ck0001959372-20240331
ARISTOTLE
FUNDS SERIES TRUST
STATEMENT
OF ADDITIONAL INFORMATION
Dated
July 29, 2024
Aristotle
Funds Series Trust (the “Trust”), which may be referred to as “Aristotle Funds,”
is an open-end investment management company that is comprised of multiple
series. This statement of additional information (“SAI”) relates to the
following series (each a “Fund,” and together the “Funds” or “Aristotle
Funds”).
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| TICKER
SYMBOLS by Share Class |
FUND |
A |
C |
I |
R6 |
I-2 |
Aristotle
Core Equity Fund |
ARALX |
N/A |
ARILX |
N/A |
AILLX |
Aristotle
Core Income Fund |
PLIAX |
PLNCX |
PLIIX |
N/A |
PLIDX |
Aristotle
ESG Core Bond Fund |
N/A |
N/A |
PLEBX |
N/A |
PLEDX |
Aristotle
Floating Rate Income Fund |
PLFLX |
PLBCX |
PLFRX |
N/A |
PLFDX |
Aristotle
Growth Equity Fund |
ARAGX |
N/A |
ARIGX |
N/A |
AIGGX |
Aristotle
High Yield Bond Fund |
PLAHX |
PLCHX |
PLHIX |
N/A |
PLHYX |
Aristotle
International Equity Fund |
ARAFX |
N/A |
ARIFX |
N/A |
AIFFX |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
POEAX |
POCEX |
N/A |
N/A |
POEDX |
Aristotle
Portfolio Optimization Conservative Fund |
POAAX |
POACX |
N/A |
N/A |
PLCDX |
Aristotle
Portfolio Optimization Growth Fund |
PODAX |
PODCX |
N/A |
N/A |
PMADX |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
POBAX |
POBCX |
N/A |
N/A |
PMCDX |
Aristotle
Portfolio Optimization Moderate Fund |
POCAX |
POMCX |
N/A |
N/A |
POMDX |
Aristotle
Short Duration Income Fund |
PLADX |
PLCSX |
PLSDX |
N/A |
PLDSX |
Aristotle
Small Cap Equity Fund |
ARABX |
AISBX |
ARIBX |
ARRBX |
AIBBX |
Aristotle
Small/Mid Cap Equity Fund |
ARAHX |
AISHX |
ARIHX |
N/A |
AIHHX |
Aristotle
Strategic Income Fund |
PLSTX |
PLCNX |
PLSRX |
N/A |
PLSFX |
Aristotle
Ultra Short Income Fund |
PLUAX |
N/A |
PLUIX |
N/A |
PLUDX |
Aristotle
Value Equity Fund |
ARAQX |
N/A |
ARIQX |
ARRQX |
AIQQX |
Aristotle/Saul
Global Equity Fund |
ARAOX |
N/A |
ARIOX |
N/A |
AIOOX |
The
Trust’s investment adviser is Aristotle Investment Services, LLC (“AIS,”
“Aristotle,” or “Adviser”). This SAI has been filed with the U.S. Securities and
Exchange Commission (the “SEC”) as part of the Trust’s Registration Statement
and is intended to supplement the information provided in the Trust’s prospectus
and summary prospectuses for the Funds listed above dated July 29, 2024, and any
supplements thereto (“Prospectus” or “Prospectuses”). Investors should note,
however, that this SAI is not itself a prospectus and should be read carefully
in conjunction with the Prospectuses and retained for future reference. The
entire content of this SAI is incorporated by reference into the Prospectuses.
As described in this SAI, certain Funds served as surviving funds in
reorganizations with Predecessor Funds (defined below). A copy of the
Prospectuses, and a copy of the Funds’ most recent annual
report,
can be obtained free of charge from an authorized dealer or from the Trust at
the Internet website address or telephone number listed below.
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Distributor:
Foreside Financial Services, LLC |
Fund
information:
Aristotle
Funds Series Trust |
Three
Canal Plaza, Suite 100
Portland,
ME 04101 |
11100
Santa Monica Blvd., Suite 1700
Los
Angeles, CA 90025 |
(207)
553-7110 |
844-ARISTTL
(844-274-7885) |
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Website:
aristotlefunds.com
TABLE
OF CONTENTS
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Geopolitical,
Social and Economic Risk |
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Investments
in the Underlying Funds |
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Mortgage-Related
Securities |
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INTRODUCTION
This
SAI is designed to elaborate upon information contained in the Prospectuses and
provides additional information about the Funds and the Trust. The more detailed
information contained herein is intended for investors who have read the
Prospectuses and are interested in additional information about the Funds and
the Trust. Terms defined herein may have previously been defined in the
Prospectuses.
On
April 10, 2023, shareholders of certain series of Pacific Funds Series Trust
voted to approve the transfer of all of the assets of certain of its funds to
certain series of the Trust in exchange for shares of the Acquiring Fund
(defined below) and the assumption by that Acquiring Fund of all of the
liabilities of the corresponding Pacific Funds Series Trust fund. The
reorganizations of the series of Pacific Funds Series Trust into series of the
Trust were completed on April 17, 2023. On October 6, 2023, shareholders of
certain series of Investment Managers Series Trust voted to approve the transfer
of all of the assets of the respective Predecessor Fund (defined below) to
certain series of the Trust in exchange for shares of the Acquiring Fund
(defined below) and the assumption by that Acquiring Fund of all of the
liabilities of the corresponding Predecessor Fund. The reorganizations of the
series of Investment Managers Series Trust into series of the Trust were
completed on October 23, 2023. Each of the transactions described above may be
referred to as a “reorganization.” The series of Investment Managers Series
Trust that reorganized into series of the Trust may each be referred to as a
“Predecessor Fund,” and the corresponding series of the Trust that participated
in the reorganization may be referred to as the “Acquiring Fund.” Shareholders
of the Predecessor Funds received a proportional distribution of shares of the
corresponding Acquiring Fund. At the time of the reorganizations that occurred
on April 17, 2023, each of the Acquiring Funds was a newly formed series of
Aristotle Funds Series Trust (the “Trust”), which at the time, was itself a
newly created Delaware statutory trust. At the time of the reorganizations that
occurred on October 23, 2023, Aristotle Value Equity Fund and Aristotle/Saul
Global Equity Fund had not commenced operations.
ADDITIONAL
INVESTMENT STRATEGIES OF THE FUNDS
The
investment goal and principal investment strategies of each Fund are described
in the Prospectuses. The following descriptions and the information in the
“Investment Restrictions” section provide more detailed information on
additional investment policies and investment strategies for each Fund and are
intended to supplement the information provided in the Prospectuses. The Adviser
may, in consultation with the relevant sub-adviser management firm
(“sub-adviser”), revise investment policies, strategies and restrictions for a
Fund other than fundamental policies of a Fund. Any percentage limitations
noted, unless otherwise specified, are based on market value at the time of
investment. If net assets are not specified, then percentage limits refer to
total assets. Net assets are assets in each Fund, minus any liabilities. Total
assets are equal to the fair value of securities owned, cash, receivables, and
other assets before deducting liabilities. The Adviser and each sub-adviser
(each a “Manager” and together with the sub-advisers to other series of the
Trust, the “Managers”) may rely on existing or future laws, rules, exemptive
orders, and no-action or interpretive positions adopted by the SEC staff (or
Commodity Futures Trading Commission (“CFTC”) or other regulatory or
self-regulatory agency) in determining whether their actions are in compliance
with applicable laws and rules.
The
Portfolio Optimization Funds (defined below) normally invest all of their assets
in Class I shares of other Funds in the Trust (the “Aristotle Underlying Funds”)
and in other unaffiliated exchange-traded funds (“Underlying ETFs,” and together
with the Aristotle Underlying Funds, the “Underlying Funds”) as described in the
Prospectuses. Aristotle Portfolio Optimization Conservative Fund, Aristotle
Portfolio Optimization Moderate Conservative Fund, Aristotle Portfolio
Optimization Moderate Fund, Aristotle Portfolio Optimization Growth Fund and
Aristotle Portfolio Optimization Aggressive Growth Fund (together, the
“Portfolio Optimization Funds”) are series of the Trust that operate as
“funds-of-funds,” which means they invest primarily in other mutual
funds.
In
reorganization transactions that occurred on April 17, 2023 and October 23,
2023, each Fund assumed the performance, financial and other historical
information of its corresponding Predecessor Fund. Accordingly, information
provided in this SAI for those Funds that relates to periods prior to the
reorganization transaction that occurred on April 17, 2023 or October 23, 2023,
as applicable, is that of the Predecessor Fund.
Unless
otherwise noted, a Fund may invest in other types of securities and investments
and/or the Adviser or Manager may use other investment strategies in managing
the Funds, which include those securities, investments and investment techniques
not specifically noted or prohibited in the Prospectuses or this SAI that the
Adviser or Manager reasonably believes are compatible with the investment goals
and policies of that Fund.
Unless
otherwise noted, a Fund may lend up to 33⅓% of its assets to broker-dealers and
other financial institutions to earn income, may borrow money for administrative
or emergency purposes, may invest in restricted securities, and may invest up to
15% of its net assets in illiquid investments.
Unless
otherwise noted, a Fund may invest up to 25% of its assets in privately issued
mortgage-related securities (i.e., mortgage-related securities which are issued
by parties other than the U.S. government or its agencies or instrumentalities).
A Fund may invest up to 25% of its assets in other privately issued asset-backed
securities (excluding privately issued mortgage-related securities, which are
included in the limitation on privately issued mortgage-related securities).
Each of Aristotle Ultra Short Income Fund and Aristotle Short Duration Income
Fund may invest up to 30% of its assets in privately issued asset-backed
securities. Aristotle Ultra Short Income Fund currently expects to invest, under
normal circumstances, more than 10% of its assets in privately issued
asset-backed securities and less than 10% of its assets in privately issued
mortgage-related securities.
Each
Manager may, in addition to other permissible investments, invest in money
market funds, including those it manages, as a means of return on cash, as
permitted by the Investment Company Act of 1940, as amended (“1940 Act”) and
rules promulgated thereunder.
In
general, if a Fund takes a temporary defensive position as described in the
General
Investment Information
section of the Prospectuses, it may assume a temporary defensive position that
is inconsistent with its principal investment goal(s) and/or strategies by
temporarily investing (partially or extensively) in U.S. government securities
such as U.S. Treasuries, high quality corporate debt securities/debt
obligations, money market instruments (short-term high-quality instruments)
and/or cash equivalents (including overnight investments). The Prospectuses and
this SAI may include limitations on the types of investments or include
additional investments a Fund may utilize for temporary defensive position
purposes.
Aristotle
Core Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: borrowing; securities issued by other
investment companies; other pooled investment vehicles; debt securities; U.S.
government obligations; illiquid and restricted securities; lending portfolio
securities; private placements; short-term investments such as bank certificates
of deposit, bankers’ acceptances and time deposits, savings association
obligations, commercial paper, short-term notes and other corporate obligations;
and temporary investments.
Aristotle
Core Income
Fund
For
more information on the Fund’s principal investments in debt securities that are
rated non-investment grade (high yield/high risk, sometimes called “junk
bonds”), or if unrated, are of comparable quality as determined by the Manager,
see the “Description of Fixed Income/Debt Instrument Ratings” in Appendix A and
the discussion under “High Yield/High Risk Bonds.”
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: collateralized mortgage obligations
(“CMOs”); commercial mortgage-backed securities (“CMBS”); convertible
securities; preferred stocks; trust preferreds; credit default swaps (“CDS”);
debt instruments of developed markets denominated in a foreign currency;
emerging market debt instruments denominated in U.S. dollars; commercial paper;
money market instruments; and municipal securities. The Fund may also invest up
to 5% of its assets in common stocks.
Aristotle
ESG Core Bond Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: CMBS; convertible securities; preferred
stocks; trust preferreds; CDS; debt instruments of developed markets denominated
in a foreign currency; emerging market debt instruments denominated in U.S.
dollars; commercial paper; money market instruments; municipal securities; and
non-income producing investments. The Fund may invest up to 5% of its assets in
common stocks. The Fund may also invest up to 5% of its assets in non-investment
grade securities, including bank loans and high yield bonds. In those cases
where environmental, social and governance (“ESG”) metrics are not available for
certain types of securities or issuers, these securities may nonetheless be
eligible for the Fund.
Aristotle
Floating Rate Income Fund
For
more information on the Fund’s principal investments in floating rate loans and
its investments in other types of debt instruments or securities including
non-investment grade (high yield/high risk, sometimes called “junk bonds”) debt
instruments, or if unrated, are of comparable quality as determined by the
Manager, see the “Description of Fixed Income/Debt Instrument Ratings” in
Appendix A and the discussions under “High Yield/High Risk Bonds” and “Loan
Participations and Assignments.”
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: investment grade debt securities; warrants
and equity securities in connection with the Fund’s investments in senior loans
or other debt instruments; senior loans, of which the interest rates are fixed
and do not float or vary periodically based upon a benchmark indicator, a
specified adjustment schedule or prevailing interest rate; senior subordinated
bridge loans, senior secured bonds, senior unsecured bonds and unsecured or
subordinated bonds, all of varying qualities and maturities, and all of which
may be fixed or floating rate; other floating rate debt instruments, such as
notes and asset-backed securities (including special purpose trusts investing in
bank loans); loans or other debt instruments that pay-in-kind, which are loans
or other debt instruments that pay interest through the issuance of additional
securities; CDS; other investment companies, including exchange-traded funds
(“ETFs”) and closed-end funds which invest in floating rate instruments; and
emerging market investments denominated in U.S. dollars. The Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory fee paid by the Fund.
Aristotle
Growth Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: borrowing; securities issued by other
investment companies; other pooled investment vehicles; debt securities; U.S.
government obligations; illiquid and restricted securities; lending portfolio
securities; private placements; short-term investments such as bank certificates
of deposit, bankers’ acceptances and time deposits, savings association
obligations, commercial paper, short-term notes and other corporate obligations;
and temporary investments.
Aristotle
High Yield Bond Fund
As
a component of the Fund’s principal investment strategies described in the
Prospectus, the Fund invests primarily in debt securities rated Ba or lower by
Moody’s Investors Service, Inc. (“Moody’s”), or BB or lower by Standard and
Poor’s Rating Services (“Standard & Poor’s”) or Fitch, Inc. (“Fitch”), or if
unrated, are of comparable quality as determined by the Manager, including
corporate debt securities, variable and floating rate securities, senior loans,
bank obligations and assignments. For more information on such securities, see
the “Description of Fixed Income/Debt Instrument Ratings” in Appendix A and the
discussion under “High Yield/High Risk Bonds.”
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: U.S. government securities (including
securities of U.S. agencies and instrumentalities); commercial paper;
mortgage-related securities; asset-backed securities; CDS; forward commitment
agreements; when-issued securities; American depositary receipts (“ADRs”);
rights; repurchase agreements; reverse repurchase agreements; debt securities of
foreign issuers denominated in foreign currencies, foreign government and
international agencies, including emerging market countries and foreign branches
of U.S. banks. The Fund may also invest up to 10% of its assets in common stocks
(including warrants and including up to 5% in non-dividend paying common
stocks).
In
seeking higher income, managing the Fund’s duration, or a reduction in principal
volatility, the Fund may purchase and sell put and call options on securities;
purchase or sell interest rate futures contracts and options thereon, enter into
interest rate, interest rate index, and currency exchange rate swap agreements,
and invest up to 5% of its assets in spread transactions. The Fund will only
enter into futures contracts and futures options which are standardized and
traded on a U.S. exchange, board of trade, or similar entity.
Aristotle
International Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: real estate investment trusts; U.S.
government obligations; illiquid and restricted securities; lending portfolio
securities; repurchase agreements; short-term investments such as bank
certificates of deposit, bankers’ acceptances and time deposits, savings
association obligations, commercial paper, short-term notes and other corporate
obligations; and temporary investments.
Aristotle
Portfolio Optimization Funds
The
Portfolio Optimization Funds are “funds-of-funds,” which means they invest
primarily in other mutual funds. The Portfolio Optimization Funds will generally
limit their investments to Class I shares of the Aristotle Underlying Funds or
in Underlying ETFs, although the Portfolio Optimization Funds may invest in
securities such as U.S. government securities, short-term debt instruments,
money market instruments and unaffiliated investment companies for temporary
defensive purposes, or otherwise as deemed advisable by the Adviser to the
extent permissible under existing or future rules, orders or guidance of the
SEC. The Prospectus discusses the investment goals and strategies for the Funds
and explain the types of Underlying Funds in which each Fund may
invest.
Aristotle
Short Duration Income Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: CMOs; convertible securities; preferred
stocks; trust preferreds; CDS; debt instruments of developed foreign markets
denominated in a foreign currency; emerging market debt instruments denominated
in U.S. dollars; commercial paper; money market instruments; and municipal
securities. The Fund may also invest up to 5% of its assets in common
stocks.
Aristotle
Small Cap Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: convertible securities; preferred stock;
warrants and rights; debt securities; investment grade securities; U.S.
government obligations; depositary receipts; emerging markets; foreign currency
transactions; illiquid and restricted securities; lending portfolio securities;
repurchase agreements; short-term investments such as bank certificates of
deposit, bankers’ acceptances and time deposits, savings association
obligations, commercial paper, short-term notes and other corporate obligations;
and temporary investments.
Aristotle
Small/Mid Cap Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: convertible securities; preferred stock;
warrants and rights; debt securities; investment grade securities; U.S.
government obligations; depositary receipts; emerging markets; foreign currency
transactions; illiquid and restricted securities; lending portfolio securities;
repurchase agreements; short-term investments such as bank certificates of
deposit, bankers’ acceptances and time deposits, savings association
obligations, commercial paper, short-term notes and other corporate obligations;
and temporary investments.
Aristotle
Strategic Income Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: CMOs; preferred stocks; trust
preferreds; CDS; debt instruments of developed foreign markets denominated in a
foreign currency; emerging market debt instruments denominated in U.S. dollars;
commercial paper; money market instruments; and municipal
securities.
Aristotle
Ultra Short Income Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may also invest non-principally in: CMOs; convertible securities; preferred
stocks; trust preferreds; CDS; debt instruments of developed foreign markets
denominated in a foreign
currency;
emerging market debt instruments denominated in U.S. dollars; and municipal
securities. The Fund may invest up to 10% of its assets in non-investment grade
(high yield/high risk, sometimes called “junk bonds”) debt instruments,
including non-investment grade mortgage-related securities and asset-backed
securities. The Fund may also invest up to 5% of its assets in common
stock.
Aristotle
Value Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: convertible securities; preferred stocks;
real estate investment trusts; warrants and rights; illiquid and restricted
securities; lending portfolio securities; repurchase agreements; short-term
investments such as bank certificates of deposit, bankers’ acceptances and time
deposits, savings association obligations, commercial paper, short-term notes
and other corporate obligations; and temporary investments.
Aristotle/Saul
Global Equity Fund
In
addition to the principal investment strategies described in the Prospectus, the
Fund may invest non-principally in: convertible securities; preferred stocks;
master limited partnerships; real estate investment trusts; warrants and rights;
U.S. government obligations; emerging markets; foreign currency transactions;
illiquid and restricted securities; lending portfolio securities; repurchase
agreements; short-term investments such as bank certificates of deposit,
bankers’ acceptances and time deposits, savings association obligations,
commercial paper, short-term notes and other corporate obligations; and
temporary investments.
ADDITIONAL
INFORMATION ON ARISTOTLE UNDERLYING FUNDS
The
following provides additional information regarding the Aristotle Underlying
Funds of the Portfolio Optimization Funds.
The
Aristotle Underlying Funds in which each of the Portfolio Optimization Funds may
invest are:
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Aristotle Core Income Fund |
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Aristotle Core Equity Fund |
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Aristotle ESG Core Bond Fund |
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Aristotle Growth Equity Fund |
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Aristotle Floating Rate Income Fund |
•
Aristotle International Equity Fund |
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Aristotle High Yield Bond Fund |
•
Aristotle Small Cap Equity Fund |
•
Aristotle Short Duration Income Fund |
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Aristotle
Small/Mid Cap Equity Fund |
•
Aristotle Strategic Income Fund |
•
Aristotle
Value Equity Fund |
•
Aristotle Ultra Short Income Fund |
•
Aristotle/Saul
Global Equity Fund |
AIS
is the investment adviser to the Portfolio Optimization Funds and to the
Aristotle Underlying Funds. Each Aristotle Underlying Fund is sub-advised by an
affiliate of AIS.
DESCRIPTION
OF CERTAIN SECURITIES, INVESTMENTS AND RISKS
Below
are descriptions of certain securities and investments that the Funds may use,
subject to a particular Fund’s investment restrictions and other limitations,
and their related risks as well as other risks to which a Fund may be exposed.
Unless otherwise stated in the Prospectus, many investment strategies, including
various hedging techniques and techniques which may be used to help add
incremental income, are discretionary. That means Managers may elect to engage
or not to engage in the various techniques at their sole discretion. Hedging may
not be cost-effective, hedging techniques may not be available when sought to be
used by a Manager, or Managers may simply elect not to engage in hedging and
have a Fund assume full risk of the investments. Investors should not assume
that a Fund will be hedged at all times or that it will be hedged at all; nor
should investors assume that any particular discretionary investment technique
or strategy will be employed at all times, or ever employed.
The
investment strategies described below may be pursued directly by the Aristotle
Underlying Funds. As a general matter, the Portfolio Optimization Funds do not
invest directly in securities. However, the Portfolio Optimization Funds are
subject to the risks described below indirectly through their investment in
their respective Aristotle Underlying Funds.
Equity
Securities
Common
and preferred stocks represent an ownership interest, or the right to acquire an
ownership interest, in an issuer.
The
value of a company’s stock may fall as a result of factors directly related to
that company, such as decisions made by its management or lower demand for the
company’s products or services. A stock’s value also may fall because of factors
affecting not just the company, but also companies in the same industry or in a
number of different industries, such as increases in production costs. The value
of a company’s stock also may be affected by changes in financial markets that
are less directly related to the company or its industry, such as changes in
interest rates or currency exchange rates.
Preferred
stock generally has a greater priority to a company’s earnings and assets. A
company generally pays dividends only after the company invests in its own
business and makes required payments to holders of its bonds and other debt, and
dividends on preferred stock are paid before common stock. For this reason, the
value of a company’s common stock will usually react more strongly than its
bonds and other debt and preferred stock to actual or perceived changes in the
company’s financial condition or outlook. Stocks of companies that the portfolio
managers believe are fast-growing may trade at a higher multiple of current
earnings
than
other stocks. The value of such stocks may be more sensitive to changes in
current or expected earnings than the values of other stocks.
Common
and preferred stocks generally provide different voting rights. Common stock
typically entitles the owner to vote on matters related to the company while
preferred stock does not typically carry voting rights.
Common
and preferred stocks have different priority in the event of the bankruptcy
and/or insolvency of the company. In the event the issuer declares bankruptcy or
is otherwise insolvent, the claims of secured and unsecured creditors and owners
of bonds and other debt take precedence over the claims of those who own common
and preferred stock. For this reason, the value of common and preferred stock
will usually react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition or outlook. Preferred
stock may entitle the owner to receive, in preference to the holders of common
stock, a fixed share of the proceeds resulting from a liquidation of the
company.
Common
and preferred stocks also generally provide different dividend rights. Common
stock owners are typically entitled to receive dividends declared and paid on
such shares. Preferred stock, unlike common stock, often has a stated dividend
rate payable from the company’s earnings. Preferred stock dividends may pay out
at fixed or adjustable rates of return, and can be cumulative or non-cumulative,
participating or non-participating. Cumulative dividend provisions require all
or a portion of prior unpaid dividends to be paid before dividends can be paid
to the company’s common stock, while a dividend on non-cumulative preferred
stock that has not been paid on the stated dividend period is typically lost
forever. Participating preferred stock may be entitled to a dividend exceeding
the declared dividend in certain cases, while non-participating preferred stock
is limited to the stated dividend. Adjustable-rate preferred stock pays a
dividend that is adjustable on a periodic basis, generally based on changes in
certain interest rates. If interest rates rise, a fixed dividend on preferred
stocks may be less attractive, causing the price of such stocks to decline.
Preferred stock may have mandatory sinking fund provisions, as well as
provisions allowing the stock to be called or redeemed, which can limit the
benefit of a decline in interest rates. Preferred stock is subject to many of
the risks to which common stock are subject, including issuer-specific and
market risks, but is also subject to many of the risks to which debt securities
are subject, such as interest rate risk. The risks of equity securities are
generally magnified in the case of equity investments in distressed
companies.
Equity-related
securities share certain characteristics of equity securities and may include
depositary receipts, convertible securities and warrants. These instruments are
discussed elsewhere in the Prospectus and this SAI. Equity-related securities
are subject to many of the same risks, although possibly to different
degrees.
Real
Estate Investment Trusts (“REITs”).
A REIT is a type of equity security that pools investors’ funds for investment
primarily in income-producing real estate or in loans or interests related to
real estate and often trades on exchanges like a stock. A REIT is not taxed on
income distributed to its shareholders or unit holders if it complies with a
regulatory requirement that it distributes to its shareholders or unit holders
at least 90% of its taxable income for each taxable year. Generally, REITs can
be classified as equity REITs, mortgage REITs or hybrid REITs. Equity REITs
invest a majority of their assets directly in real property and derive their
income primarily from rents and capital gains from appreciation realized through
property sales. Equity REITs are further categorized according to the types of
real estate securities they own (e.g.,
apartment
properties, retail shopping centers, office and industrial properties, hotels,
health-care facilities, manufactured housing and mixed-property types). Mortgage
REITs invest a majority of their assets in real estate mortgages and derive
their income primarily from income payments. Hybrid REITs combine the
characteristics of both equity and mortgage REITs.
REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unit holders, and may be subject to changes in the value of
their underlying properties, defaults by borrowers, and self-liquidations. Some
REITs may have limited diversification and may be subject to risks inherent in
investments in a limited number of properties, in a narrow geographic area, or
in a single property type. Equity REITs may be affected by changes in underlying
property values. Mortgage REITs may be affected by the quality of the credit
extended. REITs are dependent upon specialized management skills and incur
management expenses. In addition, the performance of a REIT may be affected by
its failure to qualify for favorable tax treatment under the Internal Revenue
Code of 1986, as amended (the “Code”), or its failure to maintain an exemption
from registration under the 1940 Act. REITs also involve risks such as
refinancing, changes in interest rates, changes in property values, general or
specific economic risk on the real estate industry, dependency on management
skills, and other risks similar to small company investing.
Although
a Fund is not allowed to invest in real estate directly, it may acquire real
estate as a result of a default on the REIT securities it owns. A Fund,
therefore, may be subject to certain risks associated with the direct ownership
of real estate including difficulties in valuing and trading real estate,
declines in the value of real estate, risks related to general and local
economic conditions, adverse changes in the climate for real estate,
environmental liability risks, increases in property taxes and operating
expenses, changes in zoning laws, casualty or condemnation losses, limitation on
rents, changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates. Also, real estate can be destroyed by human
activities, including criminal acts, or other events such as natural
disasters.
Initial
Public Offering (“IPO”) and Secondary Offering.
An IPO is the first sale of stock by a private company to the public. IPOs are
often issued by smaller, newer companies seeking capital financing to expand,
but can also be done by large privately-owned companies looking to become
publicly traded. The volume of IPOs and the levels at which the newly issued
stocks trade in the secondary market are affected by the performance of the
stock market overall. If IPOs are brought to the market, availability may be
limited and a Fund may not be able to buy any shares at the offering price, or
if a Fund is able to buy shares, it may not be able to buy as many shares at the
offering price as it would like. The values of securities involved in IPOs are
subject to greater volatility and unpredictability than more established stocks.
For newer companies, there is often little historical data with which to analyze
the company, making it more difficult to predict what the stock will do on its
initial day of trading and in the near future. Also, most IPOs
are
done by companies going through transition, and are therefore subject to
additional uncertainty regarding their future value. A secondary offering is the
issuance of new stock to the public by a company that has already made its IPO.
Secondary offerings are usually made by companies seeking to refinance or raise
capital for growth.
Special
Purpose Acquisition Company (“SPAC”).
The Funds may invest in stock, warrants, and other securities of a SPAC or
similar special purpose entity that pool funds to seek potential acquisition or
merger opportunities. A SPAC is typically a publicly traded company that raises
funds through an initial public offering for the purpose of acquiring or merging
with an unaffiliated company to be identified subsequent to the SPAC’s IPO.
SPACs are often used as a vehicle to transition a company from private to
publicly traded. The securities of a SPAC are often issued in “units” that
include one share of common stock and one right or warrant (or partial right or
warrant) conveying the right to purchase additional shares or partial shares.
Unless and until a transaction is completed, a SPAC generally invests its assets
(less a portion retained to cover expenses) in U.S. government securities, money
market fund securities and cash. To the extent the SPAC is invested in cash or
similar securities, this may impact a Fund’s ability to meet its investment
goal. If an acquisition or merger that meets the requirements for the SPAC is
not completed within a pre-established period of time, the invested funds are
returned to the SPAC’s shareholders, less certain permitted expenses, and any
rights or warrants issued by the SPAC will expire worthless. Because SPACs and
similar entities have no operating history or ongoing business other than
seeking acquisitions, the value of their securities is particularly dependent on
the ability of the entity’s management to identify and complete a suitable
transaction. Some SPACs may pursue acquisitions or mergers only within certain
industries or regions, which may further increase the volatility of their
securities' prices. In addition to purchasing publicly traded SPAC securities, a
Fund may invest in SPACs through additional financings via securities offerings
that are exempt from registration under the federal securities laws (restricted
securities). No public market will exist for these restricted securities unless
and until they are registered for resale with the SEC, and such securities may
be considered illiquid and/or be subject to restrictions on resale. It may also
be difficult to value restricted securities issued by SPACs.
An
investment in a SPAC is subject to a variety of risks, including that: a
significant portion of the funds raised by the SPAC for the purpose of
identifying and effecting an acquisition or merger may be expended during the
search for a target transaction; an attractive acquisition or merger target may
not be identified and the SPAC will be required to return any remaining invested
funds to shareholders; attractive acquisition or merger targets may become
scarce if the number of SPACs seeking to acquire operating businesses increases;
any proposed merger or acquisition may be unable to obtain the requisite
approval, if any, of SPAC shareholders and/or antitrust and securities
regulators; an acquisition or merger once effected may prove unsuccessful and an
investment in the SPAC may lose value; the warrants or other rights with respect
to the SPAC held by the Fund may expire worthless or may be repurchased or
retired by the SPAC at an unfavorable price; the Fund may be delayed in
receiving any redemption or liquidation proceeds from a SPAC to which it is
entitled; an investment in a SPAC may be diluted by subsequent public or private
offerings of securities in the SPAC or by other investors exercising existing
rights to purchase securities of the SPAC; SPAC sponsors generally purchase
interests in the SPAC at more favorable terms than investors in the IPO or
subsequent investors on the open market; no or only a thinly traded market for
shares of or interests in a SPAC may develop, leaving the Fund unable to sell
its interest in a SPAC or to sell its interest only at a price below what the
Fund believes is the SPAC security's value; and the values of investments in
SPACs may be highly volatile and may depreciate significantly over
time.
U.S.
Government Securities
All
Funds may invest in U.S. government securities. U.S. government securities are
obligations of, or guaranteed by, the U.S. government, its agencies, or
instrumentalities. Treasury bills, notes, and bonds are direct obligations of
the U.S. Treasury and they differ with respect to certain items such as coupons,
maturities, and dates of issue. Treasury bills have a maturity of one year or
less. Treasury notes have maturities of one to ten years and Treasury bonds
generally have a maturity of greater than ten years. Securities guaranteed by
the U.S. government include federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as Government National
Mortgage Association (“GNMA”) certificates (described below) and Federal Housing
Administration (“FHA”) debentures). With guaranteed securities, the payment of
principal and interest is guaranteed by the U.S. government. Direct obligations
of and securities guaranteed by the U.S. government are subject to variations in
market value due to, among other factors, fluctuations in interest rates and
changes to the financial condition or credit rating of the U.S.
government.
