RIDGEWORTH FUNDS
As filed with the Securities and Exchange Commission on November 24, 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
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UNDER |
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THE SECURITIES ACT OF 1933 |
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Post-Effective Amendment No. 103 |
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and/or |
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REGISTRATION STATEMENT |
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UNDER |
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THE INVESTMENT COMPANY ACT OF 1940 |
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Amendment No. 105 |
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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 R. 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
2020 K Street, NW
Washington, DC 20006 |
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Thomas S. Harman, Esq.
Morgan, Lewis & Bockius LLP
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:
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This post-effective amendment designates a new effective date for a previously-filed post-effective amendment. |
Capital Innovations Global Resources and Infrastructure Fund
A, C & I SHARES PROSPECTUS
[________], 2016
Investment Adviser: RidgeWorth Investments
Subadviser: Capital Innovations, LLC
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A
Shares |
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C
Shares |
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I
Shares |
Capital
Innovations Global Resources and Infrastructure Fund |
[____]
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[____]
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[____]
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The information in this
prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. The securities described herein may not be sold until the registration statement becomes
effective. This prospectus is not an offer to sell or the solicitation of an offer to buy securities and is not soliciting an offer to buy these securities in any state in which the offer, solicitation or sale would be unlawful.
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.
[_________________]
RidgeWorth Investments is the trade name of RidgeWorth Capital
Management LLC.
Capital Innovations Global
Resources and Infrastructure Fund
Summary Section
A Shares, C Shares and I Shares
Investment Objective
The Capital Innovations Global Resources and Infrastructure
Fund (the “Fund”) seeks to provide long-term growth of capital.
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 12 of the Fund’s prospectus and Rights of Accumulation on page [__] of the Fund’s statement of additional information.
Shareholder Fees
(fees paid directly from your investment)
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A
Shares |
C
Shares |
I
Shares |
Maximum
Sales Charge (load) Imposed on Purchases (as a % of offering price) |
5.75%
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None
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None
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Maximum
Deferred Sales Charge (load) (as a % of the net asset value) |
None
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1.00%
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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 |
Management
Fees |
[__]%
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[__]%
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[__]%
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Distribution
(12b-1) Fees |
[__]%
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[__]%
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[__]%
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Other
Expenses(1) |
[__]%
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[__]%
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[__]%
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Total
Annual Fund Operating Expenses |
[__]%
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[__]%
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[__]%
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Fee
Waivers and/or Expense Reimbursements(2) |
[__]%
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[__]%
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[__]%
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Total
Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements |
[__]%
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[__]%
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[__]%
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(1)
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Other Expenses are based on
estimated amounts for the current fiscal year. |
(2)
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The
Adviser has contractually agreed to waive fees and reimburse expenses until at least [DATE], in order to keep Total Annual Fund Operating Expenses (excluding, as applicable, taxes, brokerage commissions, substitute dividend expenses on securities
sold short, interest expense, extraordinary expenses and Acquired Fund Fees and Expenses) from exceeding [__]%, [__]% and [__]% for the A, C and I Shares, respectively. This agreement shall terminate upon the termination of the Investment Advisory
Agreement between RidgeWorth Funds and the Adviser, or it may be terminated upon written notice to the Adviser by RidgeWorth Funds. |
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
Fund’s operating expenses remain the same and that you reinvest all
dividends and distributions. The example reflects contractual fee waivers
and reimbursements 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 |
3
years |
5
years |
10
years |
A
Shares |
$[__]
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$[__]
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$[__]
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$[__]
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C
Shares |
$[__]
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$[__]
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$[__]
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$[__]
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I
Shares |
$[__]
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$[__]
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$[__]
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$[__]
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You would pay the following
expenses if you did not redeem your shares:
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1
year |
3
years |
5
years |
10
years |
A
Shares |
[__]
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[__]
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[__]
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[__]
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C
Shares |
[__]
|
[__]
|
[__]
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[__]
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I
Shares |
[__]
|
[__]
|
[__]
|
[__]
|
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 Fund’s performance.
The Fund previously operated as a series of [________________]
(the “predecessor fund”). During the period beginning [ ] and ending [ ], the portfolio turnover rate for the predecessor fund was [ ]%.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of
its net assets (plus any borrowings for investment purposes) in the securities of issuers that are primarily engaged in the ownership, development, exploration, production, distribution or processing of natural resources, as well as in securities of
companies that are suppliers to firms producing natural resources, in instruments with economic characteristics similar to natural resources securities or in direct holdings of natural resources. Natural resources may include, for example, energy
sources, precious and other metals, forest products, real estate, food and agriculture, and other basic commodities.
The Fund may invest in securities of issuers located anywhere
in the world. Typically, the Fund will invest in issuers listed in at least three countries outside the United States, and will invest at least 40% of its assets in foreign issuers. However, when market conditions warrant, the Fund may invest a
higher percentage in U.S. issuers. In such cases, the Fund will invest at least 30% in foreign issuers. Investments are deemed to be “foreign” if: (a) an issuer’s domicile or location of headquarters is in a foreign country; (b) an
issuer derives a significant proportion (at least 50%) of its revenues or profits from goods
Capital
Innovations Global Resources and Infrastructure Fund
produced or sold, investments made, or services performed in a foreign country
or has at least 50% of its assets situated in a foreign country; (c) the principal trading market for a security is located in a foreign country; or (d) it is a foreign currency. The Fund invests in at least three countries outside the United
States.
The Fund may invest in companies of any market
capitalization but the majority of the Fund’s investments are generally in large and mid-cap securities. Potential investments include all types of equities, and American depositary receipts (“ADRs”) and global depositary receipts
(“GDRs”) of global infrastructure, timber, and agribusiness companies, trading on U.S. and global exchanges and market places. In addition, the Fund may invest in domestic master limited partnership (“MLPs”) and real estate
investment trusts (“REITs”). MLPs are publicly traded companies organized as limited partnerships or limited liability companies and treated as partnerships for federal income tax purposes. REITs are companies that own interests in real
estate or in real estate related loans or other interests and that qualify for favorable federal income tax treatment.
In selecting investments for purchase and sale, Capital
Innovations, LLC (“Capital Innovations” or the “Subadviser”) employs an in-depth analysis which consists of researching historical performance, characteristics, and long-term fundamental outlook of infrastructure, timber, and
agribusiness companies to construct a diversified portfolio representing exposure to these asset classes. To achieve the Fund’s investment objective, the Subadviser generally allocates the Fund’s assets among the following three of its
existing investment strategies: the Capital Innovations Global Listed Infrastructure strategy, the Capital Innovations Global Listed Timber strategy and the Capital Innovations Global Listed Agribusiness strategy. The Subadviser has appointed a
committee consisting of senior management (the “Allocation Committee”) to determine the percentage of the Fund’s assets to be allocated to each such asset class. On a periodic basis the Allocation Committee reviews and may adjust
the specific allocation ranges based upon its judgment of economic, market and regulatory conditions.
The Subadviser seeks to capitalize on market inefficiencies by
adhering to a systematic and disciplined investment approach. The Subadviser first screens the infrastructure, timber, and agribusiness industry universes based on specific guidelines, and then applies fundamental analysis to each potential
investment. After an Allocation Committee review of the best ideas, the Subadviser invests in companies it believes have sustainable competitive advantages, based on the Subadviser’s assessment of the durability of cash flows, relative market
valuation and growth potential.
The Fund may purchase the
securities of an exchange-traded fund (“ETF”) to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The Fund might also
purchase shares of an ETF to gain exposure to the securities in the investment company’s portfolio at times when the Fund may not be able to buy those
securities directly. Any investment in an ETF would be consistent with the
Fund’s objective and investment program.
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.
Agribusiness Industry Risk:
Economic forces, including forces affecting the agricultural commodity, energy and financial markets, as well as government policies and regulations affecting the agricultural industry and related industries, could
adversely affect agribusiness companies. Agricultural production and trade flows are significantly affected by government policies and regulations. In addition, agribusiness companies must comply with a broad range of environmental laws and
regulation. Additional or more stringent environmental laws and regulations may be enacted in the future and such changes could have a material adverse effect on agribusiness companies and may affect the Fund’s performance.
Equity Securities Risk: The
price of equity securities fluctuates from time to time based on changes in a company’s financial condition or overall market and economic conditions. As a result, the value of the Fund’s equity securities may fluctuate drastically from
day to day.
Exchange-Traded Fund Risk: ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, the Fund
bears its pro rata portion of the ETF’s expenses. The impact of these additional expenses, if any, would be shown as part of “Acquired Fund Fees and Expenses” in the Annual Fund Operating Expenses table.
Foreign Companies and Securities 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.
Industry Concentration Risk:
The Fund’s investments will be concentrated in each of the following industries: infrastructure, timber, and agribusiness. The focus of the Fund’s portfolio on these specific industries may present more
risks than if the portfolio were broadly diversified over numerous industries.
Infrastructure Industry Risk: Companies within the infrastructure industry are susceptible to adverse economic or regulatory occurrences. Infrastructure companies may be subject to a variety
of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic
slowdown, surplus capacity, increased
Capital Innovations Global
Resources and Infrastructure Fund
competition from other providers of services, uncertainties concerning the
availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. Infrastructure companies may also be affected by or subject to regulation by various government authorities; government regulation of rates
charged to customers; service interruption due to environmental, operational or other mishaps; the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards; and general changes in market sentiment towards
infrastructure and utilities assets. Any market price movements, regulatory or technological changes, or economic conditions affecting infrastructure-related companies may have a significant impact on the Fund’s performance.
Large-Capitalization Companies Risk: Large-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. Large-capitalization companies may be less flexible in evolving markets or unable to
implement change as quickly as small-capitalization companies.
Master Limited Partnership Risk: An investment in MLP units involves risks in addition to the risks associated with a similar investment in equity securities, such as common stock, of a corporation. As compared to common shareholders of a corporation,
holders of MLP units have more limited control and limited rights to vote on matters affecting the partnership. Additional risks inherent to investments in MLP units include cash flow risk, tax risk, risk associated with a potential conflict of
interest between unit holders and the MLP’s general partner, and capital markets risk. Moreover, the value of the Fund’s investment in MLPs depends largely on the MLPs being treated as partnerships for U.S. federal income tax purposes.
If an MLP does not meet current legal requirements to maintain eligibility for partnership tax treatment, or if it is unable to do so because of tax law changes, it could be taxed as a corporation and there could be a material decrease in the value
of its securities.
Certain MLP securities may
trade in lower volumes due to their smaller capitalizations. Accordingly, those MLPs may be subject to more abrupt or erratic price movements and may lack sufficient market liquidity to enable the Fund to effect sales at an advantageous time or
without a substantial drop in price. MLPs are generally considered interest-rate sensitive investments. During periods of interest rate volatility, these investments may not provide attractive returns.
Preferred Stock Risk: Preferred
stock represents an equity interest in a company that generally entitles the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the
company. The market value of preferred stock is subject to company-specific and market risks applicable generally to equity securities and is also sensitive to changes in the company’s creditworthiness, the ability of the company to make
payments on the preferred stock, and changes in interest rates, typically declining in value if interest rates rise.
Real Estate Investment Trust Risk: In addition to the risks associated with securities linked to the real estate industry, such as declines in the value of real estate, risks related to general and local economic conditions, decreases in property
revenues, and increases in prevailing interest rates, property taxes and operating expenses, REITs are subject to certain other risks related to their structure and focus. REITs are dependent upon management skills and generally may not be
diversified. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. A REIT could possibly fail to qualify for favorable U.S. federal income tax treatment, or to maintain its exemption from registration
under the 1940 Act. The above factors may also adversely affect a borrower’s or a lessee’s ability to meet its obligations to the REIT. In addition, the REIT may experience delays in enforcing its rights as a lessor and may incur
substantial costs associated with protecting its investments.
Small- and Mid-Capitalization Companies Risk: Small- and mid-capitalization stocks tend to perform differently from other segments of the equity market or the equity market as a whole, and can be more volatile than stocks of large-capitalization companies. Small-
and mid-capitalization companies may be newer or less established, and may have limited resources, products and markets, and may be less liquid.
Timber Industry Risk. Timber
companies may be affected by numerous factors, including events occurring in nature and international politics. For example, the volume and value of timber that can be harvested from timberlands may be limited by natural disasters and other events
such as fire, volcanic eruptions, insect infestation, disease, ice storms, wind storms, flooding, other weather conditions and other causes. In periods of poor logging conditions, timber companies may harvest less timber than expected. Timber
companies are subject to many federal, state and local environmental, health and safety laws and regulations. In addition, rising interest rates and general economic conditions may affect the demand for timber products. Any factors affecting timber
companies could have a significant effect on the Fund’s performance.
Performance
The bar chart and the performance table that follow illustrate
the risks and volatility of an investment in the Fund. The Fund’s past performance (before and after taxes) does not indicate how the Fund will perform in the future. 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.
