or by other means permitted under the 1940 Act or the rules and Securities and Exchange Commission (SEC)
interpretations thereunder.
Emerging Markets. Emerging market countries are countries that the World Bank or the United Nations considers to be
emerging or developing. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in
emerging market countries may be more precarious than in other countries.
As a result, there will tend to be an increased risk of price volatility
associated with investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future.
Equipment Trust Certificates (ETCs). ETCs are issued by a trust formed to finance large purchases of equipment, such as airplanes, at
favorable interest rates. Legal title on such equipment is held by a trustee. The trustee leases the equipment and sells ETCs at a small discount to the purchase price of the equipment. The lease payments are then used to pay principal and interest
to the ETC holders.
Equity Securities. Equity securities represent ownership interests in a company and consist of common stocks, preferred
stocks, warrants to acquire common stock, and securities convertible into common stock.
Investments in equity securities in general are subject to market risks that may cause their prices to fluctuate
over time. Fluctuations in the value of equity securities in which a Fund invests will cause the net asset value of a Fund to fluctuate. The Funds purchase equity securities traded in the U.S. or foreign countries on securities exchanges or the
over-the-counter market.
Equity securities are described in more detail below:
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Commodity Equity Securities. Commodity equity securities represent equity securities of companies that principally engage in the energy, metals, and agriculture group of industries. |
These companies may include, for example, integrated oil companies; companies engaged in the exploration and production of oil and gas;
companies primarily involved in the production and mining of coal, related products, and other consumable fuels; fertilizer and agricultural chemicals companies; producers of aluminum and related products; companies engaged in producing or
extracting metals and minerals; producers of gold, precious metals and minerals, and related products; producers of iron and steel; manufacturers of timber and related wood and paper products; and producers of agricultural products, including crop
growers, owners of plantations, and companies that produce and process foods.
Market conditions, interest rates, and economic, regulatory,
or financial developments could significantly affect a group of related industries, and the securities of companies in that group of industries could react similarly to these or other developments. In addition, from time to time, a small number of
companies may represent a large portion of a group of related industries as a whole, and these companies can be sensitive to adverse economic, regulatory, or financial developments.
The commodities industries can be significantly affected by the level and volatility of commodity prices; world events including international
monetary and political developments; import controls and worldwide competition; exploration and production spending; and tax and other government regulations and economic conditions.
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Common Stock. Common stock represents an equity or ownership interest in an issuer. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock take
precedence over the claims of those who own common stock. |
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Preferred Stock. Preferred stock represents 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 an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. |
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Convertible Securities. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the
underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a
specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a
third-party. |
Convertible securities generally have less potential for gain or loss than common stocks. Convertible
securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities.
Because of this higher yield, convertible securities generally sell at a price above their conversion value, which is the current
market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in the value of the underlying common stocks and interest rates.
When the underlying common stocks decline in value, convertible securities will tend not to decline to the same extent because of the
interest or dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to
the same extent as securities convertible at the option of the holder.
When the underlying common stocks rise in value, the value of
convertible securities may also be expected to increase. At the same time, however, the difference between the market value of
convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying
common stocks.
Because convertible securities may also be interest rate sensitive, their value may increase as interest rates fall and
decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities.
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Small and Mid-Cap Issuers. Generally, capitalization or market capitalization is a measure of a companys size (the price of a companys stock multiplied by the number of shares outstanding).
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Investing in equity securities of small and mid-cap companies often involves greater risk than is customarily associated
with investments in larger capitalization companies.
This increased risk may be due to the greater business risks of smaller size, limited
markets and financial resources, narrow product lines and frequent lack of depth of management. The securities of smaller companies are often traded in the over-the-counter market and even if listed on a national securities exchange may not be
traded in volumes typical for that exchange.
Consequently, the securities of smaller companies are less likely to be liquid, may have
limited market stability, and may be subject to more abrupt or erratic market movements than securities of larger, more established growth companies or the market averages in general.
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Equity-Linked Securities. A Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based
upon the value of, equity securities upon certain terms and conditions. |
The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall.
Trading prices of the underlying common stock will be influenced by the issuers operational results, by complex, interrelated political,
economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market
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segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow,
and high volume trades may be possible only with discounting.
In addition to the foregoing risks, the return on such securities depends on
the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third-party investment banker or other lender. The creditworthiness of such third-party issuer equity-linked securities may, and often
does, exceed the creditworthiness of the issuer of the underlying securities.
The advantage of using equity-linked securities over
traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of
the underlying equity securities.
Another advantage of using equity-linked securities is that they may be used for hedging to reduce the
risk of investing in the generally more volatile underlying equity securities.
The following are three examples of equity-linked securities. A Fund may
invest in the securities described below or other similar equity-linked securities.
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PERCS. Preferred Equity Redemption Cumulative Stock (PERCS) technically is preferred stock with some characteristics of common stock. |
PERCS are mandatorily convertible into common stock after a period of time, usually three years, during which the investors capital gains
are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuers common stock is trading at a
specified price level or better. The redemption price starts at the beginning of the PERCS duration period at a price that is above the cap by the amount of the extra dividends the PERCS holder is entitled to receive relative to the common stock
over the duration of the PERCS and declines to the cap price shortly before maturity of the PERCS.
In exchange for having the cap on
capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, the Fund may be compensated with a substantially higher dividend yield than that on the underlying common stock.
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ELKS. Equity-Linked Securities (ELKS) differ from ordinary debt securities, in that the principal amount received at maturity is not fixed but is based on the price of the issuers common
stock. |
ELKS are debt securities commonly issued in fully registered form for a term of three years under an indenture trust.
At maturity, the holder of ELKS will be entitled to receive a principal amount equal to the lesser of a cap amount, commonly in the range of 30% to 55% greater than the current price of the issuers common stock, or the average closing price
per share of the issuers common stock, subject to adjustment as a result of certain dilution events, for the 10 trading days immediately prior to maturity.
Unlike PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS usually bear interest six times during the three-year term at
a substantially higher rate than the dividend yield on the underlying common stock. In exchange for having the cap on the return that might have been received as capital gains on the underlying common stock, the Fund may be compensated with the
higher yield, contingent on how well the underlying common stock does.
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LYONS. Liquid Yield Option Notes (LYONs) differ from ordinary debt securities, in that the amount received prior to maturity is not fixed but is based on the price of the issuers common
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LYONs are zero-coupon notes that sell at a large discount from face value. For an investment in LYONs, a Fund will
not receive any interest payments until the notes mature, typically in 15 to 20 years, when the notes are redeemed at face, or par value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of the same maturity, due in part to the fact that the LYONs are
convertible into common stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by
the issuer at any time after an initial period or if the issuers common stock is trading at a specified price level or better, or, at the option of the holder, upon certain fixed dates.
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The redemption price typically is the purchase price of the LYONs plus accrued original issue
discount to the date of redemption, which amounts to the lower-than-market yield.
A Fund will receive only the lower-than-market yield
unless the underlying common stock increases in value at a substantial rate. LYONs are attractive to investors, like a Fund, when it appears that they will increase in value due to the rise in value of the underlying common stock.
Eurodollar and Yankee Dollar Obligations. Eurodollar obligations are U.S. dollar denominated obligations issued outside the United States by U.S. and
non-U.S. corporations or other entities.
Yankee dollar obligations are U.S. dollar denominated obligations issued in the United States by non-U.S.
corporations or other entities.
Eurodollar and Yankee Dollar obligations are subject to the same risks that pertain to the domestic issues, notably
credit risk, market risk and liquidity risk.
Additionally, Eurodollar and Yankee Dollar obligations are subject to certain sovereign risks. One such risk
is the possibility that a sovereign country might prevent capital from flowing across their borders.
Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial markets and institutions; the imposition of foreign withholding taxes; and the expropriation or nationalization or foreign issuers.
Exchange-Traded Funds (ETFs). ETFs are investment companies whose shares are bought and sold on a securities exchange.
An ETF holds a portfolio of securities designed to track a particular market segment or index. Some examples of ETFs are SPDRs®, DIAMONDSSM, NASDAQ 100 Index Tracking StockSM (QQQsSM), iShares® and VIPERs®.
A Fund could purchase an ETF to temporarily gain exposure to a portion of the U.S. or foreign market. The risks of owning an ETF generally reflect the risks
of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile than the underlying portfolio of securities and ETFs have management fees that increase their costs versus
the costs of owning the underlying securities directly. (See also Investment Company Shares below).
Fixed Income Securities. Fixed income securities are debt obligations issued by corporations,
municipalities and other borrowers.
Coupons may be fixed or adjustable, based on a pre-set formula.
The market value of fixed income investments may change in response to interest rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Moreover, while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized
agencies in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal will also affect the value of these investments. Changes in the value of portfolio securities will not affect cash income
derived from these securities but will affect a Funds net asset value.
Floating Rate Instruments. Floating rate instruments have a rate of
interest that is set as a specific percentage of a designated base rate (such as the London Interbank Offered Rate or LIBOR).
Such
obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying credit or of the bank, as the case may be, must, in the Subadvisers opinion be equivalent to the
long-term bond or commercial paper ratings stated in the prospectus.
The Subadviser will monitor the earning power, cash flow and liquidity ratios of the
issuers of such instruments and the ability of an issuer of a demand instrument to pay principal and interest on demand.
Floating Rate Loans.
Investments in floating rate loans are subject to interest rate risk although the risk is less because the interest rate of the loan adjusts periodically. Investments in floating rate loans are also subject to credit risk.
Many floating rate loans are rated below investment grade or are unrated. Therefore, a Fund relies heavily on the analytical ability of the Funds
Subadviser. Many floating rate loans share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured.
Floating rate loans are often subject to restrictions on resale which can result in reduced liquidity.
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The risk is greater for the Seix Floating Rate High Income Fund, because of its concentration in these types of
instruments.
Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding
security.
Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be collateralized
fully which may cause the loan to decline significantly in value.
One lending institution acting as agent for all of the lenders will generally be
required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral.
Investing in certain types of
floating rate loans, such as revolving credit facilities and unfunded loans, creates a future obligation for a Fund. To avoid any leveraging concerns, a Fund will segregate or earmark liquid assets with the Funds custodian in amounts
sufficient to fully cover any future obligations.
Seix Investment Advisors LLC (Seix) currently serves as collateral manager to six
collateralized loan obligation (CLO) funds that invest in bank loans. The trustees and custodians of the CLO funds are not affiliated entities of the Adviser or Seix.
In addition to the CLO funds, the Seix serves as Subadviser to an unaffiliated registered fund and as investment manager to two unregistered funds that invest
in bank loans. The custodian and adviser for the unaffiliated registered fund are not affiliated entities of the Adviser or Seix.
The custodians and
administrators for the two unregistered funds are not affiliated entities of the Adviser or Seix.
There are no trustees for the unregistered funds. Only
the offshore entities that are a part of one of the unregistered funds have independent boards of directors that are not affiliated entities of the Adviser or Seix.
As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other
adviser and non-adviser contracted businesses over a Fund.
Seix has created and implemented additional policies and procedures designed to protect
shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate
in the same or similar investments or receive equal or better individual investment allocations at any given time.
Foreign Currency. A Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs.
A Fund may conduct foreign currency exchange transactions either on a spot (cash) basis at the spot rate prevailing in the foreign exchange market or by
entering into a foreign currency forward contract (forward contract).
A forward contract involves an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any fixed number of days (usually less than one year) from the date of the contract agreed upon by the parties, at a price set at the time of the contract.
Forward contracts are considered derivativesfinancial instruments whose performance is derived, at least in part, from the performance of
another asset (such as a security, currency or an index of securities).
A forward contract locks in the exchange rate between the currency it
will deliver and the currency it will receive at the maturity of the contract. A Fund may enter into forward contracts to hedge against risks arising from securities the Fund owns or anticipates purchasing, or the U.S. dollar value of interest and
dividends paid on those securities. In addition, the Fund may enter into forward contracts to gain exposure to foreign markets.
At or before settlement
of a forward contract, a Fund may either deliver the currency or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract. If a Fund makes delivery of the foreign currency, it may be required to obtain the
currency through the conversion of assets of a Fund into the currency. A Fund may close out a forward contract by purchasing or selling an offsetting contract, in which case it will realize a gain or a loss.
A Fund may invest in a combination of forward contracts and U.S. dollar-denominated instruments in an attempt to obtain an investment result that is
substantially the same as a direct investment in a foreign currency-denominated instrument. This investment technique creates a synthetic position in the particular foreign-currency instrument whose performance the manager is trying to
duplicate.
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For example, the combination of U.S. dollar-denominated money market instruments with long forward
contracts creates a position economically equivalent to a money market instrument denominated in the foreign currency itself. Such combined positions are sometimes necessary when the money market in a particular foreign currency is small or
relatively illiquid.
For hedging purposes, a Fund may invest in forward contracts to hedge either specific transactions (transaction hedging) or
portfolio positions (position hedging).
Transaction hedging is the purchase or sale of forward contracts with respect to specific receivables or payables
of a Fund in connection with the purchase and sale of portfolio securities. Position hedging is the sale of a forward contract on a particular currency with respect to portfolio positions denominated or quoted in that currency.
A Fund may use forward contracts for position hedging if consistent with its policy of trying to expose its net assets to foreign currencies. A Fund is not
required to enter into forward contracts for hedging purposes and it is possible that a Fund may not be able to hedge against a currency. It also is possible, under certain circumstances, that a Fund may have to limit its currency transactions to
qualify as a regulated investment company (RIC) under the U.S. Internal Revenue Code of 1986, as amended (the Internal Revenue Code).
Each Fund currently does not intend to enter into a forward currency contract with a term of more than one year, or to engage in position hedging with respect
to the currency of a particular country to more than the aggregate market value (at the time the hedging transaction is entered into) of its portfolio securities denominated in (or quoted in or currently convertible into or directly related through
the use of forward currency contracts in conjunction with money market instruments to) that particular currency.
At or before the maturity of a forward
currency contract, a Fund may either sell a portfolio security and make delivery of the currency, or retain the security and terminate its contractual obligation to deliver the currency by buying an offsetting contract obligating it to
buy, on the same maturity date, the same amount of the currency. If a Fund engages in an offsetting transaction, it may later enter into a new forward currency contract to sell the currency.
If a Fund engages in an offsetting transaction, it will incur a gain or loss to the extent that there has been movement in forward currency contract prices.
If forward prices go down during the period between the date a Fund enters into a forward currency contract
for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to buy.
If forward prices go up, a Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to sell.
A Fund may also enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign currency approximating the value of some or all of the Funds securities denominated in the foreign currency. A Fund may realize a gain or loss from currency
transactions.
When a Fund purchases or sells a forward contract, under applicable U.S. federal securities laws, rules, and interpretations thereof and
applicable exchange rules, a Fund must set aside (referred to sometimes as asset segregation) liquid assets, or engage in other measures to cover open positions with respect to such transactions.
For example, with respect to forward contracts that are not contractually required to cash-settle, a Fund must cover its open positions by setting
aside liquid assets equal to the contracts full, notional value.
With respect to forward contracts that are contractually required to
cash-settle, a Fund may set aside or deliver liquid assets, including cash, in an amount equal to a Funds daily marked-to-market (net) obligation rather than the notional value.
By setting aside or delivering assets equal to only its net obligation under cash-settled forward contracts, a Fund will have the ability to
employ leverage to a greater extent than if a Fund were required to segregate assets equal to the full notional value of such contracts.
A Fund may
otherwise cover the transaction by means of an offsetting transaction or by other means permitted by the 1940 Act or the rules and SEC interpretations thereunder.
In as much as these transactions are entered into for hedging purposes or are offset by segregating liquid assets, as permitted by applicable law, the Funds
and their Subadvisers believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Funds borrowing restrictions.
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The Funds reserve the right to modify their asset segregation policies in the future.
Foreign Securities. Foreign securities may include U.S. dollar-denominated obligations or securities of foreign issuers denominated in other
currencies.
Possible investments include obligations of foreign corporations and other entities, obligations of foreign branches of U.S. banks and of
foreign banks, including, without limitation:
European Certificates of Deposit
European Time Deposits
European
Bankers Acceptances
Canadian Time Deposits
Europaper and Yankee Certificates of Deposit; and
investments in Canadian Commercial Paper and foreign securities.
These instruments have investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers.
These risks include future adverse political and economic developments, the possible imposition of withholding taxes on interest or other income, possible
seizure, nationalization, or expropriation of foreign deposits, the possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest on such obligations.
These investments may also entail higher custodial
fees and sales commissions than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting treatment and engage
in business practices different from those respecting domestic issuers of similar securities or obligations.
Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks.
Securities issued by foreign
companies incorporated outside of the United States, but whose securities are publicly traded in the United States, directly or through sponsored and unsponsored ADRs or GDRs, are not defined as Foreign Securities.
In making investment decisions for the Funds, a Subadviser evaluates the risks associated with investing Fund assets in a particular country, including risks
stemming from a countrys financial
infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the
countrys laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians
in that country, as well as risks from political acts of foreign governments (country risks).
Of course, a Subadviser cannot assure that the
Fund will not suffer losses resulting from investing in foreign countries.
Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and
procedures to properly safeguard Fund assets.
By investing in foreign securities, the Funds attempt to take advantage of differences between both
economic trends and the performance of securities markets in the various countries, regions and geographic areas as prescribed by each Funds investment objective and policies.
During certain periods the investment return on securities in some or all countries may exceed the return on similar investments in the United States, while
at other times the investment return may be less than that on similar U.S. securities.
The international investments of a Fund may reduce the effect that
events in any one country or geographic area will have on its investment holdings. Of course, negative movement by a Funds investments in one foreign market represented in its portfolio may offset potential gains from the Funds
investments in another countrys markets.
Emerging countries are all countries that are considered to be developing or emerging countries by the
World Bank or the International Finance Corporation, as well as countries classified by the United Nations or otherwise regarded by the international financial community as developing.
Foreign Sovereign Debt Securities. Investing in fixed and floating rate high yield foreign sovereign debt securities will expose a Fund to the direct
or indirect consequences of political, social or economic changes in countries that issue the securities.
The ability of a foreign sovereign obligor to
make timely payments on its external debt obligations will also be strongly influenced by the obligors balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and
the extent of its foreign reserves.
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A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these commodities or imports.
To the extent that a country receives payment for
its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected.
If a foreign
sovereign obligor cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks and multilateral organizations, and inflows of
foreign investment.
The commitment on the part of these foreign governments, multilateral organizations and others to make such disbursements may be
conditioned on the governments implementation of economic reforms and/or economic performance and the timely service of its obligations.
Failure to
implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties commitments to lend funds, which may further impair the obligors ability or
willingness to timely service its debts.
Forward Roll Transactions. To enhance current income, each Fund may enter into forward roll transactions
with respect to mortgage-related securities.
In a forward roll transaction, the Fund sells a mortgage-related security to a financial institution, such
as a bank or broker-dealer, and simultaneously agrees to repurchase a similar security from the institution at a later date at an agreed upon price.
The
securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different pre-payment histories than those sold.
During the period between the sale and purchase, the Fund will not be entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale typically will be invested in short-term instruments, particularly repurchase agreements, and the income from these investments,
together with any additional fee income received on the sale will be expected to generate income for the Fund exceeding the yield on the securities sold.
Forward roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the purchase price of those securities.
The Fund will segregate permissible liquid assets at least equal to the amount of the repurchase price (including accrued interest).
Futures and
Options on Futures. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price.
An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise
price during the term of the option.
A Fund will reduce the risk that it will be unable to close out a futures contract by only entering into futures
contracts that are traded on a national futures exchange regulated by the CFTC.
A Fund may use futures contracts and related options for bona fide
hedging; attempting to offset changes in the value of securities held or expected to be acquired or be disposed of; attempting to minimize fluctuations in foreign currencies; attempting to gain exposure to a particular market, index or
instrument; or other risk management purposes.
An index futures contract is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the
securities comprising the index is made; generally contracts are closed out prior to the expiration date of the contract.
When a Fund purchases or sells
a futures contract, under applicable federal securities laws, rules, and interpretations thereof and applicable exchange rules, a Fund must set aside (referred to sometimes as asset segregation) liquid assets, or engage in
other measures to cover open positions with respect to such transactions.
For example, with respect to futures contracts that are not
contractually required to cash-settle, a Fund must cover its open positions by setting aside liquid assets equal to the contracts full, notional value.
With respect to futures contracts that are contractually required to cash-settle, a Fund may set aside or deliver liquid assets, including cash,
in an amount equal to a Funds daily marked-to-market (net) obligation rather than the notional value.
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By setting aside or delivering assets equal to only its net obligation under cash-settled futures
contracts, a Fund will have the ability to employ leverage to a greater extent than if a Fund were required to segregate assets equal to the full notional value of such contracts.
The Funds reserve the right to modify their asset segregation policies in the future.
A Fund may also cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an
exercise price) as high as or higher than the price of the futures contract.
In the alternative, if the strike price of the put is less than the price of
the futures contract, the Fund will maintain, in a segregated account, cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract.
A Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking
positions in instruments with prices, which are expected to move relatively consistently with the futures contract.
A Fund may cover its short position
in a futures contract by taking a long position in the instruments underlying the futures contracts, or by taking positions in instruments with prices, which are expected to move relatively consistently with the futures contract.
A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to
the strike price of the call option.
In the alternative, if the long position in the underlying futures contract is established at a price greater than
the strike price of the written (sold) call, a Fund will maintain, in a segregated account, cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract.
The Fund may also cover its sale of a call option by taking positions in instruments with prices, which are expected to move relatively consistently with the
call option.
A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price
greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price
less than the strike price of the written put, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and
the price of the futures contract.
A Fund may also cover its sale of a put option by taking positions in instruments with prices, which are expected to
move relatively consistently with the put option.
In as much as these transactions are entered into for hedging purposes or are offset by segregating
liquid assets, as permitted by applicable law, the Funds and their Subadvisers believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Funds borrowing
restrictions.
There are significant risks associated with a Funds use of futures contracts and related options, including the following:
(i) the success of a hedging strategy may depend on the Advisers ability to predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates,
(ii) there may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and options on futures,
(iii) there may not be a liquid secondary market
for a futures contract or option,
(iv) trading restrictions or limitations may be imposed by an exchange, and
(v) government regulations may restrict trading in futures contracts and options on futures.
In addition, some strategies reduce a Funds exposure to price fluctuations, while others tend to increase its market exposure.
Guaranteed Investment Contracts (GICs). A GIC is a general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the
issuer.
Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary
market in GICs does not currently exist and GICs are considered to be illiquid investments.
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As such, GICs are generally subject to the same risks as other illiquid securities. (See Illiquid
Securities below.)
Hedging Techniques. Hedging is an investment strategy designed to offset investment risks. Hedging activities include,
among other things, the use of options and futures.
There are risks associated with hedging activities, including:
(i) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in
markets, and movements in interest rates;
(ii) there may be an imperfect or no correlation between the changes in market value of the
securities held by a Fund and the prices of futures and option on futures;
(iii) there may not be a liquid secondary market for a futures
contract or option; and
(iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict
trading in futures contracts and options.
High Yield Securities. High yield securities, commonly referred to as junk bonds, are
debt obligations which are rated below investment grade, i.e., below BBB- by Standard & Poors Financial Services LLC (a subsidiary of The McGraw-Hill Companies) (S&P) and Fitch, Inc. (Fitch), or Baa3
by Moodys Investors Service, Inc. (Moodys), or their unrated equivalents. The risks associated with investing in high yield securities include:
(i) High yield, lower rated bonds may involve greater risk of default than investments in investment grade securities (e.g., securities
rated BBB- or higher by S&P and Fitch or Baa3 or higher by Moodys) due to changes in the issuers creditworthiness.
(ii)
The market for high risk, high yield securities may be thinner and less active, causing market price volatility and limited liquidity in the secondary market. This may limit the ability of a Fund to sell these securities at their fair market values
either to meet redemption requests, or in response to changes in the economy or the financial markets.
(iii) Market prices for high risk,
high yield securities may also be affected by investors perception of the issuers credit quality and the outlook for economic growth. Thus, prices for
high risk, high yield securities may move independently of interest rates and the overall bond market.
(iv) The market for high risk, high yield securities may be adversely affected by legislative and regulatory developments.
Illiquid Securities. Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within seven days) at
approximately the prices at which they are valued.
Because of their illiquid nature, illiquid securities must be priced at fair value as determined in
good faith pursuant to procedures approved by the Trusts Board of Trustees (the Board or the Trustees).
Despite such good
faith efforts to determine fair value prices, a Funds illiquid securities are subject to the risk that the securitys fair value price may differ from the actual price, which the Fund may ultimately realize upon its sale or disposition.
Difficulty in selling illiquid securities may result in a loss or may be costly to a Fund.
Under the supervision of the Board, the Funds Subadviser determines the liquidity of a Funds investments.
In determining the liquidity of a Funds investments, the Funds Subadviser may consider various factors, including:
(i) the frequency and volume of trades and quotations,
(ii) the number of dealers and prospective purchasers in the marketplace,
(iii) dealer undertakings to make a market, and
(iv) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other
requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights
and obligations of the security).
A Fund is not permitted to invest more than 15% of its net assets in illiquid securities.
Initial Public Offerings. A Fund may invest in a companys securities at the time of a companys initial public offering (IPO).
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Companies involved in IPOs are often smaller and have a limited operating history, which involves a greater risk
that the value of their securities will be impaired following the IPO. In addition, market psychology prevailing at the time of an IPO can have a substantial and unpredictable effect on the price of an IPO security, causing the price of a
companys securities to be particularly volatile at the time of its IPO and for a period thereafter.
As a result, a Funds Adviser or
Subadviser might decide to sell an IPO security more quickly than it would otherwise, which may result in significant gains or losses to the Fund.
Inverse Floaters. Municipal securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an
index is known as an Inverse Floater.
A Funds investment in Inverse Floaters may involve greater risk than an investment in a fixed
rate bond.
Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the Inverse Floater, the
value and income of an inverse floater is generally more volatile than that of a fixed rate bond.
Inverse Floaters have varying degrees of liquidity, and
the market for these securities is relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when interest rates decline.
Investment Company Shares. A Fund may invest in
the securities of other investment companies (mutual funds) to the extent that such an investment would be consistent with the requirements of the 1940 Act and the Funds investment objectives.
Notwithstanding these restrictions, each Fund may invest any amount, pursuant to Rule 12d1-1 of the 1940 Act, in affiliated or unaffiliated investment
companies that hold themselves out as money market funds and which operate in accordance with Rule 2a-7 of the 1940 Act.
A Fund will
indirectly bear its proportionate share of any management fees paid by an investment company in which it invests in addition to the advisory fee paid by the Fund.
Under Section 12(d)(1) of the 1940 Act, a Fund may only invest up to 5% of its total assets in the securities of any one investment company, but may not
own more than 3% of the outstanding voting stock of any one investment company or invest more than 10% of
its total assets in the securities of other investment companies.
However, a Fund may exceed these
limits if (i) the ETF or the Fund has received an order for exemptive relief from the 3%, 5%, or 10% limitations from the SEC that is applicable to the Fund; and (ii) the ETF and the Fund take appropriate steps to comply with any
conditions in such order.
For hedging or other purposes, each Fund may invest in investment companies that seek to track the composition and/or
performance of specific indexes or portions of specific indexes. Certain of these investment companies, known as ETFs, are traded on a securities exchange. (See Exchange Traded Funds above.)
The market prices of index-based investments will fluctuate in accordance with changes in the underlying portfolio securities of the investment company and
also due to supply and demand of the investment companys shares on the exchange upon which the shares are traded.
Index-based investments may not
replicate or otherwise match the composition or performance of their specified index due to transaction costs, among other things.
Pursuant to orders
issued by the SEC to iShares® Funds, The Select Sector SPDR Trust, streetTRACKS Series Trust, streetTRACKS Index Shares Fund and Vanguard Trust and procedures approved by the Board, each Fund
may invest in iShares® Funds, The Select Sector SPDR Trust, streetTRACKS Series Trust, streetTRACKS Index Shares Fund and Vanguard Trust in excess of the 5% and 10% limits described above,
provided that the Fund has described ETF investments in its prospectus and otherwise complies with the conditions of the SEC, as may be amended, and any other applicable investment limitations.
iShares® is a registered trademark of BlackRock Institutional Trust Company, N.A.
(BlackRock). Neither BlackRock, The Select Sector SPDR Trust, streetTRACKS Series Trust, streetTRACKS Index Shares Fund nor the iShares® Funds makes any representations regarding
the advisability of investing in the Funds.
Investment Grade Obligations. Investment grade obligations are fixed income obligations rated by one
or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by S&P or Fitch, or Aaa, Aa, A or Baa by Moodys or determined to be of equivalent quality by the
Subadviser).
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Securities rated BBB or Baa represents the lowest of four levels of investment grade obligations and are
regarded as borderline between sound obligations and those in which the speculative element begins to predominate.
Ratings assigned to fixed income
securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular fixed income obligation.
A Fund may hold unrated securities if its Subadviser considers the risks involved in owning that security to be equivalent to the risks involved in holding an
investment grade security. Moreover, market risk also will affect the prices of even the highest rated fixed income obligation so that their prices may rise or fall even if the issuers capacity to repay its obligation remains unchanged.
Large-Capitalization Companies. Large-cap stocks can perform differently from other segments of the equity market or the equity market as a whole.
Companies with large-capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies
with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts.
Accordingly the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies under certain market conditions or during
certain periods.
Leveraged Buyouts. A Fund may invest in leveraged buyout limited partnerships and funds that, in turn, invest in leveraged buyout
transactions (LBOs).
An LBO, generally, is an acquisition of an existing business by a newly formed corporation financed largely with debt
assumed by such newly formed corporation to be later repaid with funds generated from the acquired company.
Equity investments in LBOs may appreciate
substantially in value given only modest growth in the earnings or cash flow of the acquired business. Investments in LBO limited partnerships and funds, however, present a number of risks. Investments in LBO limited partnerships and funds will
normally lack liquidity and may be subject to intense
competition from other LBO limited partnerships and funds.
Additionally, if the cash flow of the
acquired company is insufficient to service the debt assumed in the LBO, the LBO limited partnership or fund could lose all or part of its investment in such acquired company.
Master Limited Partnerships. Master limited partnerships (MLPs) are limited partnerships in which ownership units are publicly traded.
MLPs often own or own interests in properties or businesses that are related to oil and gas industries, including pipelines, although MLPs may invest in other
types of industries, or in credit-related investments.
Generally, an MLP is operated under the supervision of one or more managing general partners.
Limited partners (like a Fund that invests in an MLP) are not involved in the day-to-day management of the partnership. A Fund also may invest in companies who serve (or whose affiliates serve) as the general partner of an MLP.
Investments in MLPs are generally subject to many of the risks that apply to partnerships. For example:
(i) holders of the units of MLPs may have limited control and limited voting rights on matters affecting the partnership.
(ii) there may be fewer corporate protections afforded investors in an MLP than investors in a corporation.
(iii) conflicts of interest may exist among unit holders, subordinated unit holders and the general partner of an MLP, including those arising
from incentive distribution payments.
(iv) MLPs that concentrate in a particular industry or region are subject to risks associated with
such industry or region.
(v) MLPs holding credit-related investments are subject to interest rate risk and the risk of default on payment
obligations by debt issuers.
(vi) Investments held by MLPs may be illiquid.
(vii) MLP units may trade infrequently and in limited volume, and they may be subject to more abrupt or erratic price movements than securities
of larger or more broadly based companies.
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The Funds may also hold investments in limited liability companies (LLCs) that have many of the same
characteristics and are subject to many of the same risks as master limited partnerships.
Distributions attributable to gain from the sale of MLP
securities may be taxed as ordinary income.
Medium-Term Notes. Medium-term notes are periodically or continuously offered corporate or agency debt
that differs from traditionally underwritten corporate bonds only in the process by which they are issued.
Money Market Securities. Money market
securities include:
(i) short-term U.S. government securities;
(ii) custodial receipts evidencing separately traded interest and principal components of securities issued by the U.S. Treasury;
(iii) commercial paper rated in the highest short-term rating category by a nationally recognized statistical ratings organization
(NRSRO), such as S&P or Moodys, or determined by the Subadviser to be of comparable quality at the time of purchase;
(iv) short-term bank obligations (certificates of deposit, time deposits and bankers acceptances) of U.S. commercial banks with assets of
at least $1 billion as of the end of their most recent fiscal year; and
(v) repurchase agreements involving such securities.
Each of these money market securities are described in this SAI. For a description of ratings, see Appendix A to this SAI.
Mortgage-Backed Securities. A Fund may invest in mortgage-backed and asset-backed securities.
Mortgage-backed securities (MBS) are securities which represent ownership interests in, or are debt obligations secured entirely or primarily by,
pools of residential or commercial and reverse mortgage loans or other asset-backed securities (the Underlying Assets).
Such
securities may be issued by U.S. government agencies and government-sponsored entities, such as Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA or Fannie Mae), Federal
Home Loan
Mortgage Corporation (FHLMC or Freddie Mac), commercial banks, savings and loan associations, mortgage banks, or by issuers that are affiliates of or sponsored by such
entities.
The payment of interest and principal on mortgage-backed obligations issued by these entities may be guaranteed by the full faith and credit of
the U.S. government (in the case of GNMA), or may be guaranteed by the issuer (in the case of FNMA and FHLMC). However, these guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates.
Obligations of GNMA are backed by the full faith and credit of the U.S. government. Obligations of Fannie Mae and Freddie Mac are not backed by the full
faith and credit of the U.S. government, but are considered to be of high quality since such entities are considered to be instrumentalities of the United States.
In the case of mortgage-backed securities representing ownership interests in the Underlying Assets, the principal and interest payments on the underlying
mortgage loans are distributed monthly to the holders of the mortgage-backed securities.
In the case of mortgage-backed securities representing debt
obligations secured by the Underlying Assets, the principal and interest payments on the underlying mortgage loans, and any reinvestment income thereon, provide the funds to pay debt service on such mortgage-backed securities.
Certain mortgage-backed securities represent an undivided fractional interest in the entirety of the Underlying Assets (or in a substantial portion of the
Underlying Assets, with additional interests junior to that of the mortgage-backed security), and thus have payment terms that closely resemble the payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple classes. Each class of such multi-class mortgage-backed securities, often referred to as a
tranche, is issued at a specific fixed or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayment on
the Underlying Assets may cause the MBS to be retired substantially earlier than their stated maturities or final distribution dates.
Interest is paid or
accrues on all or most classes of the MBS on a periodic basis, typically monthly or quarterly.
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The principal of and interest on the Underlying Assets may be allocated among the several classes of a series of
MBS in many different ways.
In a relatively common structure, payments of principal (including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of MBS in the order of their respective stated maturities so that no payment of principal will be made on any class of MBS until all other classes having an earlier stated maturity have been paid in full.
An important feature of MBS is that the principal amount is generally subject to partial or total prepayment at any time because the Underlying Assets
(i.e., loans) generally may be prepaid at any time.
The occurrence of prepayments is a function of several factors, including interest rates,
general economic conditions, the location of the mortgaged property, the age of the mortgage or other underlying obligations, and other social and demographic conditions. Because prepayment rates of individual mortgage pools vary widely, the average
life of a particular pool is difficult to predict.
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the
equity in his or her home into cash.