Securities
issued by U.S. government instrumentalities and certain federal agencies are
neither direct obligations of, nor guaranteed by, the U.S. Treasury. However,
they involve federal sponsorship in one way or another: some are backed by
specific types of collateral; some are supported by the issuer’s right to borrow
from the U.S. Treasury; some are supported by the discretionary authority of the
U.S. Treasury to purchase certain obligations of the issuer; others are
supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to the Federal National Mortgage Association (“Fannie Mae”), Federal
Home Loan Banks, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank,
Farm Credit Banks, and the Tennessee Valley Authority. The maximum potential
liability of the issuers of some U.S. government agencies and instrumentalities
may greatly exceed their current resources, including their legal right to
support from the U.S. Treasury. It is possible that these issuers will not have
the funds to meet their payment obligations in the future.
Inflation-Indexed
Bonds
Inflation-indexed
bonds are debt securities whose principal value is periodically adjusted
according to the rate of inflation. Two structures are common. The U.S. Treasury
and some other issuers use a structure that accrues inflation into the principal
value of the bond. Most other issuers pay out the Consumer Price Index (“CPI”)
accruals as part of a semi-annual coupon. Although inflation-indexed bonds may
be somewhat less liquid than Treasury Securities, they are generally as liquid
as most other government securities.
Inflation-indexed
securities issued by the U.S. Treasury (or “TIPs”) have maturities of five, ten
or thirty years, although it is possible that securities with other maturities
will be issued in the future. The U.S. Treasury securities pay interest on a
semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if a Fund purchased an inflation-indexed bond
with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5%
semi-annually), and inflation over the first six months was 1%, the mid-year par
value of the bond would be $1,010 and the first semi-annual interest payment
would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the
year resulted in the whole year’s inflation equaling 3%, the end-of-year par
value of the bond would be $1,030 and the second semi-annual interest payment
would be $15.45 ($1,030 times 1.5%).
If
the periodic adjustment rate measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest
payable on these securities (calculated with respect to a smaller principal
amount) will be reduced. Repayment of the original bond principal upon maturity
(as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. A Fund may also
invest in other inflation related bonds which may or may not provide a similar
guarantee. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original
principal.
The
value of inflation-indexed bonds is expected to change in response to changes in
real interest rates. Real interest rates in turn are tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While
these securities are expected to be protected from long-term inflationary
trends, short-term increases in inflation may lead to a decline in value. If
interest rates rise due to reasons other than inflation (for example, due to
changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond’s
inflation measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer
Price Index for Urban Consumers (“CPI-U”), which is calculated monthly by the
U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and
energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States. Periodic adjustments for inflation to the principal amount of an
inflation-indexed bond may give rise to original issue discount (“OID”), which
will be includable in the Fund’s gross income. Due to the OID, a Fund may be
required to make annual distributions to shareholders that exceed the cash
received, which may cause the Fund to liquidate certain investments when it is
not advantageous to do so. Also, if the principal value of an inflation-indexed
bond is adjusted downward due to deflation, amounts previously distributed in
the taxable year may be characterized in some circumstances as a return of
capital.
Mortgages
and Mortgage-Related Securities
Mortgage-related
securities are interests in pools of residential or commercial mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage banks,
commercial banks, and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related,
and private organizations. Subject to its investment strategies, a Fund may
invest in mortgage-related securities as well as debt securities which are
secured with collateral consisting of mortgage-related securities, and in other
types of mortgage-related securities. For information concerning the
characterization of mortgage-related securities (including collateralized
mortgage obligations) for various purposes including the Trust’s policies
concerning diversification and concentration, see the “Fundamental Investment
Restrictions” section.
Mortgages
(Directly Held).
Mortgages
are debt instruments secured by real property. Unlike mortgage-backed
securities, which generally represent an interest in a pool of mortgages, direct
investments in mortgages involve prepayment and credit risks of an individual
issuer and real property. Consequently, these investments require different
investment and credit analysis by the Manager.
The
directly placed mortgages in which the Funds invest may include residential
mortgages, multifamily mortgages, mortgages on cooperative apartment buildings,
commercial mortgages, and sale-leasebacks. These investments are backed by
assets such as office buildings, shopping centers, retail stores, warehouses,
apartment buildings and single-family dwellings. In the event that a Fund
forecloses on any non-performing mortgage, and acquires a direct interest in the
real property, such Fund will be subject to the risks generally associated with
the ownership of real property. There may be fluctuations in the market value of
the foreclosed property and its occupancy rates, rent schedules and operating
expenses. There may also be adverse changes in local, regional or general
economic conditions, deterioration of the real estate market and the financial
circumstances of tenants and sellers, unfavorable changes in zoning, building
environmental and other laws, increased real property taxes, rising interest
rates, reduced availability and increased cost of mortgage borrowings, the need
for unanticipated renovations, unexpected increases in the cost of energy,
environmental factors, acts of God and other factors which are beyond the
control of the Funds or the Managers. Hazardous or toxic substances may be
present on, at or under the mortgaged property and adversely affect the value of
the property. In addition, the owners of property containing such substances may
be held responsible, under various laws, for containing, monitoring, removing or
cleaning up such substances. The presence of such substances may also provide a
basis for other claims by third parties. Costs or clean up or of liabilities to
third parties may exceed the value of the property. In addition, these risks may
be uninsurable. In light of these and similar risks, it may be impossible to
dispose profitably of properties in foreclosure.
Mortgage
Pass-Through Securities.
These
are securities representing interests in “pools” of mortgages in which payments
of both interest and principal on the securities are made periodically, in
effect “passing through” periodic payments made by the individual borrowers on
the residential mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Payment of principal and interest on some mortgage
pass-through securities may be guaranteed by the full faith and credit of the
U.S. government (such as securities guaranteed by GNMA); other securities may be
guaranteed by agencies or instrumentalities of the U.S. government such as
Fannie Mae, formerly known as the FNMA or the Federal Home Loan Mortgage
Corporation (“FHLMC”) and are not backed by the full faith and credit of the
U.S. government. Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit, which
may be issued by governmental entities, private insurers, or the mortgage
poolers. Transactions in mortgage pass-through securities occur through
standardized contracts for future delivery in which the exact mortgage pools to
be delivered are not specified until a few days prior to settlement, referred to
as a “to-be-announced transaction” or “TBA Transaction.” A TBA Transaction is a
method of trading mortgage-backed securities. In a TBA Transaction, the buyer
and seller agree upon general trade parameters such as issuer, settlement date,
par amount and price. The actual pools delivered generally are determined two
days prior to the settlement date.
GNMA
Certificates.
GNMA certificates are mortgage-backed securities representing part ownership of
a pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. government. GNMA is a
wholly-owned U.S. government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks, and mortgage bankers) and backed by pools of
mortgages insured by the FHA, or guaranteed by the Department of Veterans
Affairs (“VA”). GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Because both interest and principal payments (including prepayments)
on the underlying mortgage loans are passed through to the holder of the
certificate, GNMA certificates are called “pass-through”
securities.
Interests
in pools of mortgage-related securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a periodic payment which consists of both interest and
principal payments. In effect, these payments are a “pass-through” of the
periodic payments made by the individual borrowers on the residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Mortgage-related securities issued 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, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment. Although GNMA guarantees timely
payment even if homeowners delay or default, tracking the “pass-through”
payments may, at times, be difficult. Expected payments may be delayed due to
the delays in registering the newly traded paper securities. The custodian’s
policies for crediting missed payments while errant receipts are tracked down
may vary. Other mortgage-backed securities such as those of FHLMC and FNMA trade
in book-entry form and are not subject to the risk of delays in timely payment
of income.
Although
the mortgage loans in the pool will have maturities of up to 30 years, the
actual average life of the GNMA certificates typically will be substantially
less because the mortgages will be subject to normal principal amortization and
may be prepaid prior to maturity. Early repayments of principal on the
underlying mortgages may expose a Fund to a lower rate of return upon
reinvestment of principal. Prepayment rates vary widely and may be affected by
changes in market interest rates. In periods of falling interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of
the GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to accurately predict the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
rates, GNMA certificates can be less effective than typical bonds of similar
maturities at “locking in” yields during periods of declining interest rates,
although they may have comparable risks of decline in value during periods of
rising interest rates.
FNMA
and FHLMC Mortgage-Backed Obligations.
Government-related
guarantors (i.e.,
not backed by the full faith and credit of the U.S. government) include FNMA and
FHLMC. FNMA, a federally chartered and privately-owned corporation, issues
pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
government. 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 and the U.S. Treasury. 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. FHLMC, a federally chartered and privately-owned
corporation, was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates (“PCs”) which represent interests in conventional
mortgages from FHLMC’s national fund. FHLMC guarantees the timely payment of
interest and ultimate collection of principal and maintains reserves to protect
holders against losses due to default, but PCs are not backed by the full faith
and credit of the U.S. government. As is the case with GNMA certificates, the
actual maturity of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the underlying pool
of mortgages.
In
September 2008, FNMA and FHLMC were each placed into conservatorship by the U.S.
government under the authority of the Federal Housing Finance Agency (“FHFA”),
an agency of the U.S. government, with a stated purpose to preserve and conserve
FNMA’s and FHLMC’s assets and property and to put FNMA and FHLMC in a sound and
solvent condition. No assurance can be given that the purposes of the
conservatorship and related actions under the authority of FHFA will be
met.
FHFA
has the power to repudiate any contract entered into by FNMA or FHLMC prior to
FHFA’s appointment if FHFA determines that performance of the contract is
burdensome and the repudiation of the contract promotes the orderly
administration of FNMA’s or FHLMC’s affairs. FHFA has indicated that it has no
intention to repudiate the guaranty obligations of FNMA or FHLMC. FHFA also has
the right to transfer or sell any asset or liability of FNMA or FHLMC without
any approval, assignment or consent, although FHFA has stated that is has no
present intention to do so. In addition, holders of mortgage-backed securities
issued by FNMA and FHLMC may not enforce certain rights related to such
securities against FHFA, or the enforcement of such rights may be delayed,
during the conservatorship.
Collateralized
Mortgage Obligations (“CMOs”).
A
CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through
security. Similar to a bond, interest and prepaid principal is paid, in most
cases, semi-annually. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs
are structured into multiple classes, each bearing a different stated maturity.
Actual maturity and average life will depend upon the prepayment experience of
the collateral. CMOs provide for a modified form of call protection through a de
facto breakdown of the underlying pool of mortgages according to how quickly the
loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, generally is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
An investor is partially guarded against a sooner than desired return of
principal because of the sequential payments.
In
a typical CMO transaction, a corporation (issuer) issues multiple series
(e.g.,
A, B, C, Z) of CMO bonds (“Bonds”). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates (“Collateral”). The
Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The series A, B, and C Bonds all bear current
interest. Interest on the series Z Bond is accrued and added to principal and a
like amount is paid as principal on the series A, B, or C Bond currently being
paid off. When the series A, B, and C Bonds are paid in full, interest and
principal on the series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan funds.
FHLMC
Collateralized Mortgage Obligations.
FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having
different maturity dates which are secured by the pledge of a pool of
conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of
principal and interest on the CMOs are made semi-annually, as opposed to
monthly. The amount of principal payable on each semi-annual payment date is
determined in accordance with FHLMC’s mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC’s minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the “pass-through” nature of all principal payments received on the
collateral pool in excess of FHLMC’s minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity
date.
If
collection of principal (including prepayments) on the mortgage loans during any
semi-annual payment period is not sufficient to meet FHLMC’s minimum sinking
fund obligation on the next sinking fund payment date, FHLMC agrees to make up
the deficiency from its general funds.
Criteria
for the mortgage loans in the pool backing the CMOs are identical to those of
FHLMC PCs. FHLMC has the right to substitute collateral in the event of
delinquencies and/or defaults.
Commercial
Mortgage-Backed Securities (“CMBS”).
CMBS include securities that reflect an interest in, and are secured by,
mortgage loans on commercial real property. Many of the risks of investing in
CMBS reflect the risks of investing in the real estate securing the underlying
mortgage loans. These risks reflect the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan payments,
and the ability of a property to attract and retain tenants. CMBS may be less
liquid and exhibit greater price volatility than other types of mortgage- or
asset-backed securities.
Adjustable-Rate
Mortgage-Backed Securities (“ARMBSs”).
ARMBSs have interest rates that reset at periodic intervals. Acquiring ARMBSs
permits a Fund to participate in increases in prevailing current interest rates
through periodic adjustments in the coupons of mortgages underlying the pool on
which ARMBSs are based. Such ARMBSs generally have higher current yield and
lower price fluctuations than is the case with more traditional debt securities
of comparable rating and maturity. In addition, when prepayments of principal
are made on the underlying mortgages during periods of rising interest rates, a
Fund can reinvest the proceeds of such prepayments at rates higher than those at
which they were previously invested. Mortgages underlying most ARMBSs, however,
have limits on the allowable annual or lifetime increases that can be made in
the interest rate that the mortgagor pays. Therefore, if current interest rates
rise above such limits over the period of the limitation, a Fund, when holding
an ARMBS, does not benefit from further increases in interest rates. Moreover,
when interest rates are in excess of coupon rates (i.e.,
the rates being paid by mortgagors) of the mortgages, ARMBSs behave more like
debt securities and less like adjustable-rate securities and are
subject
to the risks associated with debt securities. In addition, during periods of
rising interest rates, increases in the coupon rate of adjustable-rate mortgages
generally lag current market interest rates slightly, thereby creating the
potential for capital depreciation on such securities.
Other
Mortgage-Related Securities.
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 non-governmental 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. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets a Fund’s investment quality standards. There can be no assurance
that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements. A Fund may buy mortgage-related
securities without insurance or guarantees, if, in an examination of the loan
experience and practices of the originator/servicers and poolers, the Adviser or
Manager determines that the securities meet a Fund’s quality standards. Although
the market for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily marketable. It is
expected that governmental, government-related, or private entities may create
mortgage loan pools and other mortgage-related securities offering mortgage
pass-through and mortgage collateralized investments in addition to those
described above. As new types of mortgage-related securities are developed and
offered to investors, the Adviser or Manager will, consistent with a Fund’s
investment goals, policies, and quality standards, consider making investments
in such new types of mortgage-related securities.
CMO
Residuals.
CMO
residuals are derivative mortgage securities issued by agencies or
instrumentalities of the U.S. government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing. CMO residuals are risky, volatile and
typically unrated.
The
cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only (“IO”) class of stripped mortgage-backed securities. See
“Mortgages and Mortgage-Related Securities — Stripped Mortgage-Backed
Securities.” In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As described below with respect
to stripped mortgage-backed securities, in certain circumstances a Fund may fail
to recoup fully its initial investment in a CMO residual.
CMO
residuals are generally purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers. The CMO residual
market has only very recently developed and CMO residuals currently may not have
the liquidity of other more established securities trading in other markets.
Transactions in CMO residuals are generally completed only after careful review
of the characteristics of the securities in question. CMO residuals may or,
pursuant to an exemption therefrom, may not have been registered under the
Securities Act of 1933, as amended (“1933 Act”). CMO residuals, whether or not
registered under such Act, may be subject to certain restrictions on
transferability, and may be deemed “illiquid” and subject to a Fund’s
limitations on investment in illiquid investments.
Planned
Amortization Class (“PAC”) Certificates and Support Bonds.
PACs
are parallel-pay real estate mortgage investment conduit (“REMIC”) certificates
that generally require that specified amounts of principal be applied on each
payment date to one or more classes of REMIC certificates, even though all other
principal payments and prepayments of the mortgage assets are then required to
be applied to one or more other classes of the certificates. The scheduled
principal payments for the PAC certificates generally have the highest priority
on each payment date after interest due has been paid to all classes entitled to
receive interest currently. Shortfalls, if any, are added to the amount payable
on the next payment date. The PAC certificate payment schedule is taken into
account in calculating the final distribution date of each class of the PAC
certificate. In order to create PAC Tranches, generally one or more tranches
must be created that absorb most of the volatility in the underlying mortgage
assets. These tranches tend to have market prices and yields that are much more
volatile than other PAC classes.
Any
CMO or multi-class pass through structure that includes PAC securities must also
have support tranches - known as support bonds, companion bonds or non-PAC bonds
- which lend or absorb principal cash flows to allow the PAC securities to
maintain their stated maturities and final distribution dates within a range of
actual prepayment experience. These support tranches are subject to a higher
level of maturity risk compared to other mortgage-related securities, and
usually provide a higher yield to compensate investors. If principal cash flows
are received in amounts outside a pre-determined range such that the support
bonds cannot lend or absorb sufficient cash flows to the PAC securities as
intended, the PAC securities are subject to heightened maturity risk. Consistent
with its investment goals and policies, a Fund may invest in various tranches of
CMO bonds, including support bonds.
A
PAC IO is a PAC bond that pays an extremely high coupon rate, such as 200%, on
its outstanding principal balance, and pays down according to a designated PAC
schedule. Due to their high-coupon interest, PAC IO’s are priced at very high
premiums to par. Due to the nature of PAC prepayment bands and PAC collars, the
PAC IO has a greater call (contraction) potential and thus would be impacted
negatively by a sustained increase in prepayment speeds.
Stripped
Mortgage-Backed Securities (“SMBS”).
SMBS
are derivative multi-class mortgage securities. SMBS may be issued by agencies
or instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS
are usually structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the IO class), while the other class
will receive all of the principal (the principal-only or “PO” class). The yield
to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
Fund’s yield to maturity from these securities. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, a Fund may
fail to fully recoup its initial investment in these securities even if the
security is in one of the highest rating categories.
Although
SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, secondary markets for
these securities may not be as developed or have the same volume as markets for
other types of securities. These securities, therefore, may have more limited
liquidity and may at times be illiquid and subject to a Fund’s limitations on
investments in illiquid investments.
Mortgage
Dollar Rolls.
Mortgage
“dollar rolls” are contracts in which a Fund sells securities for delivery in
the current month and simultaneously contracts with the same counterparty to
repurchase substantially similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, a Fund
loses the right to receive principal and interest paid on the securities sold.
However, a Fund would benefit to the extent of any difference between the price
received for the securities sold and the lower forward price for the future
purchase or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date for the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Fund. For financial reporting and tax purposes, a
Fund treats mortgage dollar rolls as two separate transactions; one involving
the purchase of a security and a separate transaction involving a sale. Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as financing and do not treat them as borrowings.
Other
Asset-Backed Securities
Other
asset-backed securities are securities that directly or indirectly represent a
participation interest in or are secured by and payable from a stream of
payments generated by particular assets such as automobile loans or installment
sales contracts, home equity loans, computer and other leases, credit card
receivables, or other assets. Generally, the payments from the collateral are
passed through to the security holder. Due to the possibility that prepayments
(on automobile loans and other collateral) will alter cash flow on asset-backed
securities, generally it is not possible to determine in advance the actual
final maturity date or average life of many asset-backed securities. Faster
prepayment will shorten the average life and slower prepayment will lengthen it.
However, it may be possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
Other risks relate to limited interests in applicable collateral. For example,
credit card debt receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts on
credit card debt thereby reducing the balance due. Additionally, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. The securities
market for asset-backed securities may not, at times, offer the same degree of
liquidity as markets for other types of securities with greater trading
volume.
Collateralized
Bond Obligations (“CBOs”), Collateralized Loan Obligations (“CLOs”) and other
Collateralized Debt Obligations (“CDOs”).
CBOs,
CLOs and other CDOs are types of asset-backed securities. A CBO is a trust which
is often backed by a diversified pool of high risk, non-investment grade debt
securities. The collateral can be from many different types of debt securities
such as high yield/high risk debt, residential privately issued mortgage-related
securities, commercial privately issued mortgage-related securities, trust
preferred securities and emerging market debt. A CLO is a trust typically
collateralized by a pool of loans, which may include, among others, domestic and
foreign senior secured loans, senior unsecured loans, and subordinate corporate
loans, including loans that may be rated non-investment grade or equivalent
unrated loans. Other CDOs are trusts backed by other types of assets
representing obligations of various parties. CBOs, CLOs and other CDOs may
charge management fees and administrative expenses.
For
CBOs, CLOs and other CDOs, the cash flows from the trust are split into two or
more portions, called tranches, varying in risk and yield. The riskiest portion
is the “equity” tranche which bears the bulk of defaults from the bonds or loans
in the trust and serves to protect the other, more senior tranches from default
in all but the most severe circumstances. Since they are partially protected
from defaults, senior tranches from a CBO trust, CLO trust or trust of another
CDO typically have higher ratings and lower yields than their underlying
securities, and can be rated investment grade. Despite the protection from the
equity tranche, CBO, CLO or other CDO tranches can experience substantial losses
due to actual defaults, increased sensitivity to defaults due to collateral
default
and
disappearance of protecting tranches, market anticipation of defaults, as well
as aversion to CBO, CLO or other CDO securities as a class.
The
risks of an investment in a CBO, CLO or other CDO depend largely on the type of
the collateral securities and the class of the instrument in which a Fund
invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and
thus, are not registered under the securities laws. As a result, investments in
CBOs, CLOs and other CDOs may be characterized as illiquid investments, however
an active dealer market may exist for CBOs, CLOs and other CDOs allowing them to
qualify for Rule 144A transactions. In addition to the normal risks associated
with debt securities discussed elsewhere in this SAI and the Prospectus
(e.g.,
interest rate risk and default risk), CBOs, CLOs and other CDOs carry additional
risks including, but are not limited to: (i) the possibility that distributions
from collateral securities will not be adequate to make interest or other
payments; (ii) the quality of the collateral may decline in value or default;
(iii) investments may be made in CBOs, CLOs or other CDOs that are subordinate
to other classes; and (iv) the complex structure of the security may not be
fully understood at the time of investment and may produce disputes with the
issuer or unexpected investment results.
Linked
Securities
Linked
securities are debt securities whose value at maturity or interest rate is
linked to currencies, interest rates, equity securities, indices, commodity
prices or other financial indicators. Among the types of linked securities in
which a Fund can invest include:
Equity-Linked,
Debt-Linked and Index-Linked Securities.
Equity-linked,
debt-linked and index-linked securities are privately issued securities whose
investment results are designed to correspond generally to the performance of a
specified stock index or “basket” of stocks, or sometimes a single stock. To the
extent that a Fund invests in an equity-linked, debt-linked or index-linked
security whose return corresponds to the performance of a foreign securities
index or one or more foreign stocks, investing in these securities will involve
risks similar to the risks of investing in foreign securities. For more
information concerning the risks associated with investing in foreign
securities, see the “Foreign Securities” section. In addition, a Fund bears the
risk that the issuer of these securities may default on its obligation under the
security. These securities are often used for many of the same purposes as, and
share many of the same risks with, derivative instruments such as stock index
futures, warrants and swap agreements. For more information concerning the risks
associated with investing in stock index futures, warrants and swap agreements,
see “Stock Index Futures” under “Futures Contracts and Options on Futures
Contracts,” “Risks of Swap Agreements” under “Swap Agreements and Options on
Swap Agreements,” and “Warrants and Rights.”
Currency-Indexed
Securities.
Currency-indexed
securities typically are short-term or intermediate-term debt securities. Their
value at maturity or the rates at which they pay income are determined by the
change in value of the U.S. dollar against one or more foreign currencies or an
index. In some cases, these securities may pay an amount at maturity based on a
multiple of the amount of the relative currency movements. This type of index
security offers the potential for increased income or principal payments but at
a greater risk of loss than a typical debt security of the same maturity and
credit quality.
Event-Linked
Bonds.
Event-linked
bonds are debt securities, for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific “trigger” event, such
as a hurricane, earthquake, or other physical or weather-related phenomenon.
Some event-linked bonds are commonly referred to as “catastrophe bonds.” They
may be issued by government agencies, insurance companies, reinsurers, special
purpose corporations or other on-shore or off-shore entities. If a trigger event
occurs and causes losses exceeding a specific amount in the geographic region
and time period specified in a bond, a Fund investing in the bond may lose a
portion or all of its principal invested in the bond. If no trigger event
occurs, the Fund will recover its principal plus interest. For some event-linked
bonds, the trigger event or losses may be based on company-wide losses,
index-portfolio losses, industry indices, or readings of scientific instruments
rather than specified actual losses. Often the event-linked bonds provide for
extensions of maturity that are mandatory, or optional at the discretion of the
issuer, in order to process and audit loss claims in those cases where a trigger
event has, or possibly has, occurred. An extension of maturity may increase
volatility. In addition to the specified trigger events, event-linked bonds may
also expose a Fund to certain unanticipated risks including but not limited to
issuer (credit) default, adverse regulatory or jurisdictional interpretations,
and adverse tax consequences. Event-linked bonds may also be subject to
liquidity risk.
Event-linked
bonds are a relatively new type of financial instrument. As such, there is no
significant trading history of these securities, and there can be no assurance
that a liquid market in these instruments will develop. Lack of a liquid market
may impose the risk of higher transaction costs and the possibility that a Fund
may be forced to liquidate positions when it would not be advantageous to do so.
Event-linked bonds are typically rated, and a Fund will only invest in
catastrophe bonds that meet the credit quality requirements for the
Fund.
Zero
Coupon, Deferred Interest, Step Coupon and Payment-In-Kind (“PIK”)
Bonds
Zero
coupon and deferred interest bonds are issued and traded at a discount from
their face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. While zero coupon bonds do not require
periodic payment of interest, deferred interest bonds provide for a period of
delay before the regular payment of interest begins. Step coupon bonds trade at
a discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The
discount from the face amount or par value depends on the time remaining until
cash payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. PIK bonds normally give the issuer
an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
PIK
bonds and other securities that make “in-kind” payments, or do not make regular
cash payments (such as zero coupon or deferred interest bonds), may experience
greater volatility in response to interest rate changes and other market
factors, as well as issuer-specific developments. These securities generally
carry higher interest rates compared to bonds that make cash payments of
interest but may involve significantly greater credit risk. Even if accounting
conditions are met for accruing income payable at a future date under a PIK
bond, the issuer could still default when the collection date occurs at the
maturity of or payment date for the PIK bond. If the issuer of a zero coupon,
deferred interest, step coupon or PIK security defaults, a Fund may lose the
entire value of its investment. In addition, these securities may be difficult
to value because they involve ongoing judgments as to the collectability of the
deferred payments and the value of any associated collateral.
Each
Fund must distribute its investment company taxable income, including the OID
accrued on zero coupon or step coupon bonds. Because a Fund will not receive
cash payments on a current basis in respect of accrued original-issue discount
on zero coupon bonds or step coupon bonds during the period before interest
payments begin, in some years a Fund may have to distribute cash obtained from
other sources in order to satisfy the distribution requirements under the Code
and the regulations thereunder. A Fund may obtain such cash from selling other
portfolio holdings which may cause a Fund to incur capital gains or losses on
the sale.
High
Yield/High Risk Bonds
High
yield/high risk bonds (“high yield bonds”) are non-investment grade high risk
debt securities (high yield bonds are commonly referred to as “junk
bonds”).
In
general, high yield bonds are not considered to be investment grade, and
investors should consider the risks associated with high yield bonds before
investing in the pertinent Fund. Investment in such securities generally
provides greater income and increased opportunity for capital appreciation than
investments in higher quality securities, but they also typically entail greater
price volatility and principal and income risk.
Investment
in high yield bonds involves special risks in addition to the risks associated
with investments in higher rated debt securities. High yield bonds are regarded
as predominately speculative with respect to the issuer’s continuing ability to
meet principal and interest payments. Certain Brady Bonds may be considered high
yield bonds. For more information on Brady Bonds, see “Foreign Securities.” A
severe economic downturn or increase in interest rates might increase defaults
in high yield securities issued by highly leveraged companies. An increase in
the number of defaults could adversely affect the value of all outstanding high
yield securities, thus disrupting the market for such securities. Analysis of
the creditworthiness of issuers of debt securities that are high yield bonds may
be more complex than for issuers of higher quality debt securities, and the
ability of a Fund to achieve its investment goal may, to the extent of
investment in high yield bonds, be more dependent upon such creditworthiness
analysis than would be the case if the Fund were investing in higher quality
bonds.
High
yield bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than investment grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest-rate changes than
higher-rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in high
yield bond prices because the advent of a recession could lessen the ability of
a highly leveraged company to make principal and interest payments on its debt
securities. If an issuer of high yield bonds defaults, in addition to risking
payment of all or a portion of interest and principal, a Fund may incur
additional expenses to seek recovery.
A
Fund may purchase defaulted securities only when the Manager believes, based
upon analysis of the financial condition, results of operations and economic
outlook of an issuer, that there is potential for resumption of income payments
and the securities offer an unusual opportunity for capital appreciation.
Notwithstanding the Manager’s belief about the resumption of income, however,
the purchase of any security on which payment of interest or dividends is
suspended involves a high degree of risk.
In
the case of high yield bonds structured as zero-coupon or PIK securities, their
market prices are affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities which pay interest
periodically and in cash.
The
secondary market on which high yield bonds are traded may be less liquid than
the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which a Fund could sell a high yield
bond, and could adversely affect and cause large fluctuations in the daily net
asset value (“NAV”) of the Fund’s shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield bonds, especially in a thinly-traded market.
When secondary markets for high yield bonds are less liquid than the market for
higher grade bonds, it may be more difficult to value the securities because
such valuation may require more research, and elements of judgment may play a
greater role in the valuation because there is less reliable, objective data
available. See Appendix A for more information on ratings.
There
are also certain risks involved in using credit ratings for evaluating high
yield bonds. For example, credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, credit
rating agencies may fail to timely reflect events and circumstances since a
security was last rated.
Obligations
of Stressed, Distressed and Bankrupt Issuers
A
Fund may invest in securities and other obligations of stressed, distressed and
bankrupt issuers, including debt obligations that are in covenant or payment
default and equity securities of such issuers. Such debt obligations generally
trade significantly below par and are considered speculative. The repayment of
defaulted obligations is subject to significant uncertainties. Defaulted
obligations might be repaid only after lengthy workout or bankruptcy
proceedings, during which the issuer might not make any interest or other
payments.
Typically such workout or bankruptcy proceedings result in only partial recovery
of cash payments or an exchange of the defaulted obligation for other debt or
equity securities of the issuer or its affiliates, which may in turn be illiquid
or speculative.
There
are a number of significant risks inherent in the bankruptcy process: (i) many
events in a bankruptcy are the product of contested matters and adversary
proceedings and are beyond the control of the creditors. While creditors are
generally given an opportunity to object to significant actions, there can be no
assurance that a bankruptcy court in the exercise of its broad powers would not
approve actions that would be contrary to the interests of a Fund; (ii) a
bankruptcy filing by an issuer may adversely and permanently affect the issuer.
The issuer may lose its market position and key employees and otherwise become
incapable of restoring itself as a viable entity. If for this or any other
reason the proceeding is converted to a liquidation, the value of the issuer may
not equal the liquidation value that was believed to exist at the time of the
investment; (iii) the duration of a bankruptcy proceeding is difficult to
predict, and a creditor’s return on investment can be adversely affected by
delays while the plan of reorganization is being negotiated, approved by the
creditors and confirmed by the bankruptcy court and until it ultimately becomes
effective; (iv) the administrative costs in connection with a bankruptcy
proceeding are frequently high, for example, if a proceeding involves protracted
or difficult litigation, or turns into a liquidation, substantial assets may be
devoted to administrative costs and would be paid out of the debtor’s estate
prior to any return to creditors; (v) bankruptcy law permits the classification
of “substantially similar” claims in determining the classification of claims in
a reorganization, and because the standard for classification is vague, there
exists the risk that a Fund’s influence with respect to the class of securities
or other obligations it owns can be lost by increases in the number and amount
of claims in that class or by different classification and treatment; (vi) in
the early stages of the bankruptcy process it is often difficult to estimate the
extent of, or even to identify, any contingent claims that might be made; (vii)
in the case of investments made prior to the commencement of bankruptcy
proceedings, creditors can lose their ranking and priority if they exercise
“domination and control” over a debtor and other creditors can demonstrate that
they have been harmed by such actions; and (viii) certain claims that have
priority by law (for example, claims for taxes) may be substantial.