The Fund acquired the assets and assumed the liabilities of the
predecessor fund on [ ], and the predecessor fund is the accounting and performance survivor of the reorganization. This means that the predecessor fund’s performance and financial history have been adopted by the Fund. In the reorganization,
former shareholders of the predecessor fund
Capital
Innovations Global Resources and Infrastructure Fund
received I Shares of the Fund. Accordingly, the performance of I Shares of the
Fund includes the performance of the predecessor fund. The performance of the predecessor fund has not been restated to reflect the estimated annual operating expenses of I Shares. The inception date shown in the table for I Shares is that of the
predecessor fund.
Although A and C Shares would have
similar annual returns to I Shares because the classes are invested in the same portfolio of securities, the returns for A and C Shares would be lower than I Shares because of the lower expenses paid by I Shares.
This bar chart shows the changes in performance of the
Fund’s I Shares from year to year.*
[BAR CHART]
Best
Quarter |
Worst
Quarter |
[______]
|
[______]
|
[_____]
|
[_____]
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*
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The performance information
shown above is based on a calendar year. The Fund’s total return for the six months ended [___________] was [___]. |
The following table compares the Fund’s average annual
total returns for the periods indicated with those of a broad measure of market performance.
AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 2015)
|
1
Year |
Since
Inception* |
A
Shares Return Before Taxes |
[__]%
|
[__]%
|
C
Shares Return Before Taxes |
[__]%
|
[__]%
|
I
Shares Return Before Taxes |
[__]%
|
[__]%
|
I
Shares Return After Taxes on Distributions |
[__]%
|
[__]%
|
I
Shares Return After Taxes on Distributions and Sale of Fund Shares |
[__]%
|
[__]%
|
S&P
Global Natural Resources Index (reflects no deduction for fees, expenses or taxes) |
[___]
|
[___]
|
*
|
Since Inception of the
predecessor fund on September 28, 2012. |
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 Fund’s investment adviser
(the “Adviser”). Capital Innovations, LLC is the Fund’s Subadviser.
Portfolio Management
Mr. Michael D. Underhill, Chief Investment Officer and
co-founder of CI, and Ms. Susan L. Dambekaln, co-founder of CI, are the portfolio managers for the Fund. The Subadviser utilizes a team-based approach in managing the Fund. Mr. Underhill and Ms. Dambekaln are the leaders of this team and comprise
the Allocation Committee, which is responsible for the allocations of the Fund’s investments among the various asset classes. Mr. Underhill and Ms. Dambekaln have co-managed the predecessor fund since its commencement on September 28,
2012.
Purchasing and Selling Your Shares
You may purchase or redeem Fund shares on any business day. You
may purchase and redeem A, C and I 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, waived, or not applicable in some cases.
Class
|
Dollar
Amount |
A
Shares |
$2,000
|
C
Shares |
$5,000
($2,000 for IRAs or other tax-advantaged accounts) |
I
Shares |
None
|
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 Shares.
Tax Information
The Fund’s distributions are generally taxable as
ordinary income, qualified dividend 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 intermediary’s 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 the Fund for a complete discussion of the Fund’s principal investment strategies.
More Information About Principal Risks
Equity Securities Risk
Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices
of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in funds that primarily hold equity securities. Historically, the equity market has moved
in cycles and investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause the Fund’s net asset value to
fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations.
Exchange-Traded Fund Risk
ETFs are investment companies that are bought and sold on a
securities exchange. ETFs may track a securities index, a particular market sector, or a particular segment of a securities index or market sector. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When
a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF’s expense. The risks of owning shares of an ETF generally reflect the risks of owning the
underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in the ETF being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying
securities directly, it may be more costly to own shares of an ETF.
Large-Capitalization Companies Risk
Large-capitalization stocks can perform differently from other
segments of the equity market or the equity market as a whole. Companies with large market 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-capitalization stocks may not
rise to the same extent as the value of small or mid-capitalization companies under certain market conditions or during certain periods.
Small- and Mid-Capitalization Companies Risk
Small- and mid-capitalization companies may be either
established or newer companies. Small-capitalization companies may offer greater opportunities for gain. They 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.
Preferred Stock Risk
Preferred stock represents an equity interest in a company that
generally entitles the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the company. Preferred stocks may pay fixed or adjustable rates
of return. The market value of preferred stock is subject to issuer-specific and market risks applicable generally to equity securities and is sensitive to changes in the issuer’s creditworthiness and to changes in interest rates, the ability
of the issuer to make payments on the preferred stock and changes in interest rates, typically declining in value if interest rates rise. In addition, a company’s preferred stock generally pays dividends only after the company makes required
payments to holders of its bonds and other debt. Therefore, the value of preferred stock will usually react more strongly than bonds and other debt to actual or perceived changes in the company’s financial condition or prospects.
Industry Concentration Risk
The Fund’s investments will be concentrated in the
infrastructure, timber, and agribusiness industries. The focus of the Fund’s portfolio on a specific industry or industries may present more risks than if the portfolio were broadly diversified over numerous industries. A downturn in any of
the infrastructure, timber or agribusiness industries would have a larger impact on the Fund than on an investment company that does not limit its concentration to only these industries. At times, the performance of the Fund’s investments may
lag the performance of other industries or the broader market as a whole. Such underperformance may continue for extended periods of time.
Infrastructure Industry Risk
The infrastructure industry may be subject to a variety of
factors that may adversely affect a company’s business or operations, including high interest costs, high leverage, costs associated with environmental and other regulations, increased competition, the effects of energy conservation policies
and other factors. Any market price movements, regulatory or technological changes, or economic conditions affecting infrastructure-related companies may have a significant impact on the Fund’s performance. Some of the specific risks that
infrastructure companies may be particularly affected by, or subject to, include the following:
–
|
costs of complying with
changes to environmental and other regulations, including regulation of rates charged to customers; |
–
|
high interest costs in
connection with capital construction and improvement programs; |
–
|
difficulty in raising capital
in adequate amounts and on reasonable terms during periods of unsettled capital markets or government budgetary constraints that impact publicly funded projects; |
–
|
the effects of economic
slowdown or recession, and surplus capacity; |
–
|
increased competition from
other providers of services; |
–
|
uncertainties concerning the
availability of fuel at reasonable prices; - service interruption or legal challenges due to environmental, operational, or other mishaps; |
–
|
the imposition of special
tariffs and changes in tax laws, regulatory policies, or accounting standards; |
–
|
technological innovations
that may render existing plants, equipment, or products obsolete; and |
–
|
unforeseen
delays, natural disasters, accidents, and cost overruns in infrastructure projects. |
Other factors that may affect the operation of companies within
the infrastructure industry include inexperience with and potential losses resulting from a developing deregulatory environment, increased susceptibility to terrorist acts or political actions, and general changes in market sentiment towards
infrastructure assets.
Timber Industry Risk
The timber industry is highly cyclical and the market value of
companies engaged in the ownership, management or upstream supply chain of forests and timberlands is strongly affected by changes in international economic conditions, interest rates, weather cycles, changing demographics, environmental conditions
and government regulations, among other factors. For example, the volume and value of timber that can be harvested from timberlands is limited by natural disasters, fire, volcanic eruptions, insect infestation, disease, ice storms, wind storms, and
flooding, as well as other events and weather conditions and changes in climate conditions that could intensify the effects of any of these factors. Many companies in the timber and forestry industry do not insure against damages to their
timberlands. Global timber
companies involved in the forest, paper and packaging products industries are
highly competitive globally, including significant competition from nonwood and engineered wood products, and no single company is dominant. These industries have suffered, and continue to suffer, from excess capacity. Timber companies are subject
to many federal, state and local environmental, health and safety laws and regulations, particularly with respect to the restoration and reforestation of timberlands, harvesting timber near waterways, discharges of pollutants and emissions, and the
management, disposal and remediation of hazardous substances or other contaminants. Political risks and the other risks to which foreign securities are subject may also affect domestic companies in which the Fund may invest if they have significant
operations or investments in foreign countries. In particular, tariffs, quotas or trade agreements can also affect the markets for products of global timber companies, particularly wood products. In addition, rising interest rates and general
economic conditions may affect the demand for timber products. Companies in this industry are also subject to stringent federal, state and local environmental, health and safety laws and regulations.
Agribusiness Industry Risk
Companies involved in the agribusiness industry and
farming-related activities may be affected by certain legislative or regulatory developments related to food safety, the environment, taxes and other governmental policies. Economic forces, including forces affecting the agricultural, commodity,
energy and financial markets, as well as government policies and regulations affecting the agricultural sector and related industries, could adversely affect the Fund’s agribusiness companies and, thus, the Fund’s performance.
Agricultural production and trade flows are significantly affected by government policies and regulations. Companies involved in the agriculture industry may be subject to the risk of liability for environmental damage, depletion of resources, and
mandated expenditures for safety and pollution control devices. An increased competitive landscape, caused by increased availability of food and other agricultural commodities, economic recession or labor difficulties, may lead to a decrease in
demand for the products and services provided by companies involved in agriculture. Furthermore, companies involved in the agriculture industry are particularly sensitive to changing weather conditions and other natural disasters. In addition, these
companies are also subject to risks associated with the cyclicality of revenues and earnings, economic recession, currency fluctuations, changing consumer tastes, extensive competition, consolidation, and excess capacity. In addition, agribusiness
companies must comply with a broad range of environmental and food safety laws and regulations. Additional or more stringent environmental and food safety laws and regulations may be enacted in the future and such changes could have a material
adverse effect on the business of the Fund’s agribusiness companies and on the Fund.
Foreign Securities Risk
Foreign securities, including depositary receipts such as ADRs,
involve special risks such as currency fluctuations (with the exception of ADRs), economic or financial instability, lack of timely or reliable financial information and unfavorable political
or legal developments. 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. These risks are increased for investments in emerging markets.
Specific Risks of Foreign Securities:
• |
Political and Economic Risks. Foreign investments may be subject to heightened political and economic risks, particularly in countries with emerging economies and securities markets, which may have relatively unstable governments and economies based
on only a few industries. In some countries, there is the risk that the government could seize or nationalize companies, impose additional withholding taxes on dividends or interest income payable on securities, impose exchange controls or adopt
other restrictions that could affect the Fund’s investments. |
• |
Regulatory Risk. Foreign companies not publicly traded in the U.S. are not subject to accounting and financial reporting standards and requirements comparable to those that U.S. companies must meet. In addition, there may be less
information publicly available about such companies. |
• |
Foreign Tax Risk. A Fund’s income from foreign issuers may be subject to non-U.S. withholding taxes. A Fund may also be subject to taxes on trading profits or on transfers of securities in some countries. To the extent foreign
income taxes are paid by a Fund, shareholders may be entitled to a credit or deduction for U.S. tax purposes. |
• |
Transaction Costs. The costs of buying and selling foreign securities including brokerage, tax and custody costs are generally higher than those for domestic transactions. |
• |
Custody/Sub-Custody Risk. Custody risk refers to the risks inherent in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories. A Fund may invest in markets where custodial and/or
settlement systems are not fully developed. There may be very limited regulatory oversight of certain foreign banks or securities depositories that hold foreign securities and foreign currencies. The laws of certain countries may limit the ability
to recover such assets if the foreign bank or depository, or an agent of the bank or depository, goes bankrupt and the assets of a Fund may be exposed to risk in circumstances where the custodian/sub-custodian or Adviser will have no liability. In
addition, the inability of a Fund to make its intended securities purchases due to settlement issues with the custodian/sub-custodian could cause a Fund to miss attractive investment opportunities. |
•
|
Currency
Risk. Non-U.S. securities in which a Fund may invest, with the exception of ADRs, generally trade in currencies other than the U.S. dollar. Changes in currency exchange rates may affect a Fund’s net asset
value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. An increase in the strength of the U.S. dollar relative to these other currencies may cause |
|
the value of a Fund to
decline. Certain currencies may be particularly volatile, and non-U.S. governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund’s non-U.S. holdings whose value is tied to that particular currency.
|
•
|
Emerging
Markets Risk. 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. |
Master Limited Partnership Risk
Investment in securities of an MLP involves risks that differ
from investments in common stock, including risks related to limited control and limited rights to vote on matters affecting the MLP, risks related to potential conflicts of interest between the MLP and the MLP’s general partner, cash flow
risks, dilution risks and risks related to the general partner’s right to require unit-holders to sell their common units at an undesirable time or price. Holders of units issued by an MLP are exposed to remote possibility of liability for all
of the obligations of that MLP in the event that a court determines that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to that MLP’s partnership agreement, or to take
other action under the partnership agreement of that MLP would constitute “control” of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without complying with the
partnership statute of that state. Holders of MLP interests also are exposed to the risk that they may be required to repay amounts to the MLP that are wrongfully distributed to them. Additional risks include risk associated with a potential
conflict of interest between unit holders and the MLP’s general partner, and capital markets risk.