The equity built up over years of home mortgage payments can be paid to the borrower. But unlike a traditional home
equity loan or second mortgage, no repayment is required until the borrower no longer uses the home as his or her principal residence.
A reverse mortgage
derives its name from the pattern of payments that is typically the reverse of a traditional mortgage loan used to buy a home.
The three basic types of
reverse mortgages are single purpose reverse mortgages, Federal Housing Administration (FHA) insured reverse mortgages and proprietary reverse mortgages.
Single purpose reverse mortgages are offered only by some state and local government agencies and nonprofit organizations.
FHA insured reverse mortgages, also known as Home Equity Conversion Mortgages, are the oldest and most popular reverse mortgage product and are insured by the
federal government through FHA, a part of the U.S. Department of Housing and Urban Development.
Proprietary reverse mortgages are private loans that are typically backed by the companies that originate them.
The rate of principal payments for a reverse mortgage-backed security depends on a variety of economic, geographic, social, and other factors, including
interest rates and borrower mortality.
Reverse mortgage-backed securities may respond differently to economic, geographic, social, and other factors than
other mortgage-backed securities.
Private pass-through securities are mortgage-backed securities issued by a non-governmental agency, such as a trust.
While they are generally structured with one or more types of credit enhancement, private pass-through securities generally lack a guarantee by an entity having the credit status of a governmental agency or instrumentality.
The two principal types of private mortgage-backed securities are collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs).
CMOs are collateralized mortgage obligations, which are collateralized by mortgage pass-through securities.
Cash flows from the mortgage pass-through securities are allocated to various tranches (a tranche is essentially a separate security) in a
predetermined, specified order. Each tranche has a stated maturitythe latest date by which the tranche can be completely repaid, assuming no prepaymentsand has an average lifethe average of the time to receipt of a principal
payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt is amortized (repaid a
portion at a time), rather than being paid off entirely at maturity, as would be the case in a straight debt instrument.
Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
REMICs are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property.
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REMICs are similar to CMOs in that they issue multiple classes of securities and are rated in one of the two
highest categories by S&P or Moodys. Investors may purchase beneficial interests in REMICs, which are known as regular interests, or residual interests.
Guaranteed REMIC pass-through certificates (REMIC Certificates) issued by Fannie Mae or Freddie Mac represent beneficial ownership interests in a
REMIC trust consisting principally of mortgage loans or Fannie Mae, Freddie Mac or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC Certificates are backed by the full faith and credit of the U.S. government.
Parallel pay CMOs and REMICs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are
taken into account in calculating the stated maturity date or final distribution date of each class, which must be retired by its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs (PAC Bonds) generally require payments of a specified amount of principal on each payment date. PAC Bonds are
always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes.
Stripped mortgage-backed securities are securities that are created when a U.S. government agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them as individual securities. The holder of the principal only security (PO) receives the principal payments made by the underlying mortgage-backed security, while
the holder of the interest only security (IO) receives interest payments from the same underlying security.
The prices of
stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have
the opposite effect.
Delegated Underwriting and Servicing (DUS) bonds are pools of multifamily housing loans issued by Fannie Mae. DUS bonds
have significant call protection in the form of prepayment penalties.
The most common structures at the time of issuance are seven-year balloons with 6.5
years of prepayment
protection and 10-year balloons with 9.5 years of prepayment protection.
Borrowers must pay a
prepayment penalty to prepay the loan during the specified prepayment protection period. In the event of default there is no penalty passed on to the investor.
Municipal Forwards. Municipal forwards are forward commitments for the purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but, normally less than one year after the commitment date.
Municipal forwards are normally used as
a refunding mechanism for bonds that may only be redeemed on a designated future date. See When-Issued Securities and Forward Commitment Securities for more information.
Municipal Lease Obligations. Municipal lease obligations are securities issued by state and local governments and authorities to finance the
acquisition of equipment and facilities where the lease obligation is secured by the leased property and subject to renewal or termination by the issuer. They may take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above.
Municipal Securities. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds.
General obligation bonds are
backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility (for example, tolls from a bridge).
Certificates of participation represent an interest in an underlying obligation or commitment, such as an obligation issued in connection with a leasing
arrangement.
The payment of principal and interest on private activity and industrial development bonds generally is totally dependent on the ability of
a facilitys user to meet its financial obligations and the pledge, if any, of real and personal property as security for the payment.
Municipal
notes consist of general obligation notes, tax anticipation notes (notes sold to finance working capital needs of the issuer in anticipation of receiving taxes on a future date), revenue anticipation notes (notes sold to provide needed cash prior to
receipt of expected non-tax revenues from a specific source), bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes.
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A Funds investments in any of the notes described above will be limited to those obligations:
(i) where both principal and interest are backed by the full faith and credit of the United States,
(ii) which are rated MIG-2 or V-MIG-2 at the time of investment by Moodys,
(iii) which are rated SP-2 at the time of investment by S&P, or
(iv) which, if not rated by S&P or Moodys, are in the Subadvisers judgment, of at least comparable quality to MIG-2, VMIG-2 or
SP-2.
From time to time, a municipality may refund a bond that it has already issued prior to the original bonds call date by issuing a second
bond, the proceeds of which are used to purchase securities. The securities are placed in an escrow account pursuant to an agreement between the municipality and an independent escrow agent. The principal and interest payments on the securities are
then used to pay off the original bondholders. For purposes of diversification and industry concentration, pre-refunded bonds will be treated as governmental issues.
Municipal bonds generally must be rated investment grade by at least one national securities rating agency or, if not rated, must be deemed by the Subadviser
to essentially have characteristics similar to those of bonds having the above rating. Bonds downgraded to below investment grade may continue to be held at the discretion of a Funds Subadviser.
A Fund may purchase industrial development and pollution control bonds if the interest paid is exempt from U.S. federal income tax. These bonds are issued by
or on behalf of public authorities to raise money to finance various privately-operated facilities for business and manufacturing, housing, sports and pollution control. These bonds are also used to finance public facilities such as airports, mass
transit systems, ports and parking.
The payment of the principal and interest on such bonds is dependent solely on the ability of the facilitys
user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment.
Private activity
bonds are issued by or on behalf of states, or political subdivisions thereof, to finance
privately owned or operated facilities for business and manufacturing, housing, sports, and pollution control, and to finance activities of and facilities for charitable institutions.
Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports, parking and low-income housing.
The payment of the principal and interest on private activity bonds is dependent solely on the ability of the facilitys user to meet its financial
obligations and may be secured by a pledge of real and personal property so financed.
Investments in floating rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank, and that a Fund can demand payment of the obligation at
all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest. Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying
credit or of the bank, as the case may be, must, in the Subadvisers opinion, be equivalent to the long-term bond or commercial paper ratings stated above.
The Subadviser will monitor the earning power, cash flow and liquidity ratios of the issuers of such instruments and the ability of an issuer of a demand
instrument to pay principal and interest on demand.
The Subadviser may purchase other types of tax-exempt instruments as long as they are of a quality
equivalent to the bond or commercial paper ratings stated above.
The Subadviser has the authority to purchase securities at a price which would result in
a yield to maturity lower than that generally offered by the seller at the time of purchase when they can simultaneously acquire the right to sell the securities back to the seller, the issuer, or a third-party (the writer) at an
agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a standby commitment or a put.
The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity in order to meet redemptions and remain as fully invested as
possible in municipal securities. The right to put the securities depends on the writers ability to pay for the securities at the time the put is exercised.
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A Fund will limit its put transactions to those with institutions that the Subadviser believe present minimum
credit risks, and the Subadviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers by evaluating their financial statements and such other information as is available in the
marketplace. It may, however, be difficult to monitor the financial strength of the writers where adequate current financial information is not available.
In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (i.e., on parity with all
other unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from
repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuers credit); or a provision in the contract
may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity.
A Fund could, however, sell
the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security.
Municipal securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is
an integral part of the security as originally issued, may not be marketable or otherwise assignable. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities.
Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on
terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put.
There will be no limit to the percentage of portfolio securities that a Fund may purchase subject to a put. For the purpose of determining the
maturity of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of a Fund including such securities, a Fund will consider maturity to be the first date on
which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date.
Other types of tax-exempt instruments that are permissible investments include floating rate notes. Investments
in such floating rate instruments will normally involve industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank,
and that a Fund can demand payment of the obligation at all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest.
Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks.
The quality of the underlying credit or of the bank, as the case may be, must, in the Subadvisers opinion, be equivalent to the long-term bond or
commercial paper ratings stated above. The Subadviser will monitor the earning power, cash flow and liquidity ratios of the issuers of such instruments and the ability of an issuer of a demand instrument to pay principal and interest on demand.
A Fund may also purchase participation interests in municipal securities (such as industrial development bonds and municipal lease/purchase agreements).
A participation interest gives a Fund an undivided interest in the underlying municipal security. If it is unrated, the participation interest will be backed
by an irrevocable letter of credit or guarantee of a credit-worthy financial institution or the payment obligations otherwise will be collateralized by U.S. government securities.
Participation interests may have fixed, variable or floating rates of interest and may include a demand feature.
A participation interest without a demand feature or with a demand feature exceeding seven days may be deemed to be an illiquid security subject to a
Funds investment limitations restricting its purchases of illiquid securities.
A Fund may purchase other types of tax-exempt instruments as long as
they are of a quality equivalent to the bond or commercial paper ratings stated above.
State and local government revenues are highly correlated with
current economic conditions. During periods of very weak economic activity, certain municipalities may experience some fiscal difficulty which could lead to rating downgrades and/or delays in paying principal and interest on their outstanding debt.
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Opinions relating to the validity of municipal securities and to the exemption of interest thereon from U.S.
federal income tax are rendered by bond counsel to the respective issuers at the time of issuance.
Neither a Fund nor its Subadviser will review the
proceedings relating to the issuance of municipal securities or the basis for such opinions.
Special Considerations Relating to Municipal Obligations
of Designated States
As described in the applicable Prospectus, except for investments in temporary investments, the Tax-Exempt and Municipal Bond
Funds invest substantially all of their net assets (at least 80%) in municipal bonds (Municipal Obligations) that are exempt from U.S. federal and applicable state tax.
Each Municipal Bond Fund may also invest up to 20% of its net assets in Municipal Obligations which are subject to the Alternative Minimum Tax
(AMT). Each Tax-Exempt and Municipal Bond Fund is therefore more susceptible to political, economic or regulatory factors adversely affecting issuers of Municipal Obligations in its relevant state.
Set forth below is additional information that bears upon the risk of investing in Municipal Obligations issued by public authorities in the relevant states
in which each of the Tax-Exempt and Municipal Bond Funds invests. This information was obtained from official statements of the respective states as well as from other publicly available official documents and sources.
The Tax-Exempt and Municipal Bond Funds have not independently verified any of the information contained in such statements and documents. The information
below is intended only as a general summary.
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Factors Pertaining to Georgia |
The State of Georgia ended May 2014 with General Fund
revenue collections for the fiscal year to date ahead of 2013 levels by 4.5%. During fiscal year 2013, the State saw the unassigned General Fund balance increase to $798 million. Continued conservative budgeting of funds left a total General Fund
balance of $4.1 billion, giving the State ample resources to draw on.
Current projections for fiscal year 2014 anticipate 3.4% growth in
revenues for the States General
Fund. In the governors proposed 2014 budget, expenditure containment together with the
growth in General Fund revenues is anticipated to enable the state to maintain a structurally balanced budget position.
Georgia continues
to maintain moderate debt ratios. Moodys calculates Georgias net tax supported debt per capita at $1,064, ranking Georgia 25th among states. Comparing net tax supported debt to
personal income, Moodys calculates Georgias ratio at 2.9% compared to the state average of 3.2%. The States unemployment rate for April 2014 was 7.0%, above the national average of 6.3% as of the same period.
Georgias general obligation debt continues to carry Aaa/AAA/AAA ratings from Moodys, S&P, and Fitch. These ratings
reflect the States credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings.
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Factors Pertaining to North Carolina |
The State of North Carolina ended fiscal year 2013
with General Fund revenue collections 2% greater than General Fund collections during 2012. Because of conservative budgeting practices, the State improved its unassigned fund balance by $240 million ending the year with a balance of $158
million. The overall fund balance was $1.27 billion at year end showing adequate financial resources. As of June 2014, revised fiscal year 2014 General Fund revenue projections expect revenues to grow 3.6% vs. 2013 levels with a budgetary
surplus expected at the end of the fiscal year.
North Carolina continues to maintain conservative debt ratios though recent State capital
needs have pushed the debt burden into higher territory. Moodys calculates North Carolinas net tax supported debt per capita at $806, ranking North Carolina 17th among states.
Comparing net tax supported debt to personal income, Moodys calculates North Carolinas ratio at 2.1% compared to the state average of 3.2%. The States unemployment rate for February 2014 was 6.4%, below the national average of 6.7%
as of the same period. Per capita personal income remains below average for the State at 87% of the national average.
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North Carolinas general obligation debt carries Aaa/AAA/AAA ratings from
Moodys, S&P, and Fitch. These ratings reflect the States credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will
maintain its current credit ratings.
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Factors Pertaining to Virginia |
The Commonwealth of Virginias economy and
employment have grown at a pace exceeding the nation in most years. The States unemployment rate of 5.0% for January 2014 is well below the national rate of 6.7%. Virginia continues to benefit from a diverse economy, higher than average
governmental employment and defense related spending, though the latter is currently pressured.
This is especially true for the Northern
Virginia suburbs of Washington DC and in the Hampton Roads region, an area with significant military installations. Per capita personal income remains among the highest in the southeast at 110.6% of national averages.
For fiscal year 2013, Virginias General Fund revenues were 5.3% higher than those in 2012. The States General Fund balance
increased to $585 million during the year. According to Moodys, the State is slightly behind track for its fiscal year 2014 revenue estimate of 1.0% with collections up 0.8% as of February 2014.
Virginia has, historically, maintained low debt ratios; however, the minimal issuance of general obligation debt has been offset by significant
growth in appropriation backed debt issued by various State authorities. Moodys calculates Virginias net tax supported debt per capita at $1,302, ranking Virginia 31st among the 50
states. Comparing net tax supported debt to personal income, Moodys calculates Virginias ratio at 2.7% compared to the state average of 3.2%.
Virginias general obligation debt carries Aaa/AAA/AAA ratings from Moodys, S&P, and Fitch. These ratings reflect
the States credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings.
Options. A Fund may purchase and write put and call options on securities or securities indices (traded on U.S. exchanges or over-the-counter markets)
and enter into related closing transactions.
A put option on a security gives the purchaser of the option the right to sell, and the writer of the option the
obligation to buy, the underlying security at any time during the option period.
A call option on a security gives the purchaser of the option the right
to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period.
The premium paid to the writer
is the consideration for undertaking the obligations under the option contract.
Put and call options on indices are similar to options on securities
except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars multiplied by a specified number.
Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented
by the index generally, rather than the price movements in individual securities.
The initial purchase (sale) of an option contract is an opening
transaction. In order to close out an option position, a Fund may enter into a closing transaction, which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as
the option contract originally opened.
If a Fund is unable to effect a closing purchase transaction with respect to an option it has written, it will not
be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise.
A Fund may purchase and write options
on an exchange or over-the-counter. Over-the-counter options (OTC options) differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the
risk of non-performance by the dealer.
OTC options are available for a greater variety of securities and for a wider range of expiration dates and
exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SECs position that OTC options are generally
illiquid.
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The market value of an option generally reflects the market price of an underlying security. Other principal
factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date.
A Fund must cover all options it purchases or writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or
earmark liquid assets with the Funds custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open.
A Fund may otherwise cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations
thereunder.
A Fund may trade put and call options on securities, securities indices or currencies, as its Subadviser determines is appropriate in seeking
the Funds investment objective.
For example, a Fund may purchase put and call options on securities or indices to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in the market value of securities that the Fund may seek to purchase in the future.
A Fund purchasing put and call options pays a premium therefor. If price movements in the underlying securities are such that exercise of the options would
not be profitable for a Fund, loss of the premium paid may be offset by an increase in the value of the Funds securities or by a decrease in the cost of acquisition of securities by the Fund.
In another instance, a Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited
protection against decreases in its market value.
When a Fund writes an option, if the underlying securities do not increase or decrease to a price level
that would make the exercise of the option profitable to the holder thereof, the option generally will expire without being exercised and the Fund will realize as profit the premium received for such option.
When a call option written by a Fund is exercised, the Fund will be required to sell the underlying securities to the option holder at the strike price, and
will not participate in any increase in the price of such securities above the strike price.
When a put option written by a Fund is exercised, the Fund will be required to purchase the underlying
securities at a price in excess of the market value of such securities.
There are significant risks associated with a Funds use of options,
including the following:
(i) the success of a hedging strategy may depend on the Subadvisers ability to predict movements in the
prices of individual securities, fluctuations in markets and movements in interest rates;
(ii) there may be an imperfect or no correlation
between the movement in prices of options held by the Fund and the securities underlying them;
(iii) there may not be a liquid secondary
market for options; and
(iv) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
Pay-In-Kind Securities. Pay-In-Kind securities are debt obligations or preferred stocks that
pay interest or dividends in the form of additional debt obligations or preferred stock.
Preferred Stock. Preferred stock is a corporate equity
security that pays a fixed or variable stream of dividends. Preferred stock is generally a non-voting security.
Real Estate Investment Trusts. A
REIT is a corporation or business trust (that would otherwise be taxed as a corporation) which meets the definitional requirements of the Internal Revenue Code.
The Internal Revenue Code permits a qualifying REIT to deduct from taxable income the dividends paid, thereby effectively eliminating corporate level U.S.
federal income tax and making the REIT a pass-through vehicle for U.S. federal income tax purposes.
A REIT primarily invests in real estate and real
estate mortgages. If a corporation, trust or association meets the REIT requirements, it will be taxed only on its undistributed income and capital gains.
REITs are sometimes informally characterized as Equity REITs and Mortgage REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership
of land and buildings; a Mortgage REIT invests primarily in mortgages on real property, which may secure construction, development or long-term loans.
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REITs in which a Fund invests may be affected by changes in underlying real estate values, which may have an
exaggerated effect to the extent that REITs in which a Fund invests may concentrate investments in particular geographic regions or property types.
Additionally, rising interest rates may cause investors in REITs to demand a higher annual yield from future distributions, which may in turn decrease market
prices for equity securities issued by REITs. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Funds investments to decline.
During periods of declining interest rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by such Mortgage REITs. In addition, Mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and Equity REITs may be affected by the ability of tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects.
By investing in REITs indirectly through the Fund, a shareholder will bear not only his proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders.
In addition to these
risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management
skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency defaults by borrowers and self-liquidation.
In addition, Equity and Mortgage REITs could possibly fail to qualify for the favorable U.S. federal income tax treatment generally available to REITs under
the Internal Revenue Code or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrowers
or a lessees ability to meet its obligations to the REIT. In the event of default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a lender or lessor and
may incur substantial costs associated with protecting its investments.
Repurchase Agreements. A Fund may enter into repurchase agreements with
financial institutions.
Each Fund follows certain procedures designed to minimize the risks inherent in such agreements. These procedures include
effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Subadviser.
The
repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement. Under all repurchase agreements entered into by a Fund, the
custodian or its agent must take possession of the underlying collateral.
In the event of a default or bankruptcy by a selling financial institution, a
Fund will seek to liquidate such collateral. However, the exercising of each Funds right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of each of the Funds not to invest in repurchase
agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Funds net assets.
The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Subadviser, liquidity or other
considerations so warrant.
Resource Recovery Bonds. Resource recovery bonds are a type of revenue bond issued to build facilities such as solid
waste incinerators or waste-to-energy plants. Typically, a private corporation will be involved, at least during the construction phase, and the revenue stream will be secured by fees or rents paid by municipalities for use of the facilities. The
viability of a resource recovery project, environmental protection regulations, and project operator tax incentives may affect the value and credit quality of resource recovery bonds.
Restricted Securities. The Funds may purchase securities that are not registered under the Securities Act of 1933, as amended (the 1933
Act) and, therefore, are not publicly traded securities.
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These securities will be considered illiquid and subject to a Funds limitation on the purchase of illiquid
securities (no more than 15% of net assets) unless the Adviser or Subadviser determines on an ongoing basis that the securities are liquid in accordance with guidelines adopted by the Board.
Restricted securities include securities that can be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act
(Rule 144A Securities). An investment in such securities could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers become uninterested for a time in purchasing Rule 144A
Securities.
More generally, non-publicly traded securities may involve a high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities and a Fund may take longer to liquidate these positions than would be the case for publicly traded securities.
Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be less than those originally paid by a
Fund. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded.
A Funds investments in illiquid securities are subject to the risk that should a Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the value of the Funds net assets could be adversely affected. (See Illiquid Securities above; see also Rule 144A Securities.)
Reverse Repurchase Agreements. A reverse repurchase agreement is a contract under which a Fund sells a security for cash for a relatively short period
(usually not more than one week) subject to the obligation of the Fund to repurchase such security at a fixed time and price (representing the sellers cost plus interest).
Reverse repurchase agreements involve the risk that the market value of the securities a Fund is obligated to repurchase under the agreement may decline below
the repurchase price.
Also, in the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a
Funds use of proceeds of the
agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities.
In addition, reverse repurchase agreements are techniques involving leverage, and are subject to asset coverage requirements. To avoid any leveraging
concerns, the Fund will segregate or earmark liquid assets with the Funds custodian in an amount sufficient to cover its repurchase obligations.
Revolving Credit Facilities (Revolvers). Revolvers are borrowing arrangements in which the lender agrees to make loans up to a maximum
amount upon demand by the borrower during a specified term. As the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term of the Revolver and usually provides for floating or variable rates of interest.
These commitments may have the effect of requiring a Fund to increase its investment in a company at a time when it might not otherwise decide to do so
(including at a time when the companys financial condition makes it unlikely that such amounts will be repaid). To avoid any leveraging concerns, a Fund will segregate or earmark liquid assets with the Funds custodian in an amount
sufficient to cover its obligations to fund Revolvers.
A Fund may invest in Revolvers with credit quality comparable to that of issuers of its other
investments.
Revolvers may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, a
Fund may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value.
Each Fund currently intends
to treat Revolvers for which there is no readily available market as illiquid for purposes of that Funds limitation on illiquid investments.
Securities Lending. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit
requirements or other criteria established by the Board.
These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund
(including the loan collateral).
No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied
for and received specific authority to do so from the SEC.
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Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. government
securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily.
Any gain or loss in the market price of the securities loaned that may occur during the term of the loan would be for the account of the Fund.
A Fund may pay a portion of the interest earned from the investment of collateral or other fee, to an unaffiliated third party for acting as the Funds
securities lending agent.
By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of
any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. government securities or letters of
credit are used as collateral.
Each Fund will adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive from the borrower at least 100% cash collateral or equivalent securities of the type discussed in the preceding;
(ii) the borrower must increase such collateral whenever the market value of the securities increases above the level of such collateral;
(iii) the Fund must be able to terminate the loan on demand;
(iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest, or other distributions on the loaned securities
and any increase in market value;
(v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees
payable to the lending agent, the borrower, the Funds administrator and the Funds custodian); and
(vi) voting rights on the
loaned securities may pass to the borrower; provided, however, that in the event where a matter is presented for a vote on an issuers proxy which would have a material effect on a Fund or its investment, the Fund must attempt
to terminate the loan and regain the right to vote the securities.
Please refer to Appendix B-1:
Proxy Voting Policy: Securities Lending Program for additional information with respect to the Funds policies for what constitutes a material effect with respect to the practice of recalling securities on loan for the sole purpose
of voting proxies for such securities.
There is a risk that the Fund may not be able to recall the security in sufficient time to vote on material proxy
matters; however, the Fund will make a best faith effort where it has been determined that the outcome of such vote would have a material effect on a Fund or its investment.
In addition, as a general practice, the Funds will not recall loans solely to receive income payments. See Taxes section of this SAI for
information on the security lending programs impact on treatment of income which could increase a Funds tax obligation which is subsequently passed on to its shareholders.
Any securities lending activity in which a Fund may engage will be undertaken pursuant to Board-approved procedures reasonably designed to ensure that the
foregoing criteria will be met.
Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or
restrictions upon a Funds ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the
underlying securities.
Senior Loans
Structure of
Senior Loans. A senior floating rate loan (Senior Loan) is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the
Agent) for a group of loan investors (Loan Investors). The Agent typically administers and enforces the Senior Loan on behalf of the other Loan Investors in the syndicate. In addition, an institution, typically but not always
the Agent, holds any collateral on behalf of the Loan Investors.
Senior Loans primarily include senior floating rate loans and secondarily senior fixed
rate loans, and interests therein. Loan interests primarily take the form of assignments purchased in the primary or secondary market. Loan interests may also take the form of participation interests in a Senior Loan. Such loan interests may be
acquired from U.S. or foreign commercial banks, insurance companies, finance companies or other financial institutions who have made loans or are Loan Investors or from other investors in loan interests.
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A Fund typically purchases Assignments from the Agent or other Loan Investors. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the Loan Agreement of the assigning Loan Investor and becomes a Loan Investor under the Loan Agreement with the same rights and obligations as the assigning Loan Investor.
Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations
acquired by the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Loan Investor.
A Fund may invest up to
10% of its total assets in Participations. Loan Participations are interests in loans to corporations, which loans are administered by the lending bank or agent for a syndicate of lending banks. In a Loan Participation, the borrower
corporation is the underlying issuer of the loan, but a Fund derives its rights in the loan participation from the intermediary bank. Because the intermediary bank does not guarantee a Loan Participation, it is subject to the credit risks associated
with the underlying corporate borrower.
Participations by a Fund in a Loan Investors portion of a Senior Loan typically will result in a Fund
having a contractual relationship only with such Loan Investor, not with the borrower. As a result, a Fund may have the right to receive payments of principal, interest and any fees to which it is entitled only from the Loan Investor selling the
Participation and only upon receipt by such Loan Investor of such payments from the borrower.
In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the terms of the Loan Agreement, nor any rights with respect to any funds acquired by other Loan Investors through set-off against the borrower and a Fund may not directly
benefit from the collateral supporting the Senior Loan in which it has purchased the Participation.
As a result, a Fund may assume the credit risk of
both the borrower and the Loan Investor selling the Participation.
In the event of the insolvency of the Loan Investor selling a Participation, a Fund
may be treated as a general creditor of such Loan Investor. The selling
Loan Investors with respect to such Participations will likely conduct their principal business activities in
the banking, finance and financial services industries.
Persons engaged in such industries may be more susceptible to, among other things, fluctuations
in interest rates, changes in the Federal Open Market Committees monetary policy, governmental regulations concerning such industries and capital raising activities generally, and fluctuations in the financial markets generally.
In the event of bankruptcy or insolvency of the corporate borrower, a Loan Participation may be subject to certain defenses that can be asserted by the
borrower as a result of improper conduct by the seller.
In addition, in the event the underlying corporate borrower fails to pay principal and interest
when due, a Fund may be subject to delays, expenses, and risks that are greater than those that would have been involved if a Fund had purchased a direct obligation of the borrower.
Under the terms of a Loan Participation, a Fund may be regarded as a creditor of the seller of the loan participation (rather than of the underlying corporate
borrower), so that a Fund may also be subject to the risk that the seller of the loan participation may become insolvent.
The secondary market for loan
participations is limited and any such participation purchased by a Fund may be regarded as illiquid.
Loan Collateral. In order to borrow money
pursuant to a Senior Loan, a borrower will frequently, for the term of the Senior Loan, pledge collateral, including but not limited to:
(i) working capital assets, such as accounts receivable and inventory;
(ii) tangible fixed assets, such as real property, buildings and equipment;
(iii) intangible assets, such as trademarks and patent rights (but excluding goodwill); and/or
(iv) security interests in shares of stock of subsidiaries or affiliates.
In the case of Senior Loans made to non-public companies, the companys shareholders or owners may provide collateral in the form of secured guarantees
and/or security interests in assets that they own. In many instances, a Senior Loan may be secured only by stock in the borrower or its subsidiaries.
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Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy a borrowers obligations under a Senior Loan.
Certain Fees Paid to a Fund. In the process of buying,
selling and holding Senior Loans, a Fund may receive and/or pay certain fees.
These fees are in addition to interest payments received and may include
facility fees, commitment fees, commissions, prepayment penalty, and assignment fees.
When a Fund buys a Senior Loan it may receive a facility fee and
when it sells a Senior Loan it may pay a facility fee.
On an ongoing basis, a Fund may receive a commitment fee based on the undrawn portion of the
underlying line of credit portion of a Senior Loan.
In certain circumstances, a Fund may receive a prepayment penalty fee upon the prepayment of a Senior
Loan by a borrower.
Other fees received by a Fund may include amendment fees. A Fund may have to pay an assignment to the Agent when it purchases or
sells a Senior Loan via assignment.
Borrower Covenants. A borrower must comply with various restrictive covenants contained in a loan agreement or
note purchase agreement between the borrower and the holders of the Senior Loan (the Loan Agreement).
Such covenants, in addition to
requiring the scheduled payment of interest and principal, may include restrictions on dividend payments and other distributions to stockholders, provisions requiring the borrower to maintain specific minimum financial ratios, and limits on total
debt.
In addition, the Loan Agreement may contain a covenant requiring the borrower to prepay the Loan with all or a portion of any free cash flow. Free
cash flow is generally defined as net cash flow after scheduled debt service payments and permitted capital expenditures, and typically includes the proceeds from asset dispositions or sales of securities.
A breach of a covenant which is not waived by the Agent, or by the Loan Investors directly, as the case may be, is normally an event of acceleration;
i.e., the Agent, or the Loan Investors directly, as the case may be, have the right to call the outstanding Senior Loan.
The typical practice of an Agent or a Loan Investor in relying exclusively or primarily on reports from the
borrower may involve a risk of fraud by the borrower.
In the case of a Senior Loan in the form of a Participation, the agreement between the buyer and
seller may limit the rights of the holder to vote on certain changes which may be made to the Loan Agreement, such as loosening a covenant. However, the holder of the Participation will, in almost all cases, have the right to vote on or direct the
seller of the Participation to vote on certain fundamental issues such as changes in principal amount, payment dates and interest rate.
Administration
of Loans. In a typical Senior Loan, the Agent administers the terms of the Loan Agreement. In such cases, the Agent is normally responsible for the collection of principal and interest payments from the borrower and the apportionment of these
payments to the credit of all institutions, which are Loan Investors.
A Fund will generally rely upon the Agent or an intermediate participant to receive
and forward to a Fund its portion of the principal and interest payments on the Senior Loan. Furthermore, unless under the terms of a Participation Agreement a Fund has direct recourse against the borrower, a Fund will rely on the Agent and the
other Loan Investors to use appropriate credit remedies against the borrower.
The Agent is typically responsible for monitoring compliance with covenants
contained in the Loan Agreement based upon reports prepared by the borrower. The Agent of the Senior Loan usually does, but is often not obligated to, notify holders of Senior Loans of any failures of compliance.
The Agent may monitor the value of the collateral and, if the value of the collateral declines, may accelerate the Senior Loan, may give the borrower an
opportunity to provide additional collateral or may seek other protection for the benefit of the Loan Investors.
The Agent is compensated by the borrower
for providing these services under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Senior Loan and other fees paid on a continuing basis.
With respect to Senior Loans for which the Agent does not perform such administrative and enforcement functions, a Fund will perform such tasks on its own
behalf, although a collateral bank will typically hold any collateral on behalf of a Fund and the other Loan Investors pursuant to the applicable Loan Agreement.
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A financial institutions appointment as Agent may be terminated in the event that it fails to observe the
requisite standard of care or becomes insolvent, enters Federal Deposit Insurance Corporation (FDIC) receivership, or, if not FDIC insured, enters into bankruptcy proceedings.
A successor Agent would generally be appointed to replace the terminated Agent, and assets held by the Agent under the Loan Agreement should remain available
to holders of Senior Loans. However, if assets held by the Agent for the benefit of a Fund were determined to be subject to the claims of the Agents general creditors, a Fund might incur certain costs and delays in realizing payment on a
Senior Loan, or suffer a loss of principal and/or interest. In situations involving intermediate participants similar risks may arise.
Prepayments.
Senior Loans can require, in addition to scheduled payments of interest and principal, the prepayment of the Senior Loan from free cash flow, as defined above.
The degree to which borrowers prepay Senior Loans, whether as a contractual requirement or at their election, may be affected by general business conditions,
the financial condition of the borrower and competitive conditions among Loan Investors, among others.
As such, prepayments cannot be predicted with
accuracy.
Upon a prepayment, either in part or in full, the actual outstanding debt on which a Fund derives interest income will be reduced. However, a
Fund may receive both a prepayment penalty fee from the prepaying borrower and a facility fee upon the purchase of a new Senior Loan with the proceeds from the prepayment of the former.
Prepayments generally will not materially affect a Funds performance because a Fund should be able to reinvest prepayments in other Senior Loans that
have similar yields (subject to market conditions) and because receipt of such fees may mitigate any adverse impact on a Funds yield.
Other
Information Regarding Senior Loans. From time to time a Subadviser and its affiliates may borrow money from various banks in connection with their business activities. Such banks may also sell interests in Senior Loans to or acquire them from a
Fund or may be intermediate participants with respect to Senior
Loans in which a Fund owns interests. Such banks may also act as Agents for Senior Loans held by a Fund.
A Fund may purchase and retain in its portfolio a Senior Loan where the borrower has experienced, or may be perceived to be likely to experience, credit
problems, including involvement in or recent emergence from bankruptcy reorganization proceedings or other forms of debt restructuring.
Such investments
may provide opportunities for enhanced income as well as capital appreciation. At times, in connection with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of bankruptcy court proceedings, a Fund may determine
or be required to accept equity securities or junior debt securities in exchange for all or a portion of a Senior Loan. As soon as reasonably practical, a Fund will divest itself of any equity securities or any junior debt securities received if it
is determined that the security is an ineligible holding for a Fund.
A Fund may acquire interests in Senior Loans which are designed to provide temporary
or bridge financing to a borrower pending the sale of identified assets or the arrangement of longer-term loans or the issuance and sale of debt obligations. Bridge loans are often unrated.
A Fund may also invest in Senior Loans of borrowers that have obtained bridge loans from other parties. A borrowers use of bridge loans involves a risk
that the borrower may be unable to locate permanent financing to replace the bridge loan, which may impair the borrowers perceived creditworthiness.
A Fund will be subject to the risk that collateral securing a loan will decline in value or have no value.
Such a decline, whether as a result of bankruptcy proceedings or otherwise, could cause the Senior Loan to be under-collateralized or unsecured. In most
credit agreements there is no formal requirement to pledge additional collateral.
In addition, a Fund may invest in Senior Loans guaranteed by, or
secured by assets of, shareholders or owners, even if the Senior Loans are not otherwise collateralized by assets of the borrower; provided, however, that such guarantees are fully secured.
There may be temporary periods when the principal asset held by a borrower is the stock of a related company, which may not legally be pledged to secure a
Senior Loan. On occasions when such stock cannot be pledged, the Senior Loan will be temporarily unsecured until the stock can be pledged or is exchanged for or replaced by other assets, which will be pledged as security for the Senior Loan.
