ck0001506768-20221231
LoCorr
Macro Strategies Fund
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| Class |
A |
LFMAX |
| Class |
C |
LFMCX |
| Class |
I |
LFMIX |
LoCorr
Long/Short Commodities Strategy Fund
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| Class |
A |
LCSAX |
| Class |
C |
LCSCX |
| Class |
I |
LCSIX |
LoCorr
Dynamic Opportunity Fund
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| Class |
A |
LEQAX |
| Class |
C |
LEQCX |
| Class |
I |
LEQIX |
LoCorr
Spectrum Income Fund
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| Class |
A |
LSPAX |
| Class |
C |
LSPCX |
| Class |
I |
LSPIX |
LoCorr
Market Trend Fund
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| Class |
A |
LOTAX |
| Class |
C |
LOTCX |
| Class |
I |
LOTIX |
each
Fund is a series of LoCorr Investment Trust
STATEMENT
OF ADDITIONAL INFORMATION
May
1, 2023
This
Statement of Additional Information ("SAI") is not a prospectus and should be
read in conjunction with the Prospectus dated May 1, 2023 for the LoCorr Macro
Strategies Fund, the LoCorr Long/Short Commodities Strategy Fund, the LoCorr
Market Trend Fund, the LoCorr Dynamic Opportunity Fund and the LoCorr Spectrum
Income Fund (each a "Fund" and together, the "Funds"), each a series of LoCorr
Investment Trust. The Funds’ Prospectus is hereby incorporated by reference,
which means it is legally part of this SAI. You can obtain copies of the
Prospectus and Annual
Report
without charge by contacting the Funds' transfer agent or by calling toll-free
1-855-523-8637. You may also obtain a Prospectus and Annual Report by visiting
www.LoCorrFunds.com.
TABLE
OF CONTENTS
THE
FUNDS
The
LoCorr Macro Strategies Fund (the “Macro Strategies Fund”), the LoCorr
Long/Short Commodities Strategy Fund (the “Commodities Strategy Fund”), the
LoCorr Dynamic Opportunity Fund (the "Dynamic Opportunity Fund"), the LoCorr
Spectrum Income Fund (the “Spectrum Income Fund”) and the LoCorr Market Trend
Fund (the “Market Trend Fund”) are each a series of LoCorr Investment Trust, an
Ohio business trust organized on November 15, 2010 (the "Trust"). The Trust is
registered as an open-end management investment company. The Trust is governed
by its Board of Trustees (the "Board" or "Trustees"). The Macro Strategies Fund,
Commodities Strategy Fund, Spectrum Income Fund, Dynamic Opportunity Fund and
Market Trend Fund are each diversified funds. The Trust currently consists of
five funds in the series.
The
Funds may issue an unlimited number of shares of beneficial interest. All shares
of each Fund have equal rights and privileges, except as to class-specific
rights and privileges described below. Each share of a Fund is entitled to one
vote on all matters as to which shares are entitled to vote. In addition, each
share of a Fund, on a per-class basis, is entitled to participate equally with
other shares (i) in dividends and distributions declared by the Fund and (ii) on
liquidation to its proportionate share of the assets remaining after
satisfaction of outstanding liabilities. Shares of the Funds are fully paid,
non-assessable and fully transferable when issued and have no pre-emptive,
conversion or exchange rights. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share.
Each
Fund currently offers three classes of shares, Class A, Class C and Class I
shares. The Board of Trustees may classify and reclassify the shares of the
Funds into additional classes of shares at a future date. Each share class will
represent an interest in the same assets of the respective Fund, have the same
rights and is identical in all material respects except that (i) each class of
shares may be subject to different (or no) sales loads, (ii) each class of
shares may bear different distribution fees; (iii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares
and (iv) each class will have exclusive voting rights with respect to matters
relating to its own distribution arrangements.
LoCorr
Fund Management, LLC (the "Adviser") is the Funds’ investment adviser.
The
following serve as sub-advisers (each a “Sub-Adviser” and together, the
“Sub-Advisers”) to the respective Funds:
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| Fund
Name |
Sub-Adviser |
| Macro
Strategies Fund |
•Graham
Capital Management, L.P.
•Millburn
Ridgefield Corporation
•Nuveen
Asset Management, LLC
•Revolution
Capital Management, LLC
•R.G.
Niederhoffer Capital Management, Inc. |
| Commodities
Strategy Fund |
•Nuveen
Asset Management, LLC |
| Dynamic
Opportunity Fund |
•Kettle
Hill Capital Management, LLC
•Millrace
Asset Group, Inc. |
| Spectrum
Income Fund |
•Bramshill
Investments, LLC |
| Market
Trend Fund |
•Graham
Capital Management, L.P.
•Nuveen
Asset Management, LLC |
Each
Fund's investment objective, restrictions and policies are more fully described
here and in its Prospectus. The Board may start other series and offer shares of
a new fund under the Trust at any time.
Under
the Trust's Agreement and Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his/her earlier death, incapacity,
resignation or removal. Shareholders can remove a Trustee to the extent provided
by the Investment Company Act of 1940, as amended (the "1940 Act") and the rules
and regulations promulgated thereunder. Vacancies may be filled by a majority of
the remaining Trustees, except insofar as the 1940 Act may require the election
by shareholders. As a result, normally no annual or regular meetings of
shareholders will be held unless matters arise requiring a vote of shareholders
under the Agreement and Declaration of Trust or the 1940 Act.
TYPES
OF INVESTMENTS
The
investment objective of each Fund and a description of its principal investment
strategies are set forth in the Prospectus. Each Fund's investment objective is
not "fundamental" and may be changed without the approval of a majority of its
outstanding voting securities; however, shareholders will be given at least 60
days’ notice of such a change.
The
following information applies to each Fund, except as noted, and describes
securities and instruments in which the Fund or its Subsidiary (as defined
herein) as applicable may invest and their related risks.
Equity
Securities
Equity
securities in which the Fund invests include common stocks, preferred stocks and
securities convertible into common stocks, such as convertible bonds, warrants,
rights and options. The value of equity securities varies in response to many
factors, including the activities and financial condition of individual
companies, the business market in which individual companies compete and general
market and economic conditions. Equity securities fluctuate in value, often
based on factors unrelated to the value of the issuer of the securities, and
such fluctuations can be significant.
Common
Stock
Common
stock represents an equity (ownership) interest in a company, and usually
possesses voting rights and earns dividends. Dividends on common stock are not
fixed but are declared at the discretion of the issuer. Common stock generally
represents the riskiest investment in a company. In addition, common stock
generally has the greatest appreciation and depreciation potential because
increases and decreases in earnings are usually reflected in a company's stock
price.
Preferred
Stock
Preferred
stocks are securities that have characteristics of both common stocks and
corporate bonds. Preferred stocks may receive dividends but payment is not
guaranteed as with a bond. These securities may be undervalued because of a lack
of analyst coverage resulting in a high dividend yield or yield to maturity.
The risks of preferred stocks include a lack of voting rights and the
Fund's Adviser may incorrectly analyze the security, resulting in a loss to the
Fund. Furthermore, preferred stock dividends are not guaranteed and
management can elect to forego the preferred dividend, resulting in a loss to
the Fund. Preferred stock may also be convertible in the common stock of
the issuer. Convertible securities may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities are
senior to common stocks in an issuer's capital structure, but are usually
subordinated to similar non-convertible securities. A convertible security also
gives an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the issuing company depending upon a
market price advance in the convertible security's underlying common stock. In
general, preferred stocks generally pay a dividend at a specified rate and have
preference over common stock in the payment of dividends and in liquidation. The
Fund may invest in preferred stock with any or no credit rating. Preferred stock
is a class of stock having a preference over common stock as to the payment of
dividends and the recovery of investment
should
a company be liquidated, although preferred stock is usually junior to the debt
securities of the issuer. Preferred stock market value may change based on
changes in interest rates.
Convertible
Securities
The
Fund may invest in convertible securities with no minimum credit rating.
Convertible securities include fixed income securities that may be exchanged or
converted into a predetermined number of shares of the issuer's underlying
common stock at the option of the holder during a specified period. Convertible
securities may take the form of convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. Convertible securities are
senior to common stocks in an issuer's capital structure, but are usually
subordinated to similar non-convertible securities. While providing a
fixed-income stream (generally higher in yield than the income derivable from
common stock but lower than that afforded by a similar nonconvertible security),
a convertible security also gives an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the issuing
company depending upon a market price advance in the convertible security's
underlying common stock.
Warrants
The
Fund may invest in warrants. Warrants are options to purchase common stock at a
specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than one year to twenty years, or they may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, a warrant is worthless if the market price of the common
stock does not exceed the warrant's exercise price during the life of the
warrant. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
Business
Development Companies
The
Fund may invest in business development companies ("BDCs"), each of which may
pay performance-based fees to their managers. A BDC is a form of investment
company that is required to invest at least 70% of its total assets in
securities (typically debt) of private companies, thinly traded U.S. public
companies, or short-term, high-quality debt securities. BDCs usually trade at a
discount to their net asset value because they invest in unlisted securities and
have limited access to capital markets. Fund shareholders may bear two layers of
fees and expenses: asset-based fees and expenses at the Fund level, and
asset-based fees, performance-based incentive allocations or fees and expenses
at the BDC level. BDCs are subject to high failure rates among the companies in
which they invest and federal securities laws impose restraints upon the
organization and operations of BDCs that can limit or negatively impact the
performance of a BDC. Also, BDCs may engage in certain principal and joint
transactions that a mutual fund may not without an exemptive order from the
Securities and Exchange Commission (the “SEC”). Also, the Fund may purchase in
the aggregate only up to 3% of the total outstanding voting stock of any other
investment company, such as a BDC, unless the other investment company has an
exemptive order from the SEC.
Depositary
Receipts
The
Fund may invest in sponsored and unsponsored American Depositary Receipts
("ADRs"), which are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs,
in registered form, are designed for use in U.S. securities markets. Unsponsored
ADRs may be created without the participation of the foreign issuer. Holders of
unsponsored ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depositary of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass
through
voting rights. Many of the risks described below regarding foreign securities
apply to investments in ADRs.
Investment
Companies
The
Fund may invest in investment companies such as open-end funds (mutual funds),
closed-end funds, and exchange traded funds (collectively, "Investment
Companies"). The 1940 Act provides that the mutual funds may not: (1) purchase
more than 3% of an investment company's outstanding shares; (2) invest more than
5% of its assets in any single such investment company (the "5% Limit"), and (3)
invest more than 10% of its assets in Investment Companies overall (the "10%
Limit"), unless: (i) the underlying investment company and/or the Fund has
received an order for exemptive relief from such limitations from the SEC; and
(ii) the underlying investment company and the Fund take appropriate steps to
comply with any conditions in such order.
In
addition, Section 12(d)(1)(F) of the 1940 Act provides that the provisions of
paragraph 12(d)(1) shall not apply to securities purchased or otherwise acquired
by the Fund if (i) immediately after such purchase or acquisition not more than
3% of the total outstanding stock of such registered investment company is owned
by the Fund and all affiliated persons of the Fund; and (ii) the Fund has not,
and is not proposing to offer or sell any security issued by it through a
principal underwriter or otherwise at a public or offering price which includes
a sales load of more than 1.50%. An investment company that issues shares to the
Fund pursuant to paragraph 12(d)(1)(F) shall not be required to redeem its
shares in an amount exceeding 1% of such investment company's total outstanding
shares in any period of less than thirty days. The Fund (or the Adviser acting
on behalf of the Fund) must comply with the following voting restrictions: when
the Fund exercises voting rights, by proxy or otherwise, with respect to
Investment Companies owned by the Fund, the Fund will either seek instruction
from the Fund's shareholders with regard to the voting of all proxies and vote
in accordance with such instructions, or vote the shares held by the Fund in the
same proportion as the vote of all other holders of such security.
Further,
the Fund may rely on Rule 12d1-3, which allows unaffiliated mutual funds to
exceed the 5% Limitation and the 10% Limitation, provided the aggregate sales
loads any investor pays (i.e., the combined distribution expenses of both the
acquiring fund and the acquired funds) does not exceed the limits on sales loads
established by the Financial Industry Regulatory Authority ("FINRA”) for funds
of funds.
The
Fund and any "affiliated persons," as defined by the 1940 Act may purchase in
the aggregate only up to 3% of the total outstanding securities of any
Underlying Fund. Accordingly, when affiliated persons hold shares of any of the
Investment Companies, the Fund's ability to invest fully in shares of those
funds is restricted, and the Adviser must then, in some instances, select
alternative investments that would not have been its first preference. The 1940
Act also provides that an Underlying Fund whose shares are purchased by the Fund
will be obligated to redeem shares held by the Fund only in an amount up to 1%
of the Underlying Fund’s outstanding securities during any period of less than
30 days. Shares held by the Fund in excess of 1% of an Underlying Fund's
outstanding securities therefore, will be considered not readily marketable
securities, which, together with other such securities, may not exceed 15% of
the Fund's total assets.
Under
certain circumstances an Underlying Fund may determine to make payment of a
redemption by the Fund wholly or partly by a distribution in kind of securities
from its portfolio, in lieu of cash, in conformity with the rules of the SEC. In
such cases, the Fund may hold securities distributed by an Investment Company
until the Adviser determines that it is appropriate to dispose of such
securities.
Investment
decisions by the investment advisors of the Investment Companies are made
independently of the Fund and its Adviser. Therefore, the investment advisor of
one Underlying Fund may be purchasing shares of the same issuer whose shares are
being sold by the investment advisor of another such fund. The result would be
an indirect expense to the Fund without accomplishing any investment purpose.
Because other Investment Companies employ an investment adviser, such
investments by the Fund may cause shareholders to bear duplicate
fees.
Closed-End
Investment Companies.
The Fund may invest its assets in "closed-end" investment companies (or
"closed-end funds"), subject to the investment restrictions set forth above.
Shares of closed-end funds are typically offered to the public in a one-time
initial public offering by a group of underwriters who retain a spread or
underwriting commission of between 4% or 6% of the initial public offering
price. Such securities are then listed for trading on the New York Stock
Exchange, the National Association of Securities Dealers Automated Quotation
System (commonly known as "NASDAQ") and, in some cases, may be traded in other
over-the-counter markets. Because the shares of closed-end funds cannot be
redeemed upon demand to the issuer like the shares of an open-end investment
company (such as the Fund), investors seek to buy and sell shares of closed-end
funds in the secondary market.
The
Fund generally will purchase shares of closed-end funds only in the secondary
market. The Fund will incur normal brokerage costs on such purchases similar to
the expenses the Fund would incur for the purchase of securities of any other
type of issuer in the secondary market. The Fund may, however, also purchase
securities of a closed-end fund in an initial public offering when, in the
opinion of the Adviser, based on a consideration of the nature of the closed-end
fund's proposed investments, the prevailing market conditions and the level of
demand for such securities, they represent an attractive opportunity for growth
of capital. The initial offering price typically will include a dealer spread,
which may be higher than the applicable brokerage cost if the Fund purchased
such securities in the secondary market.
The
shares of many closed-end funds, after their initial public offering, frequently
trade at a price per share that is less than the net asset value per share, the
difference representing the "market discount" of such shares. This market
discount may be due in part to the investment objective of long-term
appreciation, which is sought by many closed-end funds, as well as to the fact
that the shares of closed-end funds are not redeemable by the holder upon demand
to the issuer at the next determined net asset value but rather are subject to
the principles of supply and demand in the secondary market. A relative lack of
secondary market purchasers of closed-end fund shares also may contribute to
such shares trading at a discount to their net asset value.
The
Fund may invest in shares of closed-end funds that are trading at a discount to
net asset value or at a premium to net asset value. There can be no assurance
that the market discount on shares of any closed-end fund purchased by the Fund
will ever decrease. In fact, it is possible that this market discount may
increase and the Fund may suffer realized or unrealized capital losses due to
further decline in the market price of the securities of such closed-end funds,
thereby adversely affecting the net asset value of the Fund's shares. Similarly,
there can be no assurance that any shares of a closed-end fund purchased by the
Fund at a premium will continue to trade at a premium or that the premium will
not decrease subsequent to a purchase of such shares by the Fund.
Closed-end
funds may issue senior securities (including preferred stock and debt
obligations) for the purpose of leveraging the closed-end fund's common shares
in an attempt to enhance the current return to such closed-end fund's common
shareholders. The Fund's investment in the common shares of closed-end funds
that are financially leveraged may create an opportunity for greater total
return on its investment, but at the same time may be expected to exhibit more
volatility in market price and net asset value than an investment in shares of
investment companies without a leveraged capital structure.
Exchange
Traded Funds.
ETFs are passive funds that track their related index and have the flexibility
of trading like a security. They are managed by professionals and provide the
investor with diversification, cost and tax efficiency, liquidity,
marginability, are useful for hedging, have the ability to go long and short,
and some provide quarterly dividends. Additionally, some ETFs are unit
investment trusts (UITs), which are unmanaged portfolios overseen by trustees.
ETFs generally have two markets. The primary market is where institutions swap
"creation units" in block-multiples of shares, typically 25,000 or 50,000 for
in-kind securities and cash in the form of dividends. The secondary market is
where individual investors can trade as little as a single share during trading
hours on the exchange. This is different from open-ended mutual funds that are
traded after hours once the net asset value (NAV) is calculated. ETFs share many
similar risks with open-end and closed-end funds.
There
is a risk that an ETF in which the Fund invests may terminate due to
extraordinary events that may cause any of the service providers to the ETF,
such as the trustee or sponsor, to close or otherwise fail to perform their
obligations to the ETF. Also, because the ETFs in which the Fund intends to
principally invest may be granted licenses by agreement to use the indices as a
basis for determining their compositions and/or otherwise to use certain trade
names, the ETFs may terminate if such license agreements are terminated. In
addition, an ETF may terminate if its entire net asset value falls below a
certain amount. Although the Fund believes that, in the event of the termination
of an underlying ETF, it will be able to invest instead in shares of an
alternate ETF tracking the same market index or another market index with the
same general market, there is no guarantee that shares of an alternate ETF would
be available for investment at that time. To the extent the Fund invests in a
sector product, the Fund is subject to the risks associated with that
sector.
Real
Estate Investment Trusts
The
Fund may invest in securities of real estate investment trusts ("REITs"). REITs
are publicly traded corporations or trusts that specialize in acquiring, holding
and managing residential, commercial or industrial real estate. A REIT is not
taxed at the entity level on income distributed to its shareholders or
unitholders if it distributes to shareholders or unitholders at least 95% of its
taxable income for each taxable year and complies with regulatory requirements
relating to its organization, ownership, assets and income.
REITs
generally can be classified as "Equity REITs", "Mortgage REITs" and "Hybrid
REITs." An Equity REIT invests the majority of its assets directly in real
property and derives its income primarily from rents and from capital gains on
real estate appreciation, which are realized through property sales. A Mortgage
REIT invests the majority of its assets in real estate mortgage loans and
services its income primarily from interest payments. A Hybrid REIT combines the
characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can
invest in all three kinds of REITs, its emphasis is expected to be on
investments in Equity REITs.
Investments
in the real estate industry involve particular risks. The real estate industry
has been subject to substantial fluctuations and declines on a local, regional
and national basis in the past and may continue to be in the future. Real
property values and income from real property continue to be in the future. Real
property values and income from real property may decline due to general and
local economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory limitations on rents, changes in neighborhoods
and in demographics, increases in market interest rates, or other factors.
Factors such as these may adversely affect companies that own and operate real
estate directly, companies that lend to such companies, and companies that
service the real estate industry.
Investments
in REITs also involve risks. Equity REITs will be affected by changes in the
values of and income from the properties they own, while Mortgage REITs may be
affected by the credit quality of the mortgage loans they hold. In addition,
REITs are dependent on specialized management skills and on their ability to
generate cash flow for operating purposes and to make distributions to
shareholders or unitholders REITs may have limited diversification and are
subject to risks associated with obtaining financing for real property, as well
as to the risk of self-liquidation. REITs also can be adversely affected by
their failure to qualify for tax-free pass-through treatment of their income
under the Internal Revenue Code of 1986, as amended, or their failure to
maintain an exemption from registration under the 1940 Act. By investing in
REITs indirectly through a Fund, a shareholder bears not only a proportionate
share of the expenses of the Fund, but also may indirectly bear similar expenses
of some of the REITs in which it invests.
Master
Limited Partnerships
The
Fund may invest in master limited partnership ("MLP") interests. MLPs are
limited partnerships, the interests in which (known as "units") are traded on
public exchanges, just like corporate stock. MLPs are limited partnerships that
provide an investor with a direct interest in a group of assets (generally, oil
and
gas
properties). MLP units typically trade publicly, like stock, and thus may
provide the investor more liquidity than ordinary limited partnerships. MLPs are
also called publicly traded partnerships and public limited partnerships. A
limited partnership has one or more general partners (they may be individuals,
corporations, partnerships or another entity) which manage the partnership, and
limited partners, which provide capital to the partnership but have no role in
its management. When an investor buys units in an MLP, he or she becomes a
limited partner. MLPs are formed in several ways. A non-traded partnership may
decide to go public. Several non-traded partnerships may "roll up" into a single
MLP. A corporation may spin off a group of assets or part of its business into
an MLP of which it is the general partner, either to realize what it believes to
be the assets' full value or as an alternative to issuing debt. A corporation
may fully convert to an MLP, although since 1986 the tax consequences have made
this an unappealing; or, a newly formed company may operate as an MLP from its
inception.
There
are different types of risks to investing in MLPs, including regulatory risks
and interest rate risks. Currently most partnerships enjoy pass through taxation
of their income to partners, which avoids double taxation of earnings. If the
government were to change MLP business tax structure, unitholders would not be
able to enjoy the relatively high yields in the sector for long. In addition,
MLPs that charge government-regulated fees for transportation of oil and gas
products through their pipelines are subject to unfavorable changes in
government-approved rates and fees, which would affect an MLP's revenue stream
negatively. MLPs also carry some interest rate risks. During increases in
interest rates, MLPs may not produce desirable returns to
shareholders.
Special
Purpose Acquisition Corporations (SPACs)
The
Funds may invest in SPACs and companies that have completed an IPO. SPACs are
companies that may be unseasoned and lack a trading or operational history, a
track record of reporting to investors, and widely available research coverage.
The Funds may purchase SPACs through an IPO. IPOs are thus often subject to
extreme price volatility and speculative trading. These stocks may have
above-average price appreciation in connection with the IPO. In addition, IPOs
may share similar illiquidity risks of private equity and venture capital. The
free float shares held by the public in an IPO are typically a small percentage
of the market capitalization. The ownership of many IPOs often includes large
holdings by venture capital and private equity investors who seek to sell their
shares in the public market in the months following an IPO when shares
restricted by lock-up are released, causing greater volatility and possible
downward pressure during the time that locked-up shares are released. Public
stockholders of SPACs may not be afforded a meaningful opportunity to vote on a
proposed initial business combination because certain stockholders, including
stockholders affiliated with the management of the SPAC, may have sufficient
voting power, and a financial incentive, to approve such a transaction without
support from public stockholders. As a result, a SPAC may complete a business
combination even though a majority of its public stockholders do not support
such a combination.
Derivatives
The
Fund may invest in derivatives in order to hedge against market movements while
liquidating certain positions and buying other securities or as substitutes for
securities. The information below contains general additional information about
derivatives.
Rule
18f-4 under the 1940 Act (the “Derivatives Rule”) provides a comprehensive
framework for the Funds' use of derivatives. The Derivatives Rule requires
registered investment companies that enter into derivatives transactions and
certain other transactions that create future payment or delivery obligations
to, among other things, (i) comply with a value-at-risk (“VaR”) leverage limit,
and (ii) adopt and implement a comprehensive written derivatives risk management
program. These and other requirements apply unless a fund qualifies as a
“limited derivatives user,” which the Derivatives Rule defines as a fund that
limits its derivatives exposure to 10% of its net assets. The Funds have adopted
and implemented a derivatives risk management program approved by the Board,
which is administered by the Adviser as the Funds' derivatives risk manager.
Complying with the Derivatives Rule may increase the cost of a Fund’s
investments and cost of doing business, which could adversely affect investors.
The Derivatives Rule may not be effective to limit a Fund’s risk of loss. In
particular, measurements of VaR rely on historical data
and
may not accurately measure the degree of risk reflected in a Fund’s derivatives
or other investments. Other potentially adverse regulatory obligations can
develop suddenly and without notice.
Futures
Contracts.
A
futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (e.g.,
units of a stock index) for a specified price, date, time and place designated
at the time the contract is made. Brokerage fees are incurred when a futures
contract is bought or sold and margin deposits must be maintained. Entering into
a contract to buy is commonly referred to as buying or purchasing a contract or
holding a long position. Entering into a contract to sell is commonly referred
to as selling a contract or holding a short position.
Unlike
when a Fund purchases or sells a security, no price would be paid or received by
the Fund upon the purchase or sale of a futures contract. Upon entering into a
futures contract, and to maintain the Fund's open positions in futures
contracts, the Fund would be required to deposit with its custodian or futures
broker in a segregated account in the name of the futures broker an amount of
cash, U.S. government securities, suitable money market instruments, or other
liquid securities, known as "initial margin." The margin required for a
particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margins that may range upward from less than 5% of the value of the
contract being traded.
If
the price of an open futures contract changes (by increase in underlying
instrument or index in the case of a sale or by decrease in the case of a
purchase) so that the loss on the futures contract reaches a point at which the
margin on deposit does not satisfy margin requirements, the broker will require
an increase in the margin. However, if the value of a position increases because
of favorable price changes in the futures contract so that the margin deposit
exceeds the required margin, the broker will pay the excess to the Fund.
These
subsequent payments, called "variation margin," to and from the futures broker,
are made on a daily basis as the price of the underlying assets fluctuate making
the long and short positions in the futures contract more or less valuable, a
process known as "marking to the market." The Fund expects to earn interest
income on any margin deposits.
Although
certain futures contracts, by their terms, require actual future delivery of and
payment for the underlying instruments, in practice most futures contracts are
usually closed out before the delivery date. Closing out an open futures
contract purchase or sale is effected by entering into an offsetting futures
contract sale or purchase, respectively, for the same aggregate amount of the
identical underlying instrument or index and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transaction with respect
to a particular futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain the margin deposits on the futures contract.
For
example, one contract in the Financial Times Stock Exchange 100 Index future is
a contract to buy 25 pounds sterling multiplied by the level of the UK Financial
Times 100 Share Index on a given future date. Settlement of a stock index
futures contract may or may not be in the underlying instrument or index. If not
in the underlying instrument or index, then settlement will be made in cash,
equivalent over time to the difference between the contract price and the actual
price of the underlying asset at the time the stock index futures contract
expires.
Regulation
as a Commodity Pool Operator.
The
Macro Strategies Fund, the Commodities Strategy Fund and the Market Trend Fund
(and each of those Funds' respective Subsidiary) are “commodity pools” under the
U.S. Commodity Exchange Act (“CEA”), and the Adviser is registered as a
“commodity pool operator” with the Commodity Futures Trading Commission (“CFTC”)
and is a member of the National Futures Association (“NFA”). As a registered
commodity pool operator with respect to the Macro
Strategies
Fund, the Commodities Strategy Fund, the Market Trend Fund, and each Fund’s
respective Subsidiary, the Adviser must comply with various regulatory
requirements under the CEA, and the rules and regulations of the CFTC and the
NFA, including investor protection requirements, antifraud prohibitions,
disclosure requirements, and reporting and recordkeeping requirements. The
Adviser is also subject to periodic inspections and audits by the CFTC and
NFA.
Options
on Futures Contracts. The
Fund may purchase and sell options on the same types of futures in which it may
invest. Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), rather than to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by the delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
Options
on Securities.
The
Fund may purchase and write (i.e.,
sell) put and call options. Such options may relate to particular securities or
stock indices, and may or may not be listed on a domestic or foreign securities
exchange and may or may not be issued by the Options Clearing Corporation.
Options trading is a highly specialized activity that entails greater than
ordinary investment risk. Options may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves.
A
call option for a particular security gives the purchaser of the option the
right to buy, and the writer (seller) the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell and the writer (seller) the obligation to buy the security at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security.
Stock
index options are put options and call options on various stock indices. In most
respects, they are identical to listed options on common stocks. The primary
difference between stock options and index options occurs when index options are
exercised. In the case of stock options, the underlying security, common stock,
is delivered. However, upon the exercise of an index option, settlement does not
occur by delivery of the securities comprising the index. The option holder who
exercises the index option receives an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to the difference between the closing price of the stock
index and the exercise price of the option expressed in dollars times a
specified multiple. A stock index fluctuates with changes in the market value of
the stocks included in the index. For example, some stock index options are
based on a broad market index, such as the Standard & Poor's 500® Index or
the Value Line Composite Index or a narrower market index, such as the Standard
& Poor's 100®. Indices may also be based on an industry or market segment,
such as the NYSE Arca Oil and Gas Index or the Computer and Business Equipment
Index. Options on stock indices are currently traded on the Chicago Board
Options Exchange, the New York Stock Exchange, and the NASDAQ PHLX.
The
Fund's obligation to sell an instrument subject to a call option written by it,
or to purchase an instrument subject to a put option written by it, may be
terminated prior to the expiration date of the option by the Fund's execution of
a closing purchase transaction, which is effected by purchasing on an exchange
an option of the same series (i.e.,
same underlying instrument, exercise price and expiration date) as the option
previously written. A closing purchase transaction will ordinarily be effected
to realize a profit on an outstanding option, to prevent an underlying
instrument from being called, to permit the sale of the underlying instrument or
to permit the writing of a new option containing different terms on such
underlying
instrument. The cost of such a liquidation purchase plus transactions costs may
be greater than the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. There is no assurance
that a liquid secondary market will exist for any particular option. An option
writer unable to effect a closing purchase transaction will not be able to sell
the underlying instrument or liquidate the assets held in a segregated account,
as described below, until the option expires or the optioned instrument is
delivered upon exercise. In such circumstances, the writer will be subject to
the risk of market decline or appreciation in the instrument during such
period.
If
an option purchased by the Fund expires unexercised, the Fund realizes a loss
equal to the premium paid. If the Fund enters into a closing sale transaction on
an option purchased by it, the Fund will realize a gain if the premium received
by the Fund on the closing transaction is more than the premium paid to purchase
the option or a loss if it is less. If an option written by the Fund expires on
the stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold). If an
option written by the Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
Certain
Risks Regarding Options.