Certain MLP securities may trade in lower volumes due to their
smaller capitalizations. Accordingly, those MLPs may be subject to more abrupt or erratic price movements and may lack sufficient market liquidity to enable the Fund to effect sales at an advantageous time or without a substantial drop in price.
MLPs are generally considered interest-rate sensitive investments. During periods of interest rate volatility, these investments may not provide attractive returns.
MLPs may incur environmental costs and liabilities due to the
nature of their businesses and the substances they handle. Changes in existing laws, regulations or enforcement policies governing the energy sector could significantly increase the compliance costs of MLPs. Certain MLPs could, from time to time, be
held responsible for implementing remediation
More
Information About Indices
measures, the cost of which may not be recoverable from insurance. The Fund
will select its investments in MLPs from the current small pool of issuers. Demand for investment opportunities in MLPs that operate energy related businesses may exceed supply, which could make it difficult to operate the Fund.
MLP Tax Risk
A change in current tax law, or a change in the business of an
MLP, could result in an MLP being treated as a corporation or other form of taxable entity for U.S. federal income tax purposes, which would result in the MLP being required to pay U.S. federal income tax, excise tax or another form of tax on its
taxable income. The classification of an MLP as a corporation or other form of taxable entity for U.S. federal income tax purposes could reduce the amount of cash available for distribution by the MLP and could cause any such distributions received
by the Fund to be taxed as dividend income, return of capital, or capital gain. Therefore, if any MLPs owned by the Fund were treated as corporations or other forms of taxable entity for U.S. federal income tax purposes, the after-tax return to the
Fund with respect to its investment in such MLPs could be materially reduced, which could cause a material decrease in the net asset value per share (“NAV”) of the Fund’s shares.
Real Estate Investment Risk
Investments in real estate related securities are subject to
risks similar to those associated with direct ownership of real estate, and an investment in a Fund will be closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks
related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; defaults by borrowers or tenants, particularly during an economic downturn; increasing competition;
increases in property taxes and operating expenses; changes in zoning laws; losses due to costs resulting from the clean-up of environmental problems; liability to third parties for damages resulting from environmental problems; casualty or
condemnation losses; limitations on rents; changes in market and sub-market values and the appeal of properties to tenants; and changes in interest rates.
In addition to the risks associated with investing in
securities of real estate companies and real estate related companies, real estate investment trusts (“REITs”) are subject to certain additional risks. Equity REITs may be affected by changes in the value of the underlying properties
owned by the trusts, and mortgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills and may have their investments in relatively few properties, or in a small geographic area
or a single property type. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, REITs could possibly fail to qualify for the favorable income tax treatment available to REITs under the
Internal Revenue Code of 1986, as amended, (the “Internal Revenue Code”) or to maintain their exemptions from registration under the 1940 Act. The failure of a company to qualify as a REIT
under federal tax law may have adverse consequences to the Fund. The above
factors may also adversely affect a borrower’s or a lessee’s ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor
and may incur substantial costs associated with protecting its investments. In addition, REITs have their own expense and the Fund will bear a proportionate share of those expenses.
Real estate companies tend to be small to medium-sized
companies. Real estate company shares, like other smaller company shares, can be more volatile than, and perform differently from, larger company shares. There may be less trading in a smaller company’s shares, which means that buy and sell
transactions in those shares could have a larger impact on the share’s price than is the case with larger company shares.
Risk Information Common to RidgeWorth Funds
Each Fund is an open-end management investment company
registered with the SEC, and commonly known as 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 Adviser’s or Subadviser's 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 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 Fund’s 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 Fund’s objective matches your own.
The Funds are 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.
More Information About Fund
Investments, Information About Portfolio Holdings and Management
The S&P Global Natural Resources Index includes 90 of the largest publicly
traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across three primary commodity-related sectors: agribusiness, energy and
metals & mining.
More Information About Fund
Investments
This prospectus describes the Fund’s
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, the 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 Fund’s Statement of Additional Information (“SAI”).
The investments and strategies described in this prospectus are
those that the Fund uses under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, the 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 the Fund’s objectives. Temporary defensive investments may limit the Fund’s ability to meet its investment objective. The 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, the Fund cannot guarantee that it will achieve its investment objective.
The Fund may invest in other mutual funds for cash management
purposes. When the 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 fund’s expenses.
Information About Portfolio Holdings
A description of the Fund’s policies and procedures with
respect to the circumstances under which the Fund discloses 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 Subadviser and establishes policies that the Adviser and Subadviser must follow in their fund-related management
activities. The day-to-day operations of the Fund are the responsibilities of the officers and various service organizations retained by the Fund.
Investment Adviser
RidgeWorth Investments,
located at 3333 Piedmont Road, Suite 1500, Atlanta, GA 30305 (“RidgeWorth” or the “Adviser”), serves as the investment adviser to 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 [______], the Adviser had approximately $[__] billion in assets under management. The Adviser is
responsible for overseeing the Subadviser to ensure compliance with the Fund’s investment policies and guidelines, and monitors the Subadviser’s 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 Fund’s
shareholders. Any significant change in the Fund’s subadvisory arrangement will be communicated to shareholders.
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 the Fund. Information regarding the Adviser’s, and thus the Fund’s, Proxy Voting
Policies and Procedures is provided in the SAI. A copy of the Adviser’s Proxy Voting Policies and Procedures may be obtained by contacting the Fund at 1-888-784-3863 or by visiting www.ridgeworth.com.
For its fiscal year ended November 30, 2015, the predecessor
fund paid its adviser an annual advisory fee of [__]% of the predecessor fund’s average daily net assets.
The Adviser and and the Subadviser have contractually agreed to
waive fees and reimburse expenses until at least [_____], in order to keep total annual operating expenses of the Fund from exceeding the applicable expense cap shown. If at any point before [______], 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.
|
Expense
Limitation |
Fund
|
A
|
|
C
|
|
I
|
Capital
Innovations Global Resources and Infrastructure Fund |
[__]%
|
|
[__]%
|
|
[__]%
|
The following breakpoints are used
in computing the advisory fee:
Average
Daily Net Assets |
|
Discount
From Full Fee |
First
$500 million |
|
None
— Full Fee |
Next
$500 million |
|
5%
|
Purchasing, Selling
and Exchanging Fund Shares
Average
Daily Net Assets |
|
Discount
From Full Fee |
Next
$4 billion |
|
10%
|
Over
$5 billion |
|
15%
|
A discussion regarding the basis for
the Board’s approval of the investment advisory agreement with the Adviser will appear in the Fund’s annual report to shareholders for the period ending March 31, 2016.
Investment Subadviser
The Subadviser is responsible for managing the portfolios of
its 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 Board’s approval of the investment subadvisory
agreement with CI will appear in the Fund’s annual report to shareholders for the period endingMarch 31, 2016.
Information about the Subadviser and the individual portfolio
managers of the Fund is provided 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.
[CI LOGO TO BE
UPDATED]
Capital Innovations, LLC (“CI”)
325 Forest Grove Drive, Suite 100
Pewaukee, Wisconsin 53072
www.capinnovations.com
CI is an investment adviser registered with the SEC. The firm
was established in 2007. As of [______], CI had approximately $[__] million in assets under management.
The following individuals are primarily responsible for the
day-to-day management of the Fund:
Mr. Michael D.
Underhill is Founder and Chief Investment Officer at CI. He has managed the predecessor fund since it commenced operations in September 2012. He has worked in investment management since [19__].
Ms. Susan L. Dambekaln is Founder, Portfolio Manager and Chief
Operating Officer at CI. She has managed the predecessor fund since it commenced operations in September 2012. She has worked in investment management since [19__].
Purchasing, Selling and Exchanging Fund Shares
This section tells you how to purchase, sell (sometimes called
“redeem”) and exchange A Shares, C Shares and I Shares of the Funds. Participants in retirement plans must contact their Employee Benefits Office or their Plan’s Administrator for information regarding the purchase, redemption
or exchange of shares, or for questions about their specific accounts. Plans may require separate documentation and the plan’s policies and procedures may be different than those described in this prospectus. Investors purchasing or selling
shares through a
retirement plan should also refer to their Plan documents. Please review the
information you have about your retirement plan.
Investors purchasing or selling shares through a financial
intermediary may be charged transaction-based or other fees by the financial intermediary for its services. Please consult your financial intermediary for more information regarding such fees and for purchase instructions.
Purchasing Fund Shares
Where can I buy Fund shares?
You may purchase shares of the Funds through financial
institutions or intermediaries that are authorized to place transactions for their customers. Please contact your financial institution or intermediary directly and follow its procedures for purchase 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. Your investment
professional can assist you in opening a brokerage account that will be used for purchasing shares of RidgeWorth Funds.
• |
Eligible shareholders may
purchase directly from the Funds. (Please see the section entitled “How Do I Open an Account?” for additional information.) |
Who can buy shares?
A Shares and C Shares may be purchased by all eligible investors that meet the requirements of the “Where can I buy Fund shares?” section, above.
I Shares are offered 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:
• |
assets of a bona fide trust,
|
• |
assets of a business entity
possessing a tax identification number, |
• |
assets of an employee benefit
plan, |
• |
assets held within select
fee-based programs, or |
• |
assets held within certain
non-discretionary intermediary no-load platforms. |
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
Purchasing, Selling and
Exchanging Fund Shares
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.
Foreign Investors
To purchase A Shares and C Shares of the Fund, 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.
When can I purchase 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 Day’s NAV. If your request is received after 4:00 p.m. Eastern Time, it will be priced at the next Business Day’s
NAV.
The time at which transactions and shares are priced and the
time until which trades 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
trades 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 the above stated Fund cut-off times. For more information about how to purchase, sell or exchange Fund shares, including your financial institution’s or intermediary’s internal order entry cut-off times, please contact your
financial institution or intermediary directly.
A Fund
may reject any purchase order.
How do the Funds calculate
NAV?
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 and I Shares is simply the next calculated NAV.
The NAV is calculated by adding the total value of a
Fund’s 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 Fund’s determination of a security’s 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 security’s 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 its fair value. 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
Purchasing, Selling
and Exchanging Fund Shares
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 security’s 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.
How do I open an account?
Read this prospectus carefully, select the Fund or Funds and
share class most appropriate for you, and decide how much you want to invest.
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 your payment does not clear or 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.
Eligible shareholders who
purchase shares directly from the Funds may purchase additional Fund shares by:
• |
Mail
|
• |
Telephone (1-888-784-3863)
|
• |
Wire
|
• |
Fax (1-800-451-8377)
|
•
|
Automated
Clearing House (“ACH”) |
In-Kind Purchases
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.
Systematic Investment Plan
The Systematic Investment Plan is only available to
shareholders who own A Shares or 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 investment, you may begin regularly-scheduled investments of $50 or more, once or twice a month. Shareholders should contact their financial intermediaries for more information on how to
take advantage of this feature.
What is the minimum
amount to purchase shares of Fund?
To purchase shares for
the first time, you must invest in any Fund at least:
Class
|
Dollar
Amount |
A
Shares |
$2,000
|
C
Shares |
$5,000
($2,000 for IRAs or other tax-advantaged accounts) |
I
Shares |
No
minimum |
For A Shares and C
Shares purchases, your subsequent investments must be made in amounts of at least $1,000. The Fund reserves the right to waive and/or reduce the minimum or subsequent investment amounts.
For investors who qualify to purchase I Shares, there are no
minimum investment amounts 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.
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.
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 |
5.75%
|
6.10%
|
$50,000
but less than $100,000 |
4.75%
|
4.99%
|
$100,000
but less than $250,000 |
3.75%
|
3.90%
|
$250,000
but less than $500,000 |
2.50%
|
2.56%
|
$500,000
but less than $1,000,000 |
2.00%
|
2.04%
|
Purchasing, Selling and
Exchanging Fund Shares
If
Your Investment is: |
Your
Sales Charge as a Percentage of Offering Price* |
Your
Sales Charge as a Percentage of Your Net Investment |
$1,000,000
and over |
None
|
None
|
*
|
RidgeWorth Distributors LLC
(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 0.75%. |
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 0.75% 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
The front-end sales charge may be waived on A Shares
purchased:
• |
through reinvestment of
dividends and distributions; |
• |
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; |
• |
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
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 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
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.
Contingent Deferred Sales Charges (“CDSC”)
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 for A Shares or
C Shares will be waived if you sell your 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; |
Purchasing, Selling
and Exchanging Fund Shares
–
|
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 (doctor’s 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 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 $10,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. |
• |
Required mandatory minimum
withdrawals made after 70½ 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 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.
You can also obtain information about sales charges, rights of
accumulation and letters of intent on the Funds’ website at www.ridgeworth.com.
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 customer’s 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 day’s 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 day’s 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
Purchasing, Selling and
Exchanging Fund Shares
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.