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If a borrower becomes involved in bankruptcy proceedings, a court may invalidate a Funds security interest
in the loan collateral or subordinate a Funds rights under the Senior Loan to the interests of the borrowers unsecured creditors or cause interest previously paid to be refunded to the borrower.
If a court requires interest to be refunded, it could negatively affect a Funds performance.
Such action by a court could be based, for example, on a fraudulent conveyance claim to the effect that the borrower did not receive fair
consideration for granting the security interest in the loan collateral to a Fund or a preference claim that a pre-petition creditor received a greater recovery on an existing debt than it would have in a liquidation situation.
For Senior Loans made in connection with a highly leveraged transaction, consideration for granting a security interest may be deemed inadequate if the
proceeds of the Loan were not received or retained by the borrower, but were instead paid to other persons (such as shareholders of the borrower) in an amount which left the borrower insolvent or without sufficient working capital.
There are also other events, such as the failure to perfect a security interest due to faulty documentation or faulty official filings, which could lead to
the invalidation of a Funds security interest in loan collateral.
If a Funds security interest in loan collateral is invalidated or the
Senior Loan is subordinated to other debt of a borrower in bankruptcy or other proceedings, a Fund would have substantially lower recovery, and perhaps no recovery on the full amount of the principal and interest due on the Loan, or a Fund could
also have to refund interest.
A Fund may acquire warrants and other equity securities as part of a unit combining a Senior Loan and equity securities of
a borrower or its affiliates. The acquisition of such equity securities will only be incidental to a Funds purchase of a Senior Loan.
A Fund may
also acquire equity securities or debt securities (including non-dollar denominated debt securities) issued in exchange for a Senior Loan or issued in connection with the debt restructuring or reorganization of a borrower, or if such acquisition, in
the judgment of the Subadviser, may enhance the value of a Senior Loan or would otherwise be consistent with a Funds investment policies.
Regulatory Changes. To the extent that legislation or state or federal regulators that regulate certain
financial institutions impose additional requirements or restrictions with respect to the ability of such institutions to make loans, particularly in connection with highly leveraged transactions, the availability of Senior Loans for investment may
be adversely affected. Further, such legislation or regulation could depress the market value of Senior Loans.
Short Sales. A Fund may engage in
short sales that are either uncovered or against the box.
A short sale is against the box if at all times during
which the short position is open, a Fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issue as the securities that are sold short.
Uncovered short sales are transactions under which a Fund sells a security it does not own. To complete such a transaction, a Fund must borrow the security to
make delivery to the buyer. A Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price at which the security was
sold by a Fund.
Until the security is replaced, a Fund is required to pay the lender amounts equal to any dividends or interest that accrue during the
period of the loan.
To borrow the security, a Fund is required to pay a premium or daily interest, which will increase the total cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out.
Until a Fund closes its short position or replaces the borrowed security, a Fund will:
(a) earmark or maintain in a segregated account cash or liquid securities at such a level that
(i) the amount earmarked or deposited in the account plus the amount deposited with the broker as collateral will equal the current value of
the security sold short; and
(ii) the amount earmarked or deposited in the segregated account plus the amount deposited with the broker as
collateral will not be less than the current market value of the security sold short, or
(b) otherwise cover a Funds short
positions.
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Uncovered short sales incur a higher level of risk because to cover the short sale, the security may have to be
purchased in the open market at a much higher price.
Short-Term Obligations. Short-term obligations are debt obligations maturing (becoming
payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations.
Small- and Mid-Capitalization Companies. Small- and mid-capitalization companies may be either established or newer companies.
Small-capitalization companies may offer greater opportunities for gain, but also involve a greater risk of loss because they may be more vulnerable to
adverse business or economic events, particularly those companies that have been in operation for less than three years.
Small-capitalization company
securities may trade in lower volumes or there may be less information about the company which may cause the investments to be more volatile or to have less liquidity than larger company investments. They may have unseasoned management or may rely
on the efforts of particular members of their management team to a great degree causing turnover in management to pose a greater risk.
Smaller sized
companies may have more limited access to resources, product lines, and financial resources.
Small- and mid-sized companies typically reinvest a large
proportion of their earnings in their business and may not pay dividends or make interest payments for some time, particularly if they are newer companies.
Standby Commitments and Puts. A Fund may purchase securities at a price which would result in a yield to maturity lower than that generally offered by
the seller at the time of purchase when the Fund can simultaneously acquire the right to sell the securities back to the seller, the issuer or a third-party (the writer) at an agreed-upon price at any time during a stated period or on a
certain date.
Such a right is generally denoted as a standby commitment or a put.
The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit a Fund to meet redemptions and remain as fully
invested as possible in municipal securities.
The Funds reserve the right to engage in put transactions.
The right to put the securities depends on the writers ability to pay for the securities at the time the
put is exercised. A Fund would limit its put transactions to institutions which the Subadviser believes present minimal credit risks, and the Subadviser would use its best efforts to initially determine and continue to monitor the financial strength
of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace.
It may, however, be
difficult to monitor the financial strength of the writers because adequate current financial information may not be available.
In the event that any
writer is unable to honor a put for financial reasons, a Fund would be a general creditor (i.e., on a parity with all other general unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities. For example, a change
in the published rating of the underlying securities or any similar event that has an adverse effect on the issuers credit or a provision in the contract that the put will not be exercised except in certain special cases (such as to maintain
portfolio liquidity). A Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or otherwise assignable.
Therefore, the put would have value only to a Fund.
Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration
of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security.
The maturity of the underlying security will generally be different from that of the put.
There will be no limit to the percentage of portfolio securities that a Fund may purchase subject to a standby commitment or put, but the amount paid directly
or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in a Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put
is acquired.
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Structured Investments. Structured Investments are derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an investment company as defined in the 1940 Act.
A trust unit pays a return
based on the total return of securities and other investments held by the trust and the trust may enter into one or more swaps to achieve its objective.
For example, a trust may purchase a basket of securities and agree to exchange the return generated by those securities for the return generated by another
basket or index of securities.
A Fund will purchase structured investments in trusts that engage in such swaps only where the counterparties are approved
by the Subadviser in accordance with credit-risk guidelines established by the Board.
Structured Notes. Structured Notes are derivatives where the
amount of principal repayment and or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock
indices such as the S&P 500® Index.
In some cases, the impact of the movements of these
factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Fund to tailor its investments to the specific risks and returns the Subadviser wishes to accept while avoiding or reducing certain
other risks.
Supranational Agency Obligations. Supranational Agency Obligations are obligations of supranational entities established through the
joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the World Bank), African Development Bank, European
Union, European Investment Bank, and the Nordic Investment Bank.
Swap Agreements. A Fund may enter into swap agreements for purposes of attempting
to gain exposure to the securities making up an index without actually purchasing those instruments, to hedge a position or to gain exposure to a particular instrument or currency.
Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging
from a day to more than one-year.
In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of
return) earned or realized on particular predetermined investments or instruments.
The gross returns to be exchanged or swapped between the
parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested in a basket of securities representing a particular index.
Forms of swap agreements include:
(i) interest
rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap,
(ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest
rates fall below a specified level, or floor; and
(iii) interest rate dollars, under which a party sells a cap and purchases a
floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
A credit default swap
is a specific kind of counterparty agreement designed to transfer the third party credit risk between parties.
One party in the swap is a lender and
faces credit risk from a third party and the counterparty in the credit default swap agrees to insure this risk in exchange for regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance
will have to purchase from the insured party the defaulted asset.
A Fund may enter into index swap agreements as an additional hedging strategy for cash
reserves held by the Fund or to effect investment transactions consistent with the Funds investment objective and strategies.
The Select Aggregate
Market Index (SAMI) is a basket of credit default swaps whose underlying reference obligations are floating rate loans.
The Loan Credit
Default Swap Index (LCDX) is a specialized index of loan-only credit default swaps covering 100 individual companies that have unsecured debt trading in the broad secondary markets.
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Investments in SAMI and LCDX increase exposure to risks that are not typically associated with investments in
other floating rate debt instruments, and involve many of the risks associated with investments in derivative instruments.
The liquidity of the market
for SAMI and LCDX is subject to liquidity in the secured loan and credit derivatives markets. The use of equity swaps is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary
portfolio securities transactions.
A Funds current obligations under a swap agreement will be accrued daily (offset against any amounts owing to
the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by earmarking or segregating assets determined to be liquid.
Obligations under swap agreements so covered will not be construed to be senior securities for purposes of a Funds investment restriction
concerning senior securities.
Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid for the Funds illiquid investment limitations.
A Fund will not enter into any swap agreement unless the Subadviser
believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty.
A Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable.
The counterparty to any swap agreement will typically be a bank, investment
banking firm or broker/dealer. The counterparty will generally agree to pay a Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends
that would have been received on those stocks.
A Fund will agree to pay to the counterparty a floating rate of interest on the notional amount of the
swap agreement plus the amount, if any, by which the
notional amount would have decreased in value had it been invested in such stocks.
Therefore, the return to a Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by
a Fund on the notional amount.
Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term.
Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited
to the net amount of payments that a Fund is contractually obligated to make.
If the other party to a swap agreement defaults, a Funds risk of loss
consists of the net amount of any payments that such Fund is contractually entitled to receive.
The net amount of the excess, if any, of a Funds
obligations over its entitlements with respect to each swap will be accrued on a daily basis and liquid assets having an aggregate net asset value at least equal to such accrued excess will be earmarked or maintained in a segregated account by the
Funds custodian.
In as much as these transactions are entered into for hedging purposes or are offset by segregating liquid assets, as permitted by
applicable law, the Funds and their respective Subadvisers believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Funds borrowing restrictions.
For purposes of each of the Funds requirements under Rule 12d3-1 (where, for example, a Fund is prohibited from investing more than 5% of its total
assets in any one broker, dealer, underwriter or investment adviser (the securities-related issuer) and Section 5b-1 where, for example, a diversified Fund is prohibited from owning more than 5% of its total assets in any one issuer
with respect to 75% of a Funds total assets, both counterparty exposure and reference entity exposure will be reviewed where appropriate.
The
mark-to-market value will be used to measure the Funds counterparty exposure. With respect to reference entity exposure, the notional value of the swap will be used when protection is sold on the underlying reference entity.
The mark-to-market value will be used when protection is bought on the underlying reference entity.
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Should the Fund acquire an interest in a swap that is traded on a centralized exchange, the Fund will not
consider the counterparty to be an issuer for these purposes if it is determined that counterparty risk has been eliminated through use of the centralized exchange. Further, the Fund will use the same approach described above for Section 5b-1
to satisfy the Funds Subchapter M quarter-end requirements under the Internal Revenue Code. Exposure may be adjusted by appropriate offsets.
The
swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively
liquid in comparison with the markets for other similar instruments, which are traded in the over-the-counter market.
The Subadviser, under the
supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements.
Tax Credit
Bonds (Build America Bonds). Build America Bonds are taxable bonds issued by federal and state local governments that allow a new direct federal payment subsidy.
At the election of the state and local governments, the Treasury Department will make a direct payment to the state or local governmental issuer in an amount
equal to 35% of the interest payment on the Build America Bonds. As a result, state and local governments will have lower net borrowing costs.
This will
also make Build America Bonds attractive to a broader group of investors that typically invest in traditional state and local tax-exempt bonds, where interest rates have historically been 20% lower than taxable interest rates.
Taxable Municipal Securities. Taxable municipal securities are municipal securities the interest on which is not exempt from federal income tax.
Taxable municipal securities include private activity bonds that are issued by or on behalf of states or political subdivisions thereof to finance
privately-owned or operated facilities for business and manufacturing, housing, sports, and pollution control and to finance activities of and facilities for charitable institutions.
Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports, parking lots, and low income housing.
The payment of the principal and interest on private activity bonds is not backed by a pledge of tax revenues,
and is dependent solely on the ability of the facilitys user to meet its financial obligations, and may be secured by a pledge of real and personal property so financed. Interest on these bonds may not be exempt from federal income tax.
Tender Option Bonds. A tender option bond is a municipal obligation (generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates.
The bond is typically issued in
conjunction with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which the institution grants the security holder the option, at periodic intervals, to tender its securities to the
institution.
As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the bonds
fixed coupon rate and the rate, as determined by a remarketing or similar agent that would cause the securities, coupled with the tender option, to trade at par on the date of such determination.
Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate.
An institution will normally not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrading in the credit rating
assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Funds average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender option bond for federal income tax purposes, and thus will not be entitled to treat
such interest as exempt from federal income tax. Certain tender option bonds may be illiquid or may become illiquid as a result of a credit rating downgrade, payment default or a disqualification from tax-exempt status.
Trust Preferred Securities. Trust preferred securities are convertible preferred shares issued by a trust where proceeds from the sale are used to
purchase convertible subordinated debt from the issuer. The convertible subordinated debt is the sole asset of the trust. The coupon from the issuer to the trust exactly mirrors the preferred dividend paid by the trust. Upon conversion by the
investors, the trust in turn converts the convertible debentures and passes through the shares to the investors.
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U.S. Government Securities. Examples of types of U.S. government obligations in which a Fund may invest
include:
U.S. Treasury obligations and the obligations of U.S. government agencies such as:
Federal Home Loan Banks,
Federal
Farm Credit Banks,
Federal Land Banks,
the Federal Housing Administration,
Farmers Home Administration,
Export-Import Bank of the United States,
Small Business Administration,
Fannie Mae,
GNMA,
General Services Administration,
Student Loan Marketing Association (SLMA),
Central Bank for Cooperatives,
Freddie Mac,
Federal
Intermediate Credit Banks,
Maritime Administration,
and other similar agencies.
Whether backed by
the full faith and credit of the U.S. Treasury or not, U.S. government securities are not guaranteed against price movements due to fluctuating interest rates.
SLMA can issue debt as a U.S. government agency or as corporation. If the debt is issued as a corporation, it is not considered a U.S. government obligation.
In April 2011, S&P changed its outlook on U.S. treasury securities from stable to negative, indicating the possibility of a
downgrade from its current AAA rating of these securities. A downgrade of the ratings on U.S. government debt obligations, which are often used as a benchmark for other borrowing arrangements, could result in higher interest rates for individual and
corporate borrowers, cause disruptions in the international bond markets and generally have a substantial negative effect on the U.S. economy.
U.S.
Treasury obligations may differ in their interest rates, maturities, times of issuance and other characteristics. Similar to other issuers, changes to the financial condition or credit rating of the U.S. government may cause the value of its
Treasury obligations to decline. Obligations of U.S. government agencies and authorities are supported by varying degrees of credit, but generally are not backed by the full faith and credit of the U.S. government. U.S. government debt securities
may underperform other segments of the fixed income market or the fixed income market as a whole.
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FDIC-Backed Bonds. FDIC-Backed Bonds are senior unsecured debt obligations issued by banks, |
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thrifts and some holding companies that participate in the FDICs Temporary Liquidity Guaranty Program (TLGP). |
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Under the TLGP, the FDIC guarantees, with the full faith and credit of the U.S. government, the payment
of principal and interest on senior unsecured debt issued by entities eligible to participate in the TLGP, which generally include FDIC-insured depository institutions, U.S. bank holding companies or financial holding companies and certain U.S.
savings and loan holding companies, in exchange for a fee to the FDIC.
This guarantee does not extend to shares of the Portfolio itself.
FDIC-guaranteed debt is still subject to interest rate and securities selection risk.
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U.S. Treasury Obligations. U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S. Treasury and separately traded interest and principal component parts of such obligations that are
transferable through the federal book-entry system known as Separate Trading of Registered Interest and Principal of Securities (STRIPs) and Treasury Receipts (TRs). |
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Receipts. Receipts are interests in separately traded interest and principal component parts of U.S. government obligations that are issued by banks or brokerage firms and are created by depositing U.S.
government obligations into a special account at a custodian bank. |
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The custodian holds the interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero
coupon securities.
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Treasury Inflation Protected Notes (TIPS). TIPS are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. |
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TIPS are income-generating instruments whose interest and principal payments are adjusted for
inflation. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the consumer price index.
A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value and the interest
payments increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of an investment.
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Because of this inflation adjustment feature, inflation-protected bonds typically have lower
yields than conventional fixed-rate bonds.
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Zero Coupon Obligations. Zero coupon obligations are debt obligations that do not bear any interest, but instead are issued at a deep discount from face value or par. The value of a zero coupon obligation
increases over time to reflect the interest accumulated. These obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at face value or par and pay
interest periodically. |
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U.S. Government Zero Coupon Securities. STRIPS (Separate Trading of Registered Interest and Principal of Securities) and Receipts are sold as zero coupon securities, that is, fixed income securities that
have been stripped of their un-matured interest coupons. |
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Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal.
The amount of this discount is accreted over the life of the
security, and the accretion constitutes the income earned on the security for both accounting and tax purposes.
Because of these features,
the market prices of zero coupon securities are generally more volatile than the market prices of securities that have similar maturity but that pay interest periodically.
Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar
maturity and credit qualities. See Mortgage-Backed Securities.
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U.S. Government Agencies. Some obligations issued or guaranteed by agencies of the U.S. government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the
issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. |
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Guarantees of principal by agencies or instrumentalities of the U.S. government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to the value or
yield of these securities or to the value of a Funds shares.
Variable and Floating Rate Instruments. Certain of the obligations purchased by
a Fund may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that are not fixed, but which vary with
changes in specified market rates or indices.
The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period,
and may have a floor or ceiling on interest rate changes.
There is a risk that the current interest rate on such obligations may not accurately reflect
existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such securities.
Variable Rate Master Demand Notes. Variable rate master demand notes permit the investment of fluctuating amounts at varying market rates of interest
pursuant to direct arrangements between a Fund, as lender, and a borrower.
Such notes provide that the interest rate on the amount outstanding varies on
a daily, weekly or monthly basis depending upon a stated short-term interest rate index.
Both the lender and the borrower have the right to reduce the
amount of outstanding indebtedness at any time. There is no secondary market for the notes and it is not generally contemplated that such instruments will be traded.
The quality of the note or the underlying credit must, in the opinion of the Subadviser, be equivalent to the ratings applicable to permitted investments for
the particular Fund. The Subadviser will monitor on an ongoing basis the earning power, cash flow and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and
interest on demand.
Variable rate master demand notes may or may not be backed by bank letters of credit.
Warrant. A Warrant is a financial instrument that gives the holder the right, but not the obligation, to purchase a specified amount of an asset at a
specified price during a specified period of time.
A warrant may give its holder the right to buy shares of stock, bonds, currencies, or commodities.
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Index Warrants, a type of warrant, allow investors to take a direct position in a commodity, index, currency or
economic variable. An example of an Index Warrant is a GDP Warrant, which is a bond that allows investors to invest directly in a countrys economic growth.
A GDP Warrant creates long term securities that would be indexed on the economic growth of a country, or rather an economic zone (for example Euroland). Those
securities would have two main purposes: (i) to give those countries or other issuers another source of financing, and a new financial management tool; and (ii) to give investors a hybrid asset which has some feature(s) of an equity
security (variable return and/or capital, based on economic performances) while basically being a bond (it is a debt).
In the case of a GDP Warrant, the
index would be the Gross Domestic Product (GDP). Investing in warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security, and, thus, can be a speculative investment.
The value of a warrant may decline because of a decline in the value of the underlying security, the passage of time, changes in interest rates or in the
dividend or other policies of the company whose equity underlies the warrant or a change in the perception as to the future price of the underlying security, or any combination thereof.
Warrants generally pay no dividends and confer no voting or other rights other than to purchase the underlying security.
When-Issued Securities, Delayed Delivery and Forward Commitment Securities. When-Issued, Delayed Delivery and Forward Commitment Securities are
securities with settlement dates in excess of normal settlement periods.
Each Fund may purchase or sell securities on a forward commitment, when-issued
or delayed-delivery basis, which means delivery and payment take place in the future after the date of the commitment to purchase or sell the securities at a predetermined price and/or yield. Typically, no interest accrues to the purchaser until the
security is delivered.
When purchasing a security on a forward commitment, when-issued or delayed-delivery basis, a Fund assumes the rights and risks of
ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value.
Because the Fund is not required to pay for these securities until the delivery date, these risks are in
addition to the risks associated with the Funds other investments.
If the Fund is fully or almost fully invested when forward commitment,
when-issued or delayed-delivery purchases are outstanding, such purchases may result in a form of leverage.
A Fund intends to engage in forward
commitment, when-issued and delayed-delivery purchases to increase its portfolios financial exposure to the types of securities in which it invests. Leveraging the portfolio in this manner will increase the Funds exposure to changes in
interest rates and will increase the volatility of its returns. A Fund will segregate permissible liquid assets at least equal at all times to the amount of the Funds purchase commitments.
Securities purchased on a forward commitment, 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 purchased on a forward commitment, when-issued or delayed-delivery basis may expose a Fund to risks because they may experience such fluctuations
prior to their actual delivery.
Purchasing securities on a forward commitment, 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, when-issued or delayed-delivery basis when a Fund is fully or almost fully invested may result in greater potential fluctuation in the value of the Funds net assets and its net asset value per share.
To avoid any leveraging concerns, a Fund will segregate or earmark liquid assets in an amount at least equal in value to its commitments to purchase
when-issued and forward commitment securities for any securities with settlement dates in excess of normal settlement periods.
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INVESTMENT LIMITATIONS
Except with respect to a Funds fundamental policy relating to borrowing and non-fundamental policy relating to liquidity, if a percentage limitation
stated in the fundamental and non-fundamental policies below is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value will not result in a violation of such restriction.
Fundamental Policies
Fundamental policies cannot be
changed without the consent of the holders of a majority of each Funds outstanding shares. The term majority of the outstanding shares means the vote of (i) 67% or more of the Funds shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Funds outstanding shares, whichever is less.
The following investment limitations are fundamental policies of all of the Funds.
No Fund may:
1. With respect to 75% of each
Funds total assets , invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, repurchase
agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund.
2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment
strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for
temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets.
3. Underwrite securities issued by others,
except to the extent that the Fund may be considered an underwriter within the meaning of the 1933 Act in the sale of portfolio securities.
4. Issue senior securities (as defined in the 1940 Act), except as permitted by rule, regulation or order of the SEC.
5. Purchase the securities of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities and securities issued by investment companies) if, as a result, more than 25% of the Funds total assets would be invested in the securities of companies whose principal business activities
are in the same industry or group of industries.
6. Purchase or sell real estate, unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business).
7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments.
8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies;
(ii) enter into repurchase agreements; and (iii) lend its portfolio securities.
Non-Fundamental Policies
The following investment policies are non-fundamental policies of the Funds and may be changed by the Board without shareholder approval:
1. With respect to each Fund that is subject to Rule 35d-1 under the 1940 Act any change to a Funds investment policy of investing at
least 80% of such Funds net assets in a particular type or category of securities is subject to 60 days prior notice to shareholders.
2. No Fund may purchase or hold illiquid securities (i.e., securities that cannot be disposed of for their approximate carrying value in
seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets would be invested in illiquid securities.
THE ADVISER
General.
RidgeWorth Investments serves as investment adviser to the Funds.
RidgeWorth Investments is the trade name of RidgeWorth Capital Management LLC, a
professional investment management firm registered with the SEC under the Investment Advisers Act of 1940, as amended (the Advisers Act).
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With respect to the Fund in this SAI, the Adviser oversees the Subadviser to ensure compliance with the
respective Funds investment policies and guidelines and monitors each Subadvisers adherence to its investment style.
The Board supervises the
Adviser with respect to its processes and policies and procedures that are applicable to the Advisers management of the Funds.
The principal
business address of the Adviser is 3333 Piedmont Road, NE, Suite 1500, Atlanta, Georgia 30305.
The Adviser is indirectly owned in part by certain
investment funds (the LY Funds) that are advised by an affiliate of Lightyear Capital LLC. On May 30, 2014, the LY funds and co-investors, alongside certain employees of RidgeWorth Investments and its wholly owned subsidiaries
acquired all of the outstanding equity securities of the Adviser from SunTrust Banks, Inc.
Advisory Agreement with the Trust. The Adviser serves
as the investment adviser to each Fund pursuant to an agreement (the Advisory Agreement) with the Trust.
After the initial term, the
continuance of the Advisory Agreement must be specifically approved at least annually (i) by the vote of the Board or by a vote of the shareholders of the Funds and (ii) by the vote of a majority of the Trustees who are not parties to the
Advisory Agreements or interested persons of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Board or, with respect to any Fund, by a majority of the outstanding shares of that Fund, on not less than 30 days nor more than 60 days written notice to the Adviser, or by the Adviser on 90 days written notice to the
Trust.
The Advisory Agreement provides that the Adviser shall not be protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage commissions, and litigation and other extraordinary expenses) exceeds limitations established by certain states, the Adviser and/or the administrator will bear the amount of such excess.
The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Funds inability to qualify as a RIC under provisions
of the Internal Revenue Code.
Advisory Fees Paid to the Adviser. For its services under the Advisory Agreement, the Adviser is entitled to a fee
at the specified annual rate of each Funds average daily net assets as listed in the table that follows. Each Fund allocates and pays advisory fees among its constituent classes based on the aggregate daily net asset values of each such class.
The advisory fees for the Funds are as shown in the table on the following page.
41
|
|
|
|
|
Fund |
|
Fee |
|
Seix Floating Rate High Income Fund |
|
|
0.45 |
% |
The above fees are also subject to the following breakpoint discounts:
First $500 million = none no discount from full fee
Next $500 million = 5% discount from full fee
Next $4 billion = 10% discount from full fee
Over $5 billion = 15% discount from full fee
As discussed in the Prospectuses, the Adviser has contractually agreed to waive a portion of its fees or
reimburse expenses, with respect to certain Funds, in order to limit Fund expenses.
For the fiscal years ended March 31, 2014, March 31,
2013, and March 31, 2012, the Funds paid the following advisory fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Paid ($) |
|
|
Fees Waived ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
31,631,285 |
|
|
|
17,354,737 |
|
|
|
15,023,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Services Agreement. The Adviser provides certain services required by the Funds, including:
(i) review and approval of shareholder reports filed with the SEC,
(ii) oversight and management of the Trusts primary service providers,
(iii) due diligence reviews of the Trusts primary service providers,
(iv) coordination and negotiation of all contracts and related pricing relating to the Trusts primary service providers,
(v) coordination, performance of due diligence, and providing of information to the Independent Trustees relating to their review and
selection of prospective primary service providers to the Trust, including contract negotiations, and
(vi) the coordination of quarterly
and special board meetings.
As compensation for providing such services, each Fund pays an annual fee to the Adviser, representing a previously agreed
upon portion of the salaries, bonuses and benefits related to the primary employees responsible for delivering such services (the Services Fee).
For the fiscal year ended March 31, 2014, the Trust paid a Services Fee of $935,100 to the Adviser.
Compliance Service Fees. The Adviser provides services to the Trust to ensure compliance with applicable
laws and regulations.
The Adviser has designated a dedicated compliance staff and, prior to October 2010 and effective April 2011, an employee to serve
as Chief Compliance Officer (CCO) to the Funds.
For the fiscal year ended March 31, 2014, the Adviser received an annual fee totaling
approximately $539,386 for these services.
Foreside Compliance Services (FCS) provided CCO Support Services pursuant to a CCO Support
Services Agreement through May 31, 2012, and provides an Anti-Money Laundering Officer and Identity Theft Prevention Officer to the Trust under an AML Services Agreement.
For the fiscal year ended March 31, 2014, FCS received $10,000 for these services.
Foreside Management Services, LLC (FMS), an affiliate of the Distributor, provided a Principal Financial Officer (PFO) and Treasurer
to the Trust under a PFO/Treasurer Services Agreement until November 30, 2012.
For the period April 1, 2012 through November 30, 2012, FMS
received $78,633 for these services.
Neither FMS nor any of their officers or employees who serve as an officer of the Trust, has any role in determining
the Funds investment policies or which securities are to be purchased or sold by the Trust or its Funds. Certain officers or employees of FMS are also officers of the Trust.
42
Manager of Managers Arrangement. Pursuant to an exemptive order from the SEC and subject to certain
conditions, including Board approval, the Adviser may hire an unaffiliated subadviser for certain funds or materially amend an agreement with a Funds unaffiliated subadviser without obtaining shareholder approval.
Within 90 days of retaining a new subadviser, shareholders of the applicable Fund will receive notification of the change. This manager of managers
arrangement enables the Funds to operate with greater efficiency and without incurring the expense and delay associated with obtaining shareholder approval of subadvisory agreements. The arrangement does not permit investment advisory fees paid by a
Fund to be increased or change the Advisers obligations under the Advisory Agreement without shareholder approval. The Adviser has ultimate responsibility, subject to oversight by the Board, to oversee the subadvisers and recommend their
hiring, termination, and replacement.
THE SUBADVISERS
The Subadviser is a professional investment management firm registered with the SEC under the Advisers Act. The Subadviser is a wholly owned subsidiary of the
Adviser.
Seix Investment Advisors LLC (Seix) serves as the subadviser to the Fund pursuant to an Investment Subadvisory Agreement
between the Adviser and Seix.
For its investment subadvisory services, Seix is entitled to receive an annual fee paid by the Adviser equal to 50% of the
net advisory fee paid by each applicable Fund to the Adviser.
For the fiscal years ended March 31, 2014, March 31, 2013, and
March 31, 2012, Seix received the following subadvisory fees from the Adviser and for the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, waived the following fees:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Paid or Waived ($) |
|
Fund |
|
2014 (Paid) |
|
|
2014 (Waived) |
|
|
2013 (Paid) |
|
|
2013 (Waived) |
|
|
2012 (Paid) |
|
|
2012 (Waived) |
|
Seix Floating Rate High Income Fund |
|
|
18,978,771 |
|
|
|
|
|
|
|
10,412,842 |
|
|
|
|
|
|
|
9,014,238 |
|
|
|
|
|
The Subadviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to
certain Funds, in order to limit Fund expenses.
Investment Subadvisory Agreements. The Adviser and the Subadviser have entered into an investment
subadvisory agreement (the Investment Subadvisory Agreement) under which the Subadviser makes the investment decisions for and continuously reviews, supervises, and administers the investment program of the Fund, subject to the
supervision of, and policies established by, the Adviser and the Board.
After an initial two-year term, the continuance of the Investment Subadvisory
Agreement must be specifically approved at least annually by (i) the vote of the Trustees or a vote of the shareholders of the Fund and (ii) the vote of a majority of the Trustees who are not parties to the Investment Subadvisory Agreement
or interested persons of any party thereto, cast in person at a meeting called for the purpose of voting on such approval.
The Investment
Subadvisory Agreement will terminate automatically in the event of its assignment and is terminable at any time without penalty by:
(i) the Trustees of the Trust or, with respect to each Fund, by a majority of the outstanding
shares of that Fund,
(ii) the Adviser at any time on not less than 30 days nor more than 60 days written notice to the Subadviser, or
(iii) the Subadviser on 90 days written notice to the Adviser.
The Investment Subadvisory Agreement provides that the Subadviser shall not be protected against any liability by reason of willful misfeasance, bad faith, or
negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder.
THE PORTFOLIO MANAGERS
Set
forth below is information regarding the individuals who are primarily responsible for the day-to-day management of the Fund (portfolio managers). All information is as of March 31, 2014, unless it is noted otherwise
Management of Other Accounts. The table below shows the number of other accounts managed by each portfolio manager and the approximate total assets in
43
the accounts in each of the following categories: registered investment companies, other pooled investment vehicles and other accounts.
For each category, the table also shows the number of accounts and the approximate total assets in the accounts
with respect to which the advisory fee is based on account performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets in Accounts (in millions) ($)
and Number of Accounts |
|
Other Accounts with Performance-Based Fees |
Portfolio
Manager |
|
Registered Investment Companies1 |
|
Other Pooled Investment Vehicles |
|
Other Accounts |
|
Number & Category |
|
Total Assets (in millions) ($) |
Vincent Flanagan |
|
9,250.1/1 |
|
0/0 |
|
0/0 |
|
0/0 |
|
0/0 |
George Goudelias |
|
9,596.5/2 |
|
3,134.6/8 |
|
221.3/3 |
|
1 CLO 1 Hedge Fund |
|
327.5/2 |
1 |
Includes the RidgeWorth Funds |
CLO |
Collateralized Loan Obligation |
SMA |
Separately Managed Account |
Potential Conflicts of Interest in Managing Multiple Accounts. A portfolio managers management of
both a Fund and the other accounts listed in the table above at the same time may give rise to potential conflicts of interest.
If a Fund and the other
accounts have identical investment objectives, the portfolio manager could favor one or more accounts over the Fund.
Another potential conflict may arise
from the portfolio managers knowledge about the size, timing and possible market impact of Fund trades if the portfolio manager used this information to the advantage of other accounts and to the disadvantage of the Fund.
In addition, aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating
the securities purchased or sold.
The Subadviser has established policies and procedures to ensure that the purchase and sale of securities among all
accounts it manages are allocated in a manner the Subadviser believes is fair and equitable.
Portfolio Manager Compensation Structure.
Portfolio Managers of the Adviser and the Subadviser. Portfolio manager compensation generally consists of base salary, bonus, and various employee
benefits and may also include long-term stock awards, retention bonuses, or incentive guarantees. These components are tailored in an effort to retain high quality investment professionals and to align compensation with performance.
A portfolio managers base salary is determined by the individuals experience, responsibilities
within the firm, performance in the role, and market rate for the position.
Each portfolio managers bonus may be structured differently but
generally incorporates an evaluation of the Funds investment performance.
Investment performance may be evaluated directly against a peer group
and/or benchmark, or indirectly by measuring overall business unit financial performance over a period of time. Where applicable, investment performance is determined by comparing a Funds pre-tax total return to the returns of the Funds
peer group and benchmark over multi-year periods.
Where portfolio managers are responsible for multiple Funds or other managed accounts, each is weighted
based on its size and relative strategic importance to the Adviser and/or Subadviser.
Other subjective factors that may be considered in the calculation
of incentive bonuses include: adherence to compliance policies, risk management practices, sales/marketing, leadership, communications, corporate citizenship, and overall contribution to the firm. Bonuses are typically paid annually.
In addition, certain portfolio managers may participate in the Advisers long-term stock plan or receive a retention bonus/incentive guarantee for a
fixed period when the Adviser and/or Subadviser deem it necessary to recruit or retain the employee.
All full-time employees of the Adviser and
Subadvisers, including the Funds portfolio managers, are provided a benefits package on substantially similar terms. The percentage of each individuals
44
compensation provided by these benefits is dependent upon length of employment, salary level, and several other factors. Certain portfolio managers may also be eligible for additional benefits
upon reaching specified compensation levels of eligibility and approval by management.
Securities Ownership of Portfolio Managers. The table below shows the range of equity securities
beneficially owned by each portfolio manager in the Fund or Funds managed by the portfolio manager. The information is as of March 31, 2014.
|
|
|
|
|
Portfolio Manager |
|
RidgeWorth Fund(s) Managed |
|
Range of Securities Owned ($) |
Vincent Flanagan |
|
Seix Floating Rate High Income Fund |
|
None |
George Goudelias |
|
Seix Floating Rate High Income Fund |
|
$100,001 - $500,000 |
THE ADMINISTRATOR
General. State Street Bank and Trust Company serves as administrator (the Administrator) of the Trust. The Administrator, a Massachusetts
trust company, has its principal business offices at 100 Huntington Avenue, Boston, MA 02116. The Administrator provides administration services to other investment companies.