There
are several risks associated with transactions in options. For example, there
are significant differences between the securities and options markets that
could result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, whether traded over-the-counter or on an
exchange, may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities or currencies;
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; the facilities of an exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading value; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
Successful
use by the Fund of options on stock indices will be subject to the ability of
the Adviser to correctly predict movements in the directions of the stock
market. This requires different skills and techniques than predicting changes in
the prices of individual securities. In addition, the Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline, through transactions in put options
on stock indices, depends on the degree to which price movements in the
underlying index correlate with the price movements of the securities held by
the Fund. Inasmuch as the Fund's securities will not duplicate the components of
an index, the correlation will not be perfect. Consequently, the Fund bears the
risk that the prices of its securities being hedged will not move in the same
amount as the prices of its put options on the stock indices. It is also
possible that there may be a negative correlation between the index and the
Fund's securities that would result in a loss on both such securities and the
options on stock indices acquired by the Fund.
The
hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The purchase of stock index
options involves the risk that the premium and transaction costs paid by the
Fund in purchasing an option will be lost as a result of unanticipated movements
in prices of the securities comprising the stock index on which the option is
based.
There
is no assurance that a liquid secondary market on an options exchange will exist
for any particular option, or at any particular time, and for some options no
secondary market on an exchange or elsewhere
may
exist. If the Fund is unable to close out a call option on securities that it
has written before the option is exercised, the Fund may be required to purchase
the optioned securities in order to satisfy its obligation under the option to
deliver such securities. If the Fund was unable to effect a closing sale
transaction with respect to options on securities that it has purchased, it
would have to exercise the option in order to realize any profit and would incur
transaction costs upon the purchase and sale of the underlying
securities.
Dealer
Options. The
Fund may engage in transactions involving dealer options as well as
exchange-traded options. Certain additional risks are specific to dealer
options. While the Fund might look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer option it would
need to rely on the dealer from which it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded
options generally have a continuous liquid market while dealer options may not.
Consequently, the Fund may generally be able to realize the value of a dealer
option it has purchased only by exercising or reselling the option to the dealer
who issued it. Similarly, when the Fund writes a dealer option, the Fund may
generally be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to whom the Fund
originally wrote the option. While the Fund will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will at any time be able to liquidate a dealer option at a
favorable price at any time prior to expiration. Unless the Fund, as a covered
dealer call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) used as cover until
the option expires or is exercised. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option. With respect to
options written by the Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, because the Fund must
maintain a secured position with respect to any call option on a security it
writes, the Fund may not sell the assets that it has segregated to secure the
position while it is obligated under the option. This requirement may impair the
Fund's ability to sell portfolio securities at a time when such sale might be
advantageous.
The
Staff of the SEC has taken the position that purchased dealer options are
illiquid securities. The Fund may treat the cover used for written dealer
options as liquid if the dealer agrees that the Fund may repurchase the dealer
option it has written for a maximum price to be calculated by a predetermined
formula. In such cases, the dealer option would be considered illiquid only to
the extent the maximum purchase price under the formula exceeds the intrinsic
value of the option. Accordingly, the Fund will treat dealer options as subject
to the Fund's limitation on illiquid securities. If the SEC changes its position
on the liquidity of dealer options, a Fund will change its treatment of such
instruments accordingly.
Spread
Transactions.
The
Fund may purchase covered spread options from securities dealers. These covered
spread options are not presently exchange-listed or exchange-traded. The
purchase of a spread option gives the Fund the right to put securities that it
owns at a fixed dollar spread or fixed yield spread in relationship to another
security that the Fund does not own, but which is used as a benchmark. The risk
to the Fund, in addition to the risks of dealer options described above, is the
cost of the premium paid as well as any transaction costs. The purchase of
spread options will be used to protect the Fund against adverse changes in
prevailing credit quality spreads, i.e.,
the
yield spread between high quality and lower quality securities. This protection
is provided only during the life of the spread options.
Swap
Agreements. The
Fund may enter into interest rate, index and currency exchange rate swap
agreements in an attempt to obtain a particular desired return at a lower cost
to the Fund than if it had invested directly in an instrument that yielded that
desired return. Swap agreements are two-party contracts entered into primarily
by institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of returns) 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 at a particular
interest
rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. The "notional amount" of the swap agreement is
only a fictive basis on which to calculate the obligations the parties to a swap
agreement have agreed to exchange. The Fund's obligations (or rights) under a
swap agreement will generally be equal only to the amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The Fund's 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 the maintenance of a segregated account consisting of cash, U.S.
government securities, or other liquid securities, to avoid leveraging of the
Fund's portfolio.
Whether
the Fund's use of swap agreements enhance the Fund's total return will depend on
the Adviser's ability correctly to predict whether certain types of investments
are likely to produce greater returns than other investments. Because they are
two-party contracts and may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, 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's
Adviser will cause the Fund to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the Fund's repurchase agreement guidelines. The swap market
is a relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
Certain
swap agreements are exempt from most provisions of the CEA and, therefore, are
not regulated as futures or commodity option transactions under the CEA,
pursuant to regulations of the CFTC. To qualify for this exemption, a swap
agreement must be entered into by "eligible participants," which include the
following, provided the participants' total assets exceed established levels: a
bank or trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employees benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
Certain
Investment Techniques and Derivatives Risks.
When
the Fund uses investment techniques such as margin, leverage and short sales,
and forms of financial derivatives, such as options and futures, an investment
in the Fund may be more volatile than investments in other mutual funds.
Although the intention is to use such investment techniques and derivatives to
minimize risk to the Fund, there is the possibility that improper implementation
of such techniques and derivative strategies or unusual market conditions could
result in significant losses to the Fund. Derivatives are used to limit risk in
the Fund or to enhance investment return and have a return tied to a formula
based upon an interest rate, index, price of a security, or other measurement.
Derivatives involve special risks, including: (1) the risk that interest rates,
securities prices and currency markets will not move in the direction that a
portfolio manager anticipates; (2) imperfect correlation between the price of
derivative instruments and movements in the prices of the securities, interest
rates or currencies being hedged; (3) the fact that skills needed to use these
strategies are different than those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
and possible exchange imposed price fluctuation limits, either of which may make
it difficult or impossible to close out a position when desired; (5) the risk
that adverse price movements in an instrument can result in a loss substantially
greater than the Fund's initial investment in that instrument (in some cases,
the potential loss in unlimited); (6) particularly in the case of
privately-negotiated instruments, the risk that the counterparty will not
perform its obligations, or that penalties could be incurred for positions held
less than the required minimum holding period, which
could
leave the Fund worse off than if it had not entered into the position; and (7)
the inability to close out certain hedged positions to avoid adverse tax
consequences. In addition, the use of derivatives for non-hedging purposes (that
is, to seek to increase total return) is considered a speculative practice and
may present an even greater risk of loss than when used for hedging
purposes.
Fixed
Income/Debt/Bond Securities
Yields
on fixed income securities, which the Fund defines to include preferred stock,
are dependent on a variety of factors, including the general conditions of the
money market and other fixed income securities markets, the size of a particular
offering, the maturity of the obligation and the rating of the issue. An
investment in the Fund will be subjected to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
There
is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become
impaired.
The
corporate debt securities in which the Fund may invest include corporate bonds
and notes and short-term investments such as commercial paper and variable rate
demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7-day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
The
Fund may invest in debt securities, including non-investment grade debt
securities. The following describes some of the risks associated with fixed
income debt securities:
Interest
Rate Risk.
Debt
securities have varying levels of sensitivity to changes in interest rates. In
general, the price of a debt security can fall when interest rates rise and can
rise when interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes although they usually
offer higher yields to compensate investors for the greater risks. The longer
the maturity of the security, the greater the impact a change in interest rates
could have on the security's price. In addition, short-term and long-term
interest rates do not necessarily move in the same amount or the same direction.
Short-term securities tend to react to changes in short-term interest rates and
long-term securities tend to react to changes in long-term interest
rates.
Credit
Risk.
Fixed
income securities of issuers with lower credit quality have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of those issuers to make principal or
interest payments, as compared to issuers of more highly rated securities of
issuers with higher credit quality.
Extension
Risk.
The
Fund is subject to the risk that an issuer will exercise its right to pay
principal on an obligation held by the Fund (such as mortgage-backed securities)
later than expected. This may happen when there is a rise in interest rates.
These events may lengthen the duration (i.e. interest rate sensitivity) and
potentially reduce the value of these securities.
Prepayment
Risk.
Certain
types of debt securities, such as mortgage-backed securities, have yield and
maturity characteristics corresponding to underlying assets. Unlike traditional
debt securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on certain mortgage-backed
securities may include both interest and a partial payment of principal. Besides
the scheduled repayment of principal, payments of principal may result from the
voluntary prepayment, refinancing, or foreclosure of the underlying mortgage
loans.
Securities
subject to prepayment are less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the Fund.
At
times, some of the mortgage-backed securities in which the Fund may invest will
have higher than market interest rates and therefore will be purchased at a
premium above their par value. Prepayments may cause losses in securities
purchased at a premium, as unscheduled prepayments, which are made at par, will
cause the Fund to experience a loss equal to any unamortized
premium.
Certificates
of Deposit and Bankers' Acceptances
The
Fund may invest in certificates of deposit and bankers' acceptances, which are
considered to be short-term money market instruments.
Certificates
of deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial
Paper
The
Fund may purchase commercial paper. Commercial paper consists of short-term
(usually from 1 to 270 days) unsecured promissory notes issued by corporations
in order to finance their current operations. It may be secured by letters of
credit, a surety bond or other forms of collateral. Commercial paper is
usually
repaid at maturity by the issuer from the proceeds of the issuance of new
commercial paper. As a result, investment in commercial paper is subject to the
risk the issuer cannot issue enough new commercial paper to satisfy its
outstanding commercial paper, also known as rollover risk. Commercial paper may
become illiquid or may suffer from reduced liquidity in certain circumstances.
Like all fixed income securities, commercial paper prices are susceptible to
fluctuations in interest rates. If interest rates rise, commercial paper prices
will decline. The short-term nature of a commercial paper investment makes it
less susceptible to interest rate risk than many other fixed income securities
because interest rate risk typically increases as maturity lengths increase.
Commercial paper tends to yield smaller returns than longer-term corporate debt
because securities with shorter maturities typically have lower effective yields
than those with longer maturities. As with all fixed income securities, there is
a chance that the issuer will default on its commercial paper
obligation.
Time
Deposits and Variable Rate Notes
The
Fund may invest in fixed time deposits, whether or not subject to withdrawal
penalties.
The
commercial paper obligations, which the Fund may buy are unsecured and may
include variable rate notes. The nature and terms of a variable rate note (i.e.,
a "Master Note") permit the Fund to invest fluctuating amounts at varying rates
of interest pursuant to a direct arrangement between the Fund as Lender, and the
issuer, as borrower. It permits daily changes in the amounts borrowed. The Fund
has the right at any time to increase, up to the full amount stated in the note
agreement, or to decrease the amount outstanding under the note. The issuer may
prepay at any time and without penalty any part of or the full amount of the
note. The note may or may not be backed by one or more bank letters of credit.
Because these notes are direct lending arrangements between the Fund and the
issuer, it is not generally contemplated that they will be traded; moreover,
there is currently no secondary market for them. Except as specifically provided
in the Prospectus, there is no limitation on the type of issuer from whom these
notes may be purchased; however, in connection with such purchase and on an
ongoing basis, the Fund's Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. Variable rate notes are subject to the Fund's
investment restriction on illiquid securities unless such notes can be put back
to the issuer on demand within seven days.
Insured
Bank Obligations
The
Fund may invest in insured bank obligations. The Federal Deposit Insurance
Corporation ("FDIC") insures the deposits of federally insured banks and savings
and loan associations (collectively referred to as "banks") up to $250,000. The
Fund may purchase bank obligations that are fully insured as to principal by the
FDIC. Currently, to remain fully insured as to principal, these investments must
be limited to $250,000 per bank; if the principal amount and accrued interest
together exceed $250,000, the excess principal and accrued interest will not be
insured. Insured bank obligations may have limited marketability.
High
Yield Securities
The
Fund may invest in high yield securities. High yield, high risk bonds are
securities that are generally rated below investment grade by the primary rating
agencies (BB+ or lower by S&P and Ba1 or lower by Moody's). Other terms used
to describe such securities include "lower rated bonds," "non-investment grade
bonds," "below investment grade bonds," and "junk bonds." These securities are
considered to be high-risk investments. The risks include the
following:
Greater
Risk of Loss.
These securities are regarded as predominately speculative. There is a greater
risk that issuers of lower rated securities will default than issuers of higher
rated securities. Issuers of lower rated securities generally are less
creditworthy and may be highly indebted, financially distressed, or bankrupt.
These issuers are more vulnerable to real or perceived economic changes,
political changes or adverse industry developments. In addition, high yield
securities are frequently subordinated to the
prior
payment of senior indebtedness. If an issuer fails to pay principal or interest,
the Fund would experience a decrease in income and a decline in the market value
of its investments.
Sensitivity
to Interest Rate and Economic Changes. The
income and market value of lower-rated securities may fluctuate more than higher
rated securities. Although non-investment grade securities tend to be less
sensitive to interest rate changes than investment grade securities,
non-investment grade securities are more sensitive to short-term corporate,
economic and market developments. During periods of economic uncertainty and
change, the market price of the investments in lower-rated securities may be
volatile. The default rate for high yield bonds tends to be cyclical, with
defaults rising in periods of economic downturn.
Valuation
Difficulties.
It
is often more difficult to value lower rated securities than higher rated
securities. If an issuer's financial condition deteriorates, accurate financial
and business information may be limited or unavailable. In addition, the lower
rated investments may be thinly traded and there may be no established secondary
market. Because of the lack of market pricing and current information for
investments in lower rated securities, valuation of such investments is much
more dependent on judgment than is the case with higher rated
securities.
Liquidity.
There
may be no established secondary or public market for investments in lower rated
securities. Such securities are frequently traded in markets that may be
relatively less liquid than the market for higher rated securities. In addition,
relatively few institutional purchasers may hold a major portion of an issue of
lower-rated securities at times. As a result, the Fund may be required to sell
investments at substantial losses or retain them indefinitely when an issuer's
financial condition is deteriorating.
Credit
Quality.
Credit
quality of non-investment grade securities can change suddenly and unexpectedly,
and even recently-issued credit ratings may not fully reflect the actual risks
posed by a particular high-yield security.
New
Legislation. Future
legislation may have a possible negative impact on the market for high yield,
high risk investments. As an example, in the late 1980's, legislation required
federally-insured savings and loan associations to divest their investments in
high yield, high risk bonds. New legislation, if enacted, could have a material
negative effect on the Fund's investments in lower rated securities. High yield,
high risk investments may include the following:
Straight
fixed-income debt securities.
These
include bonds and other debt obligations that bear a fixed or variable rate of
interest payable at regular intervals and have a fixed or resettable maturity
date. The particular terms of such securities vary and may include features such
as call provisions and sinking funds.
Zero-coupon
debt securities.
These bear no interest obligation but are issued at a discount from their value
at maturity. When held to maturity, their entire return equals the difference
between their issue price and their maturity value.
Zero-fixed-coupon
debt securities.
These are zero-coupon debt securities that convert on a specified date to
interest-bearing debt securities.
Pay-in-kind
bonds.
These are bonds which allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. These bonds are
typically sold without registration under the Securities Act of 1933, as amended
("1933 Act"), usually to a relatively small number of institutional
investors.
Convertible
Securities.
These are bonds or preferred stock that may be converted to common
stock.
Preferred
Stock.
These are stocks that generally pay a dividend at a specified rate and have
preference over common stock in the payment of dividends and in
liquidation.
Loan
Participations and Assignments.
These are participations in, or assignments of all or a portion of loans to
corporations or to governments, including governments of less-developed
countries.
Securities
issued in connection with Reorganizations and Corporate
Restructurings.
In
connection with reorganizing or restructuring of an issuer, an issuer may issue
common stock or other securities to holders of its debt securities. The Fund may
hold such common stock and other securities even if it does not invest in such
securities.
Municipal
Government Obligations
In
general, municipal obligations are debt obligations issued by or on behalf of
states, territories and possessions of the United States (including the District
of Columbia) and their political subdivisions, agencies and instrumentalities.
Municipal obligations generally include debt obligations issued to obtain funds
for various public purposes. Certain types of municipal obligations are issued
in whole or in part to obtain funding for privately operated facilities or
projects. Municipal obligations include general obligation bonds, revenue bonds,
industrial development bonds, notes and municipal lease obligations.
Municipal obligations also include additional obligations, the interest on
which is exempt from federal income tax that may become available in the future
as long as the Board of the Fund determines that an investment in any such type
of obligation is consistent with the Fund's investment objectives. Municipal
obligations may be fully or partially backed by local government, the credit of
a private issuer, current or anticipated revenues from a specific project or
specific assets or domestic or foreign entities providing credit support such as
letters of credit, guarantees or insurance.
Bonds
and Notes.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of interest and principal. Revenue bonds
are payable only from the revenues derived from a project or facility or from
the proceeds of a specified revenue source. Industrial development bonds are
generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes and similar instruments.
Municipal
Lease Obligations.
Municipal
lease obligations may take the form of a lease, an installment purchase or a
conditional sales contract. They are issued by state and local governments and
authorities to acquire land, equipment and facilities, such as vehicles,
telecommunications and computer equipment and other capital assets. The Fund may
invest in Investment Companies that purchase these lease obligations directly,
or it may purchase participation interests in such lease obligations. States
have different requirements for issuing municipal debt and issuing municipal
leases. Municipal leases are generally subject to greater risks than general
obligation or revenue bonds because they usually contain a "non-appropriation"
clause, which provides that the issuer is not obligated to make payments on the
obligation in future years unless funds have been appropriated for this purpose
each year. Such non-appropriation clauses are required to avoid the municipal
lease obligations from being treated as debt for state debt restriction
purposes. Accordingly, such obligations are subject to "non-appropriation" risk.
Municipal leases may be secured by the underlying capital asset and it may be
difficult to dispose of any such asset in the event of non-appropriation or
other default.
United
States Government Obligations
These
consist of various types of marketable securities issued by the United States
Treasury, i.e., bills, notes and bonds. Such securities are direct obligations
of the United States government and differ mainly in the length of their
maturity. Treasury bills, the most frequently issued marketable government
security, have a maturity of up to one year and are issued on a discount basis.
The Fund may also invest in Treasury Inflation-Protected Securities ("TIPS").
TIPS are special types of treasury bonds that were created in order to offer
bond investors protection from inflation. The values of the TIPS are
automatically adjusted to the inflation rate as measured by the Consumer Price
Index ("CPI"). If the CPI goes up by
half
a percent, the value of the bond (the TIPS) would also go up by half a percent.
If the CPI falls, the value of the bond does not fall because the government
guarantees that the original investment will stay the same. TIPS decline in
value when real interest rates rise. However, in certain interest rate
environments, such as when real interest rates are rising faster than nominal
interest rates, TIPS may experience greater losses than other fixed income
securities with similar duration.
United
States Government Agency Issues
These
consist of debt securities issued by agencies and instrumentalities of the
United States government, including the various types of instruments currently
outstanding or which may be offered in the future. Agencies include, among
others, the Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Farmer's Home Administration, Export-Import Bank of the
United States, Maritime Administration, and General Services Administration.
Instrumentalities include, for example, each of the Federal Home Loan Banks, the
National Bank for Cooperatives, the Federal Home Loan Mortgage Corporation
("FHLMC"), the Farm Credit Banks, the Federal National Mortgage Association
("FNMA"), and the United States Postal Service. These securities are either: (i)
backed by the full faith and credit of the United States government (e.g.,
United States Treasury Bills); (ii) guaranteed by the United States Treasury
(e.g., GNMA mortgage-backed securities); (iii) supported by the issuing agency's
or instrumentality's right to borrow from the United States Treasury (e.g., FNMA
Discount Notes); or (iv) supported only by the issuing agency's or
instrumentality's own credit (e.g., Tennessee Valley Association). On September
7, 2008, the U.S. Treasury Department and the Federal Housing Finance Authority
(the "FHFA") announced that FNMA and FHLMC had been placed into conservatorship,
a statutory process designed to stabilize a troubled institution with the
objective of returning the entity to normal business operations. The U.S.
Treasury Department and the FHFA at the same time established a secured lending
facility and a Secured Stock Purchase Agreement with both FNMA and FHLMC to
ensure that each entity had the ability to fulfill its financial obligations.
The FHFA announced that it does not anticipate any disruption in pattern
of payments or ongoing business operations of FNMA and FHLMC.
Government-related
guarantors (i.e. not backed by the full faith and credit of the United States
Government) include FNMA and FHLMC. FNMA is a government-sponsored corporation
owned entirely by private stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. FNMA purchases conventional
(i.e., not insured or guaranteed by any government agency) residential mortgages
from a list of approved seller/servicers which include state and federally
chartered savings and loan associations, mutual savings banks, commercial banks
and credit unions and mortgage bankers. Pass-through securities issued by FNMA
are guaranteed as to timely payment of principal and interest by FNMA but are
not backed by the full faith and credit of the United States Government.
FHLMC
was created by Congress in 1970 for the purpose of increasing the availability
of mortgage credit for residential housing. It is a government-sponsored
corporation formerly owned by the twelve Federal Home Loan Banks and now owned
entirely by private stockholders. FHLMC issues Participation Certificates
("PCs"), which represent interests in conventional mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the United States Government. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers also create pass-through pools of conventional residential
mortgage loans. Such issuers may, in addition, be the originators and/or
servicers of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such nongovernmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments in the former pools. However, timely payment of interest and principal
of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers.
Mortgage
Pass-Through Securities
Interests
in pools of mortgage pass-through securities differ from other forms of debt
securities (which normally provide periodic payments of interest in fixed
amounts and the payment of principal in a lump sum at maturity or on specified
call dates). Instead, mortgage pass-through securities provide monthly payments
consisting of both interest and principal payments. In effect, these payments
are a "pass-through" of the monthly payments made by the individual borrowers on
the underlying residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Unscheduled payments of principal may be made if
the underlying mortgage loans are repaid or refinanced or the underlying
properties are foreclosed, thereby shortening the securities' weighted average
life. Some mortgage pass-through securities (such as securities guaranteed by
GNMA) are described as "modified pass-through securities." These securities
entitle the holder to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, on the scheduled payment dates regardless of
whether the mortgagor actually makes the payment.
The
principal governmental guarantor of mortgage pass-through securities is GNMA.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Treasury, the timely payment of principal and interest on securities issued by
lending institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of mortgage loans.
These mortgage loans are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgage
loans is assembled and after being approved by GNMA, is offered to investors
through securities dealers.
Government-related
guarantors of mortgage pass-through securities (i.e., not backed by the full
faith and credit of the U.S. Treasury) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved sellers/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers. Mortgage
pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Treasury.
Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. Such issuers may, in addition,
be the originators and/or servicers of the underlying mortgage loans as well as
the guarantors of the mortgage pass-through securities. The Fund does not
purchase interests in pools created by such non-governmental issuers.
Resets.
The interest rates paid on the Adjustable Rate Mortgage Securities ("ARMs") in
which the Fund may invest generally are readjusted or reset at intervals of one
year or less to an increment over some predetermined interest rate index. There
are two main categories of indices: those based on U.S. Treasury securities and
those derived from a calculated measure, such as a cost of funds index or a
moving average of mortgage rates. Commonly utilized indices include the one-year
and five-year constant maturity Treasury Note rates, the three-month Treasury
Bill rate, the 180-day Treasury Bill rate, rates on longer-term Treasury
securities, the National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury Note rate, closely mirror changes in market interest rate levels.
Others tend to lag changes in market rate levels and tend to be somewhat less
volatile.
Caps
and Floors.
The
underlying mortgages which collateralize the ARMs in which the Fund invests will
frequently have caps and floors which limit the maximum amount by which the loan
rate to the residential borrower may change up or down: (1) per reset or
adjustment interval, and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps
may
result in negative amortization. The value of mortgage securities in which the
Fund invests may be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying residential mortgage
loans. Additionally, even though the interest rates on the underlying
residential mortgages are adjustable, amortization and prepayments may occur,
thereby causing the effective maturities of the mortgage securities in which the
Fund invests to be shorter than the maturities stated in the underlying
mortgages.
Foreign
Securities
The
Fund may invest in securities of foreign issuers and ETFs and other investment
companies that hold a portfolio of foreign securities. Investing in securities
of foreign companies and countries involves certain considerations and risks
that are not typically associated with investing in U.S. government securities
and securities of domestic companies. There may be less publicly available
information about a foreign issuer than a domestic one, and foreign companies
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than exists in the United
States. Interest and dividends paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on such
investments as compared to dividends and interest paid to the Fund by domestic
companies or the U.S. government. There may be the possibility of
expropriations, seizure or nationalization of foreign deposits, confiscatory
taxation, political, economic or social instability or diplomatic developments
that could affect assets of the Fund held in foreign countries. Finally, the
establishment of exchange controls or other foreign governmental laws or
restrictions could adversely affect the payment of obligations.
To
the extent the Fund's currency exchange transactions do not fully protect the
Fund against adverse changes in currency exchange rates, decreases in the value
of currencies of the foreign countries in which the Fund will invest relative to
the U.S. dollar will result in a corresponding decrease in the U.S. dollar value
of the Fund's assets denominated in those currencies (and possibly a
corresponding increase in the amount of securities required to be liquidated to
meet distribution requirements). Conversely, increases in the value of
currencies of the foreign countries in which the Fund invests relative to the
U.S. dollar will result in a corresponding increase in the U.S. dollar value of
the Fund's assets (and possibly a corresponding decrease in the amount of
securities to be liquidated).
Emerging
Markets Securities.
The Fund may purchase securities of emerging market issuers and ETFs and other
closed end funds that invest in emerging market securities. Investing in
emerging market securities imposes risks different from, or greater than, risks
of investing in foreign developed countries. These risks include: smaller market
capitalization of securities markets, which may suffer periods of relative
illiquidity; significant price volatility; restrictions on foreign investment;
possible repatriation of investment income and capital. In addition, foreign
investors may be required to register the proceeds of sales; future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. dollar, and devaluation may occur
subsequent to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries.
Additional
risks of emerging markets securities may include: greater social, economic and
political uncertainty and instability; more substantial governmental involvement
in the economy; less governmental supervision and regulation; unavailability of
currency hedging techniques; companies that are newly organized and small;
differences in auditing and financial reporting standards, which may result in
unavailability of material information about issuers; and less developed legal
systems. In addition, emerging securities markets may have different clearance
and settlement procedures, which may be unable to keep pace with the volume of
securities transactions or otherwise make it difficult to engage in such
transactions. Settlement problems may cause a Fund to miss attractive investment
opportunities, hold a portion of its assets in cash pending investment, or be
delayed in disposing of a portfolio security. Such a delay could result in
possible liability to a purchaser of the security.
Illiquid
and Restricted Securities
The
Fund may invest up to 15% of its net assets in illiquid securities. Illiquid
securities include securities subject to contractual or legal restrictions on
resale (e.g., because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act")) and securities that are otherwise not
readily marketable (e.g., because trading in the security is suspended or
because market makers do not exist or will not entertain bids or offers).
Securities that have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Foreign securities that are freely
tradable in their principal markets are not considered to be illiquid.
Restricted
and other illiquid securities may be subject to the potential for delays on
resale and uncertainty in valuation. The Fund might be unable to dispose of
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty in satisfying redemption requests from shareholders. The
Underlying Fund might have to register restricted securities in order to dispose
of them, resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
A
large institutional market exists for certain securities that are not registered
under the Securities Act, including foreign securities. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments. Rule
144A under the Securities Act allows such a broader institutional trading market
for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resale of certain securities to qualified
institutional buyers. Rule 144A has produced enhanced liquidity for many
restricted securities, and market liquidity for such securities may continue to
expand as a result of this regulation and the consequent existence of the PORTAL
system, which is an automated system for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers sponsored by NASDAQ.
Under
guidelines adopted by the Board, the Adviser of the Fund may determine that
particular Rule 144A securities, and commercial paper issued in reliance on the
private placement exemption from registration afforded by Section 4(a)(2) of the
Securities Act, are liquid even though they are not registered. A determination
of whether such a security is liquid or not is a question of fact. In making
this determination, the Adviser will consider, as it deems appropriate under the
circumstances and among other factors: (1) the frequency of trades and quotes
for the security; (2) the number of dealers willing to purchase or sell the
security; (3) the number of other potential purchasers of the security; (4)
dealer undertakings to make a market in the security; (5) the nature of the
security (e.g., debt or equity, date of maturity, terms of dividend or interest
payments, and other material terms) and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer); and (6) the rating of the security and
the financial condition and prospects of the issuer. In the case of commercial
paper, the Adviser will also determine that the paper (1) is not traded flat or
in default as to principal and interest, and (2) is rated in one of the two
highest rating categories by at least two Nationally Recognized Statistical
Rating Organization ("NRSRO") or, if only one NRSRO rates the security, by that
NRSRO, or, if the security is unrated, the Adviser determines that it is of
equivalent quality.
Rule
144A securities and Section 4(a)(2) commercial paper that have been deemed
liquid as described above will continue to be monitored by the Fund's Adviser to
determine if the security is no longer liquid as the result of changed
conditions. Investing in Rule 144A securities or Section 4(a)(2) commercial
paper could have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if institutional buyers are unwilling to
purchase such securities.
Repurchase
Agreements
The
Fund may enter into repurchase agreements. In a repurchase agreement, an
investor (such as the Fund) purchases a security (known as the "underlying
security") from a securities dealer or bank. Any
such
dealer or bank must be deemed creditworthy by the Adviser. At that time, the
bank or securities dealer agrees to repurchase the underlying security at a
mutually agreed upon price on a designated future date. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at an agreed
upon rate due to the Fund on repurchase. In either case, the income to the Fund
generally will be unrelated to the interest rate on the underlying securities.
Repurchase agreements must be "fully collateralized," in that the market value
of the underlying securities (including accrued interest) must at all times be
equal to or greater than the repurchase price. Therefore, a repurchase agreement
can be considered a loan collateralized by the underlying securities.
Repurchase
agreements are generally for a short period of time, often less than a week, and
will generally be used by the Fund to invest excess cash or as part of a
temporary defensive strategy. Repurchase agreements that do not provide for
payment within seven days will be treated as illiquid securities. In the event
of a bankruptcy or other default by the seller of a repurchase agreement, the
Fund could experience both delays in liquidating the underlying security and
losses. These losses could result from: (a) possible decline in the value of the
underlying security while the Fund is seeking to enforce its rights under the
repurchase agreement; (b) possible reduced levels of income or lack of access to
income during this period; and (c) expenses of enforcing its rights.
When-Issued,
Forward Commitments and Delayed Settlements
The
Fund may purchase and sell securities on a when-issued, forward commitment or
delayed settlement basis. In this event, the Custodian (as defined under the
section entitled "Custodian") will segregate liquid assets equal to the amount
of the commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy a purchase commitment. In such a case, the Fund
may be required subsequently to segregate additional assets in order to assure
that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash.