Selling Fund Shares
Shares may be sold 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. Shares may be sold by following the procedures established at
the time your account was opened with the Funds or financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request in proper form. 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:
• |
Mail
|
• |
Telephone (1-888-784-3863)
|
• |
Wire
|
• |
Fax (1-800-451-8377)
|
•
|
ACH
|
To sell shares by telephone:
• |
redemption checks must be
made payable to the registered shareholder; and |
•
|
redemption
checks must be mailed to an address of record that has been associated with the shareholder account for at least 30 days. |
Signature Authentication
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 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:
• |
Changing your name.
|
• |
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
The sale price of each share will be the next NAV determined
after the Funds receive your request, in proper form, less any applicable CDSC.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan is only available to
shareholders who own A Shares or C Shares. If you have at least $10,000 of A Shares and C Shares 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.
Purchasing, Selling
and Exchanging Fund Shares
Redemptions In-Kind
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
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 |
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.
Receiving Your
Money
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 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 Fund’s performance and generating capital gains distributions.
Suspension of Your Right to Sell Your 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 and Converting Your Shares
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).
Exchanging Your 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.
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 Fund–Investment Class. Further, qualifying shares of the State Street Institutional Liquid Reserves Fund–Investment Class may be exchanged A,
C or I Shares of any Fund. You should read the State Street Institutional Liquid Reserves Fund–Investment Class prospectus prior to investing in that mutual fund. You can obtain a prospectus State Street Institutional Liquid Reserves
Fund–Investment Class by calling 1-888-784-3863 or by visiting our website at www.ridgeworth.com. Qualifying exchanges between the Fund's A Shares and the State Street Institutional Liquid Reserves Fund–Investment Class are eligible for
exchange into the Fund's A and C Shares without the imposition of the applicable front-end sales charge and/or CDSC.
Market Timing Policies and
Procedures
If you purchased shares though a financial institution or intermediary please
contact your financial institution or intermediary regarding the availability of this exchange privilege.
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.
Systematic Exchange Plan
The Systematic Exchange Plan is only available to shareholders
who own A Shares or 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
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.
Market Timing Policies and Procedures
The Fund is 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 Fund may present
risks to the Fund’s long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Fund’s investment strategies,
triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Fund 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 Fund and/or its service providers will take steps
reasonably designed to detect and deter frequent trading by shareholders pursuant to the Fund’s policies and procedures described in this prospectus and approved by the Fund’s Board. The Fund seeks 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 Fund’s service providers may consider the trading history of accounts under common ownership or
control. The Fund’s policies and procedures include:
• |
Restrictions on shareholders
from making more than one (1) “round trip” into and out of the 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 Fund and/or its service providers may, at their discretion, reject any additional purchase orders. The Fund defines a round trip as a purchase into the Fund by a shareholder, followed by
a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Fund, 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 Fund or the Adviser reasonably believes that the trading activity would be harmful or disruptive to
the Fund. |
The Fund and/or its 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 Fund’s 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 Fund will occur, particularly with respect to trades placed by shareholders that invest in the Fund through omnibus arrangements
maintained by brokers, retirement plan accounts and other financial intermediaries.
Purchase and redemption transactions submitted to the Fund by
these intermediaries reflect the transactions of multiple beneficial owners whose individual transactions are not automatically disclosed to the Fund. Therefore, the Fund relies in large part on the intermediaries who maintain omnibus arrangements
(which may represent a majority of Fund shares) to aid in the Fund’s efforts to detect and deter short-term trading. The Fund monitors trading activity at the omnibus account level and look for activity that indicates potential short-term
trading. If they detect suspicious trading activity, the Fund contacts the intermediaries to determine whether the short-term trading policy has been violated and may request and receive personal identifying information and transaction
Distribution
of Fund Shares, Shareholder Servicing Plans and Dividends and Distributions
histories for some or all beneficial owners to make this determination.
If the 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 Fund 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. The Fund has the right to terminate an intermediary’s ability to invest in the Fund if excessive trading activity persists and the 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 Fund’s 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.
Distribution of Fund Shares
Distribution of Fund Shares Generally
The Adviser, the Subadviser or their affiliates may make
payments from their own funds 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 Fund.
The amount of these payments is determined by the
Adviser or Subadviser and may differ among financial intermediaries. Such payments may provide incentives for financial intermediaries to make shares of the Fund available to their customers, and may allow the Fund 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 Fund.
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 the 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 Fund’s 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 Fund’s Distributor is reimbursed for these
payments, as well as other distribution related services provided by the Distributor.
For A Shares, the Fund’s 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 Fund’s A Shares.
|
Maximum
Fee |
|
Current
Approved Fee |
Capital
Innovations Global Resources and Infrastructure Fund |
0.35%
|
|
0.30%
|
For C Shares, the maximum
distribution fee is 1.00% of the average daily net assets of a Fund’s 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 the
Fund, the A Shares and I Shares Shareholder Servicing Plan permits the A Shares and I Shares of the Fund to pay financial intermediaries for shareholder support services they provide, at a rate of up to 0.25% of the
average daily net assets of each of the A Shares and I Shares of the 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 Fund or its 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.
Dividends and Distributions
The Fund distributes its net investment income at least
annually. The Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on the Fund’s 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 Fund in writing
Household Mailings and
Taxes
prior to the date of the distribution. Your election will be effective for
dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice.
401(k) plan participants will receive dividends and
distributions in the form of additional Fund shares if the participant owns shares of the 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 Fund on the date the dividend or distribution is allocated.
Household Mailings
To reduce expenses, we may mail only one copy of the Fund's
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
Fund and its shareholders. This summary is based on current tax laws, which may change. More information on taxes is in the Fund’s SAI.
The 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 the
Fund may be taxable whether or not you reinvest them in additional shares.
Income distributions are generally taxable as either ordinary
income or, in general, if paid from the Fund’s “qualified dividend income” and if certain conditions, including holding period requirements, are met by the Fund and the shareholder, as qualified dividend income. Dividends that are
qualified dividend income are taxable to noncorporate shareholders at U.S. federal income tax rates of up to 20%. 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 the Fund’s net short-term capital gains are
generally taxable as ordinary income. A high portfolio turnover rate and the use of certain derivatives may cause the Fund to recognize higher amounts of short-term capital gains. A portion of dividends received from the Fund (but none of the
Fund’s capital gain distributions) may qualify for the dividends-received deduction for corporations.
“Qualified dividend income” generally is income
derived from dividends paid by U.S. corporations or certain foreign corporations that are either incorporated in a U.S. possession or eligible for tax benefits under certain U.S. income tax treaties. In addition, dividends that the Fund receives in
respect of stock of certain foreign corporations may be qualified dividend income if that stock is readily tradable on an established U.S. securities market.
If the 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 the Fund shortly before a dividend or other
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 the Fund and capital gains on a disposition
of Fund shares are generally taken into account for purposes of the 3.8% U.S. federal Medicare contribution tax on all or a portion of the “net investment income” of individuals with incomes certain thresholds. 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.
The Fund will inform you shortly after the close of each
calendar year of the amounts of your distributions that may qualify as ordinary income dividends, qualified dividend income 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, the Fund will apply “backup withholding” tax on your 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.
The financial
highlights table is intended to help you understand the predecessor fund’s financial performance for the past 5 years. Certain information reflects financial results for a single predecessor fund share. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment in the predecessor fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by [________________], the independent registered
public account firm of the predecessor fund, whose report for each period shown, along with the predecessor fund’s financial statements and related notes, are included in the predecessor fund’s Annual Reports to Shareholders for such
periods. The Annual Reports are available upon request and without charge by calling 1-888-784-3863 or on the Fund’s website at www.ridgeworth.com.
[To be Provided in 485(b) filing]
See Notes to Financial
Highlights.
Investment Adviser:
RidgeWorth Investments
3333 Piedmont Road, Suite 1500
Atlanta, GA
30305
www.ridgeworth.com
Investment Subadviser:
Capital Innovations, LLC
325 Forest Grove Drive, Suite 100
Pewaukee,
WI 53072
www.capinnovations.com
How to Obtain More
Information About the Fund
More information about the Fund is available
without charge through the following:
Statement of
Additional Information (SAI):
The SAI includes detailed information
about the Fund. 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 the Fund’s holdings and contain information from the
Fund’s managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Fund.
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 Fund, from the EDGAR Database on the SEC’s 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.
RidgeWorth Investments is the trade name of RidgeWorth
Capital Management LLC
RFPRO-CI-[___]
STATEMENT OF ADDITIONAL INFORMATION
RIDGEWORTH FUNDS
[DATE]
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 [ ] 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 |
Capital Innovations Global Resources and Infrastructure Fund |
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The Fund previously operated as a series of
[ ] (the Predecessor Fund). The Predecessor Funds audited financial statements for the fiscal year ended
November 30, 2014 are incorporated herein by reference from the Predecessor Funds 2014 Annual Report to Shareholders. The Predecessor Funds unaudited financial statements for the six month period ended May 31, 2015 are
incorporated herein by reference from the Predecessor Funds 2015 Semi-Annual Report to Shareholders. Copies of the Predecessor Funds Reports to Shareholders are available without charge upon request by calling 1-888-784-3863. 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.
The information in this Statement of Additional Information is not complete and may be changed. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission. The securities described herein may not be sold until the registration statement becomes effective. This Statement of Additional Information is not an offer to sell or the solicitation of an
offer to buy securities and is not soliciting an offer to buy these securities in any state in which the offer, solicitation or sale would be unlawful.
TABLE OF CONTENTS
THE TRUST
The Trust is 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 the Fund. The Trust reserves the right to create and issue shares of
additional funds and/or classes. This SAI relates only to the Fund and not to the other series of the Trust (collectively, the Funds). The Fund is diversified, as that term is defined in the Investment Company Act of 1940, as amended
(the 1940 Act).
The Predecessor Fund and the Fund have similar investment objectives and strategies and similar investment policies. The Fund
acquired the assets and assumed the liabilities of the Predecessor Fund on [ ] (the Reorganization). As a result of
the Reorganization, the Fund assumed the performance and accounting history of the Predecessor Fund prior to the date of Reorganization. Financial and performance information included in this SAI is that of the Predecessor Fund.
The Trust currently offers five classes of Shares: A, C, R, I and IS Shares. The Fund currently offers A, C and I Shares. Other classes may be established
from time to time in accordance with the provisions of the Trusts Declaration of Trust. Each class of Shares of the Fund generally is identical in all respects except that each class of shares is subject to its own distribution expenses and
minimum investments.
DESCRIPTION OF PERMITTED INVESTMENTS
The Funds investment objective and principal investment strategies are described in the Prospectus. The following information supplements, and should be
read in conjunction with, the Prospectus. Following are descriptions of the permitted investments and investment practices discussed in the Funds Prospectus. The Funds investment subadviser (the Subadviser) may only utilize
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, 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.
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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.
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. The 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 the 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 Fund may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the
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 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 Fund is 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 Fund will purchase. The Fund will not purchase obligations issued by the Adviser, Subadviser, 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.
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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, the 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 the Fund to purchase securities or require the Fund to segregate assets are not considered to be borrowing.
In addition to the foregoing, the Fund is authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess
of 5% of the value of the Funds total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement.
Borrowing may subject
the Fund to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Fund 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 the 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
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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).
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. The 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.
Cybersecurity. With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational, information
security and related risks through breaches in cybersecurity. In general, a breach in cybersecurity can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital
systems (e.g., through hacking or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational
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disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make
network services unavailable to intended users). Cyber incidents affecting the Funds Adviser, Subadviser and other service providers (including, but not limited to, fund accountants, custodians, transfer agents and financial intermediaries)
have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with the Funds ability to calculate its NAV, impediments to trading, the inability of Fund shareholders to transact
business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Similar adverse consequences could result from cyber incidents
affecting issuers of securities in which the Fund invests, counterparties with which the Fund engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance
companies and other financial institutions (including financial intermediaries and service providers for Fund shareholders) and other parties. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.
While the Funds service providers have established business continuity plans in the event of, and risk management systems to prevent, such cyber incidents, there are inherent limitations in such plans and systems including the possibility that
certain risks have not been adequately identified or prepared for. Furthermore, the Fund cannot control the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Fund or its
shareholders. Cybersecurity risks may also impact issuers of securities in which the Fund invests, which may cause the Funds investments in such issuers to lose value. The Fund and its shareholders could be negatively impacted as a result.
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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The Fund may experience losses over certain market movements that exceed losses experienced by the 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 the 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
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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 the Fund to recognize higher
amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates.
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Leverage may cause the 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 the Funds portfolio securities.
When the Fund uses derivatives,
it segregates assets to fully cover its future obligations. It does this to limit the risks associated with leveraging. By setting aside assets equal only to its net obligations rather than the full notional amount under certain derivative
instruments, the 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 the 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 Fund,
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 the 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.
The Fund foregoes principal and interest paid on the securities during the roll period. The 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 the Fund is obligated to repurchase may decline below the repurchase price or that the
transaction costs may exceed the return earned by the Fund from the transaction.