In
any investment involving securities and other obligations of stressed,
distressed and bankrupt issuers, there exists the risk that the transaction
involving such securities or obligations will be unsuccessful, take considerable
time or will result in a distribution of cash or a new security or obligation in
exchange for the stressed or distressed securities or obligations, the value of
which may be less than a Fund’s purchase price of such securities or
obligations. Furthermore, if an anticipated transaction does not occur, a Fund
may be required to sell its investment at a loss. Given the substantial
uncertainties concerning transactions involving stressed and distressed
securities or obligations in which a Fund invests, there is a potential risk of
loss by a Fund of its entire investment in any particular investment.
Additionally, stressed and distressed securities or obligations of government
and government-related issuers are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional
loan amounts.
Investments
in companies operating in workout modes or under Chapter 11 of the Bankruptcy
Code are also, in certain circumstances, subject to certain additional
liabilities which may exceed the value of a Fund’s original investment in a
company. For example, under certain circumstances, creditors who are deemed to
have inappropriately exercised control over the management and policies of a
debtor may have their claims subordinated or disallowed or may be found liable
for damages suffered by parties as a result of such actions. A Manager’s active
management style may present a greater risk in this area than would a more
passive approach. In addition, under certain circumstances, payments to a Fund
and distributions by a Fund or payments on the debt may be reclaimed if any such
payment is later determined to have been a fraudulent conveyance or a
preferential payment.
Participation
on Creditor’s Committees
A
Fund may from time to time participate on committees formed by creditors to
negotiate with the management of financially troubled issuers of securities held
by a Fund. Such participation may subject a Fund to expenses such as legal fees
and may make a Fund an “insider” of the issuer for purposes of the federal
securities laws, and therefore may restrict such Fund’s ability to trade in or
acquire additional positions in a particular security when it might otherwise
desire to do so. Participation by a Fund on such committees also may expose the
Fund to potential liabilities under the federal bankruptcy laws or other laws
governing the rights of creditors and debtors. Participation on such committees
is also increasingly prone to litigation and it is possible that a Fund could be
involved in lawsuits related to such activities, which could expose a Fund to
additional liabilities that may exceed the value of a Fund’s original investment
in the company. See the “Obligations of Stressed, Distressed and Bankrupt
Issuers” section above. A Fund will participate on such committees only when a
Manager believes that such participation is necessary or desirable to enforce a
Fund’s rights as a creditor or to protect the value of securities held by a
Fund.
Bank
Obligations
Bank
obligations include certificates of deposit, bankers’ acceptances, fixed time
deposits, loans or credit agreements and bank capital securities. Each Fund may
also hold funds on deposit with its sub-custodian bank in an interest-bearing
account for temporary purposes.
Certificates
of deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are “accepted”
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. See the “Restricted and Unregistered Securities” section regarding
limitations of certain bank obligations.
A
Fund may purchase loans or participation interests in loans made by U.S. banks
and other financial institutions to large corporate customers. Loans are made by
a contract called a credit agreement. Loans are typically secured by assets
pledged by the borrower, but there is no guarantee that the value of the
collateral will be sufficient to cover the loan, particularly in the case of a
decline in value of the collateral. Loans may be floating rate or amortizing.
See the “Delayed Funding Loans and Revolving Credit Facilities,” “Loan
Participations and Assignments” and “Variable and Floating Rate Securities”
sections below for more information. Some loans may be traded in the secondary
market among banks, loan funds, and other institutional investors.
Unless
otherwise noted, a Fund will not invest in any security or bank loan/credit
agreement issued by a commercial bank unless: (i) the bank has total assets of
at least U.S. $1 billion, or the equivalent in other currencies, or, in the case
of domestic banks which do not have total assets of at least U.S. $1 billion,
the aggregate investment made in any one such bank is limited to an amount,
currently U.S. $250,000, insured in full by the Federal Deposit Insurance
Corporation (“FDIC”); (ii) in the case of U.S. banks, it is a member of the
FDIC; and (iii) in the case of foreign banks, the security is, in the opinion of
the Adviser or the Manager, of an investment quality comparable with other debt
securities of similar maturities which may be purchased by a Fund. These
limitations do not prohibit investments in securities issued by foreign branches
of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
Obligations
of foreign banks involve somewhat different investment risks than those
affecting obligations of U.S. banks, including: (i) the possibilities that their
liquidity could be impaired because of future political and economic
developments; (ii) their obligations may be less marketable than comparable
obligations of U.S. banks; (iii) a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations; (iv) foreign deposits may
be seized or nationalized; (v) foreign governmental restrictions, such as
exchange controls, may be adopted which might adversely affect the payment of
principal and interest on those obligations; and (vi) the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing, and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to U.S. banks. Foreign banks are not generally
subject to examination by any U.S. government agency or
instrumentality.
Unless
otherwise noted, a Fund may invest in short-term debt obligations of savings and
loan associations provided that the savings and loan association issuing the
security (i) has total assets of at least $1 billion, or, in the case of savings
and loan associations which do not have total assets of at least $1 billion, the
aggregate investment made in any one savings and loan association is insured in
full, currently up to $250,000, by the FDIC; (ii) the savings and loan
association issuing the security is a member of the FDIC; and (iii) the
institution is insured by the FDIC.
The
Funds may invest in bank capital securities. Bank capital securities are issued
by banks to help fulfill their regulatory capital requirements. There are two
common types of bank capital: Tier I and Tier II. Bank capital is generally, but
not always, of investment grade quality. Tier I securities often take the form
of trust preferred securities. Tier II securities are commonly thought of as
hybrids of debt and preferred stock, are often perpetual (with no maturity
date), callable and, under certain conditions, allow for the issuer bank to
withhold payment of interest until a later date.
Exchange-Traded
Notes (“ETNs”)
ETNs
are notes representing debt of an issuer, usually a financial institution. The
performance of an ETN is based on the performance of one or more underlying
assets, reference rates or indices as well as the market for that ETN.
An
ETN includes features similar to both an exchange traded fund (“ETF”) and debt
securities. Similar to ETFs, ETNs are listed on an exchange and traded in the
secondary market. However, unlike an ETF, an ETN can be held until the ETN’s
maturity, at which time the issuer will pay a return generally linked to the
performance of the specific asset, index or rate (“reference instrument”) to
which the ETN is linked. An ETN that is tied to a reference instrument may not
exactly replicate the performance of the reference instrument, and they incur
certain expenses not incurred by their applicable reference instrument. Unlike
some debt securities, ETNs do not make periodic interest payments, and its
principal is not protected. ETNs are meant to be held until maturity, and thus
may have restrictions on their redemption and secondary market
illiquidity.
A
Fund bears the risk that the issuer of these securities may default on its
obligation under the security, and the value of an ETN could be influenced by
the credit rating of the issuer despite no changes in the underlying reference
instrument. The value of an ETN may also be impacted by the following: time to
maturity; market volatility (for the ETN and/or its underlying reference
instrument); market liquidity; changes in the applicable interest rates; the
performance of the reference instrument; changes in the issuer’s credit rating;
and any impact that economic, legal, political or geographic events may have on
the reference instrument. Some ETNs that use leverage can, at times, be
relatively illiquid and, thus, they may be difficult to purchase or sell at a
current price. ETNs that use leverage allows for greater potential return, but
the potential for loss is also greater. Additional losses may be incurred if the
investment loses value because, in addition to the money lost on the investment,
the note itself may still need to be repaid.
Trust
Preferred Securities
Trust
preferred securities have the characteristics of both subordinated debt and
preferred stock. Generally, trust preferred securities are issued by a trust
that is wholly-owned by a financial institution or other corporate entity,
typically a bank holding company. The financial institution creates the trust
and owns the trust’s common securities. The trust uses the sale proceeds of its
common securities to purchase subordinated debt issued by the financial
institution. The financial institution uses the proceeds from the subordinated
debt sale to increase its capital while the trust receives periodic interest
payments from the financial institution for holding the subordinated debt. The
trust uses the funds received to make dividend payments to the holders of the
trust preferred
securities.
The primary advantage of this structure is that the trust preferred securities
are treated by the financial institution as debt securities for tax purposes and
as equity for the calculation of capital requirements.
Trust
preferred securities typically bear a market rate coupon comparable to interest
rates available on debt of a similarly rated issuer. Typical characteristics
include long-term maturities, early redemption by the issuer, periodic fixed or
variable interest payments, and maturities at face value. Holders of trust
preferred securities have limited voting rights to control the activities of the
trust and no voting rights with respect to the financial institution. The market
value of trust preferred securities may be more volatile than those of
conventional debt securities. Trust preferred securities may be issued in
reliance on Rule 144A under the 1933 Act, and subject to restrictions on resale.
There can be no assurance as to the liquidity of trust preferred securities and
the ability of holders, such as a Fund, to sell their holdings. In identifying
the risks of the trust preferred securities, a Manager will look to the
condition of the financial institution as the trust typically has no business
operations other than to issue the trust preferred securities. If the financial
institution defaults on interest payments to the trust, the trust will not be
able to make dividend payments to holders of its securities, such as a
Fund.
Delayed
Funding Loans and Revolving Credit Facilities
A
Fund may enter into, or acquire participations in, delayed funding loans and
revolving credit facilities. Delayed funding loans and revolving credit
facilities are borrowing arrangements in which the lender agrees to make up
loans to a maximum amount upon demand by the borrower during a specified term. A
revolving credit facility differs from a delayed funding loan in that as the
borrower repays the loan, an amount equal to the repayment may be borrowed again
during the term of the revolving credit facility. Delayed funding loans and
revolving credit facilities usually provide for floating or variable rates of
interest. These commitments may have the effect of requiring a Fund to increase
its investment in a company at a time when it might not otherwise decide to do
so (including at a time when the company’s financial condition makes it unlikely
that such amounts will be repaid). A Fund, at all times, will not commit to
advance additional funds in excess of applicable borrowing limits.
A
Fund may invest in delayed funding loans and revolving credit facilities with
credit quality comparable to that of issuers of its securities investments.
Delayed funding loans and revolving credit facilities may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, a Fund may be unable to sell such investments at
an opportune time or may have to resell them at less than fair market value. The
Funds currently intend to treat delayed funding loans and revolving credit
facilities for which there are no readily available markets as illiquid for
purposes of a Fund’s limitation on illiquid investments. For a further
discussion of the risks involved in investing in loan participations and other
forms of direct indebtedness see the “Loan Participations and Assignments”
section. Participation interests in revolving credit facilities will be subject
to the limitations discussed in the “Loan Participations and Assignments”
section. Delayed funding loans and revolving credit facilities are considered to
be debt obligations for purposes of the Fund’s investment restriction relating
to the lending of funds or assets by a Fund.
Loan
Participations and Assignments
A
Fund may invest in floating rate senior loans of domestic or foreign borrowers
(“Senior Loans”) primarily by purchasing participations or assignments of a
portion of a Senior Loan. Floating rate loans are those with interest rates
which float, adjust or vary periodically based upon benchmark indicators,
specified adjustment schedules or prevailing interest rates. Senior Loans often
are secured by specific assets of the borrower, although a Fund may invest in
Senior Loans that are not secured by any collateral. When investing in loan
participations, a Fund does not have a direct contractual relationship with the
borrower and has no rights against the borrower, i.e.,
the Fund cannot enforce its rights directly; it must rely on intermediaries to
enforce its rights. When investing in assignments, a Fund steps into the shoes
of the intermediary who sold it the assignment and can enforce the assigned
rights directly. These rights may include the right to vote along with other
lenders on such matters as enforcing the terms of a loan agreement (e.g.,
declaring defaults, initiating collection action, etc.). Taking such actions
typically requires at least a vote of the lenders holding a majority of the
investment in a loan, and may require a vote by lenders holding two-thirds or
more of the investment in a loan. Because a Fund typically does not hold a
majority of the investment in any loan, it may not be able by itself to control
decisions that require a vote by the lenders.
Senior
Loans are loans that are typically made to business borrowers to finance
leveraged buy-outs, recapitalizations, mergers, stock repurchases, and internal
growth. Senior Loans generally hold the most senior position in the capital
structure of a borrower and are usually secured by liens on the assets of the
borrowers, including tangible assets such as cash, accounts receivable,
inventory, property, plant and equipment, common and/or preferred stock of
subsidiaries, and intangible assets including trademarks, copyrights, patent
rights and franchise value.
By
virtue of their senior position and collateral, Senior Loans typically provide
lenders with the first right to cash flows or proceeds from the sale of a
borrower’s collateral if the borrower becomes insolvent (subject to the
limitations of bankruptcy law, which may provide higher priority to certain
claims such as, for example, employee salaries, employee pensions, and taxes).
This means Senior Loans are generally repaid before unsecured bank loans,
corporate bonds, subordinated debt, trade creditors, and preferred or common
stockholders.
Senior
Loans typically pay interest at least quarterly at rates which equal a fixed
percentage spread over a base reference rate such as the Secured Overnight
Financing Rate (“SOFR”). For example, if the base rate was 1.00% and the
borrower were paying a fixed spread of 3.50%, the total interest rate paid by
the borrower would be 4.50%. Base rates and, therefore, the total rates paid on
Senior Loans float, i.e.,
they change as market rates of interest change. Although a base rate such as
SOFR can change every day, loan agreements for Senior Loans typically allow the
borrower the ability to choose how often the base rate for its loan will change.
Such periods can range from one day to one year, with most borrowers choosing
monthly or quarterly reset periods. During periods of rising
interest
rates, borrowers will tend to choose longer reset periods, and during periods of
declining interest rates, borrowers will tend to choose shorter reset periods.
The fixed spread over the base rate on a Senior Loan typically does not
change.
Until
recently, the standard base rate utilized for Senior Loans has been the London
Interbank Offered Rate (“LIBOR”). In 2017, the United Kingdom’s Financial
Conduct Authority, which regulates LIBOR, announced that it would no longer
compel the banks to continue to submit the daily rates for the calculation of
LIBOR after 2021. The IBA ceased publication of most LIBOR settings on a
representative basis at the end of 2021 and ceased publication of a majority of
U.S. dollar LIBOR settings on a representative basis on June 30, 2023. In
addition, global regulators previously announced that, with limited exceptions,
no new LIBOR-based contracts should be entered into after 2021. After the global
financial crisis, regulators globally determined that existing interest rate
benchmarks should be reformed based on concerns that LIBOR and other Interbank
Offered Rates (“IBORs”) were susceptible to manipulation. Replacement rates for
various IBORs have been identified and include the Secured Overnight Financing
Rate, which is intended to replace U.S. dollar LIBOR and measures the cost of
overnight borrowings through repurchase agreement transactions collateralized
with U.S. Treasury securities.
While
various regulators and industry bodies are working globally on transitioning to
selected alternative rates and although the transition process away from LIBOR
has become increasingly well-defined in advance of the discontinuation dates,
there remains uncertainty regarding the future utilization of LIBOR and other
IBORs, including the transition to, and nature of, any selected replacement
rates as well as on the impact on investments that utilized LIBOR. The
transition process away from LIBOR may involve, among other things, increased
volatility or illiquidity in markets for instruments that relied on LIBOR. The
transition process may also result in a reduction in the value of certain
instruments held by a Fund or reduce the effectiveness of related Fund
transactions such as hedges. Volatility, the potential reduction in value,
and/or the hedge effectiveness of financial instruments may be heightened for
financial instruments that do not include fallback provisions that address the
cessation of LIBOR. Any potential effects of the transition away from LIBOR on
any of the Funds or on financial instruments in which a Fund invests, as well as
other unforeseen effects, could result in losses to a Fund.
Alteration
of the terms of a debt instrument or a modification of the terms of other types
of contracts to replace LIBOR or another IBOR with a new reference rate could
result in a taxable exchange and the realization of income and gain/loss for
U.S. federal income tax purposes. The U.S. Internal Revenue Service (“IRS”) has
issued final regulations regarding the tax consequences of the transition from
LIBOR to a new reference rate in debt instruments and non-debt contracts. Under
the final regulations, alteration or modification of the terms of a debt
instrument to replace an operative rate that uses a discontinued LIBOR with a
qualified rate (as defined in the final regulations) including true up payments
equalizing the fair market value of contracts before and after such LIBOR
transition, to add a qualified rate as a fallback rate to a contract whose
operative rate uses a discontinued LIBOR or to replace a fallback rate that uses
a discontinued LIBOR with a qualified rate would not be taxable. The IRS may
provide additional guidance, with potential retroactive effect. For additional
information, see LIBOR
Transition Risk
in the Prospectus.
Senior
Loans generally are arranged through private negotiations between a borrower and
several financial institutions or lending syndicates represented by an agent who
is usually one of the originating lenders. In larger transactions, it is common
to have several agents; however, generally only one such agent has primary
responsibility for ongoing administration of a Senior Loan. Agents are typically
paid fees by the borrower for their services. The agent is primarily responsible
for negotiating the loan agreement which establishes the terms and conditions of
the Senior Loan and the rights of the borrower and the lenders. The agent also
is responsible for monitoring collateral and for exercising remedies available
to the lenders such as foreclosure upon collateral. The agent is normally
responsible for the collection of principal and interest payments from the
borrower and the apportionment of these payments to the credit of all
institutions which are parties to the loan agreement. Unless, under the terms of
the loan, a Fund has direct recourse against the borrower, the Fund may have to
rely on the agent or other financial intermediary to apply appropriate credit
remedies against a borrower. The Manager will also monitor these aspects of a
Fund’s investments and, where a Fund owns an assignment, will be directly
involved with the agent and the other lenders regarding the exercise of credit
remedies.
A
financial institution’s employment as agent might be terminated in the event
that it fails to observe a requisite standard of care or becomes insolvent. A
successor agent would generally be appointed to replace the terminated agent,
and assets held by the agent under the loan agreement should remain available to
holders of such indebtedness. However, if assets held by the agent for the
benefit of a Fund were determined to be subject to the claims of the agent’s
general creditors, the Fund might incur certain costs and delays in realizing
payment on a Senior Loan and could suffer a loss of principal and/or interest.
In situations involving other interposed financial institutions (e.g.,
an insurance company or governmental agency) similar risks may
arise.
The
risks associated with Senior Loans are similar to the risks of “junk”
securities. A Fund’s investments in Senior Loans are typically non-investment
grade and are considered speculative because of the credit risk of their
issuers. Moreover, any specific collateral used to secure a loan may decline in
value or lose all its value or become illiquid, which would adversely affect the
loan’s value. Economic and other events, whether real or perceived, can reduce
the demand for certain Senior Loans or Senior Loans generally, which may reduce
market prices and cause a Fund’s NAV per share to fall. The frequency and
magnitude of such changes cannot be predicted.
Senior
Loans and other debt securities are also subject to the risk of price declines
and to increases in prevailing interest rates, although floating rate debt
instruments are less exposed to this risk than fixed rate debt instruments.
Conversely, the floating rate feature of Senior Loans means the Senior Loans
will not generally experience capital appreciation in a declining interest rate
environment. Declines in interest rates may also increase prepayments of debt
obligations and require a Fund to invest assets at lower yields.
Although
Senior Loans in which a Fund will invest will often be secured by collateral,
there can be no assurance that liquidation of such collateral would satisfy the
borrower’s obligation in the event of a default or that such collateral could be
readily liquidated. In the event of bankruptcy of a borrower, a Fund could
experience delays or limitations in its ability to realize the benefits of any
collateral securing a Senior Loan. A Fund may also invest in Senior Loans that
are not secured.
Senior
Loans and other types of direct indebtedness may not be readily marketable and
may be subject to restrictions on resale. In some cases, negotiations involved
in disposing of indebtedness may require weeks to complete. Consequently, some
indebtedness may be difficult or impossible to dispose of readily at what the
Manager believes to be a fair price. In addition, valuation of illiquid
indebtedness involves a greater degree of judgment in determining a Fund’s NAV
than if that value were based on available market quotations, and could result
in significant variations in a Fund’s daily share price. At the same time, some
loan interests are traded among certain financial institutions and accordingly
may be deemed liquid. As the market for different types of indebtedness
develops, the liquidity of these instruments is expected to improve. In
addition, a Fund currently intends to treat indebtedness for which there is no
readily available market as illiquid for purposes of the Fund’s limitation on
illiquid investments. In addition, floating rate loans may require the consent
of the borrower and/or the agent prior to sale or assignment. These consent
requirements can delay or impede the Fund’s ability to sell loans and can
adversely affect a loan’s liquidity and the price that can be
obtained.
Interests
in Senior Loans generally are not listed on any national securities exchange or
automated quotation system and no active market may exist for many of the Senior
Loans in which a Fund may invest. If a secondary market exists for certain of
the Senior Loans in which a Fund invests, such market may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods. To the extent that legislation or state or federal regulators impose
additional requirements or restrictions with respect to the ability of financial
institutions to make loans in connection with highly leveraged transactions, the
availability of Senior Loan interests for investment by a Fund may be adversely
affected.
A
Fund may have certain obligations in connection with a loan, such as, under a
revolving credit facility that is not fully drawn down, to loan additional funds
under the terms of the credit facility.
A
Fund may receive and/or pay certain fees in connection with its activities in
buying, selling and holding loans. These fees are in addition to interest
payments received, and may include facility fees, commitment fees, commissions
and prepayment penalty fees. When a Fund buys a loan, it may receive a facility
fee, and when it sells a loan, it may pay a facility fee. A Fund may receive a
commitment fee based on the undrawn portion of the underlying line of credit
portion of a loan, or, in certain circumstances, a Fund may receive a prepayment
penalty fee on the prepayment of a loan by a borrower.
A
Fund is not subject to any restrictions with respect to the maturity of Senior
Loans it holds, and Senior Loans usually will have rates of interest that are
redetermined either daily, monthly, quarterly, semi-annually or annually.
Investment in Senior Loans with longer interest rate redetermination periods may
increase fluctuations in a Fund’s NAV as a result of changes in interest rates.
As short-term interest rates increase, interest payable to a Fund from its
investments in Senior Loans should increase, and as short-term interest rates
decrease, interest payable to a Fund from its investments in Senior Loans should
decrease. The amount of time required to pass before a Fund will realize the
effects of changing short-term market interest rates on its portfolio will vary
depending on the interest rate redetermination period of the Senior
Loan.
The
participation interest and assignments in which a Fund intends to invest may not
be rated by any nationally recognized rating service. A Fund may invest in loan
participations and assignments with credit quality comparable to that of issuers
of its securities investments.
In
addition, it is conceivable that under emerging legal theories of lender
liability, a Fund which purchases an assignment could be held liable as
co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, a Fund will rely on the Manager’s
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Fund.
A
Fund, pursuant to its fundamental investment restrictions, may also be a lender
(originator), or part of a group of lenders originating a Senior Loan. When a
Fund is a primary lender, it will have a direct contractual relationship with
the borrower, may enforce compliance by the borrower with the terms of the loan
agreement and may under contractual arrangements among the lenders have rights
with respect to any funds acquired by other lenders through setoff. A lender
also has full voting and consent rights under the applicable loan agreement.
Action subject to lender vote or consent generally requires the vote or consent
of the holders of a majority or some greater specified percentage of the
outstanding principal amount of the Senior Loan. Certain decisions, such as
reducing the amount or increasing the time for payment of interest on or
repayment of principal of a Senior Loan, or releasing collateral therefor,
frequently require the unanimous vote or consent of all lenders affected. When a
Fund is a primary lender originating a Senior Loan, it may share in a fee paid
by the borrower to the primary lenders. Other than Funds that invest in Senior
Loans, a Fund will not act as the agent, originator, or principal negotiator or
administrator of a Senior Loan.
If
a Fund purchases a floating rate loan as part of the original group of lenders
or issues loans directly to the borrower (a loan originator/primary lender), it
may also be deemed an underwriter and may be subject to underwriting liability
and litigation risk. There is a risk that lenders and investors in loans can be
sued by other creditors and shareholders of the borrowers, and may need to serve
on a creditor’s committee or seek to enforce the Fund’s rights in a bankruptcy
proceeding. It is possible that losses could be greater than the original loan
amount and that losses could occur years after the principal and interest on the
loan has been repaid.
The
Fund may also make its investments in floating rate loans through structured
notes or swap agreements. Investments through these instruments involve
counterparty risk, i.e.,
the risk that the party from which such instrument is purchased will not perform
as agreed.
The
Fund may incur legal expense in seeking to enforce its rights under a loan, and
there can be no assurance of successor a recovery in excess of the Fund’s
expenditures.
Some
Funds limit the amount of assets that will be invested in any one issuer or in
issuers within the same industry (see the “Investment Restrictions” section).
For purposes of these limits, a Fund generally will treat the borrower as the
“issuer” of indebtedness held by the Fund. In the case of loan participations
where a bank or other lending institution serves as a financial intermediary
between a Fund and the borrower, if the participation does not shift to the Fund
the direct debtor-creditor relationship with the borrower, current SEC
interpretations require the Fund to treat both the lending bank or other lending
institution and the borrower as “issuers” for the purposes of determining
whether the Fund has invested more than 5% of its total assets in a single
issuer or more than 25% of its assets in a particular industry. Treating a
financial intermediary as an issuer of indebtedness may restrict a Fund’s
ability to invest in indebtedness related to a single financial intermediary, or
a group of intermediaries engaged in the same industry, even if the underlying
borrowers represent many different companies and industries. Investments in loan
participations and assignments are considered to be debt obligations for
purposes of the Trust’s investment restriction relating to the lending of funds
or assets by a Fund.
Junior
Loans.
A
Fund may invest in secured and unsecured subordinated loans, second lien loans
and subordinated bridge loans (“Junior Loans”). Second lien loans are generally
second in line in terms of repayment priority. A second lien loan may have a
claim on the same collateral pool as the first lien or it may be secured by a
separate set of assets, such as property, plants, or equipment. Second lien
loans generally give investors priority over general unsecured creditors in the
event of an asset sale. Junior Loans are subject to the same general risks
inherent to any loan investment, including credit risk, market and liquidity
risk, and interest rate risk. Due to their lower place in the Borrower’s capital
structure and possible unsecured status, Junior Loans involve a higher degree of
overall risk than Senior Loans of the same Borrower. A Fund may purchase Junior
Loan interests either in the form of an assignment or a loan participation (see
discussion above about “Loan Participations and Assignments”).
Covenant
Lite Loans.
As compared to a loan instrument that contains numerous covenants that allow
lenders the option to force the borrowers to negotiate terms if risks became
elevated, the majority of new loans that are issued are “covenant lite” loans
which tend to have fewer or no financial maintenance covenants and restrictions.
A covenant lite loan typically contains fewer clauses which allow an investor to
proactively enforce financial covenants or prevent undesired actions by the
borrower/issuer, including the ability to make an acquisition, pay dividends or
issue additional debt if they have met certain loan terms. Covenant lite loans
also generally provide fewer investor protections if certain criteria are
breached, such as permitting an investor to declare a default (and therefore
receive collateral), or to force restructurings and other capital changes on
struggling borrowers/issuers. A Fund may experience losses or delays in
enforcing its rights on its holdings of covenant lite loans.
Municipal
Securities
Municipal
securities consist of bonds, notes and other instruments issued by or on behalf
of states, territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular U.S. federal
income tax. Municipal securities are often issued to obtain funds for various
public purposes. Municipal securities also include residual interest bonds and
“private activity bonds” or industrial development bonds, which are issued by or
on behalf of public authorities to obtain funds for privately operated
facilities, such as airports and waste disposal facilities, and, in some cases,
commercial and industrial facilities.
The
yields and market values of municipal securities are determined primarily by the
general level of interest rates, the creditworthiness of the issuers of
municipal securities and economic and political conditions affecting such
issuers. Due to their tax exempt status, the yields and market prices and
liquidity of municipal securities may be adversely affected by changes in tax
rates and policies, which may have less effect on the market for taxable debt
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments
in municipal securities are subject to the risk that the issuer could default on
its obligations. Such a default could result from the inadequacy of the sources
or revenues from which interest and principal payments are to be made or the
assets collateralizing such obligations. Revenue bonds, including private
activity bonds, are backed only by specific assets or revenue sources and not by
the full faith and credit of the governmental issuer.
When
a Fund purchases municipal securities, the Fund may acquire stand-by agreements
from banks and broker-dealers with respect to those municipal securities. A
stand-by commitment may be considered a security independent of the municipal
security to which it relates. The amount payable by a bank or broker-dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of the
underlying municipal security. As with many principal over-the-counter ("OTC")
transactions, there is counterparty risk of default which could result in a loss
to the Fund.
From
time to time, legislation restricting or limiting the U.S. federal income tax
exemption for interest on municipal securities is introduced in Congress. There
is a risk that changes in the law could result in the municipal security losing
its U.S. federal income tax exempt status.
Corporate
Debt Securities
The
debt securities in which a Fund may invest are limited to corporate debt
securities (corporate bonds, debentures, notes, and other similar corporate debt
instruments) which meet the minimum ratings criteria set forth for that
particular Fund, or if unrated, are in the Manager’s opinion, comparable in
quality to corporate debt securities in which a Fund may invest. In the event
that a security
owned
by a Fund is downgraded to below the Fund’s respective minimum ratings criteria,
the Fund may nonetheless retain the security.
The
investment return on corporate debt securities reflects interest earnings and
changes in the market value of the security. The market value of corporate debt
obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may not
be able to meet their obligations on interest or principal payments at the time
called for by an instrument.
Tender
Option Bonds.
Tender
option bonds are generally long-term securities that are coupled with the option
to tender the securities to a bank, broker-dealer or other financial institution
at periodic intervals and receive the face value of the bond. This type of
security is commonly used as a means of enhancing the security’s
liquidity.
Variable
and Floating Rate Securities
Variable
and floating rate securities provide for a periodic adjustment in the interest
rate paid on obligations. The terms of such obligations must provide that
interest rates are adjusted periodically based upon an appropriate interest rate
adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily to annually, or may be event
based, such as based on a change in the prime rate.
The
interest rate on a floating rate debt instrument (“floater”) is a variable rate
which is tied to another interest rate, such as a money market index or Treasury
bill rate. The interest rate on a floater resets periodically, typically every
six months. While, because of the interest rate reset feature, floaters provide
Funds with a certain degree of protection against rises in interest rates, Funds
investing in floaters will participate in any declines in interest rates as
well.
The
interest rate on a leveraged inverse floating rate debt instrument (“inverse
floater”) resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, duration of an inverse floater
may exceed its stated final maturity. Certain inverse floaters may be deemed to
be illiquid investments for purposes of a Fund’s limitations on investments in
such securities.
A
super floating rate collateralized mortgage obligation (“super floater”) is a
leveraged floating-rate tranche in a CMO issue. At each monthly reset date, a
super floater’s coupon rate is determined by a slated formula. Typically, the
rate is a multiple of some index minus a fixed-coupon amount. When interest
rates rise, a super floater is expected to outperform regular floating rate CMOs
because of its leveraging factor and higher lifetime caps. Conversely, when
interest rates fall, a super floater is expected to underperform floating rate
CMOs because its coupon rate drops by the leveraging factor. In addition, a
super floater may reach its cap as interest rates increase and may no longer
provide the benefits associated with increasing coupon rates.
Transition
Bonds
Transition
bonds are debt instruments whose proceeds are exclusively used to finance
projects aimed at helping the issuer transition to a more environmentally
sustainable way of doing business. Transition bonds are typically issued by
industries of a lower ESG rating or industries whose operations tend to have
adverse environmental consequences such as mining (especially for materials in a
technology-focused environment like lithium), heavy industry (such as cement,
aluminum, iron, steel and chemicals), utilities and transportation.
Green
Bonds
Green
bonds are debt instruments whose proceeds are used principally to promote
environmentally beneficial projects, such as the development of clean,
sustainable or renewable energy sources, commercial and industrial energy
efficiency or the conservation of natural resources. Green bonds are typically
asset-linked and backed by the issuer’s balance sheet and generally carry a
similar credit rating as the issuer’s other debt instruments. Green bonds may be
subject to additional risks relative to “non-green” bonds, such as the risk of a
decrease in government support for environmental initiatives, which may impact
the revenue sources relied upon for repayment.
Custodial
Receipts and Trust Certificates
Custodial
receipts and trust certificates which may be underwritten by securities dealers
or banks, representing interests in securities held by a custodian or trustee.