The
Fund does not intend to engage in these transactions for speculative purposes
but only in furtherance of its investment objectives. Because the Fund will
segregate liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and the ability of the Fund's Adviser to manage
them may be affected in the event the Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceeded 15% of the
value of its net assets.
The
Fund will purchase securities on a when-issued, forward commitment or delayed
settlement basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases, the Fund may realize a taxable
capital gain or loss. When the Fund engages in when-issued, forward commitment
and delayed settlement transactions, it relies on the other party to consummate
the trade. Failure of such party to do so may result in the Fund incurring a
loss or missing an opportunity to obtain a price credited to be
advantageous.
The
market value of the securities underlying a when-issued purchase, forward
commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the
market value of the Fund starting on the day the Fund agrees to purchase the
securities. The Fund does not earn interest on the securities it has committed
to purchase until it has paid for and delivered on the settlement
date.
Lending
Portfolio Securities
For
the purpose of achieving income, the Fund may lend its portfolio securities,
provided (1) the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or cash equivalents (cash, U.S. Government
securities, negotiable certificates of deposit, bankers' acceptances or letters
of
credit)
maintained on a daily mark-to-market basis in an amount at least equal to the
current market value of the securities loaned, (2) the Fund may at any time call
the loan and obtain the return of securities loaned, (3) the Fund will receive
any interest or dividends received on the loaned securities, and (4) the
aggregate value of the securities loaned will not at any time exceed one-third
of the total assets of the Fund, measured after the borrowing occurs.
Short
Sales
The
Fund may sell securities short. A short sale is a transaction in which the Fund
sells a security it does not own or have the right to acquire (or that it owns
but does not wish to deliver) in anticipation that the market price of that
security will decline.
When
the Fund makes a short sale, the broker-dealer through which the short sale is
made must borrow the security sold short and deliver it to the party purchasing
the security. The Fund is required to make a margin deposit in connection with
such short sales; the Fund may have to pay a fee to borrow particular securities
and will often be obligated to pay over any dividends and accrued interest on
borrowed securities.
If
the price of the security sold short increases between the time of the short
sale and the time the Fund covers its short position, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a gain. Any gain
will be decreased, and any loss increased, by the transaction costs described
above. The successful use of short selling may be adversely affected by
imperfect correlation between movements in the price of the security sold short
and the securities being hedged.
To
the extent the Fund sells securities short, it will provide collateral to the
broker-dealer and (except in the case of short sales "against the box") will
maintain additional asset coverage in the form of cash, U.S. government
securities or other liquid securities with its custodian in a segregated account
in an amount at least equal to the difference between the current market value
of the securities sold short and any amounts required to be deposited as
collateral with the selling broker (not including the proceeds of the short
sale). A short sale is "against the box" to the extent the Fund
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short.
Wholly-Owned
Subsidiaries
The
Macro Strategies Fund, the Commodities Strategy Fund and the Market Trend Fund
may each invest up to 25% of its total assets in a wholly-owned and controlled
Cayman Islands subsidiary (each a "Subsidiary"), which is expected to invest
through underlying commodity pools, swap contracts, structured notes, commodity
and financial futures and option contracts, as well as equity and fixed income
securities and other investments intended to serve as margin or collateral for
the Subsidiary's derivatives positions. As a result, the Fund may be
considered to be investing indirectly in these investments through the
Subsidiary. For that reason, and for the sake of convenience, references
in this SAI to the Fund may also include the Subsidiary.
Each
Subsidiary will not be registered under the 1940 Act but, will be subject to
certain of the investor protections of that Act, as noted in this SAI. The Fund,
as the sole shareholder of the relevant Subsidiary, will not have all of the
protections offered to investors in registered investment companies. However,
since the Fund wholly owns and controls the Subsidiary, and the Fund and
Subsidiary are both managed by the Adviser, it is unlikely that the Subsidiary
will take action contrary to the interests of the Fund or its shareholders.
The Fund's Board has oversight responsibility for the investment
activities of the Fund, including its investment in the Subsidiary, and the
Fund's role as the sole shareholder of the Subsidiary. Also, in managing the
Subsidiary's portfolio, the Adviser will be subject to the same investment
restrictions and operational guidelines that apply to the management of the
Fund, including any collateral or segregation requirements in connection with
various investment strategies.
Changes
in the laws of the United States and/or the Cayman Islands, under which the Fund
and the Subsidiary, respectively, are organized, could result in the inability
of the Fund and/or the Subsidiary to
operate
as described in this SAI and could negatively affect the Fund and its
shareholders. For example, the Cayman Islands does not currently impose
any income, corporate or capital gains tax, estate duty, inheritance tax, gift
tax or withholding tax on the Subsidiary. If Cayman Islands law changes
such that the Subsidiary must pay Cayman Islands taxes, Fund shareholders would
likely suffer decreased investment returns.
Cybersecurity
and Operational Risk
With
the increased use of technologies such as the Internet to conduct business, the
Funds and their service providers are susceptible to operational, information
security and related risks. In general, cyber incidents 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 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 or their service providers may cause disruptions
and impact business operations, potentially resulting in financial losses,
interference with a Fund’s 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 a fund invests, counterparties with which a 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 identified. Furthermore, the
Funds cannot control the cyber security plans and systems put in place by their
service providers or any other third parties whose operations may affect a Fund
or its shareholders. A Fund and its shareholders could be negatively impacted as
a result.
INVESTMENT
RESTRICTIONS
The
Funds have adopted the following investment restrictions that may not be changed
without approval by a "majority of the outstanding shares" of the Funds which,
as used in this SAI, means the vote of the lesser of (a) 67% or more of the
shares of the Fund represented at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (b)
more than 50% of the outstanding shares of the Fund.
1.Borrowing
Money.
Each Fund will not borrow money, except: (a) from a bank, provided that
immediately after such borrowing there is an asset coverage of 300% for all
borrowings of the Fund; or (b) from a bank or other persons for temporary
purposes only, provided that such temporary borrowings are in an amount not
exceeding 5% of the Fund's total assets at the time when the borrowing is made.
2.Senior
Securities.
The Funds will not issue senior securities. This limitation is not applicable to
activities that may be deemed to involve the issuance or sale of a senior
security by a Fund, provided that the Fund's engagement in such activities is
consistent with or permitted by the 1940 Act, the rules and regulations
promulgated thereunder or interpretations of the SEC or its staff.
3.Underwriting.
The Funds will not act as underwriter of securities issued by other persons.
This limitation is not applicable to the extent that, in connection with the
disposition of portfolio securities
(including
restricted securities), a Fund may be deemed an underwriter under certain
federal securities laws.
4.Real
Estate.
The Funds will not purchase or sell real estate. This limitation is not
applicable to investments in marketable securities that are secured by or
represent interests in real estate. This limitation does not preclude a Fund
from investing in mortgage-related securities or investing in companies engaged
in the real estate business or that have a significant portion of their assets
in real estate (including real estate investment trusts).
5.Commodities.
The Funds will not purchase or sell commodities unless acquired as a result of
ownership of securities or other investments. This limitation does not preclude
a Fund from purchasing or selling options or futures contracts, from investing
in securities or other instruments backed by commodities or from investing in
companies which are engaged in a commodities business or have a significant
portion of their assets in commodities.
6.Loans.
The Funds will not make loans to other persons, except: (a) by loaning portfolio
securities; (b) by engaging in repurchase agreements; (c) by purchasing
non-publicly offered debt securities; or (d) with respect to the Market Trend
Fund only, indirectly though Underlying Funds, as defined in the Fund's
Prospectus. For purposes of this limitation, the term "loans" shall not include
the purchase of a portion of an issue of publicly distributed bonds, debentures
or other securities.
7.Concentration.
Each Fund will not invest 25% or more of its total assets in a particular
industry or group of industries. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect
thereto.
THE
FOLLOWING ARE ADDITIONAL INVESTMENT LIMITATIONS OF THE FUNDS. THE FOLLOWING
RESTRICTIONS ARE DESIGNATED AS NON-FUNDAMENTAL AND MAY BE CHANGED BY THE BOARD
OF TRUSTEES OF THE TRUST WITHOUT THE APPROVAL OF SHAREHOLDERS.
1.Pledging.
The Funds will not mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any Fund assets except as may be necessary in
connection with borrowings described in limitation (1) above. Margin deposits,
security interests, liens and collateral arrangements with respect to
transactions involving options, futures contracts and other permitted
investments and techniques are not deemed to be a mortgage, pledge or
hypothecation of assets for purposes of this limitation. Each Fund will not
pledge more than one-third of its assets at any one time.
2.Margin
Purchases.
The Funds will not purchase securities or evidences of interest thereon on
"margin." This limitation is not applicable to short-term credit obtained by a
Fund for the clearance of purchases and sales or redemption of securities, or to
arrangements with respect to transactions involving options, futures contracts
and other permitted investment techniques.
3.Illiquid
Investments.
The Funds will not hold 15% or more of their respective net assets in securities
for which there are legal or contractual restrictions on resale and other
illiquid securities.
If
a restriction on a Fund's investments is adhered to at the time an investment is
made, a subsequent change in the percentage of Fund assets invested in certain
securities or other instruments, or change in average duration of the Fund's
investment portfolio, resulting from changes in the value of the Fund's total
assets, will not be considered a violation of the restriction; provided,
however, that the asset coverage requirement applicable to borrowings, if any,
shall be maintained in the manner contemplated by applicable law.
DISCLOSURE
OF PORTFOLIO HOLDINGS
The
Funds are required to include a schedule of portfolio holdings in their annual
and semi-annual reports to shareholders, which are sent to shareholders within
60 days of the end of the second and fourth fiscal quarters and which are filed
with the SEC on Form N-CSR within 70 days of the end of the second and fourth
fiscal quarters. The Funds also are required to file a schedule of portfolio
holdings with the SEC on Form N-PORT within 60 days of the end of the first and
third fiscal quarters. The Funds must provide a copy of their complete schedule
of portfolio holdings as filed with the SEC to any shareholder of the Funds,
upon request, free of charge. This policy is applied uniformly to all
shareholders of the Funds without regard to the type of requesting shareholder
(i.e., regardless of whether the shareholder is an individual or institutional
investor). The Funds have an ongoing arrangement to release portfolio holdings
to various rating agencies that regularly analyze the portfolio holdings of
mutual funds and investment advisers in order to monitor and report on various
attributes. Such ratings agencies include Lipper, Morningstar, Standard &
Poors, Thomson Reuters, Bloomberg and Vickers. Portfolio holdings will be
supplied to these agencies no more frequently than quarterly and approximately
15 days after the end of each quarter.
Pursuant
to policies and procedures adopted by the Board of Trustees, the Funds have
ongoing arrangements to release portfolio holdings information on a daily basis
to the Adviser, Sub-Advisers, the Administrator and the Custodian and on an as
needed basis to other third parties providing services to the Funds. The
Adviser, Sub-Advisers, the Administrator and Custodian receive portfolio
holdings information daily in order to carry out the essential operations of the
Funds. The Funds disclose portfolio holdings to their auditors, legal counsel,
proxy voting services (if applicable), pricing services, printers, parties to
merger and reorganization agreements and their agents, and prospective or newly
hired investment advisers or sub-advisers as needed to provide services to the
Funds. The Funds also disclose their portfolio holdings to Morningstar for the
purposes of portfolio analytical reports. The lag between the date of the
information and the date on which the information is disclosed to these third
parties will vary based on the identity of the party to whom the information is
disclosed. For instance, the information may be provided to auditors within days
of the end of an annual period, while the information may be given to legal
counsel at any time.
The
Fund's Adviser will publish a schedule of the Fund's 10 largest portfolio
holdings on a quarterly basis approximately 10 days after the end of each
quarter. The Funds’ fiscal quarters end on the last day of March,
June, September and December. The schedule shall be published on the
Adviser's website at www.LoCorrFunds.com. This information will
remain on the website until new information for the next quarter is
posted. This information is also available by calling toll-free
1-855-523-8637.
The
Funds, the Adviser, the Sub-Advisers, the Administrator and the Custodian are
prohibited from entering into any special or ad hoc arrangements with any
persons to make available information about the Funds’ portfolio holdings
without the specific approval of the Board. Any party wishing to release
portfolio holdings information on an ad hoc or special basis must submit any
proposed arrangement to the Board, which will review such arrangement to
determine whether it is (i) in the best interests of Fund shareholders, (ii)
whether the information will be kept confidential (based on the factors
discussed below) (iii) whether sufficient protections are in place to guard
against personal trading based on the information and (iv) whether the
disclosure presents a conflict of interest between the interests of Fund
shareholders and those of the Adviser, Sub-Advisers, or any affiliated person of
the Funds or the Adviser or Sub-Advisers. Additionally, the Adviser and
Sub-Advisers, and any affiliated persons of the Adviser or Sub-Advisers, are
prohibited from receiving compensation or other consideration, for themselves or
on behalf of the Funds, as a result of disclosing the Funds’ portfolio holdings.
Information
privately disclosed to third parties, whether on an ongoing or ad hoc basis, is
disclosed under conditions of confidentiality. "Conditions of confidentiality"
include (i) confidentiality clauses in written agreements,
(ii) confidentiality implied by the nature of the relationship (e.g.,
attorney-client relationship), (iii) confidentiality required by fiduciary or
regulatory principles (e.g., custody relationships) or (iv) understandings or
expectations between the parties that the information will be kept confidential.
The
agreements
with the Funds’ Adviser, Sub-Advisers, Administrator and Custodian contain
confidentiality clauses, which the Board and these parties have determined
extend to the disclosure of non-public information about the Funds’ portfolio
holding and the duty not to trade on the non-public information.
MANAGEMENT
The
business of the Trust is managed under the direction of the Board in accordance
with the Agreement and Declaration of Trust and the Trust's By-laws, which have
been filed with the SEC and are available upon request. The Board consists of
five individuals, three of whom are not "interested persons" (as defined under
the 1940 Act) of the Trust and the Adviser ("Independent Trustees"). Pursuant to
the governing documents of the Trust, the Board shall elect officers including a
President, a Secretary, a Treasurer, a Principal Executive Officer and a
Principal Accounting Officer. The Board retains the power to conduct, operate
and carry on the business of the Trust and has the power to incur and pay any
expenses, which, in the opinion of the Board, are necessary or incidental to
carry out any of the Trust's purposes. The Trustees, officers, employees and
agents of the Trust, when acting in such capacities, shall not be subject to any
personal liability except for his or her own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duties.
Board
Leadership Structure
The
Trust is led by Kevin M. Kinzie, who has served as the Chairman of the Board and
President since the Trust was organized in 2011. Mr. Kinzie is an "interested
person" as defined in the 1940 Act by virtue of his indirect controlling
interest in and his status as an officer of LoCorr Fund Management, LLC (the
Trust’s investment adviser). The Board of Trustees is comprised of Mr. Kinzie
and four other Trustees, three of whom are not an interested person
("Independent Trustees"). The Independent Trustees have not selected a Lead
Independent Trustee. Additionally, under certain 1940 Act governance guidelines
that apply to the Trust, the Independent Trustees will meet in executive
session, at least quarterly. Under the Trust's Declaration of Trust, By-Laws and
governance guidelines, the Chairman of the Board is generally responsible for
(a) chairing board meetings, (b) setting the agendas for these meetings and (c)
providing information to board members in advance of each board meeting and
between board meetings. The Trust does not have a Nominating Committee, but the
Audit Committee performs the duties of a nominating committee when and if
necessary. The Audit Committee will not consider nominees recommended by
shareholders, except as required under the 1940 Act and rules thereunder.
Generally, the Trust believes it best to have a single leader who is seen by
shareholders, business partners and other stakeholders as providing strong
leadership. The Trust believes that its Chairman/President together with
the Audit Committee (with an independent chairman), and, as an entity, the full
Board of Trustees, provide effective leadership that is in the best interests of
the Trust, its Funds and each shareholder because of the Board's collective
business acumen and strong understanding of the regulatory framework under which
investment companies must operate.
Board
Risk Oversight
The
Board is responsible for overseeing risk management, and the full Board
regularly engages in discussions of risk management and receives compliance
reports that inform its oversight of risk management from Brian Hull, the
Trust’s Chief Compliance Officer. The Chief Compliance Officer reports at
quarterly Board meetings and on an ad hoc basis, when and if necessary. The
Audit Committee, which has an independent chairman, considers financial and
reporting the risk within its area of responsibilities. Generally, the Board
believes that its oversight of material risks is adequately maintained through
the compliance-reporting chain where the Chief Compliance Officer is the primary
recipient and communicator of such risk-related information.
Trustee
Qualifications
Generally,
the Trust believes that each Trustee is competent to serve because of their
individual overall merits including (i) experience, (ii) qualifications,
(iii) attributes and (iv) skills.
Mr.
Kevin M. Kinzie has more than 25 years of experience in the financial services
field, including experience as President and Chief Executive Officer of a
FINRA-registered broker/dealer, President and Chief Executive Officer of a
financial services marketing firm and as founder of a loan sourcing network
serving a group of bank lenders. Mr. Kinzie also holds a Bachelor of Science
degree in business and marketing from the University of Colorado. Mr. Kinzie’s
background in financial services management and his leadership skills as a
financial executive bring practical knowledge to Board discussions regarding the
operations of the Funds and the Trust.
Mr.
Jon C. Essen has more than 25 years of experience in the financial services
field, including experience as Senior Vice President and Chief Operating Officer
of a FINRA-registered broker/dealer, Chief Operating Officer of a commercial
finance enterprise, Chief Financial Officer of an investment adviser and
Treasurer of two mutual fund complexes. Mr. Essen holds a Bachelor of Science
degree in business administration from Mankato State University and holds the
Certified Public Accountant (inactive) designation. Mr. Essen's background in
investment management and accounting, his leadership skills as a chief financial
officer, and his experience with other mutual funds bring context and insight to
Board discussions and decision-making regarding the Trust's operations and
dialogue with the Fund's auditors.
Mr.
Mark A. Thompson
has
more than 30 years of experience in investment management, including co-founding
Riverbridge Partners, LLC ("Riverbridge"), an investment management firm. At
Riverbridge, Mr. Thompson chairs the Executive Committee, which is responsible
for the strategic decision making and overall management of the firm. Mr.
Thompson also serves as Chief Investment Officer of Riverbridge, and he is
responsible for coordinating the efforts of the firm’s investment team and
overall portfolio compliance. Mr. Thompson holds a Bachelor’s degree in finance
from the University Of Minnesota Carlson School Of Management and is a member of
the CFA Institute and the CFA Society of Minnesota.
Mr.
Ronald A. Tschetter
has
more than 30 years of experience in the financial services field, including
experience as President of a FINRA-registered broker/dealer and has several
years of experience in financial matters based on his service to non-profit
organizations. Mr. Tschetter holds a Bachelor’s degree in psychology and social
studies from Bethel University. Additionally, Mr. Tschetter served as the
Director of the U.S. Peace Corps.
Mr.
Dan T. O’Lear has more than 26 years of experience in investment management,
including experience serving in several roles at Franklin Templeton Investments
and Franklin Templeton Distributors, Inc. At Franklin Templeton Investments, Mr.
O’Lear was responsible for investment solutions for retail investors throughout
the United States. His role included maintaining relationships with senior
management executives at all major clients to negotiate selling agreements
between Franklin Templeton Investments and the broker dealer community, as well
as liaising with internal leadership of product development, marketing,
investment management, legal and compliance, operations and transfer agency. For
over ten years, he presented to three independent Franklin Templeton fund boards
on share class trends, mutual fund/asset class flows, revenue sharing,
distribution strategies, and regulatory issues/proposals on a quarterly basis.
Mr. O’Lear currently holds FINRA Series 7 and 24 licenses.
Mr.
Jeff E. Place has over 39 years of experience in the financial services field,
including experience as Senior Vice President and Head of Sales for Ivy Funds,
Managing Director of U.S. Retail Sales for AllianceBernstein, and Senior Vice
President and Head of Sales & National Accounts for WM Funds. As a Senior
Distribution Executive, Mr. Place worked very closely with all facets of the
broader asset management business including: finance, legal compliance,
operations/technology, marketing, fund boards, sub-advisors, offshore funds and
closed-end funds. In his role as a former senior executive Mr. Place held FINRA
Series 7, 24 and 51 licenses.
Ms.
Catie B. Tobin has over 40 years in the financial services field, including
banking, credit cards, investments, retail brokerage, wealth management as well
as clearing and custody services with RBC Wealth Management, Wells Fargo
Advisors and Citicorp. Ms. Tobin was previously active in the Securities
Industry and Financial Markets Association (SIFMA), served as a member of the
industry’s Public Trust
and
Confidence Committee, Chaired the Investor Education Committee and represented
her firm on many industry-related committees and task forces. Ms. Tobin has a
strong understanding of broker dealer and registered investment advisor
operations, including all stages of the product development process from launch,
marketing, profitability, IT, compliance oversight and risk management. Ms.
Tobin has solid knowledge of the industry’s different distribution strategies
and how to successfully introduce products and services through advisor led
business channels. Ms. Tobin previously held FINRA Series 7, 8, 24, 31 and 53
licenses.
The
Trust does not believe any one factor is determinative in assessing a Trustee’s
qualifications, but that the collective experience of each Trustee makes the
Board highly effective.
Following
is a list of the Trustees and executive officers of the Trust and their
principal occupation over the last five years. Unless otherwise noted, the
address of each Trustee and Officer is c/o LoCorr Fund Management, LLC, 687
Excelsior Boulevard, Excelsior, MN 55331.
Independent
Trustees
|
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| Name
and Year of Birth |
Position/Term
of Office* |
Principal
Occupation
During the Past 5 Years |
Number
of Portfolios in Fund Complex**
Overseen
by Trustee |
Other
Directorships held by Trustee During the Past 5 Years |
Mark
A. Thompson
Year of Birth: 1959 |
Trustee/December
2011 to present |
Chairman
and Chief Manager, Riverbridge Partners, LLC (investment management), 1987
to present. |
5 |
None |
Ronald
A. Tschetter
Year of Birth: 1941 |
Trustee/January
2011 to present |
Mr.
Tschetter is presently retired from his principal occupation; Director of
the U.S. Peace Corps, September 2006 to January 2009. |
5 |
None |
Dan
T. O'Lear
Year of Birth: 1961 |
Trustee/January
2023 to present |
Mr.
O'Lear is presently retired (since 2021); President, Franklin Templeton
Distributors, 2018-2021; Head of Retail Distribution, Franklin Templeton
Distributors, 2014-2018. |
5 |
None |
Jeff
E. Place
Year of Birth: 1953 |
Trustee/January
2023 to present |
Mr.
Place is presently retired (since 2016) from his principal occupation as a
distribution fund executive.
|
5 |
None |
Catie
B. Tobin
Year of Birth: 1958 |
Trustee/January
2023 to present |
Ms.
Tobin is presently retired (since 2021); Senior Vice President, Director,
Field Development & Effectiveness, Wells Fargo Advisors,
2017-2021. |
5 |
None
|
*
The term of office for each Trustee listed above will continue indefinitely.
**
The term "Fund Complex" refers to the LoCorr Investment Trust.
Interested
Trustees and Officers
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| Name
and Year of Birth |
Position/Term
of Office* |
Principal
Occupation
During the Past 5 Years |
Number
of Portfolios in Fund Complex**
Overseen
by Trustee |
Other
Directorships held by Trustee During the Past 5 Years |
|
Jon
C. Essen1
Year
of Birth: 1963
|
Treasurer,
Secretary, Chief Financial Officer/ January 2011 to present;
Trustee/November, 2010 to present |
LoCorr
Fund Management, LLC: Chief Operating Officer (2010-2016), Chief
Compliance Officer (2010-2017); LoCorr Distributors, LLC (broker/dealer):
Principal, Chief Financial Officer, and Registered Representative (2008 to
present), Chief Compliance Officer (2008-2017). Chief Financial Officer
and Principal of Steben & Company, LLC, 2020 to present. |
5 |
None |
|
Kevin
M. Kinzie2
Year
of Birth: 1956
|
President,
Trustee/ January 2011 to present |
Chief
Executive Officer of LoCorr Fund Management, LLC, November 2010 to
present; President and Chief Executive Officer of LoCorr Distributors, LLC
(broker/dealer), March 2002 to present. President and CEO of Steben &
Company, LLC, 2019 to present. |
5 |
None |
|
Brian
Hull3
Year
of Birth:
1968 |
Chief
Compliance Officer, November 2019 to present |
Steben
& Company, Inc. (broker/dealer): Chief Compliance Officer 2002-2007
and 2012 to Present; Financial & Operations Principal (FINOP)
2002-Present; Registered Representative 2002-Present.
|
5 |
None |
*The
term of office for each Trustee listed above will continue indefinitely.
**The
term "Fund Complex" refers to the LoCorr Investment Trust.
1Mr.
Essen is an interested Trustee because he is an officer of the Fund's
Adviser.
2Mr.
Kinzie is an interested Trustee because he is an officer and indirect
controlling interest holder of the Fund's Adviser.
3Mr.
Hull is an interested Officer because he is an officer of the Funds’
Adviser.
Board
Committees
Audit
Committee.
The Board has an Audit Committee that consists of all the Trustees who are not
"interested persons" of the Trust within the meaning of the 1940 Act. The Audit
Committee's responsibilities include: (i) recommending to the Board the
selection, retention or termination of the Trust's independent auditors; (ii)
reviewing with the independent auditors the scope, performance and anticipated
cost of their audit; (iii) discussing with the independent auditors certain
matters relating to the Trust's financial statements, including any adjustment
to such financial statements recommended by such independent auditors, or any
other results of any audit; (iv) reviewing on a periodic basis a formal written
statement from the independent auditors with respect to their independence,
discussing with the independent auditors any relationships or services disclosed
in the statement that may impact the objectivity and independence of the Trust's
independent auditors and recommending that the Board take appropriate action in
response thereto to satisfy itself of the auditor's independence; and (v)
considering the comments of the independent auditors and management's responses
thereto with respect to the quality and adequacy of the Trust's accounting and
financial reporting policies and practices and internal controls. The Audit
Committee operates pursuant to an Audit Committee Charter. During the Trust’s
most recent fiscal year, the Audit Committee met two times.
Compensation
Each
Trustee who is not affiliated with the Trust or Adviser receives an annual fee
of $80,000, as well as reimbursement for any reasonable expenses incurred
attending the meetings. Prior to January 1, 2023, each Trustee received an
annual fee of $60,000 as well as reimbursement for any reasonable expenses
incurred attending the meetings. The "interested persons" who serve as Trustees
of the Trust receive no compensation for their services as Trustees. None of the
executive officers receive compensation from the Trust.
The
table below details the amount of compensation the Trustees received from the
Trust for the fiscal year ended December 31, 2022. The Trust does not have a
bonus, profit sharing, pension or retirement plan.
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| Name
of Trustee |
Aggregate
Compensation From the Funds1 |
Total
Compensation From Trust and Fund Complex2
Paid to Trustees |
| Macro
Strategies Fund |
Commodities
Strategy Fund |
Dynamic
Opportunity Fund |
Spectrum
Income Fund |
Market
Trend Fund |
| Jon
C. Essen (Interested Trustee) |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
| Kevin
M. Kinzie (Interested Trustee) |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
Mark
A. Thompson
(Independent Trustee) |
$34,570 |
$20,127 |
$681 |
$1,669 |
$7,953 |
$65,000 |
Ronald
A. Tschetter
(Independent Trustee) |
$34,570 |
$20,127 |
$681 |
$1,669 |
$7,953 |
$65,000 |
|
Dan
T. O'Lear (Independent Trustee)3 |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
|
Jeff
E. Place (Independent Trustee)3 |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
|
Catie
B. Tobin (Independent Trustee)3 |
$0 |
$0 |
$0 |
$0 |
$0 |
$0 |
1Compensation
is the amount received for services as a trustee, and would include retainers,
salaries, bonuses, fees for meeting attendance and fees for service as a
committee chair.
2Fund
Complex refers to the LoCorr Investment Trust, which consists of five
Funds.
3Mr.
O'Lear, Mr. Place and Ms. Tobin began serving as Independent Trustees of the
Trust effective January 20, 2023.
Trustee
Ownership
The
following table indicates the dollar range of equity securities that each
Trustee beneficially owned in each Fund as of December 31, 2022.
Amount
Invested Key:
A.$0
B.$1-$10,000
C.$10,001-$50,000
D.$50,001-$100,000
E.Over
$100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Trustee |
Dollar
Range of Equity Securities in the Funds |
Aggregate
Dollar Range of Equity Securities in All Registered Investment Companies
Overseen by Trustee in Family of Investment Companies |
|
| Macro
Strategies Fund |
Commodities
Strategy Fund |
Dynamic
Opportunity Fund |
Spectrum
Income Fund |
Market
Trend Fund |
|
Jon
C. Essen |
E. |
C. |
C. |
D. |
C. |
E. |
|
Kevin
M. Kinzie |
E. |
D. |
D. |
E. |
E. |
E. |
|
Mark
A. Thompson |
E. |
E. |
E. |
A. |
A. |
E. |
|
Ronald
A. Tschetter |
E. |
A. |
A. |
A. |
A. |
E. |
|
Dan
T. O'Lear1 |
A. |
A. |
A. |
A. |
A. |
A. |
|
Jeff
E. Place1
|
A. |
A. |
A. |
A. |
A. |
A. |
|
Catie
B. Tobin1
|
A. |
A. |
A. |
A. |
A. |
A. |
1
Mr.
O'Lear, Mr. Place and Ms. Tobin began serving as Independent Trustees of the
Trust effective January 20, 2023.
As
of December 31, 2022, the Trustees and officers, as a group, owned less than 1%
of the outstanding shares of any class of any of the Funds.
CONTROL
PERSONS AND PRINCIPAL HOLDERS
A
control person is one who owns beneficially or through controlled companies more
than 25% of the voting securities of a company or acknowledged the existence of
control. Kevin M. Kinzie may be deemed to control the Fund indirectly because of
his controlling interest in the parent company of the Adviser. Shareholders with
a controlling interest could affect the outcome of voting or the direction of
management of the Funds. A principal shareholder is any person who owns of
record or beneficially 5% or more of the outstanding shares of a Fund. As of
March 31, 2023, the following shareholders were considered to be either a
control person or principal shareholder of the Funds.
Macro
Strategies Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
28.05% |
Schwab
Holdings, Inc. |
DE |
Record |
American
Enterprise Investment Services, Inc.
707 2nd Ave. S.