Dollar rolls also involve risk to the Fund if the other party should
default on its obligation and the 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, the 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 the 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 the 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. The 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
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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 the Fund invests will cause the net asset value of the Fund to fluctuate. The Fund purchases 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.
7
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. The 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 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. The 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.
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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
stock. |
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.
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.
The 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 the 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.
9
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®.
The 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 the 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, the 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.
Borrowers may repay principal faster than the scheduled due date which may result in the 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 the Fund. To avoid any leveraging concerns, the 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), investment subadviser to certain series of the Trust, 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.
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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 the 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 the Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time.
Foreign Currency. The Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs.
The 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 derivatives - financial 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, the Fund may either deliver the currency or terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract. If the 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. The 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.
The 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.
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, the 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 the 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.
The Fund may use forward contracts for position hedging if consistent with its policy of trying to expose its net assets to foreign currencies. The Fund is
not required to enter into forward contracts for hedging purposes and it is possible that the Fund may not be able to hedge against a currency. It also is possible, under certain circumstances, that the 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).
The 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.
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At or before the maturity of a forward currency contract, the 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 the
Fund engages in an offsetting transaction, it may later enter into a new forward currency contract to sell the currency.
If the 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 the 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, the 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.
The 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. The Fund may realize
a gain or loss from currency transactions.
When the Fund purchases or sells a forward contract, under applicable U.S. federal securities laws, rules, and
interpretations thereof and applicable exchange rules, the 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, the 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, the Fund may set aside or deliver liquid assets, including cash, in an amount equal to the 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,
the Fund will have the ability to employ leverage to a greater extent than if the Fund were required to
segregate assets equal to the full notional value of such contracts.
The 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 Fund and its Subadviser believes that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Funds borrowing restrictions.
The Fund reserves the right to modify its 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.
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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 Fund, the 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 the Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments (country risks).
Of course, the 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 Fund attempts 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 the 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 the 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 the 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 the 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.
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, the Fund may enter into forward roll transactions
with respect to mortgage-related securities.
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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.
The 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.
The 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 the Fund purchases or sells a futures contract, under applicable federal securities laws, rules, and interpretations thereof and applicable exchange
rules, the 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, the 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, the Fund may set aside or deliver liquid assets, including cash, in an amount equal to the 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 futures contracts, the Fund will have the ability to
employ leverage to a greater extent than if the Fund were required to segregate assets equal to the full notional value of such contracts.
The Fund
reserves the right to modify its asset segregation policies in the future.
The 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.
The 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.
The 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.
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The 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, the 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.
The 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.
The 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 Fund and its Subadviser believes that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to the Funds borrowing restrictions.
There are significant risks associated with the 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 the 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 the Funds exposure to price fluctuations, while others tend to increase its market exposure.
Global Resources and Infrastructure Securities.
Infrastructure Companies. Infrastructure companies are companies that derive significant portions i.e. (at least 50%) of their gross
income or net profits, directly or indirectly, through providing energy, transportation communications, utilities and other essential services to society. Companies in the infrastructure industry may be involved in a variety of areas, including the
following:
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The generation, transmission, distribution, or storage of electricity, oil, gas, water, and other natural resources used to produce energy; |
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Alternative energy production and exploration; |
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The building, operation, financing, or maintenance of highways, toll roads, tunnels, bridges, parking lots, dams, pipelines, railroads, mass transit systems, airports, marine ports, and refueling facilities;
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The provision of communications, including telephone, broadcast and wireless towers, and cable, fiber optic, and satellite networks; |
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Sewage treatment and water purification; |
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The construction or operation of essential public structures such as courthouses, hospitals and health care facilities, schools, correctional facilities, subsidized housing, and other public service facilities; and
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The provision of the services and materials necessary for the construction and maintenance of infrastructure assets, including mining, shipping, timber, and steel. |
Infrastructure companies also include energy-related companies organized as REITs and MLPs.
Timber Companies. Timber companies are companies that derive significant portions (at least 50%) of their gross income or net profits,
directly or indirectly, from the ownership, management or upstream supply chain of forests and timberlands, and products related thereto. These include forest products companies, timber MLPs, timber REITs, homebuilding companies, paper products
companies, and paper packaging companies.
Agribusiness Companies. Agribusiness companies are companies that derive significant portions (at
least 50%) of their gross income or net profits, directly or indirectly, from the production, processing, and distribution of agricultural products, packaged foods, and meats, as well as the business operators and
15
suppliers of equipment and materials. Companies in the agribusiness industry may be involved in a variety of areas, including the following:
Producers, Distributors & Processors:
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Breeding and operation of livestock farms; |
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Production, processing and distribution of fish, hogs, livestock cattle, pigs and poultry; |
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Processing livestock into value-added products; |
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Production and sale of animal feed; |
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Production, processing and refining of agricultural commodities and byproducts. This includes the buying, storing, transporting and distribution of agricultural commodities. (Agricultural commodities include, but are
not limited to, barley, cocoa, corn, cotton, edible nuts, grain, oats, oilseeds, palm oil, soybeans and wheat); and |
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Harvesting and operation of agricultural facilities such as coffee and rubber plantations, cotton fields, mills and farms. |
Equipment & Materials Suppliers:
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Production and sale of crop nutrients, potash, fertilizers and animal feed ingredients; |
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Production and sale of crop protection products such as herbicides and insecticides; |
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Development and production of seeds; and |
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Manufacturing and distribution of agricultural equipment. Agricultural equipment includes, but are not limited to, agricultural tractors, combine harvesters, feed making equipment, hay and forage equipment, irrigation
systems, pavers, seeding and planting equipment, spreaders, sprayers and tillage equipment. Other related agricultural equipment includes equipment used in liquid injection and surface spreading of biosolids. |
Guaranteed Investment Contracts (GICs). A GIC is a general obligation of an issuing insurance company and not one of its separate accounts.
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.
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 the 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 the 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.
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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, the 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 the Fund.
Under the supervision of the Board, the Funds Subadviser determines the liquidity of the Funds investments.
In determining the liquidity of the 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).
The Fund is not permitted to invest more than 15% of its net assets in illiquid securities.
Initial Public Offerings. The Fund may invest in a companys securities at the time of a companys initial public offering (IPO).
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, the 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.
The 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. The 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, the 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.
The 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, the 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, the 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.
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For hedging or other purposes, the 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, the 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 Fund.
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).
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.
The 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. The 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.
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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. The 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.
The Fund 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. 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.
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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.
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.
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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 maturity - the latest date by which the tranche can be completely repaid, assuming no prepayments - and has an average life - the 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.
Real Estate Mortgage Investment Conditions (REMICs) are private entities formed for the purpose of holding a fixed pool
of mortgages secured by an interest in real property.
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.
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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.
The 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 the Funds Subadviser.
The 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.
22
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 the 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.
The 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 the 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.
The 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, the Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to the 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 the 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 the Fund including such securities, the 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 the 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.
23
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 Fund may also purchase participation interests in municipal securities (such as industrial development bonds and municipal lease/purchase
agreements).
A participation interest gives the 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 the
Funds investment limitations restricting its purchases of illiquid securities.
The 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.
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 the Fund nor its Subadviser will review the proceedings relating to the issuance of
municipal securities or the basis for such opinions.
Options. The 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, the 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 the 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.
The 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
24
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.
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.
The Fund
must cover all options it purchases or writes. For example, when the 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.
The 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.
The 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,
the 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.
The 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 the 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, the 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 the 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 the 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 the 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 the 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 the 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
25
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.
REITs in which the 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 the 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. The Fund may enter into repurchase agreements with
financial institutions.
The 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 the 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 the 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,
the Fund will seek to liquidate such collateral. However, the exercising of the 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 the Fund 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 the Fund, amounts to more than 15% of the Funds net assets.
The investments of the Fund 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.
26
Restricted Securities. The Fund 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.
These securities will be considered illiquid and
subject to the 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 the 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 the 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
the 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.
The Funds investments in illiquid 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. (See Illiquid Securities above; see also Rule 144A Securities.)
Reverse Repurchase Agreements. A reverse repurchase agreement is a contract under which the 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 the 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, the 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 the 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, the Fund will segregate or earmark liquid assets with the Funds custodian in an amount
sufficient to cover its obligations to fund Revolvers.
The 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, the
Fund may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value.
The Fund currently intends to
treat Revolvers for which there is no readily available market as illiquid for purposes of the Funds limitation on illiquid investments.
Securities Lending. The 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).
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The Fund will not lend portfolio securities to its Adviser, Subadviser or their affiliates unless it has applied
for and received specific authority to do so from the SEC.
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.
The 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, the 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.
The 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 the 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 the Fund or its investment.
In
addition, as a general practice, the Fund 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
the Funds tax obligation which is subsequently passed on to its shareholders.
Any securities lending activity in which the 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 the 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
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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.
The 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.
The 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 the 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 the Fund in a Loan Investors portion of a Senior Loan typically will result in the Fund having a contractual relationship only with
such Loan Investor, not with the borrower. As a result, the 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, the 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 the Fund may not directly benefit from the collateral supporting the
Senior Loan in which it has purchased the Participation.
As a result, the 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, the 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, the Fund may be subject to delays, expenses, and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of the borrower.
Under the terms of a Loan Participation, the Fund may be regarded as a creditor of the seller of the loan participation (rather than of the underlying
corporate borrower), so that the 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 the 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
29
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.
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 the Fund. In the process of buying, selling and holding Senior Loans, the
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 the 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, the 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, the Fund may receive a prepayment penalty fee upon the prepayment of a Senior Loan by a borrower.
Other fees received by the Fund may include amendment fees. The 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.
The Fund will generally rely upon the Agent or an intermediate participant to receive and forward to the Fund its portion of the principal and interest
payments on the Senior Loan. Furthermore, unless under the terms of a Participation Agreement the Fund has direct recourse against the borrower, the 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
30
functions, the Fund will perform such tasks on its own behalf, although a collateral bank will typically hold any collateral on behalf of the Fund and the other Loan Investors pursuant to the
applicable Loan Agreement.
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 the Fund were determined to be subject to the claims of the Agents general creditors, the 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 the Fund derives interest income
will be reduced. However, the 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 the Funds performance because the 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 the Funds yield.
Other Information Regarding Senior Loans. From time to time the 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 the Fund or may be intermediate participants with respect to
Senior Loans in which the Fund owns interests. Such banks may also act as Agents for Senior Loans held by the Fund.
The 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, the 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, the 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 the Fund.
The 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.
The 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.
The 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, the 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
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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.
If a borrower becomes involved in bankruptcy
proceedings, a court may invalidate the Funds security interest in the loan collateral or subordinate the 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 the 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 the 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 the Funds security interest in loan collateral.
If the 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, the Fund would have substantially lower recovery, and perhaps no recovery on the full amount of the principal and interest due on the Loan, or the Fund could
also have to refund interest.
The 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 the Funds purchase of a Senior Loan.
The 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 the 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.
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.
Short Sales. The 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, the 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 the Fund sells a security it does not own. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The 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 the Fund.
Until the security is replaced, the 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, the 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 the Fund closes its short position or replaces the borrowed security, the 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
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(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 the
Funds short positions.
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 than larger companies.
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. The 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 the Fund to meet redemptions and remain as fully
invested as possible in municipal securities.
The Fund reserves 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. The 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, the 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 the 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). The 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 the 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, the Fund could seek to negotiate terms for the extension of such an option. If such a
renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could, of course, sell the portfolio security.
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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 the 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 the Fund will not exceed one-half of 1% of the value of the total assets of the Fund calculated immediately after
any such put is acquired.
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.
The 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. The 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.
The 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.
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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.
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 noted above.
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.
The
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.
The Fund will not enter into any swap
agreement unless the Subadviser believes that the other party to the transaction is creditworthy. The 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.
The 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 the 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.
The 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 the 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 the 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 the 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 the Fund is contractually obligated to make.
If the other party to a swap
agreement defaults, the Funds risk of loss consists of the net amount of any payments that the Fund is contractually entitled to receive.
The net
amount of the excess, if any, of the 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 Fund and its Subadviser believes that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to
the Funds borrowing restrictions.
For purposes of the Funds requirements under Rule 12d3-1 (where, for example, the 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 the Funds total assets, both counterparty exposure and reference entity exposure will be reviewed where appropriate.
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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.
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 the Funds average
portfolio maturity.
There is a risk that the 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.
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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.
U.S. Government Securities. Examples of types of U.S. government obligations in which the Fund may invest include:
U.S. Treasury obligations and the obligations of U.S. government agencies or U.S. government sponsored entities such as:
Central Bank for Cooperatives,
Export-Import Bank of the United States,
Fannie Mae,
Farmers Home
Administration,
Federal Farm Credit Banks,
Federal Home Loan Banks,
the
Federal Housing Administration,
Federal Intermediate Credit Banks,
Federal Land Banks,
Freddie
Mac,
General Services Administration,
GNMA,
Maritime
Administration,
Small Business Administration,
Student Loan Marketing Association (SLMA),
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.