Administration Agreement with the Trust. The Trust and the Administrator have entered into an Administration Agreement dated August 30, 2010.
Under the Administration Agreement, the Administrator provides the Trust with administrative services, including day-to-day administration of matters necessary to each Funds operations, maintenance of records and the books of the Trust,
preparation of reports, assistance with compliance monitoring of the Funds activities, and certain supplemental services in connection with the Trusts obligations under the Sarbanes-Oxley Act of 2002.
The Administration Agreement provides that it shall remain in effect until November 1, 2017, and shall
continue in effect for successive one-year periods, unless terminated by either party on not less than 90 days written notice to the other party.
Under
the Administration Agreement, the Administrator is entitled to receive an asset-based fee, which is calculated daily and paid monthly at an annual rate based on the average daily net assets of the Trust for administration services as follows:
0.011% on the first $25 billion of net assets,
0.0040% on the next $40 billion of net assets and
0.0025% on net assets thereafter.
There is a
minimum annual charge of $45,000 per fund.
Subject to a relationship waiver of $15,000, the following table shows administrative fees paid by the Fund
for the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
2014 |
|
|
Fees Paid ($) 2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
770,505 |
|
|
|
382,363 |
|
|
|
327,214 |
|
THE DISTRIBUTOR
The Trust and RidgeWorth Distributors LLC (the Distributor) are parties to a Distribution Agreement whereby the Distributor acts as statutory
underwriter for the Trusts shares.
The principal business address of the Distributor is Three Canal Plaza, Suite 100, Portland, Maine 04101. Under
the terms of the Distribution Agreement, the Distributor must use all reasonable efforts, consistent with its other business, in connection with the continuous offering of shares of the Trust.
In addition, each of A and C Shares of the respective Funds has a distribution and service plan (the A
Shares Plan and C Shares Plan respectively).
Under the terms of the Distribution Agreement, the Trust is responsible for all
compensation paid to the Distributor for distribution services as authorized under each Funds distribution plan.
To the extent the Trust is not
authorized to make such payments or has insufficient funds under the distribution plan to pay the Distributor, the Adviser, pursuant to a Distribution Services Agreement with the Distributor, shall compensate the Distributor for any distribution
services.
45
The continuance of a distribution agreement must be specifically approved at least annually (i) by the vote
of the trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the trustees who are not parties to such distribution agreement or interested persons of any party thereto, as defined in the 1940
Act, cast in person at a meeting called for the purpose of voting on such approval.
A distribution agreement will terminate automatically in the event of
its assignment, and is terminable at any
time without penalty by the trustees, the Distributor, or, with respect to any fund, by a majority of the outstanding shares of that fund, upon 60 days written notice by either party. The
Distributor has no obligation to sell any specific quantity of Fund shares.
For the fiscal years ended March 31, 2014, March 31, 2013, and
March 31, 2012, the Distributor received and reallowed sales loads on the sale of A Shares of the Fund, as shown in the following table (amounts designated as are $0 or have been rounded to $0):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Sales Charges Payable to Distributor ($) |
|
|
Amount Reallowed by Distributor1 ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
281,970 |
|
|
|
114,736 |
|
|
|
188,752 |
|
|
|
26,993 |
|
|
|
10,024 |
|
|
|
14,366 |
|
1 |
Reflects amounts reallowed by the Distributor for allowable distribution-related expenditures and services. |
The Seix Floating Rate High Income Fund pays the following amount (reallowance) of front-end sales charge to
Dealers as a percentage of the offering price of A Shares:
|
|
|
|
|
|
|
|
|
|
|
Less than
$50,000 |
|
More than
$50,000 but less
than $100,000 |
|
More than
$100,000 but less
than $250,000 |
|
More than $250,000 but than less $500,000 |
|
More than $500,000 but less than $1,000,000 |
|
$1,000,000 and over1 |
2.25% |
|
2.00% |
|
1.75% |
|
1.50% |
|
1.25% |
|
0.00% |
1 |
While investments of more than $1,000,000 are not subject to a front-end sales charge, dealers may receive commissions ranging from 0.25% to 0.50% on such purchases. Merrill Lynch receives an additional 0.25% of the
front-end sales charge of A Shares of certain Funds. Dealer commissions on investments of over $1,000,000 are paid on a tiered basis as follows: |
|
|
|
Trade Amount |
|
Payout to Dealer |
$1,000,000 $2,999,999 |
|
0.50% |
$3,000,000 $49,999,999 |
|
0.25% |
$50,000,000 and above |
|
0.25% |
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Distributor received
and reallowed sales loads on the sale of C Shares of the Fund, as shown in the following table (amounts designated as are $0 or have been rounded to $0):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Sales Charges Payable to Distributor ($) |
|
|
Amount Reallowed by
Distributor ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
484,483 |
|
|
|
146,757 |
|
|
|
132,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
46
A Shares and C Shares Distribution Plans
The Distribution Agreement and the A Shares Plan adopted by the Trust provide that A Shares of the Funds will pay the Distributor fees for furnishing services
related to (a) the distribution and sale of shares of each Fund and (b) the shareholders servicing
of A Shares of each Fund. The table below shows the maximum amount approved by the Board of Trustees as (i) aggregate fees for distribution and shareholder service activities and
(ii) the maximum amount of the fee allocated for shareholder servicing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
Maximum A Shares Plan Distribution and Service Fee |
|
|
Current A Shares Plan Distribution and Service Fee1 |
|
|
Maximum Amount of A Shares Plan Distribution
and Service Fee Payable for Shareholder Services2 |
|
Seix Floating Rate High Income Fund |
|
|
0.35 |
% |
|
|
0.30 |
% |
|
|
0.25 |
% |
1 |
The Board has currently approved the implementation of only the amounts shown in the column above. Payments under the A Shares Plan may not exceed the amounts shown above unless the Board approves the implementation of
higher amounts. |
2 |
Up to the amounts specified may be used to provide compensation for personnel, ongoing servicing and/or maintenance of shareholder accounts with respect to the A Shares of the applicable Fund. |
In addition, the Distribution Agreement and the C Shares Plan adopted by the Trust provide that C Shares of each
applicable Fund will pay the Distributor a fee of up to 0.75% of the average daily net assets of that Fund. The Distributor can use these fees to compensate broker-dealers and service providers that provide administrative and/or distribution
services to each Fund. In addition, C Shares are subject to a service fee of up to 0.25% of the average daily net assets of the C Shares of each applicable Fund. This service fee will be used for services provided and expenses incurred in
maintaining shareholder accounts, responding to shareholder inquiries and providing information to C Shares or shareholders or their customers who beneficially own C Shares.
Services for which broker-dealers and service providers may be compensated include establishing and maintaining customer accounts and records; aggregating and
processing purchase and redemption requests from customers; placing net purchase and redemption orders; automatically investing customer account cash balances; providing periodic statements to customers; arranging for wires; answering customer
inquiries concerning their investments; assisting customers in changing dividend options, account designations, and addresses; performing sub-accounting functions; processing dividend payments from the Trust on behalf of customers; and forwarding
shareholder communications from the Trust (such as proxies, shareholder reports, and dividend distribution and tax notices) to these customers with respect to investments in the Trust. Certain state securities laws may require those financial
institutions providing such distribution services to register as dealers pursuant to state law. Although banking laws and regulations prohibit banks
from distributing shares of open-end investment companies such as the Trust, according to an opinion issued to the staff of the SEC by the Office of the Comptroller of the Currency, financial
institutions are not prohibited from acting in other capacities for investment companies, such as providing shareholder services. Should future legislative, judicial, or administrative action prohibit or restrict the activities of financial
institutions in connection with providing shareholder services, the Trust may be required to alter materially or discontinue its arrangements with such financial institutions.
The Trust has adopted the A Shares Plan and C Shares Plan, in each case, in accordance with the provisions of Rule 12b-1 under the 1940 Act, which rule
regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares. Continuance of the A Shares Plan and the C Shares Plan must be approved annually by a majority of the
Trustees and by a majority of the disinterested Trustees. Distribution related expenditures under the A Shares Plan and C Shares Plan may support the distribution of any class or combination of classes of Shares of a Fund. The A Shares Plan and C
Shares Plan require that quarterly written reports of amounts spent under the A Shares Plan and C Shares Plan, respectively, and the purposes of such expenditures be furnished to and reviewed by the Trustees. The A Shares Plan and C Shares Plan may
not be amended to increase materially the amount that may be spent thereunder without approval by a majority of the outstanding shares of the affected class of shares of the Trust. All material amendments of the Plans will require approval by a
majority of the Trustees and of the disinterested Trustees.
47
There is no sales charge on purchases of C Shares, but C Shares are subject to a contingent deferred sales
charge if they are redeemed within one year of purchase. Pursuant to the Distribution Agreement and the C Shares Plan, the C Shares are subject to an ongoing distribution and service fee calculated on each Funds aggregate average daily
net assets attributable to its C Shares.
The following amounts paid to the Distributor by the Fund (including when they were Predecessor Funds, if
applicable) under each Plan during the fiscal year ended March 31, 2014 were used as set forth below (no amounts were paid as to Sales Personnel or Interest Carrying or Other Financing Charges):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
Advertising |
|
|
Printing and Mailing of Prospectuses to Other Than Current Shareholders |
|
|
Compensation to Underwriters |
|
|
Compensation to Dealers |
|
|
Compensation to Sales Personnel |
|
|
Interest Carrying or Other Financing Charges |
|
|
Other Marketing Expenses |
|
Seix Floating Rate High Income Fund |
|
|
9,436 |
|
|
|
16,262 |
|
|
|
68,970 |
|
|
|
1,267,300 |
|
|
|
|
|
|
|
|
|
|
|
53,339 |
|
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Fund paid the following
amounts as compensation to broker-dealers pursuant to the A Shares Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Paid ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
507,127 |
|
|
|
158,057 |
|
|
|
187,420 |
|
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Fund paid the amounts
shown below as compensation to broker-dealers pursuant to the C Shares Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Paid ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
649,755 |
|
|
|
322,765 |
|
|
|
281,653 |
|
Other than any portion of the sales charges imposed on purchases, the following table shows the level of compensation paid by
the Distributor to broker-dealers selling A Shares and C Shares purchased prior to August 1, 2005, unless otherwise agreed upon by the Distributor and such broker-dealer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
Annual Payout 12b-1 Effective Immediately (A
Shares)1 |
|
|
Initial Payment - At Time Of Sale (C Shares) |
|
|
Annual Payout 12b-1 Effective in the 13th Month (C Shares)2 |
|
Fixed Income Funds |
|
|
|
|
|
|
|
|
|
|
|
|
Seix Floating Rate High Income Fund |
|
|
0.25 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
1 |
Initial Front End Sales Charge for A Shares ranges from 5.75% maximum to 1.50% depending on Fund and breakpoints (outlined in prospectus). |
2 |
The C Shares Contingent Deferred Sales Charge (CDSC) will be waived for certain retirement plan providers (Intermediary) with whom the Trust has entered into an administrative arrangement under
which the Intermediary agrees to provide certain recordkeeping or administrative services. Under such arrangements, the Trust will not pay an upfront commission. Rather, the Trust shall pay (or cause to be paid) asset-based compensation to the
Intermediary of up to 1.00% annually of the average daily net assets of the plan assets invested in C Shares of the Funds (of which 0.25% consists of the Distribution Plan service fee). The CDSC may also be waived from time to time for certain
broker-dealers that waive payment of compensation due to them. Such broker-dealers may be eligible for an immediate 12b-1 payout. |
Broker-dealers who initiate and are responsible for selling C Shares beginning August 1, 2005, may receive
an initial payment at the time of sale of 1.00%
and annual 12(b)-1 payout effective in the 13th month of 1.00%.
48
Merrill Lynch may receive an additional 0.25% payment at the time of sale related to C Shares of certain Funds.
The Distributor uses fees it has received from both the distribution plan and from contingent deferred sales charges to make these upfront payments to
broker-dealers. If, for any reason, there are insufficient fees available to the Distributor from the distribution plan and the contingent deferred sales charges, to make these payments, the Adviser will provide the Distributor prior to any such
initial payment with funds that can, in turn, be used by the Distributor to make these upfront payments to broker-dealers.
Participation Payment
Program and Other Payments. The Adviser, the Subadvisers and their affiliates may make payments to certain intermediaries for participation payment programs or other marketing support, including, but not limited to, business planning assistance,
educating dealer personnel about the Funds and shareholder financial planning needs, placement on the intermediarys preferred or recommended fund company list, sponsorships, and access to sales meetings, sales representatives and management
representatives of the dealer. Participation payment programs generally refer to negotiated ongoing marketing support, rather than ad hoc marketing support payments. All of these payments are made to intermediaries that are registered as
holders of record or dealers of record for accounts in a Fund. These payments are generally based on one or more of the following factors: average net assets of the Funds attributable to that intermediary, gross or net sales of the Funds
attributable to that intermediary, reimbursement of ticket charges (fees that an intermediary firm charges its representatives for effecting transactions in fund shares) or a negotiated lump sum payment. The Adviser, the Subadvisers and their
affiliates compensate dealers differently depending upon, among other factors, the level and/or type of marketing support provided by the intermediary.
For the 12 months ended June 30, 2014, the following firms have received participation payment program payments:
AIG Advisor Group
Ameriprise Advisor Services, Inc.
Citigroup Global Markets, Inc.
Merrill Lynch Pierce
Fenner & Smith, Inc.
Morgan Stanley Smith Barney, LLC
UBS Financial Services, Inc.
Wells Fargo Advisors, LLC
Shareholder Servicing Plans
A and I Shares. The Trust has adopted a Shareholder Servicing Plan for the A Shares and I Shares of the Funds (the A Shares and I Shares Servicing
Plans). Under the A Shares and I Shares Servicing Plans, the Funds may pay Intermediaries a fee of up to 0.40% of the average daily net assets attributable to the A Shares and I Shares for the Equity Funds and Allocation Strategies (except for
Conservative Allocation Strategy) and a fee of up to 0.20% for the Fixed Income Funds and Conservative Allocation Strategy. Intermediaries may perform, or may compensate other service providers for performing, the following shareholder services:
(i) establishing and maintaining accounts and records relating to shareholders;
(ii) processing dividend and distribution payments from a Fund on behalf of shareholders;
(iii) providing information periodically to shareholders showing their positions in shares and integrating such statements with those of other
transactions and balances in shareholders other accounts serviced by such intermediary;
(iv) arranging for bank wires;
(v) responding to shareholder inquiries relating to the services performed;
(vi) responding to routine inquiries from shareholders concerning their investment;
(vii) providing sub-accounting with respect to shares beneficially owned by shareholders, or the information to a Fund necessary for
sub-accounting;
(viii) if required by law, forwarding shareholder communications from a Fund (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices) to shareholders;
(ix) assisting in processing purchase,
exchange and redemption requests from shareholders and in placing such orders with service contractors;
(x) assisting shareholders in
changing dividend options, account designations and addresses;
(xi) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions; and
49
(xii) providing such other similar services as a Fund or its shareholders may reasonably
request to
the extent the intermediary is permitted to do so under applicable statutes, rules and regulations.
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Funds
made the following payments shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Paid ($)
(I Shares) |
|
|
Amount Paid ($)
(A Shares) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
6,731,249 |
|
|
|
3,340,000 |
1 |
|
|
2,910,818 |
|
|
|
143,428 |
|
|
|
21,005 |
1 |
|
|
17,038 |
|
1 |
The amounts in the table above reflect a revision to the amounts reported in the 2013 Annual Report which contained a transposition error. The amounts as originally presented in the 2013 Annual Report were $822,418 and
$2,538,587 for the Seix Floating Rate High Income Fund Class A and Class I, respectively. |
The Transfer Agent
Boston Financial Data Services, Inc., 2000 Crown Colony Drive, Quincy, Massachusetts 02169, serves as the transfer agent and dividend paying agent to the
Trust.
The Custodian
State Street Bank and Trust Company (State Street Bank), 200 Clarendon Street, P.O. Box 642, Boston, MA, 02117-0642 serves as the fund accounting
agent and custodian for the Trust pursuant to a Custodian Agreement dated August 30, 2010.
State Street Bank is responsible for the safekeeping of
the assets of the Funds and the fund accounting agent is responsible for calculating the Funds net asset values. State Street Bank is paid on the basis of net assets and transaction costs of the Funds.
State Street Bank also serves as the custodian and fund accounting agent for the collateral reinvestment account in which collateral on behalf of the
Funds securities lending program is maintained.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110, serves as the Trusts independent registered public accounting firm.
Legal Counsel
Morgan,
Lewis & Bockius LLP, located at 2020 K Street, NW, Washington, DC 20006, serves as legal counsel to the Trust.
Trustees of the Trust
Board Responsibilities. The management and affairs of the Trust and each of the Funds are supervised by the Board of Trustees of the Trust pursuant to
the laws of the Commonwealth of Massachusetts. The Board is responsible for overseeing each of the Funds.
The Trustees have approved contracts, as
described above, under which certain companies provide essential management services to the Trust.
Like most mutual funds, the day-to-day business of the
Trust, including the management of risk, is performed by third party service providers, such as the Adviser, Subadvisers, Distributor and Administrator.
The Trustees are responsible for overseeing the Trusts service providers and, thus, have oversight responsibility with respect to risk management
performed by those service providers.
Risk management seeks to identify and address risks, i.e., events or circumstances that could have material
adverse effects on the business, operations, shareholder services, investment performance or reputation of the Funds.
The Funds and their service
providers employ a variety of processes, procedures and controls to identify those possible events or circumstances, to lessen the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur.
Each service provider is responsible for one or more discrete aspects of the Trusts business (e.g., the Adviser and Subadvisers, as applicable,
are responsible for the day-to-day management of each Funds portfolio investments) and, consequently, for managing the risks associated with that business. The Board has emphasized to the Funds service providers the importance of
maintaining vigorous risk management.
50
The Trustees role in risk oversight begins before the inception of a Fund, at which time certain of the
Funds service providers present the Board with information concerning the investment objectives, strategies and risks of the Fund, as well as proposed investment limitations for the Fund.
Additionally, the Adviser and Subadviser provide the Board with an overview of, among other things, their investment philosophy, brokerage practices, and
compliance infrastructure. Thereafter, the Board continues its oversight function as various personnel, including the Trusts CCO, personnel of the Adviser, Subadviser, and other service providers such as the Funds independent
accountants, make periodic reports to the Audit Committee or to the Board with respect to various aspects of risk management. The Board and the Audit Committee oversee efforts by management and service providers to manage risks to which the Funds
may be exposed.
The Board is responsible for overseeing the nature, extent and quality of the services provided to the Funds by the Adviser and
Subadvisers, and receives information about those services at its regular meetings. In addition, on an annual basis, in connection with its consideration of whether to renew the advisory agreements with the Adviser and Subadvisers, the Board meets
with the Adviser and Subadvisers to review the advisory services.
Among other things, the Board regularly considers the Advisers and
Subadvisers adherence to the Funds investment restrictions and compliance with various policies and procedures and with applicable securities regulations. The Board also reviews information about the Funds investments, including,
for example, reports on the Advisers and Subadvisers use of derivatives in managing the Funds, if any, as well as reports on the Funds investments in ETFs, if any.
The Trusts Chief Compliance Officer meets regularly with the Board to review and discuss compliance issues and Fund, Adviser and Subadviser risk
assessments. At least annually, the Trusts Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trusts written policies and procedures and those of its service providers, including the
Adviser and Subadvisers.
The report addresses the operation of the policies and procedures of the Trust and each service provider since the date of the
last report; any material changes to the policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures; and any material compliance matters since the date of the last report.
The Board receives reports from the Funds service providers regarding operational risks and risks relating
to the valuation and liquidity of portfolio securities and its Valuation Committee makes regular reports to the Board concerning investments for which market quotations are not readily available.
Each year, the Trusts independent registered public accounting firm reviews with the Audit Committee its audit of the Funds financial statements,
focusing on major areas of risk encountered by the Funds and noting any significant deficiencies or material weaknesses in the Funds internal controls.
Additionally, in connection with its oversight function, the Board oversees Fund managements implementation of disclosure controls and procedures, which
are designed to ensure that information required to be disclosed by the Trust in its periodic reports with the SEC are recorded, processed, summarized, and reported within the required time periods.
The Board also oversees the Trusts internal controls over financial reporting, which comprise policies and procedures designed to provide reasonable
assurance regarding the reliability of the Trusts financial reporting and the preparation of the Trusts financial statements.
From the
Trustees review of these reports and discussions with the Adviser, Subadvisers, Funds President, Funds Chief Financial Officer, Chief Compliance Officer, independent registered public accounting firm and other service providers, the
Board and its Audit Committee learn in detail about the material risks of the Funds, thereby facilitating a dialogue about how management and service providers identify and mitigate those risks.
The Board recognizes that not all risks that may affect the Funds can be identified or quantified, that it may not be practical or cost-effective to eliminate
or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Funds goals, and that the processes, procedures and controls employed to address certain risks may be limited in their
effectiveness.
Moreover, reports received by the Trustees as to risk management matters are typically summaries of the relevant information. Most of the
Funds investment management and business affairs are carried out by or through the Funds Adviser, Subadvisers, and other service providers, each of which has an independent interest in risk management but whose policies and the methods
by which one or more risk management functions are carried out may differ from the Funds and each others in the setting of priorities, the resources available, or the effectiveness of relevant controls.
51
As a result of the foregoing and other factors, the Boards ability to monitor and manage risk, as a
practical matter, is subject to limitations.
Members of the Board. There are seven members of the Board of Trustees, all of whom except Ashi
Parikh are not interested persons of the Trust, as that term is defined in the 1940 Act (Independent Trustees).
Dr. Sidney E. Harris serves as Chairman of the Board. In his role as Chairman of the Board, Dr. Harris, among other things, presides over board
meetings; presides over executive sessions of the Independent Trustees; oversees the development of agendas for board meetings; facilitates communication between the Independent Trustees and management and among the Independent Trustees; serves as a
key point person for dealings between the Independent Trustees and management; and has such other responsibilities as the Board or Independent Trustees determine from time to time.
The Board has determined its leadership structure is appropriate given the specific characteristics and
circumstances of the Trust, including, among other things, the amount of assets under management in the Trust, the number of Funds (and classes of shares) overseen by the Board, the Trusts
policies and procedures as well as those of its service providers, and the experience and qualifications of its members.
The Board also believes that its
leadership structure facilitates the orderly and efficient flow of information to the Independent Trustees from fund management.
The Board of Trustees
has two standing committees, the Audit Committee and Governance and Nominating Committee, each of which are chaired by an Independent Trustee and composed entirely of Independent Trustees. In addition, the Board oversees the Funds Valuation
Committee, whose actions are reported to the Board at least quarterly and more frequently, if appropriate.
Set forth below are the names, age, position
with the Trust, length of term of office, and the principal occupations and other directorships held during at least the last five years of each of the persons currently serving as a Trustee of the Trust. Unless otherwise noted, the address of each
Trustee and officer is c/o RidgeWorth Investments, 3333 Piedmont Road, Suite 1500, Atlanta, Georgia 30305.
|
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|
|
Name
(month/year of birth) |
|
Position Held with the Trust |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s)
During the Past 5 Years |
|
Number of Portfolios in
the RidgeWorth Complex Overseen by Trustees |
|
Other Directorships Held By Trustee During the
Past 5 Years |
INDEPENDENT TRUSTEE |
|
|
|
|
|
|
|
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|
|
|
|
|
|
Tim E. Bentsen (August 1953) |
|
Trustee |
|
Indefinite; since 2012 |
|
Lecturer-J.M. Tull School of Accounting, Terry College of Business at University of Georgia (2013-Present); Retired. Audit Partner and Account Executive (1993- 2012); Lead Area Managing Partner (2005-2009); Atlanta Office Managing
Partner (2003-2009), KPMG LLP. |
|
30 |
|
Synovus Financial Corp.; Krispy Kreme Doughnuts, Inc. |
52
|
|
|
|
|
|
|
|
|
|
|
Name
(month/year of birth) |
|
Position Held with the Trust |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s)
During the Past 5 Years |
|
Number of Portfolios in
the RidgeWorth Complex Overseen by Trustees |
|
Other Directorships Held By Trustee During the
Past 5 Years |
INDEPENDENT TRUSTEE |
|
|
|
|
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|
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|
|
Jeffrey M. Biggar (February 1950) |
|
Trustee |
|
Indefinite; since 2007 |
|
Director of Special Gifts for Hawken School (since May 2013); Managing Director, Little Mountain Group, LLC (an independent Registered Investment Advisor consulting firm) (2011-2013); Chief Operating Officer, Cedar Brook Financial
Partners LLC (2008-2010); Chief Executive Officer and Senior Managing Director, Sterling (National City Corp.) (2000-2006). |
|
30 |
|
Multi-Manager Master Portfolios LLC (3
portfolios; thru 2013) |
|
|
|
|
|
|
George C. Guynn (December 1942) |
|
Trustee |
|
Indefinite; since 2008 |
|
Retired. President and CEO, Federal Reserve Bank of Atlanta (1996-2006). |
|
30 |
|
Genuine Parts Company; Oxford Industries; Acuity Brands, Inc.; SUSA Registered Fund LLC; Multi-Manager Master Portfolios LLC (3 portfolios; thru 2013) |
|
|
|
|
|
|
Sidney E. Harris (July 1949) |
|
Trustee |
|
Indefinite; since 2004 |
|
Adjunct Professor (since May 2014), Professor (1997 April 2014), Dean (1997-2004), J. Mack Robinson College of Business, Georgia State University. |
|
30 |
|
Total System Services, Inc.; Multi-Manager Master Portfolios LLC (3 portfolios; thru 2013) |
|
|
|
|
|
|
Warren Y. Jobe (November 1940) |
|
Trustee |
|
Indefinite; since 2004 |
|
Retired. Executive Vice President and Chief Financial Officer, Georgia Power Company (1982-1998) and Senior Vice President, Southern Company (1998-2001). |
|
30 |
|
WellPoint (thru May 2014) ; UNS Energy (thru 2013) |
|
|
|
|
|
|
Connie D. McDaniel (April 1958) |
|
Trustee |
|
Indefinite; since 2005 |
|
Retired. Vice President, Chief of Internal Audit, Corporate Audit Department (2009-2013); Vice President Global Finance Transformation (2007-2009); Vice President and Controller (1999-2007), The Coca-Cola Company. |
|
30 |
|
Total System Services, Inc. |
53
|
|
|
|
|
|
|
|
|
|
|
INTERESTED TRUSTEE |
|
|
|
|
|
|
Ashi S. Parikh* (February 1966) |
|
Trustee |
|
Indefinite; since 2013 |
|
Chief Executive Officer and Chief Investment Officer, RidgeWorth Investments (2010-present); President and Chief Investment Officer (2008-2010). |
|
30 |
|
None |
* |
Mr. Parikh is an interested person of the Trust, as defined in the 1940 Act, because he is an employee of the Adviser. |
Individual Trustee Qualifications. The Board has concluded that each of the Trustees should serve on the
Board because of his or her ability to review and understand information about the Funds provided to them by management, to identify and request other information they may deem relevant to the performance of their duties, to question management and
other service providers regarding material factors bearing on the management and administration of the Funds, and to exercise their business judgment in a manner that serves the best interests of the Funds shareholders.
The Board has concluded that each of the Trustees should serve as a Trustee based on his or her own experience, qualifications, attributes and skills as
described below.
The Board has concluded that Mr. Bentsen should serve as Trustee because of his business, accounting and auditing experience, his
knowledge of the financial services industry and his leadership roles as a Lead Area Managing Partner and Office Managing Partner with KPMG LLP provide him with management and executive experience valuable to the Board in fulfilling its oversight
responsibilities.
The Board has concluded that Mr. Biggar should serve as Trustee because of the experience he gained in a variety of roles with
different financial and banking institutions, his knowledge of the financial services industry, and the experience he has gained serving as a Trustee of the Trust since 2007.
The Board has concluded that Mr. Guynn should serve as Trustee because of his experience as a former President and Chief Executive Officer of the Federal
Reserve Bank of Atlanta, his knowledge of the financial services industry, and the experience he has gained serving as a Trustee of the Trust since 2008.
The Board has concluded that Dr. Harris should serve as Trustee because of his background in business, his knowledge of the financial services industry,
and the experience he has gained serving as a Trustee of the Funds since 2004.
The Board has concluded that Mr. Jobe should serve as Trustee because of the business experience he gained
in a variety of roles, his knowledge of the financial services industry, and the experience he has gained serving as a Trustee of the Trust since 2004.
The Board has concluded that Ms. McDaniel should serve as Trustee because of her business, financial and auditing experience, her knowledge of the
financial services industry, and the experience she has gained serving as a Trustee of the Trust since 2005.
The Board has concluded that Mr. Parikh
should serve as Trustee because of his experience as CEO and CIO of the Adviser and his knowledge of the financial services industry generally and of mutual funds, including the Trust, specifically, all of which provides him with management and
executive experience valuable to the Board in fulfilling its oversight responsibilities.
In its periodic assessment of the effectiveness of the Board,
the Board considers the complementary individual skills and experience of the individual Trustees in the broader context of the Boards overall composition so that the Board, as a body, possesses the appropriate (and appropriately diverse)
skills and experience to oversee the business of the Funds.
Moreover, references to the qualifications, attributes and skills of Trustees are pursuant to
requirements of the SEC, do not constitute holding out of the Board or any Trustee as having any special expertise or experience, and shall not be deemed to impose any greater responsibility or liability on any such person or on the Board by reason
thereof.
Board Committees. The Board has established the following committees:
Audit Committee. The Boards Audit Committee is composed exclusively of independent Trustees of the Trust.
The Audit Committee operates under a written charter approved by the Board.
54
The principal responsibilities of the Audit Committee include:
(i) recommending which firm to engage as the Trusts independent registered public accounting firm and whether to terminate this
relationship;
(ii) reviewing the independent registered public accounting firms compensation, the proposed scope and terms of its
engagement, and the firms independence; pre-approving audit and non-audit services provided by the Trusts independent registered public accounting firm to the Trust and certain other affiliated entities;
(iii) serving as a channel of communication between the independent registered public accounting firm and the Trustees;
(iv) reviewing the results of each external audit, including any qualifications in the independent registered public accounting firms
opinion, any related management letter, managements responses to recommendations made by the independent registered public accounting firm in connection with the audit,
(v) reviewing reports submitted to the Committee by any internal auditing department of the Trusts Administrator that are material to the
Trust as a whole, if any, and managements responses to any such reports;
(vi) reviewing the Trusts audited financial
statements and considering any significant disputes between the Trusts management and the independent registered public accounting firm that arose in connection with the preparation of those financial statements;
(vii) considering, in consultation with the independent registered public accounting firm and the Trusts senior internal accounting
executive, if any, the independent registered public accounting firms report on the adequacy of the Trusts internal financial controls;
(viii) reviewing, in consultation with the Trusts independent registered public accounting firm, major changes regarding auditing and
accounting principles and practices to be followed when preparing the Trusts financial statements; and
(ix) other audit related
matters.
Messrs. Bentsen, Biggar, Harris and Ms. McDaniel currently serve as members of the Audit Committee. The Audit Committee meets
periodically, as
necessary, and met two times in the most recently completed fiscal year.
Governance and
Nominating Committee. The Boards Governance and Nominating Committee is composed exclusively of independent Trustees of the Trust.
The
Governance and Nominating Committee operates under a written charter approved by the Board.
The purposes of the Governance and Nominating Committee are:
(i) to evaluate the qualifications of candidates for Trustee and to make recommendations to the Independent Trustees and the entire Board
with respect to nominations for Trustee membership on the Board when necessary or considered advisable;
(ii) to review periodically Board
governance practices, procedures and operations and to recommend any appropriate changes to the Board;
(iii) to review periodically the
size and composition of the Board and to make recommendations to the Independent Trustees and the Board as to whether it may be appropriate to add to the membership of the Board;
(iv) to review as necessary the committees established by the Board and to make recommendations to the Board;
(v) to review periodically Trustee compensation and any other benefits and to recommend any appropriate changes to the Board and the
Independent Trustees;
(vi) to review periodically and make recommendations regarding ongoing Trustee education and orientation for new
Trustees;
(vii) to make recommendations regarding any self-assessment conducted by the Board; and
(viii) to review as necessary any other similar matters relating to the governance of the Trust at the request of any Trustee or on its own
initiative.
While the Governance and Nominating Committee is solely responsible for the selection and nomination of Trustees, the Committee may consider
nominees recommended by shareholders.
55
A nomination submission must be sent in writing to the Governance and Nominating Committee, addressed to the
Secretary of the Trust, and must be accompanied by all information relating to the recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Trustees.
Nomination submissions must also be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected
by the shareholders.
Additional information must be provided regarding the recommended nominee as reasonably requested by the Governance and Nominating
Committee.
Messrs. Guynn, Harris and Jobe currently serve as members of the Governance and Nominating Committee.
The Governance and Nominating Committee meets periodically as necessary. The Governance and Nominating Committee met two times during the most recently
completed fiscal year.
Fund Shares Owned by Board Members. The following table shows the dollar amount range of each Trustees
beneficial ownership of shares of each of the Funds as of December 31, 2014. Dollar amount ranges disclosed are established by the SEC. Beneficial ownership is determined in accordance with Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934 (the 1934 Act).
|
|
|
|
|
|
|
|
|
|
|
Trustee |
|
Dollar Range of Fund Shares |
|
|
Aggregate Dollar Range of Shares in All Investment Companies Overseen
by Trustee in Family of Investment Companies |
|
Tim E. Bentsen |
|
Seix Floating Rate High Income Fund |
|
|
None. |
|
|
|
Over $100,000 |
|
Jeffrey M. Biggar |
|
Seix Floating Rate High Income Fund |
|
|
None. |
|
|
|
$0-$10,000 |
|
George C. Guynn* |
|
Seix Floating Rate High Income Fund |
|
|
None. |
|
|
|
$10,001-$50,000 |
|
Sidney E. Harris |
|
Seix Floating Rate High Income Fund |
|
|
Over $100,000 |
|
|
|
Over $100,000 |
|
Warren Y. Jobe |
|
Seix Floating Rate High Income Fund |
|
|
None. |
|
|
|
Over $100,000 |
|
Connie D. McDaniel |
|
|
|
|
|
|
|
|
Over $100,000 |
|
|
|
Seix Floating Rate High Income Fund |
|
|
$10,001-$50,000 |
|
|
|
|
|
Ashi S. Parikh |
|
Seix Floating Rate High Income Fund |
|
|
$50,001-$100,000 |
|
|
|
Over $100,000 |
|
* |
As of June 30, 2014, Mr. Guynn owns an aggregate dollar range of $10,001-$50,000 with $10,001-$50,000 in each of the U.S. Government Securities Ultra-Short Bond Fund, Ultra-Short Bond Fund and Moderate
Allocation Strategy. |
As of June 30, 2014, the Trustees and officers as a group owned less than 1% of the outstanding shares of each
class of each Fund.
Board Compensation. Effective January 1, 2015, each Independent Trustee (except for the Chair of the
Board and the Chairs of each Committee) is entitled to receive:
(i) an annual retainer fee of $92,900,
(ii) a quarterly meeting fee of $6,900, and
(iii) a special interim meeting (being a meeting that occurs between regularly scheduled meetings with limited materials for review and a
modest time commitment) fee of $4,000.