The securities may include U.S. government securities, municipal securities or
other types of securities in which a Fund may invest. The custodial receipts or
trust certificates are underwritten by securities dealers or banks and may
evidence ownership of future interest payments, principal payments or both on
the underlying securities, or, in some cases, the payment obligation of a third
party that has entered into an interest rate swap or other arrangement with the
custodian or trustee. For certain securities laws purposes, custodial receipts
and trust certificates may not be considered obligations of the U.S. government
or other issuer of the securities held by the custodian or trustee. As a holder
of custodial receipts and trust certificates, a Fund will bear its proportionate
share of the fees and expenses charged to the custodial account or trust. A Fund
may also invest in separately issued interests in custodial receipts and trust
certificates.
Although
under the terms of a custodial receipt or trust certificate a Fund would be
typically authorized to assert their rights directly against the issuer of the
underlying obligation, a Fund could be required to assert through the custodian
bank or trustee those rights as may exist against the underlying issuers. Thus,
in the event an underlying issuer fails to pay principal and/or interest when
due,
a Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
the issuer. In addition, in the event that the trust or custodial account in
which the underlying securities have been deposited is determined to be an
association taxable as a corporation, instead of a non-taxable entity, the yield
on the underlying securities would be reduced in recognition of any taxes
paid.
Certain
custodial receipts and trust certificates may be synthetic or derivative
instruments that have interest rates that reset inversely to changing short-term
rates and/or have embedded interest rate floors and caps that require the issuer
to pay an adjusted interest rate if market rates fall below or rise above a
specified rate. Because some of these instruments represent relatively recent
innovations, and the trading market for these instruments is less developed than
the markets for traditional types of instruments, it is uncertain how these
instruments will perform under different economic and interest-rate scenarios.
Also, because these instruments may be leveraged, their market values may be
more volatile than other types of debt instruments and may present greater
potential for capital gain or loss. The possibility of default by an issuer or
the issuer’s credit provider may be greater for these derivative instruments
than for other types of instruments. In some cases, it may be difficult to
determine the fair value of a derivative instrument because of a lack of
reliable objective information and an established secondary market for some
instruments may not exist. In many cases, the IRS has not ruled on the tax
treatment of the interest received on the derivative instruments and,
accordingly, purchases of such instruments are based on the opinion of counsel
to the sponsors of the instruments.
Commercial
Paper
Commercial
paper obligations may include variable amount master demand notes. These are
obligations that permit the investment of fluctuating amounts at varying rates
of interest pursuant to direct arrangements between a Fund, as lender, and the
borrower. These notes permit daily changes in the amounts borrowed. The lender
has the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower may prepay up to the full amount of the note without penalty. Because
variable amount master demand notes are direct lending arrangements between the
lender and borrower, it is not generally contemplated that such instruments will
be traded and there is no secondary market for these notes. However, they are
redeemable (and thus immediately repayable by the borrower) at face value, plus
accrued interest, at any time. In connection with master demand note
arrangements, the Adviser or Manager will monitor, on an ongoing basis, the
earning power, cash flow, and other liquidity ratios of the borrower and its
ability to pay principal and interest on demand. The Adviser or Manager also
will consider the extent to which the variable amount master demand notes are
backed by bank letters of credit. These notes generally are not rated by a
rating agency; a Fund may invest in them only if the Adviser or Manager believes
that at the time of investment the notes are of comparable quality to the other
commercial paper in which that Fund may invest. See Appendix A for a description
of ratings applicable to commercial paper.
Convertible
Securities
Convertible
securities are debt securities which may be converted or exchanged at a stated
exchange ratio into underlying shares of common stock. The exchange ratio for
any particular convertible security may be adjusted from time to time due to
stock splits, dividends, spin-offs, other corporate distributions, or scheduled
changes in the exchange ratio. Convertible bonds and convertible preferred
stocks, until converted, have general characteristics similar to both debt and
equity securities. Although to a lesser extent than with debt securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion or exchange feature, the market
value of convertible securities tends to vary with fluctuations in the market
value of the underlying common stocks, and, therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As
debt securities, convertible securities are investments which provide for a
stable stream of income with generally higher yields than common stocks. Of
course, like all debt securities, there can be no assurance of current income
because the issuers of the convertible securities may default in their
obligations. Convertible securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar quality because of
the potential for capital appreciation.
A
convertible security, in addition to providing fixed income, offers the
potential for capital appreciation through the conversion feature which enables
the holder to benefit from increases in the market price of the underlying
common stock. In selecting the securities for a Fund, the Adviser or Manager
gives substantial consideration to the potential for capital appreciation of the
common stock underlying the convertible securities. However, there can be no
assurance of capital appreciation because securities prices
fluctuate.
Convertible
securities generally are subordinated to other similar but non-convertible
securities of the same issuer although convertible bonds, as corporate debt
obligations, enjoy seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the same issuer.
However, because of the subordination feature, convertible bonds and convertible
preferred stock typically have lower ratings than similar non-convertible
securities.
A
“synthetic convertible” is created by combining distinct securities which
possess the two principal characteristics of a true convertible, i.e.,
fixed income (debt component) and the right to acquire equity securities
(convertibility component). This
combination
is achieved by investing in non-convertible debt securities (non-convertible
bonds and preferred stocks) and in warrants, granting the holder the right to
purchase a specified quantity of securities within a specified period of time at
a specified price.
However,
the synthetic convertible differs from the true convertible security in several
respects. Unlike a true convertible, which is a single security having a unitary
market value, a synthetic convertible is comprised of two distinct securities,
each with its own market value. Therefore, the “market value” of a synthetic
convertible is the sum of the values of its debt component and its
convertibility component. For this reason, the value of a synthetic convertible
and a true convertible security will respond differently to market
fluctuations.
More
flexibility is possible in the assembly of a synthetic convertible than in the
purchase of a convertible security in that its two components may be purchased
separately. For example, a Manager may purchase a warrant for inclusion in a
synthetic convertible but temporarily hold short-term investments while
postponing purchase of a corresponding bond pending development of more
favorable market conditions.
A
holder of a synthetic convertible faces the risk that the price of the stock
underlying the convertibility component will decline, causing a decline in the
value of the warrant; should the price of the stock fall below the exercise
price and remain there throughout the exercise period, the entire amount paid
for the warrant would be lost. Since a synthetic convertible includes the debt
component as well, the holder of a synthetic convertible also faces the risk
that interest rates will rise, causing a decline in the value of the debt
instrument.
Contingent
Convertible Securities (“CoCos”).
CoCos
are a form of hybrid debt security that either convert into common stock of the
security’s issuer or have their principal written down upon the occurrence of
certain “triggers.” These triggers are generally linked to capital thresholds
required by the regulator of the issuer or regulatory actions calling into
question the issuer’s continued viability as a going concern (such as where the
issuer receives specified levels of extraordinary governmental support). CoCos’
equity conversion or principal write-down features are specific to the issuer
and its regulatory requirements, and therefore vary depending upon the issuer of
the CoCo. In addition, certain CoCos have a set stock conversion rate that
triggers an automatic write-down of capital if the price of the issuer’s stock
is below a predetermined price on the conversion date. Under these
circumstances, the liquidation value of the CoCos may be adjusted downward to
below the original par value. This downward adjustment would occur automatically
and would not entitle the holders of the CoCos to seek bankruptcy of the issuer.
In certain circumstances, CoCos may write down to zero and an investor could
lose the entire value of its investment, even if the issuer remains a going
concern. Further, CoCos may be subject to redemption at the option of the issuer
at a predetermined price.
Some
additional risks associated with CoCos may include, but are not limited
to:
•Loss
absorption risk.
CoCos have fully discretionary coupons. This means coupons can potentially be
deferred or cancelled at the issuer’s discretion or at the request of the
relevant regulatory authority in order to help the issuer absorb
losses.
•Reduced
income or loss of income.
Upon conversion of CoCos into common stock, investors in the CoCos could
experience a reduced income rate, potentially to zero, because the common stock
of the issuer may not pay a dividend.
•Subordinated
instruments.
CoCos will, in the majority of circumstances, be issued in the form of
subordinated debt instruments in order to provide the appropriate regulatory
capital treatment prior to a conversion. Accordingly, in the event of
liquidation, dissolution or winding-up of an issuer prior to a conversion having
occurred, the rights and claims of the holders of the CoCos, such as the Funds,
against the issuer in respect of or arising under the terms of the CoCos shall
generally rank junior to the claims of all holders of unsubordinated obligations
of the issuer, worsening the holder’s standing in a bankruptcy. In addition, if
the CoCos are converted into the issuer’s underlying equity securities following
a conversion event (i.e.,
a “trigger”), each holder will be subordinated due to their conversion from
being the holder of a debt instrument to being the holder of an equity
instrument, again worsening the holder’s standing in a bankruptcy.
•Market
value will fluctuate based on unpredictable factors.
The value of CoCos is unpredictable and will be influenced by many factors
including, without limitation: (i) the creditworthiness of the issuer and/or
fluctuations in such issuer’s applicable capital ratios; (ii) supply and demand
for the CoCos; (iii) general market conditions and available liquidity; and (iv)
economic, financial and political events that affect the issuer, its particular
market or the financial markets in general.
Duration
Duration
is a measure of the average life of a bond on a present value basis, which was
developed to incorporate a bond’s yield, coupons, final maturity and call
features into one measure. Duration is one of the fundamental tools used by the
Adviser or Manager in debt security selection. In this discussion, the term
“bond” is generally used to connote any type of debt instrument.
Most
notes and bonds provide interest (coupon) payments in addition to a final (par)
payment at maturity. Some obligations also feature call provisions. Depending on
the relative magnitude of these payments, debt obligations may respond
differently to changes in the level and structure of interest rates.
Traditionally, a debt security’s “term to maturity” has been used as a proxy for
the sensitivity of the security’s price to changes in interest rates (which is
the “interest rate risk” or “volatility” of the security). However, “term to
maturity” measures only the time until a debt security provides its final
payment, taking no account of the pattern of the security’s payments prior to
maturity.
Duration
is a measure of the average life of a debt security on a present value basis.
Duration takes the length of the time intervals between the present time and the
time that the interest and principal payments are scheduled or, in the case of a
callable bond, expected to be received, and weights them by the present values
of the cash to be received at each future point in time. For any debt
security
with interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other things being the same, the
lower the stated or coupon rate of interest of a debt security, the longer the
duration of the security; conversely, the higher the stated or coupon rate of
interest of a debt security, the shorter the duration of the
security.
Although
frequently used, the “term of maturity” of a bond may not be a useful measure of
the longevity of a bond’s cash flow because it refers only to the time remaining
to the repayment of principal or corpus and disregards earlier coupon payments.
Stated alternatively, the term of maturity does not provide a prospective
investor with a clear understanding of the time profile of cash flows over the
life of a bond. Thus, for example, three bonds with the same maturity may not
have the same investment characteristics (such as risk or repayment time). One
bond may have large coupon payments early in its life, whereas another may have
payments distributed evenly throughout its life. Some bonds (such as zero coupon
bonds) make no coupon payments until maturity. To assess the value of these
bonds, not only the final payment or sum of payments on the bond, but also the
timing and magnitude of payments, are important to consider.
Another
way of measuring the longevity of a bond’s cash flow is to compute a simple
average time to payment, where each year is weighted by the number of dollars
the bond pays that year. This concept is termed the “dollar-weighted mean
waiting time,” indicating that it is a measure of the average time to payment of
a bond’s cash flow. A shortcoming of this approach is that it assigns equal
weight to each dollar paid over the life of a bond, regardless of when the
dollar is paid. Since the present value of a dollar decreases with the amount of
time which must pass before it is paid, a better method might be to weight each
year by the present value of the dollars paid that year. This calculation puts
the weights on a comparable basis and creates a definition of longevity which is
known as duration.
A
bond’s duration depends upon three variables: (i) the maturity of the bond; (ii)
the coupon payments attached to the bond; and (iii) the bond’s yield to
maturity. Yield to maturity, or investment return as used here, represents the
approximate return an investor purchasing a bond may expect if he holds that
bond to maturity. In essence, yield to maturity is the rate of interest which,
if applied to the purchase price of a bond, would be capable of exactly
reproducing the entire time schedule of future interest and principal
payments.
Increasing
the size of the coupon payments on a bond, while leaving the maturity and yield
unchanged, will reduce the duration of the bond. This follows because bonds with
higher coupon payments pay relatively more of their cash flows sooner.
Increasing the yield to maturity on a bond (e.g.,
by reducing its purchase price), while leaving the term to maturity and coupon
payments unchanged, also reduces the duration of the bond. Because a higher
yield leads to lower present values for more distant payments relative to
earlier payments, and, to relatively lower weights attached to the years
remaining to those payments, the duration of the bond is reduced.
There
are some situations where the standard duration calculation does not properly
reflect the interest rate exposure of a security. For example, floating and
variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is mortgage pass-throughs. The stated final maturity is generally 30
years but current prepayment rates are more critical in determining the
securities’ interest rate exposure. In these and other similar situations, the
Adviser or Manager of a Fund may use other analytical techniques which
incorporate the economic life of a security into the determination of its
interest rate exposure.
Futures,
options, and options on futures have durations which, in general, are closely
related to the duration of the securities which underlie them. Holding long
futures or call option positions will lengthen the fund duration if interest
rates go down and bond prices go up by approximately the same amount that
holding an equivalent amount of the underlying securities would.
Short
futures or put option positions have durations roughly equal to the negative
duration of the securities that underlie those positions, and have the effect of
reducing fund duration if interest rates go up and bond prices go down by
approximately the same amount that selling an equivalent amount of the
underlying securities would.
Repurchase
Agreements
Repurchase
agreements entail a Fund’s purchase of a fund eligible security from a bank or
broker-dealer that agrees to repurchase the security at the Fund’s cost plus
interest within a specified time (normally one day). Repurchase agreements
permit an investor to maintain liquidity and earn income over periods of time as
short as overnight. The term of such an agreement is generally quite short,
possibly overnight or for a few days, although it may extend over a number of
months (up to one year) from the date of delivery. The repurchase price is in
excess of the Fund’s purchase price by an amount which reflects an agreed upon
market rate of return, effective for the period of time a Fund is invested in
the security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to the
coupon rate on the security subject to the repurchase agreement.
If
the party agreeing to repurchase should default and if the value of the
underlying securities held by a Fund should fall below the repurchase price, a
loss could be incurred. A Fund also might incur disposition costs in connection
with liquidating the securities. Repurchase agreements will be entered into only
where the underlying security is a type of security in which the Fund may
invest, as described in the Prospectuses and in this SAI.
Under
the 1940 Act, repurchase agreements are considered to be loans by the purchaser
collateralized by the underlying securities. Repurchase agreements are commonly
used to earn a return on cash held in a Fund. When a repurchase agreement is
entered into for the purposes of earning income, the Adviser or Manager to a
Fund monitors the value of the underlying securities at the time the repurchase
agreement is entered into and during the term of the agreement to ensure that
its daily marked-to-market value always equals or exceeds the agreed upon
repurchase price to be paid to a Fund. The Adviser or Manager, in accordance
with procedures established by the Board of Trustees (the “Board”), also
evaluates the creditworthiness and financial responsibility of the
banks
and brokers or dealers with which a Fund enters into repurchase agreements. For
a Fund that is eligible to sell securities short, as described in the
Prospectuses and in this SAI, repurchase agreements may also be used to affect
the short sale of a security. When using a repurchase agreement to affect the
short sale of a security, the Adviser or Manager of the Fund monitors the value
of the underlying securities at the time the repurchase agreement is entered
into and during the term of the agreement to ensure that the daily
marked-to-market value of the underlying securities always equals or exceeds at
least 95% of the agreed upon repurchase price to be paid to the
Fund.
A
Fund may not enter into a repurchase agreement having more than seven days
remaining to maturity if, as a result, such agreements, together with any other
securities which are not readily marketable, would exceed 15% of the net assets
of a Fund.
Borrowing
and Leveraged Transactions
Each
Fund may borrow money to the extent permitted under the 1940 Act. Under the 1940
Act, a Fund may not borrow money from a bank if, as a result of such borrowing,
the total amount of all money borrowed by a Fund exceeds 33 1/3% of the value of
its total assets including borrowings, less liabilities exclusive of borrowings.
This means that the 1940 Act requires a Fund to maintain continuous asset
coverage of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, a Fund may be
required to sell some of its portfolio holdings to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment strategy perspective to sell those holdings at that time. Except as
otherwise provided in this SAI or the Prospectuses, each Fund also may borrow
money for temporary purposes in an amount not to exceed 5% of a Fund’s total
assets. This borrowing may be secured or unsecured. Borrowing may exaggerate the
effect on NAV of any increase or decrease in the market value of a Fund. The
cost of borrowing may reduce a Fund’s return. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with a borrowing or to pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the cost
of borrowing over the stated interest rate.
The
SEC takes the position that other transactions in which a Fund may enter into
that have a leveraging effect on the capital structure of the Fund can be viewed
as a form of “senior security” of the Fund for purposes of Section 18(f) of the
1940 Act, which generally prohibits mutual funds from issuing senior securities.
These senior securities may include selling securities short, buying and selling
certain derivatives (such as futures contracts, options, forward contracts, or
swap agreements), engaging in when-issued, delayed-delivery, forward-commitments
(such as mortgage dollar rolls), reverse repurchase agreements or sale-buybacks
and other investment strategies or techniques that have a leveraging effect on
the capital structure of a Fund or may be viewed as economically equivalent to
borrowing. The Funds may invest in derivatives transactions in compliance with
Rule 18f-4 under the 1940 Act. As
required by Rule 18f-4, the Trust adopted and implemented a derivatives risk
management program governing the use of derivatives by the Funds through, among
other things, the application of a value-at-risk (“VaR”) based limit to a Fund’s
derivatives exposure. Compliance with Rule 18f-4 may restrict a Fund’s ability
to utilize derivative investments and financing transactions and prevent a Fund
from implementing its principal investment strategies in the manner that it has
historically, which may adversely affect its performance. While elements
prescribed by Rule 18f-4 such as the derivatives risk management program and the
VaR limit are designed to assist in the assessment and management of derivatives
risk, there is no guarantee they will be effective in reducing the risks
inherent in the Funds’ derivative investments.
Reverse
Repurchase Agreements
Reverse
repurchase agreements, among the forms of borrowing if not “covered,” involve
the sale or pledge of a debt security held by a Fund to another party, such as a
bank or broker-dealer, with an agreement by that Fund to repurchase the security
at a stated pre-agreed-upon repurchase price, date and interest payment. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security as beneficial owner during the term
of the agreement.
A
Fund can use the proceeds of a reverse repurchase agreement to purchase other
securities for that Fund. This use of reverse repurchase agreements by a Fund
creates leverage, which increases a Fund’s investment risk. If the income and
gains on securities purchased with the proceeds of reverse repurchase agreements
exceed the cost of the agreements, a Fund’s earnings or NAV will increase faster
than otherwise would be the case; conversely, if the income and gains fail to
exceed the costs, earnings or NAV would decline faster than otherwise would be
the case. A Fund will typically enter into a reverse repurchase agreement when
it anticipates the interest income to be earned from the investment of the
proceeds of the transaction will be greater than the interest expense of the
transaction incurred by the Fund. However, reverse repurchase agreements involve
the risk that the market value of securities sold or pledged by the Fund
declines below the pre-agreed-upon repurchase price by the Fund. Reverse
repurchase agreements also subject a Fund to counterparty risk (e.g.,
the risk that the counterparty is unable to satisfy its obligations under the
reverse repurchase agreement). In
connection with its compliance with Rule 18f-4 under the 1940 Act, the Fund may
treat all reverse repurchase transactions as derivatives transactions subject to
the requirements of Rule 18f-4 or treat all reverse repurchase transactions as
senior securities subject to the 300% asset coverage requirement otherwise
applicable to borrowings by the Fund.
Sale-Buybacks
Sale-buybacks
are similar in their function and operation to a reverse repurchase agreement,
both of which consist of a sale of a security by a Fund to the counterparty with
a simultaneous agreement to repurchase the same or substantially the same
security at an agreed-up price and date. The principal difference is that in a
sale-buyback the counterparty, and not the Fund, is entitled to receive any
principal or interest payments made on the underlying security pending
settlement of the repurchase of the underlying security, which are recorded as
an interest expense to the Fund. As with reverse repurchase agreements, a
sale-buyback is a financing transaction that is considered a form of borrowing
if not “covered.”
Forward
Commitment Agreements and When-Issued or Delayed Delivery
Securities
Forward
commitment agreements (also referred to as forward contracts or forwards) are
agreements for the purchase of securities at an agreed upon price on a specified
future date. A Fund may purchase new issues of securities on a “when-issued” or
“delayed delivery” basis, whereby the payment obligation and interest rate on
the instruments are fixed at the time of the transaction or in some cases may be
conditioned on a subsequent event. Such transactions might be entered into, for
example, when the Adviser or Manager to a Fund anticipates a decline in the
yield of securities of a given issuer and is able to obtain a more advantageous
yield by committing currently to purchase securities to be issued or delivered
later.
Liability
for the purchase price — and all the rights and risks of ownership of the
securities — accrue to a Fund at the time it becomes obligated to purchase such
securities on a forward commitment, when-issued or delayed delivery basis,
although delivery and payment occur at a later date. Accordingly, if the market
price of the security should decline, the effect of the agreement would be to
obligate the Fund to purchase the security at a price above the current market
price on the date of delivery and payment. Delayed delivery, when-issued and
forward commitments purchases involve a risk of loss if the value of the
securities declines prior to the settlement date.
When
a Fund sells a security on a forward commitment, when-issued or delayed delivery
basis, the Fund does not participate in future gains or losses with respect to
the security. If the other party to the transaction fails to pay for the
security, the Fund could suffer a loss. Additionally, when selling a security on
a forward commitment, when-issued or delayed delivery basis without owning the
security, a Fund will incur a loss if the security’s price appreciates in value
above the agreed upon price on the settlement date.
Forward
Volatility Agreements.
Forward volatility agreements are a type of forward commitment agreement in
which two parties agree to the purchase or sale of an option straddle (a
combination of a simultaneous call and put) on an underlying exchange rate at
the expiration of the agreement. On the day of the trade, the parties determine
the expiration date and the volatility rate. On the expiration date, the amount
settled is determined based on an options pricing model (typically Black
Scholes), the then-current spot exchange rate, interest rates and the agreed
upon implied volatility. Changes in the value of the forward volatility
agreement are recorded as unrealized gains or losses. The primary risks
associated with forward volatility agreements are a change in the volatility of
the underlying exchange rate and changes in the spot price of the underlying
exchange rates.
Standby
Commitment Agreements
Standby
commitment agreements are agreements that obligate a party, for a set period of
time, to purchase a certain amount of a security that may be issued and sold at
the option of the issuer. The price of a security purchased pursuant to a
standby commitment agreement is set at the time of the agreement. In return for
its promise to purchase the security, the purchaser receives a commitment fee
based upon a percentage of the purchase price of the security. The purchaser
receives this fee whether or not it is ultimately required to purchase the
security.
When
a Fund enters into a standby commitment agreement, there is no guarantee that
the securities subject to such agreement will be issued and, if such securities
are issued, that the value of the securities on the date of issuance may be more
or less than the purchase price. A Fund will limit its investments in standby
commitment agreements with remaining terms exceeding seven days pursuant to the
limitation on investments in illiquid investments.
Short
Sales
A
short sale is a transaction in which a Fund sells a security it does not own in
anticipation of a decline in the market price. Even during normal or favorable
market conditions, a Fund may make short sales in an attempt to maintain fund
portfolio flexibility and facilitate the rapid implementation of investment
strategies if the Manager believes that the price of a particular security or
group of securities is likely to decline.
When
a Fund makes a short sale, a Fund must arrange through a broker or other
institution to borrow the security to deliver to the buyer; and, in so doing, a
Fund becomes obligated to replace the security borrowed at its market price at
the time of replacement, whatever that price may be. A Fund may have to pay a
premium and other transaction costs to borrow the security, which would increase
the cost of the security sold short. A Fund must also pay any dividends or
interest payable on the security until the Fund replaces the security.
The
Fund must normally repay to the lender an amount equal to any dividends or
interest that accrues while the loan is outstanding. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, interest or expenses the Fund may be required to pay in
connection with the short sale. Also, the lender of a security may terminate the
loan at a time when the Fund is unable to borrow the same security for delivery.
In that case, the Fund would need to purchase a replacement security at the then
current market price “buy in” by paying the lender an amount equal to the cost
of purchasing the security.
While
derivative instruments are excluded from the definition of a short sale, a Fund
that may enter into short sales on derivative instruments with a counterparty
will be subject to counterparty risk (i.e.,
the risk that the Fund’s counterparty will not satisfy its obligation under the
particular derivative contract), in addition to risks relating to derivatives
and short sales.
Short
sales also involve counterparty risk to the extent that the broker or other
institution fails to return the Fund’s collateral. However, since the market
value of the security borrowed is marked-to-market daily, the Fund’s exposure
would be limited to the difference between the amount of collateral posted by
the Fund (as adjusted daily based upon market price) and the market value of the
security borrowed by the Fund to close out its open short position.
Short
Sales Against the Box
A
short sale is “against the box” when a Fund enters into a transaction to sell a
security short as described above, while at all times during which a short
position is open, maintaining an equal amount of such securities, or owning
securities giving it the right, without payment of future consideration, to
obtain an equal amount of securities sold short. The Fund’s obligation to
replace the securities sold short is then completed by purchasing the securities
at their market price at time of replacement.
Restricted
and Unregistered Securities
The
securities in which certain Funds may invest could be unregistered and/or have
restrictions or conditions attached to their resale.
Restricted
securities may be sold only in a public offering with respect to which a
registration statement is in effect under the 1933 Act, or in a transaction that
is exempt from such registration such as certain privately negotiated
transactions. For example, restricted securities issued in reliance on Rule 144A
under the 1933 Act are subject to restrictions on resale but can be purchased by
certain “qualified institutional buyers” without the necessity for registration
of the securities.
Some
unregistered securities may require registration. Where registration is
required, a Fund (as a registrant) could be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time a Fund is permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell.
In
a typical Private Investment in Public Equity (“PIPE”) transaction, the issuer
sells shares of common stock at a discount to current market prices to a Fund
and may also issue warrants enabling a Fund to purchase additional shares at a
price equal to or at a premium to current market prices. Because the shares
issued in a PIPE transaction are “restricted securities” under the federal
securities laws, a Fund cannot freely trade the securities until the issuer
files a registration statement to provide for the public resale of the shares,
which typically occurs after the completion of the PIPE transaction and the
public registration process with the SEC is completed, a period which can last
many months. PIPEs may contain provisions that the issuer will pay specified
financial penalties to a Fund if the issuer does not publicly register the
restricted equity securities within a specified period of time, but there is no
assurance that the securities will be publicly registered, or that the
registration will be maintained.
Small-Capitalization
Stocks
Investments
in larger companies present certain advantages in that such companies generally
have greater financial resources, more extensive research and development,
manufacturing, marketing and service capabilities, more stability and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also involve
greater risks than customarily are associated with more established companies.
The securities of smaller companies may be subject to more abrupt or erratic
market movements than larger, more established companies. These companies may
have limited product lines, markets or financial resources, or they may be
dependent upon a limited management group. Their securities may be traded only
in the OTC market or on a regional securities exchange and may not be traded
every day or in the volume typical of trading on a major securities exchange. As
a result, the disposition by a Fund of securities to meet redemptions, or
otherwise, may require a Fund to sell these securities at a discount from market
prices or to sell during a period when such disposition is not desirable or to
make many small sales over a lengthy period of time.
Foreign
Securities
Foreign
securities may be listed or traded in the form of depositary receipts including,
but not limited to, American Depositary Receipts (“ADRs”), European Depositary
Receipts (“EDRs”), Global Depositary Receipts (“GDRs”), International Depositary
Receipts (“IDRs”) and non-voting depositary receipts (“NVDRs,” and collectively,
“Depositary Receipts”). ADRs are dollar-denominated receipts issued generally by
domestic banks and represent the deposit with the bank of a security of a
foreign issuer. ADRs are publicly traded on exchanges or OTC in the United
States. EDRs, IDRs and GDRs are receipts evidencing an arrangement with a
foreign bank similar to that for ADRs and are designed for use in the foreign
(non-U.S.) securities markets. EDRs and GDRs are not necessarily quoted in the
same currency as the underlying security. NVDRs have similar financial rights as
common stocks but do not have voting rights.
Investing
in the securities of foreign issuers involves special risks and considerations
not typically associated with investing in U.S. companies. These include
differences in accounting, auditing and financial reporting standards, generally
higher commission rates on foreign transactions, the possibility of
expropriation, nationalization, or confiscatory taxation, adverse changes in
investment or exchange control regulations, trade restrictions, political
instability (which can affect U.S. investments in foreign countries), the impact
of economic sanctions, and potential restrictions on the flow of international
capital. It may be more difficult to obtain and enforce judgments against
foreign entities. The United States and other countries have imposed, and may
impose additional, economic sanctions against certain countries, entities and/or
individuals. Economic sanctions and other similar actions could, among other
things, prohibit or otherwise limit a Fund’s ability to purchase or sell certain
foreign securities and significantly delay or prevent the settlement of
securities transactions. Such actions could decrease the value and liquidity of
securities held by a Fund and may require a Fund to sell or otherwise dispose of
all or a portion of the impacted securities at inopportune times or prices.
Sanctions could also result in retaliations or countermeasures, which may
adversely impact a Fund’s investments or operations. Although it is not possible
to predict the impact that any sanctions or retaliatory actions may have on a
Fund, such events could significantly harm a Fund’s performance.
Additionally,
income (including dividends and interest) and capital gains from foreign
securities may be subject to foreign taxes, including foreign withholding taxes,
and other foreign taxes may apply with respect to securities transactions.
Transactions on foreign exchanges or OTC markets may involve greater time from
the trade date until settlement than for domestic securities transactions and,
if the securities are held abroad, may involve the risk of possible losses
through the holding of securities in custodians and depositories in foreign
countries. Foreign securities often trade with less frequency and volume than
domestic securities and therefore may exhibit greater price volatility. Changes
in foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar. Investing in
Depositary Receipts involves many of the same risks associated with investing in
securities of foreign issuers.
There
is generally less publicly available information about foreign companies
comparable to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject to uniform
accounting and auditing and financial reporting standards, practices, and
requirements comparable to those applicable to U.S. companies.
Semi-governmental
securities are securities issued by entities owned by either a national, state
or equivalent government or are obligations of one of such government
jurisdictions that are not backed by its full faith and credit and general
taxing powers. Eurobonds are bonds denominated in U.S. dollars or other
currencies and sold to investors outside the country where currency is used.
Yankee bonds are U.S. dollar-denominated obligations issued in the U.S. capital
markets by foreign issuers. Yankee bonds are subject to certain sovereign
risks.
It
is contemplated that most foreign securities will be purchased in OTC markets or
on stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign stock markets are generally not as developed or
efficient as those in the United States. While growing in volume, they usually
have substantially less volume than the New York Stock Exchange (“NYSE”), and
securities of some foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Similarly, volume and liquidity in most
foreign bond markets is less than in the United States and at times, volatility
of price can be greater than in the United States. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Funds will endeavor to achieve the most favorable net
results on their transactions. There is generally less government supervision
and regulation of stock exchanges, brokers, and listed companies than in the
United States.
With
respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, nationalization,
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of a Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States’ economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and balance
of payments position.
The
dividends and interest payable on certain of a Fund’s foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution.
Investment
in foreign securities also involves the risk of possible losses through the
holding of securities in custodian banks and securities depositories in foreign
countries. (See the “Transfer Agency and Custody Services” section for more
information concerning the Trust’s custodian and foreign sub-custodian.) No
assurance can be given that expropriation, nationalization, freezes, or
confiscation of assets, which would impact assets of a Fund, will not occur, and
shareholders bear the risk of losses arising from these or other
events.
There
are frequently additional expenses associated with maintaining the custody of
foreign investments. Expenses of maintaining custody of Fund investments are
paid by each Fund. This may lead to higher expenses for Funds that have foreign
investments.