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, thrifts and some holding companies that
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participate in the FDICs Temporary Liquidity Guaranty Program (TLGP).
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. |
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. |
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.
37
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. |
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. |
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 the Funds shares.
Variable and Floating Rate Instruments. Certain of the obligations purchased by the 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 the 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 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, currently 3 business days.
The 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, the 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.
The 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. The 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 the 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 the 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, the 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.
INVESTMEN
T LIMITATIONS
Except with respect to the 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.
39
Fundamental Policies
Fundamental policies cannot be changed without the consent of the holders of a majority of the 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 the Fund.
The Fund may not:
1. With respect to 75% of
the Funds total assets, invest more than 5% of the value of the total assets of the 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 the 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 the Fund to purchase securities or require the 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 except that the Fund will concentrate (that is, invest 25% or more of its total
assets) in each of these three industries: infrastructure, agribusiness, and timber.
6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the
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 the 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 Fund and may be changed by the Board without shareholder approval:
1. Any change to the Funds investment policy of investing at least 80% of the Funds net assets in a particular type or category
of securities is subject to 60 days prior notice to shareholders.
2. The Fund may not 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 Fund.
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).
With respect to the Fund in this SAI, the Adviser oversees the Subadviser to
ensure compliance with the Funds investment policies and guidelines and monitors the 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 Fund.
40
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.
Advisory Agreement with the Trust. The Adviser serves as the investment adviser to the Fund pursuant to an agreement (the Advisory
Agreement) with the Trust.
After its 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 Fund 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 the 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 the 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 the 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. The 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 Fund is 1.00% of the Funds average daily net assets.
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 $5 billion = 15% discount from full fee
As discussed in the Prospectus, the Adviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to the Fund, in order
to limit Fund expenses.
For the Predecessor Funds fiscal
years ended November 30, 2015, November 30, 2014, and November 30, 2013, the Predecessor Fund paid the following advisory fees:
|
|
|
|
|
|
|
|
|
|
|
Fees Paid ($) |
|
Fees Waived ($) |
|
|
|
|
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
Fund Services Agreement. The Adviser provides certain services required by the Fund, 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.
41
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, 2015, the Trust paid a Services Fee of $ $996,187 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, 2015, the Adviser received an annual fee totaling approximately $621,941 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, 2015, 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 series. Certain officers or employees of FMS are also officers of the Trust.
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 the
Funds unaffiliated subadviser without obtaining shareholder approval.
Within 90 days of retaining a new subadviser, shareholders of theFund will
receive notification of the change. This manager of managers arrangement enables the Fund 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 the 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 SUBADVISER
The Subadviser is a professional investment management firm registered with the SEC under the Advisers Act.
Capital Innovations, LLC
(CI) serves as the subadviser to the Capital Innovations Global Resources and Infrastructure Fund pursuant to an Investment Subadvisory Agreement between the Adviser and CI. For its investment subadvisory services, CI is entitled to
receive an annual fee paid by the Adviser based on the Funds average daily net assets. CI will receive a portion of the investment advisory fee paid to the Adviser as follows: equal to 60% of the first $500 million of the Funds average
daily net assets; 62% of the next $500 million of the Funds average daily net assets; 63% of the next $4 billion of the Funds average daily net assets; and 65% in excess of $5 billion of the Funds average daily net assets.
For the Predecessor Funds fiscal years ended November 30, 2015, November 30, 2014, and November 30, 2013, CI received the following
subadvisory fees from the Adviser:
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|
|
|
|
|
|
|
Fees Paid ($) |
|
Fees Waived ($) |
|
|
|
|
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
42
The Subadviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to
the Fund, in order to limit Fund expenses.
Investment Subadvisory Agreement. 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 the Fund, by a majority of the outstanding shares of the 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 PORTFO
LIO 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 [ ], 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
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.
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|
Total Assets in Accounts (in millions) ($)
and Number of Accounts |
|
Other Accounts with Performance-Based Fees |
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|
|
Portfolio
Manager |
|
Registered
Investment Companies1 |
|
Other Pooled Investment Vehicles |
|
Other Accounts |
|
Number & Category |
|
Total Assets (in millions) ($) |
Michael D. Underhill |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
Susan L. Dambekaln |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
1 |
Includes the RidgeWorth Funds and other registered investment companies |
Potential Conflicts of Interest in Managing Multiple Accounts. Actual or apparent conflicts of interest
may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. When conflicts of interest arise between the Fund and other accounts managed by the portfolio manager, the Subadviser
will proceed in a manner that ensures that the Fund will not be treated less favorably. There may be instances in which similar portfolio transactions may be executed for the same security for numerous accounts managed by the portfolio managers. In
such
instances, securities will be allocated in accordance with the Subadvisers trade allocation policy.
Portfolio Manager Compensation Structure. The portfolio managers are compensated by the Subadviser with a base salary and a profit sharing plan. The
portfolio managers are not directly compensated for their work with respect to the Fund; however, each portfolio manager is a principal and equity owner of the Subadviser and therefore benefits indirectly from the revenue generated from the
Subadvisory agreement.
43
Securities Ownership of Portfolio Managers. The table below shows the range of equity securities
beneficially owned by each portfolio manager in the
Predecessor Fund, the Fund or Funds managed by the portfolio manager. The information is as of [ ].
|
|
|
|
|
Portfolio Manager |
|
RidgeWorth Fund(s) Managed |
|
Range of Securities Owned ($) |
Michael D. Underhill |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
[ ] |
Susan L. Dambekaln |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
[ ] |
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 the 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 $45,000 per fund.
The following table shows administrative fees paid by the Predecessor Fund for the Predecessor Funds
fiscal years ended November 30, 2015, November 30, 2014, and November 30, 2013:
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Fees Paid ($) |
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2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
44
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 Distributor is a wholly-owned subsidiary of Foreside Fund Services, LLC and is not affiliated with the Adviser or the Trust.
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, C and I Shares of the Fund has a distribution and service plan (the A Shares Plan, C Shares Plan and I 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.
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.
[During the last three fiscal years, the Distributor did not receive any net underwriting
commissions on the sale of the Predecessor Funds shares.]
For the Predecessor Funds fiscal years ended November 30,
2015, November 30, 2014, and November 30, 2013, the Distributor received and reallowed sales loads on the sale of A Shares of the Predecessor Fund, as shown in the following table (amounts designated as are $0 or
have been rounded to $0):
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|
|
|
Aggregate Sales Charges
Payable to Distributor
($) |
|
Amount Reallowed by
Distributor1 ($) |
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2015 |
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2014 |
|
2013 |
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2015 |
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2014 |
|
2013 |
[ ] |
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[ ] |
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[ ] |
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[ ] |
|
[ ] |
|
[ ] |
1 |
Reflects amounts reallowed by the Distributor for allowable distribution-related expenditures and services. |
The Fund pays the following amount (reallowance) of front-end sales charge to investment consultants (Dealers) as a percentage of the offering
price of A Shares:
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|
|
|
|
|
|
|
|
|
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 less than $500,000 |
|
|
More than $500,000 but less than $1,000,000 |
|
|
$1,000,000 and over1 |
|
5.00% |
|
|
4.00 |
% |
|
|
3.00 |
% |
|
|
2.00 |
% |
|
|
1.75 |
% |
|
|
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 0.75% on such purchases. Merrill Lynch Pierce Fenner & Smith, Inc.
(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 |
|
|
0.75 |
% |
$3,000,000 $49,999,999 |
|
|
0.50 |
% |
$50,000,000 and above |
|
|
0.25 |
% |
45
For the fiscal years ended March 31, 2015, March 31, 2014, and March 31, 2013, the
Distributor received and reallowed sales loads on the sale of C Shares of each of the Funds, as shown in the following table (amounts designated as are $0 or have been rounded to $0):
|
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|
|
|
|
|
|
|
|
|
Aggregate Sales Charges
Payable to Distributor
($) |
|
Amount Reallowed by Distributor1 ($) |
|
|
|
|
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
A Shares and C Shares Distribution Plan
The Distribution Agreement and the A Shares Plan adopted by the Trust provide that A Shares of the Fund will pay the Distributor fees for furnishing services
related to (a) the distribution and sale of shares of Fund and (b) the shareholders servicing of A Shares of
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 |
|
Capital Innovations Global Resources and Infrastructure 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 the
Fund will pay the Distributor a fee of up to 0.75% of the average daily net assets of the Fund. The Distributor can use these fees to compensate broker-dealers and service providers that provide administrative and/or distribution services to the
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 the 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 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.
46
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 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 the 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.
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 Predecessor Fund under each Plan during the Predecessor Funds fiscal year ended November 30,
2015 were used as set forth below (no amounts were paid for Sales Personnel or Interest Carrying or Other Financing Charges):
|
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|
|
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|
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|
|
|
|
|
|
|
|
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|
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 |
|
[ ] |
|
|
[ |
] |
|
|
[ |
] |
|
|
[ |
] |
|
|
[ |
] |
|
|
[ |
] |
|
|
[ |
] |
For the Predecessor Funds fiscal years ended November 30, 2015, November 30, 2014, and November 30,
2013, the Predecessor Fund paid the following amounts as compensation to broker-dealers pursuant to the A Shares Plan:
|
|
|
|
|
Amount Paid ($) |
|
|
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
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.
|
|
|
|
|
Fund |
|
Annual Payout 12b-1 Effective Immediately (A
Shares)1 |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[ |
]% |
1 |
Initial Front End Sales Charge for A Shares ranges from 5.75% maximum to 2.00% depending on Fund and breakpoints (outlined in prospectus). |
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 Subadviser and their affiliates may make payments to certain
47
intermediaries for participation payment programs or other marketing support, including, but not limited to, business planning assistance, educating dealer personnel about the Fund 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 the Fund. These payments are generally based on one or more of the following factors: average net assets of the Fund attributable to
that intermediary, gross or net sales of the Fund 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 Subadviser 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 March 31, 2015, the following firms have received participation payment
program payments:
AIG Advisor Group
Ameriprise Advisor
Services, 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 Fund (the A Shares and I Shares
Servicing Plans). Under the A Shares and I Shares Servicing Plans, the Fund 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 Fund. Intermediaries may perform, or may
compensate other service providers for performing, the following shareholder services (sometimes referred to as sub-transfer agency
services), which may differ for each class and for the Fund:
(i) establishing and
maintaining accounts and records relating to shareholders;
(ii) processing dividend and distribution payments from the 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 the Fund necessary for
sub-accounting;
(viii) if required by law, forwarding shareholder communications from the 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
(xii) providing such other similar
services as the 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 Predecessor Funds fiscal
years ended November 30, 2015, November 30, 2014, and November 302013, the Predecessor Fund made the following payments shown below:
|
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|
|
|
|
|
|
|
|
|
Amount Paid
($) (I Shares) |
|
Amount Paid
($) (A
Shares) |
|
|
|
|
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
48
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), 1 Iron Street, Boston, MA 02110 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 Fund
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 Fund.
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
[ ], located at
[ ], 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 the Fund 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 the Fund.
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, Subadviser, 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 Fund.
The Fund and its service providers employs 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 Subadviser, as applicable, are responsible for the day-to-day management of the 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.
The
Trustees role in risk oversight begins before the inception of the 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 Fund may be exposed.
The Board is responsible for overseeing the nature, extent and quality of the services
provided to the Fund by the Adviser and Subadviser, 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 Subadviser, the Board meets with the Adviser and Subadviser to review the advisory services.
49
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 Fund, 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 compliance policies and procedures and those of its service providers,
including the Adviser and Subadvisers as required by Rule 38a-1 under the 1940 Act.
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. In addition, the Advisers Valuation Committee makes regular reports to the Board concerning the pricing of portfolio securities in the Fund with special emphasis on the
securities 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 Fund and noting any significant deficiencies or material weaknesses in the Funds internal controls.
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 and are free of material misstatement.
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 Fund, 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 Fund 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, Subadviser, 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.
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 six 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.
50
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 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. |
|
28 |
|
Synovus Financial Corp.; Krispy Kreme Doughnuts, Inc. |
|
|
|
|
|
|
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). |
|
28 |
|
Multi-Manager Master Portfolios LLC (3
portfolios; thru 2013) |
51
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George C. Guynn (December 1942) |
|
Trustee |
|
Indefinite; since 2008 |
|
Retired. President and CEO, Federal Reserve Bank of Atlanta (1996-2006). |
|
28 |
|
SUSA Registered Fund, LLC; Oxford Industries; Acuity Brands, Inc.; Multi-Manager Master Portfolios LLC (3 portfolios; thru 2013); Genuine Parts Company (through April 2015) |
|
|
|
|
|
|
Sidney E. Harris (July 1949) |
|
Trustee |
|
Indefinite; since 2004 |
|
Professor and Dean Emeritus (since April 2015), Professor (1997 March 2015), Dean (1997-2004), J. Mack Robinson College of Business, Georgia State University. |
|
28 |
|
Total System Services, Inc.; Multi-Manager Master Portfolios LLC (3 portfolios; 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. |
|
28 |
|
Total System Services, Inc. |
|
|
|
|
|
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). |
|
28 |
|
None |
* |
Mr. Parikh is an interested person of the Trust, as defined in the 1940 Act, because he is an employee of the Adviser. |
52
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 Fund 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 Fund, 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 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.