For the Chairs of each Committee, the annual retainer fee, quarterly meeting fee, and special interim meeting
fee are $103,500, $6,900 and $4,000, respectively.
For the Chair of the Board, the annual retainer fee, quarterly meeting fee, and special interim
meeting fee are $116,200, $8,700 and $5,000, respectively.
Each Trustee who is a member of the Audit Committee and/or Governance and Nominating Committee
(except for the Chair of the Committee), all of whom are Independent Trustees, receives a meeting fee of $3,500. The Chair of each Committee receives a meeting fee of $5,500.
56
Prior to January 1, 2015, each Independent Trustee (except for the Chair of the Board and the Chairs of
each Committee) is entitled to receive:
(i) an annual retainer fee of $92,900,
(ii) a quarterly meeting fee of $6,900, and
(iii) a special interim meeting (being a meeting that occurs between regularly scheduled meetings with limited materials for review and a
modest time commitment) fee of $4,000.
For the Chairs of each Committee, the annual retainer fee, quarterly meeting fee, and special interim meeting fee
are $102,200, $6,900 and $4,000, respectively.
For the Chair of the Board, the annual retainer fee, quarterly meeting fee, and special interim meeting
fee are $116,200, $8,700 and $5,000, respectively.
Each Trustee who is a member of the Audit Committee and/or Governance and Nominating Committee (except
for the Chair of the Committee), all of whom are Independent Trustees, receives a meeting fee of $3,500. The Chair of each Committee receives a meeting fee of $5,200.
Prior to January 1, 2014, each Independent Trustee (except for the Chair of the Board) received an annual retainer fee of $91,100 and a quarterly meeting
fee of $6,700. Each Independent Trustee also may have received a special interim meeting fee of $3,900.
For the Chair of the Board, the annual retainer
fee, quarterly meeting fee, and special interim meeting fee were $113,900, $8,400 and $4,900, respectively.
Each Trustee who was a member of the Audit Committee and/or Governance and Nominating Committee (except for the
Chair of the Committee), all of whom are Independent Trustees, received a meeting fee of $3,400. The Chair of each Committee received a meeting fee of $5,100.
Prior to January 1, 2013, each Independent Trustee (except for the Chair of the Board) received an annual retainer fee of $88,000 and a quarterly meeting
fee of $6,500. Each Independent Trustee also received a special interim meeting fee of $3,800.
For the Chair of the Board, the annual retainer fee,
quarterly meeting fee, and special interim meeting fee were $110,000, $8,125 and $4,750, respectively.
Each Trustee who is a member of the Audit
Committee and/or Governance and Nominating Committee (except for the Chair of the Committee), all of whom are Independent Trustees, received a meeting fee of $3,250. The Chair of each Committee received a meeting fee of $4,850.
The aggregate compensation paid to each Trustee is allocated on a pro rata basis among each Fund based on the relative net assets of each Fund. The Funds also
reimburse the Trustees for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings.
The table below shows the
compensation paid to the Trustees during the fiscal year ended March 31, 2014.
|
|
|
|
|
|
|
|
|
Name of Trustee |
|
Aggregate Compensation from the Trust ($) |
|
Pension or Retirement Benefits Accrued as Part of Fund Expenses |
|
Estimated Annual Benefits Upon Retirement |
|
Total Compensation From the Trust ($) |
Tim E. Bentsen |
|
132,150 |
|
N/A |
|
N/A |
|
132,150 |
Jeffrey M. Biggar |
|
132,150 |
|
N/A |
|
N/A |
|
132,150 |
George C. Guynn |
|
132,050 |
|
N/A |
|
N/A |
|
132,050 |
Sidney E. Harris |
|
170,475 |
|
N/A |
|
N/A |
|
170,475 |
Warren Y. Jobe |
|
137,775 |
|
N/A |
|
N/A |
|
137,775 |
Connie McDaniel |
|
137,875 |
|
N/A |
|
N/A |
|
137,875 |
Ashi S. Parikh* |
|
0 |
|
N/A |
|
N/A |
|
0 |
* |
Mr. Parikh is an Interested Trustee and therefore does not receive any compensation from the Trust. |
57
Trust Officers
The officers of the Trust, their business addresses, their ages, and their principal occupations for the last five years are set forth below. The officers of
the Trust who are employees of the Administrator may also serve as officers to one or more mutual funds for which the Administrator or its affiliates act as administrator or transfer agent.
None of the officers receive compensation from the Trust for their services.
Officers of the Trust
are elected annually by the Board and hold office until their respective successors are chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified.
|
|
|
|
|
|
|
Name, Address
and (month/year of birth) |
|
Position(s) Held
with the Trust |
|
Term of Office
and Length of Time
Served |
|
Principal Occupation(s)
During the Past 5 Years |
Julia R. Short (November 1972) |
|
President and Chief Executive Officer |
|
One year; since 2007 |
|
Managing Director, Product Manager, RidgeWorth Investments (since 2004). |
|
|
|
|
Joseph M. ODonnell (November
1954) |
|
Executive Vice President and Chief Compliance Officer |
|
One year; since 2011 |
|
Managing Director, RidgeWorth Investments (since 2011); Executive Vice President and Chief Compliance Officer, ING Funds (20042011); Senior Vice President and Chief Compliance Officer, ING Investments, LLC (20062008 and
October 20092011); and Senior Vice President and Investment Advisor Chief Compliance Officer, Directed Services LLC (20062008 and 20092011). |
|
|
|
|
Denise R. Lewis (October 1963) |
|
Treasurer and Chief Financial Officer |
|
One year; since 2012 |
|
Director of Fund Administration, RidgeWorth Investments (since 2012); Vice President of Fund Analysis and Reporting, ING Investments Management, LLC (20062012). |
|
|
|
|
Benjamin H. Lowe (March 1978) |
|
Assistant Treasurer |
|
One year; since 2012 |
|
Director of Fund Administration, RidgeWorth Investments (since 2011);
Fund Controller, ALPS Fund Services, Inc. (20052011). |
|
|
|
|
James Bacik State Street Bank and
Trust Co. 1 Iron Street
Boston, MA 02110 (May 1975) |
|
Assistant Treasurer |
|
One year; since 2010 |
|
Vice President, State Street Bank and Trust Company (since 2001).* |
|
|
|
|
Patrick J. Keniston Foreside Compliance Services, LLC
Three Canal Plaza, Suite 100 Portland, ME 04101
(January 1964) |
|
Anti-Money Laundering Officer and Identity Theft Prevention Officer |
|
One year; since 2013 |
|
Director, Foreside Compliance Services, LLC
(October 2008 present). |
|
|
|
|
Karen Jacoppo-Wood State Street Bank and Trust
Company 100 Huntington Avenue Tower 2, 3rd Floor, CPH0326
Boston, MA 02116 (December 1966) |
|
Secretary and Chief Legal Officer |
|
One year; since November 2014 |
|
Vice President and Senior Counsel, State Street Bank and Trust Company (since 2014); Vice President, RMR Advisors, Inc./ RMR Funds (20072014). |
58
|
|
|
|
|
|
|
Name, Address
and (month/year of birth) |
|
Position(s) Held
with the Trust |
|
Term of Office
and Length of Time
Served |
|
Principal Occupation(s)
During the Past 5 Years |
Timothy J. Burdick State Street Bank and Trust
Company 100 Huntington Avenue Tower 2, 3rd Floor, CPH0326
Boston, MA 02116 (October 1986) |
|
Assistant Secretary |
|
One year; since May 2014 |
|
Assistant Vice President and Associate Counsel, State Street Bank and Trust Company (since 2011); Student, Northeastern University School of Law (20082011).* |
* |
During the period indicated the Officer has held various positions at State Street Bank and Trust Company and has provided his current title. |
Purchasing and Redeeming Shares
Purchases and redemptions of shares of the Equity Funds and Fixed Income Funds may be made on any day the New York Stock Exchange (NYSE) is open
for business.
The Trust reserves the right to open the Fixed Income Funds when the principal bond markets are open for business even if the NYSE is
closed.
Shares of each Fund are offered and redeemed on a continuous basis.
Currently, the NYSE is closed on the days the following holidays are observed: New Years Day, Dr. Martin Luther King, Jr. Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Currently, the Fed and the principal bond markets are
closed on the same days that the NYSE is closed except for Good Friday. In addition, the Fed and the principal bond markets are closed on the days that Columbus Day and Veterans Day are observed.
It is currently the Trusts policy to pay for all redemptions in cash; however, the Trust retains the right to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Funds in lieu of cash.
Shareholders may incur
brokerage charges on the sale of any such securities so received in payment of redemptions. A shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trusts
net assets during any 90-day period.
The Board of Trustees has adopted procedures which permit the Trust to make in-kind redemptions to those
shareholders of the Trust that are affiliated with the Trust solely by their ownership of a certain percentage of the Trusts investment portfolios.
The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the NYSE is restricted, or during the existence of an emergency (as determined by the SEC by rule or regulation) as a result of which disposal or valuation of a Funds portfolio securities is
not reasonably practicable, or for such other periods as the SEC has by order permitted.
The Trust reserves the right to postpone payment or redemption
proceeds for up to seven days if the redemption would harm existing shareholders. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or State Street Bank
are not open for business.
The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the
Trustees, Officers or employees of the Adviser and its affiliates. Immediate Family means a spouse/domestic partner, mother, father, mother-in-law, father-in-law or children (including step children) age 21 years or under.
Currently, the front-end sales charge is waived on A Shares purchased by Trustees, Officers, employees of the Adviser, and its affiliates and their respective
immediate family members.
Rights of Accumulation. In calculating the appropriate sales charge rate, rights of accumulation allow you to add the
market value (at the close of business on the day of the current purchase) of your existing holdings in any class of shares to the amount of A shares you are currently purchasing.
The Funds will combine the value of your current purchases with the current market value of any shares previously purchased for:
59
|
|
|
your individual account(s), |
|
|
|
your spouses/domestic partners account(s), |
|
|
|
joint account(s) with your spouse/domestic partner, and
|
|
|
|
your minor childrens trust or custodial accounts. |
A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of
accumulation.
To be entitled to a reduced sales charge based on shares already owned, you must let the Funds know at the time you make the purchase for
which you are seeking the reduction that you qualify for such a reduction.
You may be required to provide the Funds with your account number(s), account
name(s), and copies of the account statements, and if applicable, the account number(s), account name(s), and copies of the account statements, for your spouse/domestic partner and/or children (and provide the childrens ages).
A financial institution may require documentation or other information in order to verify your eligibility for a reduced sales charge. The Funds may amend or
terminate this right of accumulation at any time.
Letter of Intent. A Letter of Intent allows you to purchase A Shares over a 13-month period and
receive the same sales charge as if you had purchased all the shares at the same time.
Reinvested dividends or capital gain distributions do not apply
toward these combined purchases.
To be entitled to a reduced sales charge based on shares you intend to purchase over the 13-month period, you must send
the Funds a Letter of Intent. In calculating the total amount of purchases, you may include in your Letter purchases made up to 90 days before the date of the Letter. The 13-month period begins on the date of the first purchase, including those
purchases made in the 90-day period before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted.
If
you do not complete the total intended purchase at the end of the 13-month period, the Funds transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the
amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased).
You are not legally bound by
the terms of your Letter of Intent to purchase the amount of shares stated in the Letter. The Letter does, however, authorize the Funds
to hold in escrow 2.50
% of the total amount you intend to purchase.
Determination of Net Asset Value
General Policy. Each of the Funds adheres to Section 2(a)(41), and Rule 2a-4 thereunder, of the 1940 Act with respect to the valuation of portfolio
securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Board. In complying with the 1940 Act, the
Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance.
Equity Securities.
Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except securities traded on NASDAQ), including securities traded over the counter, are valued at the official closing
price or the last quoted sale price on the principal exchange or market (foreign or domestic) on which they are traded on valuation date (or at approximately 4:00 p.m., Eastern Time if a securitys principal exchange is normally open at that
time).
If there is no official closing price and there is no such reported sale on the valuation date, the security is valued at the most recent quoted
bid price, or if such prices are not available, the security will be valued at fair value as determined in good faith by the Board. For securities traded on NASDAQ, the NASDAQ Official Closing Price is used.
Money Market Securities and other Debt Securities. If available, money market securities and other debt securities are priced based upon valuations
provided by recognized independent, third-party pricing agents.
Such values generally reflect the last reported sales price if the security is actively
traded.
The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value for such securities.
Such methodologies generally consider such factors as
security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations.
60
Money market securities and other debt securities with remaining maturities of sixty days or less may be valued
at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Board.
The prices for foreign securities are reported in local currency and converted to U.S. dollars at the exchange rate of such currencies against the U.S.
dollar, as of the close of regular trading on the NYSE (usually 4:00 p.m. Eastern Time) as provided by an independent pricing service approved by the Board.
Use of Third-Party Pricing Agents. Pursuant to contracts with the Trusts Administrator, prices for most securities held by the Funds are provided
daily by third-party independent pricing agents that are approved by the Board. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. If a security price cannot be obtained from an independent
pricing service, the Trusts accounting agent will seek to obtain a bid price from at least one independent broker.
Investments in other investment
companies are valued at their respective daily net asset values.
Amortized Cost Method of Valuation. The amortized cost method involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the
value of the instrument.
While this method provides certainty in valuation, it may result in periods during which a securitys value, as determined
by this method, is higher or lower than the price a Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily
yield of a Fund may tend to be higher than a like computation made by a company with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities.
Thus, if the use of amortized cost by a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in a Fund would be able
to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, and existing investors in a Fund would
experience a lower yield. The converse would apply in a period of rising interest rates.
Taxes
The following is a summary of certain federal income tax considerations generally affecting the Funds and their investors.
No attempt is made to present a comprehensive explanation of the federal tax treatment of a Fund or its investors, and the discussion here and in the
Trusts prospectuses is not intended as a substitute for careful tax planning.
U.S. Federal Income Tax. This discussion of federal income
tax considerations is based on the Internal Revenue Code and the regulations issued thereunder, in effect on the date of this SAI.
New legislation, as
well as administrative changes or court decisions may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein.
In order to qualify for treatment as a RIC under the Internal Revenue Code, each Fund must distribute annually to its shareholders (the Distribution
Requirement) at least the sum of 90% of its net tax exempt interest income plus 90% of its investment company taxable income (generally, net investment income plus the excess, if any, of net short-term capital gain) computed without regard to
the dividends-paid deduction and also must meet several additional requirements.
Among these requirements are the following:
(i) at least 90% of a Funds gross income each taxable year must be derived from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in
qualified publicly traded partnerships (the 90% Income Test),
(ii) at the close of each quarter of a Funds taxable year,
at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that
does not exceed 5% of the value of a Funds assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and
61
(iii) at the close of each quarter of a Funds taxable year, not more than 25% of the value
of the Funds assets may be invested in the securities (other than U.S. government securities or the securities of other RICs) of any one issuer, the securities (other than securities of other RICs) of two or more issuers engaged in the same or
similar businesses if the Fund owns at least 20% of the voting power of such issuers, or the securities of one or more qualified publicly traded partnerships.
Notwithstanding the Distribution Requirement described above, which only requires a Fund to distribute at least 90% of its net tax-exempt interest income plus
its annual investment company taxable income (computed without regard to the dividends-paid deduction) and does not require any minimum distribution of net capital gains (the excess of net long-term capital gains over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to distribute by the end of any calendar year at least the sum of 98% of its ordinary income for that year and 98.2% of its capital gain net income for the one-year period
ending on October 31 of that year (and any retained amount from that prior calendar year on which the Fund paid no federal income tax).
The Funds
intend to make sufficient distributions prior to the end of each calendar year to avoid liability for the U.S. federal excise tax applicable to RICs but can make no assurances that distributions will be sufficient to avoid this tax.
If a Fund meets the Distribution Requirement, but chooses to retain some portion of its taxable income or gains, it generally will be subject to U.S. federal
income tax at regular corporate rates on the amount retained.
A Fund may designate certain amounts retained as undistributed net capital gain in a notice
to its shareholders, who
(i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gain, their
proportionate shares of the undistributed amount so designated,
(ii) will be entitled to credit their proportionate shares of the income
tax paid by the Fund on that undistributed amount against their federal income tax liabilities and to claim refunds to the extent such credits exceed their liabilities and
(iii) will be entitled to increase their tax basis, for federal income tax purposes, in their
shares by an amount equal to the excess of the amount of undistributed net capital gain included in their respective income over their respective income tax credits.
For purposes of the 90% Income Test, the character of income earned by certain entities in which a Fund invests that are not treated as corporations for U.S.
federal income tax purposes (e.g., partnerships other than certain publicly traded partnerships or trusts that have not elected to be classified as corporations under the check-the-box regulations) will generally pass through to
the Fund. Consequently, in order to qualify as a RIC, each Fund may be required to limit its equity investments in such entities that earn fee income, rental income, or other nonqualifying income.
If a Fund fails to satisfy the 90% Income Test or diversification requirements in any taxable year, the Fund may be eligible for relief provisions if the
failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements.
Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified
period.
If a Fund fails to maintain qualification for treatment as a RIC for a tax year, and the relief provisions are not available, that Fund will be
subject to U.S. federal income tax on its taxable income and gains at corporate rates, without any deduction for distributions paid to shareholders, and distributions to shareholders (including any dividends attributable to tax-exempt interest
income or net capital gains) will be taxed as ordinary income to the extent of that Funds current and accumulated earnings and profits.
In such
case, the dividends received deduction generally will be available for eligible corporate shareholders (subject to certain limitations) and the lower tax rates applicable to qualified dividend income may be available to individual shareholders.
Distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or additional shares.
A Fund may derive capital gains and losses in connection with sales or other dispositions of its portfolio securities.
62
Distributions of net short-term capital gains are generally taxable to shareholders as ordinary income.
Distributions from any net capital gains (i.e., distributions of the excess of net long-term capital gain over net short-term capital loss) are taxable to non-corporate shareholders as long-term capital gains regardless of how long they have
held their shares in the Fund.
Long-term capital gains are generally taxed to non-corporate shareholders at rates of up to 20%.
Other dividends, other than exempt-interest dividends, are taxable either as ordinary income or as qualified dividend income, which is taxable to
non-corporate shareholders at U.S. federal income tax rates of up to 20%.
Qualified dividend income is, in general, dividend income from taxable domestic
corporations and certain foreign corporations (i.e., certain foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or certain other foreign
corporations if the stock with respect to which the dividends are paid is readily tradable on an established securities market in the United States).
In
general, a Fund may report its distributions to shareholders as qualified dividend income to the extent it receives qualified dividend income from its investments.
If 95% or more of a Funds gross income (calculated without taking into account net capital gains derived from sales or other dispositions of stock or
securities) consists of qualified dividend income, the Fund may report all distributions of such income as qualified dividend income.
In order for some
portion of the dividends received by a Fund shareholder to be qualified dividend income, the distributing Fund must meet holding period and other requirements with respect to the dividend paying stocks in its portfolio, and the shareholder must meet
holding period and other requirements with respect to the Funds shares.
A Funds participation in loans of securities may affect the amount,
timing and character of distributions to shareholders. If a Fund participates in a securities lending transaction and receives a payment in lieu of dividends (a substitute payment) with respect to securities on loan in a securities
lending transaction, such income generally will not constitute qualified dividend income and thus will not be eligible for taxation at the rates applicable to qualified dividend income.
In addition, such income will also not be qualifying dividends eligible for the dividends received
deduction for corporate investors. Withholding taxes accrued on dividends during the period that any security was not directly held by a Fund will not qualify as a foreign tax paid by a Fund and
therefore cannot be passed through to shareholders.
Distributions from a Fund and gain realized on the sale or exchange of Fund shares are subject to a
3.8% U.S. federal Medicare contribution tax on all or a portion of the net investment income of individuals with income exceeding certain threshold amounts ($250,000 if married and filing jointly or if considered a surviving
spouse for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases).
This 3.8% tax also applies to all or a
portion of the undistributed net investment income of certain shareholders that are estates and trusts. Net investment income for this purpose does not include exempt-interest dividends (described below).
At the time of an investors purchase of a Funds shares, a portion of the purchase price may be attributable to realized or unrealized appreciation
in that Funds investments or to undistributed capital gains of the Fund.
Consequently, subsequent distributions by that Fund with respect to these
shares from such appreciation or gains may be taxable to such investor even if the net asset value of the investors shares is, as a result of the distributions, reduced below the investors cost for such shares and the distributions
economically represent a return of a portion of the investment.
Shareholders who have not held Fund shares for a full year should be aware that a Fund
may report and distribute, as ordinary dividends or capital gain dividends, a percentage of income that is not equal to the percentage of the Funds ordinary income or net capital gains, respectively, actually earned during the
shareholders period of investment in the Fund.
Although dividends generally will be treated as distributed when paid, any dividend declared by a
Fund in October, November or December and payable to shareholders of record in such a month that is paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the
calendar year in which it was declared.
In addition, certain other distributions made after the close of a taxable year of a Fund may be spilled
back and treated for certain purposes as paid by the Fund during such taxable year. In such case, shareholders generally will be treated as having received such dividends in the taxable year in which the distributions were actually made.
63
For purposes of calculating the amount of a RICs undistributed income and gain subject to the 4% excise
tax described above, such spilled back dividends are treated as paid by the RIC when they are actually paid.
Each Fund in which you invest
will inform you shortly after the close of each calendar year of the amount of your ordinary income dividends, exempt-interest dividends, qualified dividend income, and capital gain distributions.
If a Funds distributions for a taxable year exceed its earnings and profits, all or a portion of the distributions made for that taxable year may be
re-characterized as a return of capital to shareholders.
A return of capital distribution will generally not be taxable, but will reduce each
shareholders cost basis in its shares in a Fund (with any such distribution in excess of that basis treated as gain from the sale of Fund shares) and result in a higher capital gain or lower capital loss when the shares on which the
distribution was received are sold.
If a shareholder that is a tax-exempt investor (e.g., a pension plan, individual retirement account, 401(k)
plan, similar tax-advantaged plan, charitable organization, etc.) incurs debt to finance the acquisition of its shares, a portion of the income received by that shareholder with respect to its shares will constitute unrelated business taxable income
(UBTI). A tax-exempt investor is generally subject to federal income tax to the extent that its UBTI for a taxable year exceeds its annual $1,000 exclusion.
Sale, Redemption or Exchange of Fund Shares
Sales and
redemptions of Fund shares are generally taxable transactions for U.S. federal, state and local income tax purposes. The Funds will treat any conversion between classes of shares of the same Fund as a tax-free event.
By contrast, the Funds will treat an exchange between classes of shares of different Funds as a taxable event.
Please consult your tax advisor regarding specific questions about federal, state and local income taxes.
In general, if Fund shares are sold or redeemed, the shareholder will recognize gain or loss equal to the difference between the amount realized on the sale
and the shareholders adjusted basis in the shares.
Any gain or loss recognized on a sale or redemption of shares of a Fund by a shareholder who
holds his or her shares as a capital asset will generally be treated as long-term capital gain or loss if the shares have been held for more than one year, and short-term if held for a year or less.
If shares held for six months or less are sold or redeemed for a loss, two special rules apply. First, if a
shareholder sells shares that have been held for six months or less, any loss recognized will be treated as long-term capital loss to the extent of any amounts treated as long-term capital gain distributions (including any amounts credited to the
shareholder as undistributed capital gain). Second, any loss recognized by a shareholder upon the sale or redemption of shares held for six months or less may be disallowed to the extent of any exempt-interest dividends received by the shareholder
with respect to such shares.
Losses on sales of shares in a tax-exempt fixed income fund generally will not be disallowed under the second rule, but a
loss on a sale of shares in an Allocation Strategy may be disallowed if the Allocation Strategy distributes exempt-interest dividends.
All or a portion
of any loss that you realize upon the redemption of your Fund shares will be disallowed to the extent that you buy other shares in a Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss
disallowed under these rules will be added to your tax basis in the new shares you buy.
Upon a redemption of a Funds shares, the Fund is generally
required to report the gross proceeds paid in the redemption.
Upon a redemption of a Funds shares purchased on or after January 1, 2012, the
Fund (or its administrative agent) is required to report to the Internal Revenue Service (IRS) and furnish to the shareholder cost basis information and indicate whether these shares had a short-term or long-term holding period.
For purposes of calculating and reporting basis, shares acquired prior to January 1, 2012 and shares acquired on or after January 1, 2012 will be
treated as held in separate accounts. If a shareholder has a different basis for different shares of a Fund acquired on or after January 1, 2012, in the same account (e.g., if a shareholder purchased Fund shares in the same account at
different times for different prices), the Fund will calculate the basis of the shares sold using its default method unless the shareholder has properly elected to use a different method.
For each sale of a Funds shares a Fund will permit Fund shareholders to elect from among several IRS-accepted cost basis methods, including the average
basis method. In the absence of an election, each Fund will use the average basis method as the default cost basis method.
64
The cost basis method elected by a Fund shareholder (or the cost basis method applied by default) for each sale
of Fund shares may not be changed after the settlement date of each such sale of Fund shares. Fund shareholders should consult with their tax advisors prior to redeeming shares to determine the best IRS-accepted cost basis method for their tax
situation and to obtain more information about how the cost basis reporting rules apply to them.
Losses on redemptions or other dispositions of shares
may be disallowed under wash sale rules in the event of other investments in the same Fund (including those made pursuant to reinvestment of dividends and/or capital gain distributions) within a period of 61 days beginning 30 days before
and ending 30 days after a redemption or other disposition of Fund shares.
A wash-sale transaction may be explained as where an investor
sells a losing security to claim a capital loss, only to repurchase it again for a bargain. Wash sales are a method investors employ to try and recognize a tax loss without actually changing their position.
In such a case, the disallowed portion of any loss generally would be included in the U.S. federal tax basis of the shares acquired in the other investments.
Under Treasury regulations, if a shareholder recognizes a loss with respect to Fund shares of $2 million or more for an individual shareholder, or $10
million or more for a corporate shareholder, in any single taxable year (or certain greater amounts over a combination of years), the shareholder must file with the IRS a disclosure statement on IRS Form 8886.
A shareholder who fails to make the required disclosure to the IRS may be subject to substantial penalties.
The fact that a loss is reportable under these regulations does not affect the legal determination of whether or not the taxpayers treatment of the loss
is proper. Shareholders should consult with their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
In certain cases, a Fund will be required to withhold, at the applicable backup withholding rate, an amount from any distributions (including
exempt-interest dividends) and any proceeds of redemptions, exchanges, or repurchases of Fund shares to shareholders, and to remit such amount to the IRS if the shareholder:
(i) has failed to provide a correct taxpayer identification number,
(ii) is subject to backup withholding by the IRS, or
(iii) has failed to provide the Fund with certain certifications that are required by the IRS,
or
(iv) has failed to certify that he or she is a U.S. person (including a U.S. resident alien).
The backup withholding rate is 28%.
U.S. Tax Treatment of
Foreign Shareholders.
Generally, nonresident aliens, foreign corporations and other foreign investors are subject to 30% withholding tax on dividends
paid by a U.S. corporation, although the rate may be reduced for an investor that is a qualified resident of a foreign country with an applicable tax treaty with the United States. Exempt-interest dividends and distributions of net capital gain are
generally exempt from this 30% withholding tax.
If a foreign investor conducts a trade or business in the United States and the investment in a Fund is
effectively connected with that trade or business or a foreign individual investor is present in the United States for 183 days or more in a calendar year, then the foreign investors income from the Fund will generally be subject to U.S.
federal income tax at graduated rates in a manner similar to the income of a U.S. citizen or resident.
Unless certain non-U.S. entities that hold Fund
shares comply with IRS requirements that will generally require them to report information regarding U.S. persons investing in, or holding accounts with, such entities, a 30% withholding tax may apply to Fund distributions other than exempt-interest
dividends payable to such entities after July 1, 2014 (or, in certain cases, after later dates) and redemptions and certain capital gain dividends payable to such entities after December 31, 2016.
A non-U.S. shareholder may be exempt from the withholding described in this paragraph under an applicable intergovernmental agreement between the U.S. and a
foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such agreement.
All foreign investors
should consult their own tax advisors regarding the tax consequences in their country of residence of an investment in the Portfolio.
Taxation of
Certain Investments
Each Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These
rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or losses or capital gains or losses, accelerate the recognition of income to a Fund, and/or defer a Funds ability to recognize losses. In turn,
these rules may affect the amount, timing or character of the income distributed to shareholders by a Fund.
65
With respect to investments in STRIPs, TRs, and other zero coupon securities which are sold at original issue
discount and thus do not make periodic cash interest payments, a Fund will be required to include as part of its current income the imputed interest on such obligations even though the Fund has not received any interest payments on such obligations
during that period.
Because each Fund distributes substantially all of its net investment income to its shareholders, a Fund may have to sell Fund
securities, or borrow cash, to distribute such imputed income. Such sales may happen at a time when the Adviser would not otherwise have chosen to sell such securities and will generally result in taxable gain or loss.
In addition, in the case of any shares of a passive foreign investment company in which a Fund invests, the Fund may be liable for corporate-level
tax on any ultimate gain or distributions on the shares if the Fund fails to make an election to recognize income annually during the period of its ownership of the shares.
The International Equity and International Equity Index Funds transactions in foreign currencies and forward foreign currency contracts will be subject
to special provisions of the Internal Revenue Code that, among other things, may affect the character of gains and losses realized by the Funds (e.g., may affect whether gains or losses are ordinary or capital), accelerate recognition of
income to the Funds and defer losses.
These rules could therefore affect the character, amount and timing of distributions to shareholders.
These provisions also may require the Funds to mark-to-market certain types of positions in their portfolios (i.e., treat them as if they were closed
out)
which may cause the Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the requirements for avoiding income and excise taxes.
Each of the Funds intends to monitor its transactions, intends to make appropriate tax elections, and intends to make appropriate entries in its books and
records when it acquires any foreign currency or forward foreign currency contract in order to mitigate the effect of these rules so as to prevent its disqualification as a RIC and minimize the imposition of income and excise taxes.
Net Capital Loss Carryforwards. The Funds utilize the provisions of the federal income tax laws that provide for the carryforward of capital losses
from prior years, offsetting such losses against any future realized capital gains.
A Fund is permitted to carry forward a net capital loss from any
taxable year that began on or before December 22, 2010 to offset its capital gains, if any, for up to eight years following the year of the loss.
Net capital losses recognized in taxable years beginning after December 22, 2010 may be carried forward indefinitely, and their character is retained as
short-term and/or long-term losses. Carryforwards of losses from taxable years that began after December 22, 2010 must be fully utilized before a Fund may utilize carryforwards of losses from taxable years that began on or before
December 22, 2010. Under certain circumstances, a Fund may elect to treat certain losses as though they were incurred on the first day of the taxable year immediately following the taxable year in which they were actually incurred.
As of March 31, 2014, the accumulated capital loss carryforwards and expiration dates for the Fund from taxable years beginning on or before
December 22, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expires |
|
Fund |
|
2015 ($) |
|
|
2016 ($) |
|
|
2017 ($) |
|
|
2018 ($) |
|
|
2019 ($) |
|
|
Total ($) |
|
Seix Floating Rate High Income Fund |
|
|
|
|
|
|
7,726,431 |
|
|
|
28,987,345 |
|
|
|
|
|
|
|
|
|
|
|
36,713,776 |
|
1 |
Of the $1,457,939 of capital loss carryforwards subject to limitations due to an ownership change on June 30, 2013, $598,615 was written off as capital loss carryforward lost unused, $28,642 was utilized, and the
remaining $830,682, will expire in 2018 if not used. |
2 |
Of the $12,251,718 of capital loss carryforwards subject to limitations due to an ownership change on January 31, 2014, $6,269,536 was written off as capital loss carryforward lost unused, $5,208,560 expired
unused, and the remaining $773,622, will expire in 2016 if not used. |
Foreign Taxes. Dividends and interest received by a Fund may be subject to income, withholding or other
taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Funds stock or securities.
66
Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to investments by foreign investors.
Each electing Fund will treat those taxes as
dividends paid to its shareholders.
Each such shareholder will be required to include a proportionate share of those taxes in gross income as income
received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign tax directly.
The shareholder may then
either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, take these taxes into account in calculating any foreign tax credit the shareholder may be entitled to use against such shareholders
U.S. federal income tax.
If either of the two above-mentioned Funds makes the election, it will report annually to its shareholders the respective
amounts per share of the Funds income from sources within, and taxes paid to, foreign countries and U.S. possessions.
Subject to certain
limitations, dividends that are attributable to interest earned on direct obligations of the U.S. government may be, in some states, exempt from certain state and local taxes. Investments in GNMA and Fannie Mae securities, bankers acceptances,
commercial paper and repurchase agreements collateralized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income may be different for corporations.
Shareholders are urged to consult their tax advisors regarding state and local taxes affecting an investment in shares of a Fund.
Foreign Taxes. Dividends and interest received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Funds stock or securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains
with respect to investments by foreign investors.
Each electing Fund will treat those taxes as dividends paid to its shareholders. Each such shareholder
will be
required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign
tax directly.
The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, take
these taxes into account in calculating any foreign tax credit the shareholder may be entitled to use against such shareholders U.S. federal income tax. If either of the two above-mentioned Funds makes the election, it will report annually to
its shareholders the respective amounts per share of the Funds income from sources within, and taxes paid to, foreign countries and U.S. possessions.
FUND TRANSACTIONS
Brokerage Transactions. The Trust has no obligation to deal with any dealer or group of dealers in the execution of transactions in portfolio
securities. Subject to policies established by the Board, the Adviser or Subadviser is responsible for placing the orders to execute transactions for a Fund.
In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the firms general execution and operational facilities, and the firms risk in positioning the securities involved.
Where possible, the Adviser or the Subadviser will deal directly with the dealers who make a market in the securities involved except in those circumstances
where better prices and execution are available elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities
may be purchased directly from the issuer.
While the Adviser or the Subadviser generally seeks reasonably competitive spreads or commissions, the Trust
will not necessarily be paying the lowest spread or commission available due to reasons described herein.
The money market securities in which the Funds
invest are traded primarily in the OTC market. Money market and debt securities are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes.
67
Certain Funds may also enter into financial futures and option contracts, which normally involve brokerage
commissions. The cost of executing fixed income portfolio securities transactions of the Trust will
primarily consist of dealer spreads and underwriting commissions.
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Fund paid
the following aggregate brokerage commissions on portfolio transactions:
|
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|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar Amount of
Brokerage Commissions Paid ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
0 |
|
|
|
614 |
|
|
|
8,973 |
|
Brokerage Selection. The Trust does not expect to use one particular broker or dealer, and when one or
more brokers is believed capable of providing the best combination of price and execution, the Funds Adviser or Subadviser may select a broker based upon brokerage or research services provided to the Adviser or Subadviser.
The Adviser or Subadviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith
determination is made that the commission is reasonable in relation to the services provided.
Section 28(e) of the 1934 Act permits the Adviser or
Subadviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in
recognition of the value of brokerage and research services provided by the broker or dealer.
In addition to agency transactions, the Adviser or
Subadviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance.
Brokerage and research services include:
(i)
furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities;
(ii) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the
performance of accounts; and
(iii) effecting securities transactions and performing functions incidental thereto (such as
clearance, settlement, and custody).
In the case of research services, the Adviser or Subadviser believes that access to independent investment research
is beneficial to their investment decision-making processes and, therefore, to each Fund.