Unless
otherwise noted, an issuer of a security may be deemed to be located in or
economically tied to a particular country if it meets one or more of the
following criteria: (i) the issuer or guarantor of the security is organized
under the laws of, or maintains its principal place of business in, such
country; (ii) the currency of settlement of the security is the currency of such
country; (iii) the principal trading market for the security is in such country;
(iv) during the issuer’s most recent fiscal year, it derived at least 50% of its
revenues or profits from goods produced or sold, investments made, or services
performed in such country or has at least 50% of its assets in that country; or
(v) the issuer is included in an index that is representative of that country.
In the event that an issuer may be considered to be located in or economically
tied to more than one country based on these criteria (for example, where the
issuer is organized under the laws of one country but derives at least 50% of
its revenues or profits from goods produced or sold in another country), the
Manager may classify the issuer in its discretion based on an assessment of the
relevant facts and circumstances.
Emerging
Markets.
The
risks of investing in foreign countries discussed above are intensified with
respect to investments in emerging market countries, which tend to have less
diverse and less mature economic structures, less stable political systems, more
restrictive foreign investment policies, smaller-sized securities markets and
low trading volumes.
Each
of the emerging market countries, including those located in Latin America, the
Middle East, Asia and Eastern Europe, may be subject to a substantially greater
degree of economic, political and social instability and disruption than is the
case in the U.S., Japan and most developed market countries. This instability
may result from, among other things: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; (v) ethnic, religious and racial disaffection or
conflict; and (vi) the absence of developed legal structures governing foreign
private investments and private property. Such economic, political and
social
instability could disrupt the financial markets in which a Fund may invest and
adversely affect the value of a Fund’s assets, potentially making the Fund’s
emerging market investments illiquid. In addition, the value of a Fund’s
emerging market investments could become more volatile and experience abrupt and
severe price declines as a result of an increase in taxes or political, economic
or diplomatic developments, including economic sanctions. Investment
opportunities within certain emerging markets, such as countries in Eastern
Europe, may be considered “not readily marketable” for purposes of the
limitation on illiquid investments set forth above.
Included
among the emerging market debt obligations in which a Fund may invest are “Brady
Bonds,” which are created through the exchange of existing commercial bank loans
to sovereign entities for new obligations in connection with debt restructuring
under a plan introduced by former U.S. Secretary of the Treasury, Nicholas F.
Brady (the “Brady Plan”). Brady Bonds are not considered U.S. government
securities and are considered speculative. Brady Bonds have been issued
relatively recently, and accordingly, do not have a long payment history. They
may be collateralized or uncollateralized, or have collateralized or
uncollateralized elements, and issued in various currencies (although most are
U.S. dollar-denominated), and they are traded in the OTC secondary
market.
Brady
Bonds involve various risk factors including residual risk and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. There can be no assurance that Brady Bonds in
which a Fund may invest will not be subject to restructuring arrangements or to
requests for new credit, which may cause a Fund to suffer a loss of interest or
principal on any of its holdings.
A
Fund may also invest in ADRs that represent the deposit with the issuing bank of
a security of an emerging market issuer. These investments involve many of the
same risks associated with investing in emerging market securities.
Frontier
Markets.
Frontier markets are those emerging markets in the earlier stage of development
and are typically located in Latin America, the Middle East, Africa, Asia and
Eastern Europe countries whose markets are considered by the Trust to be among
the smallest and least mature investment markets. Investments in frontier
markets generally are less liquid and subject to greater price volatility than
investments in more mature emerging markets. This is due to, among other things,
smaller economies, less developed capital markets, more market volatility, lower
trading volume, greater political or economic instability, less robust
regulatory agencies, and more governmental limitations on foreign investments
such as trade barriers than typically found in more mature emerging markets or
in developed markets.
Supranational
Entities.
Supranational
entities are entities designated or supported by national governments to promote
economic reconstruction, development or trade amongst nations. Examples of
supranational entities include the International Bank for Reconstruction and
Development (the “World Bank”) and the European Investment Bank. Obligations of
supranational entities are subject to the risk that the governments on whose
support the entity depends for its financial backing or repayment may be unable
or unwilling to provide that support. Obligations of a supranational entity that
are denominated in foreign currencies will also be subject to the risks
associated with investments in foreign currencies.
Eurozone
Risk.
The
European Economic and Monetary Union, often referred to as the “Eurozone,” is a
group of member countries that have adopted the euro as their official currency
and, as a result, are subject to the monetary policies of the European Central
Bank (“ECB”). As a Eurozone member, a country’s ability to address any budgetary
and economic issues may be limited due to the restrictions on public debt,
inflation and deficits that are placed on member countries, or due to political
or fiscal policy considerations.
Certain
countries have required financial assistance from other Eurozone countries and
may continue to be dependent on the assistance from others such as the ECB, the
International Monetary Fund, or other governments and institutions to address
those issues. There is no assurance that such financial assistance will be
provided to the same or additional countries in the future. The economic
difficulties of a Eurozone country may negatively impact other Eurozone
countries and euro-denominated securities that are not directly tied to that
country.
As
a result of economic difficulties, one or more Eurozone countries might abandon
the euro and return to a national currency. The effects of such an event might
have significant negative impacts on that country, the rest of the European
Union (“EU”), and global markets, including the United States. The abandonment
of the euro by any one country would likely have a destabilizing effect on all
Eurozone countries and may result in other Eurozone countries returning to a
national currency, resulting in further market turmoil. In the event a country
abandoned the euro, there may be difficulties determining the valuation of a
Fund’s investments in that country. There would also likely be operational
difficulties related to the settlement of trades of a Fund’s euro-denominated
holdings, including derivatives, in that country, and a Fund’s euro-denominated
holdings may be redenominated in another currency. Under such circumstances,
investments denominated in euros or redenominated in replacement currencies may
be difficult to value, the ability to operate an investment strategy in
connection with euro-denominated securities may be significantly impaired, and
the value of euro-denominated investments may decline significantly and
unpredictably.
In
addition, if a country were to leave the EU (voluntarily or involuntarily), the
effect of such an event has the potential to significantly impact local and/or
global markets and economies, as well as trade agreements, regulations and
treaties. For example, the Funds may face potential risks associated with the
United Kingdom’s withdrawal from the EU and the European Economic Area on
January 31, 2020 (commonly known as “Brexit”). Following withdrawal from
the EU, the United Kingdom entered into a transition period, during which period
EU law continued to apply in the United Kingdom. New EU legislation that took
effect before the end of the transition period also applies in the United
Kingdom. The transition period ended on December 31, 2020. On
December 30, 2020, the EU and United Kingdom signed an agreement on the
terms governing certain aspects of the EU’s and the United Kingdom’s
relationship following the end of the transition period, the EU-UK Trade and
Cooperation Agreement (the “TCA”). Notwithstanding the TCA, following the
transition period, there is likely to be considerable uncertainty as to the
United Kingdom’s post-transition
framework,
and in particular as to the arrangements which will apply to the United
Kingdom’s relationships with the EU and with other countries, which is
continuing to develop to date. This uncertainty may, at any stage, adversely
affect the Funds and their investments. There may be detrimental implications
for the value of a Fund’s investments and/or its ability to implement its
investment program. This may be due to, among other things: increased
uncertainty and volatility in the United Kingdom, the EU and other financial
markets; fluctuations in asset values; fluctuations in exchange rates; increased
illiquidity of investments located, traded or listed within the United Kingdom,
the EU or elsewhere; changes in the willingness or ability of financial and
other counterparties to enter into transactions or the price and terms on which
other counterparties are willing to transact; and/or changes in legal and
regulatory regimes to which Fund investments are or become subject. Any of these
events, as well as an exit or expulsion of an EU member state other than the
United Kingdom from the EU, could negatively impact Fund returns. The ultimate
effects of these events and other socio-political
or geo-political issues are not known but could profoundly affect
global economies and markets.
Passive
Foreign Investment Companies (“PFICs”).
Certain Funds may invest in the stock of foreign corporations, which may be
classified under the Code, as PFICs. In general, a foreign corporation is
categorized as a PFIC if either (i) 75% or more of its gross income is from
passive income (as defined in Section 1297 of the Code), or (ii) 50% or more of
the value of its assets either produce or are held for the production of passive
income.
PFICs
are subject to complicated and strict tax guidelines imposed by the IRS. For
additional information, see the “Taxation” section.
Investments
in Other Investment Company Securities
The
provisions of the 1940 Act may impose certain limitations on a Fund’s
investments in other investment companies.
Under the 1940 Act, subject to certain exceptions, a Fund (other than the
Portfolio Optimization Funds) may not own more than 3% of the outstanding voting
stock of an investment company, invest more than 5% of its total assets in any
one investment company, or invest more than 10% of its total assets in the
securities of investment companies (the “Fund-of-Funds Limitations”). Such
investments may include open-end investment companies, closed-end investment
companies, unit investment trusts (“UITs”) and ETFs. These limitations do not
apply to investments in securities of companies that are excluded from the
definition of an investment company under the 1940 Act, such as hedge funds or
private investment funds. The Aristotle Underlying Funds may not invest in
securities of other investment companies in reliance on Section 12(d)(1)(F) or
(G) of the 1940 Act. In some instances, a Fund may invest in an investment
company, including an unregistered investment company, in excess of these
limits. This may occur, for instance, when a Fund invests collateral it receives
from loaning its portfolio securities. As the shareholder of another investment
company, a Fund would bear, along with other shareholders, its pro rata portion
of the other investment company’s expenses, including advisory fees. Such
expenses are in addition to the expenses a Fund pays in connection with its own
operations.
In
addition, pursuant
to Rule 12d1-4 under the 1940 Act, a Fund may invest in excess of the
Fund-of-Funds Limitations if the Fund and the investment company in which the
Fund would like to invest comply with certain conditions, including limits
on control and voting, required evaluations and findings, required fund
investment agreements and limits on complex fund of funds structures. Certain of
these conditions do not apply if a Fund is investing in shares issued by
affiliated funds, such as the Aristotle Underlying Funds. In addition, a Fund
may invest in shares issued by money market funds, including certain
unregistered money market funds, in excess of the Fund-of-Funds Limitations.
Further, if shares of a Fund are purchased by another fund beyond the
Fund-of-Funds Limitations, and the Fund purchases shares of another investment
company, the Fund will not be able to make new investments in other funds,
including private funds exempt from the definition of “investment company” under
the 1940 Act by Sections 3(c)(1) or 3(c)(7) thereof, if, as a result of such
investment, more than 10% of the Fund’s assets would be invested in other
funds.
Despite
the possibility of greater fees and expenses, investments in other investment
companies may be attractive for several reasons, especially in connection with
foreign investments. Because of restrictions on direct investment by U.S.
entities in certain countries, investing indirectly in such countries (by
purchasing shares of another fund that is permitted to invest in such countries)
may be the most practical and efficient way for a Fund to invest in such
countries. In other cases, when a Manager desires to make only a relatively
small investment in a particular country, investing through another fund that
holds a diversified portfolio in that country may be more effective than
investing directly in issuers in that country.
Exchange-Traded
Funds (“ETFs”).
Individual investments in ETFs generally are not redeemable, but are instead
purchased and sold on a secondary market, such as an exchange, similar to a
share of common stock. Large quantities of ETFs, also known as “Creation Units,”
are redeemable directly from the ETF. The liquidity of small holdings of ETFs,
therefore, will depend upon the existence of a secondary market.
The
price of an ETF is based upon the securities held by the ETF. Accordingly, the
level of risk involved in the purchase or sale of an ETF is similar to the risk
involved in the purchase or sale of the securities held by the ETF. ETFs
include, among others, SPDRs, Optimized Portfolios as Listed Securities
(“OPALS”) and iShares. ETFs generally acquire and hold securities of all of the
companies, or a representative sampling, that are components of a particular
index. ETFs may also be actively managed similar to other types of investment
companies. Typically, ETFs are intended to provide investment results that,
before fees and expenses, generally correspond to the price and yield
performance of the target index, and the value of their shares should, under
normal circumstances, closely track the value of that index’s underlying
component securities. Because an ETF has operating expenses and transaction
costs, while a market index does not, ETFs that track particular indices
typically will be unable to exactly match the performance of the index. As a
security listed on an exchange and traded in the secondary market, ETF shares
may trade at a premium or discount to their NAV, and trading in ETF shares may
be suspended or halted by its listing exchange.
Business
Development Company (“BDC”).
One type of closed-end investment company available for Fund investment is a
BDC. BDCs are registered investment vehicles regulated by the 1940 Act. BDCs
typically invest in small and medium sized companies which may be privately
owned and may not have access to public equity markets for capital raising
purposes. BDCs frequently make available managerial assistance to the issuers of
such securities.
Investments
in BDCs include risks associated with their holdings of smaller issuers and
private companies. Generally, public information for BDC holdings is limited and
there is a risk that investors may not be able to make fully informed investment
decisions. BDC holdings of small and mid-sized companies are speculative, and
generally involve a greater risk than established publicly traded companies with
larger market capitalization. Companies in their developmental stages may have a
shorter history of operations, a more limited ability to raise capital,
inexperienced management and limited product lines, and more speculative
prospects for future growth or sustained earnings or market share than larger,
more established companies. Holdings of a BDC may be more adversely affected by
economic or market conditions, with greater market volatility risk.
BDCs
may also invest in the debt of a company, which involves risk that the company
may default on its payments or declare bankruptcy. Many of the debt investments
in which a BDC may invest will not be rated by a credit rating agency and may be
non-investment grade quality. Some BDCs invest substantially, or even
exclusively, in one sector or industry group. As a result of this concentration,
a BDC will be more susceptible to adverse economic, business, regulatory or
other developments affecting an industry or group of related industries, which
in turn will increase the risk and volatility of a BDC. A BDC with a smaller
number of holdings will have greater exposure to those holdings which could
increase potential price volatility as compared to other investment companies
with a greater number of holdings. A BDC may utilize leverage to gain additional
investment exposure. The loss on a leveraged investment may far exceed the
principal amount invested, magnifying gains and losses and therefore increase
price volatility. The use of leverage may result in a BDC having to liquidate
holdings when it may not be advantageous to do so.
Investments
in BDCs are also subject to management risk, as managers of BDCs may be entitled
to compensation based on the BDC’s performance, which could result in the
manager making riskier or more speculative investments in an effort to maximize
incentive compensation and receive higher fees. A BDC’s investments are
generally less liquid than publicly traded securities and are subject to
restrictions on their resale. The illiquidity of a BDC’s holdings may make it
difficult for the BDC to sell such investments if the need arises, and thus the
BDC may be unable to take advantage of market opportunities or it may be forced
to sell illiquid investments at a loss if it is required to raise cash for
operations. Some BDCs are listed and trade on an exchange and other BDCs are not
traded on an exchange and trade only in private transactions BDCs that are not
traded on an exchange may be less liquid. BDC shares may trade at a discount to
the BDC’s NAV.
Money
Market Funds.
A money market fund (also called a money market mutual fund) is an open-end
investment company that typically invests in cash, short-term debt securities
such as U.S. Treasury bills, repurchase agreements, commercial paper, bank time
deposits, certificates of deposits and other cash equivalents. Money market
funds in the United States are subject to regulatory limits on the quality,
maturity and diversity of their investments. Certain money market funds seek to
maintain a stable NAV, usually at $1.00 per share. However, there is no
assurance that these money market funds will be successful in maintaining a
stable NAV. Certain other money market funds have a NAV that will fluctuate (or
“float”) in value. As a result, when a Fund sells the shares of money market
funds that it owns, they may be worth more or less than what the Fund originally
paid for them. In addition, a money market fund may have the ability to impose
liquidity fees or temporary redemption suspensions, thus impacting the liquidity
of the fund. It is possible to lose money by investing in money market
funds.
Derivatives
Derivatives
are investments whose values are tied to the value of an underlying security or
asset, a group of assets, interest rates, exchange rates, currency or an index.
Some forms of derivatives, such as exchange-traded futures and options on
securities, commodities, or indices, are traded on regulated exchanges. These
types of derivatives which are traded on exchanges have standardized contracts
and can generally be bought and sold easily, and their market values are
determined and published daily. Non-standardized derivatives (such as swap
agreements), tend to be more specialized and more complex, and may be harder to
value. Derivatives may create leverage, enhance returns and be useful in hedging
portfolios. Some common types of derivatives include futures, options on
futures, forward currency exchange contracts, forward contracts on securities
and securities indices, linked securities and structured products,
collateralized mortgage obligations, stripped securities, warrants, swap
agreements and swaptions.
Each
Manager may use derivatives for a variety of reasons, including for example, (i)
to enhance a Fund’s returns; (ii) to attempt to protect against possible changes
in the market value of securities held in or to be purchased for a Fund
resulting from securities markets or currency exchange rate fluctuations
(i.e.,
to hedge); (iii) to protect a Fund’s unrealized gains reflected in the value of
its portfolio securities, (iv) to facilitate the sale of such securities for
investment purposes; (v) to reduce transaction costs; (vi) to equitize cash;
and/or (vii) to manage the effective maturity or duration of a Fund. In
addition, a Fund may receive warrants or other derivatives in connection with
corporate actions.
The
Managers may use derivatives as a substitute for taking a position in the
underlying asset and/or as part of a strategy designed to reduce exposure to
other risks, such as interest rate or currency risk. The use of derivative
instruments involves risks different from, and possibly greater than, the risks
associated with investing directly in securities and other traditional
securities. The use of derivatives can lead to losses because of adverse
movements in the price or value of the underlying security, asset, index or
reference rate, which may be magnified by certain features of the derivatives.
These risks are heightened when a Fund uses derivatives to enhance its return or
as a substitute for a position or security, rather than solely to hedge or
offset the risk of a position or security held by a Fund. The use of derivatives
to leverage risk also may exaggerate loss, potentially causing a Fund to lose
more money than if it had invested in the underlying security, or limit a
potential gain. The success of a Manager’s derivative strategies will depend on
its
ability
to assess and predict the impact of market or economic developments on the
underlying security, asset, index or reference rate and the derivative itself,
without necessarily having had the benefit of observing the performance of the
derivative under all possible market conditions. Derivatives are subject to a
number of risks described elsewhere in the Prospectuses and this SAI, such as
price volatility risk, foreign investment risk, interest rate risk, credit risk,
liquidity risk, market risk and management risk. They also involve the risk of
mispricing or improper valuation and the risk that changes in the value of the
derivative may not correlate well with the security for which it is
substituting. Other risks arise from a Fund’s potential inability to terminate
or sell its derivatives positions as a liquid secondary market for such
positions may not exist at times when a Fund may wish to terminate or sell them.
OTC instruments (investments not traded on the exchange) may be less liquid or
illiquid, and transactions in derivatives traded in the OTC are subject to the
risk that the counterparty will not meet its obligations.
A
Fund may use any or all of the above investment techniques and may purchase
different types of derivative instruments at any time and in any combination.
There is no particular strategy that dictates the use of one technique over
another, as the use of derivatives is a function of numerous variables,
including market conditions. There can be no assurance that the use of
derivative instruments will benefit the Funds.
Changes
in regulation relating to a registered investment company’s use of derivatives
could potentially limit or impact the ability of a Fund to invest or remain
invested in derivatives and adversely affect the value or performance of
derivatives and the Funds. For example, in October 2020, the SEC adopted Rule
18f-4 under the 1940 Act providing for the regulation of a registered investment
company’s use of derivatives and certain related instruments. Under Rule 18f-4,
the derivatives exposure of a mutual fund is limited through a value-at-risk
test and requires the adoption and implementation of a derivatives risk
management program for certain derivatives users. Additionally, subject to
certain conditions, limited derivatives users (as defined in Rule 18f-4) are not
subject to the full requirements of Rule 18f-4. In connection with the adoption
of Rule 18f-4, the SEC also eliminated the asset segregation framework arising
from prior SEC guidance for covering derivatives and certain financial
instruments. Compliance with the new rule by the Funds could, among other
things, make derivatives more costly, limit their availability or utility, or
otherwise adversely affect their performance. The new rule may limit each Fund’s
ability to use derivatives as part of its investment strategy.
AIS,
on behalf of each Fund, has claimed an exclusion from the definition of a
commodity pool operator under CFTC Regulation 4.5 and, therefore, is not subject
to regulation under the Commodity Exchange Act (“CEA”) for these Funds. In order
for AIS to claim the exclusion, these Funds are limited in their ability to
invest in commodity futures, options on commodities or commodity futures and
swaps. To the extent AIS, on behalf of any Fund, becomes no longer eligible to
claim an exclusion from CFTC regulation, such Fund may consider steps, such as
substantial investment strategy changes, in order to continue to qualify for
exclusion from CFTC regulation, or AIS may determine that the Fund will operate
subject to CFTC regulation. If a Fund operates subject to CFTC regulation, it
may incur additional expenses. If a Fund adopts substantial investment strategy
changes, it may affect its performance, as well as its fees and
expenses.
Foreign
Currency Transactions and Forward Foreign Currency Contracts
Generally,
foreign exchange transactions will be conducted on a spot, i.e.,
cash, basis at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market. This rate, under normal market conditions, differs
from the prevailing exchange rate due to the costs of converting from one
currency to another. However, a Fund has authority to deal in forward foreign
exchange transactions to hedge and manage currency exposure against possible
fluctuations in foreign exchange rates, to facilitate the settlement of foreign
equity purchases, to exchange one currency for another and, with respect to
certain Funds, to increase exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one country to another. This is
accomplished through contractual agreements either (i) to purchase or sell a
specified currency at a specified future date and price set at the time of the
contract or (ii) whose value is determined by the difference between the spot
exchange rate on a specific date in the future and a pre-determined fixing rate.
The former type of contract is known as a deliverable forward foreign currency
contract and the second is known as a Non-Deliverable Forward Foreign Currency
Contract (“NDF”) since no exchange of currencies takes place on settlement but
instead a single cash flow is made equal to the market value of the contract.
When entering into such contracts, a Fund assumes the credit risk of the
counterparty. Dealings in forward foreign exchange transactions may include
hedging involving either specific transactions or fund positions. A Fund may
purchase and sell forward foreign currency contracts in combination with other
transactions in order to gain exposure to an investment in lieu of actually
purchasing such investment.
A
Fund may enter into forward foreign currency contracts under the following
circumstances:
Transaction
Hedge.
A
forward foreign currency contract might be used to hedge: 1) specific
receivables or payables of a Fund arising from the purchase or sale of portfolio
securities; 2) the redemption of shares of a Fund; or 3) to repatriate dividend
or interest payments (collectively a “Transaction Hedge”). A Transaction Hedge
will protect against a loss from an adverse change in the currency exchange
rates during the period between the date on which the contract is purchased or
sold or on which a payment is declared, and the date on which the payments are
made or received. A Transaction Hedge may also prevent a Fund from receiving a
gain from the appreciation of a foreign currency against a Fund’s base currency.
The use of forward contracts establishes a fixed rate to exchange currencies at
a future date but does not eliminate the risk of fluctuations in the prices of
the underlying securities.
Position
Hedge.
A
forward foreign currency contract might be used to try to “lock in” the U.S.
dollar price of the security. A Position Hedge is used to protect against a
potential decline of the U.S. dollar against a foreign currency by buying a
forward contract on that foreign currency for a fixed U.S. dollar amount.
Alternatively, the Fund could enter into a forward contract to sell a different
foreign currency the Manager believes will fall whenever there is a decline in
the U.S. dollar value of the currency in which portfolio securities are
denominated.
Cross
Hedge.
If
a particular currency is expected to substantially decrease against another
currency, a Fund may sell the currency expected to decrease and purchase a
currency which is expected to increase against the currency sold in an amount
approximately equal to some or all of the Fund’s holdings denominated in the
currency sold.
Proxy
Hedge.
The
Manager might choose to use a proxy hedge when it is less costly than a direct
hedge or when a currency is difficult to hedge. In this case, a Fund, having
purchased a security, will sell a currency whose value is believed to be closely
linked to the currency in which the security is denominated. This type of
hedging entails greater risk than a direct hedge because it is dependent on a
stable relationship between the two currencies paired as proxies and the
relationships can be very unstable at times.
There
is inherent risk that the above hedge strategies do not fully offset the
exposures to currency movements. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
the successful execution of a short-term hedging strategy is highly
uncertain.
Non-Hedged
Exposure.
Certain Funds may enter into forward contracts or maintain a net exposure to
such contracts, where consummation of the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of that Fund’s
holdings denominated in or exposed to that foreign currency (or a proxy currency
considered to move in correlation with that currency), or exposed to a
particular securities market, or futures contracts, options or other derivatives
on such holdings.
When
a Manager of a Fund believes that the currency of a particular foreign country
may suffer a decline against the U.S. dollar, that Fund may enter into a forward
contract to sell the amount of foreign currency approximating the value of some
or all of a Fund’s holdings denominated in or exposed to such foreign currency.
At or before the maturity of the forward contract to sell, a Fund may either
sell the security and make delivery of the foreign currency or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an “offsetting” contract with the same currency trader
obligating a Fund to purchase, on the same maturity date, the same amount of the
foreign currency.
It
is impossible to forecast with absolute precision the market value of securities
at the expiration of the contract. Accordingly, it may be necessary for a Fund
to purchase additional foreign currency on the spot market (and bear the expense
of such purchase) if the market value of the security is less than the amount of
foreign currency a Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of the security if its market value exceeds the amount of foreign
currency a Fund is obligated to deliver.
If
a Fund retains the security and engages in an offsetting transaction, a Fund
will incur a gain or a loss (as described below) to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between a Fund
entering into a forward contract for the sale of a foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign currency,
a Fund will realize a gain to the extent the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, a Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
A
Fund is not required to enter into such transactions with regard to their
foreign currency denominated securities and will not do so unless deemed
appropriate by its Manager. It also should be realized that this method of
protecting the value of a Fund’s holdings in securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which one can achieve
at some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain which might result from
the value of such currency increase.
Although
a Fund values its shares in terms of U.S. dollars, it does not intend to convert
its holdings of foreign currencies into U.S. dollars on a daily basis. It will
do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Additionally, a Fund may be unable to convert currency
due to foreign exchange regulations.
Options
Purchasing
and Writing Options on Securities.
A Fund may purchase and sell (write) (i) both put and call options on debt or
other securities in standardized contracts traded on national securities
exchanges, boards of trade, similar entities, or for which an established OTC
market exists; and (ii) agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
An
option on a security is a contract that gives the holder of the option, in
return for a premium, the right to buy from (in the case of a call) or sell to
(in the case of a put) the writer of the option the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of an option on a security has the obligation upon exercise of the
option to deliver the underlying security upon payment of the exercise price or
to pay the exercise price upon delivery of the underlying security. A Fund may
purchase put options on securities to protect holdings in an underlying or
related security against a substantial decline in market value. Securities are
considered related if their price movements generally correlate to one another.
For example, the purchase of put
options
on debt securities held in a Fund will enable a Fund to protect, at least
partially, an unrealized gain in an appreciated security without actually
selling the security. In addition, the Fund will continue to receive interest
income on such security.
A
Fund may purchase call options on securities to protect against substantial
increases in prices of securities a Fund intends to purchase pending its ability
to invest in such securities in an orderly manner. A Fund may sell put or call
options it has previously purchased, which could result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option which is
sold. A Fund may also allow options to expire unexercised.
In
order to earn additional income on its portfolio securities or to protect
partially against declines in the value of such securities, a Fund may write
covered call options. The exercise price of a call option may be below, equal
to, or above the current market value of the underlying security at the time the
option is written. During the option period, a covered call option writer may be
assigned an exercise notice by the broker-dealer through whom such call option
was sold requiring the writer to deliver the underlying security against payment
of the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. Closing purchase transactions will ordinarily be effected
to realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying security, or to
enable a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both.
Secured
put options will generally be written in circumstances where the Manager wishes
to purchase the underlying security at a price lower than the current market
price of the security. In such event, a Fund would write a secured put option at
an exercise price which, reduced by the premium received on the option, reflects
the lower price that it is willing to pay. During the option period, the writer
of a put option may be assigned an exercise notice by the broker-dealer through
whom the option was sold requiring the writer to purchase the underlying
security at the exercise price. A Fund may effect closing transactions with
respect to put options that were previously written.
Prior
to the earlier of exercise or expiration, an option may be closed out by an
offsetting purchase or sale of an option of the same series (type, exchange,
underlying security, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when a Fund
desires.
A
Fund will realize a capital gain from a closing purchase transaction if the cost
of the closing option is less than the premium received from writing the option,
or, if it is more, a Fund will realize a capital loss. If the premium received
from a closing sale transaction is more than the premium paid to purchase the
option, a Fund will realize a capital gain or, if it is less, a Fund will
realize a capital loss. The principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price of the underlying security in relation to the exercise price of the
option, the volatility of the underlying security, and the time remaining until
the expiration date.
The
premium paid for a put or call option purchased by a Fund is an asset of the
Fund. The premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is marked-to-market
daily and is valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available, at the mean
between the last bid and asked prices.
A
Fund may write covered straddles and/or strangles consisting of a combination of
a call and a put written on the same underlying security.
Purchasing
and Writing Options on Stock Indices.
A stock index is a method of reflecting in a single number the market values of
many different stocks or, in the case of value weighted indices that take into
account prices of component stocks and the number of shares outstanding, the
market values of many different companies. Stock indices are compiled and
published by various sources, including securities exchanges. An index may be
designed to be representative of the stock market as a whole, of a broad market
sector (e.g.,
industrials), or of a particular industry (e.g.,
electronics). An index may be based on the prices of all, or only a sample, of
the stocks whose value it is intended to represent.
A
stock index is ordinarily expressed in relation to a “base” established when the
index was originated. The base may be adjusted from time to time to reflect, for
example, capitalization changes affecting component stocks. In addition, stocks
may from time to time be dropped from or added to an index group. These changes
are within the discretion of the publisher of the index.
Different
stock indices are calculated in different ways. Often the market prices of the
stocks in the index group are “value weighted;” that is, in calculating the
index level, the market price of each component stock is multiplied by the
number of shares outstanding. Because of this method of calculation, changes in
the stock prices of larger corporations will generally have a greater influence
on the level of a value weighted (or sometimes referred to as a capitalization
weighted) index than price changes affecting smaller corporations.
In
general, index options are very similar to stock options, and are basically
traded in the same manner. However, when an index option is exercised, the
exercise is settled by the payment of cash — not by the delivery of stock. The
assigned writer of a stock option is obligated to pay the exercising holder cash
in an amount equal to the difference (expressed in dollars) between the closing
level of the underlying index on the exercise date and the exercise price of the
option, multiplied by a specified index multiplier. A multiplier of 100, for
example, means that a one-point difference will yield $100. Like other options
listed on United States securities exchanges, index options are issued by the
Options Clearing Corporation (“OCC”).
Gains
or losses on a Fund’s transactions in securities index options depend primarily
on price movements in the stock market generally (or, for narrow market indices,
in a particular industry or segment of the market) rather than the price
movements of
individual
securities held by a Fund. A Fund may sell securities index options prior to
expiration in order to close out its positions in stock index options which it
has purchased. A Fund may also allow options to expire unexercised.
Risks
of Options Transactions.
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. A decision as to whether, when,
and how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There
can be no assurance that a liquid market will exist when a Fund seeks to close
out an option position. If a Fund were unable to close out an option it had
purchased on a security, it would have to exercise the option to realize any
profit or the option may expire worthless. If a Fund were unable to close out a
covered call option it had written on a security, it would not be able to sell
the underlying security unless the option expired without exercise. As the
writer of a covered call option, a Fund forgoes, during the option’s life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price of
the call.
If
trading were suspended in an option purchased by a Fund, a Fund would not be
able to close out the option. If restrictions on exercise were imposed, a Fund
might be unable to exercise an option it has purchased.
With
respect to index options, current index levels will ordinarily continue to be
reported even when trading is interrupted in some or all of the stocks in an
index group. In that event, the reported index levels will be based on the
current market prices of those stocks that are still being traded (if any) and
the last reported prices for those stocks that are not currently trading. As a
result, reported index levels may at times be based on non-current price
information with respect to some or even all of the stocks in an index group.