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,
53
(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 three 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.
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.
Ms. McDaniel and Messrs. Bentsen, Biggar, Guynn and Harris 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 the
54
Predecessor Fund as of[ ]. 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 |
|
Fund Name |
|
Dollar Range of Fund Shares |
|
Tim E. Bentsen |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
|
|
|
Jeffrey M. Biggar |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
|
|
|
George C. Guynn |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
|
|
|
Sidney E. Harris |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
|
|
|
Connie D. McDaniel |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
|
|
|
Ashi S. Parikh |
|
Capital Innovations Global Resources and Infrastructure Fund |
|
|
[None] |
|
As of [ ], the Trustees and officers as a group owned
less than 1% of the outstanding shares of each class of each RidgeWorth 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.
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 $5,200.
The aggregate compensation paid to each Trustee is allocated on a pro rata basis among the Fund based on the relative net assets of the Fund. The Fund also
reimburse the Trustees for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings.
The table below shows the
compensation paid to the Trustees during the fiscal year ended March 31, 2015.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee |
|
Aggregate Compensation from the Trust ($) |
|
|
Pension or Retirement Benefits Accrued as Part of Fund Expenses |
|
Estimated Annual Benefits Upon Retirement |
|
Total Compensation From the Trust ($) |
|
Tim E. Bentsen |
|
|
137,900 |
|
|
N/A |
|
N/A |
|
|
137,900 |
|
Jeffrey M. Biggar |
|
|
137,900 |
|
|
N/A |
|
N/A |
|
|
137,900 |
|
George C. Guynn |
|
|
134,400 |
|
|
N/A |
|
N/A |
|
|
134,400 |
|
Sidney E. Harris |
|
|
177,200 |
|
|
N/A |
|
N/A |
|
|
177,200 |
|
Warren Y. Jobe* |
|
|
147,425 |
|
|
N/A |
|
N/A |
|
|
147,425 |
|
Connie D.McDaniel |
|
|
153,925 |
|
|
N/A |
|
N/A |
|
|
153,925 |
|
Ashi S. Parikh* |
|
|
0 |
|
|
N/A |
|
N/A |
|
|
0 |
|
* |
Mr. Jobe ended his tenure as a Trustee effective May 12, 2015. |
** |
Mr. Parikh is an Interested Trustee and therefore does not receive any compensation from the Trust. |
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 3333 Piedmont Road,
NE, Suite 1500, Atlanta, GA 30305
(November 1972) |
|
President and Chief Executive Officer |
|
One year; since 2007 |
|
Managing Director, Product Manager, RidgeWorth Investments (since 2004). |
|
|
|
|
Joseph M. ODonnell 3333 Piedmont
Road, NE, Suite 1500, Atlanta, GA 30305
(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). |
|
|
|
|
Benjamin H. Lowe 3333 Piedmont Road,
NE, Suite 1500, Atlanta, GA 30305
(March 1978) |
|
Treasurer and Chief Financial Officer |
|
One year; since 2015 |
|
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).* |
56
|
|
|
|
|
|
|
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 |
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
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). |
|
|
|
|
Timothy J. Burdick State Street Bank and Trust
Company 100 Huntington Avenue Boston, MA 02116
(October 1986) |
|
Assistant Secretary |
|
One year; since May 2014 |
|
Vice President and 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 Fund may be made on any day the New York Stock Exchange (NYSE) is open for business.
Shares of the Fund are offered and redeemed on a continuous basis.
The Fund has authorized one or more brokers to receive on its behalf purchase and redemption orders (Orders). Such brokers are authorized to
designate other intermediaries to receive Orders on the Funds behalf. The Fund will be deemed to have received an Order when an authorized broker, or if applicable, a brokers authorized designee, receives the Order. The Order will be
priced at the Funds NAV next computed after it is received by an authorized broker or the brokers authorized designee.
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 Fund 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 the Fund 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.
57
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 the 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 the 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 Fund will combine the value of your current purchases with the current market value of any shares previously purchased for:
|
|
|
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 Fund 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
Fund 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 Fund 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 Fund 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
Fund to hold in escrow 5.75% of the total amount you intend to purchase.
58
Determination of Net Asset Value
General Policy. 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.
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 Fund 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 the Fund would receive if it sold the instrument.
During periods of declining interest rates, the daily
yield of the 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 the Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in the 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 the 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 Fund and its investors.
59
No attempt is made to present a comprehensive explanation of the federal tax treatment of the Fund or its
investors, and the discussion here and in the Trusts prospectus 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, the 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
(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 the sum of 90% of its net tax-exempt interest
income plus 90% of its 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
60
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. The Allocation Strategies, as shareholders of other Funds and ETFs (collectively, Underlying Funds), would not
necessarily incur any income tax liability on distributions from an Underlying Fund that fails to qualify for treatment as a RIC, provided the Allocation Strategies continue to qualify as RICs and distribute substantially all of their net investment
income and net capital gains to their shareholders in accordance with the timing requirements imposed by the Internal Revenue Code. However, the failure of an Underlying Fund to maintain its RIC status may adversely affect the ability of any
Allocation Strategy that invests in the Underlying Fund to maintain its RIC status. To requalify for treatment as a RIC in a subsequent taxable year, a Fund that loses its RIC status would be required to satisfy the RIC qualification requirements
for that year and to distribute any earnings and profits from any years in which the Fund failed to qualify for tax treatment as a RIC. If a Fund failed to qualify as a RIC for a period greater than two taxable years, it would generally be required
to pay a Fund-level tax on certain net built-in gains recognized with respect to certain of its assets upon a disposition of such assets within ten years of qualifying as a RIC in a subsequent year. The Board reserves the right not to maintain
qualification of a Fund as a RIC if it determines such course of action to be beneficial to shareholders.
An Allocation Strategy will not be able to offset gains distributed by any Underlying Fund in which it invests against losses incurred by another Underlying
Fund in which it invests because the Underlying Funds cannot distribute losses. An Allocation Strategys redemptions of shares in Underlying Funds, including those resulting from changes in the allocation among Underlying Funds, could cause the
Allocation Strategy to recognize taxable gains or losses. A portion of any such gains may be short-term capital gains that would be distributable as ordinary income to shareholders of the Allocation Strategy. Further, certain losses on redemptions
of shares in the Underlying Funds may be disallowed or deferred.
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. Distributions of net short-term capital gains are generally taxable to shareholders as
ordinary income. Distributions from any net capital gains 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 (as described below), 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. An Allocation Strategys qualified
dividend income will generally include qualified dividend income the Allocation Strategy receives from Underlying Funds that received such income as qualified dividend income and reported it as such. 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.
61
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 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 generally
taken into account for purposes of the 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. 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.
62
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 capital gain or loss 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 generally 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. Each 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. The cost basis method elected by a Fund shareholder (or the cost basis method applied by default) for a sale of Fund shares may not be changed after the
settlement date of each such sale of Fund shares. If an election to use a method other than the average basis method is not made on or prior to the date of the shareholders first redemption or exchange of the applicable Funds shares, the
shares in the account at the time of the election will retain their bases as determined under the average basis method after the redemption or exchange. 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. Thus, an investor generally
cannot claim a loss if it sells a security and then repurchases that security within 30 days. 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 adverse tax consequences, including 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,
63
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 a 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 June 30, 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 a Fund.
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.
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.
A 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 Fund (e.g., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund 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
64
as a RIC and minimize the imposition of income and excise taxes.
Net Capital Loss
Carryforwards. The Fund utilizes 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. The 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
As of [ ], the accumulated capital loss carryforwards
and expiration dates for the Predecessor
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 the Fund may utilize carryforwards of losses from taxable years that began on or before December 22, 2010. Under certain circumstances, the 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.
Fund from taxable years beginning on or before
[ ] were as follows:
|
|
|
|
|
Expires |
|
|
|
2017 ($) |
|
2018 ($) |
|
Total ($) |
[ ] |
|
[ ] |
|
[ ] |
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. If the Fund meets the Distribution Requirement, and if
more than 50% of the value of the Funds total assets at the close of its taxable year consists of stocks or securities of foreign corporations, the Fund will be eligible to, and intends to, file an election with the IRS that may enable
shareholders, in effect, to receive either the benefit of a foreign tax credit, or a tax deduction, with respect to foreign and U.S. possessions income taxes paid by the Fund, subject to certain limitations. The 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. Shareholders
who do not itemize deductions for U.S. federal income tax purposes will not, however, be able to deduct their pro rata portion of such foreign taxes, although such shareholders will be required to include their shares of such taxes in gross income
if the Fund makes the election described above. No deduction for such taxes will be permitted to individuals in computing their alternative minimum tax liability. If the Fund 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.
65
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 the 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.
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 Predecessor Funds fiscal years ended November 30, 2015, November 30, 2014, and
November 30, 2013, the Predecessor Fund paid the following aggregate brokerage commissions on portfolio transactions:
|
|
|
|
|
Aggregate Dollar Amount of
Brokerage Commissions Paid
($) |
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
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 the 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 the Fund.
To the extent research services may be a factor in selecting brokers, such services may be in written
66
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.
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.
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 Fund 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.
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 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 Predecessor Funds fiscal years ended November 30, 2015, November 30, 2014, and November 30, 2013, the
Predecessor 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:
|
|
|
|
|
|
|
|
|
|
|
Total Dollar Amount of
Brokerage Commissions for
Research Services ($) |
|
Total Dollar Amount of Transactions
Involving Brokerage Commissions
For Research Services ($) |
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
67
Brokerage with Fund Affiliates. The 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 Predecessor Funds fiscal years ended November 30, 2015, November 30, 2014, and November 30, 2013, the Predecessor Fund 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 Predecessor Funds regular brokers or dealers (as defined in the 1940 Act) as of November 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
Fees Paid ($) |
|
Fees Waived ($) |
|
|
|
|
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
|
[ ] |
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 Fund 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 Predecessor Funds portfolio turnover rate for the fiscal years ended November 30, 2015 and 2014 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 (%) |
2015 |
|
2014 |
[ ] |
|
[ ] |
68
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 Fund, 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, the 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).
The 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 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 the 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
Fund.
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 the 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 Fund 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 Fund.
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 Fund.
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 Fund.
69
Financial printers, proxy voting service providers and pricing vendors may receive portfolio holdings
information, as necessary, in connection with their services to the Fund.
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 Fund 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
Fund, 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
Fund, 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 Fund. 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.
The 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 the Fund without shareholder approval. While the Trustees
have no present intention of exercising this power, they may do so if the 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.
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
70
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 Subadviser 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 Subadviser are generally prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings.
Certain access persons of the Adviser and Subadviser 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 Fund 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 Predecessor Funds fiscal year ended November 30, 2015, including notes thereto and the reports thereon, are
incorporated into this SAI by reference from the 2015 Annual Report to Shareholders. Copies of the Annual Report will be provided without charge upon request.
5% AND 25% SHAREHOLDERS
As of
[ ] 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 Fund. The nature of ownership for each position listed is Record unless otherwise indicated. The Trust believes that most of the shares of the Fund were held for the record owners fiduciary, agency or
custodial customers. An asterisk (*) indicates a beneficial owner.
[TO BE UPDATED IN A SUBSEQUENT FILING]
71
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:
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the issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
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the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or |
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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:
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the selective payment default on a specific class or currency of debt; |
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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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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 |
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execution of a coercive debt exchange on one or more material financial obligations.
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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 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.
B-1
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 |
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:
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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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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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An issuer having substantial and numerous banking, investment, or other financial relationships with the Firm or its affiliates
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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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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.
B-2
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-3
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.
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-4
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.
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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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-5
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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-6
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.