To the extent research services may be a factor in selecting
brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information, which assists in the
valuation and pricing of investments.
Examples of research-oriented services for which the Adviser or Subadviser might utilize Fund commissions include
research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk
measurement analysis, performance and other analysis.
The Adviser or Subadviser may use research services furnished by brokers in servicing all client
accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser or Subadviser will be in addition to and not in lieu of the
services required to be performed by the Funds Adviser or Subadviser under the Advisory or Subadvisory Agreement. Any advisory or other fees paid to the Adviser or Subadviser are not reduced as a result of the receipt of research services.
In some cases the Adviser or Subadviser may receive a service from a broker that has both a research and a non-research use. When
this occurs, the Adviser or Subadviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service.
68
The percentage of the service that is used for research purposes may be paid for with client commissions, while
the Adviser or Subadviser will use its own funds to pay for the percentage of the service that is used for non-research purposes.
FINRA (the Financial Industry Regulatory Authority) has adopted rules expressly permitting these types of
arrangements under certain circumstances. Generally, the seller will provide research credits in these
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|
|
|
|
|
|
|
|
|
|
|
|
Total Dollar Amount of
Brokerage Commissions for
Research Services ($) |
|
|
Total Dollar Amount of Transactions
Involving Brokerage Commissions
For Research Services ($) |
|
Fund |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Seix Floating Rate High Income Fund |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
In making this good faith allocation, the Adviser or Subadviser faces a potential conflict of interest, but the
Adviser or Subadviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
From time to time, the Funds may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of
the selling group that will, in addition to selling securities, provide the Adviser or Subadviser with research services.
situations at a rate that is higher than that which is available for typical secondary market transactions.
These arrangements may not fall within the safe harbor of Section 28(e) of the 1934 Act.
For the fiscal years ended March 31,
2014, March 31, 2013, and March 31, 2012, the Fund paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services
to the Adviser or Subadviser:
Brokerage with Fund Affiliates. A Fund may execute brokerage or other agency transactions through
registered broker-dealer affiliates of the Fund, the Adviser, the Subadviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC.
Under the 1940 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund if written
procedures are in effect expressly permitting the affiliate to receive and retain such compensation.
These rules further require that commissions paid to
the affiliate by the Fund for exchange transactions not exceed usual and customary brokerage commissions. The rules define usual and customary commissions to include amounts which are reasonable and fair compared
to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of
time.
For those transactions not occurring on an exchange, the rules generally require that no more than two percent
be charged if the sale is effected in connection with a secondary distribution or more than one percent of the purchase or sale price if the sale is effected otherwise. The Trustees, including those who are not interested persons of the
Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically.
For the fiscal years ended March 31, 2014, March 31, 2013, and March 31, 2012, the Funds did not pay any brokerage commissions on
portfolio transactions effected by affiliated brokers.
The following table shows the value of the aggregate holdings of securities by issuers of
the Fund regular brokers or dealers (as defined in the 1940 Act) as of March 31, 2014:
69
|
|
|
|
|
Fund
Seix Floating Rate High Income Fund |
|
Dollar Amount of Securities Held as of March 31, 2014 |
|
State Street Bank and Trust Company |
|
|
563,907,620 |
|
PORTFOLIO TURNOVER RATE
Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at
the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year.
Based on this definition,
instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate.
Instruments excluded from
the calculation of portfolio turnover generally would include the futures contracts
and option contracts in which the Funds invest since such contracts generally have remaining maturities of less than one-year.
The Funds may at times hold investments in other short-term instruments such as money market instruments and repurchase agreements, which are excluded for
purposes of computing portfolio turnover.
The Funds portfolio turnover rate for the fiscal years ended March 31, 2014 and 2013 is shown in the
table below. Variations in turnover rate may be due to market conditions, fluctuating volume of shareholder purchases and redemptions or changes in the Advisers investment outlook.
|
|
|
|
|
|
|
|
|
|
|
Turnover Rate (%) |
|
Fund |
|
2014 |
|
|
2013 |
|
Seix Floating Rate High Income Fund |
|
|
47 |
|
|
|
70 |
|
70
PORTFOLIO HOLDINGS
The Board has approved a policy and procedures that govern the timing and circumstances regarding the disclosure of Fund portfolio holdings information to
shareholders and third parties.
These policies and procedures are designed to ensure that disclosure of information regarding the Funds portfolio
securities is in the best interests of Fund shareholders, and include procedures to address conflicts between the interests of the Funds shareholders, on the one hand, and those of the Funds investment adviser, principal underwriter or
any affiliated person of the Funds, its investment adviser, or its principal underwriter, on the other.
Pursuant to such procedures, the Board has
authorized the Advisers CCO to authorize the release of the Funds portfolio holdings, as necessary, in conformity with the foregoing principles and as further described below.
Pursuant to applicable law, each Fund is required to disclose its complete portfolio holdings quarterly, within 60 days of the end of each fiscal quarter
(currently, each March 31, June 30, September 30, and December 31).
Each Fund discloses a complete schedule of investments
in each Semi-Annual Report and Annual Report to Fund shareholders or, following the first and third fiscal quarters, in quarterly holdings reports filed with the SEC on Form N-Q. Semi-Annual and Annual Reports are distributed to Fund shareholders.
Quarterly holdings reports filed with the SEC on Form N-Q are not distributed to Fund shareholders, but are available, free of charge, on the EDGAR
database on the SECs website at www.sec.gov and may be reviewed and copied at the SECs public reference room. Information on the operation and terms of usage of the SEC public reference room is available at
http://www.sec.gov/info/edgar/prrrules.htm or by calling 1-800-SEC-0330. The Funds Annual Reports and Semi-Annual Reports are available, free of charge, on the Trusts website at www.ridgeworth.com.
The Trusts website will provide portfolio holdings for each Fund on the 15th day of each month (or on the next business day should the 15th be other
than a business day) as of the end of the most recent month. Information will remain available until updated.
Portfolio holdings for previous month-ends
are available for each series of the Trust. To request this historical information without charge, call
1-888-784-3863, or write to the Trust at RidgeWorth Funds, P.O. Box 8053, Boston, MA 02266-8053.
In
addition to information provided to shareholders and the general public, from time to time, rating and ranking organizations, such as S&P and Morningstar, Inc., may request complete portfolio holdings information in connection with rating the
Funds.
In most cases, the Trusts Administrator provides portfolio holdings information to ratings agencies. Institutional investors, financial
planners, pension plan sponsors and/or their consultants may request a complete list of portfolio holdings in order to assess the risks of a Funds portfolio, along with related performance attribution statistics.
The Trust believes that these third parties, which include affiliated persons, have legitimate objectives in requesting such portfolio holdings information.
The Trust may also disclose the portfolio holdings to broker-dealers in order to allow the Funds to potentially sell portfolio securities.
The Trusts policies and procedures provide that the Advisers CCO may authorize disclosure of portfolio holdings information to such parties at
differing times and/or with different lag times to such third parties provided that the recipient is by contractual agreement (i) required to maintain the confidentiality of the information and (ii) prohibited from using the information to
facilitate or assist in any securities transactions.
The Trust requires any third party receiving non-public holdings information to enter into a
confidentiality agreement with the Adviser. The confidentiality agreement provides, among other things, that non-public portfolio holdings information will be kept secret and confidential and that such information will be used solely for the purpose
of analysis and evaluation of the Funds.
Specifically, the confidentiality agreement prohibits anyone in possession of non-public portfolio holdings
information from purchasing or selling securities for their own benefit based on such information, or from disclosing such information to other persons, except for those who are actually engaged in, and need to know, such information to perform the
analysis or evaluation of the Funds.
In addition, the Trusts service providers, such as the custodian, securities lending agent, administrator and
transfer agent, may receive portfolio holdings information in connection with their services to the Funds.
71
Financial printers, proxy voting service providers and pricing vendors may receive portfolio holdings
information, as necessary, in connection with their services to the Funds.
The Funds operations are dependent on the services performed by these service
providers. Persons employed by these service providers are not required to sign and return a confidentiality agreement if, in the course of normal business, the holdings information of the Funds is disclosed, based on the assumption that such
persons generally are bound by confidentiality under their respective service agreements.
Likewise, certain temporary insiders, such as legal
counsel and accountants, will not be asked to sign a confidentiality agreement, based on the assumption that they are subject to professional duties of confidentiality.
No compensation or other consideration is paid to or received by any party in connection with the disclosure of portfolio holdings information, including the
Funds, the Adviser and its affiliates or recipient of the Funds portfolio holdings information.
DESCRIPTION OF SHARES
The Trusts Agreement and Declaration of Trust (Declaration of Trust) authorizes the issuance of an unlimited number of shares of the
Funds, each of which represents an equal proportionate interest in that Fund with each other share.
Shares are entitled upon liquidation to a pro rata
share in the net assets of the Funds. Shareholders have no preemptive rights.
The Declaration of Trust provides that the Trustees of the Trust may create
additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto.
Share certificates representing shares will not be issued.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for
each full share held on the record date for any shareholder meeting.
Each Fund will vote separately on matters relating solely to it.
As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders.
Shareholder approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances.
Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no
present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason.
In
addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting.
SHAREHOLDER LIABILITY
The
Trust is an entity of the type commonly known as a Massachusetts business trust. Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the
trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders incurring financial loss for that reason appears remote because the Trusts Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of
Trust provides for indemnification out of the Trust property for any investor held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his own willful defaults and, if
reasonable care has been exercised in the selection of officers, agents, employees or investment advisers, shall not be liable for any neglect or wrongdoing of any such person.
72
The Declaration of Trust also provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened litigation in which they may be involved because of their offices with the Trust unless it is determined in the manner provided in the Declaration of Trust that they have not
acted in good faith in the reasonable belief that their actions were in the best interests of the Trust.
However, nothing in the Declaration of Trust
shall protect or indemnify a Trustee against any liability for his willful misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Nothing contained in this section attempts to disclaim a Trustees individual liability in any manner inconsistent with the U.S. federal securities laws.
CODES OF ETHICS
The
Board has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act.
In addition, the Adviser, the Subadvisers and Foreside Financial Group, LLC
on behalf of its subsidiaries have each adopted Codes of Ethics pursuant to Rule 17j-1.
These Codes of Ethics apply to the personal investing activities
of trustees, officers and certain employees (access persons). Rule 17j-1 and the Codes of Ethics are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons.
The Code of Ethics adopted by each of these entities governs the manner and extent to which certain persons associated with that entity may invest in
securities for their own accounts, including securities that may be purchased or held by the Trust.
Under each Code of Ethics, access persons are
permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes.
In
addition, certain access persons of the Adviser and the Subadvisers are generally prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings.
Certain access persons of the Adviser and Subadvisers are required to obtain approval before investing in
limited offerings. Copies of these Codes of Ethics are on file with the SEC and are available to the public.
PROXY VOTING
The Board has
delegated the responsibility for decisions regarding proxy voting for securities held by the Funds to the Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures, summaries of which are included in Appendix B
to this SAI.
Information regarding how the Funds voted proxies during the most recent twelve-month period ended June 30 has been filed with
the SEC on Form N-PX. The Funds proxy voting record, along with the Funds full proxy voting policies and procedures, is available on the Funds website at www.ridgeworth.com, without charge upon request by calling 1-888-784-3863, or
by writing to the Funds at RidgeWorth Funds, P.O. Box 8053, Boston, MA 02266-8053. The Funds proxy voting record is also available on the SECs website at www.sec.gov.
FINANCIAL STATEMENTS
The
financial statements for the Seix Floating Rate High Income Funds fiscal year ended March 31, 2014, including notes thereto and the reports of PricewaterhouseCoopers LLP thereon, are incorporated into this SAI by reference from the 2014
Annual Report to Shareholders. The financial statements for the Seix Floating Rate High Income Funds fiscal period ended September 30, 2014, are incorporated into this SAI by reference from the 2014 Semi-Annual Report to Shareholders.
Copies of the 2014 Annual Report and Semi-Annual Report are available upon request or by visiting www.ridgeworth.com. To request a copy you may call Shareholder Services at 1-888-784-3863.
5% AND 25% SHAREHOLDERS
As of
January 22, 2015, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of the shares of the respective Funds. The nature of ownership for each position listed is
Record unless otherwise indicated. The Trust believes that most of the shares of the Funds were held for the record owners fiduciary, agency or custodial customers. An asterisk (*) indicates a beneficial owner.
73
|
|
|
|
|
Fund/Class |
|
Percent of the Class Total Assets Held by the Shareholder |
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND A
NATIONAL FINANCIAL SERVICES LLC
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-2010 |
|
|
24.52% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND A
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0002 |
|
|
11.62% |
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND A
LPL FINANCIAL
FBO CUSTOMER ACCOUNTS
ATTN MUTUAL FUND OPERATIONS
PO BOX 509046
SAN DIEGO CA 92150-9046 |
|
|
33.54% |
|
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND A
MERRILL LYNCH PIERCE FENNER & SMITH
FOR THE SOLE BENEFIT OF ITS CUSTOME
4800 DEER LAKE DRIVE EAST
JACKSONVILLE FL 32246-6484 |
|
|
6.05% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
MORGAN STANLEY SMITH BARNEY LLC
HARBORSIDE FINANCIAL CENTER
PLAZA 2 3RD FLOOR
JERSEY CITY NJ 07311 |
|
|
8.27% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0002 |
|
|
20.26% |
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
FIRST CLEARING LLC
SPECIAL CUSTODY ACCT FEBO
2801 MARKET ST
SAINT LOUIS MO 63103-2523 |
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6.33% |
|
|
|
|
|
74
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|
|
|
|
Fund/Class |
|
Percent of the Class Total Assets Held by the Shareholder |
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
UBS WM USA
OMNI ACCOUNT M/F ATTN DEPARTMENT MANAGER
1000 HARBOR BLVD 5TH FL
JERSEY CITY NJ 07310 |
|
|
5.30% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
ATTN COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100 |
|
|
6.15% |
|
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND C
MERRILL LYNCH PIERCE FENNER & SMITH
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DRIVE EAST
JACKSONVILLE FL 32246-6484 |
|
|
13.73% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND I
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0002 |
|
|
7.07% |
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND I
NATIONAL FINANCIAL SERVICES LLC
ATTN MUTUAL FUNDS DEPT
499 WASHINGTON BLVD FL 4
JERSEY CITY NJ 07310-2010 |
|
|
13.74% |
|
|
|
|
|
|
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND I
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY ACCT FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94104-4151 |
|
|
34.36% |
|
|
|
|
|
|
75
As of January 22, 2015, the following entities held of record more than 25% of the outstanding shares of a
Fund. Persons holding more than 25% of the outstanding shares of a Fund may be deemed to have control (as that term is defined in the Investment Company Act) of the applicable Fund and may be able to affect or determine the outcome of
matters presented for a vote of the shareholders of the applicable Fund.
|
|
|
|
|
Fund |
|
Percentage of Ownership |
|
RIDGEWORTH SEIX FLOATING RATE HIGH INCOME FUND
CHARLES SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO
CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY
ST SAN FRANCISCO CA 94104-4151 |
|
|
33.21% |
|
76
APPENDIX A
INVESTMENT RATINGS
A rating is generally assigned
to a fixed income security at the time of issuance by a credit rating agency designated as a nationally recognized statistical rating organization (NRSRO) by the SEC. While NRSROs may from time to time revise such ratings, they undertake
no obligation to do so, and the ratings given to securities at issuance do not necessarily represent ratings which would be given to these securities on a particular subsequent date.
Fixed income securities which are unrated expose the investor to risks with respect to capacity to pay interest or repay principal which are similar to the
risks of lower-rated speculative bonds. Evaluation of these securities is dependent on the investment advisers judgment, analysis and experience in the evaluation of such securities. Investors should note that the assignment of a rating to a
security by an NRSRO may not reflect the effect of recent developments on the issuers ability to make interest and principal payments or on the likelihood of default.
The descriptions below relate to general long-term and short-term obligations of an issuer.
Standard & Poors (S&P)
Short-Term Municipal Obligations
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 sign (+) 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.
Variable Rate Demand Notes and Tender Option Bonds
S&P assigns dual ratings to all debt issues that have a put option or demand feature as part of their structure. The first rating addresses the
likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the long-term maturity and the short-term rating symbols for the put option
(for example, AAA/A-1+). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example, SP-1+/A-1+).
Short-Term Obligations
A-1: A short-term
obligation rated A-1 is rated in the highest category by S&P. 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 having significant speculative characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions within the B category. The
obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B-1: A short-term obligation rated B-1 is regarded as having significant speculative characteristics, but the obligor has a relatively
stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-2: A short-term obligation
rated B-2 is regarded as having significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-3: A short-term obligation rated B-3 is regarded as having significant speculative characteristics, and the obligor has a relatively
weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
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,
including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless S& P believes that such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
A-1
SPUR (Underlying Rating): This 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. S&P maintains surveillance of an issue with a published SPUR.
Long-Term Obligations
AAA: An obligation rated AAA has the highest rating assigned by S&P. 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.
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, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless
S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition 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.
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 S&P does not rate a particular obligation as a matter of policy.
Moodys
Investors Service, Inc.
U.S. Municipal Short-Term Debt and Demand Obligations
There are three rating categories for short-term municipal obligations that are considered investment grade. These ratings are designated as Municipal
Investment Grade (MIG) and are divided into three levels MIG 1 through MIG 3. In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade. MIG ratings expire at the maturity of the
obligation.
MIG 1: Denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG 2: Denotes strong credit quality. Margins of protection are ample, although
not as large as in the preceding group.
A-2
MIG 3: Denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG: Denotes speculative-grade credit quality. Debt instruments in this category may
lack sufficient margins of protection.
Variable Rate Demand Obligations (VRDOs)
In the case of VRDOs, a two-component rating is assigned; a long or short-term debt rating and a demand obligation rating. The first element represents
Moodys evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moodys evaluation of the degree of risk associated with the ability to receive purchase price upon demand
(demand feature), using a variation of the MIG rating scale, the Variable Municipal Investment Grade or VMIG rating.
When either the long- or
short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
VMIG rating expirations are a function of each
issues specific structural or credit features.
VMIG 1: Denotes superior credit quality. Excellent protection is afforded by the superior
short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2: Denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural
and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 3: Denotes acceptable credit quality. Adequate protection
is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
SG: Denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an
investment grade short-term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
Variable Rate Demand Notes and Tender Option Bonds
Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled
principal and
interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
Commercial Paper (CP)
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.
Long-Term Obligations
Moodys long-term obligation
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.
Aaa: Obligations rated Aaa are judged to
be of the highest quality, with minimal 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 considered upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative
characteristics.
Ba: Obligations rated Ba are judged to have speculative elements 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 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 class and are typically in default, with little prospect for recovery of principal or interest.
A-3
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.
Fitch Ratings
Short-Term Debt Obligations
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.
Long-Term Debt Obligations
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:
|
a. |
the issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
|
b. |
the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or |
|
c. |
Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a coercive 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 filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
|
a. |
the selective payment default on a specific class or currency of debt; |
|
b. |
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;
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c. |
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 |
|
d. |
execution of a coercive debt exchange on one or more material financial obligations.
|
A-4
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 coercive 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 coercive 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.
A-5
APPENDIX B
(RIDGEWORTH LOGO)
RIDGEWORTH CAPITAL MANAGEMENT LLC PROXY
DISCLOSURE TO THE RIDGEWORTH FUNDS SHAREHOLDERS
Dear Shareholders:
Under SEC Rule 206(4)-6, investment advisers have fiduciary obligations to their clients if the advisers have authority to vote their clients proxies.
Under our standard contractual agreements, RidgeWorth Capital Management LLC. (RidgeWorth or the Firm) is authorized to vote proxies on behalf of discretionary accounts and on behalf of the RidgeWorth Funds.
The rule requires an investment adviser that exercises voting authority over client proxies to adopt policies and procedures reasonably designed to ensure
that the adviser: 1) votes proxies in the best interests of clients, 2) discloses information about those policies and procedures, 3) discloses how clients may obtain information regarding individual security proxy votes cast on their behalf, and 4)
maintains appropriate records relating to actual proxy voting.
The Firm has a Proxy Committee (Committee) that is responsible for
establishing policies and procedures reasonably designed to enable the Firm to ethically and effectively discharge its fiduciary obligation to vote all applicable proxies on behalf of all discretionary client accounts and funds, and ensure
compliance with all of the requirements. Annually (or more often as needed), the Committee will review, reaffirm and/or amend guidelines, strategies and proxy policies for all domestic and international client accounts, funds and product lines.
The Firm contracted with Glass Lewis & Co. (Glass Lewis) due to its excellent research tools, advanced technical capabilities and the
large scale system support required to accommodate an adviser of our size. Glass Lewis will act as The Firms agent to provide certain administrative, clerical, functional recordkeeping, and support services related to the Firms proxy
voting processes/procedures, which include, but are not limited to:
1. The collection of proxy material from our clients custodians.
2. The facilitation of proxy voting, reconciliation, and disclosure, in accordance with the Firms proxy policies and the
Committees direction.
3. Recordkeeping and voting record retention.
The Firm has engaged Glass Lewis to assist with physical proxy voting matters, while the Firm retains the obligation to
vote its clients proxies, to review all issues, and to actively review all information prior to determining each vote placed on behalf of its clients. The Firm will continue to utilize all
available resources to make well-informed and qualified proxy vote decisions.
As reflected in the Firms proxy guidelines, the Committee will vote
proxies in a manner deemed to be in the best economic interest of its clients, as a whole, as shareholders and beneficiaries of those actions.
The
Committee recognizes that each proxy vote must be evaluated on its own merits. Factors such as a companys organizational structure, executive and operational management, Board of Directors structure, corporate culture and governance process,
and the impact of economic, environmental and social implications remain key elements in all voting decisions. The Committee believes that it is in the best interest of shareholders to abstain from voting in countries that participate in share
blocking, as share blocking limits the trading ability of the portfolio manager.
The Committee will consider client-specific preferences and/or develop
and apply criteria unique to its client base and product lines, where appropriate. As needed, the Firm will communicate this information to Glass Lewis so those clients proxies will be voted accordingly. The Committee has reviewed Glass
Lewis capabilities as agent for the administrative services above and is confident in its abilities to provide these services effectively. The Committee will monitor such capability on an ongoing basis.
An Independent, Objective Approach to Proxy Issues
In the absence of express contractual provisions to the contrary, the Committee will vote proxies for all of the Firms discretionary investment
management clients.
The Firm maintains its own proxy guidelines for U.S. domestic and global proxy voting issues, as well as guidelines applicable to
Taft Hartley plans and relationships. ERISA accounts will be voted in accordance with the Firms U.S. Domestic Proxy Guidelines, as such guidelines include ERISA-specific guidelines and requirements. Guidelines are available as
described below.
The Firm provides and maintains the following standard proxy voting guidelines:
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RidgeWorth U.S. Domestic Proxy Guidelines (applied to both ERISA- and Non-ERISA-related accounts and funds) |
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RidgeWorth Taft Hartley Proxy Guidelines |
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RidgeWorth Global/International Proxy Guidelines |
B-1
Under the Firms Global/International Proxy Guidelines, the Committee generally votes in a manner similar
to that recommended by Glass Lewis for an accounts international holdings including, to the extent permitted by law, international holdings in ERISA accounts. In this regard, the Committee has reviewed and will monitor Glass Lewis
capabilities and conflict policies with respect to international securities proxy vote recommendations.
Exceptions to Policy
The Firms proxy policies, as outlined herein, generally will not be applied where the Firm has further delegated discretionary investment management and
the authority to vote shares to a properly appointed subadvisor, such as may be the case in some managed separate accounts, wrap programs and funds.
In
those situations, proxy votes cast by the subadvisor may be governed by the subadvisors proxy voting policies and procedures. However, currently all subadvisors to the RidgeWorth Funds have either adopted the same proxy guidelines as
RidgeWorth or RidgeWorth votes the proxies on behalf of the subadvised funds.
Conflicts of Interest
Due to its diversified client base, numerous product lines, and affiliations, the Committee may determine a potential conflict exists in connection with a
proxy vote based on the SEC guidelines. The Committee has outlined the following situations where a conflict of interest, deemed material for proxy purposes, exists:
|
1. |
Common stock of public corporate issuers with which either the Firm or its affiliates or Lightyear Capital LLC or its affiliates, have a significant, ongoing, non-investment management relationship. |
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2. |
An issuer with a director, officer or employee who presently serves as an independent director on the board of RidgeWorth Holdings LLC or Lightyear Capital LLC or its affiliates. |
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3. |
An issuer having substantial and numerous banking, investment, or other financial relationships with the Firm or its affiliates |
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4. |
A director or senior officer of the Firm or its affiliates or Lightyear Capital LLC serving on the board of a publicly held company. |
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5. |
A direct common stock ownership position of five percent (5%) or greater, held by the Firm or its affiliates. |
For these situations, the Committee has determined that the most fair and reasonable procedure to be followed in order to properly address all conflict
concerns is to retain an
independent fiduciary to vote the ballot items coded within the Firms proxy guidelines as case by case.
Additional conflicts of interests would be evaluated by the Committee on an individual basis. Although the Firm does its best to alleviate or diffuse known
conflicts, there is no guarantee that all situations have been or will be mitigated through proxy policy incorporation.
Securities Lending Program
The Firm manages assets for several clients (including the RidgeWorth Funds) that engage in securities lending programs. In a typical
securities lending program, clients or funds lend securities from their accounts/portfolios to approved broker-dealers against cash collateral. On behalf of clients and the RidgeWorth Funds, the Firm seeks to balance the economic benefits of
continuing to participate in an open securities lending transaction against the inability to vote proxies. On behalf of clients and the RidgeWorth Funds, the Firm will call loaned securities back to vote proxies, or to otherwise obtain rights to
vote or consent with respect to a material event affecting securities on loan when the adviser believes it is necessary to vote.
Additional
Information
RidgeWorth clients:
The
Firm follows different voting recommendations for different categories of clients such that votes cast on behalf of some clients may oppose votes cast on behalf of other clients. Extended summaries of the RidgeWorth Capital Management LLC U.S.
Domestic Proxy Guidelines (applies to ERISA and non-ERISA accounts and funds,) Taft Hartley Proxy Guidelines (which votes per the general guidelines put forth by the AFL-CIO), Global/International Proxy Guidelines, and voting
records are available to clients upon request. (Complete copies are quite voluminous but are also available.) For this information, or to obtain information about specific voting issues, please write to RidgeWorth Capital Management LLC, Attn: Proxy
Voting Committee Administrator, 3333 Piedmont Road NE, Suite 1500, Atlanta, GA 30305, or contact us by telephone at 877-984-7321 or via e-mail at: pmp.operations@ridgeworth.com.
RidgeWorth Funds shareholders:
Although another
investment adviser may subadvise some or all of these funds, all proxy votes are conducted by the Funds adviser, RidgeWorth, as the RidgeWorth Funds board has delegated voting authority to RidgeWorth and accordingly has adopted
RidgeWorths proxy voting policies.
Shareholders of the RidgeWorth Funds may access fund-related proxy voting information by calling 1-888-784-3863
or by visiting www.ridgeworth.com.
B-2
RidgeWorth Capital Management LLC International Proxy Voting Guidelines
February 8, 2012
Following is a concise summary
of general policies for voting global proxies. In addition, RidgeWorth has country- and market-specific policies, which are not captured below.
I.
ELECTION OF DIRECTORS
Board of Directors
Boards
are put in place to represent shareholders and protect their interests. RidgeWorth seeks boards with a proven record of protecting shareholders and delivering value over the medium- and long-term. In our view, boards working to protect and enhance
the best interests of shareholders typically include some independent directors (the percentage will vary by local market practice and regulations), boast a record of positive performance, have directors with diverse backgrounds, and appoint
directors with a breadth and depth of experience.
Board Composition
When companies disclose sufficient relevant information, we look at each individual on the board and examine his or her relationships with the company, the
companys executives and with other board members. The purpose of this inquiry is to determine whether pre-existing personal, familial or financial relationships are likely to impact the decisions of that board member. Where the company does
not disclose the names and backgrounds of director nominees with sufficient time in advance of the shareholder meeting to evaluate their independence and performance, we will consider recommending abstaining on the directors election.
We vote in favor of governance structures that will drive positive performance and enhance shareholder value. The most crucial test of a boards
commitment to the company and to its shareholders is the performance of the board and its members. The performance of directors in their capacity as board members and as executives of the company, when applicable, and in their roles at other
companies where they serve is critical to this evaluation.
We believe a director is independent if he or she has no material financial, familial or other
current relationships with the company, its executives or other board members except for service on the board and standard fees paid for that service. Relationships that have existed within the three-five years prior to the inquiry are usually
considered to be current for purposes of this test.
In our view, a director is affiliated if he or she has a material
financial, familial or other relationship with the company or its executives, but is not an employee of the company. This includes directors whose employers have a material financial relationship
with the Company. This also includes a director who owns or controls 10-20% or more of the companys voting stock.
We define an inside director as
one who simultaneously serves as a director and as an employee of the company. This category may include a chairman of the board who acts as an employee of the company or is paid as an employee of the company.
Although we typically vote for the election of directors, we will recommend voting against directors for the following reasons:
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A director who attends less than 75% of the board and applicable committee meetings. |
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A director who is also the CEO of a company where a serious restatement has occurred after the CEO certified the pre-restatement financial statements. |
We also feel that the following conflicts of interest may hinder a directors performance and will therefore recommend voting against a:
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CFO who presently sits on the board. |
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Director who presently sits on an excessive number of boards. |
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Director, or a director whose immediate family member, provides material professional services to the company at any time during the past five years. |
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Director, or a director whose immediate family member, engages in airplane, real estate or other similar deals, including perquisite type grants from the company. |
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Director with an interlocking directorship. |
Slate Elections
In some countries, companies elect their board members as a slate, whereby shareholders are unable to vote on the election of each individual director, but
rather are limited to voting for or against the board as a whole. If significant issues exist concerning one or more of the nominees or in markets where directors are generally elected individually, we will recommend voting against the entire slate
of directors.
Board Committee Composition
We
believe that independent directors should serve on a companys audit, compensation, nominating and governance committees. We will support boards with such a structure and encourage change where this is not the case.
B-3
Review of Risk Management Controls
We believe companies, particularly financial firms, should have a dedicated risk committee, or a committee of the board charged with risk oversight, as well as
a chief risk officer who reports directly to that committee, not to the CEO or another executive. In cases where a company has disclosed a sizable loss or writedown, and where a reasonable analysis indicates that the companys board-level risk
committee should be held accountable for poor oversight, we would recommend that shareholders vote against such committee members on that basis. In addition, in cases where a company maintains a significant level of financial risk exposure but fails
to disclose any explicit form of board-level risk oversight (committee or otherwise), we will consider recommending to vote against the chairman of the board on that basis.
Classified Boards
RidgeWorth favors the repeal of
staggered boards in favor of the annual election of directors. We believe that staggered boards are less accountable to shareholders than annually elected boards. Furthermore, we feel that the annual election of directors encourages board members to
focus on protecting the interests of shareholders.
II. FINANCIAL REPORTING
Accounts and Reports
Many countries require
companies to submit the annual financial statements, director reports and independent auditors reports to shareholders at a general meeting. Shareholder approval of such a proposal does not discharge the board or management. We will usually
recommend voting in favor of these proposals except when there are concerns about the integrity of the statements/reports. However, should the audited financial statements, auditors report and/or annual report not be published at the writing
of our report, we will recommend that shareholders abstain from voting on this proposal.
Income Allocation (Distribution of Dividend)
In many countries, companies must submit the allocation of income for shareholder approval. We will generally recommend voting for such a proposal. However, we
will give particular scrutiny to cases where the companys dividend payout ratio is exceptionally low or excessively high relative to its peers and the company has not provided a satisfactory explanation.
Appointment of Auditors and Authority to Set Fees
We believe that role of the auditor is crucial in protecting shareholder value. Like directors, auditors should be free from conflicts of interest and should
assiduously avoid
situations that require them to make choices between their own interests and the interests of the shareholders.
We generally support managements recommendation regarding the selection of an auditor and support granting the board the authority to fix auditor fees
except in cases where we believe the independence of an incumbent auditor or the integrity of the audit has been compromised.
However, we recommend
voting against ratification of the auditor and/or authorizing the board to set auditor fees for the following reasons:
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When audit fees added to audit-related fees total less than one-half of total fees. |
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When there have been any recent restatements or late filings by the company where the auditor bears some responsibility for the restatement or late filing (e.g., a restatement due to a reporting error).
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When the company has aggressive accounting policies. |
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When the company has poor disclosure or lack of transparency in financial statements. |
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When there are other relationships or issues of concern with the auditor that might suggest a conflict between the interest of the auditor and the interests of shareholders. |
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When the company is changing auditors as a result of a disagreement between the company and the auditor on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.
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III. COMPENSATION
Compensation
Report/Compensation Policy
We closely review companies remuneration practices and disclosure as outlined in company filings to evaluate
management-submitted advisory compensation report and policy vote proposals. In evaluating these proposals, which can be binding or non-binding depending on the country, we examine how well the company has disclosed information pertinent to its
compensation programs, the extent to which overall compensation is tied to performance, the performance metrics selected by the company and the levels of remuneration in comparison to company performance and that of its peers.
We will usually recommend voting against approval of the compensation report or policy when the following occur:
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Gross disconnect between pay and performance; |
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Performance goals and metrics are inappropriate or insufficiently challenging; |
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Lack of disclosure regarding performance metrics and goals as well as the extent to which the performance metrics, targets and goals are implemented to enhance company performance and encourage prudent risk-taking;
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B-4
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Excessive discretion afforded to or exercised by management or the compensation committee to deviate from defined performance metrics and goals in making awards; |
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Ex gratia or other non-contractual payments have been made and the reasons for making the payments have not been fully explained or the explanation is unconvincing; |
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Guaranteed bonuses are established; |
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There is no clawback policy; or |
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Egregious or excessive bonuses, equity awards or severance payments. |
Long Term Incentive Plans
RidgeWorth recognizes the value of equity-based incentive programs. When used appropriately, they can provide a vehicle for linking an
employees pay to a companys performance, thereby aligning their interests with those of shareholders. Tying a portion of an employees compensation to the performance of the Company provides an incentive to maximize share value. In
addition, equity-based compensation is an effective way to attract, retain and motivate key employees.
In order to allow for meaningful shareholder
review, we believe that incentive programs should generally include: (i) specific and appropriate performance goals; (ii) a maximum award pool; and (iii) a maximum award amount per employee. In addition, the payments made should be
reasonable relative to the performance of the business and total compensation to those covered by the plan should be in line with compensation paid by the Companys peers.
Performance-Based Equity Compensation
RidgeWorth believes in performance-based equity compensation plans for senior executives. We feel that executives should be compensated with
equity when their performance and that of the company warrants such rewards. While we do not believe that equity-based compensation plans for all employees need to be based on overall company performance, we do support such limitations for grants to
senior executives (although even some equity-based compensation of senior executives without performance criteria is acceptable, such as in the case of moderate incentive grants made in an initial offer of employment).
Boards often argue that such a proposal would hinder them in attracting talent. We believe that boards can develop a consistent, reliable
approach, as boards of many companies have, that would still attract executives who believe in their ability to guide the company to achieve its targets. We generally recommend that shareholders vote
in favor of performance-based option requirements.