Minneapolis, MN
55402-2405
|
19.02% |
Investors
Syndicate Development Corp. |
DE |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Account for
the
Exclusive Benefit of Customers
2801 Market Street
Saint
Louis, MO 63103-2523
|
11.96% |
Wells
Fargo Advisors, LLC |
DE |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
8.96% |
Fidelity
Brokerage Company |
DE |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY 10004-1932 |
8.78% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
Macro
Strategies Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Wells
Fargo Clearing Services LLC
Special Custody Account for
the
Exclusive Benefit of Customers
2801 Market Street
Saint
Louis, MO 63103-2523
|
23.11% |
Wells
Fargo Advisors, LLC |
DE |
Record |
American
Enterprise Investment Services, Inc.
707 2nd Ave. S.
Minneapolis, MN
55402-2405
|
20.23% |
Investors
Syndicate Development Corp. |
DE |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY
10004-1932
|
19.94% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
13.30% |
Schwab
Holdings, Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
8.21% |
Fidelity
Brokerage Company |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091 |
5.97% |
LPL
Financial Holdings Inc. |
DE |
Record |
Macro
Strategies Fund – Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
American
Enterprise Investment Services, Inc.
707 2nd Ave. S.
Minneapolis, MN
55402-2405
|
21.68% |
Investors
Syndicate Development Corp. |
DE |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY
10004-1932
|
15.01% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Account for
the
Exclusive Benefit of Customers
2801 Market Street
Saint
Louis, MO 63103-2523
|
14.68% |
Wells
Fargo Advisors, LLC |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
13.72% |
LPL
Financial Holdings Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
10.77% |
Fidelity
Brokerage Company |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
7.15% |
Schwab
Holdings, Inc. |
DE |
Record |
Commodities
Strategy Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
80.32% |
Fidelity
Brokerage Company |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
10.44% |
Schwab
Holdings, Inc. |
DE |
Record |
Commodities
Strategy Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
34.09% |
Fidelity
Brokerage Company |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
26.27% |
Schwab
Holdings, Inc. |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
21.96% |
LPL
Financial Holdings Inc. |
DE |
Record |
|
Pershing
LLC
1
Pershing Plaza, FL 14
Jersey
City, NJ 07399-0002
|
13.37% |
The
Bank of New York Mellon Corporation |
DE |
Record |
Commodities
Strategy Fund – Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
31.44% |
Fidelity
Brokerage Company |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
25.45% |
LPL
Financial Holdings Inc. |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
15.44% |
Schwab
Holdings, Inc. |
DE |
Record |
|
Pershing
LLC
1
Pershing Plaza, FL 14
Jersey
City, NJ 07399-0002
|
9.75% |
The
Bank of New York Mellon Corporation |
DE |
Record |
Dynamic
Opportunity Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
31.12% |
Fidelity
Brokerage Company |
DE |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
25.89% |
Schwab
Holdings, Inc. |
DE |
Record |
c/o
Reliance Trust Company WI
Maril & Co. FBO NA
4900 W. Brown Deer
Rd.
Milwaukee, WI 53223-2422
|
7.78% |
N/A |
N/A |
Record |
American
Enterprise Investment Services, Inc.
707 2nd Ave. S.
Minneapolis, MN
55402-2405
|
6.71% |
Investors
Syndicate Development Corp. |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091 |
5.80% |
LPL
Financial Holdings Inc. |
DE |
Record |
Dynamic
Opportunity Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
57.21% |
Fidelity
Brokerage Company |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
11.96% |
Schwab
Holdings, Inc. |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
10.28% |
LPL
Financial Holdings Inc. |
DE |
Record |
American
Enterprise Investment Services, Inc.
707 2nd Ave. S.
Minneapolis, MN
55402-2405 |
5.33% |
Investors
Syndicate Development Corp. |
DE |
Record |
Dynamic
Opportunity Fund – Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
42.30% |
Fidelity
Brokerage Company |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
35.06% |
LPL
Financial Holdings Inc. |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
7.75% |
Schwab
Holdings, Inc. |
DE |
Record |
Spectrum
Income Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
22.30% |
Schwab
Holdings, Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
20.50% |
Fidelity
Brokerage Company |
DE |
Record |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
15.48% |
LPL
Financial Holdings Inc. |
DE |
Record |
Pershing
LLC
1 Pershing Plaza, FL 14
Jersey City, NJ 07399-0002
|
12.78% |
The
Bank of New York Mellon Corporation |
DE |
Record |
Spectrum
Income Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
34.12% |
LPL
Financial Holdings Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995 |
27.01% |
Fidelity
Brokerage Company |
DE |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
16.37% |
Schwab
Holdings, Inc. |
DE |
Record |
Pershing
LLC
1 Pershing Plaza, FL 14
Jersey City, NJ 07399-0002 |
9.23% |
The
Bank of New York Mellon Corporation |
DE |
Record |
Spectrum
Income Fund – Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
LPL
Financial
Omnibus Customer Account
Attn: Lindsay O'Toole
4707
Executive Drive
San Diego, CA 92121-3091
|
39.97% |
LPL
Financial Holdings Inc. |
DE |
Record |
Pershing
LLC
1 Pershing Plaza, FL 14
Jersey City, NJ 07399-0002
|
22.83% |
The
Bank of New York Mellon Corporation |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
18.85% |
Fidelity
Brokerage Company |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901 |
7.85% |
Schwab
Holdings, Inc. |
DE |
Record |
Market
Trend Fund – Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY
10004-1932
|
55.37% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
12.83% |
Schwab
Holdings, Inc. |
DE |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
UBS
Financial Services Incorporated
1000 Harbour Blvd, FL 8
Compliance
Department
Weehawken, NJ 07086-6727
|
8.11% |
UBS
Group |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995 |
5.12% |
Fidelity
Brokerage Company |
DE |
Record |
Market
Trend Fund – Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY
10004-1932
|
32.76% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
Wells
Fargo Clearing Services LLC
Special Custody Account for
the
Exclusive Benefit of Customers
2801 Market Street
Saint
Louis, MO 63103-2523
|
26.32% |
Wells
Fargo Advisors, LLC |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
13.66% |
Schwab
Holdings, Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995 |
6.92% |
Fidelity
Brokerage Company |
DE |
Record |
Market
Trend Fund – Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of Its
Customers
1 New York Plaza, FL 39
New York, NY
10004-1932
|
49.95% |
Morgan
Stanley Domestic Holdings Inc. |
DE |
Record |
National
Financial Services LLC
499 Washington Blvd, FL 4th
Jersey City, NJ
07310-1995
|
9.27% |
Fidelity
Brokerage Company |
DE |
Record |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
and Address |
%
Ownership |
Parent
Company |
State
of Jurisdiction |
Type
of Ownership |
Wells
Fargo Clearing Services LLC
Special Custody Account for
the
Exclusive Benefit of Customers
2801 Market Street
Saint
Louis, MO 63103-2523
|
8.72% |
Wells
Fargo Advisors, LLC |
DE |
Record |
Charles
Schwab & Co., Inc.
Special Custody A/C FBO Customers
Attn:
Mutual Funds
211 Main St.
San Francisco, CA 94105-1901
|
6.87% |
Schwab
Holdings, Inc. |
DE |
Record |
INVESTMENT
ADVISER AND SUB-ADVISERS
Investment
Adviser
LoCorr
Fund Management, LLC, 687 Excelsior Boulevard, Excelsior, MN 55331, serves as
investment adviser to the Funds. The Adviser was established in 2010 for the
purpose of advising the Funds within the Trust and has no other clients. Kevin
M. Kinzie is deemed to indirectly control the Adviser by virtue of his ownership
of more than 25% of the Adviser's parent company's membership interests. Jon C.
Essen is an affiliated person of the Trust because he is a Trustee and officer.
Mr. Essen is also an affiliated person of the Adviser because he is an officer
of the Adviser. Kevin M. Kinzie is an affiliated person of the Trust because he
is a Trustee and officer and because he indirectly controls the Funds through
his control of the Adviser, which in turn controls the Funds. Mr. Kinzie is also
an affiliated person of the Adviser because he is an officer of the Adviser and
indirectly controls the Adviser. Subject to the supervision and direction of the
Trustees, the Adviser manages the Funds’ securities and investments in
accordance with the Funds’ stated investment objectives and policies, makes
investment decisions and places orders to purchase and sell securities on behalf
of the Funds. The fee paid to the Adviser is governed by an investment
management agreement ("Management Agreement") between the Trust, on behalf of
the Funds and the Adviser.
Under
the Management Agreement, the Adviser, under the supervision of the Board,
agrees to invest the assets of the Funds, including through sub-advisers, in
accordance with applicable law and the investment objective, policies and
restrictions set forth in each Funds’ current Prospectus and this SAI, and
subject to such further limitations as the Trust may from time to time impose by
written notice to the Adviser. The Adviser shall act as the investment adviser
to the Funds and, as such shall (i) obtain and evaluate such information
relating to the economy, industries, business, securities markets and securities
as it may deem necessary or useful in discharging its responsibilities here
under, (ii) formulate a continuing program for the investment of the assets of
the Funds in a manner consistent with its investment objective, policies and
restrictions, and (iii) determine from time to time securities to be purchased,
sold, retained or lent by the Funds, and implement those decisions, including
the selection of entities with or through which such purchases, sales or loans
are to be effected; provided, that the Adviser will place orders pursuant to its
investment determinations either directly with the issuer or with a broker or
dealer, and if with a broker or dealer, (a) will attempt to obtain the best
price and execution of its orders, and (b) may nevertheless in its discretion
purchase and sell portfolio securities from and to brokers who provide the
Adviser with research, analysis, advice and similar services and pay such
brokers in return a higher commission or spread than may be charged by other
brokers. The Adviser also provides the Funds with all necessary office
facilities and personnel for servicing the Funds’ investments, compensates all
officers, Trustees and employees of the Trust who are officers, directors or
employees of the Adviser, and all personnel of the Funds or the Adviser
performing services relating to research, statistical and
investment
activities. The Management Agreement was approved by the Board of the Trust,
including by a majority of the Independent Trustees.
The
Trust has a Management Agreement with the Adviser to furnish investment advisory
services to the Funds. Pursuant to the Management Agreement, the Adviser is
entitled to receive, on a monthly basis, an annual advisory fee as
follows:
|
|
|
|
|
| |
| Fund |
Annual
Advisory Fee as a Percentage of the Average Daily Net Assets of the
Fund |
| Macro
Strategies Fund |
1.65% |
| Dynamic
Opportunity Fund |
1.50% |
| Spectrum
Income Fund |
1.30% |
| Market
Trend Fund |
1.50% |
Pursuant
to the Management Agreement, the Adviser receives a fee in accordance with the
Incremental Advisory Fee schedule below based on the Commodities Strategy Fund’s
average daily net assets, computed daily and payable monthly.
|
|
|
|
|
| |
|
Net
Assets per the Commodities Strategy Fund |
Incremental
Advisory
Fee |
|
$0
– $500 million |
1.50% |
|
$500
million – $1.0 billion |
1.40% |
|
$1.0
billion – $1.5 billion |
1.30% |
|
$1.5
billion - $2.0 billion |
1.20% |
|
$2.0
billion – $2.5 billion |
1.10% |
|
Over
$2.5 billion |
1.00% |
The
Adviser has agreed contractually to waive its management fee and to reimburse
expenses, exclusive of any Rule 12b-1 distribution and/or servicing fees, taxes,
interest, brokerage commissions, expenses incurred in connection with any merger
or reorganization, dividend expenses on short sales, swap fees, indirect
expenses, expenses of other investment companies in which the Fund may invest,
or extraordinary expenses such as litigation and inclusive of offering and
organizational costs incurred prior to the commencement of operations, at least
until April 30, 2024, such that net annual fund operating expenses of the Funds
do not exceed 1.99% of the daily average net assets attributable to the Macro
Strategies Fund, 1.95% of the Commodities Strategy Fund and the Market Trend
Fund, 1.99% of the Dynamic Opportunity Fund and 1.80% of the Spectrum Income
Fund. Waiver/reimbursement is subject to possible recoupment from a Fund within
the three years following the date on which the expenses occurred, if the Fund
is able to make the repayment without exceeding its current limitations and the
repayment is approved by the Board of Trustees. No reimbursement amount will be
paid to the Adviser in any quarter unless the Trust's Board of Trustees has
determined in advance that a reimbursement is in the best interest of a Fund and
its shareholders. Fee waiver and reimbursement arrangements can decrease the
Funds’ expenses and increase their performance.
Expenses
not expressly assumed by the Adviser under the Management Agreement are paid by
the Funds. Under the terms of the Management Agreement, each Fund is responsible
for the payment of the following expenses among others: (a) the fees payable to
the Adviser, (b) the fees and expenses of Trustees who are not affiliated
persons of the Adviser (c) the fees and certain expenses of the Custodian and
Transfer and Dividend Disbursing Agent (as defined under the section entitled
"Transfer Agent"), including the cost of maintaining certain required records of
the Fund and of pricing the Fund's shares, (d)
the
charges and expenses of legal counsel and independent accountants for the Fund,
(e) brokerage commissions and any issue or transfer taxes chargeable to the Fund
in connection with its securities transactions, (f) all taxes and corporate fees
payable by the Fund to governmental agencies, (g) the fees of any trade
association of which the Fund may be a member, (h) the cost of share
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC, qualifying
its shares under state securities laws, including the preparation and printing
of the Fund's registration statements and prospectuses for such purposes, (k)
all expenses of shareholders and Trustees' meetings (including travel expenses
of Trustees and officers of the Fund who are directors, officers or employees of
the Adviser) and of preparing, printing and mailing reports, proxy statements
and prospectuses to shareholders in the amount necessary for distribution to the
shareholders and (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Funds’
business.
The
Management Agreement will continue in effect with respect to each Fund for two
(2) years initially and thereafter shall continue from year to year provided
such continuance is approved at least annually by (a) a vote of the majority of
the Independent Trustees, cast in person at a meeting specifically called for
the purpose of voting on such approval and by (b) the majority vote of either
all of the Trustees or the vote of a majority of the outstanding shares of each
Fund. The Management Agreement may be terminated without penalty on 60 days'
written notice by a vote of a majority of the Trustees or by the Adviser, or by
holders of a majority of that Trust's outstanding shares. The Management
Agreement shall terminate automatically in the event of its assignment.
For
the fiscal years ended December 31, the Macro Strategies Fund paid the following
management fees to the Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees |
|
| Accrued |
Waived |
Recouped |
Total
Paid |
| 2022 |
$33,856,401 |
$0 |
$0 |
$33,856,401 |
| 2021 |
$22,897,967 |
$0 |
$0 |
$22,897,967 |
| 2020 |
$16,831,107 |
$0 |
$29,733 |
$16,860,840 |
For
the fiscal years ended December 31, the Commodities Strategy Fund paid the
following management fees to the Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees |
|
| Accrued |
Waived |
Recouped |
Total
Paid |
| 2022 |
$17,027,870 |
$0 |
$0 |
$17,027,870 |
| 2021 |
$10,161,464 |
$0 |
$0 |
$10,161,464 |
| 2020 |
$5,952,439 |
$0 |
$0 |
$5,952,439 |
For
the fiscal years ended December 31, the Dynamic Opportunity Fund paid the
following management fees to the Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees |
|
| Accrued |
Waived |
Recouped |
Total
Paid |
| 2022 |
$692,792 |
$(154,575) |
$9,808 |
$548,025 |
| 2021 |
$324,317 |
$(263,217) |
$0 |
$61,100 |
| 2020 |
$305,888 |
$(278,103) |
$0 |
$27,785 |
For
the fiscal years ended December 31, the Spectrum Income Fund paid the following
management fees to the Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees |
|
| Accrued |
Waived |
Recouped |
Total
Paid |
| 2022 |
$1,286,660 |
$(9,125) |
$73,649 |
$1,351,184 |
| 2021 |
$805,295 |
$(6,179) |
$0 |
$799,116 |
| 2020 |
$679,761 |
$(70,144) |
$0 |
$609,617 |
For
the fiscal years ended December 31, the Market Trend Fund paid the following
management fees to the Adviser:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Management
Fees |
|
| Accrued |
Waived |
Recouped |
Total
Paid |
| 2022 |
$7,458,028 |
$0 |
$0 |
$7,458,028 |
| 2021 |
$4,033,497 |
$0 |
$0 |
$4,033,497 |
| 2020 |
$3,880,402 |
$0 |
$0 |
$3,880,402 |
Investment
Sub-Advisers
The
Adviser has engaged Graham Capital Management, L.P., (“GCM”) located at 40
Highland Avenue, Rowayton, CT 06853, to serve as a sub-adviser to the Macro
Strategies Fund and the Market Trend Fund. GCM is majority owned by KGT
Investment Partners, L.P., which is ultimately owned by Kenneth Tropin and
members of his immediate family. KGT, Inc., which serves as the general partner
of GCM, holds a minority interest. As of December 31, 2022, GCM had
approximately $17.6 billion in assets under management. GCM is responsible for
selecting tactical trend futures investments and assuring that such investments
are made according to the Funds' investment objectives, policies and
restrictions; in so doing, GCM is relying upon the Funds’ interpretations of
regulatory requirements.
The
Adviser has engaged Kettle Hill Capital Management, LLC, (“KHCM”) located at 747
Third Avenue, 19th
Floor, New York, NY 10017, to serve as a sub-adviser to the Dynamic Opportunity
Fund. Subject to the authority of the Board of Trustees and oversight by the
Adviser, this sub-adviser is responsible for management of a portion of the
Fund’s investment portfolio according to the Fund’s investment objective,
policies and restrictions. KHCM was founded in 2003 as an alternative investment
manager. As of December 31, 2022, KHCM had about $564 million in assets under
management. Andrew Y. Kurita as Founder and Managing Partner is deemed to
control the KHCM because he owns at least 25% of its interests.
The
Adviser has engaged Millburn Ridgefield Corporation, (“Millburn”) located at 411
West Putnam Avenue, Suite 305, Greenwich, CT 06830, to serve as a sub-adviser to
the Macro Strategies Fund. As of December 31, 2022, Millburn had about $9.4
billion in assets under management.
The
Adviser has engaged Millrace Asset Group, Inc. (“Millrace”) located at 1205
Westlakes Drive, Suite 375, Berwyn, Pennsylvania 19312, to serve as a
sub-adviser to the Dynamic Opportunity Fund. Subject to the authority of the
Board of Trustees and oversight by the Adviser, this sub-adviser is responsible
for management of a portion of the Fund’s investment portfolio according to the
Fund’s investment objective, policies and restrictions. Millrace was founded in
2001 by William Kitchel and Whitney Maroney and employs a long/short investment
strategy. As of December 31, 2022, Millrace had approximately $185 million in
assets under management.
The
Adviser has engaged Nuveen Asset Management, LLC, (“Nuveen”) located at 333 West
Wacker Drive, Chicago, IL 60606, to serve as a sub-adviser to the Macro
Strategies Fund, the Commodities Strategy Fund and the Market Trend Fund. Nuveen
is a wholly-owned subsidiary of Nuveen Fund Advisors, Inc. ("NFA"), which is a
wholly-owned subsidiary of Nuveen Investments, Inc. ("Nuveen Investments"). In
2014, Nuveen Investments was acquired by TiAA-CREF. Nuveen has adopted policies
and procedures that address arrangements involving Nuveen and Bank of America
Corporation (including Merrill Lynch) that may give rise to certain conflicts of
interest. Nuveen had approximately $257 billion of
assets
under management as of December 31, 2022. Nuveen is responsible for selecting
fixed income investments and assuring that such investments are made according
to the Macro Strategies Fund's, the Commodities Strategy Fund’s, and the Market
Trend Fund’s investment objectives, policies and restrictions.
The
Adviser has engaged Revolution Capital Management LLC, (“Revolution”) located at
1900 Wazee Street, Suite 200, Denver, CO 80202, to serve as a sub-adviser to the
Macro Strategies Fund. As of December 31, 2022, Revolution had approximately
$1.1 billion in assets under management.
The
Adviser has engaged Bramshill Investments, LLC (“Bramshill”), located at 411
Hackensack Avenue, 9th Floor, Hackensack, NJ 07601, to serve as a sub-adviser to
the Spectrum Income Fund. Bramshill is responsible for selecting the Funds’
investments pursuant to the Income Strategy and assuring that such investments
are made according to the Funds’ investment objective, policies and
restrictions. As of December 31, 2022, Bramshill had approximately $4.4 billion
in assets under management.
The
Adviser has engaged R.G. Niederhoffer Capital Management, Inc. (“Niederhoffer”)
located at 1700 Broadway, 39th Floor, New York, New York 10019, to serve as a
sub-adviser to the Macro Strategies Fund. Subject to the authority of the Board
of Trustees and oversight by the Adviser, this sub-adviser is responsible for
management of a portion of the Fund’s investment portfolio according to the
Fund’s investment objective, policies and restrictions. Niederhoffer was
established in 1993 and is a quantitative trading advisor that employs a
short-term, primarily contrarian strategy to trade the world’s largest and most
liquid markets. As of December 31, 2022, Niederhoffer had approximately $674
million in assets under management.
Each
Sub-Advisory Agreement provides that the Sub-Adviser will formulate and
implement a continuous investment program for the respective Fund, in accordance
with that Fund's objective, policies and limitations and any investment
guidelines established by the Adviser. The Sub-Adviser will, subject to the
supervision and control of the Adviser, determine in its discretion which
issuers and securities will be purchased, held, sold or exchanged by a Fund, and
will place orders with and give instruction to brokers and dealers to cause the
execution of such transactions. The Sub-Adviser is required to furnish, at its
own expense, all investment facilities necessary to perform its obligations
under the Sub-Advisory Agreement. The Adviser, not the Funds, will pay each
Sub-Adviser, on a monthly basis, an annual sub-advisory fee on the fixed income
portion of the respective Fund's average daily net assets or on the portion
thereof managed by the sub-adviser.
The
Sub-Advisory Agreements continue in effect for two (2) years initially and then
from year to year, provided they are approved at least annually by a vote of the
majority of the Trustees, who are not parties to the agreements or interested
persons of any such party, cast in person at a meeting specifically called for
the purpose of voting on such approval. The Sub-Advisory Agreements may be
terminated without penalty at any time by the Adviser or the Sub-Adviser on 60
days' written notice, and will automatically terminate in the event of an
"assignment" (as that term is defined in the 1940 Act).
Codes
of Ethics
The
Trust, the Adviser, the Sub-Advisers and the Distributor have adopted respective
codes of ethics under Rule 17j-1 under the 1940 Act that govern the personal
securities transactions of their board members, officers and employees who may
have access to current trading information of the Trust. Under these codes of
ethics, the Trustees are permitted to invest in securities that may also be
purchased by the Funds.
In
addition, the Trust has adopted a separate code of ethics that applies only to
the Trust's executive officers to ensure that these officers promote
professional conduct in the practice of corporate governance and management. The
purpose behind these guidelines is to promote i) honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships; ii) full, fair, accurate,
timely and understandable disclosure in reports and documents that a registrant
files with, or submits to, the SEC and in other public communications made by
the Funds; iii)
compliance
with applicable governmental laws, rules and regulations; iv) the prompt
internal reporting of violations of this Code to an appropriate person or
persons identified in the Code; and v) accountability for adherence to the
Code.
Proxy
Voting Policies
The
Board has adopted Proxy Voting Policies and Procedures ("Policies") on behalf of
the Trust, which delegate the responsibility for voting proxies of securities
held by the Funds to the Adviser or its designee, subject to the Board's
continuing oversight. The Policies require that the Adviser or its designee vote
proxies received in a manner consistent with the best interests of the Funds and
its shareholders. The Policies also require the Adviser or its designee to
present to the Board, at least annually, the Adviser's Proxy Policies and a
record of each proxy voted by the Adviser or its designee on behalf of the
Funds, including a report on the resolution of all proxies identified by the
Adviser as involving a conflict of interest. A copy of the Adviser's and each
Sub-Adviser's Proxy Voting Policies are attached hereto as Appendix A.
More
information.
Information regarding how the Funds voted proxies relating to portfolio
securities held by the Funds during the most recent 12-month period ending June
30 will be available (1) without charge, upon request, by calling the Fund at
1-855-523-8637; and (2) on the SEC’s website at http://www.sec.gov. In addition,
a copy of the Funds’ proxy voting policies and procedures are also available by
calling 1-855-523-8637 and will be sent within 3 business days of receipt of a
request.
DISTRIBUTION
OF SHARES
Quasar
Distributors, LLC, 111 East Kilbourn Avenue, Suite 2200, Milwaukee, WI 53202, is
the principal underwriter/distributor (the "Distributor") for the shares of the
Funds pursuant to a written agreement with the Trust (the "Underwriting
Agreement"). The Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934 and each state's securities laws and is a member
of FINRA. The offering of the Funds’ shares is continuous. The Underwriting
Agreement provides that the Distributor, as agent in connection with the
distribution of Fund shares, will use its best efforts to distribute the Funds’
shares.
The
Underwriting Agreement shall continue from year to year, subject to annual
approval by (a) the Board or a vote of a majority of the outstanding shares, and
(b) by a majority of the Trustees who are not interested persons of the Trust or
of the Distributor by vote cast in person at a meeting called for the purpose of
voting on such approval.
The
Underwriting Agreement may be terminated by the Funds at any time, without the
payment of any penalty, by vote of a majority of the entire Board of the Trust
or by vote of a majority of the outstanding shares of the Funds on 60 days'
written notice to the Distributor, or by the Distributor at any time, without
the payment of any penalty, on 60 days' written notice to the Funds. The
Underwriting Agreement will automatically terminate in the event of its
assignment.
The
Distributor may enter into selling agreements with broker-dealers that solicit
orders for the sale of shares of the Funds and may allow concessions to dealers
that sell shares of the Funds. The Distributor receives the portion of the sales
charge on all direct initial investments in the Funds and on all investments in
accounts with no designated dealer of record. The Distributor retains the
contingent deferred sales charge on redemptions of shares of the Funds that are
subject to a contingent deferred sales charge and passes the contingent deferred
sales charge to the Adviser.
Rule
12b-1 Plan
The
Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 under the 1940
Act (the "Rule 12b‑1 Plan") on behalf of the Class A and Class C shares of the
Funds. Under the Rule 12b-1 Plan, each Fund pays a fee to the Distributor for
distribution and shareholder services for Class A shares at an annual rate of
0.25% of a Fund’s average daily net assets, and for the Class C shares at an
annual rate of 1.00% of a Fund’s average daily net assets. The fees for the
Class C shares represent a 0.75% Rule 12b-1 distribution fee and a 0.25%
shareholder servicing fee. The Rule 12b-1 distribution fee and shareholder
servicing fees are discussed in greater detail below. The Rule 12b-1 Plan
provides that Distributor may use all or any portion of such Distribution Fee to
finance any activity that is principally intended to result in the sale of Fund
shares, subject to the terms of the Rule 12b-1 Plan, or to provide certain
shareholder services. Class I shares do not participate in the Rule 12b-1 Plan.
The Funds may pay distribution and shareholder servicing fees to the Distributor
at a lesser rate, as agreed upon by the Board of Trustees of the Trust and the
Distributor. The Distributor or other entities also receive the contingent
deferred sales charges imposed on certain redemptions of shares, which are
separate and apart from payments made pursuant to the Rule 12b-1
Plan.
The
Distributor is required to provide a written report, at least quarterly to the
Board of Trustees of the Trust, specifying in reasonable detail the amounts
expended pursuant to the Rule 12b-1 Plan and the purposes for which such
expenditures were made. Further, the Distributor will inform the Board of any
Rule 12b-1 fees to be paid by the Distributor to Recipients.
The
Rule 12b-1 Plan may not be amended to increase materially the amount of the
Distributor's compensation to be paid by the Funds, unless such amendment is
approved by the vote of a majority of the outstanding voting securities of the
affected class of a Fund (as defined in the 1940 Act). All material amendments
must be approved by a majority of the Board of Trustees of the Trust and a
majority of the non-interested Trustees by votes cast in person at a meeting
called for the purpose of voting on a Rule 12b-1 Plan. During the term of the
Rule 12b-1 Plan, the selection and nomination of non-interested Trustees of the
Trust will be committed to the discretion of current non-interested Trustees.
The Distributor will preserve copies of the Rule 12b-1 Plan, any related
agreements, and all reports, for a period of not less than six years from the
date of such document and for at least the first two years in an easily
accessible place.
Any
agreement related to the Rule 12b-1 Plan will be in writing and provide that:
(a) it may be terminated by the Trust or the applicable Fund at any time upon
sixty days' written notice, without the payment of any penalty, by vote of a
majority of the respective non-interested Trustees, or by vote of a majority of
the outstanding voting securities of the Trust or the Funds; (b) it will
automatically terminate in the event of its assignment (as defined in the 1940
Act); and (c) it will continue in effect for a period of more than one year from
the date of its execution or adoption only so long as such continuance is
specifically approved at least annually by a majority of the Board and a
majority of the non-interested Trustees by votes cast in person at a meeting
called for the purpose of voting on such agreement.
As
noted above, the Rule 12b-1 Plan provides for the ability to use assets
attributable to Class A and Class C shares of the Funds to pay financial
intermediaries (including those that sponsor mutual fund supermarkets), plan
administrators and other service providers to finance any activity that is
principally intended to result in the sale of Fund shares (distribution
services). The payments made by a Fund to these financial intermediaries are
based primarily on the dollar amount of assets invested in the Fund through the
financial intermediaries. These financial intermediaries may pay a portion of
the payments that they receive from a Fund to their investment professionals. In
addition to the ongoing asset-based fees paid to these financial intermediaries
under the Rule 12b-1 Plan, a Fund may, from time to time, make payments under
the Rule 12b-1 Plan that help defray the expenses incurred by these
intermediaries for conducting training and educational meetings about various
aspects of the Fund for their employees. In addition, a Fund may make payments
under the Rule 12b-1 Plan for exhibition space and otherwise help defray the
expenses these financial intermediaries incur in hosting client seminars where
the Fund is discussed.
To
the extent these asset-based fees and other payments made under the Rule 12b-1
Plan to these financial intermediaries for the distribution services they
provide to a Fund’s shareholders exceed the Distribution Fees available, these
payments are made by the Adviser from its own resources, which may include its
profits from the advisory fee it receives from the Fund. In addition, a Fund may
participate in various “fund supermarkets” in which a mutual fund supermarket
sponsor (usually a broker-dealer) offers many mutual funds to the sponsor’s
customers without charging the customers a sales charge. In connection with its
participation in such platforms, the Adviser may use all or a portion of the
Rule 12b-1 distribution fee to pay one or more supermarket sponsors a negotiated
fee for distributing a Fund’s shares. In addition, in its discretion, the
Adviser may pay additional fees to such intermediaries from its own
assets.
Rule
12b-1 Fees
Distribution
Fee
The
Distributor may use the Rule 12b-1 distribution fee to pay for services covered
by the Distribution Plan including, but not limited to, advertising,
compensating underwriters, dealers and selling personnel engaged in the
distribution of Class A or Class C Fund shares, the printing and mailing of
prospectuses, statements of additional information and reports to other than
current Class A or Class C Fund shareholders, the printing and mailing of sales
literature pertaining to the Class A or Class C shares of the Funds, and
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Funds may, from time to time, deem
advisable.