When we identify situations where shareholder value is at
B-7
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-8
DOMESTIC PROXY VOTING POLICY UPDATED 5/21/2015 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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C |
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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-9
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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-10
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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 |
B-11
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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 |
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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 |
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Management proposals to ratify a poison pill |
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C |
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4.6. |
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Antitakeover Defenses and Voting Related Issues |
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Shareholder Ability to Act by Written Consent |
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To restrict or prohibit shareholder ability to take action by written consent |
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A |
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4.7. |
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Antitakeover Defenses and Voting Related Issues |
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Shareholder Ability to Act by Written Consent |
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To allow or make easier shareholder action by written consent |
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F |
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4.8. |
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Antitakeover Defenses and Voting Related Issues |
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Shareholder Ability to Call Special Meetings |
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To restrict or prohibit shareholder ability to call special meetings. |
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A |
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4.9. |
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Antitakeover Defenses and Voting Related Issues |
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Shareholder Ability to Call Special Meetings |
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To remove restrictions on the right of shareholders to act independently of management. |
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F |
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4.10. |
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Antitakeover Defenses and Voting Related Issues |
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Supermajority Vote Requirements |
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To require a supermajority shareholder vote pertaining to issues other than election of directors. |
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A |
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4.11. |
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Antitakeover Defenses and Voting Related Issues |
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Supermajority Vote Requirements |
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To lower supermajority vote requirements pertaining to issues other than election of directors. |
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F |
B-12
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5.0. |
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Mergers and Corporate Restructurings |
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Appraisal Rights |
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To restore, or provide shareholders with, rights of appraisal. |
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A |
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5.1. |
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Mergers and Corporate Restructurings |
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Asset Purchases |
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On asset purchase proposals |
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C |
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5.2. |
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Mergers and Corporate Restructurings |
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Asset Sales |
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Asset sales |
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C |
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5.3. |
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Mergers and Corporate Restructurings |
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Bundled Proposals |
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Bundled or conditioned proxy proposals |
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C |
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5.4. |
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Mergers and Corporate Restructurings |
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Conversion of Securities |
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Proposals regarding conversion of securities, absent penalties or likely bankruptcy. |
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C |
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5.5. |
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Mergers and Corporate Restructurings |
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Conversion of Securities |
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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. |
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F |
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5.6. |
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Mergers and Corporate Restructurings |
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Corporate Reorganization |
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Proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan, absent likely bankruptcy. |
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C |
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5.7. |
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Mergers and Corporate Restructurings |
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Corporate Reorganization |
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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 |
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F |
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5.8. |
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Mergers and Corporate Restructurings |
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Formation of Holding Company |
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To form a holding company |
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C |
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5.9. |
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Mergers and Corporate Restructurings |
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Going Private Transactions (LBOs and Minority Squeeze outs) |
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To make the company private rather than public |
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C |
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5.10. |
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Mergers and Corporate Restructurings |
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Joint Ventures |
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To form joint ventures |
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C |
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5.11. |
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Mergers and Corporate Restructurings |
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|
|
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-13
|
|
|
|
|
|
|
|
|
|
|
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 |
B-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 |
B-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 |
B-16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 |
B-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 |
B-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 |
B-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 the Funds fundamental restriction to a non fundamental restriction |
|
C |
|
|
|
|
|
|
10.7. |
|
Mutual Fund Proxies |
|
|
|
Change Fundamental Investment Objective to Nonfundamental |
|
Proposals to change the 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 the Funds sub-classification |
|
F |
B-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
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 the Fund, such as deferred sales charges and redemption fees that may be imposed upon redemption of the 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-21
Ridgeworth Funds (Registrant)
Part C: Other Information
Item 28. Exhibits:
|
|
|
(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 [ ], to the Investment Advisory Agreement between the Registrant and RidgeWorth
Investments to be filed by amendment. |
|
|
(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 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)(4)(i) |
|
Amended Schedule A, dated August 1, 2015, 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. 99, filed July 29,
2015. |
|
|
(d)(5) |
|
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)(5)(i) |
|
Amended Schedule A, dated January 30, 2015, to the Investment Subadvisory Agreement between the RidgeWorth Investments and Silvant is incorporated herein by reference to Exhibit (d)(6)(i) of Post-Effective Amendment No. 95, filed
January 30, 2015. |
|
|
|
(d)(6) |
|
Investment Subadvisory Agreement, dated September 1, 2015, between RidgeWorth Investments and WCM Investment Management (WCM) to be filed by amendment. |
|
|
(d)(7) |
|
Investment Subadvisory Agreement, dated [ ], between RidgeWorth Investments and Capital Innovations, LLC
(Capital Innovations) to be filed by amendment. |
|
|
(d)(8) |
|
Expense Limitation Agreement, dated [ ], among the Registrant, RidgeWorth Investments, Capital Innovations,
Ceredex, Silvant, Seix, WCM and Zevenbergen to be filed by amendment. |
|
|
(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 incorporated herein by reference to Exhibit (e)(5) of Post-Effective Amendment No. 95, filed January
30, 2015. |
|
|
(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 incorporated herein by reference to Exhibit (g)(1)(i) of Post-Effective Amendment No. 95, filed January 30, 2015. |
|
|
(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 incorporated herein by reference to Exhibit (h)(1)(i) of Post-Effective Amendment No. 95, filed January 30, 2015. |
|
|
(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, 2015, to the Shareholder Servicing Plan, relating to R Shares, is incorporated herein by reference to Exhibit (h)(2)(i) of Post-Effective Amendment No. 99, filed July 29, 2015. |
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 August 1, 2015, to the Shareholder Servicing Plan, relating to A Share and I Shares, to be filed by amendment. |
|
|
(h)(4) |
|
Securities Lending Management Agreement, dated March 11, 2015, between the Registrant and State Street to be filed by amendment. |
|
|
(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. |
|
|
(i) |
|
Opinion and Consent of Counsel to be filed by amendment. |
|
|
(j) |
|
Consent of independent registered accountant to be filed by amendment. |
|
|
(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 August 1, 2015, to the Distribution and Service Plan, relating to A Shares, to be filed by amendment. |
|
|
(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. |
3
|
|
|
(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 February 27, 2013, is incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 99, filed July 29, 2015. |
|
|
(p)(2) |
|
Code of Ethics for RidgeWorth Investments, Ceredex, Silvant and Seix as amended January 1, 2015, is incorporated herein by reference to Exhibit (p)(2) of Post-Effective Amendment No. 99, filed July 29, 2015. |
|
|
(p)(3) |
|
Code of Ethics for Zevenbergen as amended December 31, 2014, is incorporated herein by reference to Exhibit (p)(3) of Post-Effective Amendment No. 99, filed July 29, 2015. |
|
|
(p)(4) |
|
Code of Ethics for WCM to be filed by amendment. |
|
|
(p)(5) |
|
Code of Ethics for Capital Innovations to be filed by amendment. |
|
|
(p)(6) |
|
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, and Ashi Parikh is incorporated herein by reference to Exhibit (q)(1) of
Post-Effective Amendment No. 98, filed May 29, 2015. |
ITEM 29. Persons Controlled by or under Common Control with Registrant:
See the prospectus and Statement of Additional Information regarding the Registrants control relationships.
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
4
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 |
|
Chief Executive Officer Chief Executive
Officer Chief Executive Officer Chief Executive
Officer |
|
|
|
Deirdre Dillon Deputy General Counsel and
Vice President |
|
Seix Investment Advisors LLC (Seix) |
|
Chief Compliance Officer and Managing Director |
|
|
|
Josie C. Rosson Chief Compliance Officer
and Managing Director |
|
Ceredex Certium
Silvant |
|
Chief Compliance Officer Chief Compliance
Officer Chief Compliance Officer |
|
|
|
John H. Stebbins Chief Financial Officer,
Treasurer and Managing Director |
|
Ceredex Certium
Seix Silvant |
|
Chief Financial Officer Chief Financial
Officer Chief Financial Officer Chief Financial
Officer |
|
|
|
James Stueve President |
|
Ceredex Certium
Silvant |
|
Vice President Vice President
Vice President |
|
|
|
George Way Chief Operating Officer and
Managing Director |
|
Seix |
|
Chief Operating Officer and Managing Director |
5
Investment Subadvisers:
Capital Innovations, LLC
Capital Innovations serves as
the investment subadviser for the Registrants Capital Innovations Global Resources and Infrastructure Fund. The principal address of Capital Innovations is 325 Forest Grove Drive, Suite 100 Pewaukee, Wisconsin 53072.
|
|
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|
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NAME |
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NAME OF OTHER COMPANY |
|
CONNECTION WITH OTHER COMPANY |
NONE |
|
|
|
|
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 301 East Pine Street, Suite 500, 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 |
|
Chief Compliance Officer and 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 |
Seix Investment Advisors LLC
Seix serves as the investment subadviser for the Registrants Seix Core Bond Fund, Seix Corporate Bond Fund, Seix Floating Rate High Income Fund, Seix
Georgia Tax-Exempt Bond Fund, Seix High Grade Municipal Bond Fund, Seix High Income Fund, Seix High Yield Fund, Seix Investment Grade Tax-Exempt Bond Fund, Seix Limited Duration Fund, Seix North Carolina Tax-Exempt Bond Fund, Seix Short-Term Bond
Fund, Seix Short-Term Municipal Bond Fund, Seix Total Return Bond Fund, Seix U.S. Mortgage Fund, Seix U.S. Government Securities Ultra-Short Bond Fund, Seix Ultra-Short Bond Fund and Seix Virginia Intermediate Municipal Bond Fund. The principal
address of Seix is One Maynard Drive, Suite 3200, Park Ridge, New Jersey 07458.
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|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH OTHER COMPANY |
James Keegan Chairman and Chief
Investment Officer |
|
RidgeWorth Capital Management LLC |
|
Vice President |
|
|
|
Deirdre Dillon Chief Compliance Officer
and Managing Director |
|
Seix Investment Advisors LLC (Seix) |
|
Deputy General Counsel and Vice
President |
6
Silvant Capital Management LLC
Silvant serves as the investment subadviser for the Registrants Large Cap Growth Stock Fund and Small Cap Growth Stock Fund. The principal address of
Silvant is 3333 Piedmont Road, Suite 1500, 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 Chief Executive Officer Chief Executive Officer
Chief Executive Officer |
|
|
|
Josie Rosson Chief Compliance Officer |
|
RidgeWorth Capital Management LLC
Certium Ceredex |
|
Chief Operating Officer and 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 |
WCM Investment Management
WCM serves as the investment subadviser for the Registrants International Equity Fund. The principal address of WCM is 281 Brooks Street, Laguna Beach,
CA 92651.
|
|
|
|
|
NAME |
|
NAME OF OTHER COMPANY |
|
CONNECTION WITH OTHER COMPANY |
NONE |
|
|
|
|
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 |
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|
|
|
ITEM 32. Principal Underwriters:
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|
|
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: |
|
|
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|
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 |
7
|
|
|
|
|
|
|
Name |
|
Address |
|
Position with Underwriter |
|
Position with Registrant |
Nanette K. Chern |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Vice President and Chief Compliance Officer |
|
None |
Paula R. Watson |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Assistant Secretary |
|
None |
Weston Sommers |
|
Three Canal Plaza, Suite 100, Portland, ME 04101 |
|
Financial & Operations Principal |
|
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, MA
02116
|
(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)
Capital Innovations, LLC
325 Forest Grove Drive, Suite 100
Pewaukee, Wisconsin 53072
(records relating to its function as subadviser)
Ceredex Value Advisers LLC
301
East Pine, Suite 500
Orlando, FL 32801
(records relating to its function as subadviser)
Seix Investment Advisors LLC
One
Maynard Drive, Suite 3200
Park Ridge, NJ 07458
(records relating to its function as subadviser)
Silvant Capital Management LLC
3333 Piedmont Road, Suite 1500
Atlanta, GA 30305
(records
relating to its function as subadviser)
8
WCM Investment Management
281 Brooks Street
Laguna Beach,
CA 92651
(records relating to its function as subadviser)
Zevenbergen Capital Investments LLC
601 Union Street, Suite 4600
Seattle, WA 98101
(records
relating to its function as subadviser)
|
(d) |
RidgeWorth Distributors LLC |
Three Canal Plaza, Suite 100
Portland, ME 04101
(records
relating to its function as distributor)
ITEM 34. Management Services:
None.
ITEM 35. Undertakings:
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused
this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Atlanta, and State of Georgia, on the 24th day of November, 2015.
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By: |
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/s/ Julia R. Short |
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|
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.
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|
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Signature |
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Title |
|
Date |
|
|
|
/s/ Jeffrey M. Biggar* |
|
Trustee |
|
November 24, 2015 |
Jeffrey M. Biggar |
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|
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/s/ George C. Guynn* |
|
Trustee |
|
November 24, 2015 |
George C. Guynn |
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/s/ Sidney E. Harris* |
|
Trustee |
|
November 24, 2015 |
Sidney E. Harris |
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|
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|
|
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/s/ Connie D. McDaniel* |
|
Trustee |
|
November 24, 2015 |
Connie D. McDaniel |
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/s/ Tim E. Bentsen* |
|
Trustee |
|
November 24, 2015 |
Tim E. Bentsen |
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|
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|
|
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/s/ Ashi Parikh* |
|
Trustee |
|
November 24, 2015 |
Ashi Parikh |
|
|
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|
|
|
|
/s/ Julia R. Short |
|
President and Chief Executive Officer |
|
November 24, 2015 |
Julia R. Short |
|
|
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|
|
/s/ Benjamin H. Lowe |
|
Treasurer and Chief Financial Officer |
|
November 24, 2015 |
Benjamin H. Lowe |
|
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*By: |
|
/s/ Timothy J. Burdick |
|
|
Timothy J. Burdick |
* |
Pursuant to Powers of Attorney |