There should be no retesting of
performance conditions for all share- and option- based incentive schemes. We will generally recommend that shareholders vote against performance-based equity compensation plans that allow for re-testing.
Director Compensation
RidgeWorth believes that
non-employee directors should receive appropriate types and levels of compensation for the time and effort they spend serving on the board and its committees. Director fees should be reasonable in order to retain and attract qualified individuals.
In particular, we support compensation plans that include non performance-based equity awards, which help to align the interests of outside directors with those of shareholders.
RidgeWorth compares the costs of these plans to the plans of peer companies with similar market capitalizations in the same country to help inform its
judgment on this issue.
Retirement Benefits for Directors
We will typically recommend voting against proposals to grant retirement benefits to non-executive directors. Such extended payments can impair
the objectivity and independence of these board members. Directors should receive adequate compensation for their board service through initial and annual fees.
Limits on Executive Compensation
As a general
rule, RidgeWorth believes that shareholders should not be involved in setting executive compensation. Such matters should be left to the boards compensation committee. We view the election of directors, and specifically those who sit on the
compensation committee, as the appropriate mechanism for shareholders to express their disapproval or support of board policy on this issue. Further, we believe that companies whose pay-for-performance is in line with their peers should be granted
the flexibility to compensate their executives in a manner that drives growth and profit.
However, RidgeWorth favors performance-based compensation as an
effective means of motivating executives to act in the best interests of shareholders. Performance-based compensation may be limited if a chief executives pay is capped at a low level rather than flexibly tied to the performance of the
company.
B-5
IV. GOVERNANCE STRUCTURE
Amendments to the Articles of Association
We will
evaluate proposed amendments to a companys articles of association on a case-by-case basis. We are opposed to the practice of bundling several amendments under a single proposal because it prevents shareholders from evaluating each amendment
on its own merits. In such cases, we will analyze each change individually and will recommend voting for the proposal only when we believe that the amendments on balance are in the best interests of shareholders.
Anti-Takeover Measures
Poison Pills
(Shareholder Rights Plans)
RidgeWorth believes that poison pill plans generally are not in the best interests of shareholders. Specifically, they can
reduce management accountability by substantially limiting opportunities for corporate takeovers. Rights plans can thus prevent shareholders from receiving a buy-out premium for their stock.
We believe that boards should be given wide latitude in directing the activities of the company and charting the companys course. However, on an issue
such as this where the link between the financial interests of shareholders and their right to consider and accept buyout offers is so substantial, we believe that shareholders should be allowed to vote on whether or not they support such a
plans implementation.
In certain limited circumstances, we will support a limited poison pill to accomplish a particular objective, such as the
closing of an important merger, or a pill that contains what we believe to be a reasonable qualifying offer clause.
Supermajority Vote
Requirements
RidgeWorth favors a simple majority voting structure. Supermajority vote requirements act as impediments to shareholder action on ballot
items that are critical to our interests. One key example is in the takeover context where supermajority vote requirements can strongly limit shareholders input in making decisions on such crucial matters as selling the business.
Increase in Authorized Shares
RidgeWorth believes
that having adequate capital stock available for issuance is important to the operation of a company. We will generally support proposals when a company could reasonably use the requested shares for financing, stock splits and stock dividends. While
we think that having adequate shares to allow management to make quick decisions and effectively operate the business is critical, we prefer that, for significant transactions, management come to shareholders to justify their use of additional
shares rather than providing a blank check in the form of large pools of unallocated shares available for any purpose.
In general, we will support proposals to increase authorized shares up to 100% of the number of shares currently
authorized unless, after the increase the company would be left with less than 30% of its authorized shares outstanding.
Issuance of Shares
Issuing additional shares can dilute existing holders in some circumstances. Further, the availability of additional shares, where the board has
discretion to implement a poison pill, can often serve as a deterrent to interested suitors. Accordingly, where we find that the company has not disclosed a detailed plan for use of the proposed shares, or where the number of shares requested are
excessive, we typically recommend against the issuance. In the case of a private placement, we will also consider whether the company is offering a discount to its share price.
In general, we will support proposals to issue shares (with pre-emption rights) when the requested increase is the lesser of (i) the unissued ordinary
share capital; or (ii) a sum equal to one-third of the issued ordinary share capital. This authority should not exceed five years. In some countries, if the proposal contains a figure greater than one-third, the company should explain the
nature of the additional amounts.
We will also generally support proposals to suspend pre-emption rights for a maximum of 5-20% of the issued ordinary
share capital of the company, depending on the country in which the company is located. This authority should not exceed five years, or less for some countries.
Repurchase of Shares
We will recommend voting in
favor of a proposal to repurchase shares when the plan includes the following provisions: (i) a maximum number of shares which may be purchased (typically not more than 15% of the issued share capital); and (ii) a maximum price which may
be paid for each share (as a percentage of the market price).
V. ENVIRONMENTAL AND SOCIAL RISK
We believe companies should actively evaluate risks to long-term shareholder value stemming from exposure to environmental and social risks and should
incorporate this information into their overall business risk profile. In addition, we believe companies should consider their exposure to changes in environmental or social regulation with respect to their operations as well as related legal
and reputational risks. Companies should disclose to shareholders both the nature and magnitude of such risks as well as steps they have taken or will take to mitigate those risks.
B-6
When we identify situations where shareholder value is at risk, we may recommend voting in favor of a reasonable
and well-targeted shareholder proposal if we believe supporting the proposal will promote disclosure of and/or mitigate significant risk exposure. In limited cases where a company has failed to adequately mitigate risks stemming from environmental
or social practices, we will recommend shareholders vote against: (i) ratification of board and/or management acts; (ii) approving a companys accounts and reports and/or; (iii) directors (in egregious cases).
B-7
DOMESTIC PROXY VOTING POLICY UPDATED 1/17/2014
RIDGEWORTH CAPITAL MANAGEMENT LLC.
APPLIED TO ERISA AND NON-ERISA ACCOUNTS AND FUNDS
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Number |
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Chapter |
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Section |
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Ballot Item / Proposal
[F=For, A=Against, W=Withhold, C=Case by Case, ABS=Abstain] |
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Vote |
1.0. |
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Operational Items |
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Adjourn Meeting |
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To provide management with the authority to adjourn an annual or special meeting, except in cases where it does not benefit shareholders |
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F |
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1.1. |
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Operational Items |
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Amend Quorum Requirements |
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To reduce quorum requirements for shareholder meetings below a majority of the shares outstanding |
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A |
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1.2. |
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Operational Items |
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Amend Minor Bylaws |
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To make housekeeping changes (updates or corrections) to bylaw or charter, except in cases where there is an adverse effect on shareholder value |
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F |
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1.3. |
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Operational Items |
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Change Company Name |
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To change the corporate name |
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F |
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1.4. |
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Operational Items |
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Date, Time, or Location of Annual Meeting |
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Management proposals to change the date/time/location of the annual meeting |
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F |
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1.5. |
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Operational Items |
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Date, Time, or Location of Annual Meeting |
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Shareholder proposals To change the date/time/location of the annual meeting |
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A |
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1.6. |
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Operational Items |
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Auditors |
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To ratify auditors (except as described below) |
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F |
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1.6.a |
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Operational Items |
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Auditors |
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To ratify auditors if significant material restatement, the auditors contract contains certain provisions that require the company to use alternative dispute resolution, the audit contract has limited liability clauses or any
other situation is identified that may impair the auditors ability to perform an independent audit (this can include: audit fees too low or too high, the auditor performs other work than the audit such as tax-shelter work, etc.). |
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A |
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1.7. |
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Operational Items |
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Auditors |
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Shareholder proposals asking companies to prohibit their auditors from engaging in non-audit services |
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A |
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1.8. |
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Operational Items |
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Auditors |
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Shareholder proposals to require audit firm rotation |
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A |
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1.9. |
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Operational Items |
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Transact Other Business |
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To approve other business when it appears as voting item |
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A |
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1.10. |
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Operational Items |
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Exclusive Forum Provision |
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To limit a shareholders choice of legal venue |
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C |
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2.0. |
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Board of Directors |
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Voting on Director Nominees in Uncontested Elections |
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Director nominees are evaluated taking into consideration independence, performance, experience, and corporate governance. |
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C |
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2.1. |
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Board of Directors |
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Age Limits |
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To limit the tenure of outside directors either through term limits or mandatory retirement ages. |
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A |
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2.2. |
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Board of Directors |
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Board Size |
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To fix the board size or designate a range for the board size |
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F |
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2.3. |
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Board of Directors |
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Board Size |
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To give management the ability to alter the size of the board outside of a specified range without shareholder approval |
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A |
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2.4. |
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Board of Directors |
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Classification/ Declassification of the Board |
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Management and shareholder proposals to classify the board |
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C |
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2.5. |
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Board of Directors |
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Classification/ Declassification of the Board |
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Management and shareholder proposals to repeal classified boards and to elect all directors annually. |
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F |
B-8
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2.6. |
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Board of Directors |
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Cumulative Voting |
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To eliminate cumulative voting. |
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F |
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2.7. |
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Board of Directors |
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Cumulative Voting |
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To restore or permit cumulative voting when a company has some form of majority voting in place, has not adopted anti takeover protections and has been responsive to shareholders. |
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A |
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2.8. |
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Board of Directors |
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Cumulative Voting |
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To restore or permit cumulative voting when a company does not have any form of majority voting in place |
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F |
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2.9. |
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Board of Directors |
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Director and Officer Indemnification and Liability Protection |
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Proposals on director and officer indemnification and liability protection not particularly described below. |
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C |
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2.10. |
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Board of Directors |
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Director and Officer Indemnification and Liability Protection |
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To eliminate entirely directors and officers liability for monetary damages for violating the duty of care. |
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A |
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2.11. |
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Board of Directors |
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Director and Officer Indemnification and Liability Protection |
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To expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness |
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A |
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2.12. |
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Board of Directors |
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Director and Officer Indemnification and Liability Protection |
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To expand coverage in cases when a directors or officers legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of
the company, and (2) only if the directors legal expenses would be covered. |
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F |
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2.13. |
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Board of Directors |
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Establish/ Amend Nominee Qualifications |
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To establish or amend director qualifications |
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A |
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2.14. |
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Board of Directors |
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Establish/ Amend Nominee Qualifications |
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Shareholder proposals requiring two candidates per board seat |
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A |
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2.15. |
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Board of Directors |
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Filling Vacancies/ Removal of Directors |
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To provide that directors may be removed only for cause. |
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A |
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2.16. |
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Board of Directors |
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Filling Vacancies/ Removal of Directors |
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To restore shareholder ability to remove directors with or without cause. |
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F |
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2.17. |
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Board of Directors |
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Filling Vacancies/ Removal of Directors |
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To provide that only continuing directors may elect replacements to fill board vacancies. |
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A |
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2.18. |
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Board of Directors |
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Filling Vacancies/ Removal of Directors |
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To permit shareholders to elect directors to fill board vacancies. |
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F |
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2.19. |
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Board of Directors |
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Independent Chairman (Separate Chairman/ CEO) |
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To recommend that the positions of chairman and CEO be combined. |
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C |
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2.20. |
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Board of Directors |
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Independent Chairman (Separate Chairman/ CEO) |
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To recommend that the positions of chairman and CEO be separate and distinct positions held by 2 different individuals. |
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A |
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2.21. |
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Board of Directors |
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Majority of Independent Directors/ Establishment of Committees |
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Shareholder proposals to require that a majority or more of directors be independent |
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F |
B-9
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2.22. |
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Board of Directors |
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Majority of Independent Directors/ Establishment of Committees |
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Shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors |
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F |
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2.23. |
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Board of Directors |
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Proxy Access |
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Shareholder proposals asking for proxy access |
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C |
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2.24. |
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Board of Directors |
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Stock Ownership Requirements |
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Shareholder proposals that mandate a minimum amount of stock that directors must own in order to qualify as a director or to remain on the board |
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A |
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2.25. |
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Board of Directors |
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Stock Ownership Requirements |
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Shareholder proposals asking that the company adopt a holding or retention period for its executives (for holding stock after the vesting or exercise of equity awards) |
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A |
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2.26. |
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Board of Directors |
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Term Limits |
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Shareholder or management proposals to limit the tenure of outside directors |
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A |
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2.30. |
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Board of Directors |
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Majority Voting Standard |
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Shareholder proposals requesting a majority voting standard on election of directors |
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F |
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3.0. |
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Proxy Contests |
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Voting for Director Nominees in Contested Elections |
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Votes in a contested election of directors |
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C |
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3.1.a |
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Proxy Contests |
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Reimbursing Proxy Solicitation Expenses |
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To reimburse proxy solicitation expenses if dissident wins |
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F |
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3.1.b |
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Proxy Contests |
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Reimbursing Proxy Solicitation Expenses |
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To reimburse proxy solicitation expenses (unless described above) |
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A |
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3.2. |
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Proxy Contests |
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Confidential Voting |
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Shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election |
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A |
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3.3. |
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Proxy Contests |
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Confidential Voting |
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Management proposals to adopt confidential voting. |
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A |
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4.0. |
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Antitakeover Defenses and Voting Related Issues |
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Advance Notice Requirements for Shareholder Proposals/Nominations |
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Advance notice proposals |
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F |
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4.1. |
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Antitakeover Defenses and Voting Related Issues |
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Amend Bylaws without Shareholder Consent |
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Proposals giving the board exclusive authority to amend the bylaws |
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F |
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4.2. |
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Antitakeover Defenses and Voting Related Issues |
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Amend Bylaws without Shareholder Consent |
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Proposals giving the board the ability to amend the bylaws in addition to shareholders |
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F |
B-10
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4.3. |
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Antitakeover Defenses and Voting Related Issues |
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Poison Pills |
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Shareholder proposals that ask a company to submit its poison pill for shareholder ratification |
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C |
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4.4. |
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Antitakeover Defenses and Voting Related Issues |
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Poison Pills |
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Shareholder proposals asking that any future pill be put to a shareholder vote |
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F |
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4.5.a |
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Antitakeover Defenses and Voting Related Issues |
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Poison Pills |
|
Management proposals to ratify a poison pill |
|
C |
|
|
|
|
|
4.6. |
|
Antitakeover Defenses and Voting Related Issues |
|
Shareholder Ability to Act by Written Consent |
|
To restrict or prohibit shareholder ability to take action by written consent |
|
A |
|
|
|
|
|
4.7. |
|
Antitakeover Defenses and Voting Related Issues |
|
Shareholder Ability to Act by Written Consent |
|
To allow or make easier shareholder action by written consent |
|
F |
|
|
|
|
|
4.8. |
|
Antitakeover Defenses and Voting Related Issues |
|
Shareholder Ability to Call Special Meetings |
|
To restrict or prohibit shareholder ability to call special meetings. |
|
A |
|
|
|
|
|
4.9. |
|
Antitakeover Defenses and Voting Related Issues |
|
Shareholder Ability to Call Special Meetings |
|
To remove restrictions on the right of shareholders to act independently of management. |
|
F |
|
|
|
|
|
4.10. |
|
Antitakeover Defenses and Voting Related Issues |
|
Supermajority Vote Requirements |
|
To require a supermajority shareholder vote pertaining to issues other than election of directors. |
|
A |
|
|
|
|
|
4.11. |
|
Antitakeover Defenses and Voting Related Issues |
|
Supermajority Vote Requirements |
|
To lower supermajority vote requirements pertaining to issues other than election of directors. |
|
F |
|
|
|
|
|
5.0. |
|
Mergers and Corporate Restructurings |
|
Appraisal Rights |
|
To restore, or provide shareholders with, rights of appraisal. |
|
A |
B-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1. |
|
Mergers and Corporate Restructurings |
|
Asset Purchases |
|
On asset purchase proposals |
|
C |
|
|
|
|
|
5.2. |
|
Mergers and Corporate Restructurings |
|
Asset Sales |
|
Asset sales |
|
C |
|
|
|
|
|
5.3. |
|
Mergers and Corporate Restructurings |
|
Bundled Proposals |
|
Bundled or conditioned proxy proposals |
|
C |
|
|
|
|
|
5.4. |
|
Mergers and Corporate Restructurings |
|
Conversion of Securities |
|
Proposals regarding conversion of securities, absent penalties or likely bankruptcy. |
|
C |
|
|
|
|
|
5.5. |
|
Mergers and Corporate Restructurings |
|
Conversion of Securities |
|
Proposals regarding conversion of securities, if it is expected that the company will be subject to onerous penalties or will be forced to file for bankruptcy if the transaction is not approved. |
|
F |
|
|
|
|
|
5.6. |
|
Mergers and Corporate Restructurings |
|
Corporate Reorganization |
|
Proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan, absent likely bankruptcy. |
|
C |
|
|
|
|
|
5.7. |
|
Mergers and Corporate Restructurings |
|
Corporate Reorganization |
|
Proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan where bankruptcy is likely if the transaction is not approved |
|
F |
|
|
|
|
|
5.8. |
|
Mergers and Corporate Restructurings |
|
Formation of Holding Company |
|
To form a holding company |
|
C |
|
|
|
|
|
5.9. |
|
Mergers and Corporate Restructurings |
|
Going Private Transactions (LBOs and Minority Squeeze outs) |
|
To make the company private rather than public |
|
C |
|
|
|
|
|
5.10. |
|
Mergers and Corporate Restructurings |
|
Joint Ventures |
|
To form joint ventures |
|
C |
|
|
|
|
|
5.11. |
|
Mergers and Corporate Restructurings |
|
Liquidations |
|
To liquidate when bankruptcy is not likely |
|
C |
|
|
|
|
|
5.12. |
|
Mergers and Corporate Restructurings |
|
Liquidations |
|
To liquidate when bankruptcy is likely |
|
F |
|
|
|
|
|
5.13. |
|
Mergers and Corporate Restructurings |
|
Mergers and Acquisitions/ Issuance of Shares to Facilitate Merger or Acquisition |
|
To merge with or acquire another company |
|
C |
|
|
|
|
|
5.14. |
|
Mergers and Corporate Restructurings |
|
Private Placements/ Warrants/ Convertible Debentures |
|
To issue a private placement security when bankruptcy is not likely |
|
C |
B-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.15. |
|
Mergers and Corporate Restructurings |
|
Private Placements/ Warrants/ Convertible Debentures |
|
To issue a private placement security when bankruptcy is likely |
|
F |
|
|
|
|
|
5.16. |
|
Mergers and Corporate Restructurings |
|
Spin-offs |
|
To spin off a unit or line of business |
|
C |
|
|
|
|
|
5.17. |
|
Mergers and Corporate Restructurings |
|
Value Maximization Proposals |
|
To maximize shareholder value by hiring a financial advisor to explore strategic alternatives, selling the company or liquidating the company and distributing the proceeds to shareholders. |
|
C |
|
|
|
|
|
6.0. |
|
State of Incorporation |
|
Control Share Acquisition Provisions |
|
To opt out of control share acquisition statutes |
|
F |
|
|
|
|
|
6.1. |
|
State of Incorporation |
|
Control Share Acquisition Provisions |
|
To amend the charter to include control share acquisition provisions. |
|
A |
|
|
|
|
|
6.2. |
|
State of Incorporation |
|
Control Share Acquisition Provisions |
|
To restore voting rights to the control shares. |
|
F |
|
|
|
|
|
6.3. |
|
State of Incorporation |
|
Control Share Cash out Provisions |
|
To opt out of control share cash out statutes. |
|
F |
|
|
|
|
|
6.4. |
|
State of Incorporation |
|
Disgorgement Provisions |
|
To opt out of state disgorgement provisions. |
|
F |
|
|
|
|
|
6.5. |
|
State of Incorporation |
|
Fair Price Provisions |
|
To adopt fair price provisions |
|
C |
|
|
|
|
|
6.6. |
|
State of Incorporation |
|
Fair Price Provisions |
|
To adopt fair price provisions with shareholder vote requirements greater than a majority of disinterested shares. |
|
A |
|
|
|
|
|
6.7. |
|
State of Incorporation |
|
Freeze Out |
|
proposals to opt out of state freeze out provisions |
|
F |
|
|
|
|
|
6.8. |
|
State of Incorporation |
|
Greenmail |
|
To adopt anti greenmail charter of bylaw amendments
Or otherwise restrict a companys ability to make greenmail payments. |
|
F |
|
|
|
|
|
6.9. |
|
State of Incorporation |
|
Greenmail |
|
To adopt anti greenmail proposals when they are bundled with other charter or bylaw amendments. |
|
F |
|
|
|
|
|
6.10. |
|
State of Incorporation |
|
Reincorporation Proposals |
|
To change a companys state of incorporation |
|
C |
|
|
|
|
|
6.11. |
|
State of Incorporation |
|
Stakeholder Provisions |
|
To consider non-shareholder constituencies or other non-financial effects when evaluating a merger or business combination. |
|
A |
|
|
|
|
|
6.12. |
|
State of Incorporation |
|
State Anti takeover Statutes |
|
To opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freeze out provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and
labor contract provisions, anti greenmail provisions, and disgorgement provisions). |
|
C |
|
|
|
|
|
7.0. |
|
Capital Structure |
|
Adjustments to Par Value of Common Stock |
|
Management proposals to reduce or eliminate the par value of common stock. |
|
F |
|
|
|
|
|
7.1. |
|
Capital Structure |
|
Common Stock Authorization |
|
To increase the number of shares of common stock authorized for issuance |
|
C |
|
|
|
|
|
7.2. |
|
Capital Structure |
|
Common Stock Authorization |
|
To increase the number of authorized shares of the class of stock that has superior voting rights. |
|
C |
|
|
|
|
|
7.3. |
|
Capital Structure |
|
Common Stock Authorization |
|
To approve increases beyond the allowable increase when a companys shares are in danger of being de-listed or if a companys ability to continue to operate as a going concern is uncertain |
|
F |
|
|
|
|
|
7.4. |
|
Capital Structure |
|
Dual-class Stock |
|
Proposals to create a new class of common stock with superior voting rights |
|
A |
|
|
|
|
|
7.5. |
|
Capital Structure |
|
Dual-class Stock |
|
To create a new class of nonvoting or sub-voting common stock if:
It is intended for financing purposes with minimal or no dilution to current shareholders
It is not designed to
preserve the voting power of an insider or significant shareholder |
|
F |
B-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6. |
|
Capital Structure |
|
Issue Stock for Use with Rights Plan |
|
To increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison pill). |
|
A |
|
|
|
|
|
7.7. |
|
Capital Structure |
|
Preemptive Rights |
|
Shareholder proposals that seek preemptive rights |
|
C |
|
|
|
|
|
7.8. |
|
Capital Structure |
|
Preferred Stock |
|
To authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (blank check preferred stock). |
|
A |
|
|
|
|
|
7.9. |
|
Capital Structure |
|
Preferred Stock |
|
To create declawed blank check preferred stock (stock that cannot be used as a takeover defense). |
|
F |
|
|
|
|
|
7.10. |
|
Capital Structure |
|
Preferred Stock |
|
To authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable |
|
F |
|
|
|
|
|
7.11. |
|
Capital Structure |
|
Preferred Stock |
|
To increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose. |
|
A |
|
|
|
|
|
7.12. |
|
Capital Structure |
|
Preferred Stock |
|
To increase the number of blank check preferred shares |
|
A |
|
|
|
|
|
7.13. |
|
Capital Structure |
|
Recapitalization |
|
Recapitalizations (reclassifications of securities) |
|
C |
|
|
|
|
|
7.14. |
|
Capital Structure |
|
Reverse Stock Splits |
|
Management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced |
|
F |
|
|
|
|
|
7.15. |
|
Capital Structure |
|
Reverse Stock Splits |
|
Management proposals to implement a reverse stock split to avoid delisting. |
|
F |
|
|
|
|
|
7.16. |
|
Capital Structure |
|
Reverse Stock Splits |
|
To implement a reverse stock splits that do not proportionately reduce the number of shares authorized or considered going dark transactions. |
|
C |
|
|
|
|
|
7.17. |
|
Capital Structure |
|
Share Repurchase Programs |
|
Management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms |
|
F |
|
|
|
|
|
7.17.a |
|
Capital Structure |
|
Share Repurchase Programs |
|
Management proposals to institute open-market share repurchase plans in which derivatives may be utilized |
|
C |
|
|
|
|
|
7.18. |
|
Capital Structure |
|
Stock Distributions: Splits and Dividends |
|
Management proposals to increase the common share authorization for a stock split or share dividend, provided that the increase in authorized shares would not result in an excessive number of shares available for issuance |
|
F |
|
|
|
|
|
7.19. |
|
Capital Structure |
|
Tracking Stock |
|
To authorize the creation of tracking stock |
|
C |
|
|
|
|
|
7.20. |
|
Capital Structure |
|
Business Development Companies |
|
To approve BDC to see shares of common stock at a price below Net Asset Value |
|
C |
|
|
|
|
|
7.21. |
|
Capital Structure |
|
Real Estate Investment Trusts |
|
To approve preferred stock issuance at REITs |
|
C |
|
|
|
|
|
8.0. |
|
Executive and Director Compensation |
|
Executive Compensation |
|
Executive compensation plans or plan amendments. |
|
C |
|
|
|
|
|
8.1. |
|
Executive and Director Compensation |
|
Director Compensation |
|
Plans for director compensation |
|
C |
|
|
|
|
|
8.5. |
|
Executive and Director Compensation |
|
Employee Stock Purchase Plans |
|
Employee stock purchase plans . |
|
C |
|
|
|
|
|
8.6. |
|
Executive and Director Compensation |
|
Shareholder Proposals Regarding Executive and Director Pay |
|
Shareholder proposals seeking additional disclosure of executive and director pay information, |
|
A |
|
|
|
|
|
8.7. |
|
Executive and Director Compensation |
|
Shareholder Proposals Regarding Executive and Director Pay |
|
Shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or form of compensation. |
|
A |
B-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8. |
|
Executive and Director Compensation |
|
Shareholder Proposals Regarding Executive and Director Pay |
|
Shareholder proposals requiring director fees be paid in stock only |
|
A |
|
|
|
|
|
8.9. |
|
Executive and Director Compensation |
|
Shareholder Proposals Regarding Executive and Director Pay |
|
Shareholder proposals to put option re-pricings to a shareholder vote |
|
F |
|
|
|
|
|
8.10. |
|
Executive and Director Compensation |
|
Shareholder Proposals Regarding Executive and Director Pay |
|
For all other shareholder proposals regarding executive and director pay |
|
C |
|
|
|
|
|
8. 11 |
|
Executive and Director Compensation |
|
Performance-Based Stock Options |
|
Shareholder proposals advocating the use of performance-based stock options (indexed, premium-priced, and performance-vested options). |
|
C |
|
|
|
|
|
8.26. |
|
Executive and Director Compensation |
|
Golden Parachutes and Executive Severance Agreements |
|
Shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification |
|
C |
|
|
|
|
|
8.27. |
|
Executive and Director Compensation |
|
Golden Parachutes and Executive Severance Agreements |
|
Proposals to ratify or cancel golden parachutes. |
|
C |
|
|
|
|
|
8.28. |
|
Executive and Director Compensation |
|
Pension Plan Income Accounting |
|
Shareholder proposals to exclude pension plan income in the calculation of earnings used in determining executive bonuses/compensation |
|
F |
|
|
|
|
|
8.29. |
|
Executive and Director Compensation |
|
Supplemental Executive Retirement Plans (SERPs) |
|
Shareholder proposals requesting to put extraordinary benefits contained in SERP agreements to a shareholder vote |
|
A |
|
|
|
|
|
8.31. |
|
Executive and Director Compensation |
|
Equity Based Compensation Plans |
|
Management proposals for equity plans |
|
C |
|
|
|
|
|
8.32 |
|
Executive and Director Compensation |
|
Transferable Stock Options |
|
Management and shareholder proposals for new on-going Transferable Stock option plans if the total cost of the companys equity plans is less than the companys allowable cap. |