Shareholder
Servicing Fee
Under
the Rule 12b-1 Plan, the Funds pay the Distributor an amount not to exceed 0.25%
of the Funds’ average daily net assets attributable to Class C shares for
providing or arranging for shareholder support services provided to individuals
and plans holding Class C shares. Class A shares and Class I shares are not
subject to a shareholder servicing fee. The shareholder servicing fees may be
used to pay the Adviser and/or various shareholder servicing agents that perform
shareholder servicing functions and maintenance of Class C shareholder accounts.
These services may also include the payment to financial intermediaries
(including those that sponsor mutual fund supermarkets) and other service
providers to obtain shareholder services and maintenance of shareholder accounts
(including such services provided by broker-dealers that maintain all individual
shareholder account records of, and provide shareholder servicing to, their
customers who invest in the Class C shares of the Funds through a single
“omnibus” account of the broker-dealer). Under the Rule 12b-1 Plan, shareholder
servicing fee payments to the Distributor are calculated and paid at least
annually.
To
the extent these asset-based fees and other payments to these financial
intermediaries for shareholder servicing and account maintenance they provide to
the Class C shares of the Funds exceed the shareholder servicing fees available,
these payments are made by the Adviser from its own resources, which may include
its profits from the advisory fee it receives from the Fund. In addition, the
Funds may participate in various “fund supermarkets.” The Funds pay the
supermarket sponsor a negotiated fee for continuing services, including, without
limitation, for maintaining shareholder account records and providing
shareholder servicing to their brokerage customers who are shareholders of the
Funds. If the supermarket sponsor’s shareholder servicing fees exceed the
shareholder servicing fees available from the Funds, then the balance is paid
from the resources of the Adviser.
The
following table reflects the principal types of activities for which Rule 12b-1
payments are made, including the dollar amount paid by each Fund during the
fiscal year ended December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Advertising/
Marketing |
Printing/
Postage |
Payment
to Distributor |
Payment
to Dealers |
Compensation
to Sales Personnel |
Other |
Total |
| Macro
Strategies Fund |
$0 |
$0 |
$0 |
$314,187 |
$328,032 |
$0 |
$642,219 |
| Commodities
Strategy Fund |
$0 |
$0 |
$0 |
$251,418 |
$81,245 |
$0 |
$332,663 |
| Dynamic
Opportunity Fund |
$0 |
$0 |
$0 |
$26,324 |
$10,952 |
$0 |
$37,276 |
| Spectrum
Income Fund |
$0 |
$0 |
$0 |
$156,043 |
$52,477 |
$0 |
$208,520 |
| Market
Trend Fund |
$0 |
$0 |
$0 |
$148,152 |
$70,850 |
$0 |
$219,002 |
PORTFOLIO
MANAGERS
The
following table lists the number and types of accounts managed by the Portfolio
Managers in addition to those of the Funds and assets under management in those
accounts as of December 31, 2022:
Total
Other Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Registered
Investment Company Accounts |
Assets
Managed |
Pooled
Investment Vehicle Accounts |
Assets
Managed |
Other
Accounts |
Assets
Managed |
|
LoCorr
Fund Management, LLC
– (all
Funds) |
| Jon
Essen |
0 |
$0 |
0 |
$0 |
0 |
$0 |
|
LoCorr
Fund Management, LLC
– (all
Funds) |
| Sean
Katof |
0 |
$0 |
1 |
$151.7
million |
0 |
$0 |
|
Graham
Capital Management, L.P.
– (Macro
Strategies Fund and Market Trend Fund) |
| Kenneth
G. Tropin |
7 |
$2,753
million |
18 |
$1,902
million |
25 |
$6,197
million |
| Pablo
Calderini |
7 |
$2,753
million |
18 |
$1,902
million |
25 |
$6,197
million |
|
Kettle
Hill Capital Management, LLC
– (Dynamic
Opportunity Fund) |
| Andrew
Y. Kurita |
2 |
$97.8
million |
3 |
$196.6
million |
1 |
$231.2
million |
|
Millburn
Ridgefield Corporation
– (Macro
Strategies Fund) |
| Harvey
Beker |
3 |
$6,128
million |
23 |
$1,589
million |
40 |
$1,717
million |
| Barry
Goodman |
3 |
$6,128
million |
20 |
$1,482
million |
40 |
$1,717
million |
| Grant
Smith |
3 |
$6,128
million |
20 |
$1,482
million |
40 |
$1,717
million |
|
Millrace
Asset Group, Inc.
– (Dynamic
Opportunity Fund) |
| William
Kitchel |
0 |
$0 |
2 |
$145.9
million |
0 |
$0 |
| Whit
Maroney |
0 |
$0 |
2 |
$145.9
million |
0 |
$0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Registered
Investment Company Accounts |
Assets
Managed |
Pooled
Investment Vehicle Accounts |
Assets
Managed |
Other
Accounts |
Assets
Managed |
|
Nuveen
Asset Management, LLC
– (Macro
Strategies Fund,
Commodities
Strategy Fund and Market Trend Fund) |
| Tony
Rodriguez |
0 |
$0 |
0 |
$0 |
0 |
$0 |
| Peter
Agrimson |
2 |
$1,967
million |
0 |
$0 |
3 |
$13.0
million |
|
Revolution
Capital Management LLC
– (Macro
Strategies Fund) |
| Michael
Mundt |
3 |
$594.2
million |
6 |
$245.7
million |
11 |
$304
million |
| Theodore
Olson |
3 |
$594.2
million |
6 |
$245.7
million |
11 |
$304
million |
|
Bramshill
Investments, LLC
– (Spectrum
Income Fund) |
| Steven
C. Carhart |
0 |
$0 |
0 |
$0 |
72 |
$174
million |
| Art
DeGaetano |
4 |
$1,770
million |
0 |
$0 |
751 |
$2,140
million |
| Justin
Byrnes |
0 |
$0 |
0 |
$0 |
72 |
$174
million |
|
R.G.
Niederhoffer Capital Management, Inc.
– (Macro
Strategies Fund) |
| Roy
Niederhoffer |
1 |
$164
million |
4 |
$63
million |
4 |
$447
million |
|
|
|
|
|
|
| |
Portion
of Total Other Accounts Managed Subject to Performance Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Registered
Investment Company Accounts |
Assets
Managed |
Pooled
Investment Vehicle Accounts |
Assets
Managed |
Other
Accounts |
Assets
Managed |
|
LoCorr
Fund Management, LLC
– (all
Funds) |
| Jon
Essen |
0 |
$0 |
0 |
$0 |
0 |
$0 |
|
LoCorr
Fund Management, LLC
– (all
Funds)) |
| Sean
Katof |
0 |
$0 |
1 |
$316,742 |
0 |
$0 |
|
Graham
Capital Management, L.P.
– (Macro
Strategies Fund and Market Trend Fund) |
| Kenneth
G. Tropin |
0 |
$0 |
4 |
$565
million |
13 |
$2,103
million |
| Pablo
Calderini |
0 |
$0 |
4 |
$565
million |
13 |
$2,103
million |
|
Kettle
Hill Capital Management, LLC
– (Dynamic
Opportunity Fund) |
| Andrew
Y. Kurita |
0 |
$0 |
3 |
$196.6
million |
1 |
$231.2
million |
|
Millburn
Ridgefield Corporation
– (Macro
Strategies Fund) |
| Harvey
Beker |
0 |
$0 |
17 |
$1,386
million |
36 |
$1,377
million |
| Barry
Goodman |
0 |
$0 |
16 |
$1,279
million |
36 |
$1,377
million |
| Grant
Smith |
0 |
$0 |
16 |
$1,279
million |
36 |
$1,377
million |
|
Millrace
Asset Group, Inc.
– (Dynamic Opportunity Fund) |
| William
Kitchel |
0 |
$0 |
1 |
$131.2
million |
0 |
$0 |
| Whit
Maroney |
0 |
$0 |
1 |
$131.2
million |
0 |
$0 |
|
Nuveen
Asset Management, LLC
– (Macro
Strategies Fund,
Commodities
Strategy Fund, and Market Trend Fund) |
| Tony
Rodriguez |
0 |
$0 |
0 |
$0 |
0 |
$0 |
| Peter
Agrimson |
0 |
$0 |
0 |
$0 |
0 |
$0 |
|
Revolution
Capital Management LLC
– (Macro
Strategies Fund) |
| Michael
Mundt |
0 |
$0 |
6 |
$245.7
million |
9 |
$290.1
million |
| Theodore
Olson |
0 |
$0 |
6 |
$245.7
million |
9 |
$290.1
million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Registered
Investment Company Accounts |
Assets
Managed |
Pooled
Investment Vehicle Accounts |
Assets
Managed |
Other
Accounts |
Assets
Managed |
|
Bramshill
Investments, LLC
– (Spectrum
Income Fund) |
| Steven
C. Carhart |
0 |
$0 |
0 |
$0 |
0 |
$0 |
| Art
DeGaetano |
0 |
$0 |
2 |
$320
million |
0 |
$0 |
| Justin
Byrnes |
0 |
$0 |
0 |
$0 |
0 |
$0 |
|
R.G.
Niederhoffer Capital Management, Inc.
– (Macro
Strategies Fund) |
| Roy
Niederhoffer |
0 |
$0 |
3 |
$63
million |
4 |
$447
million |
|
|
|
|
|
|
| |
Conflicts
of Interest
As
indicated in the table above, the portfolio managers may manage numerous
accounts for multiple clients. These accounts may include registered
investment companies, other types of pooled accounts (e.g., collective
investment funds), and separate accounts (i.e., accounts managed on behalf of
individuals or public or private institutions). The portfolio managers
make investment decisions for each account based on the investment objectives
and policies and other relevant investment considerations applicable to that
portfolio.
When
the portfolio managers have responsibility for managing more than one account,
potential conflicts of interest may arise. Those conflicts could include
preferential treatment of one account over others in terms of allocation of
resources or of investment opportunities. For instance, the Adviser or
Sub-Advisers may receive fees from certain accounts that are higher than the fee
received from the Fund, or any of them may receive a performance-based fee on
certain accounts. In those instances, the portfolio managers may have an
incentive to favor the higher and/or performance-based fee accounts over the
Funds. The Adviser and Sub-Advisers have adopted policies and procedures
designed to address these potential material conflicts. For instance, the
Adviser and Sub-Advisers utilize a system for allocating investment
opportunities among portfolios that is designed to provide a fair and equitable
allocation.
Compensation
of the Portfolio Managers
As
compensation, the Adviser portfolio managers receive a salary and discretionary
bonus.
Each
GCM portfolio manager receives
a salary and discretionary bonus. The
portfolio managers' compensation is not dependent on the performance of a Fund.
The
KHCM portfolio manager receives a salary.
Each
Millburn portfolio manager receives a salary and discretionary annual bonus. The
portfolio managers' compensation is not dependent on the performance of a
Fund.
Each
Millrace portfolio manager receives a salary. The portfolio managers'
compensation is not dependent on the performance of a Fund.
Each
Nuveen portfolio manager receives a salary and discretionary bonus. In addition,
the portfolio managers may qualify for long term incentive/retention plans that
may provide additional compensation.
Each
Revolution portfolio manager receives a salary and discretionary bonus. The
portfolio managers' compensation is not dependent on the performance of a Fund.
Each
Bramshill portfolio manager receives a salary and discretionary annual bonus.
The portfolio managers' compensation is not dependent on the performance of a
Fund.
Each
Niederhoffer portfolio manager receives a salary and discretionary bonus. The
portfolio managers' compensation is not dependent on the performance of a Fund.
Ownership
As
of December 31, 2022, the portfolio managers owned securities in the Funds in
the following amounts:
Amount
Invested Key:
A.None
B.$1-$10,000
C.$10,001-$50,000
D.$50,001-$100,000
E.$100,001-$500,000
F.$500,001-$1,000,000
G.Over
$1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range of Equity Securities in the Funds |
|
| Macro
Strategies Fund |
Commodities
Strategy Fund |
Dynamic
Fund |
Spectrum
Income Fund |
Market
Trend Fund |
|
Jon
C. Essen |
E |
C |
C |
D |
C |
|
Sean
Katof |
E |
E |
E |
E |
E |
|
Kenneth
G. Tropin |
A |
A |
A |
A |
A |
|
Pablo
Calderini |
A |
A |
A |
A |
A |
|
Andrew
Y. Kurita |
A |
A |
A |
A |
A |
|
Harvey
Beker |
A |
A |
A |
A |
A |
|
Barry
Goodman |
A |
A |
A |
A |
A |
|
Grant
Smith |
A |
A |
A |
A |
A |
| William
Kitchel |
A |
A |
A |
A |
A |
| Whit
Maroney |
A |
A |
A |
A |
A |
|
Tony
Rodriguez |
A |
A |
A |
A |
A |
|
Peter
Agrimson |
A |
A |
A |
A |
A |
|
Michael
Mundt |
A |
A |
A |
A |
A |
|
Theodore
Olson |
A |
A |
A |
A |
A |
|
Steve
Carhart |
A |
A |
A |
F |
A |
|
Art
DeGaetano |
A |
A |
A |
A |
A |
| Justin
Byrnes |
A |
A |
A |
A |
A |
| Roy
Niederhoffer |
A |
A |
A |
A |
A |
ORGANIZATION
AND MANAGEMENT OF WHOLLY-OWNED SUBSIDIARIES
The
Subsidiary of the Macro Strategies Fund is LCMFS Fund, Limited. The Subsidiary
of the Commodities Strategy Fund is LCLSCS Fund Limited. The Subsidiary of the
Market Trend Fund is LCMT Fund Limited. Each Subsidiary is a company organized
under the laws of the Cayman Islands, whose registered office is located at the
offices of LCMFS Fund, Limited, and LCLSCS Fund Limited, and LCMT Fund Limited,
each c/o Maples Corporate Services, Limited, PO Box 309, Ugland House, South
Church Street, George Town, Grand Cayman KY1-1104, Cayman Islands. The
Subsidiaries’ affairs are overseen by a board of directors composed of the three
Independent Trustees from the Board of Trustees of the Trust.
Each
Subsidiary has entered into separate contracts with the Adviser for the
management of the Subsidiary's portfolio. Each Subsidiary has also entered into
arrangements with U.S. Bank, N.A. to serve as the Subsidiaries’ custodian.
The Subsidiaries have adopted compliance policies and procedures that are
substantially similar to the policies and procedures adopted by the Funds.
The Funds’ Chief Compliance Officer oversees implementation of the
Subsidiaries’ policies and procedures, and makes periodic reports to the Funds’
Board regarding the Subsidiaries’ compliance with its policies and
procedures.
The
Funds pay the Adviser a fee for its services. Except with respect to the Macro
Strategies Fund and the Market Trend Fund, the Adviser has contractually agreed
to waive the management fee it receives from each Fund’s Subsidiary, so long as
the Subsidiary is wholly-owned by the Fund. This undertaking will continue in
effect for so long as the Funds invest in the Subsidiaries, and may not be
terminated by the Adviser unless the Adviser first obtains the prior approval of
the Funds’ Board of Trustees for such termination. The Adviser pays GCM,
Millburn, and Revolution a fee for its services on a consolidated basis for
services to the Funds and their respective Subsidiaries. Each Subsidiary will
bear the fees and expenses incurred in connection with the custody services that
it receives. Each Fund expects that the expenses borne by the respective
Subsidiary will not be material in relation to the value of the Fund's assets.
It is also anticipated that the Funds’ own expenses will be reduced to some
extent as a result of the payment of such expenses at the Subsidiary level. It
is therefore expected that the Funds’ investment in the Subsidiaries will not
result in the Funds’ paying duplicative fees for similar services provided to
the Funds and Subsidiaries.
Please
refer to the section in this SAI titled "Tax Status – Wholly-Owned Subsidiaries"
for information about certain tax aspects of the Funds’ investment in the
Subsidiaries.
ALLOCATION
OF PORTFOLIO BROKERAGE
Specific
decisions to purchase or sell securities for the Funds are made by the portfolio
managers, who are employees of the Adviser or Sub-Advisers. The Adviser and
Sub-Advisers are authorized by the Trustees to allocate the orders placed on
behalf of the Funds to brokers or dealers who may, but need not, provide
research or statistical material or other services to the Funds or the Adviser
or Sub-Advisers for the Funds’ use. Such allocation is to be in such amounts and
proportions as the Adviser or Sub-Advisers may determine.
In
selecting a broker or dealer to execute each particular transaction, the Adviser
and Sub-Advisers will take into consideration execution capability and available
liquidity; timing and size of particular orders; commission rates;
responsiveness; trading experience; reputation, and integrity and fairness in
resolving disputes. "Best execution" means the best overall qualitative
execution, not necessarily the lowest possible commission cost. The Adviser and
Sub-Advisers will obtain information as to the general level of commission rates
being charged by the brokerage community from time to time and will periodically
evaluate
the overall reasonableness of brokerage commissions paid on client transactions
by reference to such data. The Adviser and Sub-Advisers periodically review the
past performance of the exchange members, brokers or dealers with whom they have
been placing orders to execute Fund transactions in light of the factors
discussed above.
Brokers
or dealers executing a portfolio transaction on behalf of the Funds may receive
a commission in excess of the amount of commission another broker or dealer
would have charged for executing the transaction if the Adviser or Sub-Advisers
determines in good faith that such commission is reasonable in relation to the
value of brokerage, research and other services provided to the Funds. In
allocating portfolio brokerage, the Adviser or Sub-Advisers may select brokers
or dealers who also provide brokerage, research and other services to other
accounts over which the Adviser or Sub-Advisers exercise investment discretion.
Some of the services received as the result of Fund transactions may primarily
benefit accounts other than the Funds, while services received as the result of
portfolio transactions effected on behalf of those other accounts may primarily
benefit the Funds.
The
following tables set forth the brokerage commissions that were paid by the Funds
during the fiscal years ended December 31, 2020, 2021 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Aggregate
Brokerage Commissions
Paid During Fiscal Years Ended December
31, |
|
| 2022 |
| 2021 |
| 2020 |
| Macro
Strategies Fund |
$ |
2,163,453 |
|
| $ |
2,017,587 |
|
| $ |
1,092,191 |
|
| Commodities
Strategy Fund |
$ |
0 |
|
| $ |
0 |
|
| $ |
0 |
|
| Dynamic
Opportunity Fund |
$ |
345,981 |
|
| $ |
97,756 |
|
| $ |
140,537 |
|
| Spectrum
Income Fund |
$ |
846,691 |
|
| $ |
178,698 |
|
| $ |
223,754 |
|
| Market
Trend Fund |
$ |
121,930 |
|
| $ |
79,883 |
|
| $ |
85,047 |
|
As
of December 31, 2022, the Macro Strategies Fund owned the following securities
issued by any of the ten broker-dealers with whom the Fund transacted the most
business during the fiscal year ended December 31, 2022:
|
|
|
|
|
| |
| Broker
Dealer |
Dollar
Value |
| Bank
of America |
$20,220,559 |
| Goldman
Sachs |
$14,306,084 |
| J.P.
Morgan |
$12,079,115 |
| Citigroup |
$10,772,048 |
| AerCap
Ireland Capital Ltd |
$10,471,724 |
| Morgan
Stanley |
$6,785,530 |
| Credit
Suisse |
$5,565,626 |
| UBS
Group |
$4,920,066 |
| GSK
Consumer Healthcare Capital UK PLC |
$4,396,767 |
| HSBC
Investment Bank PLC |
$4,199,758 |
As
of December 31, 2022, the Commodities Strategy Fund owned the following
securities issued by any of the ten broker-dealers with whom the Fund transacted
the most business during the fiscal year ended December 31, 2022:
|
|
|
|
|
| |
| Broker
Dealer |
Dollar
Value |
| Bank
of America |
$11,969,953 |
| Goldman
Sachs |
$8,863,300 |
| J.P.
Morgan |
$7,132,532 |
| Citigroup |
$6,456,536 |
| AerCap
Ireland Capital Ltd |
$6,317,468 |
| Morgan
Stanley |
$4,130,994 |
| Credit
Suisse |
$3,266,984 |
| UBS
Group |
$2,945,019 |
| GSK
Consumer Healthcare Capital UK PLC |
$2,631,398 |
| HSBC
Investment Bank PLC |
$2,371,767 |
As
of December 31, 2022, the Market Trend Fund owned the following securities
issued by any of the ten broker-dealers with whom the Fund transacted the most
business during the fiscal year ended December 31, 2022:
|
|
|
|
|
| |
| Broker
Dealer |
Dollar
Value |
| Bank
of America |
$4,716,774 |
| Goldman
Sachs |
$3,321,476 |
| J.P.
Morgan |
$2,821,690 |
| Citigroup |
$2,503,344 |
| AerCap
Ireland Capital Ltd |
$2,432,916 |
| Morgan
Stanley |
$1,577,950 |
| Credit
Suisse |
$1,178,827 |
| UBS
Group |
$1,163,643 |
| GSK
Consumer Healthcare Capital UK PLC |
$1,027,816 |
| HSBC
Investment Bank PLC |
$978,293 |
As
of December 31, 2022, the Dynamic Opportunity Fund and the Spectrum Income Fund
did not own any securities issued by any of the ten broker-dealers with whom the
Funds transacted the most business during the fiscal year ended
December 31, 2022.
PORTFOLIO
TURNOVER
The
Funds’ portfolio turnover rates are calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by a Fund during the
fiscal year. The calculation excludes from both the numerator and the
denominator securities with maturities at the time of acquisition of one year or
less. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. A 100% turnover rate would occur if all of the Funds’ portfolio
securities were replaced once within a one-year period.
|
|
|
|
|
|
|
|
| |
Portfolio
Turnover for Fiscal
Year Ended December 31, |
|
| 2022 |
2021 |
| Macro
Strategies Fund |
76% |
75% |
| Commodities
Strategy Fund |
90% |
66% |
| Dynamic
Opportunity Fund |
686% |
506% |
| Spectrum
Income Fund |
50% |
53% |
| Market
Trend Fund |
100% |
110% |
OTHER
SERVICE PROVIDERS
Fund
Administration, Fund Accounting and Transfer Agent
The
Fund Administrator, Fund Accountant and Transfer Agent for the Funds is U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), which has its principal office at 615 East Michigan Street,
Milwaukee, WI 53202, and is primarily in the business of providing
administrative, fund accounting and transfer agent services to retail and
institutional mutual funds.
Pursuant
to a Fund Administration Servicing Agreement, Fund Accounting Servicing
Agreement and a Transfer Agent Servicing Agreement (each an "Agreement" and
together the "Agreements") with the Funds, Fund Services provides
administrative, accounting and transfer agent services to the Funds, subject to
the supervision of the Board.
Each
Agreement was initially approved by the Board with respect to each Fund. Each
Agreement shall remain in effect for 3 years from the date of its initial
approval, and is subject to renewal thereafter. Each Agreement is terminable by
the Board or Fund Services on 90 days’ written notice and may be assigned
provided the non-assigning party provides prior written consent. The Agreements
provide that Fund Services shall not be liable to the Trust except for
liabilities resulting from its refusal or failure to comply with the terms of
the Agreements, or its bad faith, negligence or willful misconduct in the
performance of its duties under the Agreements.
Administration.
Fund Services provides general Fund administrative management such as: acting as
liaison among Fund service providers, coordinating the Trustee's communications,
meeting agendas and resolutions, preparing appropriate schedules and assisting
independent auditors, monitoring compliance with the Investment Company Act
requirements, preparing and filing with the appropriate state securities
authorities any and all required compliance filings relating to the
qualification of the securities of the Funds, assisting Fund counsel in the
annual update of the Prospectus and SAI and in preparation of proxy statements
as needed, monitoring the Trust’s status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, providing financial data
required by the Prospectus and SAI, and preparing and filing on a timely basis
appropriate federal and state tax returns.
For
the administrative services rendered to the Funds, Fund Services received fund
administration fees in the following amounts:
|
|
|
|
|
|
|
|
|
|
|
| |
Fund
Administration Fees
Paid During Fiscal Year Ended
December
31, |
|
| 2022 |
2021 |
2020 |
| Macro
Strategies Fund |
$634,857 |
$447,615 |
$350,771 |
| Commodities
Strategy Fund |
408,750 |
248,942 |
169,529 |
| Dynamic
Opportunity Fund |
71,257 |
70,421 |
69,308 |
| Spectrum
Income Fund |
74,336 |
60,889 |
60,265 |
| Market
Trend Fund |
210,463 |
136,847 |
130,430 |
Fund
Accounting.
Fund
Services provides general Fund accounting services, including: portfolio
valuation and trade reporting, expense accrual and payment, computation of net
asset value, maintenance of ledgers and books and records, financial and tax
reporting, as required by the 1940 Act, maintaining certain books and records
described in Rule 31a-1 under the 1940 Act, and reconciling account information
and balances among the Funds’ custodian or Adviser and reconciling sales and
redemptions of shares of the Funds.
For
the fund accounting services rendered to the Funds by Fund Services, the Funds
pay a fund accounting fee based upon the number and type of Fund transactions
and accounting-related out-of-pocket expenses.
Transfer
Agent. U.S.
Bancorp Fund Services, LLC, which has its principal office at 615 East Michigan
Street, Milwaukee, WI 53202, serves as transfer, dividend disbursing, and
shareholder servicing agent for the Funds.
Custodian.
U.S. Bank, N.A., (the "Custodian") which has its principal office at 1555 N.
RiverCenter Dr., Suite 302, Milwaukee, WI 53212, serves as the custodian of the
Funds’ assets pursuant to a Custody Agreement by and between the Custodian and
the Trust on behalf of the Funds. The Custodian's responsibilities include
safeguarding and controlling the Funds’ cash and securities, handling the
receipt and delivery of securities, and collecting interest and dividends on the
Funds’ investments. Pursuant to the Custody Agreement, the Custodian also
maintains original entry documents and books of record and general ledgers;
posts cash receipts and disbursements; and records purchases and sales based
upon communications from the Adviser and Sub-Adviser. The Funds may employ
foreign sub-custodians that are approved by the Board to hold foreign
assets.
DESCRIPTION
OF SHARES
Each
share of beneficial interest of the Trust has one vote in the election of
Trustees. Cumulative voting is not authorized for the Trust. This means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so, and, in that event, the
holders of the remaining shares will be unable to elect any Trustees.
Shareholders
of the Trust and any other future series of the Trust will vote in the aggregate
and not by series except as otherwise required by law or when the Board
determines that the matter to be voted upon affects only the interest of the
shareholders of a particular series. Matters such as ratification of the
independent public accountants and election of Trustees are not subject to
separate voting requirements and may be acted upon by shareholders of the Trust
voting without regard to series.
The
Trust is authorized to issue an unlimited number of shares of beneficial
interest. Each share has equal dividend, distribution and liquidation rights.
There are no conversion or preemptive rights applicable to any shares of the
Funds. All shares issued are fully paid and non-assessable.
ANTI-MONEY
LAUNDERING PROGRAM
The
Trust has established an Anti-Money Laundering Compliance Program (the
"Program") as required by the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA
PATRIOT Act"). To ensure compliance with this law, the Trust's Program provides
for the development of internal practices, procedures and controls, designation
of anti-money laundering compliance officers, an ongoing training program and an
independent audit function to determine the effectiveness of the Program.
Procedures
to implement the Program include, but are not limited to, determining that the
Funds' Distributor and the Administrator have established proper anti-money
laundering procedures, reported suspicious and/or fraudulent activity and a
complete and thorough review of all new opening account applications. The Trust
will not transact business with any person or legal entity whose identity and
beneficial owners, if applicable, cannot be adequately verified under the
provisions of the USA PATRIOT Act.
As
a result of the Program, the Trust may be required to "freeze" the account of a
shareholder if the shareholder appears to be involved in suspicious activity or
if certain account information matches information on government lists of known
terrorists or other suspicious persons, or the Trust may be required to transfer
the account or proceeds of the account to a governmental agency.
PURCHASE,
REDEMPTION AND PRICING OF SHARES
Pricing
of Shares
The
net asset value ("NAV") of the shares of each Fund is determined at the close of
trading (normally 4:00 p.m., Eastern Time) on each day the New York Stock
Exchange ("NYSE") is open for business. For a description of the methods used to
determine the NAV, see "How Shares Are Priced" in the Prospectus.
Equity
securities generally are valued by using market quotations, but may be valued on
the basis of prices furnished by a pricing service when the Adviser believes
such prices accurately reflect the fair market value of such securities.
Securities that are traded on any stock exchange or on the NASDAQ
over-the-counter market are generally valued by the pricing service at the last
quoted sale price. Lacking a last sale price, an equity security is generally
valued by the pricing service at its last bid price. When market quotations are
not readily available, when the Adviser determines that the market quotation or
the price provided by the pricing service does not accurately reflect the
current market value, or when restricted or illiquid securities are being
valued, such securities are valued as determined in good faith by the Adviser,
in conformity with guidelines adopted by and subject to the overall oversight of
the Board.
The
Trust expects that the holidays upon which the Exchange will be closed are as
follows: New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday,
Good Friday, Memorial Day, Juneteenth National Independence Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Purchase
of Shares
Investors
may only purchase Fund shares after receipt of a current Prospectus and by
filling out and submitting an application supplied by the Funds. Orders for
shares received by a Fund in good order prior to the close of business on the
NYSE on each day during such periods that the NYSE is open for trading are
priced at net asset value per share or offering price (net asset value plus a
sales charge, if applicable) computed as of the close of the regular session of
trading on the NYSE. Orders received in good order after the close of the NYSE,
or on a day it is not open for trading, are priced at the close of
such
NYSE on the next day on which it is open for trading at the next determined net
asset value or offering price per share.
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from the Funds or through a financial
intermediary. Intermediaries may have different policies and procedures
regarding the availability of front-end sales load waivers or contingent
deferred (back-end) sales load (“CDSC”) waivers. In all instances, it is
the purchaser’s responsibility to notify the Funds or the purchaser’s financial
intermediary at the time of purchase of any relationship or other facts
qualifying the purchaser for sales charge waivers or discounts. For
waivers and discounts not available through a particular intermediary,
shareholders will have to purchase Fund shares directly from the Funds or
through another intermediary to receive these waivers or discounts. Please
see “Intermediary-Defined Sales Charge Waiver Policies” in Appendix A of
the Funds’ Prospectus for more information.