Exchange rules permit (and in some instances require) the trading of index
options to be halted when the current value of the underlying index is
unavailable or when trading is halted in stocks that account for more than a
specified percentage of the value of the underlying index. In addition, as with
other types of options, an exchange may halt the trading of index options
whenever it considers such action to be appropriate in the interests of
maintaining a fair and orderly market and protecting investors. If a trading
halt occurs, whether for these or for other reasons, holders of index options
may be unable to close out their positions and the options may expire
worthless.
Spread
Transactions.
Spread transactions are not generally exchange listed or traded. Spread
transactions may occur in the form of options, futures, forwards or swap
transactions. The purchase of a spread transaction gives a Fund the right to
sell or receive a security or a cash payment with respect to an index at a fixed
dollar spread or fixed yield spread in relationship to another security or index
which is used as a benchmark. The risk to a Fund in purchasing spread
transactions is the cost of the premium paid for the spread transaction and any
transaction costs. The sale of a spread transaction obligates a Fund to purchase
or deliver a security or a cash payment with respect to an index at a fixed
dollar spread or fixed yield spread in relationship to another security or index
which is used as a benchmark. In addition, there is no assurance that closing
transactions will be available. The purchase and sale of spread transactions
will be used in furtherance of a Fund’s investment goal and to protect a Fund
against adverse changes in prevailing credit quality spreads, i.e.,
the yield spread between high quality and lower quality securities. Such
protection is only provided during the life of the spread transaction. The Trust
does not consider a security covered by a spread transaction to be “pledged” as
that term is used in the Fund’s policy limiting the pledging or mortgaging of
its assets. The sale of spread transactions will be “covered” or “secured” as
described in the “Options,” “Options on Foreign Currencies,” “Futures Contracts
and Options on Futures Contracts,” and “Swap Agreements and Options on Swap
Agreements” sections.
Yield
Curve Options
A
Fund may enter into options on the yield “spread” or differential between two
securities. Such transactions are referred to as “yield curve” options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments. Accordingly,
a yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease.
A
Fund may purchase or sell (write) yield curve options for the same purposes as
other options on securities. For example, a Fund may purchase a call option on
the yield spread between two securities if the Fund owns one of the securities
and anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. A Fund may also
purchase or write yield curve options in an effort to increase current income
if, in the judgment of the Manager, the Fund will be able to profit from
movements in the spread between the yields of the underlying securities. The
trading of yield curve options is subject to all of the risks associated with
the trading of other types of options. In addition, however, such options
present a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent that was
not anticipated. Yield curve options are traded OTC, and established trading
markets for these options may not exist.
Options
on Foreign Currencies
Funds
may purchase and sell options on foreign currencies for hedging purposes and,
with respect to certain Funds as described in the Prospectuses to increase
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another, in a manner similar to that in which
futures or forward contracts on foreign currencies will be utilized. For
example, a decline in the U.S. dollar value of a foreign currency in which fund
securities are denominated will reduce the U.S. dollar value of such securities,
even if their value in the foreign currency remains constant. In order to
protect against such diminutions in the value of fund
securities,
a Fund may buy put options on the foreign currency. If the value of the currency
declines, a Fund will have the right to sell such currency for a fixed amount in
U.S. dollars and will offset, in whole or in part, the adverse effect on its
fund.
Conversely,
when a rise in the U.S. dollar value of a currency in which securities to be
acquired are denominated is projected, thereby increasing the cost of such
securities, a Fund may buy call options thereon. The purchase of such options
could offset, at least partially, the effects of the adverse movements in
exchange rates. As in the case of other types of options, however, the benefit
to a Fund from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, if currency
exchange rates do not move in the direction or to the extent desired, a Fund
could sustain losses on transactions in foreign currency options that would
require the Fund to forgo a portion or all of the benefits of advantageous
changes in those rates.
A
Fund may write options on foreign currencies for hedging purposes and, with
respect to certain Funds as described in the Prospectuses to increase exposure
to a foreign currency or to shift exposure to foreign currency fluctuations from
one country to another. For example, to hedge against a potential decline in the
U.S. dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, a Fund could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised and the diminution in value
of fund securities will be offset by the amount of the premium
received.
Similarly,
instead of purchasing a call option to hedge against a potential increase in the
U.S. dollar cost of securities to be acquired, a Fund could write a put option
on the relevant currency which, if rates move in the manner projected, will
expire unexercised and allow a Fund to hedge the increased cost up to the amount
of the premium. As in the case of other types of options, however, the writing
of a foreign currency option will constitute only a partial hedge up to the
amount of the premium. If exchange rates do not move in the expected direction,
the option may be exercised and a Fund would be required to buy or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, a Fund also may
lose all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
A
Fund may write covered call and put options on foreign currencies. A Fund also
may write call options on foreign currencies for cross-hedging purposes where
the Fund does not hold the underlying currency (a “naked” option). A written
call option on a foreign currency is for cross-hedging purposes if it is not
covered but is designed to provide a hedge against a decline due to an adverse
change in the exchange rate in the U.S. dollar value of a security which the
Fund owns or has the right to acquire and which is denominated in the currency
underlying the option.
Foreign
currency options are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the OTC market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on
exercise.
In
addition, options on foreign currencies may be traded on foreign exchanges and
OTC in foreign countries. Such transactions are subject to the risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii)
delays in a Fund’s ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, and (v) low trading volume.
Futures
Contracts and Options on Futures Contracts
A
futures contract is an agreement that obligates a purchaser to take delivery and
a seller to make delivery of a specified quantity of a security or commodity at
a specified price at a future date. The value of a futures contract tends to
increase and decrease in tandem with the value of its underlying instrument.
Therefore, purchasing futures contracts will tend to increase the Fund’s
exposure to positive and negative market price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument directly. When
a Fund sells a futures contract, by contrast, the value of its futures position
will tend to move in a direction opposite to the purchase price of the
underlying instrument.
If
a purchase or sale of a futures contract is made by a Fund, the Fund is required
to deposit a specified amount of cash or U.S. government securities (“initial
margin”) with a futures broker, known as a futures commission merchant (“FCM”)
or its custodian for the benefit of the FCM. The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature of
a performance bond or good faith deposit on the futures contract which is
returned to a Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. Each investing Fund expects to earn interest
income on its initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on which it is
traded. Each day a Fund pays or receives cash, called “variation margin,” equal
to the daily change in value of the futures contract. This process is known as
“marking-to-market.” Variation margin does not represent a borrowing or loan by
a Fund but is instead settlement between a Fund and the FCM of the amount one
would owe the other if the futures contract expired that day. In computing daily
NAV, each Fund will mark-to-market its open futures positions.
A
Fund is also required to deposit and maintain margin with respect to put and
call options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by a Fund.
Although
some futures contracts call for making or taking delivery of the underlying
instruments, generally these obligations are closed out prior to delivery by
offsetting purchases or sales of matching futures contracts (same exchange,
underlying security, and delivery month). If an offsetting purchase price is
less than the original sale price, a Fund realizes a capital gain, or if it is
more, a Fund realizes a capital loss. Conversely, if an offsetting sale price is
more than the original purchase price, a Fund realizes a capital gain, or if it
is less, a Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
Futures
on Securities.
A
futures contract on a security is an agreement between two parties (buyer and
seller) to take or make delivery of a specified quantity of a security at a
specified price at a future date.
If
a Fund buys a futures contract to gain exposure to securities, the Fund is
exposed to the risk of change in the value of the futures contract, which may be
caused by a change in the value of the underlying securities.
Interest
Rate Futures.
An
interest rate futures contract is an agreement between two parties (buyer and
seller) to take or make delivery of a specified quantity of financial
instruments (such as GNMA certificates or Treasury bonds) at a specified price
at a future date. In the case of futures contracts traded on U.S. exchanges, the
exchange itself or an affiliated clearing corporation assumes the opposite side
of each transaction (i.e.,
as buyer or seller). A futures contract may be satisfied or closed out by
delivery or purchase, as the case may be, of the financial instrument or by
payment of the change in the cash value of the index. Frequently, using futures
to effect a particular strategy instead of using the underlying or related
security will result in lower transaction costs being incurred. A public market
exists in futures contracts covering various financial instruments including
U.S. Treasury bonds, U.S. Treasury notes, GNMA certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit, and
Eurodollar certificates of deposit.
As
a hedging strategy a Fund might employ, a Fund may purchase an interest rate
futures contract when it is not fully invested in long-term debt securities but
wishes to defer their purchase for some time until it can invest in such
securities in an orderly manner or because short-term yields are higher than
long-term yields. Such purchase would enable a Fund to earn the income on a
short-term security while at the same time minimizing the effect of all or part
of an increase in the market price of the long-term debt security which a Fund
intended to purchase in the future. A rise in the price of the long-term debt
security prior to its purchase either would be offset by an increase in the
value of the futures contract purchased by a Fund or avoided by taking delivery
of the debt securities under the futures contract.
A
Fund would sell an interest rate futures contract in order to continue to
receive the income from a long-term debt security, while endeavoring to avoid
part or all of the decline in market value of that security which would
accompany an increase in interest rates. If interest rates did rise, a decline
in the value of the debt security held by a Fund would be substantially offset
by the ability of a Fund to repurchase at a lower price the interest rate
futures contract previously sold. While a Fund could sell the long-term debt
security and invest in a short-term security, ordinarily a Fund would give up
income on its investment, since long-term rates normally exceed short-term
rates.
Stock
Index Futures.
A
stock index is a method of reflecting in a single number the market values of
many different securities or, in the case of capitalization weighted indices
that take into account both security prices and the number of shares
outstanding, many different companies. An index fluctuates generally with
changes in the market values of the securities so included. A stock index
futures contract is a bilateral agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the stock index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally purchased or sold. No physical delivery of the underlying securities
in the index is made.
A
Fund may engage in transactions in stock index futures contracts in an effort to
protect it against a decline in the value of a Fund’s securities or an increase
in the price of securities that a Fund intends to acquire or to gain exposure to
an index (equitize cash). For example, a Fund may sell stock index futures to
protect against a market decline in an attempt to offset partially or wholly a
decrease in the market value of securities that the Fund intends to sell.
Similarly, to protect against a market advance when a Fund is not fully invested
in the securities market, a Fund may purchase stock index futures that may
partly or entirely offset increases in the cost of securities that a Fund
intends to purchase.
Currency
Futures.
A
Fund may seek to enhance returns or hedge against the decline in the value of a
currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign currency transactions
except that futures are standardized, exchange-traded contracts. Currency
futures involve substantial currency risk and leverage risk.
Futures
Options.
Futures
options possess many of the same characteristics as options on securities. A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position. In the case of
a put option, the opposite is true.
Options
on stock index futures contracts give the purchaser the right, in return for the
premium paid, to assume a position in a stock index futures contract (a long
position if the option is a call and a short position if the option is a put) 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 delivery of the
accumulated balance in the writer’s futures margin account
which
represents the amount by which the market price of the stock index 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 stock index futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
level of the index on which the futures contract is based on the expiration
date. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid. During the option period, the
covered call writer (seller) has given up the opportunity to profit from a price
increase in the underlying securities above the exercise price. The writer of an
option has no control over the time when it may be required to fulfill its
obligation as a writer of the option.
Options
on Currency Futures.
A
Fund may seek to enhance returns or hedge against the decline in the value of a
currency against the U.S. dollar through use of currency options. Currency
options are similar to options on securities, but in consideration for an option
premium the writer of a currency option is obligated to sell (in the case of a
call option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. A Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. Currency futures involve substantial
currency risk and may also involve credit, leverage and liquidity
risk.
A
Fund may write covered straddles and/or strangles consisting of a combination of
a call and a put written on the same underlying futures contract.
The
Funds reserve the right to engage in other types of futures transactions in the
future and to use futures and related options for other than hedging purposes to
the extent permitted by regulatory authorities. If other types of options,
futures contracts, or futures options are traded in the future, a Fund may also
use such investment techniques, provided that the Trust’s Board determines that
their use is consistent with a Fund’s investment goal.
Risks
Associated with Futures and Futures Options.
There
are several risks associated with the use of futures and futures options. A
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contracts. While a Fund’s hedging transactions
may protect a Fund against adverse movements in the general level of interest
rates or stock or currency prices, such transactions could also preclude the
opportunity to benefit from favorable movements in the level of interest rates
or stock or currency prices. A hedging transaction may not correlate perfectly
with price movements in the assets being hedged, causing the hedge not to
achieve its objectives. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for futures and
futures options on securities, including technical influences in futures trading
and futures options, and differences between the fund securities being hedged
and the instruments underlying the hedging vehicle in such respects as interest
rate levels, maturities, conditions affecting particular industries, and
creditworthiness of issuers. A decision as to whether, when, and how to hedge
involves the exercise of skill and judgment and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
The
price of futures contracts may not correlate perfectly with movement in the
underlying security or stock index, due to certain market distortions. This
might result from decisions by a significant number of market participants
holding stock index futures positions to close out their futures contracts
through offsetting transactions rather than to make additional margin deposits.
Also, increased participation by speculators in the futures market may cause
temporary price distortions. These factors may increase the difficulty of
effecting a fully successful hedging transaction, particularly over a short time
frame. With respect to a stock index futures contract, the price of stock index
futures might increase, reflecting a general advance in the market price of the
index’s component securities, while some or all of the fund securities might
decline. If a Fund had hedged its fund against a possible decline in the market
with a position in futures contracts on an index, it might experience a loss on
its futures position until it could be closed out, while not experiencing an
increase in the value of its fund securities. If a hedging transaction is not
successful, a Fund might experience losses which it would not have incurred if
it had not established futures positions. Similar risk considerations apply to
the use of interest rate and other futures contracts.
An
incorrect correlation could result in a loss on both the hedged assets in a Fund
and/or the hedging vehicle, so that the Fund’s return might have been better had
hedging not been attempted. There can be no assurance that an appropriate
hedging instrument will be available when sought by a Manager.
There
can be no assurance that a liquid market will exist at a time when a Fund seeks
to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day’s settlement price at the end of the current trading
session. Once the daily limit has been reached on a particular futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions. For example, futures
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures contracts to substantial
losses. In addition, certain of these instruments are relatively new and lack a
deep secondary market. Lack of a liquid market for any reason may prevent a Fund
from liquidating an unfavorable position and the Fund would remain obligated to
meet margin requirements until the position is closed.
Foreign
markets may offer advantages such as trading in indices that are not currently
traded in the United States. Foreign markets, however, may have greater risk
potential than domestic markets. Unlike trading on domestic commodity exchanges,
trading on foreign commodity exchanges is not regulated by the CFTC and may be
subject to greater risk than trading on domestic exchanges. For example, some
foreign exchanges are principal markets so that no common clearing facility
exists and a trader may look only to
the
broker for performance of the contract. Trading in foreign futures or foreign
options contracts may not be afforded certain of the protective measures
provided by the CEA, the CFTC’s regulations, and the rules of the National
Futures Association (“NFA”) and any domestic exchange, including the right to
use reparations proceedings before the CFTC and arbitration proceedings provided
by NFA or any domestic futures exchange. Amounts received for foreign futures or
foreign options transactions may not be provided the same protection as funds
received in respect of transactions on United States futures exchanges. In
addition, any profits that a Fund might realize in trading could be eliminated
by adverse changes in the exchange rate of the currency in which the transaction
is denominated, or the Fund could incur losses as a result of changes in the
exchange rate. Transactions on foreign exchanges may include both commodities
that are traded on domestic exchanges or boards of trade and those that are
not.
There
can be no assurance that a liquid market will exist at a time when a Fund seeks
to close out a futures or a futures option position, and that Fund would remain
obligated to meet margin requirements until the position is closed. There can be
no assurance that an active secondary market will develop or continue to
exist.
Foreign
Currency Futures and Options Thereon
Foreign
currency futures are contracts for the purchase or sale for future delivery of
foreign currencies which may also be engaged in for cross-hedging purposes.
Cross-hedging involves the sale of a futures contract on one foreign currency to
hedge against changes in exchange rates for a different (proxy) currency if
there is an established historical pattern of correlation between the two
currencies. These investment techniques will be used only to hedge against
anticipated future changes in exchange rates which otherwise might adversely
affect the value of a Fund’s securities or adversely affect the prices of
securities that the Fund has purchased or intends to purchase at a later date
and, with respect to certain Funds as described in the Prospectuses to increase
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. The successful use of foreign currency
futures will usually depend on the Manager’s ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, a Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
Swap
Agreements and Options on Swap Agreements
OTC
swap agreements are privately negotiated derivative products in which two
parties agree to exchange payment streams calculated in relation to a rate,
index, instrument or certain securities (referred to as the “underlying”) and a
predetermined amount (referred to as the “notional amount”). Certain swap
agreements, such as interest rate swaps, are traded on exchanges and cleared
through central clearing counterparties. The underlying reference for a swap may
be an interest rate (fixed or floating), a currency exchange rate, a commodity
price index, credit of an issuer, a security, group of securities or a
securities index, a combination of any of these, or various other rates, assets
or indices. Swap agreements generally do not involve the delivery of the
underlying or principal, and a party’s obligations generally are equal to only
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the swap agreement. A great deal
of flexibility is possible in the way swaps may be structured. For example, in a
simple fixed-to-floating interest rate swap, one party makes payments equivalent
to a fixed interest rate, and the other party makes payments calculated with
reference to a specified floating interest rate, such as LIBOR or the Prime
Rate. Total return swaps (on an individual basis and/or a “basket” of swaps) may
be used to gain exposure to the return of a reference asset, such as an index.
In a total return swap, a Fund typically would pay a set rate or a financing
cost, which is normally based on a floating rate, in exchange for the return of
a particular reference asset. Inflation swaps may be used to transfer
inflation-related exposure. In an inflation swap, a Fund typically would pay a
financing cost, which is normally based on a floating rate, and in exchange the
Fund would receive a specified rate of inflation. In a volatility swap, a Fund
receives or makes payments based on the measured variance (or square of
volatility) of an underlying reference instrument over a specified period of
time (typically above or below a level agreed to by the parties), for the
purposes of taking positions and/or hedging risk.
In
a currency swap, the parties generally enter into an agreement to pay interest
streams in one currency based on a specified rate in exchange for receiving
interest streams denominated in another currency. Currency swaps may involve
initial and final exchanges that correspond to the agreed upon notional amount.
A Fund may engage in simple or more complex swap transactions involving a wide
variety of underlying reference assets for various reasons. For example, a Fund
may enter into a swap to gain exposure to investments (such as an index of
securities in a market) or currencies without actually purchasing those stocks
or currencies; to make an investment without owning or taking physical custody
of securities or currencies in circumstances in which direct investment is
restricted for legal reasons or is otherwise impracticable; to hedge an existing
position; to obtain a particular desired return at a lower cost to the Fund than
if it had invested directly in an instrument that yielded the desired return; or
for various other reasons.
Credit
default swaps (“CDS”) involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses on an underlying security (or
group of securities or index). CDS give one party to a transaction (the buyer of
the CDS) the right to dispose of an asset (or group of assets), or the right to
receive a payment from the other party, upon the occurrence of specified credit
events.
A
Fund may enter into CDS, as a buyer or a seller. CDS are used to manage default
risk of an issuer and/or to gain exposure to a portion of the debt market or an
individual issuer. Selling CDS (i.e.,
selling protection) increases credit exposure; purchasing CDS (i.e.,
buying protection) decreases credit exposure. The buyer in a credit default
contract is obligated to pay the seller a periodic stream of payments over the
term of the contract provided no event of default has occurred. If an event of
default occurs, the seller generally pays the buyer the full notional value (par
value) of the underlying in exchange for the underlying. If a Fund is a buyer
and no event of default occurs, the Fund will have made a stream of payments to
the seller without having benefited from the default protection it purchased.
However, if an event of default occurs, the Fund, as buyer, will receive the
full notional value of the underlying that may have little or no value following
default. As a seller, a Fund receives a fixed rate of income throughout the term
of the contract,
provided
there is no default. If an event of default occurs, the Fund would be obligated
to pay the notional value of the underlying in return for the receipt of the
underlying. The value of the underlying received by the Fund, coupled with the
periodic payments previously received may be less than the full notional value
it pays to the buyer, resulting in a loss of value to the Fund. CDS involve
additional risks than if a Fund invests in the underlying directly.
For
purposes of applying the Funds’ investment strategies and restrictions (as
stated in the Prospectuses and this SAI) swap agreements are generally valued by
the Funds at market value. In the case of a CDS or total return swap, however,
in applying certain of the Funds’ investment policies and restrictions the Fund
will generally value these swaps at their notional value or their full exposure
value (i.e.,
the sum of the notional amount for the contract plus the market value; market
value for a swap is the current gain or loss of the contract). For purposes of
applying certain of the Funds’ other investment policies and restrictions, the
Funds may value the credit default or total return swap at market value. For
example, a Fund may value a CDS at full exposure value for purposes of the
Fund’s credit quality guidelines because such value reflects the Fund’s actual
economic exposure during the term of the CDS agreement. In this context, both
the notional amount and the market value may be positive or negative depending
on whether the Fund is selling or buying protection through the
CDS.
To
the extent that a Fund uses derivatives or engages in other transactions that
involve leverage or potential leverage, such as swaps, under current regulatory
requirements the Fund must segregate cash, U.S. government securities and/or
other liquid securities marked-to-market daily (including any margin). For
interest rate swaps, swaps where the underlying reference asset will not be
delivered and swaps that are cash settled, the amount required to be segregated
will generally be the market value of the swap. For swaps where the underlying
reference asset will be delivered and for certain swaps such as CDS (when the
Fund is selling credit protection), the amount required to be segregated will be
valued at the notional amount or its full exposure value. Swap agreements may
include, but are not limited to: (i) “currency exchange rate,” which involves
the exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies; (ii) “interest rate,” which involves
the exchange by a Fund with another party of their respective commitments to pay
or receive interest; (iii) “interest rate index,” which involves the exchange by
a Fund with another party of the respective amounts payable with respect to a
notional principal amount at interest rates equal to two specified indices; and
other interest rate swap arrangements such as: (i) “caps,” under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or “cap”; (ii) “floors,”
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a certain level, or “floor”;
and (iii) “collars,” under which one party sells a cap and purchases a floor or
vice-versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels; (iv) “credit default,” which involves
an agreement of a Fund to pay the par (or other agreed-upon) value of a
referenced debt obligation to the counterparty in the event of a default by a
third party in return for a periodic stream of payments over the term of the
contract provided that no event of default has occurred; (v) “total return,”
which involves the exchange by a Fund with another party of their respective
commitments and the total return side is based on the total return of an equity
or debt instrument or loan, or index thereon, with a life longer than the swap;
and (vi) “volatility,” which involves the exchange by a Fund with another party
of their respective rights to make or receive payments based on the volatility
of an underlying reference instrument. As the seller of a swap, the Fund would
be subject to investment exposure on the notional amount of the
swap.
Risks
of Swap Agreements.
The
use of interest rate, mortgage, credit, currency, volatility and total return
swaps, options on swaps, and interest rate caps, floors and collars, is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Manager is incorrect in its forecasts of market values, interest rates and/or
currency exchange rates, or in its evaluation of the creditworthiness of swap
counterparties and the issuers of the underlying assets, the investment
performance of a Fund would be less favorable than it would have been if these
investment techniques were not used. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid investments. It may not be possible to enter into a
reverse swap or close out a swap position prior to its original maturity and,
therefore, a Fund may bear the risk of such position until its maturity.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. A Fund will enter into swap agreements only with
counterparties that meet certain standards for creditworthiness (generally, such
counterparties would have to be rated investment grade). Certain tax
considerations may limit a Fund’s ability to use swap agreements. The swaps
market is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund’s ability to terminate existing swap agreements or to realize amounts to be
received under such agreements. There is always the risk that these investments
could reduce returns or increase a Fund’s volatility.
Structured
Investments and Hybrid Instruments
Structured
investments, including hybrid instruments, are instruments whose principal
amount, amount payable upon maturity or interest rate is tied (positively or
negatively) to the value of an index, interest rate, commodity, currency or
other economic factor, or assets including, equity or debt securities,
currencies, commodities, and loans (each a “benchmark”). Structured investments
may combine the characteristics of securities, futures, and options. The
interest rate or (unlike most debt securities) the amount payable at maturity of
a structured investment may be increased or decreased, depending on changes in
the value of the benchmark, although a structured investment may also be
structured so that the issuer is not required to pay interest if the benchmark
rises or falls to a certain level. Structured investments can be used as an
efficient means of pursuing a variety of investment goals, including currency
hedging, duration management, and increased total return. Structured investments
include a wide variety of investments, including credit-linked securities,
structured notes, indexed securities, commodity-linked notes and CBOs, CLOs and
other CDOs. Structured investments include potentially high-risk
derivatives.
The
risks presented by structured investments may include market and regulatory
risk, price volatility risk, credit risk, derivatives risk, liquidity risk and
currency risk, in addition to the risks associated with the benchmark. The value
of a structured investment or its interest rate may be a multiple of a benchmark
and, as a result, the structured investment may be leveraged and change in value
(up or down) in a greater amount and more rapidly than the benchmark. A
benchmark may be sensitive to economic and political events, such as commodity
shortages and currency devaluations, which cannot be readily foreseen by the
purchaser of a structured investment. Under certain conditions, the amount
payable upon maturity of a structured investment could be zero. Thus, an
investment in a structured investment may entail significant risks that are not
associated with an investment in a traditional, U.S. dollar-denominated bond
that has a fixed principal amount and pays a fixed rate or floating rate of
interest. The purchase of a structured investment also exposes a Fund to the
credit risk of the issuer of the structured investment. Structured investments
may be subordinated or unsubordinated with respect to other classes of the
issuer’s securities. Subordinated structured investments typically have higher
yields and present greater risks than unsubordinated investments. Structured
investments may also be more difficult to accurately price than less complex
securities. Structured investments generally are individually negotiated
agreements and are typically sold in private placement transactions; thus, there
may not be an active trading market for a structured investment held by a Fund
and it may be difficult for the Fund to sell a structured
investment.
A
structured investment may be structured by depositing specified instruments
(such as commercial bank loans) into an entity such as a corporation or trust
that issues one or more classes of securities backed by, or representing
interest in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the securities issued to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions. Amounts payable by such securities, and
the value of such securities, will be dependent on the cash flow or value of the
underlying instruments. Structured investments created by depositing securities
in a corporation or trust typically involve no credit enhancement and their
credit risk generally will be linked to that of the underlying
instruments.
Certain
issuers of structured instruments may be deemed to be investment companies as
defined in the 1940 Act. As a result, a Fund’s investments in these products
will be subject to limits applicable to investments in investment companies and
may be subject to restrictions contained in the 1940 Act.
Credit-Linked
Securities.
Credit-linked securities are issued by a limited purpose trust or other vehicle
that, in turn, invests in a basket of derivative instruments, such as CDS,
interest rate swaps and other securities, in order to provide exposure to
certain high yield or other fixed income markets. A Fund may invest in
credit-linked securities as a cash management tool in order to gain exposure to
the high yield markets and/or to remain fully invested when more traditional
income producing securities are not available. Like an investment in a bond,
investments in credit-linked securities represent the right to receive periodic
income payments (in the form of distributions) and payment of principal at the
end of the term of the security. However, these payments are conditioned on the
trust’s receipt of payments from, and the trust’s potential obligations to, the
counterparties to the derivative instruments and other securities in which the
trust invests. For instance, the trust may sell one or more CDS, under which the
trust would receive a stream of payments over the term of the swap agreements
provided that no event of default has occurred with respect to the referenced
debt obligation upon which the swap is based. If a default occurs, the stream of
payments may stop and the trust would be obligated to pay the counterparty the
par value (or other agreed upon value) of the referenced debt obligation. This,
in turn, would reduce the amount of income and principal that a Fund would
receive as an investor in the trust. A Fund’s investments in these instruments
are indirectly subject to the risks associated with derivative instruments,
including, among others, credit risk, default or similar event risk,
counterparty risk, interest rate risk, leverage risk and management risk. It is
expected that the securities will be exempt from registration under the 1933
Act. Accordingly, there may be no established trading market for the securities
and they may constitute illiquid investments.
Commodity-Linked
Notes.
Certain structured products may provide exposure to the commodities markets.
These are derivative securities with one or more commodity-linked components
that have payment features similar to commodity futures contracts, commodity
options, or similar instruments. Commodity-linked structured products may be
either equity or debt securities, leveraged or unleveraged, and have both
security and commodity-like characteristics. A portion of the value of these
instruments may be derived from the value of a commodity, futures contract,
index or other economic variable. The Funds will only invest in commodity-linked
structured products that qualify under applicable rules of the CFTC for an
exemption from the provisions of the CEA.
Structured
Notes and Indexed Securities.
Structured notes are derivative debt instruments, the interest rate or principal
of which is determined by an unrelated indicator (for example, a currency,
security, commodity or index thereof). The terms of the instrument may be
“structured” by the purchaser and the borrower issuing the note. Indexed
securities may include structured notes as well as securities other than debt
securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. The terms of structured notes and indexed
securities may provide that in certain circumstances no principal is due at
maturity, which may result in a loss of invested capital. Structured notes and
indexed securities may be positively or negatively indexed, so that appreciation
of the unrelated indicator may produce an increase or a decrease in the interest
rate or the value of the structured note or indexed security at maturity may be
calculated as a specified multiple of the change in the value of the unrelated
indicator. Therefore, the value of such notes and securities may be very
volatile. Structured notes and indexed securities may entail a greater degree of
market risk than other types of debt securities because the investor bears the
risk of the unrelated indicator.
Structured
notes or indexed securities also may be more volatile, less liquid, and more
difficult to accurately price than less complex securities and instruments or
more traditional debt securities. To the extent a Fund invests in these notes
and securities, however, it analyzes these notes and securities in its overall
assessment of the effective duration of the Fund’s holdings in an effort to
monitor the Fund’s interest rate risk. Certain issuers of structured products
may be deemed to be investment companies as defined in
the
1940 Act. As a result, the Funds’ investments in these structured products may
be subject to limits applicable to investments in investment companies and may
be subject to restrictions contained in the 1940 Act.
Master
Limited Partnerships (“MLPs”)
MLPs
are limited partnerships in which ownership units are publicly traded.
Generally, an MLP is operated under the supervision of one or more managing
general partners. Limited partners, such as a Fund that invests in an MLP, are
not involved in the day-to-day management of the MLP. Investments in MLPs are
generally subject to many of the risks that apply to partnerships. For example,
holders of the units of MLPs may have limited control and limited voting rights
on matters affecting the MLP. There may be fewer investor protections afforded
investors in an MLP than investors in a corporation. Conflicts of interest may
exist among limited partners and the general partner of an MLP. Holders of units
of an MLP are allocated income and capital gains in accordance with the terms of
the partnership agreement. MLPs that concentrate in a particular industry or
region are subject to risks associated with such industry or region. MLPs
holding credit-related investments are subject to interest rate risk and the
risk of default on payment obligations by debt issuers. Investments held by MLPs
may be illiquid. MLP units may trade infrequently and in limited volume, and
they may be subject to abrupt or erratic price movements.
Warrants
and Rights
Warrants
or rights may be acquired as part of a unit, attached to securities at the time
of purchase; or acquired in connection with a corporate action without
limitation and may be deemed to be with or without value. Warrants may be
considered speculative in that they have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them.
Warrants basically are options to purchase equity securities at a specific price
valid for a specific period of time. They do not represent ownership of the
securities, but only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities. If the market price of the underlying security does not
exceed the exercise price of the warrant plus the cost thereof before the
expiration date, a Fund could sustain losses on transactions in warrants that
would require the Fund to forgo a portion or all of the benefits of advantageous
change in the market price of the underlying security.
Warrants
may be purchased with values that vary depending on the change in value of one
or more specified indices (“index warrants”). Index warrants are generally
issued by banks or other financial institutions and give the holder the right,
at any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the underlying
index at the time of exercise.
Voluntary
Actions
From
time to time, a Fund may voluntarily participate in actions (for example, rights
offerings, conversion privileges, exchange offers, credit event settlements)
where an issuer or counterparty offers securities or instruments to its holders
or counterparties, such as a Fund, and the acquisition is determined by the
Manager to be beneficial to Fund shareholders (“Voluntary Action”).