|
F |
|
|
|
|
|
9.0. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Animal Rights |
|
To phase out the use of animals in product testing |
|
A |
|
|
|
|
|
9.1. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Animal Rights |
|
Report on animal welfare |
|
A |
|
|
|
|
|
9.2. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Animal Rights |
|
Adopt animal welfare policy |
|
A |
|
|
|
|
|
9.3. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Drug
Pricing |
|
To implement price restraints on pharmaceutical products |
|
A |
|
|
|
|
|
9.4. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Drug
Reimportation |
|
Proposals requesting that companies report on the financial and legal
impact of their policies regarding prescription drug reimportation or proposals requesting that companies adopt specific policies to
encourage or constrain prescription drug reimportation |
|
A |
B-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Genetically
Modified Foods |
|
To voluntarily label genetically engineered
(GE) ingredients in their products or alternatively to provide interim labeling and eventually eliminate GE ingredients due to the costs and feasibility of
labeling and/or phasing out the use of GE ingredients. |
|
A |
|
|
|
|
|
9.6. |
|
Social and Environmental Issues |
|
Genetically Modified Foods |
|
A report on the feasibility of labeling products containing GE ingredients |
|
A |
|
|
|
|
|
9.7. |
|
Social and Environmental Issues |
|
Genetically Modified Foods |
|
A report on the financial, legal, and environmental impact of continued use of GE ingredients/seeds |
|
A |
|
|
|
|
|
9.8. |
|
Social and Environmental Issues |
|
Genetically Modified Foods |
|
Report on the health and environmental effects of genetically modified organisms (GMOs) |
|
A |
|
|
|
|
|
9.9. |
|
Social and Environmental Issues |
|
Genetically Modified Foods |
|
To completely phase out GE ingredients from the companys products or proposals asking for reports outlining the steps necessary to eliminate GE ingredients from the companys products. Such resolutions presuppose that
there are proven health risks to GE ingredients |
|
A |
|
|
|
|
|
9.10. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY:
Handguns |
|
Reports on a companys policies aimed at curtailing gun violence in the United States |
|
A |
|
|
|
|
|
9.11. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY:
HIV/AIDS |
|
Reports outlining the impact of the health pandemic (HIV/AIDS, malaria and tuberculosis) on the companys Sub-Saharan operations |
|
A |
|
|
|
|
|
9.12. |
|
Social and Environmental Issues |
|
HIV/AIDS |
|
To establish, implement, and report on a standard of response to the HIV/AIDS, tuberculosis and malaria health pandemic in Africa and other developing countries |
|
A |
|
|
|
|
|
9.13. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Predatory
Lending |
|
Reports on the companys procedures for preventing predatory lending, including the establishment of a board committee for oversight, |
|
A |
|
|
|
|
|
9.14. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Tobacco |
|
Proposals seeking stronger product warnings |
|
A |
|
|
|
|
|
9.15. |
|
Social and Environmental Issues |
|
Tobacco |
|
Proposals asking that the companys operating facilities be smoke-free |
|
A |
|
|
|
|
|
9.16. |
|
Social and Environmental Issues |
|
Tobacco |
|
Proposals dealing with product placement in stores or advertising to youth. |
|
A |
|
|
|
|
|
9.17. |
|
Social and Environmental Issues |
|
Tobacco |
|
Proposals asking the company to cease production of tobacco-related products or cease selling products to tobacco companies. |
|
A |
|
|
|
|
|
9.18. |
|
Social and Environmental Issues |
|
Tobacco |
|
Proposals to spin-off tobacco-related businesses: |
|
A |
|
|
|
|
|
9.19. |
|
Social and Environmental Issues |
|
Tobacco |
|
Proposals prohibiting investment in tobacco equities. |
|
A |
|
|
|
|
|
9.20. |
|
Social and Environmental Issues |
|
CONSUMER ISSUES AND PUBLIC SAFETY: Toxic
Chemicals |
|
Proposals requesting that a company discloses its policies related to toxic chemicals, proposals requesting that companies evaluate and disclose the potential financial and legal risks associated with utilizing certain chemicals, or
proposals requiring that a company reformulate its products within a certain timeframe. |
|
A |
|
|
|
|
|
9.21. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Arctic National
Wildlife Refuge |
|
Requests for reports outlining potential environmental damage from drilling in the Arctic National Wildlife Refuge (ANWR) |
|
A |
B-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.22. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: CERES
Principles |
|
Proposals to adopt the CERES Principles |
|
A |
|
|
|
|
|
9.23. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Environmental-Economic
Risk Report |
|
Proposals requests reports assessing economic risks of environmental pollution or climate change or reports outlining potential environmental damage from operations in protected regions, including wildlife refuges. |
|
A |
|
|
|
|
|
9.24. |
|
Social and Environmental Issues |
|
Environmental Reports |
|
Proposals for reports disclosing the companys environmental policies. |
|
A |
|
|
|
|
|
9.25. |
|
Social and Environmental Issues |
|
Nuclear Safety |
|
Proposals requesting that companies report on
risks associated with their nuclear reactor designs and/or the production and interim storage of irradiated fuel rods |
|
A |
|
|
|
|
|
9.26. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Global Warming |
|
Proposals to make reports on the level of greenhouse gas emissions from the companys operations and products. |
|
A |
|
|
|
|
|
9.27. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Recycling |
|
Proposals to adopt a comprehensive recycling strategy |
|
A |
|
|
|
|
|
9.28. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Renewable
Energy |
|
Proposals to invest in renewable energy sources. |
|
A |
|
|
|
|
|
9.29. |
|
Social and Environmental Issues |
|
Renewable Energy |
|
Requests for reports on the feasibility of developing renewable energy sources |
|
A |
|
|
|
|
|
9.30. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Sustainability
Report |
|
Proposals to make report on its policies and practices related to social, environmental, and economic sustainability |
|
A |
|
|
|
|
|
9.31. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Efficiency
Report |
|
Report on energy efficiency |
|
A |
|
|
|
|
|
9.32. |
|
Social and Environmental Issues |
|
ENVIRONMENT AND ENERGY: Kyoto Protocol |
|
Proposals requesting that companies outline their preparations to comply with standards established by Kyoto Protocol signatory markets |
|
A |
|
|
|
|
|
9.33. |
|
Social and Environmental Issues |
|
LAND USE |
|
Proposals that request the disclosure of detailed information on a companys policies related to land use or development |
|
A |
|
|
|
|
|
9.34. |
|
Social and Environmental Issues |
|
CAFOs |
|
Proposals requesting that companies report to shareholders on the risks and liabilities associated with concentrated animal feeding operations (CAFOs) |
|
A |
|
|
|
|
|
9.35. |
|
Social and Environmental Issues |
|
GENERAL CORPORATE ISSUES: Charitable/ Political
Contributions |
|
Proposals to affirm political nonpartisanship in the workplace |
|
A |
|
|
|
|
|
9.36. |
|
Social and Environmental Issues |
|
Charitable/ Political Contributions |
|
Proposals to report or publish in newspapers the companys political and/or charitable contributions |
|
A |
|
|
|
|
|
9.37. |
|
Social and Environmental Issues |
|
Charitable/ Political Contributions |
|
Proposals to prohibit the company from making political contributions |
|
A |
|
|
|
|
|
9.38. |
|
Social and Environmental Issues |
|
Charitable/ Political Contributions |
|
Proposals to restrict the company from making charitable contributions |
|
A |
|
|
|
|
|
9.39. |
|
Social and Environmental Issues |
|
Charitable/ Political Contributions |
|
Proposals to publish a list of company executives, directors, consultants, legal counsels, lobbyists, or investment bankers that have prior government service and whether such service had a bearing on the business of the
company |
|
A |
B-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.40. |
|
Social and Environmental Issues |
|
Charitable/ Political Contributions |
|
Proposals seeking greater disclosure of lobbying expenses and political contributions and expenditures |
|
C |
|
|
|
|
|
9.41. |
|
Social and Environmental Issues |
|
GENERAL CORPORATE ISSUES: Link Executive
Compensation to Social Performance |
|
Proposals to review ways of linking executive compensation to social factors |
|
A |
|
|
|
|
|
9.42. |
|
Social and Environmental Issues |
|
LABOR STANDARDS AND HUMAN RIGHTS: China
Principles |
|
Proposals to implement the China Principles. |
|
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.43. |
|
Social and Environmental Issues |
|
LABOR STANDARDS AND HUMAN RIGHTS:
Country-specific human rights reports |
|
Proposals to make reports detailing the companys operations in a particular country and steps to protect human rights |
|
A |
|
|
|
|
|
9.44. |
|
Social and Environmental Issues |
|
LABOR STANDARDS AND HUMAN RIGHTS: International
Codes of Conduct/Vendor Standards |
|
Proposals to implement certain human rights standards at company facilities or those of its suppliers and to commit to outside, independent monitoring |
|
A |
|
|
|
|
|
9.45. |
|
Social and Environmental Issues |
|
LABOR STANDARDS AND HUMAN RIGHTS: MacBride
Principles |
|
Proposals to endorse or increase activity on the MacBride Principles. |
|
A |
|
|
|
|
|
9.46. |
|
Social and Environmental Issues |
|
MILITARY BUSINESS: Foreign Military Sales/Offsets |
|
Proposals to make reports on foreign military sales or offsets. |
|
A |
|
|
|
|
|
9.47. |
|
Social and Environmental Issues |
|
MILITARY BUSINESS: Landmines and Cluster Bombs |
|
Proposals asking the company to renounce future involvement in antipersonnel landmine production |
|
A |
|
|
|
|
|
9.48. |
|
Social and Environmental Issues |
|
MILITARY BUSINESS: Nuclear Weapons |
|
Proposals asking the company to cease production of nuclear weapons components and delivery systems, including disengaging from current and proposed contracts |
|
A |
|
|
|
|
|
9.49. |
|
Social and Environmental Issues |
|
MILITARY BUSINESS: Operations in Nations Sponsoring Terrorism (Iran) |
|
Proposals asking the company to appoint a board committee review and report outlining the companys financial and reputational risks from its operations in Iran, |
|
A |
|
|
|
|
|
9.50. |
|
Social and Environmental Issues |
|
MILITARY BUSINESS: Spaced-Based Weaponization |
|
Proposals asking the company to make reports on a companys involvement in spaced-based weaponization |
|
A |
|
|
|
|
|
9.51. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Board Diversity |
|
Requests for reports on the companys efforts to diversify the board |
|
A |
|
|
|
|
|
9.52. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Board Diversity |
|
Proposals asking the company to increase the representation of women and minorities on the board |
|
C |
|
|
|
|
|
9.53. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Equal Employment Opportunity (EEO) |
|
Proposals to increase regulatory oversight of EEO programs |
|
A |
B-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.54. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Glass Ceiling |
|
To increase regulatory oversight of EEO programs and Glass Ceiling proposals |
|
A |
|
|
|
|
|
9.55. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Sexual Orientation |
|
Exclude reference to sexual orientation from the EEO statement |
|
A |
|
|
|
|
|
9.56. |
|
Social and Environmental Issues |
|
WORKPLACE DIVERSITY: Sexual Orientation |
|
Proposals to amend a companys EEO statement in order to prohibit discrimination based on sexual orientation |
|
F |
|
|
|
|
|
9.57. |
|
Social and Environmental Issues |
|
Sexual Orientation |
|
Proposals to extend company benefits to or eliminate benefits from domestic partners |
|
A |
|
|
|
|
|
9.57 |
|
Social and Environmental Issues |
|
Outsourcing |
|
Proposals asking for companies to report on the risks associated with outsourcing or offshoring. |
|
A |
|
|
|
|
|
9.58 |
|
Social and Environmental Issues |
|
Community Impact Assessment |
|
Proposals asking for reports outlining the potential community impact of company operations in specific regions. |
|
A |
|
|
|
|
|
9.59 |
|
Social and Environmental Issues |
|
Internet Privacy and Censorship |
|
Proposals requesting the disclosure and implementation of Internet privacy and censorship policies and procedures. |
|
C |
|
|
|
|
|
9.60 |
|
Social and Environmental Issues |
|
Adoption of Health Care Reform Principles |
|
Proposals to adopt the implementation of national health care reform principles at the company level. |
|
A |
|
|
|
|
|
10.0. |
|
Mutual Fund Proxies |
|
Election of Directors |
|
Director nominees who are not described below |
|
F |
|
|
|
|
|
10.1. |
|
Mutual Fund Proxies |
|
Election of Directors |
|
Ignore a shareholder proposal that is approved by a majority of the votes cast for two consecutive years |
|
W |
|
|
|
|
|
10.2. |
|
Mutual Fund Proxies |
|
Convert Closed-end Fund to Open-end Fund |
|
Conversion Proposals |
|
C |
|
|
|
|
|
10.3. |
|
Mutual Fund Proxies |
|
Proxy Contests |
|
Proxy Contests |
|
C |
|
|
|
|
|
10.4. |
|
Mutual Fund Proxies |
|
Investment Advisory Agreements |
|
Investment Advisory Agreements |
|
F |
|
|
|
|
|
10.5. |
|
Mutual Fund Proxies |
|
Approve New Classes or Series of Shares |
|
The establishment of new classes or series of shares. |
|
F |
|
|
|
|
|
10.6. |
|
Mutual Fund Proxies |
|
Change Fundamental Restriction to Nonfundamental Restriction |
|
Proposals to change a funds fundamental restriction to a non fundamental restriction |
|
C |
|
|
|
|
|
10.7. |
|
Mutual Fund Proxies |
|
Change Fundamental Investment Objective to Nonfundamental |
|
Proposals to change a funds fundamental investment objective to a non fundamental investment objective |
|
C |
|
|
|
|
|
10.8. |
|
Mutual Fund Proxies |
|
Name Change Proposals |
|
Name change proposals. |
|
F |
|
|
|
|
|
10.9. |
|
Mutual Fund Proxies |
|
Change in Funds Sub classification |
|
To change a funds sub-classification |
|
F |
|
|
|
|
|
10.10. |
|
Mutual Fund Proxies |
|
Disposition of Assets/Termination/Liquidation |
|
To dispose of assets, liquidate or terminate the fund |
|
F |
|
|
|
|
|
10.11. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
To make changes to the charter document |
|
C |
|
|
|
|
|
10.12. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Removal shareholder approval requirement to reorganize or terminate the trust or any of its series |
|
F |
B-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Removal of shareholder approval requirement for amendments to the new declaration of trust |
|
F |
|
|
|
|
|
10.14. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Removal of shareholder approval requirement to amend the funds management contract, allowing the contract to be modified by the investment manager and the trust management, as permitted by the 1940 Act |
|
F |
|
|
|
|
|
10.15. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Allow the trustees to impose other fees in addition to sales charges on investment in a fund, such as deferred sales charges and redemption fees that may be imposed upon redemption of a funds shares |
|
F |
|
|
|
|
|
10.16. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Removal of shareholder approval requirement to engage in and terminate Sub-advisory arrangements |
|
F |
|
|
|
|
|
10.17. |
|
Mutual Fund Proxies |
|
Changes to the Charter Document |
|
Removal of shareholder approval requirement to change the domicile of the fund |
|
F |
|
|
|
|
|
10.18. |
|
Mutual Fund Proxies |
|
Change the Funds Domicile |
|
Funds Reincorporation |
|
C |
|
|
|
|
|
10.19. |
|
Mutual Fund Proxies |
|
Authorize the Board to Hire and Terminate Subadvisors Without
Shareholder Approval |
|
Proposals authorizing the board to hire/terminate sub-advisors without shareholder approval. |
|
F |
|
|
|
|
|
10.20. |
|
Mutual Fund Proxies |
|
Distribution Agreements |
|
Distribution agreements |
|
F |
|
|
|
|
|
10.21. |
|
Mutual Fund Proxies |
|
Master-Feeder Structure |
|
Establishment of a master-feeder structure. |
|
F |
|
|
|
|
|
10.22. |
|
Mutual Fund Proxies |
|
Mergers |
|
Mergers and Acquisitions |
|
C |
|
|
|
|
|
10.23. |
|
Mutual Fund Proxies |
|
Shareholder Proposals to Establish Director Ownership Requirement |
|
To mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board |
|
A |
|
|
|
|
|
10.24.a |
|
Mutual Fund Proxies |
|
Shareholder Proposals to Reimburse Proxy Solicitation Expenses |
|
To reimburse proxy solicitation expenses if dissident wins |
|
F |
|
|
|
|
|
10.24.b |
|
Mutual Fund Proxies |
|
Shareholder Proposals to Reimburse Proxy Solicitation Expenses |
|
To reimburse proxy solicitation expenses (except as described above) |
|
A |
|
|
|
|
|
10.25. |
|
Mutual Fund Proxies |
|
Shareholder Proposals to Terminate Investment Advisor |
|
To terminate the investment advisor |
|
C |
B-20
Ridgeworth Funds (Registrant)
Part C: Other Information
|
|
|
|
|
(a)(1) |
|
Agreement and Declaration of Trust, dated January 15, 1992, is incorporated herein by reference to Exhibit 1 of Post-Effective Amendment No. 15, filed July 31, 1996. |
|
|
(a)(2) |
|
Amendment, dated March 31, 2008, to Agreement and Declaration of Trust is incorporated herein by reference to Exhibit (a)(2) of Post-Effective Amendment No. 74, filed May 16, 2008. |
|
|
(a)(3) |
|
Amendment, dated July 17, 2014, to Agreement and Declaration of Trust is incorporated herein by reference to Exhibit (a)(3) of Post-Effective Amendment No. 93, filed July 30, 2014. |
|
|
(b)(1) |
|
Amended and Restated By-Laws, dated August 15, 2000, are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 37, filed September 21, 2000. |
|
|
(b)(2) |
|
Amendment No. 1, effective March 31, 2008, to Amended and Restated By-Laws is incorporated herein by reference to Exhibit (b)(2) of Post-Effective Amendment No. 75, filed May 30, 2008. |
|
|
(c) |
|
Not applicable. |
|
|
(d)(1) |
|
Investment Advisory Agreement dated May 30, 2014, between Ridgeworth Funds (the Registrant) and RidgeWorth Capital Management LLC (RidgeWorth Investments) is incorporated herein by reference to Exhibit (d)(1)
of Post-Effective Amendment No. 93, filed July 30, 2014. |
|
|
(d)(1)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Advisory Agreement between the Registrant and RidgeWorth Investments is filed herewith. |
|
|
(d)(2) |
|
Investment Subadvisory Agreement, dated May 30, 2014, between RidgeWorth Investments and Zevenbergen Capital Investments, LLC (Zevenbergen) is incorporated herein by reference to Exhibit (d)(2) of Post-Effective
Amendment No. 93, filed July 30, 2014. |
|
|
(d)(3) |
|
Investment Subadvisory Agreement, dated May 30, 2014, between RidgeWorth Investments and Ceredex Value Advisors LLC (Ceredex) is incorporated herein by reference to Exhibit (d)(3) of Post-Effective Amendment No. 93,
filed July 30, 2014. |
|
|
(d)(4) |
|
Investment Subadvisory Agreement, dated May 30, 2014, between RidgeWorth Investments and Certium Asset Management LLC (Certium) is incorporated herein by reference to Exhibit (d)(4) of Post-Effective Amendment No. 93,
filed July 30, 2014. |
|
|
(d)(4)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Subadvisory Agreement between RidgeWorth Investments and Certium is filed herewith. |
|
|
(d)(5) |
|
Investment Subadvisory Agreement, dated May 30, 2014, between RidgeWorth Investments and Seix Investment Advisors LLC (Seix) is incorporated herein by reference to Exhibit (d)(5) of Post-Effective Amendment No. 93, filed
July 30, 2014. |
|
|
(d)(5)(i) |
|
Amended Schedule A, dated August 1, 2014, to the Investment Subadvisory Agreement between RidgeWorth Investments and Seix is incorporated herein by reference to Exhibit (d)(5)(i) of Post-Effective Amendment No. 93, filed July 30,
2014. |
|
|
|
|
|
(d)(6) |
|
Investment Subadvisory Agreement, dated May 30, 2014, between RidgeWorth Investments and Silvant Capital Management LLC (Silvant) is incorporated herein by reference to Exhibit (d)(6) of Post-Effective Amendment No.
93, filed July 30, 2014. |
|
|
(d)(6)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Subadvisory Agreement between the RidgeWorth Investments and Silvant is filed herewith. |
|
|
(d)(7) |
|
Expense Limitation Agreement, dated August 1, 2014, among the Registrant, RidgeWorth Investments, Certium, Ceredex, Silvant, Seix and Zevenbergen is incorporated herein by reference to Exhibit (d)(7) of Post-Effective Amendment No.
93, filed July 30, 2014. |
|
|
(d)(7)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Expense Limitation Agreement among the Registrant, RidgeWorth Investments, Certium, Ceredex, Silvant, Seix and Zevenbergen filed herewith. |
|
|
(e)(1) |
|
Distribution Agreement, dated March 31, 2009, between the Registrant and RidgeWorth Distributors LLC (RidgeWorth Distributors) is incorporated herein by reference to Exhibit (e) of Post-Effective Amendment No. 80, filed
July 29, 2009. |
|
|
(e)(2) |
|
First Amendment, dated August 1, 2009, to the Distribution Agreement between the Registrant and RidgeWorth Distributors is incorporated herein by reference to Exhibit (e)(2) of Post-Effective Amendment No. 81, filed May 28,
2010. |
|
|
(e)(3) |
|
Second Amendment, dated July 19, 2010, to the Distribution Agreement between the Registrant and RidgeWorth Distributors is incorporated herein by reference to Exhibit (e)(3) of Post-Effective Amendment No. 83, filed May 27,
2011. |
|
|
(e)(4) |
|
Third Amendment, dated April 27, 2012, to the Distribution Agreement between the Registrant and RidgeWorth Distributors is incorporated herein by reference to Exhibit (e)(4) of Post-Effective Amendment No. 89, filed May 24,
2013. |
|
|
(e)(5) |
|
Fourth Amendment, dated January 30, 2015, to the Distribution Agreement between the Registrant and RidgeWorth Distributors is filed herewith. |
|
|
(f) |
|
Not applicable. |
|
|
(g)(1) |
|
Master Custodian Agreement, dated August 30, 2010, between the Registrant and State Street Bank and Trust Company (State Street) is incorporated herein by reference to Exhibit (g)(3) of Post-Effective Amendment No. 83,
filed May 27, 2011. |
|
|
(g)(1)(i) |
|
Notice to the Master Custodian Agreement between the Registrant and State Street is filed herewith. |
|
|
(h)(1) |
|
Administration Agreement, dated August 30, 2010, between the Registrant and State Street is incorporated herein by reference to Exhibit (h)(1) of Post-Effective Amendment No. 83, filed May 27, 2011. |
|
|
(h)(1)(i) |
|
Notice to the Administration Agreement between the Registrant and State Street is filed herewith. |
|
|
(h)(2) |
|
Shareholder Servicing Plan, dated November 20, 2008, relating to R Shares, is incorporated herein by reference to Exhibit (h)(12) of Post-Effective Amendment No. 77, filed December 15, 2008. |
|
|
(h)(2)(i) |
|
Amended Schedule A, dated August 1, 2009, to the Shareholder Servicing Plan, relating to R Shares, is incorporated herein by reference to Exhibit (h)(17) of Post-Effective Amendment No. 80, filed July 29,
2009. |
2
|
|
|
|
|
(h)(3) |
|
Shareholder Servicing Plan, dated May 23, 2013, with respect to A Shares and I Shares, is incorporated herein by reference to Exhibit (h)(3) of Post-Effective Amendment No. 89, filed May 24, 2013. |
|
|
(h)(3)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Shareholder Servicing Plan, relating to A Share and I Shares, is filed herewith. |
|
|
(h)(4) |
|
Amended and Restated Securities Lending Management Agreement, dated January 16, 2009, between the Registrant and Credit Suisse is incorporated herein by reference to Exhibit (h)(14) of Post-Effective Amendment No. 78, filed February
12, 2009. |
|
|
(h)(4)(i) |
|
First Amendment, dated March 4, 2009, to the Amended and Restated Securities Lending Management Agreement between the Registrant and Credit Suisse AG is incorporated herein by reference to Exhibit (h)(21) of Post-Effective Amendment
No. 81, filed May 28, 2010. |
|
|
(h)(4)(ii) |
|
Second Amendment, dated July 2, 2010, to the Amended and Restated Securities Lending Management Agreement between the Registrant and Credit Suisse AG is incorporated herein by reference to Exhibit (h)(4)(ii) of Post-Effective
Amendment No. 93, filed July 30, 2014. |
|
|
(h)(4)(iii) |
|
Third Amendment, dated August 30, 2010, to the Amended and Restated Securities Lending Management Agreement between the Registrant and Credit Suisse AG is incorporated herein by reference to Exhibit (h)(4)(iii) of Post-Effective
Amendment No. 93, filed July 30, 2014. |
|
|
(h)(4)(iv) |
|
Fourth Amendment, dated December 7, 2010, to the Amended and Restated Securities Lending Management Agreement between the Registrant and Credit Suisse AG is incorporated herein by reference to Exhibit (h)(4)(iv) of Post-Effective
Amendment No. 93, filed July 30, 2014. |
|
|
(h)(4)(v) |
|
Fifth Amendment, dated June 4, 2013, to the Amended and Restated Securities Lending Management Agreement between the Registrant and Credit Suisse AG is incorporated herein by reference to Exhibit (h)(4)(v) of Post-Effective
Amendment No. 93, filed July 30, 2014. |
|
|
(h)(5) |
|
Shareholder Service Fee Allocation Agreement, dated August 1, 2009, between the Registrant and RidgeWorth Investments is incorporated herein by reference to Exhibit (h)(22) of Post-Effective Amendment No. 81, filed May 28,
2010. |
|
|
(h)(6) |
|
Fund Services Agreement, dated May 30, 2014, between the Registrant and RidgeWorth Investments is filed is incorporated herein by reference to Exhibit (h)(6) of Post-Effective Amendment No. 93, filed July 30, 2014. |
|
|
(h)(7) |
|
Transfer Agency and Service Agreement, dated August 20, 2010, between the Registrant and Boston Financial Data Services, Inc. (BFDS) is incorporated herein by reference to Exhibit (h)(11) of Post-Effective Amendment No.
84, filed July 29, 2011. |
|
|
(h)(7)(i) |
|
Amendment, dated December 1, 2011, to the Transfer Agency and Service Agreement between the Registrant and BFDS is incorporated herein by reference to Exhibit (h)(7)(i) of Post-Effective Amendment No. 87, filed July 27,
2012. |
|
|
(h)(7)(ii) |
|
Amendment, April 26, 2013, to the Transfer Agency and Service Agreement between the Registrant and BFDS is incorporated herein by reference to Exhibit (h)(7)(ii) of Post-Effective Amendment No. 93, filed July 30, 2014. |
|
|
(h)(7)(iii) |
|
Amendment, dated April 29, 2014, to the Transfer Agency and Service Agreement between the Registrant and BFDS is incorporated herein by reference to Exhibit (h)(7)(iii) of Post-Effective Amendment No. 93, filed July 30,
2014. |
3
|
|
|
|
|
(i) |
|
Opinion and Consent of Counsel is filed herewith. |
|
|
(j) |
|
Consent of independent registered accountant is filed herewith. |
|
|
(k) |
|
Not applicable. |
|
|
(l) |
|
Not applicable. |
|
|
(m)(1) |
|
Distribution and Service Plan, dated May 17, 2005, as amended March 31, 2008, relating to A Shares is incorporated herein by reference to Exhibit (m)(1) of Post-Effective Amendment No. 81, filed May 28, 2010. |
|
|
(m)(1)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Distribution and Service Plan, relating to A Shares, is filed herewith. |
|
|
(m)(2) |
|
Distribution and Service Plan, dated May 17, 2005, as amended November 30, 2010, relating to C Shares, is incorporated herein by reference to Exhibit (m)(2) of Post-Effective Amendment No, 87, filed July 27, 2012. |
|
|
(m)(3) |
|
Distribution and Service Plan, dated May 14, 2009, relating to R Shares, is incorporated herein by reference to Exhibit (m)(5) of Post-Effective Amendment No. 79, filed May 29, 2009. |
|
|
(n) |
|
Rule 18f-3 Multiple Class Plan, as amended May 20, 2014, is incorporated herein by reference to Exhibit (n) of Post-Effective Amendment No. 93, filed July 30, 2014. |
|
|
(o) |
|
Not applicable. |
|
|
(p)(1) |
|
Registrants Code of Ethics as amended August 9, 2011 is incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No, 87, filed July 27, 2012. |
|
|
(p)(2) |
|
Code of Ethics for RidgeWorth Investments, Ceredex, Certium, Silvant and StableRiver as amended July 1, 2012 is incorporated herein by reference to Exhibit (p)(2) of Post-Effective Amendment No. 89, filed May 24, 2013. |
|
|
(p)(3) |
|
Code of Ethics for Zevenbergen, as amended December 9, 2011, is incorporated herein by reference to Exhibit (p)(3) of Post-Effective Amendment No. 89, filed May 24, 2013. |
|
|
(p)(4) |
|
Code of Ethics for Seix is incorporated herein by reference to Exhibit (p)(4) of Post-Effective Amendment No, 87, filed July 27, 2012. |
|
|
(p)(5) |
|
Code of Ethics for RidgeWorth Distributors is incorporated herein by reference to Exhibit (p)(5) of Post-Effective Amendment No. 83, filed May 27, 2011. |
|
|
(q)(1) |
|
Power of Attorney, dated November 18, 2014, for each of Tim E. Bentsen, Jeffrey M. Biggar, Sidney E. Harris, Connie D. McDaniel, George C. Guynn, Ashi Parikh, and Warren Y. Jobe is filed herewith. |
ITEM 29. |
Persons Controlled by or under Common Control with Registrant: |
See the prospectus and Statement
of Additional Information regarding the Registrants control relationships.
4
ITEM 30. |
Indemnification: |
Indemnification of Registrants principal underwriter against certain
losses is provided for in Section 1.12 of the Distribution Agreement filed as Exhibit (e)(1) to the Registrants Registration Statement.
In
addition, Article VIII of the Agreement and Declaration of Trust filed as Exhibit (a)(1) to the Registrants Registration Statement provides that, subject to the exceptions and limitations contained in Article VIII, every person who is, or has
been, a Trustee or officer of the Trust shall be indemnified by the Registrant to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof. No indemnification shall be provided hereunder to a
Trustee or Officer who shall have been adjudicated by a court or body before which the proceeding was brought (i) to be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office or (ii) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Registrant
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Act) may be permitted to trustees, directors, officers
and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the U.S. Securities and Exchange Commission, such indemnification is against public policy
as expressed in the Act and, therefore, is 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 trustees, directors, officers or controlling
persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, directors, officers or controlling persons 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 Act and will be governed
by the final adjudication of such issues.
ITEM 31. |
Business and Other Connections of the Investment Adviser: |
Other business, profession, vocation, or
employment of a substantial nature in which each director or principal officer of each investment adviser is or has been, at any time during the last two fiscal years, engaged for his own account or in the capacity of director, officer, employee,
partner or trustee are as follows:
Investment Adviser:
RidgeWorth Capital Management LLC
RidgeWorth Investments,
located at 3333 Piedmont Road, Suite 1500, Atlanta, GA 30305, serves as the investment adviser for each of the Registrants series.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
Ashi Parikh
Chief Executive Officer and Chief Investment
Officer |
|
CeredexValue Advisors LLC (Ceredex)
Silvant Capital Management LLC (Silvant) Certium
Asset Management LLC (Certium) Seix Investment Advisors LLC (Seix) |
|
Chief Executive Officer Chief Executive
Officer Chief Executive Officer Chief Executive
Officer |
|
|
|
Josie C. Rosson Managing Director |
|
Ceredex Certium
Silvant |
|
Chief Compliance Officer Chief Compliance
Officer Chief Compliance Officer |
|
|
|
John H. Stebbins Chief Financial Officer,
Treasurer & Managing Director |
|
Ceredex Certium
Seix Silvant |
|
Chief Financial Officer Chief Financial
Officer Chief Financial Officer Chief Financial
Officer |
5
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
James Stueve President |
|
Ceredex Certium
Silvant |
|
Vice President Vice President
Vice President |
|
|
|
Robert Zakem General Counsel, Chief Compliance
Officer and Managing Director |
|
Ceredex Certium
Silvant |
|
Vice President Vice President
Vice President |
Investment Subadvisers:
Ceredex Value Advisors LLC
Ceredex serves as the
investment subadviser for the Registrants Large Cap Value Equity Fund, Mid-Cap Value Equity Fund and Small Cap Value Equity Fund. The principal address of Ceredex is 300 South Orange Avenue, Suite 1600, Orlando, Florida 32801.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
Ashi Parikh
Chief Executive Officer |
|
RidgeWorth Capital Management LLC
Silvant Certium
Seix |
|
Chief Executive Officer and Chief Investment
Officer Chief Executive Officer Chief Executive Officer
Chief Executive Officer |
|
|
|
Josie Rosson
Chief Compliance Officer |
|
RidgeWorth Capital Management LLC
Certium Silvant |
|
Managing Director Chief Compliance
Officer Chief Compliance Officer |
|
|
|
John H. Stebbins Chief Financial
Officer |
|
RidgeWorth Capital Management LLC
Certium Silvant
Seix |
|
Chief Financial Officer and Treasurer Chief
Financial Officer Chief Financial Officer Chief Financial
Officer |
Certium Asset Management LLC
Certium serves as the investment subadviser for the Registrants International Equity Fund. The principal address of Certium is 3333 Piedmont Road, Suite
1400, Atlanta, GA 30305.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
Ashi Parikh
Chief Executive Officer |
|
RidgeWorth Capital Management LLC
Silvant Certium
Seix |
|
Chairman, Chief Executive Officer and Chief
Investment Officer Chairman
Chief Executive Officer Chief Executive Officer |
|
|
|
Josie Rosson
Chief Compliance Officer |
|
RidgeWorth Capital Management LLC
Ceredex Silvant |
|
Managing Director Chief Compliance
Officer Chief Compliance Officer |
6
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
John H. Stebbins Chief Financial
Officer |
|
RidgeWorth Capital Management LLC
Ceredex Silvant
Seix |
|
Chief Financial Officer Chief Financial
Officer Chief Financial Officer Chief Financial
Officer |
Seix Investment Advisors LLC
Seix serves as the investment subadviser for the Registrants Core Bond Fund, Corporate Bond Fund, High Income Fund, Intermediate Bond Fund, Limited
Duration Fund, Limited-Term Federal Mortgage Securities Fund, Seix Floating Rate High Income Fund, Seix High Yield Fund, Total Return Bond Fund, U.S. Government Securities Fund, Georgia Tax-Exempt Bond Fund, High Grade Municipal Bond Fund,
Investment Grade Tax-Exempt Bond Fund, North Carolina Tax-Exempt Bond Fund, Short-Term Bond Fund, Short-Term Municipal Bond Fund, Ultra-Short Bond Fund, U.S. Government Securities Ultra-Short Bond Fund and Virginia Intermediate Municipal Bond Fund.
The principal address of Seix is 10 Mountainview Road, Suite C-200, Upper Saddle River, New Jersey 07458.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
James Keegan
Chairman and CIO |
|
RidgeWorth Capital Management LLC |
|
Vice President |
Silvant Capital Management LLC
Silvant serves as the investment subadviser for the Registrants Large Cap Core Growth Stock Fund, Large Cap Growth Stock Fund, and Small Cap Growth Stock
Fund. The principal address of Silvant is 3333 Piedmont Road, Suite 1400, Atlanta, GA 30305.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
Ashi Parikh
Chief Executive Officer |
|
RidgeWorth Capital Management LLC
Silvant Certium
Seix |
|
Chief Executive Officer and Chief Investment Officer
Chairman Chief Executive Officer
Chief Executive Officer |
|
|
|
Joe Ransom Managing Director |
|
RidgeWorth Capital Management LLC |
|
Vice President |
|
|
|
Josie Rosson
Chief Compliance Officer |
|
RidgeWorth Capital Management LLC
Certium Ceredex |
|
Managing Director Chief Compliance
Officer Chief Compliance Officer |
|
|
|
John H. Stebbins Chief Financial
Officer |
|
RidgeWorth Capital Management LLC
Ceredex Certium
Seix |
|
Chief Financial Officer Chief Financial
Officer Chief Financial Officer Chief Financial
Officer |
7
Zevenbergen Capital Investments LLC
Zevenbergen serves as the investment subadviser for the Registrants Aggressive Growth Stock Fund. The principal address of Zevenbergen is 601 Union
Street, Seattle, Washington 98101.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH
OTHER COMPANY |
NONE |
|
|
|
|
ITEM 32. |
Principal Underwriters: |
Item 32(a) |
RidgeWorth Distributors LLC serves as principal underwriter for the following investment company registered under the Investment Company Act of 1940, as amended: |
RidgeWorth Funds
Item 32(b) |
The following are Officers and Manager of RidgeWorth Distributors LLC. The main business address of RidgeWorth Distributors LLC is Three Canal Plaza, Suite 100, Portland, Maine 04101. |
|
|
|
|
|
|
|
Name |
|
Address |
|
Position with Underwriter |
|
Position with Registrant |
|
|
|
|
Mark A. Fairbanks |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
President |
|
None |
|
|
|
|
Richard J. Berthy |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Vice President, Treasurer and Manager |
|
None |
|
|
|
|
Jennifer E. Hoopes |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Secretary |
|
None |
|
|
|
|
Nanette K. Chern |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Vice President and Chief Compliance Officer |
|
None |
|
|
|
|
Lisa S. Clifford |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Vice President and Managing Director of Compliance |
|
None |
|
|
|
|
Nishant Bhatnagar |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Assistant Secretary |
|
None |
Item 32(c) |
Not applicable. |
ITEM 33. |
Location of Accounts and Records: |
Books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, and the rules promulgated thereunder, are maintained as follows:
|
(a) |
With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8); (12); and 31a-1(d), the required books and records are maintained at the offices of Registrants custodians: |
State Street Bank and Trust Company
200 Clarendon Street
Boston, MA
02117
|
(b) |
With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and records are maintained at the offices of Registrants administrator:
|
State Street Bank and Trust Company
100 Huntington Avenue
Boston,
Massachusetts 02116
8
|
(c) |
With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the required books and records are maintained at the principal offices of the Registrants adviser and subadvisers: |
RidgeWorth Capital Management LLC
3333 Piedmont Road, Suite 1500
Atlanta, GA 30305
(records
relating to its function as adviser)
Ceredex Value Advisers LLC
300 South Orange Avenue, Suite 1600
Orlando, FL 32801
(records
relating to its function as subadviser)
Certium Asset Management LLC
3333 Piedmont Road, Suite 1400
Atlanta, GA 30305
(records
relating to its function as subadviser)
Seix Investment Advisors LLC
10 Mountain View Road
Suite
C-200
Upper Saddle River, New Jersey 07458
(records relating to its function as subadviser)
Silvant Capital Management LLC
3333 Piedmont Road, Suite 1400
Atlanta, GA 30305
(records
relating to its function as subadviser)
Zevenbergen Capital Investments LLC
601 Union Street
Suite 4600
Seattle, Washington 98101
(records relating to its function as subadviser)
|
(d) |
RidgeWorth Distributors LLC |
Three Canal Plaza, Suite 100
Portland, Maine 04101
(records
relating to its function as distributor)
ITEM 34. |
Management Services: |
None.
None.
9
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, for the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts
and notice is hereby given that this Registration Statement has been executed on behalf of the Registrant by an officer of the Registrant as an officer and by its trustees as trustees and not individually and the obligations of or arising out of
this Registration Statement are not binding upon any of the trustees, officers, or shareholders individually but are binding only upon the assets and property of the Registrant.
10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that this
Post-Effective Amendment No. 95 to the Registration Statement meets all of the requirements for effectiveness pursuant to Rule 485(b) of the Securities Act of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 95 under the Securities Act of 1933, as amended, and Amendment No. 97 under the Investment Company Act of 1940, as amended, to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta and
State of Georgia, on the 30th day of January, 2015.
|
|
|
By: |
|
/s/ Julia R. Short |
|
|
Julia R. Short |
|
|
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed
below by the following persons in the capacities and on the date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
/s/ Jeffrey M. Biggar* |
|
Trustee |
|
January 30, 2015 |
Jeffrey M. Biggar |
|
|
|
|
|
|
|
/s/ George C. Guynn* |
|
Trustee |
|
January 30, 2015 |
George C. Guynn |
|
|
|
|
|
|
|
/s/ Sidney E. Harris* |
|
Trustee |
|
January 30, 2015 |
Sidney E. Harris |
|
|
|
|
|
|
|
/s/ Warren Y. Jobe* |
|
Trustee |
|
January 30, 2015 |
Warren Y. Jobe |
|
|
|
|
|
|
|
/s/ Connie D. McDaniel* |
|
Trustee |
|
January 30, 2015 |
Connie D. McDaniel |
|
|
|
|
|
|
|
/s/ Tim E. Bentsen* |
|
Trustee |
|
January 30, 2015 |
Tim E. Bentsen |
|
|
|
|
|
|
|
/s/ Ashi Parikh* |
|
Trustee |
|
January 30, 2015 |
Ashi Parikh |
|
|
|
|
|
|
|
/s/ Julia R. Short |
|
President and Chief Executive Officer |
|
January 30, 2015 |
Julia R. Short |
|
|
|
|
|
|
|
/s/ Denise R. Lewis |
|
Treasurer and Chief Financial Officer |
|
January 30, 2015 |
Denise R. Lewis |
|
|
|
|
|
|
|
*By: |
|
/s/ Timothy Burdick |
|
|
Timothy Burdick |
* |
Pursuant to Powers of Attorney |
11
Exhibit Index
|
|
|
Exhibit |
|
Document |
|
|
(d)(1)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Advisory Agreement between the Registrant and RidgeWorth Investments |
|
|
(d)(4)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Subadvisory Agreement between RidgeWorth Investments and Certium |
|
|
(d)(6)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Subadvisory Agreement between the RidgeWorth Investments and Silvant |
|
|
(d)(7)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Expense Limitation Agreement among the Registrant, RidgeWorth Investments, Certium, Ceredex, Silvant, Seix and Zevenbergen filed herewith. |
|
|
e(5) |
|
Fourth Amendment, dated January 30, 2015, to the Distribution Agreement between the Registrant and RidgeWorth Distributors |
|
|
(g)(1)(i) |
|
Notice to the Master Custodian Agreement between the Registrant and State Street |
|
|
(h)(1)(i) |
|
Notice to the Administration Agreement between the Registrant and State Street |
|
|
(h)(3)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Shareholder Servicing Plan, relating to A Share and I Shares |
|
|
(i) |
|
Opinion and Consent of Counsel |
|
|
(j) |
|
Consent of independent registered accountant |
|
|
(m)(1)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Distribution and Service Plan, relating to A Shares |
12