Redemption
of Shares
Each
Fund will redeem all or any portion of a shareholder's shares in the Fund when
requested in accordance with the procedures set forth in the "Redemptions"
section of the Prospectus. Under the 1940 Act, a shareholder's right to redeem
shares and to receive payment therefore may be suspended at times:
(a)when
the NYSE is closed, other than customary weekend and holiday
closings;
(b)when
trading on that exchange is restricted for any reason;
(c)when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund to fairly determine the value of its net assets, provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) will govern as to whether the conditions prescribed in (b) or (c)
exist; or
(d)when
the SEC by order permits a suspension of the right to redemption or a
postponement of the date of payment on redemption.
In
case of suspension of the right of redemption, payment of a redemption request
will be made based on the net asset value next determined after the termination
of the suspension. The redemption price is the net asset value next determined
after notice is received by a Fund for redemption of shares, minus the amount of
any applicable redemption fee and/or deferred sales charge. The proceeds
received by the shareholder may be more or less than his/her cost of such
shares, depending upon the net asset at the time of redemption and the
difference should be treated by the shareholder as a capital gain or loss for
federal and state income tax purposes.
Each
Fund may purchase shares of Investment Companies that charge a redemption fee to
shareholders (such as the Funds) that redeem shares of the Underlying Fund
within a certain period of time (such as one year). The fee is payable to the
Underlying Fund. Accordingly, if a Fund were to invest in an Underlying Fund and
incur a redemption fee as a result of redeeming shares in such Underlying Fund,
the Fund would bear such redemption fee. The Funds will not, however, invest in
shares of an Underlying Fund that is sold with a contingent deferred sales
load.
Supporting
documents in addition to those listed under "Redemptions" in the Prospectus will
be required from executors, administrators, Trustees, or if redemption is
requested by someone other than the shareholder of record. Such documents
include, but are not restricted to, stock powers, Trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority and waiver of tax required in some states when settling
estates.
Redemption
Fee/Market Timing
The
Funds discourage and do not accommodate market timing. Market timing is an
investment strategy using frequent purchases and redemptions and/or exchanges in
an attempt to profit from short-term market movements. Market timing may
result in dilution of the value of Fund shares held by long-term
shareholders,
disrupt portfolio management, and increase Fund expenses for all shareholders.
The Board of Trustees has adopted a policy requiring the Funds’ transfer
agent to monitor shareholder activity for purchases and redemptions and/or
exchanges that reasonably indicate market timing activity. The transfer
agent does not employ an objective standard and may not be able to identify all
market timing activity or may misidentify certain trading activity as market
timing activity. The Board of Trustees also has adopted a redemption
policy to discourage short-term traders and/or market timers from investing in
certain Funds. For the Spectrum Income Fund, a 2% fee will be assessed against
investment proceeds withdrawn within 60 days of investment. Shares held longest
will be treated as being redeemed first and shares held shortest as being
redeemed last. The redemption fee is intended to offset the costs
associated with short-term shareholder trading and is retained by the Fund.
The redemption fee is applied uniformly in all cases.
While
the Funds attempt to deter market timing, there is no assurance that they will
be able to identify and eliminate all market timers. For example, certain
accounts called "omnibus accounts" include multiple shareholders. Omnibus
accounts typically provide the Funds with a net purchase or redemption request
on any given day where purchasers of Fund shares and redeemers of Fund shares
are netted against one another and the identity of individual purchasers and
redeemers whose orders are aggregated is not known by the Funds. The
netting effect often makes it more difficult to apply redemption fees, and there
can be no assurance that the Funds will be able to apply the fee to such
accounts in an effective manner. Brokers maintaining omnibus accounts with
the Funds have agreed to provide shareholder transaction information, to the
extent known to the broker, to the Funds upon request. If the Funds become
aware of market timing in an omnibus account, it will work with the broker
maintaining the omnibus account to identify the shareholder engaging in the
market timing activity. In addition to the redemption fee, the Funds reserve the
right to reject any purchase order for any reason, including purchase orders
that it does not think are in the best interest of the Funds or their
shareholders or if the Funds think that trading is abusive.
Waivers
of Redemption Fees: The
Funds have elected not to impose the redemption fee for:
◦redemptions
and exchanges of Fund shares acquired through the reinvestment of dividends and
distributions;
◦certain
types of redemptions and exchanges of Fund shares owned through
participant-directed retirement plans;
◦redemptions
or exchanges in discretionary asset allocation, fee based or wrap programs
("wrap programs") that are initiated by the sponsor/financial advisor as part of
a periodic rebalancing;
◦redemptions
or exchanges in a fee based or wrap program that are made as a result of a full
withdrawal from the wrap program or as part of a systematic withdrawal plan
including the Funds’ systematic withdrawal plan;
◦involuntary
redemptions, such as those resulting from a shareholder's failure to maintain a
minimum investment in a Fund; or
◦other
types of redemptions as the Adviser or the Trust may determine in special
situations and approved by the Funds’ or the Adviser's Chief Compliance
Officer.
TAX
STATUS
Under
provisions of Sub-Chapter M of the Internal Revenue Code of 1986 as amended,
each Fund, by paying out substantially all of its investment income and realized
capital gains, intends to be relieved of federal income tax on the amounts
distributed to shareholders. In order to qualify as a "regulated investment
company" under Subchapter M, at least 90% of the Fund's income must be derived
from dividends, interest and gains from securities transactions, and no more
than 50% of the Fund's total assets may be in two or more securities that exceed
5% of the total assets of the Fund at the time of each security's purchase. Not
qualifying under Sub-Chapter M of the Internal Revenue Code would cause a Fund
to be considered a personal holding company subject to normal corporate income
taxes. This would reduce the value of shareholder holdings by the amount of
taxes paid. Any subsequent dividend distribution of the Fund's earnings after
taxes would still be taxable as received by shareholders. The Fund may invest in
companies that pay "qualifying dividends." Investors in the Fund may benefit
from the tax bill and its lower tax rate on taxable quarterly dividend payments,
attributable to corporate dividends, distributed by the Funds.
Net
investment income is made up of dividends and interest less expenses. Net
capital gain for a fiscal year is computed by taking into account any capital
loss carryforward of the Fund. Capital losses incurred in tax years beginning
after December 22, 2010 may now be carried forward indefinitely and retain the
character of the original loss. Under previously enacted laws, capital losses
could be carried forward to offset any capital gains for only eight years, and
carried forward as short-term capital losses, irrespective of the character of
the original loss. Capital loss carryforwards are available to offset future
realized capital gains. To the extent that these carryforwards are used to
offset future capital gains it is probable that the amount offset will not be
distributed to shareholders. At December 31, 2022, the Funds had net realized
capital loss carryovers as follows, all of which have an indefinite
expiration:
|
|
|
|
|
|
|
|
| |
Capital
Loss Carryovers as of Fiscal Year
Ended December 31, 2022 |
|
| Short-Term |
Long-Term |
| Commodities
Strategy Fund |
$ |
7,149,841 |
| $ |
5,624,839 |
|
| Spectrum
Income Fund |
$ |
16,552,811 |
| $ |
21,180,950 |
|
For
taxable years beginning after December 31, 2012, certain U.S. shareholders,
including individuals and estates and trusts, will be subject to an additional
3.8% Medicare tax on all or a portion of their “net investment income,” which
should include dividends from the Funds and net gains from the disposition of
shares of the Funds. U.S. shareholders are urged to consult their own tax
advisors regarding the implications of the additional Medicare tax resulting
from an investment in the Funds.
Options,
Futures, Forward Contracts and Swap Agreements
To
the extent such investments are permissible for the Funds, the Funds’
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles and foreign currencies will be subject to special tax rules
(including mark-to-market, constructive sale, straddle, wash sale and short sale
rules), the effect of which may be to accelerate income to the Funds, defer
losses to the Funds, cause adjustments in the holding periods of the Funds'
securities, convert long-term capital gains into short-term capital gains and
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders.
To
the extent such investments are permissible, certain of the Funds' hedging
activities (including its transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a difference between its
book income and its taxable income. If the Funds' book income exceeds its
taxable income, the distribution (if any) of such excess book income will be
treated as (i) a dividend to the extent of the Funds' remaining earnings and
profits (including earnings and profits arising from tax-exempt income), (ii)
thereafter, as a return of capital to the extent of the recipient's basis in the
shares,
and
(iii) thereafter, as gain from the sale or exchange of a capital asset. If the
Funds' book income is less than taxable income, the Funds could be required to
make distributions exceeding book income to qualify as a regular investment
company that is accorded special tax treatment.
Foreign
Taxation
Income
received by the Funds from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax treaties and
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. If more than 50% of the value of the Funds' total assets at the close of
its taxable year consists of securities of foreign corporations, the Funds may
be able to elect to "pass through" to its shareholders the amount of eligible
foreign income and similar taxes paid by the Funds. If this election is made, a
shareholder generally subject to tax will be required to include in gross income
(in addition to taxable dividends actually received) his or her pro rata share
of the foreign taxes paid by the Funds, and may be entitled either to deduct (as
an itemized deduction) his or her pro rata share of foreign taxes in computing
his or her taxable income or to use it as a foreign tax credit against his or
her U.S. federal income tax liability, subject to certain limitations. In
particular, a shareholder must hold his or her shares (without protection from
risk of loss) on the ex-dividend date and for at least 15 more days during the
30-day period surrounding the ex-dividend date to be eligible to claim a foreign
tax credit with respect to a gain dividend. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified within 60 days after the close of the Funds’ taxable year
whether the foreign taxes paid by the Funds will "pass through" for that
year.
Generally,
a credit for foreign taxes is subject to the limitation that it may not exceed
the shareholder's U.S. tax attributable to his or her total foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Funds’ income will flow through to shareholders of the Funds. With
respect to the Funds, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency-denominated debt securities, receivables
and payables will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, and to certain other types of income. A shareholder may be
unable to claim a credit for the full amount of his or her proportionate share
of the foreign taxes paid by the Funds. The foreign tax credit can be used to
offset only 90% of the revised alternative minimum tax imposed on corporations
and individuals and foreign taxes generally are not deductible in computing
alternative minimum taxable income.
Passive
Foreign Investment Companies
Investment
by the Funds in certain "passive foreign investment companies" ("PFICs") could
subject the Funds to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Funds may elect to treat a PFIC
as a "qualified electing fund" ("QEF election"), in which case a Fund will be
required to include its share of the company's income and net capital gains
annually, regardless of whether it receives any distribution from the company.
The
Funds also may make an election to mark the gains (and to a limited extent
losses) in such holdings "to the market" as though it had sold and repurchased
its holdings in those PFICs on the last day of the Funds’ taxable year. Such
gains and losses are treated as ordinary income and loss. The QEF and
mark-to-market elections may accelerate the recognition of income (without the
receipt of cash) and increase the amount required to be distributed for the
Funds to avoid taxation. Making either of these elections therefore may require
a Fund to liquidate other investments (including when it is not advantageous to
do so) to meet its distribution requirement, which also may accelerate the
recognition of gain and affect the Fund's total return.
Foreign
Currency Transactions
A
Fund's transactions in foreign currencies, foreign currency-denominated debt
securities and certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
Original
Issue Discount and Pay-In-Kind Securities
Current
federal tax law requires the holder of a U.S. Treasury or other fixed income
zero coupon security to accrue as income each year a portion of the discount at
which the security was purchased, even though the holder receives no interest
payment in cash on the security during the year. In addition, pay-in-kind
securities will give rise to income which is required to be distributed and is
taxable even though the Fund holding the security receives no interest payment
in cash on the security during the year.
Some
of the debt securities (with a fixed maturity date of more than one year from
the date of issuance) that may be acquired by the Funds may be treated as debt
securities that are issued originally at a discount. Generally, the amount of
the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities (including certain pay-in-kind securities)
may be treated as a dividend for U.S. federal income tax purposes.
Some
of the debt securities (with a fixed maturity date of more than one year from
the date of issuance) that may be acquired by the Funds in the secondary market
may be treated as having market discount. Generally, any gain recognized on the
disposition of, and any partial payment of principal on, a debt security having
market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. The
Funds may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some
debt securities (with a fixed maturity date of one year or less from the date of
issuance) that may be acquired by the Funds may be treated as having acquisition
discount, or OID in the case of certain types of debt securities. Generally, the
Funds will be required to include the acquisition discount, or OID, in income
over the term of the debt security, even though payment of that amount is not
received until a later time, usually when the debt security matures. The Funds
may make one or more of the elections applicable to debt securities having
acquisition discount, or OID, which could affect the character and timing of
recognition of income.
A
fund that holds the foregoing kinds of securities may be required to pay out as
an income distribution each year an amount, which is greater than the total
amount of cash interest the Funds actually received. Such distributions may be
made from the cash assets of the Funds or by liquidation of portfolio
securities, if necessary (including when it is not advantageous to do so). The
Funds may realize gains or losses from such liquidations. In the event the Funds
realizes net capital gains from such transactions, its shareholders may receive
a larger capital gain distribution, if any, than they would in the absence of
such transactions.
Tax
Distribution: The Funds’ distributions (capital gains & dividend income),
whether received by shareholders in cash or reinvested in additional shares of
the Funds, may be subject to federal income tax payable by shareholders. All
income realized by the Funds including short-term capital gains, will be taxable
to the shareholder as ordinary income. Dividends from net income will be made
annually or more frequently at the discretion of the Funds’ Board of Trustees.
Dividends received shortly after purchase of Fund shares by an investor will
have the effect of reducing the per share net asset value of his/her shares by
the amount of such dividends or distributions. You should consult a tax adviser
regarding the effect of federal, state, local, and foreign taxes on an
investment in the Funds.
Federal
Withholding: The Funds are required by federal law to withhold at a rate set
under Section 3406 of the Code for U.S. residents of reportable payments (which
may include dividends, capital gains, distributions and redemptions) paid to
shareholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, you must certify on a W-9 tax form supplied by the
Funds that your Social Security or Taxpayer Identification Number provided is
correct and that you are not currently subject to back-up withholding, or that
you are exempt from back-up withholding. Payments to a shareholder that is
either a foreign financial institution ("FFI") or a non-financial foreign entity
("NFFE") within the meaning of the Foreign Account Tax Compliance Act ("FATCA")
may be subject to a generally nonrefundable 30% withholding tax on: (a) income
dividends paid by a Fund after June 30, 2014 and (b) certain capital gain
distributions and the proceeds arising from the sale of Fund shares paid by the
Fund after December 31, 2016. FATCA withholding tax generally can be avoided:
(a) by an FFI, subject to any applicable intergovernmental agreement or other
exemption, if it enters into a valid agreement with the IRS to, among other
requirements, report required information about certain direct and indirect
ownership of foreign financial accounts held by U.S. persons with the FFI and
(b) by an NFFE, if it: (i) certifies that it has no substantial U.S. persons as
owners or (ii) if it does have such owners, reports information relating to
them. A Fund may disclose the information that it receives from its shareholders
to the IRS, non-U.S. taxing authorities or other parties as necessary to comply
with FATCA. Withholding also may be required if a foreign entity that is a
shareholder of a Fund fails to provide the Fund with appropriate certifications
or other documentation concerning its status under FATCA.
Shareholders
of the Funds may be subject to state and local taxes on distributions received
from the Funds and on redemptions of the Funds’ shares.
A
brief explanation of the form and character of the distribution accompany each
distribution. In January of each year the Funds issue to each shareholder a
statement of the federal income tax status of all distributions.
Shareholders
should consult their tax advisors about the application of federal, state and
local and foreign tax law in light of their particular situation.
Wholly-Owned
Subsidiaries
Each
Fund, except the Dynamic Opportunity Fund and the Spectrum Income Fund, intends
to invest a portion of its assets in a Subsidiary, which will be classified as a
corporation for U.S. federal income tax purposes. A foreign corporation, such as
each Subsidiary, will generally not be subject to U.S. federal income taxation
unless it is deemed to be engaged in a U.S. trade or business. It is expected
that each Subsidiary will conduct its activities in a manner so as to meet the
requirements of a safe harbor under Section 864(b)(2) of the Internal Revenue
Code (the "Safe Harbor") pursuant to which the Subsidiary, provided it is not a
dealer in stocks, securities or commodities, may engage in the following
activities without being deemed to be engaged in a U.S. trade or business: (1)
trading in stocks or securities (including contracts or options to buy or sell
securities) for its own account; and (2) trading, for its own account, in
commodities that are "of a kind customarily dealt in on an organized commodity
exchange" if the transaction is of a kind customarily consummated at such place.
Thus, each Subsidiary's securities and commodities trading activities should not
constitute a U.S. trade or business. However, if certain of a Subsidiary's
activities were determined not to be of the type described in the Safe Harbor or
if the Subsidiary's gains are attributable to investments in securities that
constitute U.S. real property interests (which is not expected), then the
activities of the Subsidiary may constitute a U.S. trade or business, or be
taxed as such.
In
general, a foreign corporation that does not conduct a U.S. trade or business is
nonetheless subject to tax at a flat rate of 30 percent (or lower tax treaty
rate), generally payable through withholding, on the gross amount of certain
U.S.-source income that is not effectively connected with a U.S. trade or
business. There is presently no tax treaty in force between the U.S. and the
Cayman Islands that would reduce this rate of withholding tax. Income
subject to such a flat tax includes dividends and certain interest income.
The 30 percent tax does not apply to U.S.-source capital gains (whether
long-term or short-term) or to interest paid to a foreign corporation on its
deposits with U.S. banks. The 30 percent tax
also
does not apply to interest which qualifies as "portfolio interest." The term
"portfolio interest" generally includes interest (including original issue
discount) on an obligation in registered form which has been issued after July
18, 1984 and with respect to which the person, who would otherwise be required
to deduct and withhold the 30 percent tax, received the required statement that
the beneficial owner of the obligation is not a U.S. person within the meaning
of the Internal Revenue Code. Under certain circumstances, interest on bearer
obligations may also be considered portfolio interest.
Each
Subsidiary will be wholly-owned by a Fund. A U.S. person who owns (directly,
indirectly or constructively) 10 percent or more of the total combined voting
power of all classes of stock of a foreign corporation is a "U.S. Shareholder"
for purposes of the controlled foreign corporation ("CFC") provisions of the
Internal Revenue Code. A foreign corporation is a CFC if, on any day of
its taxable year, more than 50 percent of the voting power or value of its stock
is owned (directly, indirectly or constructively) by "U.S. Shareholders."
Because each Fund is a U.S. person that will own all of the stock of a
Subsidiary, each Fund will be a "U.S. Shareholder" and each Subsidiary will be a
CFC. As a "U.S. Shareholder," each Fund will be required to include in gross
income for United States federal income tax purposes all of the respective
Subsidiary's "subpart F income" (defined, in part, below), whether or not such
income is distributed by the Subsidiary. It is expected that all of each
Subsidiary's income will be "subpart F income." "Subpart F income"
generally includes interest, original issue discount, dividends, net gains from
the disposition of stocks or securities, receipts with respect to securities
loans and net payments received with respect to equity swaps and similar
derivatives. "Subpart F income" also includes the excess of gains over
losses from transactions (including futures, forward and similar transactions)
in any commodities. Each Fund's recognition of its Subsidiary's "subpart F
income" will increase the Fund's tax basis in the Subsidiary. Distributions by
the Subsidiary to the Fund will be tax-free, to the extent of its previously
undistributed "subpart F income," and will correspondingly reduce the Fund's tax
basis in the Subsidiary. "Subpart F income" is generally treated as ordinary
income, regardless of the character of the Subsidiary's underlying income. A
registered investment company, such as the Fund, is not subject to entity level
taxation so long as it meets the "qualifying income" test under the Internal
Revenue Code of 1986, as amended. In the event that the Internal Revenue Service
were to take issue with the dividend issued by the Subsidiary to the Fund being
counted as "qualifying income" for the Fund, the Fund may fail the "qualifying
income" test and be subject not only to entity level taxation on gains, but also
to additional fines or penalties.
In
general, each "U.S. Shareholder" is required to file IRS Form 5471 with its U.S.
federal income tax (or information) returns providing information about its
ownership of the CFC and the CFC. In addition, a "U.S. Shareholder" may in
certain circumstances be required to report a disposition of shares in a
Subsidiary by attaching IRS Form 5471 to its U.S. federal income tax (or
information) return that it would normally file for the taxable year in which
the disposition occurs. In general, these filing requirements will apply to
investors of the Fund if the investor is a U.S. person who owns directly,
indirectly or constructively (within the meaning of Sections 958(a) and (b) of
the Internal Revenue Code) 10 percent or more of the total combined voting power
of all classes of voting stock of a foreign corporation that is a CFC for an
uninterrupted period of 30 days or more during any tax year of the foreign
corporation, and who owned that stock on the last day of that year.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd., located at 342 N. Water Street, Suite 830, Milwaukee, WI
53202, serves as the Funds' independent registered public accounting firm
providing services including the audit of annual financial statements, and
assistance and consultation in connection with SEC filings.
LEGAL
COUNSEL
Thompson
Hine LLP, 41 South High Street, Suite 1700, Columbus, OH 43215, serves as the
Trust's legal counsel.
CONSOLIDATED
FINANCIAL STATEMENTS
The
audited consolidated financial statements and consolidated financial highlights
of each Fund for the fiscal year ended December 31, 2022, as set forth in the
Trust’s annual
report to shareholders,
including the notes thereto and the report of the independent registered public
accounting firm, are to be incorporated by reference by subsequent amendment.
You can obtain a copy of the financial statements contained in the Funds’ Annual
or Semi-Annual Report without charge by calling the Funds at
1-855-523-8637.
APPENDIX
A
PROXY
VOTING GUIDELINES FOR
LoCorr
Fund Management, LLC
Proxy
Voting Policy and Procedures
The
Adviser will vote proxies on behalf of its individual clients. In order to
fulfill its responsibilities under the Advisers Act, the Adviser has adopted the
following policies and procedures for proxy voting with regard to companies in
the investment portfolio of the Fund(s).
Voting
Proxies
1.All
proxies sent to clients that are actually received by the Adviser (to vote on
behalf of the client) will be provided to the Operations Unit.
2.The
Operations Unit will generally adhere to the following procedures (subject to
limited exception):
(a)A
written record of each proxy received by the Adviser (on behalf of its clients)
will be kept in the Adviser's files;
(b)The
Operations Unit will determine which of the Adviser holds the security to which
the proxy relates;
(c)Prior
to voting any proxies, the Operations Unit will determine if there are any
conflicts of interest related to the proxy in question in accordance with the
general guidelines set forth below. If a conflict is
identified, the Operations Unit will then make a determination (which may be in
consultation with outside legal counsel) as to whether the conflict is
material.
(d)If
no material conflict is identified pursuant to these procedures, the Operations
Unit will vote the proxy in accordance with the guidelines set forth below. The
Operations Unit will deliver the proxy in accordance with instructions related
to such proxy in a timely and appropriate manner.
Conflicts
of Interest
1.As
stated above, in evaluating how to vote a proxy, the Operations Unit will first
determine whether there is a conflict of interest related to the proxy in
question between the Adviser and its Advisory Clients. This examination will
include (but will not be limited to) an evaluation of whether the Adviser (or
any affiliate of the Adviser) has any relationship with the company (or an
affiliate of the company) to which the proxy relates outside of an investment in
such company by a client of the Adviser.
2.If
a conflict is identified and deemed "material" by the Operations Unit, the
Adviser will determine whether voting in accordance with the proxy voting
guidelines outlined below is in the best interests of the client (which may
include utilizing an independent third party to vote such proxies).
3.With
respect to material conflicts, the Adviser will determine whether it is
appropriate to disclose the conflict to affected clients and give such clients
the opportunity to vote the proxies in question themselves. However, with
respect to ERISA clients whose advisory contract reserves the right to vote
proxies when the Adviser has determined that a material conflict exists that
affects its best judgment as a fiduciary to the ERISA client, the Adviser
will:
(a)Give
the ERISA client the opportunity to vote the proxies in question themselves;
or
(b)Follow
designated special proxy voting procedures related to voting proxies pursuant to
the terms of the investment management agreement with such ERISA clients (if
any).
Proxy
Voting Guidelines
In
order to fulfill its responsibilities under the Act, LoCorr Fund Management, LLC
(hereinafter "we" or "our") has adopted the following policies and procedures
for proxy voting with regard to companies in investment portfolios of our
clients.
KEY
OBJECTIVES
The
key objectives of these policies and procedures recognize that a company's
management is entrusted with the day-to-day operations and longer term strategic
planning of the company, subject to the oversight of the company's board of
directors. While "ordinary business matters" are primarily the responsibility of
management and should be approved solely by the corporation's board of
directors, these objectives also recognize that the company's shareholders must
have final say over how management and directors are performing, and how
shareholders' rights and ownership interests are handled, especially when
matters could have substantial economic implications to the shareholders.
Therefore,
we will pay particular attention to the following matters in exercising our
proxy voting responsibilities as a fiduciary for our clients:
Accountability.
Each company should have effective means in place to hold those entrusted with
running a company's business accountable for their actions. Management of a
company should be accountable to its board of directors and the board should be
accountable to shareholders.
Alignment
of Management and Shareholder Interests.
Each company should endeavor to align the interests of management and the board
of directors with the interests of the company's shareholders. For example, we
generally believe that compensation should be designed to reward management for
doing a good job of creating value for the shareholders of the
company.
Transparency.
Promotion of timely disclosure of important information about a company's
business operations and financial performance enables investors to evaluate the
performance of a company and to make informed decisions about the purchase and
sale of a company's securities.
DECISION
METHODS
We
generally believe that the individual portfolio managers that invest in and
track particular companies are the most knowledgeable and best suited to make
decisions with regard to proxy votes. Therefore, we rely on those individuals to
make the final decisions on how to cast proxy votes.
No
set of proxy voting guidelines can anticipate all situations that may arise. In
special cases, we may seek insight from our managers and analysts on how a
particular proxy proposal will impact the financial prospects of a company, and
vote accordingly.
In
some instances, a proxy vote may present a conflict between the interests of a
client, on the one hand, and our interests or the interests of a person
affiliated with us, on the other. In such a case, we will abstain from making a
voting decision and will forward all of the necessary proxy voting materials to
the client to enable the client to cast the votes.
SUMMARY
OF PROXY VOTING GUIDELINES
Election
of the Board of Directors
We
believe that good corporate governance generally starts with a board composed
primarily of independent directors, unfettered by significant ties to
management, all of whose members are elected annually. We also believe that
turnover in board composition promotes independent board action, fresh
approaches to governance, and generally has a positive impact on shareholder
value. We will generally vote in favor of non-incumbent independent
directors.
The
election of a company's board of directors is one of the most fundamental rights
held by shareholders. Because a classified board structure prevents shareholders
from electing a full slate of directors annually, we will generally support
efforts to declassify boards or other measures that permit shareholders to
remove a majority of directors at any time, and will generally oppose efforts to
adopt classified board structures.
Approval
of Independent Auditors
We
believe that the relationship between a company and its auditors should be
limited primarily to the audit engagement, although it may include certain
closely related activities that do not raise an appearance of impaired
independence.
We
will evaluate on a case-by-case basis instances in which the audit firm has a
substantial non-audit relationship with a company to determine whether we
believe independence has been, or could be, compromised.
Equity-based
compensation plans
We
believe that appropriately designed equity-based compensation plans, approved by
shareholders, can be an effective way to align the interests of shareholders and
the interests of directors, management, and employees by providing incentives to
increase shareholder value. Conversely, we are opposed to plans that
substantially dilute ownership interests in the company, provide participants
with excessive awards, or have inherently objectionable structural features.
We
will generally support measures intended to increase stock ownership by
executives and the use of employee stock purchase plans to increase company
stock ownership by employees. These may include:
1.Requiring
senior executives to hold stock in a company.
2.Requiring
stock acquired through option exercise to be held for a certain period of time.
These
are guidelines, and we consider other factors, such as the nature of the
industry and size of the company, when assessing a plan's impact on ownership
interests.
Corporate
Structure
We
view the exercise of shareholders' rights, including the rights to act by
written consent, to call special meetings and to remove directors, to be
fundamental to good corporate governance.
Because
classes of common stock with unequal voting rights limit the rights of certain
shareholders, we generally believe that shareholders should have voting power
equal to their equity interest in the company and should be able to approve or
reject changes to a company's By-Laws by a simple majority vote.
We
will generally support the ability of shareholders to cumulate their votes for
the election of directors.
Shareholder
Rights Plans
While
we recognize that there are arguments both in favor of and against shareholder
rights plans, also known as poison pills, such measures may tend to entrench
current management, which we generally consider to have a negative impact on
shareholder value. Therefore, while we will evaluate such plans on a case by
case basis, we will generally oppose such plans.
Disclosure
of Procedures
A
summary of above these proxy voting procedures will be included in Part II of
the Adviser's Form ADV and will be updated whenever these policies and
procedures are updated. Clients will be provided with contact information as to
how they can obtain information about: (a) the Adviser's proxy voting procedures
(i.e., a copy of these procedures); and (b) how the Adviser voted proxies that
are relevant to the affected client.
Record-keeping
Requirements
The
Operations Unit will be responsible for maintaining files relating to the
Adviser's proxy voting procedures. Records will be maintained and preserved for
five years from the end of the fiscal year during which the last entry was made
on a record, with records for the first two years kept in the offices of the
Adviser. Records of the following will be included in the files:
1.Copies
of these proxy voting policies and procedures, and any amendments
thereto;
2.A
copy of each proxy statement that the Adviser actually received; provided,
however, that the Adviser may rely on obtaining a copy of proxy statements from
the SEC's EDGAR system for those proxy statements that are so
available;
3.A
record of each vote that the Adviser casts;
4.A
copy of any document that the Adviser created that was material to making a
decision how to vote the proxies, or memorializes that decision (if any);
and
5.A
copy of each written request for information on how the Adviser voted such
client's proxies and a copy of any written response to any request for
information on how the Adviser voted proxies on behalf of clients.
Nuveen
Asset Management, LLC
Proxy
Voting Policies and Procedures
Effective
Date: January 1, 2011, as last amended October 24, 2018
I.General
Principles
A.Nuveen
Asset Management, LLC (“NAM”) is an investment sub-adviser for certain of the
Nuveen Funds (the “Funds”) and investment adviser for institutional and other
separately managed accounts (collectively, with the Funds, “Accounts”). As such,
Accounts may confer upon NAM complete discretion to vote proxies.1
B.When
NAM has proxy voting authority, It is NAM’s duty to vote proxies in the best
interests of its clients (which may involve affirmatively deciding that voting
the proxies may not be in the best interests of certain clients on certain
matters). In voting proxies, NAM also seeks to enhance total investment return
for its clients.
C.If
NAM contracts with another investment adviser to act as a sub-adviser for an
Account, NAM may delegate proxy voting responsibility to the sub-adviser. Where
NAM has delegated proxy voting responsibility, the sub-adviser will be
responsible for developing and adhering to its own proxy voting policies,
subject to oversight by NAM.