Notwithstanding any percentage investment limitation listed within the
Prospectuses or SAI, or any percentage investment limitation of the 1940 Act or
rules thereunder, if a Fund has the opportunity to acquire a permitted security
or instrument through a Voluntary Action, and a Fund will exceed a percentage
investment limitation following the acquisition, it will not constitute a
violation if, after announcement of the offering but prior to the receipt of the
securities or instruments, a Fund sells an offsetting amount of assets that are
subject to the investment limitation in question at least equal to the value of
the securities or instruments to be acquired.
Roll
Transactions
A
Fund may engage in roll-timing strategies where the Fund seeks to extend the
expiration or maturity of a position, such as a forward contract, futures
contract or a TBA Transaction, on an underlying asset by closing out the
position before expiration and contemporaneously opening a new position with
respect to the same underlying asset that has substantially similar terms except
for a later expiration date. Such “rolls” enable the Fund to maintain continuous
investment exposure to an underlying asset beyond the expiration of the initial
position without delivery of the underlying asset. Similarly, as certain
standardized swap agreements transition from OTC trading to mandatory
exchange-trading and clearing due to the implementation of Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) regulatory
requirements, a Fund may “roll” an existing OTC swap agreement by closing out
the position before expiration and contemporaneously entering into a new
exchange-traded and cleared swap agreement on the same underlying asset with
substantially similar terms except for a later expiration date. These types of
new positions opened contemporaneous with the closing of an existing position on
the same underlying asset with substantially similar terms are collectively
referred to as “Roll Transactions.”
Indirect
Exposure to Cryptocurrencies Risk
Cryptocurrencies
(also referred to as “virtual currencies” and “digital currencies”) are digital
assets that are designed to act as a medium of exchange. Although the Funds have
no current intention of directly investing in cryptocurrencies, a Fund may have
indirect exposure to cryptocurrencies by investing in the securities of
companies that provide
technology or services which support a digital exchange or payment network (such
as banks, payment service providers, or other financial services companies),
provide technology which can be used in the mining of Bitcoin (such as
manufacturers of graphics processing units) or hold cryptocurrency assets on
their balance sheet (including publicly traded operating companies in unrelated
industries). A
Fund may also invest in securities of issuers which provide
cryptocurrency-related services.
Cryptocurrencies
(some of the most well-known include Bitcoin, Dogecoin and Ethereum) are not
backed by any government, corporation, or other identified body. Trading markets
for cryptocurrencies are often unregulated and may be more exposed to
operational or technical issues as well as the potential for fraud or
manipulation than established, regulated exchanges for securities, derivatives
and traditional currencies.
Cryptocurrencies
have been subject to significant fluctuations in value. The value of a
cryptocurrency may significantly fluctuate precipitously (including declining to
zero) and unpredictably for a variety of reasons, including, but not limited to:
investor perceptions and expectations; regulatory changes; general economic
conditions; adoption and use in the retail and commercial marketplace; public
opinion regarding the environmental impact of the creation (“minting” or
“mining”) of cryptocurrency; confidence in, and the maintenance and development
of, its network and open-source software protocols such as blockchain for
ensuring the integrity of cryptocurrency transactional data; and general risks
tied to the use of information technologies, including cybersecurity
risks.
Cybersecurity
Risk
The
use of technology is prevalent in the financial industry, including the Funds’
management and operations. As a result, the Funds are susceptible to risks
associated with the technologies, processes and practices designed to protect
networks, systems, computers, programs and data from attack, damage or
unauthorized access, or “cybersecurity.” Such risks may include the theft, loss,
misuse, improper release, corruption and/or destruction of, manipulation of, or
unauthorized access to, confidential or restricted data relating to the Funds or
shareholders, and the compromise, delay or failure of systems, networks, devices
and applications relating to Fund operations, such as systems used to enter
trades for the Funds’ investments, accounting and valuation systems, or
compliance testing systems used to monitor the Funds’ investments. A
cybersecurity breach may result in financial losses to the Funds and
shareholders; the inability of the Funds to timely process transactions or
conduct trades; delays or mistakes in materials provided to shareholders; errors
or delays in the calculation of Funds’ NAVs; violations of privacy and other
laws (including those related to identity theft); regulatory fines, penalties
and reputational damage; and compliance and remediation costs, legal fees and
other expenses. In addition, the foregoing risks may adversely impact the
Adviser, Managers, the Distributor and other service providers to the Funds, as
well as financial intermediaries and parties with which the Funds do business,
which in turn could result in losses to the Funds and shareholders and
disruptions to the conduct of business between the Funds, shareholders, the
Funds’ service providers and/or financial intermediaries.
While
measures have been developed that are designed to reduce cybersecurity risks and
to mitigate or lessen resulting damages, there is no guarantee that those
measures will be effective, particularly because the Funds do not directly
control the cybersecurity defenses or plans of their service providers,
financial intermediaries and other parties with which the Funds
transact.
Operational
Risk and Business Continuity Plan
The
Adviser, its affiliates and/or the Trust’s material service providers may
experience business disruptions that could negatively impact their ability to
provide services to a Fund. While the Adviser maintains a Business Continuity
Plan (“BCP”) and has processes in place that are designed to minimize the
disruption of normal business operations in the event of an adverse incident,
there are inherent limitations in such plans and processes, including the
possibility that certain systems and/or recovery processes do not work as
intended. In addition, the Adviser and its affiliates do not control the
operational systems or functions of the Trust’s third-party service providers.
While the BCP is routinely tested and monitored, under certain circumstances the
Adviser, its affiliates, and/or service providers to the Trust could be
prevented or hindered from providing essential services to the Trust for
extended periods of time. These disruptions could significantly impact the
Trust’s business operations including, but not limited to, interfering with the
ability to process shareholder transactions, trade or value portfolio holdings
and/or timely calculate a Fund’s NAV.
Geopolitical,
Social and Economic Risk
Geopolitical,
social, economic and other conditions and events (such as natural disasters,
epidemics and pandemics, terrorism, conflicts and social unrest) that occur from
time to time will create uncertainty and may have significant impacts on
issuers, industries, governments and other systems, including the financial
markets, to which the Funds and the issuers in which they invest are exposed. As
global systems, economies and financial markets are increasingly interconnected,
events that once had only local impact are now more likely to have regional or
even global effects. Events that occur in one country, region or financial
market will, more frequently, impact issuers in other countries, regions or
markets, including in established markets such as the United States. These
impacts can be exacerbated by failures of governments and societies to
adequately respond to an emerging event or threat.
Uncertainty
can result in or coincide with: increased volatility in the global financial
markets, including those related to equity and debt securities, loans, credit,
derivatives and currency; a decrease in the reliability of market prices and
difficulty in valuing assets; greater fluctuations in currency exchange rates;
increased risk of default (by both government and private issuers); further
social, economic, and political instability; nationalization of private
enterprises; greater governmental involvement in the economy or in social
factors that impact the economy; greater, less or different governmental
regulation and supervision of the securities markets and market participants and
increased, decreased or different processes for and approaches to monitoring
markets and enforcing rules and regulations by governments or self-regulatory
organizations; limited, or limitations on the, activities of investors in such
markets; controls or restrictions on foreign investment, capital controls and
limitations on repatriation of invested capital; inability to purchase and sell
assets or otherwise settle transactions (i.e., a market freeze); unavailability
of currency hedging techniques; substantial, and in some periods extremely high,
rates of inflation, which can last many years and have substantial negative
effects on markets as well as the economy as a whole; recessions; and
difficulties in obtaining and/or enforcing legal judgments.
For
example, in early 2020, a novel coronavirus and related respiratory disease
(COVID-19) spread rapidly across the world, including to the United States. The
coronavirus outbreak resulted in, among other consequences, the closing of
borders, the imposition of travel restrictions, enhanced health screenings, the
need for accelerated acute healthcare service preparation and delivery,
disruptions and delays in healthcare services, quarantines and “shelter at home”
orders, restrictions on gatherings of people, event and service cancellations,
business closures, disruptions to supply chains and customer activity, lower
consumer demand, as well as general heightened uncertainty. The impact of
COVID-19, and other infectious illness outbreaks, epidemics or pandemics that
may arise in the future, could adversely affect the economies of many nations or
the entire global economy, the financial well-being and performance of
individual issuers, borrowers and sectors and the health of the markets
generally in potentially significant and unforeseen ways. In addition, the
impact of infectious illnesses, such as COVID-19, in emerging market countries
may be greater due to generally less established healthcare systems. This crisis
or other public health crises may exacerbate other pre-existing political,
social and economic risks in certain countries or globally. In addition, U.S.
and global markets recently have experienced increased volatility, including as
a result of the recent failures of certain U.S. and non-U.S. banks, which could
be harmful to the Funds and issuers in which they invest. For example, if a bank
in which the Funds or issuer have an account fails, any cash or other assets in
bank accounts may be temporarily inaccessible or permanently lost by the Fund or
issuer. If a bank that provides a subscription line of credit facility,
asset-based facility, other credit facility and/or other services to an issuer
fails, the issuer could be unable to draw funds under its credit facilities or
obtain replacement credit facilities or other services from other lending
institutions with similar terms. Even if banks used by issuers in which the
Funds invest remain solvent, continued volatility in the banking sector could
cause or intensify an economic recession, increase the costs of banking services
or result in the issuers being unable to obtain or refinance indebtedness at all
or on as favorable terms as could otherwise have been obtained. Conditions in
the banking sector are evolving, and the scope of any potential impacts to the
Funds and issuers, both from market conditions and also potential legislative or
regulatory responses, are uncertain. Continued market volatility and uncertainty
and/or a downturn in market and economic and financial conditions, as a result
of developments in the banking industry or otherwise (including as a result of
delayed access to cash or credit facilities), could have an adverse impact on
the Funds and issuers in which they invest.
Although
it is impossible to predict the precise nature and consequences of these events,
or of any political or policy decisions and regulatory changes occasioned by
emerging events or uncertainty on applicable laws or regulations that impact a
Fund’s investments, it is clear that these types of events will impact the Fund
and the issuers in which such Fund invests. The government response to these
events, including emergency health measures, welfare benefit programs, fiscal
stimulus, industry support programs, and measures that impact interest rates,
among other responses, is also a factor that may impact the financial markets
and the value of a Fund’s holdings. The issuers in which a Fund invests could be
significantly impacted by emerging events and uncertainty of this type. A Fund
will also be negatively affected if the operations and effectiveness of the Fund
or its key service providers are compromised or if necessary or beneficial
systems and processes are disrupted.
Foreign
countries, companies, or individuals may become subject to economic sanctions or
other government restrictions, which may negatively impact the value or
liquidity of a Fund’s investments, and could impair such Fund’s ability to meet
its investment objective or invest in accordance with its investment strategy.
In addition, sanctions and similar measures could result in downgrades in credit
ratings of the sanctioned country or companies located in or economically
exposed to the sanctioned country or company, devaluation of the sanctioned
country’s currency, and increased market volatility and disruption in the
sanctioned country and throughout the world. The Funds may be prohibited from
investing in securities issued by companies subject to such restrictions, and
sanctions or other similar measures could significantly delay or prevent the
settlement of securities transactions. For example, in 2020, the U.S. government
imposed sanctions generally prohibiting U.S. investors from directly or
indirectly purchasing or otherwise gaining exposure to certain securities
identified as having ties to China’s military and related industries. In 2022,
because of ongoing regional armed conflict in Europe, many countries around the
world, including the United States, imposed sanctions on Russia. Such sanctions
have included, among others, freezing the assets of particular entities and
persons, and banning Russia from global payment systems that facilitate
cross-border payments. These sanctions and similar measures could result in
Russia taking counter measures or retaliatory actions, which may further impair
the value and liquidity of Russian securities. Moreover, disruptions caused by
Russian military action or other actions (including cyberattacks and espionage)
or resulting actual and threatened responses to such activity, including
cyberattacks on the Russian government, Russian companies, or Russian
individuals, including politicians, may impact Russia’s economy and Russian
issuers of instruments in which the Funds invest. These and potential similar
future sanctions may limit the potential universe of securities in which the
Funds may invest, may require the Fund to freeze or divest its existing
investments in a company that becomes subject to such restrictions, and may
negatively impact investment performance of the Funds.
Regulatory
and Legal Risk
The
regulation of investments, investment companies, and investment advisers is an
evolving area of law and is subject to modification by governmental and judicial
actions. It is not possible to determine the full extent of the impact of any
new laws, regulations or initiatives that may be proposed, or whether any such
proposals will become law. Compliance with any new laws or regulations could be
difficult, increase the fees and expenses for a Fund, and may impact the manner
in which a Fund conducts business, the investment performance of a Fund, and/or
the viability of a Fund. Furthermore, new laws or regulations may subject the
Trust, a Fund and/or shareholders to increased taxes or other
costs.
INVESTMENT
RESTRICTIONS
Fundamental
Investment Restrictions
The
following investment restrictions of the Funds are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund’s outstanding voting securities. The vote of a majority of
the outstanding voting
securities
of a Fund means the vote, at an annual or special meeting of (a) 67% or more of
the voting securities present at such meeting, if the holders of more than 50%
of the outstanding voting securities of such Fund are present or represented by
proxy; or (b) more than 50% of the outstanding voting securities of such Fund,
whichever is the less. Under these restrictions, a Fund:
(i)
may not invest in a security if, as a result of such investment, 25% or more of
its total assets (taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities or repurchase agreements with respect thereto);
(ii)
may purchase or sell real estate to the extent permitted by applicable
law;
(iii)
may borrow money and issue senior securities to the extent permitted by
applicable law;
(iv)
may make loans to the extent permitted by applicable law; and
(v)
may underwrite securities to the extent permitted by applicable
law.
Non-Fundamental
Summaries of Current Legal Requirements and Interpretations Related to Certain
Fundamental Investment Restrictions
This
section summarizes current legal requirements and interpretations applicable to
the Funds with respect to certain of the fundamental investment restrictions
listed above. The current legal requirements and interpretations are subject to
change at any time, and this section may be revised at any time to reflect
changes in legal requirements or interpretations, or to further clarify existing
requirements or interpretations. No part of this section constitutes a
fundamental policy or a part of any of the above fundamental investment
restrictions. The discussion in this section provides summary information only
and is not a comprehensive discussion. It does not constitute legal advice.
Investors who are interested in obtaining additional detail about these
requirements and interpretations should consult their own counsel.
With
respect to fundamental investment restriction (i): For purposes of complying
with this restriction, each Fund, in consultation with its Manager, utilizes its
own industry classifications. In addition, Government-issued mortgage-related
securities, including CMOs, are considered government securities. Further, for
purposes of complying with fundamental investment restriction (i), the Portfolio
Optimization Funds will consider the concentration of the Underlying Funds and
will not consider securities of other investment companies as a separate
industry; the Portfolio Optimization Funds have a policy to not concentrate
their investments in any particular industry.
With
respect to fundamental investment restriction (ii): Without limiting the
generality of restriction (ii), a Fund may purchase securities secured by real
estate or interests therein, or securities issued by companies which invest in
real estate, or interests therein and may hold for prompt sale and sell real
estate or interests in real estate acquired through the forfeiture of collateral
securing loans or debt securities held by it.
With
respect to fundamental restriction (iv): Investments in loan participations and
assignments are considered to be debt obligations and are therefore permissible
investments for a Fund.
With
respect to fundamental investment restriction (v): Currently, under the 1940 Act
and other federal securities laws, a fund is considered an “underwriter” if the
fund participates in the public distribution of securities of other issuers,
which involves purchasing the securities from an issuer with the intention of
reselling the securities to the public. A fund that purchases securities in a
private transaction for investment purposes and later sells those securities to
institutional investors in a restricted sale could, under one view, technically
be considered to be an underwriter of those securities. Under current legal
requirements, fundamental investment restriction (v) permits a Fund to sell
securities in this circumstance.
Non-Fundamental
Investment Restrictions
AIS
may, in consultation with the relevant Manager, revise investment restrictions
that are non-fundamental policies of a Fund. The following non-fundamental
investment restrictions apply to all Funds, unless otherwise
stated:
1.
A Fund may not purchase illiquid investments or repurchase agreements maturing
in more than seven days if as a result of such purchase, more than 15% of the
Fund’s net assets would be invested in such securities.
2.
A Fund may not purchase or sell commodities or commodities contracts, except
subject to restrictions described in the Prospectuses and in this SAI that: (a)
each Fund may engage in futures contracts and options on futures contracts; and
(b) each Fund may enter into forward contracts including forward foreign
currency contracts.
3.
If a Fund has a policy on investing at least 80% of its net assets (plus the
amount of any borrowings for investment purposes) in a manner consistent with
its name, it will provide at least 60 days prior written notice of any change to
such policy.
4.
A Fund which serves as an Aristotle Underlying Fund for a fund-of-funds (such as
the Portfolio Optimization Funds) will not invest in securities of other
investment companies in reliance on Section 12(d)(1)(F) or (G) of the 1940 Act,
or any successor provisions.
Unless
otherwise specifically stated in a Fund’s Prospectus or above, each Fund’s
investment restriction will apply only at the time of investment (and subsequent
fluctuations in the value of Fund securities or the sale of Fund securities will
not result in a violation of the restriction). The foregoing does not apply to
borrowings. For purposes of restriction 2 above, an option on a foreign
currency
shall not be considered a commodity or commodity contract. Restriction 3 above
refers to investment policies that are in place because of the name of the
particular Fund as described in a Fund’s Prospectus (“Name Test Policy”). The
Name Test Policy applies at the time the Fund invests its assets. A new Fund
will be permitted to comply with the Name Test Policy within six months after
commencing operations.
REQUIRED
THIRD-PARTY DISCLAIMERS
MSCI
With
respect to the Composite Benchmarks for the Portfolio Optimization Funds, these
blended returns are calculated by the Trust using end of day index level values
licensed from MSCI Inc. (“MSCI Data”) and others. For the avoidance of doubt,
MSCI Inc. is not the benchmark “administrator” for, or a “contributor”,
“submitter” or “supervised contributor” to, the blended returns, and the MSCI
Data is not considered a “contribution” or “submission” in relation to the
blended returns, as those terms may be defined in any rules, laws, regulations,
legislation or international standards.
MSCI
Data is provided “AS IS” without warranty or liability and no copying or
distribution is permitted. MSCI Inc. does not make any representation regarding
the advisability of any investment or strategy and does not sponsor, promote,
issue, sell or otherwise recommend or endorse any investment or strategy,
including any financial products or strategies based on, tracking or otherwise
utilizing any MSCI Data, models, analytics or other materials or
information.
All
third-party trademarks and service marks belong to their respective
owners.
ORGANIZATION
AND MANAGEMENT OF THE TRUST
The
Trust is a Delaware statutory trust organized on November 29, 2022 and consists
of 19 Funds. The assets of each Fund are segregated, and your interest is
limited to the Fund in which you invest. The full legal name of the Trust is
“Aristotle Funds Series Trust,” and may also be referred to as “Aristotle Funds”
or the “Trust.”
Management
Information
The
business and affairs of the Trust are managed under the direction of the Board
under the Trust’s Declaration of Trust. Trustees who are not deemed to be
“interested persons” of the Trust (as defined in the 1940 Act) are referred to
as “Independent Trustees.” Certain Trustees and officers are deemed to be
“interested persons” of the Trust and thus are referred to as “Interested
Persons” because of their positions with the AIS and/or a Manager or their
affiliates. The Trustees and officers of the Trust and their principal
occupations during the past five years as well, as certain additional
occupational information, are shown below. The address of each Trustee and
officer is c/o Aristotle Funds, 11100 Santa Monica Blvd., Suite 1700, Los
Angeles, CA 90025. None of the Trustees hold directorships in companies that
file periodic reports with the SEC or in other investment companies, other than
those listed below.
I.
Trustees
The
following table sets out the Trustees of the Trust, their principal occupations
and other trusteeships held during the last five years, and certain other
information.
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Name
and Year of Birth |
| Position(s)
with the Trust |
|
Term
of Office1
and Length of Time Served |
| Principal
Occupation(s) and Other Trusteeships Held During Past 5 Years |
| Number
of Funds in Fund Complex Overseen |
Independent
Trustees |
Joseph
Chi
1966 |
| Trustee |
| 2022
to present |
|
Head
of Responsible Investment of Dimensional Fund Advisors
(2019
to 2021)
Vice
President and Senior Portfolio Manager, Dimensional Fund Advisors
(March
2019 to October 2019)
Chair
of Investment Committee and Co-Head of Portfolio Management, Dimensional
Fund Advisors
(2012
to March 2019). |
| 19 |
Wendy
Greuel
1961 |
| Trustee |
| 2022
to present |
|
National
Advisor of Manatt, Phelps & Phillips LLP
(May
2023 to Present)
Director,
Fisker Inc.
(2020
to Present)
Executive
in Residence and Strategic Advisor, California State University,
Northridge, David Nazarian College of Business and Economics
(2016
to Present)
Consultant
and Vice Chairperson, Discovery Cube Los Angeles, Discovery Cube Los
Angeles
(2014
to Present) |
| 19 |
Warren
A. Henderson
1949 |
| Trustee
(Chair) |
| 2022
to present |
|
Advisory
Board Member, Intercontinental Real Estate Corporation
(2003
to Present)
President,
Mosaic Global Partners
(2002
to Present)
President,
Mosaic Investment Advisors
(2002
to Present) |
| 19 |
Dennis
R. Sugino
1952 |
| Trustee |
| 2022
to present |
|
Founder,
Kansa Advisory, LLC
(2017
to Present) |
| 19 |
Interested
Trustee |
Richard
Schweitzer
1964 |
| Trustee
and President |
| 2022
to present |
|
Chief
Financial Officer and Chief Operating Officer of Aristotle Capital
Management LLC
(July
2011 to Present) |
| 19 |
1 A
Trustee serves until he or she resigns, retires, or his or her successor has
been duly elected and qualified.
II.
Trust Officers
The
following table sets out the officers of the Trust (other than those listed
above), their principal occupations during the last five years, and certain
other information.
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|
|
|
|
|
| |
Name
and Year of Birth |
| Position(s)
with the Trust |
|
Term
of Office and Length of Time Served1 |
| Principal
Occupation(s) During Past 5 Years |
|
Joanne
Chyun 1978 |
| Assistant
Treasurer and Vice President |
| 2023
to Present |
|
Controller
of APC Asset Development I, LP and APC Asset Development II,
LP
(December
2023 to Present)
Senior
Vice President of Aristotle Pacific Capital, LLC and Aristotle Investment
Services, LLC
(April
2023 to Present)
Director
of Pacific Asset Management LLC
(March
2018 to April 2023) |
|
Thomas
J. Fuccillo
1968 |
|
Chief
Compliance Officer, Chief Legal Officer and Vice President |
| 2023
to Present |
|
Managing
Director and Chief Legal Officer of Aristotle Investment Services,
LLC
(January
2023 to Present)
Senior
Attorney, Ropes & Gray LLP (law firm)
(May
2022 to December 2022)
President
and Chief Executive Officer of the AllianzGI Funds Complex
(2016
to 2021)
Trustee
of the AllianzGI Funds Complex
(2019
to 2021)
Head
of Funds Legal of Allianz Global Investors U.S. Holdings LLC
(2008
to 2019) |
|
Joseph
Lallande
1970 |
| Secretary
and Vice President |
|
2023
to Present |
|
General
Counsel of APC Asset Development I, LP and APC Asset Development II,
LP
(December
2023 to Present)
General
Counsel of Aristotle Pacific Capital, LLC and Deputy Chief Legal Officer
of Aristotle Investment Services, LLC
(April
2023 to Present)
Assistant
Vice President and Assistant General Counsel of Pacific Life Insurance
Company
(September
2010 to April 2023)
Chief
Operating Officer, President and Assistant Secretary of Pacific Global ETF
Trust
(October
2020 to June 2022)
Vice
President and Assistant Secretary of Pacific Global ETF Trust
(July
2018 to October 2020)
Legal
Counsel of Pacific Global Advisors LLC
(June
2018 to December 2021) |
|
1
The officers serve at the pleasure of the Trustees or until their successors
have been duly elected and qualified.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Joshua
B. Schwab
1981 |
| Treasurer
and Vice President |
| 2022
to Present |
|
Chief
Financial Officer and Chief Operating Officer of APC Asset Development I,
LP and APC Asset Development II, LP
(November
2023 to Present)
Chief
Financial Officer/Chief Operating Officer of Aristotle Pacific Capital,
LLC and Chief Financial Officer of Aristotle Investment Services,
LLC
(April
2023 to Present)
Assistant
Vice President, Finance of Pacific Select Distributors, LLC
(January
2022 to Present)
Assistant
Vice President of Pacific Asset Management LLC
(December
2019 to April 2023)
Vice
President, Treasurer and Principal Financial Officer of Pacific Global ETF
Trust
(December
2018 to June 2022)
Managing
Director of Pacific Global Advisors LLC
(June
2018 to December 2021)
Assistant
Vice President of Pacific Life Fund Advisors LLC d/b/a Pacific Asset
Management
(August
2015 to December 2019) |
|
Kim
M. St. Hilaire
1972 |
| Vice
President |
| 2022
to Present |
|
Managing
Director of Aristotle Capital Management, LLC
(May
2021 to Present)
Chief
Operating Officer of First Pacific Advisors, LLC
(August
2018 to May 2021) |
|
Board
of Trustees
Additional
Information Concerning the Board of Trustees
The
Role of the Board.
The Board oversees the management and operations of the Trust. Like most mutual
funds, the day-to-day management and operation of the Trust is performed by
various service providers to the Trust, such as the Trust’s Adviser, the
Managers, the distributor, administrator, custodian, and transfer agent, each of
which is discussed in greater detail in this SAI. The Board has appointed senior
employees of certain of these service providers as officers of the Trust, with
responsibility to monitor and report to the Board on the Trust’s operations. The
Board receives regular reports from these officers and service providers
regarding the Trust’s operations. For example, the Treasurer provides reports as
to financial reporting matters and investment personnel report on the
performance of the Funds. The Board has appointed a Trust Chief Compliance
Officer (“CCO”) who administers the Trust’s compliance program and regularly
reports to the Board as to compliance matters. Some of these reports are
provided as part of formal Board meetings which are typically held quarterly, in
person or virtually, and involve the Board’s review of the Trust’s operations.
From time to time one or more Independent Trustees may also meet with management
in less formal settings, between scheduled Board meetings, to discuss various
topics. In all cases, however, the role of the Board and of any individual
Trustee is one of oversight and not of management of the day-to-day affairs of
the Trust and its oversight role does not make the Board a guarantor of the
Trust’s investments, operations, or activities.
Board
Structure, Leadership. The
Board has structured itself in a manner that it believes allows it to perform
its oversight function effectively. It has established two standing committees,
an Audit Committee and a Nominating and Fund Governance Committee, which are
discussed in greater detail under “Committees” below. More than 75% of the
members of the Board are Independent Trustees and each Committee is comprised
entirely of Independent Trustees. The Chair of the Board is an Independent
Trustee who acts as the primary liaison between the Independent Trustees, the
Interested Trustee and management. The Chair of the Board helps identify matters
for consideration by the Board and regularly participates in the agenda setting
process for Board meetings. The Board reviews its structure annually through the
Nominating and Fund Governance Committee. In developing its structure, the Board
has considered that the Interested Trustee, as Chief Financial Officer and Chief
Operating Officer of the Adviser, provides valuable input as to, among other
things, the operation of the Adviser, their financial condition and business
plans relating to the Trust. The Board has also determined that having a Chair
of the Board who is an Independent Trustee and the function and composition of
the Committees are appropriate means to provide effective oversight on behalf of
the Trust’s shareholders and address any potential conflicts of interest that
might arise from an Interested Trustee serving on the Board.
Board
Oversight of Risk Management.
As part of its oversight function, the Board receives and reviews various risk
management reports and assessments and discusses these matters with appropriate
management and other personnel. The full Board receives reports from the Adviser
and Managers as to investment risks as well as other risks that may also be
discussed in Audit Committee meetings. In addition, the Board receives reports
from the Adviser’s risk management personnel regarding their assessments of
potential material risks associated with the Trust and the manner in which those
risks are addressed. Because risk management is a broad concept comprised of
many elements, Board oversight of different types of risks is handled in
different ways. The Board and its committees receive periodic reports as to how
the Adviser conducts service provider oversight and how it monitors for other
risks, such as derivatives risk, business continuity risks and risks that might
be present with individual Managers or specific investment strategies. The Audit
Committee meets regularly with the CCO to discuss compliance and operational
risks. The Audit Committee also meets regularly with the Treasurer, and the
Fund’s independent registered public accounting firm and, when appropriate, with
other Adviser personnel to discuss, among other things, the internal control
structure of the Trust’s financial reporting function.
Information
About Each Trustee’s Qualification, Experience, Attributes or Skills.
The Board believes that each of the Trustees has the qualifications, experience,
attributes and skills (“Trustee Attributes”) appropriate to their continued
service as a Trustee of the Trust in light of the Trust’s business and
structure. Each Trustee has a demonstrated record of business and/or
professional accomplishment. The Trust’s Nominating and
Fund Governance
Committee annually conducts a “self-assessment” wherein the effectiveness of the
Board and its committees is reviewed. The Nominating and Fund Governance
Committee has determined that the Trustees have the appropriate attributes and
experience to continue to serve effectively as Trustees of the Trust.
In
addition to the information provided in the charts above, including in
particular the many years of mutual fund experience on the Board of the Trust,
certain additional information regarding the Trustees and their Trustee
Attributes is provided below. The information is not all-inclusive. Many Trustee
Attributes involve intangible elements, such as intelligence, integrity and work
ethic, along with the ability to work together, to communicate effectively, to
exercise judgment and ask incisive questions, and commitment to shareholder
interests.
Joseph
Chi,
CFA,
served
as Chairman of the Investment Committee and Co-Head of Portfolio Management at
Dimensional Fund Advisors, overseeing a global investment team that managed over
$600 billion in numerous investment strategies and vehicles, including
US-registered mutual funds, UCITS, OEICS, Canadian trusts, Australian trusts and
separate accounts. These portfolios included global fixed income and equity
securities in various investment strategies. Mr. Chi was responsible for
presenting to and responding to questions from the fund board, as well as to
many other third-party fund boards for whom they acted as sub-adviser. Prior to
joining Dimensional, Mr. Chi practiced as a securities and finance attorney,
specializing in venture capital, private placements, public offerings, and
mergers and acquisitions. He received an MBA with a concentration in finance
from the Anderson School of Management at UCLA, where he received the Harold M.
Williams award for overall academic achievement and the J. Fred Weston Award
from the Finance Department. Mr. Chi also holds a J.D. degree from the
University of Southern California and a B.S. in electrical engineering, cum
laude, from UCLA. He is a CFA®
charterholder.
Warren
A. Henderson currently
serves as Founder and Managing Partner of Mosaic Global Advisors, Inc., a
management consultant in the institutional asset management market space. Before
founding Mosaic, Mr. Henderson spent eight years as a Senior Principal of State
Street Global Advisors (SSGA) where he was head of the Public Funds,
Taft-Hartley and Health Care marketing group. He joined State Street Corporation
in 1991 as a Vice President in the Public Funds Services custody division.
Previously, he spent 10 years with the IBM Corporation where he was the Senior
Manager for major Public Fund and Higher Education accounts and held several
other marketing and development positions. Mr. Henderson holds a B. S. in
Business Administration from Florida A&M University and a Master of Public
Administration/Information Networks from the University of Pittsburgh, School of
Public & International Affairs.
Wendy
Greuel currently
serves as an Executive in Residence and Strategic Advisor for David Nazarian
College of Business and Economics at California State University Northridge,
Consultant for Discovery Cube Los Angeles, and Board Member and Audit Committee
Chair of Fisker, Inc. Prior to this, Ms. Greuel served as Los Angeles City
Controller from 2009 – 2013, where she acted as the city’s chief auditor and
financial watchdog, performing more than 60 audits of city departments and
bringing greater transparency and openness to city government. She holds a B.A.
Political Science from UCLA.
Dennis
R. Sugino is
the founder of Kansa Advisory, a client-centric boutique consulting firm
providing professional services to OCIO-focused institutional clients. Mr.