D.NAM’s
Proxy Voting Committee (“PVC”) provides oversight of NAM’s proxy voting policies
and procedures, including (1) providing an administrative framework to
facilitate and monitor the exercise of such proxy voting and to fulfill the
obligations of reporting and recordkeeping under the federal securities laws;
and (2) approving the proxy voting policies and procedures.
II.Policies
The
PVC after reviewing and concluding that such policies are reasonably designed to
vote proxies in the best interests of clients, has approved and adopted the
proxy voting policies ("Policies") of Institutional Shareholder Services, Inc.
("ISS"), a leading national provider of proxy voting administrative and research
services.i
As
a result, such policies set forth NAM’s positions on recurring proxy issues and
criteria for addressing non-recurring issues. These policies are reviewed
periodically by ISS, and therefore are subject to change. Even though it has
adopted the Policies as drafted by ISS, NAM maintains the fiduciary
responsibility for all proxy voting decisions.
_________________________
1
NAM does not vote proxies where a client withholds proxy voting authority, and
in certain nondiscretionary and model programs NAM votes proxies in accordance
with its Policies in effect from time to time. Clients may opt to vote proxies
themselves, or to have proxies voted by an independent third party or other
named fiduciary or agent, at the client’s cost. i
ISS
has separate polices for Taft Hartley plans and it is NAM’s policy to apply the
Taft Hartley polices to accounts that are Taft Hartley plans and have requested
the application of such policies.
III.Procedures
A.Supervision
of Proxy Voting. Day-to-day
administration of proxy voting may be provided internally or by a third-party
service provider, depending on client type, subject to the ultimate oversight of
the PVC. The PVC shall supervise the relationships with NAM’s proxy voting
services, ISS. ISS apprises Nuveen Global Operations (“NGO”) of shareholder
meeting dates, and casts the actual proxy votes. ISS also provides research on
proxy proposals and voting recommendations. ISS serves as NAM’s proxy voting
record keepers and generate reports on how proxies were voted. NGO periodically
reviews communications from ISS to determine whether ISS voted the correct
amount of proxies, whether the votes were cast in a timely manner, and whether
the vote was in accordance with the Policies or NAM's specific instructions.
B.General
Avoidance of Conflicts of Interest.
1.NAM
believes that most conflicts of interest faced by NAM in voting proxies can be
avoided by voting in accordance with the Policies. Examples of such conflicts of
interest are as follows:2
a.The
issuer or proxy proponent (e.g., a special interest group) is TIAA-CREF, the
ultimate principal owner of NAM, or any of its affiliates.
b.The
issuer is an entity in which an executive officer of NAM or a spouse or domestic
partner of any such executive officer is or was (within the past three years of
the proxy vote) an executive officer or director.
c.The
issuer is a registered or unregistered fund or other client for which NAM or
another affiliated adviser has a material relationship as investment adviser or
sub-adviser (e.g., Nuveen Funds and TIAA Funds) or an institutional separate
account.
d.
Any other circumstances that NAM is aware of where NAM’s duty to serve its
clients’ interests, typically referred to as its “duty of loyalty,” could be
materially compromised.
2.To
further minimize this risk, Compliance will review ISS’ conflict avoidance
policy at least annually to ensure that it adequately addresses both the actual
and perceived conflicts of interest ISS may face.
3.In
the event that ISS faces a material conflict of interest with respect to a
specific vote, the PVC shall direct ISS how to vote. The PVC shall receive
voting direction from appropriate investment personnel. Before doing so, the PVC
will consult with Legal to confirm that NAM faces no material conflicts of its
own with respect to the specific proxy vote.
_________________________
2
A conflict of interest shall not be considered material for the purposes of
these Policies and Procedures with respect to a specific vote or circumstance if
the matter to be voted on relates to a restructuring of the terms of existing
securities or the issuance of new securities or a similar matter arising out of
the holding of securities, other than common equity, in the context of a
bankruptcy or threatened bankruptcy of the issuer.
4.Where
ISS is determined to have a conflict of interest, or NAM determines to override
the Policies and is determined to have a conflict, the PVC will recommend to
NAM’s Compliance Committee or designee a course of action designed to address
the conflict. Such actions could include, but are not limited to:
a.Obtaining
instructions from the affected client(s) on how to vote the proxy;
b.Disclosing
the conflict to the affected client(s) and seeking their consent to permit NAM
to vote the proxy;
c.Voting
in proportion to the other shareholders;
d.Recusing
the individual with the actual or potential conflict of interest from all
discussion or consideration of the matter, if the material conflict is due to
such person’s actual or potential conflict of interest; or
e.Following
the recommendation of a different independent third party.
5.In
addition to all of the above-mentioned and other conflicts, the Head of Equity
Research, NGO and any member of the PVC must notify NAM’s Chief Compliance
Officer (“CCO”) of any direct, indirect or perceived improper influence exerted
by any employee, officer or director of TIAA or its subsidiaries with regard to
how NAM should vote proxies. NAM Compliance will investigate any such
allegations and will report the findings to the PVC and, if deemed appropriate,
to NAM’s Compliance Committee. If it is determined that improper influence was
attempted, appropriate action shall be taken. Such appropriate action may
include disciplinary action, notification of the appropriate senior managers, or
notification of the appropriate regulatory authorities. In all cases, NAM will
not consider any improper influence in determining how to vote proxies, and will
vote in the best interests of clients.
C.Proxy
Vote Override. From
time to time, a portfolio manager of an account (a “Portfolio Manager”) may
initiate action to override the Policies' recommendation for a particular vote.
Any such override by a NAM Portfolio Manager (but not a sub-adviser Portfolio
Manager) shall be reviewed by NAM’s Legal Department for material conflicts. If
the Legal Department determines that no material conflicts exist, the approval
of one member of the PVC shall authorize the override. If a material conflict
exists, the conflict and, ultimately, the override recommendation will be
rejected and will revert to the original Policies recommendation or will be
addressed pursuant to the procedures described above under “Conflicts of
Interest.”
In
addition, the PVC may determine from time to time that a particular policy
recommendation in the Policies should be overridden based on a determination
that the recommendation is inappropriate and not in the best interests of
shareholders. Any such determination shall be reflected in the minutes of a
meeting of the PVC at which such decision is made.
D.Securities
Lending.
1.In
order to generate incremental revenue, some clients may participate in a
securities lending program. If a client has elected to participate in the
lending program then it will not have the right to vote the proxies of any
securities that are on loan as of the shareholder meeting record date. A client,
or a Portfolio Manager, may place restrictions on loaning securities and/or
recall a security on loan at any time. Such actions must be affected prior to
the record date for a meeting if the purpose for the restriction or recall is to
secure the vote.
2.Portfolio
Managers and/or analysts who become aware of upcoming proxy issues relating to
any securities in portfolios they manage, or issuers they follow, will consider
the desirability of recalling the affected securities that are on loan or
restricting the
affected
securities prior to the record date for the matter. If the proxy issue is
determined to be material, and the determination is made prior to the
shareholder meeting record date the Portfolio Manager(s) will contact the
Securities Lending Agent to recall securities on loan or restrict the loaning of
any security held in any portfolio they manage, if they determine that it is in
the best interest of shareholders to do so.
E.Proxy
Voting Records. As
required by Rule 204-2 of the Investment Advisers Act of 1940, NAM shall make
and retain five types of records relating to proxy voting; (1) NAM’s Policies;
(2) proxy statements received for securities in client accounts; (3) records of
proxy votes cast by NAM on behalf of clients accounts; (4) records of written
requests from clients about how NAM voted their proxies, and written responses
from NAM to either a written or oral request by clients; and (5) any documents
prepared by the adviser that were material to making a proxy voting decision or
that memorialized the basis for the decision. NAM relies on ISS to make and
retain on NAM’s behalf certain records pertaining to Rule 204-2.
F.Fund
of Funds Provision.
In instances where NAM provides investment advice to a fund of funds that
acquires shares of affiliated funds or three percent or more of the outstanding
voting securities of an unaffiliated fund, the acquiring fund shall vote the
shares in the same proportion as the vote of all other shareholders of the
acquired fund. If compliance with this procedure results in a vote of any shares
in a manner different than the Policies' recommendation, such vote will not
require compliance with the Proxy Vote Override procedures set forth
above.
G.Legacy
Securities. To
the extent that NAM receives proxies for securities that are transferred into an
account’s portfolio that were not recommended or selected by it and are sold or
expected to be sold promptly in an orderly manner (“legacy securities”), NAM
will generally refrain from voting such proxies. In such circumstances, since
legacy securities are expected to be sold promptly, voting proxies on such
securities would not further NAM’s interest in maximizing the value of client
investments. NAM may agree to an account’s special request to vote a legacy
security proxy, and would vote such proxy in accordance with the
Policies.
H.Terminated
Accounts. Proxies
received after the termination date of an account generally will not be voted.
An exception will be made if the record date is for a period in which an account
was under NAM’s discretionary management or if a separately managed account
(“SMA”) custodian failed to remove the account’s holdings from its aggregated
voting list.
I.Non-votes.
NGO
shall be responsible for obtaining reasonable assurance from ISS that it voted
proxies on NAM's behalf, and that any special instructions from NAM about a
given proxy or proxies are submitted to ISS in a timely manner. It should not be
considered a breach of this responsibility if NGO or NAM does not receive a
proxy from ISS or a custodian with adequate time to analyze and direct to vote
or vote a proxy by the required voting deadline.
NAM
may determine not to vote proxies associated with the securities of any issuer
if as a result of voting such proxies, subsequent purchases or sales of such
securities would be blocked. However, NAM may decide, on an individual security
basis that it is in the best interests of its clients to vote the proxy
associated with such a security, taking into account the loss of liquidity. In
addition, NAM may determine not to vote proxies where the voting would in NAM’s
judgment result in some other financial, legal, regulatory disability or burden
to the client (such as imputing control with respect to the issuer) or to NAM or
its affiliates.
NAM
may determine not to vote securities held by SMAs where voting would require the
transfer of the security to another custodian designated by the issuer. Such
transfer is generally outside the scope of NAM’s authority and may result in
significant operational limitations on NAM’s ability to conduct transactions
relating to the securities during the period of transfer. From time to time,
situations may arise (operational or otherwise) that prevent NAM from voting
proxies after reasonable attempts have been made.
J.Review
and Reports.
1.The
PVC shall maintain a review schedule. The schedule shall include reviews of the
Policies and the policies of any Sub-adviser engaged by NAM, the proxy voting
record, account maintenance, and other reviews as deemed appropriate by the PVC.
The PVC shall review the schedule at least annually.
2.The
PVC will report to NAM’s Compliance Committee with respect to all identified
conflicts and how they were addressed. These reports will include all accounts,
including those that are sub-advised. NAM also shall provide the Funds that it
sub-advises with information necessary for preparing Form N-PX.
K.Vote
Disclosure to Clients. NAM’s
institutional and SMA clients can contact their relationship manager for more
information on NAM’s policies and the proxy voting record for their account. The
information available includes name of issuer, ticker/CUSIP, shareholder meeting
date, description of item and NAM’s vote.
IV.
Responsible Parties
PVC
NGO
NAM
Compliance
Legal
Department
KETTLE
HILL CAPITAL MANAGEMENT, LLC
PROXY
VOTING
POLICY
AND PROCEDURES
I.STATEMENT
OF POLICY
Proxy
voting is an important right of shareholders and reasonable care and diligence
must be undertaken to ensure that such rights are properly and timely exercised.
When the Adviser has discretion to vote the proxies of its clients, it will vote
those proxies in the best interest of its clients and in accordance with these
policies and procedures.
II.PROXY
VOTING PROCEDURES
A.Private
Fund Clients and Separately Managed Accounts
All
proxies received by the Adviser will be sent to the Compliance Officer. The
Compliance Officer is required to:
•Keep
a record of each proxy received;
•Determine
which accounts managed by the Adviser hold the security to which the proxy
relates;
•Identify
all accounts that hold the security, together with the number of votes each
account controls (reconciling any duplications), and the date by which the
Adviser must vote the proxy in order to allow enough time for the completed
proxy to be returned to the issuer prior to the vote taking place.
•Evaluate
the effect of a “yes” and a “no” vote on the relevant client and perform an
initial conflict assessment (see Section IV below) to determine whether a
material conflict exists between the interests of the Adviser and/or its
supervised persons and those of its clients.
•If
the Compliance Officer determines that no material conflict exists, the
Compliance Officer is responsible for completing the proxy and mailing the proxy
in a timely and appropriate manner.
•If
the Compliance Officer finds that a material conflict exists, the Adviser may
retain a third party to assist it in coordinating and voting proxies with
respect to client securities. If so, the Compliance Officer is required to
monitor the third party to assure that all proxies are being properly voted and
appropriate records are being retained.
B.Registered
Investment Company Clients
•Upon
receipt of a proxy, the Compliance Officer is responsible for evaluating whether
the proxy relates to any shares of a registered investment company held by the
Adviser on behalf of another registered investment company client (e.g., such as
when in receipt of proxies for ETFs owned by a registered investment company
client).
•If
so, the Compliance Officer is responsible for either (a) obtaining instructions
from the Adviser's registered investment company client as to how to vote the
proxy, or (b) echo voting the proxy. The Compliance Officer is responsible for
documenting the instructions received as to the manner of voting, or the fact
that the proxy is being echo voted.
•If
the proxy does not involve the shares of a registered investment company held by
the Adviser on behalf of another registered investment company, the Compliance
Officer is responsible for (a) evaluating the effect of a “yes” and a “no” vote
on the relevant client and (b) performing an initial conflict assessment to
determine whether a material conflict exists between the interests of the
Adviser and/or its supervised persons and those of its clients. Any conflicts
are required to be documented and described.
•If
the Compliance Officer determines that no material conflict exists, the
Compliance Officer is responsible for completing the proxy and mailing or
transmitting the proxy in a timely and appropriate manner.
•If
the Compliance Officer finds that a material conflict exists, the Adviser may
retain a third party to assist it in coordinating and voting the proxy. If so,
the Compliance Officer is responsible for monitoring the third party to ensure
that all proxies are being properly voted and appropriate records are being
retained.
III.
VOTING GUIDELINES
In
the absence of specific voting guidelines from the client or when not otherwise
required by law, the Adviser will vote proxies in the best interests of each
particular client, which may result in different voting results for proxies for
the same issuer. The Adviser believes that voting proxies in accordance with the
following guidelines is in the best interests of its clients.
•Generally,
the Adviser will vote in favor of routine corporate housekeeping proposals,
including election of directors (where no corporate governance issues are
implicated), selection of auditors, and increases in or reclassification of
common stock.
For
other proposals, the Adviser shall determine whether a proposal is in the best
interests of its clients and may take into account the following factors, among
others:
•whether
the proposal was recommended by management and the Adviser's opinion of
management;
•whether
the proposal acts to entrench existing management; and
•whether
the proposal fairly compensates management for past and future performance.
As
set forth herein, when in receipt of proxies for any registered investment
company client, the Adviser is required to either (a) seek instructions from the
registered investment company's (i.e., the acquiring fund) shareholders with
regard to the voting of all proxies relating to the acquired fund and to vote
only in accordance with such instructions, or (b) vote the shares held by it in
the same proportion as the vote of all other holders of the security (i.e., to
"echo vote").
IV.
CONFLICTS OF INTEREST
1.The
Compliance Officer is responsible for identifying any conflicts that exist
between the interests of the Adviser and its clients. This examination will
include a review of the relationship of the Adviser and its affiliates with the
issuer of each security and any of the issuer’s affiliates to determine if the
issuer is a client of the Adviser or an affiliate of the Adviser or has some
other relationship with the Adviser or a client of the Adviser.
2.If
a material conflict exists, the Adviser is responsible for determining whether
voting in accordance with the voting guidelines and factors described above is
in the best interests of the client. The Adviser must also determine whether it
is appropriate to disclose the conflict to the affected clients and, except in
the case of clients that are subject to the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”), give the clients the opportunity to vote
their proxies themselves. In the case of ERISA clients, if the Investment
Management Agreement reserves to the ERISA client the authority to vote proxies
when the
Adviser
determines it has a material conflict that affects its best judgment as an ERISA
fiduciary, the Adviser is required to give the ERISA client the opportunity to
vote the proxies themselves.
V.
DISCLOSURE
1.The
Adviser will disclose in its Form ADV Part 2 that clients may contact the
Compliance Officer, via e-mail or telephone, in order to obtain information on
how the Adviser voted such client’s proxies, and to request a copy of these
policies and procedures. If a client requests this information, the Compliance
Officer will prepare a written response to the client that lists, with respect
to each voted proxy about which the client has inquired, (a) the name of the
issuer; (b) the proposal voted upon, and (c) how the Adviser voted the client’s
proxy.
2.A
concise summary of this Proxy Voting Policy and Procedures will be included in
the Adviser’s Form ADV Part 2, and will be updated whenever these policies and
procedures are updated. The Compliance Officer will arrange for a copy of this
summary to be sent to all existing clients either as a separate mailing or along
with a periodic account statement or other correspondence sent to clients.
VI.
RECORDKEEPING
The
Compliance Officer will maintain files relating to the Adviser’s proxy voting
procedures in an easily accessible place. Records will be maintained and
preserved for five years from the end of the fiscal year during which the last
entry was made on a record, with records for the first two years kept in the
offices of the Adviser. Records of the following will be included in the files:
•Copies
of this proxy voting policy and procedures, and any amendments thereto.
•A
copy of each proxy statement that the Adviser receives, provided however that
the Adviser may rely on obtaining a copy of proxy statements from the SEC’s
EDGAR system for those proxy statements that are so available.1
•A
record of each vote that the Adviser casts.2
•A
copy of any document the Adviser created that was material to making a decision
how to vote proxies, or that memorializes that decision.
•A
copy of each written client request for information on how the Adviser voted
such client’s proxies, and a copy of any written response to any (written or
oral) client request for information on how the Adviser voted its proxies.
____________________________
1The
Adviser may choose instead to have a third party retain a copy of proxy
statements (provided that the third party undertakes to provide a copy of the
proxy statements promptly upon request).
2The
Adviser may also rely on a third party to retain a copy of the votes cast
(provided that the third party undertakes to provide a copy of the record
promptly upon request).
PROXY
VOTING POLICY AND PROCEDURES
Bramshill
Investments, LLC
POLICY
It
is the Firm’s policy, where it has accepted responsibility to vote proxies on
behalf of a particular client, to vote such proxies in the best interest of its
clients and ensure that the vote is not the product of an actual or potential
conflict of interest. For clients that are subject to ERISA, it is the Firm’s
policy to follow the provisions of any ERISA plan’s governing documents in the
voting of plan securities, unless it determines that to do so would breach its
fiduciary duties under ERISA.
RESPONSIBILITY
Where
the Firm has accepted responsibility to vote proxies on behalf of a particular
client, the Chief Investment Officer is responsible for ensuring that proxies
are voted in a manner consistent with the proxy voting guidelines adopted by the
Firm (the “Proxy Voting Guidelines”) and the Firm’s policies and
procedures.
PROCEDURES
The
Firm may vote client proxies where a client requests and the Firm accepts such
responsibility, or in the case of an employee benefit plan, as defined by ERISA,
where such responsibility has been properly delegated to, and assumed by, the
Firm. In such circumstances the Firm will only cast proxy votes in a manner
consistent with the best interest of its clients or, to the extent applicable,
their beneficiaries. Absent special circumstances, which are further discussed
below, all proxies will be voted consistent with the Proxy Voting Guidelines
attached to the Compliance Manual on Exhibit E and the Firm’s policies and
procedures. The Firm will, in its Form ADV, generally disclose to clients
information about these policies and procedures and how clients may obtain
information on how the Firm voted their proxies when applicable. At any time, a
client may contact the Firm to request information about how it voted proxies
for their securities. It is generally the Firm’s policy not to disclose its
proxy voting records to unaffiliated third parties or special interest groups.
The
Firm’s Proxy Voting Committee will be responsible for monitoring corporate
actions, making proxy voting decisions, and ensuring that proxies are submitted
in a timely manner. The Proxy Voting Committee may delegate the responsibility
to vote client proxies to one or more persons affiliated with the Firm (such
person(s) together with the Proxy Voting Committee are hereafter collectively
referred to as “Responsible Voting Parties”) consistent with the Proxy Voting
Guidelines. Specifically, when the Firm receives proxy proposals where the Proxy
Voting Guidelines outline its general position as voting either “for” or
“against,” the proxy will be voted by one of the Responsible Voting Parties in
accordance with the Firm’s Proxy Voting Guidelines. When the Firm receives proxy
proposals where the Proxy Voting Guidelines do not contemplate the issue or
otherwise outline its general position as voting on a case-by-case basis, the
proxy will be forwarded to the Proxy Voting Committee, which will review the
proposal and either vote the proxy or instruct one of the Responsible Voting
Parties on how to vote the proxy.
It
is intended that the Proxy Voting Guidelines will be applied with a measure of
flexibility. Accordingly, except as otherwise provided in these policies and
procedures, the Responsible Voting Parties may vote a proxy contrary to the
Proxy Voting Guidelines if, in the sole determination of the Proxy Voting
Committee, it is determined that such action is in the best interest of the
Firm’s clients. In the exercise of such discretion, the Proxy Voting Committee
may take into account a wide array of factors relating to the matter under
consideration, the nature of the proposal, and the company involved. Similarly,
poor past performance, uncertainties about management and future directions, and
other factors may lead to a conclusion that particular proposals by an issuer
present unacceptable investment risks and should not be supported. In addition,
the proposals should be evaluated in context. For example, a particular proposal
may be acceptable standing alone, but objectionable when part of an existing or
proposed package, such as where the effect may be to entrench management.
Special circumstances or instructions from clients may also justify casting
different votes for different clients with respect to the same proxy
vote.
The
Responsible Voting Parties will document the rationale for all proxy voted
contrary to the Proxy Voting Guidelines. Such information will be maintained as
part of the Firm’s recordkeeping process. In performing its
responsibilities,
the Proxy Voting Committee may consider information from one or more sources
including, but not limited to, management of the company presenting the
proposal, shareholder groups, legal counsel, and independent proxy research
services. In all cases, however, the ultimate decisions on how to vote proxies
are made by the Proxy Voting Committee.
ERISA
Plans
Plans
managed by the Firm governed by ERISA will be administered consistent with the
terms of the governing plan documents and applicable provisions of ERISA. In
cases where the Firm has been delegated sole proxy voting discretion, these
policies and procedures will be followed subject to the fiduciary responsibility
standards of ERISA. These standards generally require fiduciaries to act
prudently and to discharge their duties solely in the interest of participants
and beneficiaries. The Department of Labor has indicated that voting decisions
of ERISA fiduciaries must generally focus on the course that would most likely
increase the value of the stock being voted.
The
documents governing ERISA individual account plans may set forth various
procedures for voting “employer securities” held by the plan. Where authority
over the investment of plan assets is granted to plan participants, many
individual account plans provide that proxies for employer securities will be
voted in accordance with directions received from plan participants as to shares
allocated to their plan accounts. In some cases, the governing plan documents
may further provide that unallocated shares and/or allocated shares for which no
participant directions are received will be voted in accordance with a
proportional voting method in which such shares are voted proportionately in the
same manner as are allocated shares for which directions from participants have
been received.
Conflicts
of Interest
The
Firm may occasionally be subject to conflicts of interest in the voting of
proxies due to business or personal relationships it maintains with persons
having an interest in the outcome of certain votes. For example, the Firm may
provide services to accounts owned or controlled by companies whose management
is soliciting proxies. The Firm, along with any affiliates and/or employees, may
also occasionally have business or personal relationships with other proponents
of proxy proposals, participants in proxy contests, corporate directors, or
candidates for directorships.
If
the Responsible Voting Parties become aware of any potential or actual conflict
of interest relating to a particular proxy proposal, they will promptly report
such conflict to the Committee. Conflicts of interest will be handled in various
ways depending on their type and materiality of the conflict. The Firm will take
the following steps to ensure that its proxy voting decisions are made in the
best interest of its clients and are not the product of such conflict:
•Where
the Proxy Voting Guidelines outline the Firm’s voting position, as either “for”
or “against” such proxy proposal, voting will be accordance with the its Proxy
Voting Guidelines.
•Where
the Proxy Voting Guidelines outline the Firm’s voting position to be determined
on a “caseby-case” basis for such proxy proposal, or such proposal is not
contemplated in the Proxy Voting Guidelines, then one of the two following
methods will be selected by the Committee depending upon the facts and
circumstances of each situation and the requirements of applicable
law:
◦Voting
the proxy in accordance with the voting recommendation of a non-affiliated third
party vendor; or
◦Provide
the client with sufficient information regarding the proxy proposal and obtain
the client’s consent or direction before voting.
Third
Party Delegation
The
Firm may delegate to a non-affiliated third party vendor, the responsibility to
review proxy proposals and make voting recommendations to the Firm. The Chief
Investment Officer will ensure that any third party recommendations followed
will be consistent with the Proxy Voting Guidelines. In all cases, however, the
ultimate decisions on how to vote proxies are made by the
Committee.
Investment
Companies (Closed-End Funds, Mutual Funds, ETFs)
In
the event that the Firm acts as investment adviser to a closed-end and/or
open-end registered investment company and is responsible for voting their
proxies, such proxies will be voted in accordance with any applicable investment
restrictions of the fund and, to the extent applicable, any resolutions or other
instructions approved by an authorized person of the fund.
Special
Circumstances
The
Firm may choose not to vote proxies in certain situations or for certain
accounts, such as: (i) where a client has informed the Firm that they wish to
retain the right to vote the proxy; (ii) where the Firm deems the cost of voting
the proxy would exceed any anticipated benefit to the client; (iii) where a
proxy is received for a client that has terminated the Firm’s services; (iv)
where a proxy is received for a security that the Firm no longer manages (i.e.,
the Firm had previously sold the entire position); and/or (v) where the exercise
of voting rights could restrict the ability of an account’s portfolio manager to
freely trade the security in question (as is the case, for example, in certain
foreign jurisdictions known as “blocking markets”).
In
addition, certain accounts over which the Firm has proxy-voting discretion may
participate in securities lending programs administered by the custodian or a
third party. Because title to loaned securities passes to the borrower, the Firm
will be unable to vote any security that is out on loan to a borrower on a proxy
record date. If the Firm has investment discretion, however, the Firm will
reserve the right to instruct the lending agent to terminate a loan in
situations where the matter to be voted upon is deemed to be material to the
investment and the benefits of voting the security are deemed to outweigh the
costs of terminating the loan.
BOOKS
AND RECORDS
In
its books and records, the Firm will maintain a copy of the following
documents:
•Proxy
statement that the Firm receives regarding client's securities;
•Votes
that the Firm casts on behalf of a client;
•Any
document the Firm created that was material to making a decision on how to vote
proxies on behalf of a client or that memorialize the basis for such decision;
and
•Written
client request for information on how the Firm voted proxies on behalf of the
requesting client and a copy of the Firm's written response to any (written or
verbal) client request for information on how the Firm voted proxies on behalf
of the requesting client.
The
Firm may rely upon the Commission's EDGAR system to maintain certain records
referred to above.
Proxy
Voting Guidelines
Graham
Capital Management, L.P
PROXY
VOTING AND CLASS ACTIONS
A.General
Graham
has adopted policies and procedures (the “Proxy Voting Policies and Procedures”)
which have been designed to ensure that Graham complies with the requirements of
Rule 206(4)-6 and Rule 204-2(c)(2) under the Advisers Act, and reflect Graham’s
commitment to vote all client securities for which it exercises voting authority
in a manner consistent with the best interest of the client. Employees who have
the authority to vote client securities must familiarize themselves with and
strictly adhere to Graham’s Proxy Voting Policies and Procedures.
Although
the Advisers Act does not obligate advisers to adopt policies and procedures in
respect of participating in class actions, in its capacity as a fiduciary to its
clients Graham has nonetheless adopted such policies and
procedures.
B.Proxy
Voting Policies and Procedures
Graham
has selected and retained ISS Governance Services to assist in the proxy voting
process. The CCO manages Graham’s relationship with ISS. The CCO ensures that
ISS votes all proxies according to Graham’s general guidance, and retains all
required documentation associated with proxy voting.
Graham
has approved a list of proxy voting guidelines that ISS generally follows when
recommending how to vote on particular proxies. The following guidelines reflect
ISS’ general approach on certain key proxy proposals; however, these guidelines
represent only a small number of proposals and the guidelines are much broader
in scope and more detailed.
•Auditor
Ratification.
ISS generally recommends to vote FOR proposals to ratify auditors except where
(i) the auditor has a financial interest or association with the company, (ii)
there is reason to believe the auditor has rendered an opinion that is neither
accurate nor indicative of the company’s financial position, (iii) poor
accounting practices have been identified that rise to a serious level of
concern or (iv) fees for non-audit services are excessive;
•Board
of Directors.
ISS generally recommends to vote FOR director nominees except where (i) the
board lacks accountability coupled with sustained poor performance relative to
peers, (ii) the board demonstrates a lack of responsiveness (e.g., in responding
to shareholder proposals, takeover offers, issues that resulted in one or more
directors receiving more than 50% withhold/against votes, etc.), (iii) there are
defects in the composition of the board (e.g., unacceptable attendance at board
and committee meetings, directors serve on excessive number of boards of other
companies, etc.), and (iv) the board lacks sufficient controls or features to
ensure its independence;
•Capital
Structure Changes.
ISS generally recommends to vote (i) FOR proposals to increase the number of
shares where the primary purpose is to issue shares in connection with a
transaction on the same ballot, (ii) AGAINST proposals to increase the number of
shares of a class with superior voting rights, (iii) AGAINST proposals to
increase the number of shares if a vote for a reverse stock split is on the same
ballot, and (iv) AGAINST proposals to create a new class of common stock, except
under certain conditions;
•Executive
Compensation.
ISS Generally recommends to vote (i) AGAINST advisory votes on executive
compensation if there is a significant misalignment between CEO pay and company
performance, the company maintains
problematic
pay practices or the board exhibits a significant level of poor communications
and responsiveness to shareholders, (ii) AGAINST/WITHHOLD from the members of
the compensation committee or full board as applicable where there is no
management-say-on pay item on the ballot, and in other instances, and (iii)
AGAINST an equity plan if there is a performance misalignment and the CEO’s pay
is skewed towards non-performance based equity awards.
Portfolio
Managers that wish to deviate from ISS’s proxy recommendations must provide the
CCO with a written explanation of the reason for the deviation, as well as a
representation that the employee and Graham are not conflicted in making the
chosen voting decision.
Because
Graham generally will vote proxies based upon the recommendations of ISS, there
is little to no risk of a conflict of interest arising. However, in instances
that might involve a conflict of interest between Graham and its clients, such
as where a portfolio manager wishes to deviate from ISS’s recommendation or such
other instances as Graham may determine, the CCO, in conjunction with the
compliance committee as appropriate, will review the relevant facts and
determine whether or not a material conflict of interest may arise due to
business, personal or family relationships of Graham, its owners, its employees
or its affiliates, with persons having an interest in the outcome of the vote.
If a material conflict exists, Graham will take steps to ensure that its voting
decision is based on the best interests of the client and is not a product of
the conflict. Graham shall keep appropriate records demonstrating how such
conflicts were resolved.
ISS
will retain, on Graham’s behalf, the following information in connection with
each proxy vote:
•The
Issuer’s name;
•The
security ticker symbol or CUSIP, as applicable;
•The
shareholder meeting date;
•The
number of shares that Graham voted;
•A
brief identification of the matter voted on;
•Whether
the matter was proposed by the Issuer or a security holder;
•Whether
Graham cast a vote;
•How
Graham cast its vote (for the proposal, against the proposal, or abstain);
and
•Whether
Graham cast its vote with or against management.
With
respect to each registered investment company for which Graham provides
discretionary subadvisory services, Graham will provide each fund with a copy of
Graham’s proxy voting policy. In addition, when requested, Graham will provide
such funds with information concerning Graham’s proxy voting policy and voting
results as required to enable such funds to file periodic proxy voting
reports.
C.Class
Actions
As
a fiduciary, Graham always seeks to act in the best interest of its clients,
with good faith, loyalty, and due care. Accordingly, with respect to class
actions involving any Graham Funds, Graham will determine whether the fund will
(a) participate in a recovery achieved through a class action, (b) opt out of
the class action and separately pursue its own remedy, or (c) opt out of the
class action and not pursue its own remedy. Graham’s legal department oversees
the completion of Proof of Claim forms and any associated documentation the
submission of such documents to the claim administrator, and the receipt of any
recovered monies. Graham will maintain documentation associated with
participation in class actions by any Graham Funds. Consistent with its
procedures for selecting and monitoring service providers and its fiduciary
obligation to Clients, Graham may utilize third-party service providers to
facilitate the processing and administration of class action claims.
Graham,
for itself or on behalf of its funds, generally does not serve as the lead
plaintiff in class actions because the costs of such participation typically
exceed any extra benefits that accrue to lead plaintiffs.
D.Disclosures
to Investors
Graham
includes a description of its policies and procedures regarding proxy voting and
class actions in Part 2 of the Form ADV, along with a statement that Investors
can contact Graham to obtain a copy of these policies and procedures and
information about how Graham voted proxies.
Any
request for information about proxy voting or class actions should be promptly
forwarded to the CCO, who will respond to any such requests. As a matter of
policy, Graham does not disclose how it expects to vote on upcoming proxies.
Additionally, Graham does not disclose the way it voted proxies to unaffiliated
third parties without a legitimate need to know such information.
Proxy
Voting Policy
Revolution
Capital Management, LLC
The
Investment Advisers Act of 1940 requires an adviser who executes voting
authority with respect to client securities to adopt and implement written
policies and procedures that are reasonably designed to ensure that the adviser
votes client securities in the best interest of clients.
If
any client delegates proxy voting authority to a firm acting in a Sub-Adviser
capacity, Revolution Capital Management, LLC (the “Sub- Adviser” or “the Firm”)
will vote the proxies received in a manner consistent with the best interests of
its clients and in accordance with its proxy voting policies and procedures.
Sub-Adviser
shall include in its brochure, if applicable, a summary of its proxy voting
policies and procedures, along with statements that clients may request
information regarding how Sub- Adviser voted their proxies and that clients may
request a copy of Sub-Adviser’s proxy voting policies and
procedures.
The
Firm, acting as a Sub-Adviser within the LoCorr Investment Trust is not
delegated the responsibility of voting proxies for any investment company within
the Trust. The adviser is responsible for voting proxies for any funds the Firm
serves as Sub-Adviser within the LoCorr Investment Trust. The Firm will deliver
any proxies received to the adviser within (1) week of receipt and the proxy
voting will be governed by the proxy voting policies of the adviser and the
Trust.
Proxy
Voting Guidelines
Millburn
Ridgefield Corporation
I.TYPES
OF ACCOUNTS FOR WHICH MILLBURN RIDGEFIELD CORPORATION VOTES PROXIES
Millburn
Ridgefield Corporation (“Millburn”) in its capacity as general partner or
investment adviser of its clients that hold securities directly (i.e.,
clients other than funds of funds or funds of managed accounts) votes proxies as
follows: (i) for each client that has directly or impliedly authorized us to
vote proxies in the investment management contract or otherwise; (ii) for each
fund for which we act as adviser with the explicit or implied power to vote
proxies; and (iii) for each ERISA account, if any, unless the plan document or
investment advisory agreement specifically reserves the responsibility to vote
proxies to the plan trustees.
II.GENERAL
GUIDELINES
These
policies and procedures are adopted in conformity with Rule 206(4)-6 promulgated
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). In
voting proxies, Millburn is guided by general fiduciary principles. Millburn's
goal is to act prudently, solely in the best interest of the beneficial owners
of the accounts for which it is voting, and, in the case of ERISA accounts, for
the exclusive purpose of providing economic benefits to such persons. Millburn
attempts to consider all factors of its vote that could affect the value of the
investment and will vote proxies in the manner that it believes will be
consistent with efforts to maximize shareholder values.
III.HOW
MILLBURN VOTES
It
is Millburn’s general policy, absent a particular reason to the contrary, to
vote with management’s recommendations on routine matters. For non-recurring
extraordinary matters, Millburn votes on a case-by-case basis, generally
following the suggestions for such matters detailed below. If there is a
non-recurring extraordinary matter for which there is no suggestion detailed
below, Millburn votes on a case-by-case basis in accordance with the General
Guidelines set forth above in Section II above.
Millburn
may deviate from the general policies and procedures outlined herein when it
determines that the particular circumstances warrant such deviation and in order
to serve the best interests of its clients. No guidelines can provide an
exhaustive list of all issues that may arise nor can Millburn anticipate all
future situations.
IV.UNJUSTIFIABLE
COSTS
In
certain situations, after doing a cost-benefit analysis, Millburn may abstain
from voting where the cost of voting the client’s proxy would exceed the
anticipated benefits to the client of the proxy proposal. Any such abstention
and the reasons thereof shall be memorialized.
V.CONFLICTS
OF INTEREST
At
times, conflicts may arise between the interests of a client or account, on the
one hand, and the interests of Millburn or its affiliates, on the other hand. If
Millburn determines that it has, or may be perceived to have, a conflict of
interest when voting a proxy, Millburn will address matters involving such
conflicts of interest as follows:
(1)if
a proposal is addressed by the specific policies herein, Millburn will vote in
accordance with such policies. Any decision to vote a proxy other than in
accordance with the specific policies herein will be brought to the attention of
the Chief Compliance Officer and that proxy will become subject to the
requirements of (3) or (4) below, as applicable;
(2)if
Millburn believes it is in the best interest of a client or account to depart
from the specific policies provided for herein, Millburn will be subject to the
requirements of(3) or (4) below, as applicable;
(3)if
the proxy proposal is (a) not addressed by the specific policies or (b) requires
a case-by-case determination by Millburn, Millburn may vote such proxy as it
determines to be in the best interest of the client or account, without taking
any action described in (4) below, provided that such vote would be against
Millburn’s own interest in the matter (i.e.,
against the perceived or actual conflict). Millburn will memorialize the
rationale for such vote in writing; and
(4)if
the proxy proposal is (a) not addressed by the specific policies or (b) requires
a case-by-case determination by Millburn, and Millburn believes it should vote
in a way that may also benefit, or be perceived to benefit, its own interest,
then Millburn must take one of the following actions in voting such
proxy:
(i)seek
an independent third party for review and recommendation with respect to such
proxy proposal (such third party maybe outside counsel or compliance
consultant);
(ii)delegate
the voting decision to an independent committee of partners, members, directors
or other representatives of the client or account, as applicable;
or
(iii)inform
the beneficial owners of the client or account of the conflict of interest and
obtain consent to (majority consent in the case of a fund) vote the proxy as
recommended by Millburn. The disclosure to the client will include sufficient
detail regarding the matter to be voted on and the nature of the conflict that
the client would be able to make an informed decision regarding the vote. If a
client does not respond to such a conflict disclosure request or denies the
request, Millburn may refrain from voting the securities held by that client’s
account.
VI.VOTING
POLICY
These
are policy guidelines that can always be superseded, subject to the duty to act
solely in the best interest of the beneficial owners of accounts, by the
investment management professionals responsible for the account with respect to
which shares are being voted.
(1)Election
of Directors
A.Voting
on Director Nominees in Uncontested Elections.
We
vote for
director
nominees.
B.Chairman
and CEO is the Same Person.
We
vote against
shareholder
proposals that would require the positions of Chairman and CEO to be held by
different persons.
C.Majority
of Independent Directors
1.We
vote for
shareholder
proposals that request that the board be comprised of a majority of independent
directors. In determining whether an independent director is truly independent
(e.g.,
when
voting on a slate of director candidates), we consider certain factors
including, but not necessarily limited to, the following: (i) whether the
director or his/her company provided professional services to the company or its
affiliates either currently or in the past year; (ii) whether the director has
any transactional relationship with the company; (iii) whether the director is a
significant customer or supplier of the company; (iv) whether the director is
employed by a foundation or university that received grants or endowments from
the company or its affiliates; and (v) whether there are interlocking
directorships.
2.We
vote for
shareholder
proposals that request that the board audit, compensation and/or nominating
committees include independent directors exclusively.
D.Stock
Ownership Requirements
We
vote against
shareholder
proposals requiring directors to own a minimum amount of company stock in order
to qualify as a director, or to remain on the board.
E.Term
of Office
We
vote against
shareholder
proposals to limit the tenure of independent directors.
F.Director
and Officer Indemnification and Liability Protection
(1)Subject
to subparagraphs 2, 3, and 4 below, we vote for
proposals
concerning director and officer indemnification and liability
protection.
(2)We
vote for
proposals
to limit, and against
proposals
to eliminate entirely, director and officer liability for monetary damages for
violating the duty of care.
(3)We
vote against
indemnification
proposals that would expand coverage beyond just legal expenses to acts, such as
negligence, that are more serious violations of fiduciary obligations than mere
carelessness.
(4)We
vote for
only
those proposals that provide such expanded coverage noted in subparagraph 3
above in cases when a director's or officer's legal defense was unsuccessful if:
(i) 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
(ii)
only the director's legal expenses would be covered.
G.Charitable
Contributions
We
vote against
proposals
to eliminate, direct or otherwise restrict charitable
contributions.
H.Mandatory
Retirement Ages
We
vote on a case-by-case
basis
for proposals to set mandatory retirement ages prior to age 80 for directors. We
vote for
proposals
to set a mandatory retirement age of 80 for directors.
(5)Proxy
Contests
A.Voting
for Director Nominees in Contested Elections
We
vote on a case-by-case
basis
in contested elections of directors.
B.Reimburse
Proxy Solicitation Expenses
We
vote on a case-by-case
basis
against proposals to provide full reimbursement for dissidents waging a proxy
contest.
(6)Auditors
A.Ratifying
Auditors
We
vote for
proposals
to ratify auditors, unless an auditor has a financial interest in or association
with the company, and is therefore not independent; or there is reason to
believe that the independent auditor has rendered an opinion that is neither
accurate nor indicative of the company's financial position or there is reason
to believe the independent auditor has not followed the highest level of ethical
conduct. Specifically, we will vote to ratify auditors if the auditors only
provide the company
audit
and audit-related services and such other non-audit services the provision of
which will not cause such auditors to lose their independence under applicable
laws, rules and regulations.
(7)Proxy
Contest Defenses
A.Board
Structure: Staggered vs. Annual Elections
1.We
vote against
proposals
to classify the board, except in the case of registered, closed-end investment
companies.
2.We
vote for
proposals
to repeal classified boards and to elect all directors annually, except in the
case of registered, closed-end investment companies.
B.Shareholder
Ability to Remove Directors
1.We
vote against
proposals
that provide that directors may be removed only
for
cause, except in the case of registered, closed-end investment
companies.
2.We
vote for
proposals
to restore shareholder ability to remove directors with or without cause, except
in the case of registered, closed-end investment companies.
3.We
vote against
proposals
that provide that only continuing directors may elect replacements to fill board
vacancies, except in the case of registered, closed-end investment
companies.
4.We
vote for
proposals
that permit shareholders to elect directors to fill board vacancies, except in
the case of registered, closed-end investment companies.
C.Cumulative
Voting
1.We
vote against
proposals
to eliminate cumulative voting.
2.We
vote for
proposals
to permit cumulative voting if there is an indication of a gap in the company’s
corporate governance.
D.Shareholder
Ability to Call Special Meetings
1.We
vote against
proposals
to restrict or prohibit shareholder ability to call special meetings, except in
the case of registered investment companies.
2.We
vote for
proposals
that remove restrictions on the right of shareholders to act independently of
management.
E.Shareholder
Ability to Act by Written Consent
1.We
vote against
proposals
to restrict or prohibit shareholder ability to take action by written
consent.
2.We
vote for
proposals
to allow or make easier shareholder action by written consent.
F.Shareholder
Ability to Alter the Size of the Board
(1)We
vote for
proposals
that seek to fix the size of the board.
(2)We
vote against
proposals
that give management the ability to alter the size of the board without
shareholder approval.
(3)Tender
Offer Defenses
A.Poison
Pills
1.We
vote for
shareholder
proposals that ask a company to submit its poison pill for shareholder
ratification.
2.We
vote on a case-by-case
basis
for shareholder proposals to redeem a company's poison pill.
3.We
vote on a case-by-case
basis
management proposals to ratify a poison pill.
B.Fair
Price Provisions
1.We
vote for
fair
price proposals, as long as the shareholder vote requirement embedded in the
provision is no more than a majority of disinterested shares.
2.We
vote for
shareholder
proposals to lower the shareholder vote requirement in existing fair price
provisions.
C.Freeze-Out
Provisions
1.We
vote for
proposals
to opt out of state freeze-out provisions.
D.Greenmail
1.We
vote for
proposals
to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a
company's ability to make greenmail payments.
2.We
vote on a case-by-case
basis
for anti-greenmail proposals when they are bundled with other charter or bylaw
amendments.
E.Unequal
Voting Rights
1.We
vote against
dual
class exchange offers.
2.We
vote against
dual
class re-capitalization.
F.Supermajority
Shareholder Vote Requirement to Amend the Charter or Bylaws
1.We
vote against
management
proposals to require a supermajority shareholder vote to approve charter and
bylaw amendments, except in the case of registered, closed-end investment
companies.
2.We
vote for
shareholder
proposals to lower supermajority shareholder vote requirements for charter and
bylaw amendments.
G.Supermajority
Shareholder Vote Requirement to Approve Mergers
(1)We
vote against
management
proposals to require a supermajority shareholder vote to approve mergers and
other significant business combinations, except in the case of registered,
closed-end investment companies.
(2)We
vote for
shareholder
proposals to lower supermajority shareholder vote requirements for mergers and
other significant business combinations.
H.White
Squire Placements
We
vote for
shareholder
proposals to require approval of blank check preferred stock
issues.
(3)Miscellaneous
Governance Provisions
A.Confidential
Voting
1.We
vote for
shareholder
proposals that request corporations to adopt confidential voting, use
independent tabulators and use independent inspectors of election.
2.We
vote for
management
proposals to adopt confidential voting.
B.Equal
Access
Except
for registered, closed-end investment companies, we vote for
shareholder
proposals that would allow significant company shareholders equal access to
management's proxy material in order to evaluate and propose voting
recommendations on proxy proposals and director nominees, and in order to
nominate their own candidates to the board.
C.Bundled
Proposals
We
vote on a case-by-case
basis
for bundled or "conditioned" proxy proposals. In the case of items that are
conditioned upon each other, we examine the benefits and costs of the packaged
items. In instances when the joint effect of the conditioned items is not in
shareholders' best interests and therefore not in the best interests of the
beneficial owners of accounts, we vote against the proposals. If the combined
effect is positive, we support such proposals.
D.Amend
Bylaws without Shareholder Consent
(1)Vote
against
proposal
giving the board exclusive authority to amend the bylaws.
(2)Vote
for
proposals
giving the board the ability to amend the bylaws with shareholders
consent.
E.Shareholder
Advisory Committees
We
vote on a case-by-case
basis
for proposals to establish a shareholder advisory committee.
(3)Capital
Structure
A.Common
Stock Authorization
1.We
vote on a case-by-case
basis
for proposals to increase the number of shares of common stock authorized for
issue, except as described below.
2.We
vote for
the
approval requesting increases in authorized shares if the company meets certain
criteria:
a)Company
has already issued a certain percentage (i.e.,
greater than 50%) of the company's allotment.
b)The
proposed increase is reasonable (i.e.,
less than 150% of current inventory) based on an analysis of the company's
historical stock management or future growth outlook of the
company.
B.Stock
Distributions: Splits and Dividends
We
vote on a case-by-case
basis
for management proposals to increase common share authorization for a stock
split, provided that the split does not result in an increase of authorized but
unissued shares of more than 100% after giving effect to the shares needed for
the split.
C.Reverse
Stock Splits
We
vote for
management
proposals to implement a reverse stock split, provided that the reverse split
does not result in an increase of authorized but unissued shares of more than
100% after giving effect to the shares needed for the reverse
split.
D.Blank
Check Preferred Stock Authorization
We
vote against
proposals
to create, authorize or increase the number of shares with regard to blank check
preferred stock with unspecified voting, conversion, dividend distribution and
other rights.
E.Shareholder
Proposals Regarding Blank Check Preferred Stock
We
vote for
proposals
requiring a shareholder vote for blank check preferred stock
issues.
F.Adjust
Par Value of Common Stock
We
vote for
management
proposals to reduce the par value of common stock.
G.Pre-emptive
Rights
1.
We
vote on a case-by-case
basis for
shareholder proposals seeking to establish them and consider the following
factors:
a)size
of the company.
b)characteristics
of the size of the holding (i.e.,
holder owning more than 1% of the outstanding shares).
c)percentage
of the rights offering (i.e.,
rule of thumb is less than 5%).
2.
We vote on a case-by-case
basis
for shareholder proposals seeking the elimination of pre-emptive
rights.
H.Debt
Restructuring
We
vote on a case-by-case
basis
for proposals to increase common and/or preferred shares and to issue shares as
part of a debt-restructuring plan. Generally, we approve proposals that
facilitate debt restructuring.
I.Share
Repurchase Programs
We
vote for
management
proposals to institute open-market share repurchase plans in which all
shareholders may participate on equal terms.
(8)Executive
and Director Compensation
In
general, we vote for
executive
and director compensation plans, with the view that viable compensation programs
reward the creation of stockholder wealth by having high payout sensitivity to
increases in shareholder value. Certain factors, however, such as repricing
underwater stock options without shareholder
approval,
would cause us to vote against
a
plan. Additionally, in some cases we would vote against
a
plan deemed unnecessary.
A.Shareholder
Proposals to Limit Executive and Director Pay
1.
We vote on a case-by-case
basis
for all shareholder proposals that seek additional disclosure of executive and
director pay information.
2.
We vote on a case-by-case
basis
for all other shareholder proposals that seek to limit executive and director
pay. We have a policy of voting to limit the level of options and other
equity-based compensation arrangements available to management to limit
shareholder dilution and management overcompensation. We would vote against any
proposals or amendments that would cause the available awards to exceed a
threshold of 10% of outstanding fully diluted shares (i.e.,
if the combined total of shares, common share equivalents and options available
to be awarded under all current and proposed compensation plans exceeds 10% of
fully diluted shares). We also review the annual award as a percentage of fully
diluted shares outstanding.
B.Golden
Parachutes
1.
We vote for
shareholder
proposals to have golden parachutes submitted for shareholder
ratification.
2.
We vote on a case-by-case
basis
all proposals to ratify or cancel golden parachutes.
C.Employee
Stock Ownership Plans (ESOPs)
We
vote for
proposals
that request shareholder approval in order to implement an ESOP or to increase
authorized shares for existing ESOPs, except in cases when the number of shares
allocated to the ESOP is "excessive" (i.e.,
generally greater than five percent of outstanding shares).
D.401(k)
Employee Benefit Plans
We
vote for
proposals
to implement a 401(k) savings plan for employees.
(9)State/Country
of Incorporation
A.Voting
on State Takeover Statutes
We
vote on a case-by-case
basis
for proposals 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).
B.Voting
on Re-incorporation Proposals
We
vote on a case-by-case
basis
for proposals to change a company's state or country of
incorporation.
(10)
Mergers and Corporate Restructuring
A.Mergers
and Acquisitions
We
vote on a case-by-case
basis
for mergers and acquisitions. In determining our vote on mergers and
acquisitions, we also analyze the following factors, among others:
1.Valuation
– whether the value to be received by the target shareholders (or paid by the
acquirer) is reasonable.
2.Market
reaction – how the market desponded to the proposed deal.
3.Strategic
rationale – whether the deal makes sense strategically.
4.Negotiations
and process - whether the terms of the transaction were negotiated at arm’s
length; whether the process was fair and equitable.
B.Corporate
Restructuring
We
vote on a case-by-case
basis
for corporate restructuring proposals, including minority squeeze outs,
leveraged buyouts, spin-offs, liquidations, and asset sales.
C.Spin-offs
We
vote on a case-by-case
basis
for spin-offs. Considerations include the tax and regulatory advantages, planned
use of sale proceeds, market focus, and managerial incentives.
D.Asset
Sales
We
vote on a case-by-case
basis
for asset sales.
E.Liquidations
We
vote on a case-by-case
basis
for liquidations after reviewing management's efforts to pursue other
alternatives, appraisal value of assets and the compensation plan for executives
managing the liquidation.
F.Appraisal
Rights
We
vote for
proposals
to restore, or provide shareholders with, rights of appraisal.
G.Changing
Corporate Name
We
vote on a case-by-case
basis
for changing the corporate name.
(11)
Social and Environmental Issues
In
general, we vote on a case-by-case
basis
on shareholder social and environmental proposals, on the basis that their
impact on share value can rarely be anticipated with any high degree of
confidence. In most cases, however, we vote for
disclosure
reports that seek additional information, particularly when it appears companies
have not adequately addressed shareholders' social and environmental concerns.
In determining our vote on shareholder social and environmental proposals, we
also analyze the following factors:
1.whether
adoption of the proposal would have either a positive or negative impact on the
company's short-term or long-term share value;
2.the
percentage of sales, assets and earnings affected;
3.the
degree to which the company's stated position on the issues could affect its
reputation or sales, or leave it vulnerable to boycott or selective
purchasing;
4.whether
the issues presented should be dealt with through government or company-specific
action;
5.whether
the company has already responded in some appropriate manner to the request
embodied in a proposal;
6.whether
the company's analysis and voting recommendation to shareholders is
persuasive;
7.what
other companies have done in response to the issue;
8.whether
the proposal itself is well framed and reasonable;
9.whether
implementation of the proposal would achieve the objectives sought in the
proposal; and
10.whether
the subject of the proposal is best left to the discretion of the
board.
The
voting policy guidelines set forth in this Section V may be changed from time to
time by Millburn in its sole discretion.
VII.RECORDKEEPING
AND OVERSIGHT
In
accordance with Rule 204-2 under the Advisers Act, Millburn shall maintain the
following records relating to proxy voting for the time periods set forth in the
rule:
•a
copy of these policies and procedures, and all amendments thereto;
•a
copy of each proxy form (as voted), unless such proxy is voted
electronically;
•a
copy of each proxy solicitation (including proxy statements) and related
materials with regard to each vote, unless such material is available via
EDGAR;
•documentation
relating to the identification and resolution of conflicts of
interest;
•any
documents prepared by Millburn that were material to a making a decision on how
to vote or that memorialized the basis for that decision; and
•a
copy of each written client request for information on how Millburn voted
proxies on behalf of the client, and a copy of any written response by Millburn
to any (written or oral) client request for information on how Millburn voted
proxies on behalf of the requesting client.
Such
records shall be maintained and preserved in an easily accessible place for a
period of not less than five years from the end of the fiscal year during which
the last entry was made on such record, the first two years in Millburn’s
offices.
In
addition, with respect to proxy voting records of any fund registered under the
Investment Company Act of 1940, Millburn shall maintain such records as are
necessary to allow such fund to comply with its recordkeeping, reporting and
disclosure obligations under applicable laws, rules and
regulations.
In
lieu of keeping copies of proxy statements, Millburn may rely on proxy
statements filed on the EDGAR system as well as on third party records of proxy
statements and votes cast if the third party provides an undertaking to provide
the documents promptly upon request.
Clients
may obtain information on how their securities were voted or a copy of
Millburn’s policies and procedures by written request.
VIII. PROCEDURES
FOR PROXIES
The
person designated by the Securities Investment Committee (the “Designated Proxy
Voter”) will be responsible for determining whether each proxy is specifically
addressed by these policies and procedures. All proxies identified as governed
by the specific instructions within these policies and procedures will be voted
by that person in accordance with these policies.
Any
proxies that are not specifically addressed by these policies and procedures
will be submitted to the Securities Investment Committee, which will determine
how to vote each such proxy by applying these policies. Upon making a decision,
the rationale for the decision shall be documented and the proxy will be voted.
The Designated Proxy Voter is responsible for the actual voting of all proxies
in a timely manner and, in consultation with the Chief Compliance Officer, is
responsible for monitoring the effectiveness of these policies. The Designated
Proxy Voter and Chief Compliance Officer are also responsible for ensuring that
adequate disclosures have been made to clients about procedures and how proxies
were voted.
In
the event that it is determined that the advice of an independent third party or
a committee should be relied upon regarding the voting of a proxy, the
Designated Proxy Voter will submit the proxy to such third party or committee
for a decision. The Designated Proxy Voter will then have the proxy executed in
accordance with such third party's or committee's decision.
________________________
These
Proxy Voting Policies and Procedures will be reviewed on an annual
basis.
PROXY
VOTING POLICY AND PROCEDURES
Millrace
Asset Group, Inc.
I. STATEMENT
OF POLICY
Proxy
voting is an important right of shareholders and reasonable care and diligence
must be undertaken to ensure that such rights are properly and timely exercised.
When the Adviser has discretion to vote the proxies of its clients, it will vote
those proxies in the best interest of its clients and in accordance with these
policies and procedures.
II. PROXY
VOTING PROCEDURES
All
proxies received by the Adviser will be sent to the Chief Financial Officer. The
Chief Financial Officer will:
•Keep
a record of each proxy received and how voted;
•Determine
which accounts managed by the Adviser hold the security to which the proxy
relates;
•Absent
material conflicts (see Section IV below), determine how the Adviser should vote
the proxy and in a timely manner vote the proxy by mail or electronic
means.
•The
Adviser may retain a third party to assist it in coordinating and voting proxies
with respect to client securities. If so, the Compliance Officer will monitor
the third party to assure that all proxies are being properly voted and
appropriate records are being retained.
III. VOTING
GUIDELINES
In
the absence of specific voting guidelines from the client, the Adviser will vote
proxies in the best interests of each particular client, which may result in
different voting results for proxies for the same issuer. The Adviser believes
that voting proxies in accordance with the following guidelines is in the best
interests of its clients.
•Generally,
the Adviser will vote in favor of routine corporate housekeeping proposals,
including election of directors, selection of auditors, and increases in or
reclassification of common stock. The Adviser will generally vote for stock
option plans or plan amendments for corporate directors, executive and
employees.
•Generally,
the Adviser will vote against proposals that make it more difficult to replace
members of the issuer’s board of directors, including proposals to stagger the
board, cause management to be overrepresented on the board, introduce cumulative
voting, introduce unequal voting rights, and create supermajority
voting.
For
other proposals, the Adviser shall determine whether a proposal is in the best
interests of its clients and may take into account the following factors, among
others:
•whether
the proposal was recommended by management and the Adviser's opinion of
management;
•whether
the proposal acts to entrench existing management; and
•whether
the proposal fairly compensates management for past and future
performance.
IV. CONFLICTS
OF INTEREST
1.The
Compliance Officer will identify any conflicts that exist between the interests
of the Adviser and its clients. Generally, the Adviser’s interest and the
interest of the Adviser’s clients are closely aligned as the Adviser’s owners
and employees are investors in the Fund managed by the Adviser. This examination
will include a review of the relationship of the Adviser and its affiliates with
the issuer of each security and any of the issuer’s affiliates to determine if
the issuer is a client of the Adviser or an affiliate of the Adviser or has some
other relationship with the Adviser or a client of the Adviser.
2.If
a material conflict exists, the Adviser will determine whether voting in
accordance with the voting guidelines and factors described above is in the best
interests of the client. The Adviser will also determine whether it is
appropriate to disclose the conflict to the affected clients and, except in the
case of clients that are subject to the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), give the clients the opportunity to vote their
proxies themselves. In the case of ERISA clients, if the Investment Management
Agreement reserves to the ERISA client the authority to vote proxies when the
Adviser determines it has a material conflict that affects its best judgment as
an ERISA fiduciary, the Adviser will give the ERISA client the opportunity to
vote the proxies themselves. Absent the client reserving voting rights, the
Adviser will vote the proxies solely in accordance with the policies outlined in
Section III. “Voting Guidelines” above.
V. DISCLOSURE
1.The
Adviser will disclose in its Form ADV Part 2 that clients may contact the
Compliance Officer, via mail, e-mail or telephone, in order to obtain
information on how the Adviser voted such client’s proxies, and to request a
copy of these policies and procedures. If a client requests this information,
the Compliance Officer will prepare a written response to the client that lists,
with respect to each voted proxy about which the client has inquired, (a) the
name of the issuer; (b) the proposal voted upon, and (c) how the Adviser voted
the client’s proxy.
2.A
concise summary of this Proxy Voting Policy and Procedures will be included in
the Adviser’s Form ADV Part 2, and will be updated whenever these policies and
procedures are updated. Upon written request, the Compliance Officer will
provide a copy of this summary or specific voting history to a
client.
VI. RECORDKEEPING
The
Compliance Officer will maintain files relating to the Adviser’s proxy voting
procedures in an easily accessible place. Records will be maintained and
preserved for five years from the end of the fiscal year during which the last
entry was made on a record, with records for the first two years kept in the
offices of the Adviser. Records of the following will be included in the
files:
•Copies
of this proxy voting policy and procedures, and any amendments
thereto.
•A
copy of each proxy statement that the Adviser receives that are not available on
the SEC’s EDGAR system.
•A
record of each vote that the Adviser casts.
•A
copy of any document the Adviser created that was material to making a decision
how to vote proxies, or that memorializes that decision.
•A
copy of each written client request for information on how the Adviser voted
such client’s proxies, and a copy of any written response to any (written or
oral) client request for information on how the Adviser voted its
proxies.