Sugino’s previous professional experiences include serving as the Chief
Investment Officer of the City of Los Angeles; President and Co-Founder of
Cliffwater; Managing Director and Principal of Wilshire Associates; and Partner
and Executive Committee member of Aristotle Capital Management, LLC (“Aristotle
Capital”). In addition to serving as the chair of various non-profit investment
committees, he served as a board member and Audit Committee Chair of The
Investment Fund for Foundations (TIFF). TIFF started as a pioneering advisor in
the OCIO industry 30+ years ago. Mr. Sugino earned a BSc. from California State
University, Dominguez Hills and a M.A. from the University of California, Los
Angeles.
Richard
Schweitzer, CFA,
is President of the Trust and Trustee. Mr. Schweitzer is also Chief Financial
Officer, Chief Operating Officer and a member of the Board of Managers of
Aristotle Capital. He began his career in 1987 with Price Waterhouse, then left
public accounting to use his tax and accounting expertise to eventually head
Bank of America’s Mortgage and Asset Securities Services Group. In 1992, Mr.
Schweitzer joined the Pilgrim Group and its successor firm, Astra Management
Company, where he successfully managed the liquidation of large pools of complex
mortgage-backed securities. He also served in various senior capacities at
predecessor asset management firms to Aristotle Capital. Mr. Schweitzer earned
his Bachelor of Science degree in Business Administration with concentrations in
Finance and Accounting from California State University, Northridge, and his MBA
from the
University
of Southern California. He is a CFA® charterholder and a Certified Public
Accountant (inactive) in the State of California. In addition to being a long
and loyal philanthropic supporter of his undergraduate alma mater, Mr.
Schweitzer also serves on the Nazarian School of Business and Economics Advisory
Board and on the Finance Committee and the Board of the California State
University Northridge Foundation.
Committees.
The standing committees of the Board are the Audit Committee and the Nominating
and Fund Governance Committee.
The
members of the Audit Committee include each Independent Trustee of the Trust.
The Audit Committee operates pursuant to a separate charter and is responsible
for, among other things, reviewing and recommending to the Board the selection
of the Trust’s independent registered public accounting firm, reviewing the
scope of the proposed audits of the Trust and the accounting and financial
controls of the Trust and the results of the annual audits of the Trust’s
financial statements, interacting with the Trust’s independent registered public
accounting firm on behalf of the full Board, assisting the Board in its
oversight of the Trust’s compliance with legal and regulatory requirements, and
receiving reports from the CCO. Ms. Greuel serves as Chair of the Audit
Committee. The Board has determined that Ms. Greuel is an “audit committee
financial expert” as such term is defined in the applicable regulations.
During
the fiscal year ended March 31,
2024,
the Audit Committee met three times with respect to the Fund.
The
members of the Nominating and Fund Governance Committee include each Independent
Trustee of the Trust. The Nominating and Fund Governance Committee operates
pursuant to a separate charter and is responsible for, among other things, the
Trustees’ “self-assessment,” making recommendations to the Board concerning the
size and composition of the Board and its committees and the effectiveness of
the Board’s committee structure, determining compensation of the Independent
Trustees, establishing an Independent Trustee retirement policy and the
screening and nomination of new candidates to serve as Trustees. With respect to
new Trustee candidates, the Nominating and Fund Governance Committee may seek
referrals from a variety of sources and may engage a search firm to assist it in
identifying or evaluating potential candidates. The Nominating and Fund
Governance Committee will consider any candidate for Trustee recommended by a
current shareholder if such recommendation contains sufficient background
information concerning the candidate to enable the Nominating and Fund
Governance Committee to make a proper judgment as to the candidate’s
qualifications. The recommendation must be submitted in writing and addressed to
the Nominating and Fund Governance Committee Chair at the Trust’s offices: 11100
Santa Monica Blvd., Suite 1700, Los Angeles, CA 90025. Joseph Chi serves as
Chair of the Nominating and Fund Governance Committee. During
the fiscal year ended March 31,
2024,
the Nominating
and Fund Governance Committee met
three times with respect to the Fund.
Management
Ownership.
As of March 31, 2024, the Trustees and officers, individually and as a
group, owned approximately 11% of the Aristotle Small/Mid Cap Equity Fund Class
I Shares, 1.50% of Aristotle/Saul Global Equity Fund Class I-2 Shares, and less
than 1% of any shares of any other Fund of the Trust.
Beneficial
Ownership of Trustees.
The
table below shows the dollar range of each Trustee’s interest equity securities
beneficially owned by each Trustee as of March 31, 2024 (unless otherwise
noted) (i) in any Fund of the Trust, and (ii) on an aggregate basis, in all
registered investment companies overseen by the Trustee within the “Family of
Investment Companies.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name
of Trustee |
|
| Dollar
Range of Equity Securities in the Funds of the Trust |
|
Aggregate
Dollar Range of Equity Securities in All Registered Investment
Companies Overseen by Trustee in the Family of Investment
Companies |
Joseph
Chi |
|
over
$100,000 |
|
over
$100,000 |
Wendy
Greuel |
|
$10,001-50,000 |
|
$10,001-50,000 |
Warren
A. Henderson |
|
$50,001-100,000 |
|
$50,001-100,000 |
Dennis
R. Sugino |
|
over
$100,000 |
|
over
$100,000 |
Richard
Schweitzer |
|
over
$100,000 |
|
over
$100,000 |
Compensation.
No compensation is paid by the Trust to any of the Trusts’ Officers or the
Interested Trustee. For each fiscal year, each Independent Trustee receives a
retainer fee of $150,000. The Chairperson of the Board receives additional
compensation of $20,000. The chairs of the Audit Committee and Nominating and
Fund Governance Committee receive additional compensation of $10,000 and $5,000,
respectively. The following table summarizes the compensation paid to the
Independent Trustees for the Funds’ initial fiscal year ended March 31,
2024.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name |
|
| Aggregate
Compensation from the Trust |
| Total
Compensation from Fund Complex Paid to Trustees |
|
Joseph
Chi |
| $ |
155,000 |
|
| $ |
155,000 |
| |
Wendy
Greuel |
| $ |
160,000 |
|
| $ |
160,000 |
| |
Warren
A. Henderson |
| $ |
170,000 |
|
| $ |
170,000 |
| |
Dennis
R. Sugino |
| $ |
150,000 |
|
| $ |
150,000 |
| |
|
|
|
|
|
|
| |
|
| $ |
635,000 |
|
| $ |
635,000 |
| |
Investment
Adviser
AIS,
a Delaware limited liability company, serves as investment adviser to the Trust
pursuant to an Investment Advisory Agreement (“Advisory Agreement”) between the
Trust and AIS. The Advisory Agreement for the Trust was entered into between AIS
and the Trust and was approved by the Board, including a majority of the
Independent Trustees, at a Board meeting held on January 17, 2023, and by the
sole shareholder of the Trust on February 10, 2023.
AIS
is responsible for overseeing the investment program for the Trust. AIS also
furnishes to the Board, which has responsibility for the business and affairs of
the Trust, periodic reports on the investment performance of each Fund. Under
the terms of the Advisory Agreement, AIS is obligated to manage the Funds in
accordance with applicable laws and regulations. AIS is located at 11100 Santa
Monica Blvd., Suite 1700, Los Angeles, CA 90025. See the “Information About the
Managers” section for additional information regarding AIS.
The
Advisory Agreement will continue in effect for an initial two-year period and
from year to year thereafter, provided such continuance is approved annually by
(i) the holders of a majority of the outstanding voting securities of the Trust
or (ii) by the Board, and a majority of the Independent Trustees. The Advisory
Agreement and each sub-advisory agreement may be terminated without penalty by
vote of the Trustees or the shareholders of the Trust, or by the Adviser, on 60
days written notice by any party to the Advisory Agreement or sub-advisory
agreement, respectively, and each agreement will terminate automatically if
assigned.
Advisory
Fee Schedules
Each
Fund pays AIS an annual combined fee (the “Management Fee”), consisting of an
advisory fee and supervision and administration fee, for services it requires
under what is essentially an all-in fee structure. Each Fund pays AIS fees in
return for providing investment advisory services. AIS also uses part of the
advisory fee to pay for the services of the sub-advisers. Additional information
about the Supervision and Administration fee is provided in the “Other
Information” section below.
AIS
furnishes to the Board, which has overall responsibility for the business and
affairs of the Trust, periodic reports on the investment performance of each
Fund.
Under
the terms of the Advisory Agreement, AIS is obligated to manage the Funds in
accordance with applicable laws and regulations. The investment advisory
services of AIS to the Trust are not exclusive under the terms of the Advisory
Agreement. AIS is free to, and in the future may, render investment advisory
services to others.
Following
the expiration of the two-year period commencing with the effectiveness of the
Advisory Agreement, it will continue in effect on a yearly basis provided such
continuance is approved annually: (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board; and (ii) by a
majority of the Independent Trustees. The Advisory Agreement may be terminated
without penalty by vote of the Trustees or the shareholders of the Trust, or by
AIS, on 60 days’ written notice by either party to the contract and will
terminate automatically if assigned.
|
|
|
|
|
|
|
| |
Fund |
|
Advisory
Fee
(as
a percentage of average net assets) |
Aristotle
Core Equity Fund |
| 0.50% |
Aristotle
Core Income Fund1 |
| 0.40% |
Aristotle
ESG Core Bond Fund2 |
| 0.35% |
Aristotle
Floating Rate Income Fund3 |
| 0.55% |
Aristotle
Growth Equity Fund |
| 0.55% |
Aristotle
High Yield Bond Fund4 |
| 0.50% |
Aristotle
International Equity Fund5 |
| 0.60% |
Aristotle
Portfolio Optimization Conservative Fund Aristotle Portfolio
Optimization Moderate Conservative Fund Aristotle Portfolio
Optimization Moderate Fund Aristotle Portfolio Optimization Growth
Fund Aristotle Portfolio Optimization Aggressive Growth Fund |
| 0.20% |
Aristotle
Short Duration Income Fund6 |
| 0.25% |
Aristotle
Small Cap Equity Fund7 |
| 0.65% |
Aristotle
Small/Mid Cap Equity Fund8 |
| 0.65% |
Aristotle
Strategic Income Fund9 |
| 0.50% |
Aristotle
Ultra Short Income Fund |
| 0.25% |
|
|
|
|
|
|
|
| |
Fund |
|
Advisory
Fee
(as
a percentage of average net assets) |
Aristotle
Value Equity Fund10 |
| 0.55% |
Aristotle/Saul
Global Equity Fund11 |
| 0.60% |
1
Prior
to April 1, 2024, the Advisory Fee for Aristotle Core Income Fund was
0.50%.
2
Prior
to April 1, 2024, the Advisory Fee for Aristotle ESG Core Bond Fund was 0.38%.
3
Prior
to April 1, 2024, the Advisory Fee for Aristotle Floating Rate Income Fund was
0.62%.
4
Prior
to April 1, 2024, the Advisory Fee for Aristotle High Yield Bond Fund was 0.60%.
5
Prior
to April 1, 2024, the Advisory Fee for Aristotle International Equity Fund was
0.70%.
6
Prior
to April 1, 2024, the Advisory Fee for Aristotle Short Duration Income Fund was
0.40%.
7 Prior
to April 1, 2024, the Advisory Fee for Aristotle Small Cap Equity Fund was
0.70%.
8
Prior
to April 1, 2024, the Advisory Fee for Aristotle Small/Mid Cap Equity Fund was
0.70%.
9
Prior
to April 1, 2024, the Advisory Fee for Aristotle Strategic Income Fund was
0.59%.
10 Prior
to January 22, 2024, the Advisory Fee for Class A, Class I and Class I-2 shares
of Aristotle Value Equity Fund was 0.60%.
11 Prior
to April 1, 2024, the Advisory Fee for Aristotle/Saul Global Equity Fund was
0.70%.
Investment
Advisory Fees Paid or Owed
For
the fiscal year ended March 31, 2024, the Funds paid the following in
advisory fees to AIS:
|
|
|
|
|
|
|
| |
Fund |
|
Advisory
Fees Paid |
Aristotle
Core Equity Fund1 |
| $503,093 |
Aristotle
Core Income Fund |
| $8,248,003 |
Aristotle
ESG Core Bond Fund |
| $99,904 |
Aristotle
Floating Rate Income Fund |
| $21,514,869 |
Aristotle
Growth Equity Fund |
| $1,305,321 |
Aristotle
High Yield Bond Fund |
| $457,087 |
Aristotle
International Equity Fund1 |
| $1,079,001 |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
| $503,164 |
Aristotle
Portfolio Optimization Conservative Fund |
| $296,092 |
Aristotle
Portfolio Optimization Growth Fund |
| $1,235,778 |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
| $414,123 |
Aristotle
Portfolio Optimization Moderate Fund |
| $1,412,193 |
Aristotle
Short Duration Income Fund |
| $4,026,626 |
Aristotle
Small Cap Equity Fund1 |
| $357,821 |
Aristotle
Small/Mid Cap Equity Fund |
| $379,705 |
Aristotle
Strategic Income Fund |
| $10,972,577 |
Aristotle
Ultra Short Income Fund |
| $130,087 |
Aristotle
Value Equity Fund1 |
| $1,005,194 |
Aristotle/Saul
Global Equity Fund1 |
| $103,087 |
1 As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. The Advisory Fees Paid include the fees paid during the period from
the Fund’s commencement of operations through March 31, 2024.
For
the fiscal year ended March 31, 2024, the Predecessor Funds paid the
following in advisory fees to their respective investment advisers:
|
|
|
|
|
|
|
| |
Fund |
|
Advisory
Fees Paid |
Aristotle
Core Equity Fund |
| $523,951 |
Aristotle
Core Income Fund |
| $202,083 |
Aristotle
ESG Core Bond Fund |
| $4,401 |
Aristotle
Floating Rate Income Fund |
| $1,001,567 |
Aristotle
Growth Equity Fund |
| $34,834 |
|
|
|
|
|
|
|
| |
Fund |
|
Advisory
Fees Paid |
Aristotle
High Yield Bond Fund |
| $20,475 |
Aristotle
International Equity Fund |
| $1,809,971 |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
| $23,203 |
Aristotle
Portfolio Optimization Conservative Fund |
| $14,852 |
Aristotle
Portfolio Optimization Growth Fund |
| $58,239 |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
| $20,180 |
Aristotle
Portfolio Optimization Moderate Fund |
| $67,231 |
Aristotle
Short Duration Income Fund |
| $173,174 |
Aristotle
Small Cap Equity Fund |
| $1,004,287 |
Aristotle
Small/Mid Cap Equity Fund |
| $29,445 |
Aristotle
Strategic Income Fund |
| $387,634 |
Aristotle
Ultra Short Income Fund |
| $6,966 |
Aristotle
Value Equity Fund |
| $3,085,959 |
Aristotle/Saul
Global Equity Fund |
| $238,173 |
During
the term of the Advisory Agreement, AIS will pay all of its own expenses
incurred by it in connection with its activities under the Advisory Agreement,
except such expenses as are assumed by the Trust or as are otherwise provided
for in another agreement between AIS and the Trust, or such expenses as are
assumed by a sub-adviser under its sub-advisory agreement. The Trust is
responsible for all of the other expenses related to its operations, including,
including compensation of its Trustees who are not affiliated with the Adviser,
the Distributor or any of their affiliates; taxes and governmental fees;
interest charges; fees and expenses of the Trust’s independent accountants and
legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of shares of the Trust), transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, selling, redeeming,
registering and qualifying for sale shares of beneficial interest in the Trust;
expenses of preparing and printing share certificates, prospectuses and reports
to shareholders, notices, proxy statements and reports to regulatory agencies;
the cost of office supplies, including stationery; travel expenses of all
officers, Trustees and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders’
meetings; organizational expenses; and extraordinary expenses. Expenses directly
attributable to a particular Fund or share class are charged to that Fund or
share class, respectively. Other expenses are generally allocated
proportionately among all of the Funds in relation to the net assets of each
Fund.
Administrative
Services
AIS
in its capacity as the Funds’ Administrator (AIS, in its capacity as
administrator, the “Administrator”), performs certain administrative services
for each of the Funds pursuant to a supervision and administration agreement (as
amended and restated from time to time, the “Supervision and Administration
Agreement”) with the Trust. Pursuant to the Supervision and Administration
Agreement, the Administrator provides the Funds with certain supervisory,
administrative and shareholder services necessary for Fund operations and is
responsible for the supervision of other Fund service providers. The
Administrator receives a supervision and administration fee in return for its
services. The supervision and administration services provided by the
Administrator include, among others, (i) shareholder services, including the
preparation of shareholder reports and the maintenance of a shareholder call
center; (i) regulatory compliance, such as report filings with the SEC and state
or other regulatory authorities; and (iii) general supervision and coordination
of matters relating to the operation of the Funds, including coordination of the
services performed by the Funds’ advisers, custodian, transfer agent, dividend
disbursing agent, recordkeeping agent, legal counsel, independent public
accountants and others. The Administrator pays for and furnishes the office
space and equipment necessary to carry out the Funds’ business and pays the
compensation of the Trust’s officers and employees. In addition, the
Administrator is responsible for arranging the services and bearing the expenses
of the Trust’s service providers, including, among others, legal, audit,
transfer agency, and recordkeeping services. The Administrator is also
responsible for the costs of registration of the Trust’s shares and the printing
of prospectuses and shareholder reports for current shareholders.
U.S.
Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (the
“Sub-Administrator”), located at 615 E. Michigan Street, 3rd
Floor, Milwaukee, WI 53202, performs certain administrative services for each of
the Funds pursuant to a Fund Sub-Administration Servicing Agreement with AIS
(the “Sub-Administration Agreement”). These services include, among others,
preparing shareholder reports, providing statistical and research data,
assisting the Funds and the Managers with compliance monitoring activities, and
preparing and filing federal and state tax returns on behalf of the Funds.
Under
a separate Fund Accounting Servicing Agreement with the Trust (the “Fund
Accounting Agreement”), the Sub-Administrator also provides certain accounting
services to the Funds. The accounting services performed by the
Sub-Administrator include, among others, assisting in determining the NAV per
share of each Fund, maintaining records relating to the securities transactions
of the Funds, and processing and monitoring expense accruals and
payments.
For
the services provided by the Sub-Administrator under the Sub-Administration
Agreement and the Fund Accounting Agreement, the Administrator pays to the
Sub-Administrator an annual administration fee based on its average net assets
as listed in the table below, with a minimum annual fee of $25,000 per Fund.
|
|
|
|
| |
Average
Net Assets |
Annual
Fee |
Up
to $3 billion |
0.0125% |
$3
billion but less than $6 billion |
0.0100% |
More
than $6 billion |
0.0075% |
Except
for the expenses paid by the Administrator, the Trust bears all costs of its
operations. The Funds are responsible for: (i) salaries and other compensation
or expenses of the Trust’s executive officers and employees, who are not
officers, directors, shareholders, members, partners or employees of the
Administrator; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions, and other portfolio transaction expenses incurred for any of the
Funds; (iv) costs, including the interest expenses, of borrowing money; (v) fees
and expenses of Trustees who are not officers, employees, partners, shareholders
or members of the Administrator; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) organizational, offering
expenses, and any other expenses which are capitalized in accordance with
generally accepted accounting principals; and (viii) expenses allocated or
allocable to a specific class of shares (“class-specific expenses”).
Class-specific
expenses include distribution and service fees payable with respect to different
classes of shares and supervision and administration fees as described in this
section. Class-specific expenses may also include other expenses as permitted by
the Trust’s Multi-Class Plan pursuant to Rule 18f-3 under the 1940 Act (the
“Multi-Class Plan”) and subject to review and approval by the Trustees.
The
Supervision and Administration Agreement may be terminated by vote of a majority
of the Trustees or by a vote of the outstanding shares of the Trust, or, with
respect to a particular Fund or class, by vote of a majority of the outstanding
voting shares of such Fund or class, on 60 days’ written notice to the
Administrator. The Administrator may terminate the Supervision and
Administration Agreement at any time on 60 days’ written notice to the Trust.
The
Supervision and Administration Agreement is subject to annual approval by the
Board, including a majority of the Trustees who are not interested persons of
the Trust (as that term is defined in the 1940 Act). The current Supervision and
Administration Agreement, as supplemented from time to time, was approved by the
Board, including all of the Independent Trustees at a meeting held for such
purpose. In approving the Supervision and Administration Agreement, the Trustees
determined that: (i) the Supervision and Administration Agreement is in the best
interests of the Funds and their shareholders; (ii) the services to be performed
under the Supervision and Administration Agreement are services required for the
operation of the Funds; (iii) AIS is able to provide, or to procure, services
for the Funds which are at least equal in nature and quality to services that
could be provided by others; and (iv) the fees to be charged pursuant to the
Supervision and Administration Agreement are fair and reasonable in light of the
usual and customary charges made by others for services of the same nature and
quality.
For
the fiscal year ended March 31, 2024, the Funds paid the following in
supervision and administration fees to AIS:
|
|
|
|
|
|
|
| |
Fund |
|
Supervision
and Administration Fees to AIS |
Aristotle
Core Equity Fund1 |
| $150,927 |
Aristotle
Core Income Fund |
| $882,956 |
Aristotle
ESG Core Bond Fund |
| $26,290 |
Aristotle
Floating Rate Income Fund |
| $3,365,500 |
Aristotle
Growth Equity Fund |
| $355,997 |
Aristotle
High Yield Bond Fund |
| $46,526 |
Aristotle
International Equity Fund1 |
| $123,315 |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
| $628,954 |
Aristotle
Portfolio Optimization Conservative Fund |
| $370,115 |
Aristotle
Portfolio Optimization Growth Fund |
| $1,544,723 |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
| $517,654 |
Aristotle
Portfolio Optimization Moderate Fund |
| $1,765,242 |
Aristotle
Short Duration Income Fund |
| $817,218 |
Aristotle
Small Cap Equity Fund1 |
| $102,087 |
Aristotle
Small/Mid Cap Equity Fund |
| $108,358 |
|
|
|
|
|
|
|
| |
Fund |
|
Supervision
and Administration Fees to AIS |
Aristotle
Strategic Income Fund |
| $1,764,379 |
Aristotle
Ultra Short Income Fund |
| $36,425 |
Aristotle
Value Equity Fund1 |
| $215,380 |
Aristotle/Saul
Global Equity Fund1 |
| $11,782 |
1 As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. The Supervision and Administration Fees to AIS include the fees paid
during the period from the Fund’s commencement of operations through March 31,
2024.
The
supervision and administration fee for each class of each Fund is paid at the
following annual rates (stated as a percentage of the average daily net assets
attributable in the aggregate to each class’s shares taken
separately):
|
|
|
|
| |
Fund |
Supervision
and Administration Fee |
Aristotle
Core Equity Fund |
Class
A |
0.15% |
Class
I |
0.15% |
Class
I-2 |
0.15% |
Aristotle
Core Income Fund1 |
Class
A |
0.20% |
Class
C |
0.20% |
Class
I |
0.05% |
Class
I-2 |
0.15% |
Aristotle
ESG Core Bond Fund2 |
Class
I |
0.13% |
Class
I-2 |
0.13% |
Aristotle
Floating Rate Income Fund3 |
Class
A |
0.20% |
Class
C |
0.20% |
Class
I |
0.12% |
Class
I-2 |
0.20% |
Aristotle
Growth Equity Fund |
Class
A |
0.15% |
Class
I |
0.15% |
Class
I-2 |
0.15% |
Aristotle
High Yield Bond Fund4 |
Class
A |
0.20% |
Class
C |
0.20% |
Class
I |
0.05% |
Class
I-2 |
0.15% |
Aristotle
International Equity Fund5 |
Class
A |
0.18% |
Class
I |
0.18% |
Class
I-2 |
0.18% |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I-2 |
0.25% |
|
|
|
|
| |
Fund |
Supervision
and Administration Fee |
Aristotle
Portfolio Optimization Conservative Fund |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I-2 |
0.25% |
Aristotle
Portfolio Optimization Growth Fund |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I-2 |
0.25% |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I-2 |
0.25% |
Aristotle
Portfolio Optimization Moderate Fund |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I-2 |
0.25% |
Aristotle
Short Duration Income Fund6 |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I |
0.14% |
Class
I-2 |
0.24% |
Aristotle
Small Cap Equity Fund7 |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I |
0.25% |
Class
R6 |
0.20% |
Class
I-2 |
0.25% |
Aristotle
Small/Mid Cap Equity Fund8 |
Class
A |
0.25% |
Class
C |
0.25% |
Class
I |
0.20% |
Class
I-2 |
0.25% |
Aristotle
Strategic Income Fund9 |
Class
A |
0.19% |
Class
C |
0.19% |
Class
I |
0.09% |
Class
I-2 |
0.19% |
Aristotle
Ultra Short Income Fund |
Class
A |
0.07% |
Class
I |
0.07% |
Class
I-2 |
0.07% |
Aristotle
Value Equity Fund10 |
Class
A |
0.14% |
|
|
|
|
| |
Fund |
Supervision
and Administration Fee |
Class
I |
0.14% |
Class
R6 |
0.06% |
Class
I-2 |
0.14% |
Aristotle/Saul
Global Equity Fund11 |
Class
A |
0.18% |
Class
I |
0.18% |
Class
I-2 |
0.18% |
1 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Core
Income Fund was 0.10% for Class A and Class C, and 0.05% for Class
I-2.
2 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle ESG Core
Bond Fund was 0.10% for Class I and Class I-2.
3 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Floating
Rate Income Fund was 0.13% for Class A, Class C and Class I-2, and 0.05% for
Class I.
4 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle High
Yield Bond Fund was 0.10% for Class A, Class C and Class I-2.
5 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle
International Equity Fund was 0.08% for Class A, Class I and Class
I-2.
6 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Short
Duration Income Fund was 0.10% for Class A, Class C and Class I-2, and 0.05% for
Class I.
7 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Small Cap
Equity Fund was 0.20% for Class A, Class C, Class I and Class I-2 and 0.15% for
Class R-6.
8 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Small/Mid
Cap Equity Fund was 0.20% for Class A and Class C and Class I-2, and 0.15% for
Class I.
9 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle Strategic
Income Fund was 0.10% for Class A, Class C and Class I-2, and 0.05% for Class
I.
10 Prior
to January 22, 2024, the Supervision and Administration Fee for Aristotle Value
Equity Fund was 0.09% for Class A, Class I and Class I-2.
11 Prior
to April 1, 2024, the Supervision and Administration Fee for Aristotle/Saul
Global Equity Fund was 0.08% for Class A, Class I and Class I-2.
INFORMATION
ABOUT THE MANAGERS
Management
Firms
AIS
serves as investment adviser to each Fund and employs other investment advisory
firms as sub-advisers, subject to sub-advisory agreements. AIS takes on the
entrepreneurial risks associated with the launch of each new Fund and its
ongoing operations. In addition, AIS supports the Board oversight process by,
among other things, acting on Board instructions relating to the Funds and
providing reports and other information requested by the Board from time to
time.
Each
sub-adviser has entered into a sub-advisory agreement with the Adviser. Each
sub-adviser provides investment advisory services to the applicable Fund. With
respect to the sub-advised Funds, AIS has the ultimate responsibility in
overseeing and monitoring the services provided by the sub-advisers. AIS
evaluates the performance of each sub-adviser and the sub-adviser’s execution of
a Fund’s investment strategies, as well as the sub-adviser’s adherence to the
Fund’s investment goals and policies. AIS conducts risk analysis and performance
attribution to analyze a Fund’s performance and risk profile and works with a
sub-adviser to implement changes to a Fund’s strategies when appropriate. AIS’s
analysis and oversight of a sub-adviser may result in AIS’s recommendation to
the Board that a sub-adviser be terminated or replaced.
AIS
also conducts ongoing due diligence on sub-advisers involving onsite visits,
in-person meetings and/or telephonic meetings, including due diligence of each
sub-adviser’s written compliance policies and procedures and assessments of each
sub-adviser’s compliance program and code of ethics. AIS also provides services
related to, among others, the valuation of Fund securities, risk management,
transition management and oversight of trade execution and brokerage
services.
AIS
also conducts searches for new sub-advisers for new Funds or to replace existing
sub-advisers when appropriate and coordinates the onboarding process for new
sub-advisers, including establishing trading accounts to enable the sub-adviser
to begin managing Fund assets. Additionally, in the event that a sub-adviser was
to become unable to manage a Fund, AIS has implemented plans to provide for the
continued management of the Fund’s portfolio. AIS oversees and implements
transition management programs when significant changes are made to a Fund,
including when a sub-adviser is replaced or when there are large purchases or
withdrawals, to seek to reduce transaction costs for a Fund. AIS also monitors
and regulates large purchase and redemption orders to minimize potentially
adverse effects on a Fund.
The
information below provides organizational information on each of the Managers,
which includes, if applicable, the name of any person(s) who controls the
Manager, the basis of the person’s control, and the general nature of the
person’s business. It is followed by information regarding the compensation
structure, other accounts managed, material conflicts of interests, and
beneficial interest of each Manager (including AIS) of the Trust. Each
individual or team member is referred to as a portfolio manager in this section.
The Managers are shown together in this section only for ease in presenting the
information and should not be viewed for purposes of comparing the portfolio
managers or the Managers against one another. Each Manager is a separate entity
that may employ different compensation structures, have different management
requirements, and be affected by different conflicts of interests.
Aristotle
Atlantic Partners, LLC (“Aristotle Atlantic”)
Aristotle
Atlantic, located at 50 Central Avenue, Suite 750, Sarasota, Florida 34236, acts
as sub-adviser to Aristotle Core Equity Fund and Aristotle Growth Equity Fund.
Aristotle Capital holds a controlling interest in Aristotle
Atlantic.
Aristotle
Capital Boston, LLC (“Aristotle Boston”)
Aristotle
Boston, located at One Federal Street, 36th Floor, Boston, Massachusetts 02110,
acts as sub-adviser to the Aristotle Small/Mid Cap Equity Fund and Aristotle
Small Cap Equity Fund. Aristotle Capital holds a controlling interest in
Aristotle Boston.
Aristotle
Capital
Aristotle
Capital, located at 11100 Santa Monica Boulevard, Suite 1700, Los Angeles,
California 90025, acts as investment adviser to Aristotle International Equity
Fund, Aristotle/Saul Global Equity Fund, and Aristotle Value Equity Fund.
Aristotle Capital is a privately owned, registered investment adviser that
specializes in equity portfolio management for institutional and individual
clients. The firm is majority owned by employees and the Board of
Managers.
Aristotle
Pacific Capital, LLC (“Aristotle Pacific”)
Aristotle
Pacific, located at 840 Newport Center Drive, 7th Floor, Newport Beach,
California 92660, acts as sub-adviser to Aristotle Ultra Short Income Fund,
Aristotle Short Duration Income Fund, Aristotle Core Income Fund, Aristotle ESG
Core Bond Fund, Aristotle Strategic Income Fund, Aristotle Floating Rate Income
Fund, and Aristotle High Yield Bond Fund. Founded in 2022, Aristotle Pacific
(formerly Pacific Asset Management LLC) specializes in credit oriented fixed
income strategies. Aristotle Pacific is an SEC registered investment adviser.
Aristotle Capital holds a controlling interest in Aristotle
Pacific.
Pacific
Life Fund Advisors LLC (“PLFA”)
PLFA,
located at 700 Newport Center Drive, Newport Beach, California 92660, acts as
sub-adviser to the Aristotle Portfolio Optimization Funds. Established in 2007,
PLFA is an experienced investment management organization that manages
multi-asset class investment strategies.
The
following provides information regarding each Manager’s compensation, other
accounts managed, material conflicts of interests, and any ownership of
securities in the Trust. Each individual or team member is referred to as a
portfolio manager in this section. The Managers are shown together in this
section only for ease in presenting the information and should not be viewed for
purposes of comparing the portfolio managers or the Managers against one
another. Each Manager is a separate entity that may employ different
compensation structures, have different management requirements, and be affected
by different conflicts of interests.
Compensation
Structures and Methods
The
following describes the structure of, and the method(s) used to determine the
different types of compensation (e.g.,
salary, bonus, deferred compensation, retirement plans and arrangements) for
each portfolio manager. The descriptions could include compensation benchmarks,
which are chosen by the particular Manager and may or may not match a Fund’s
benchmark index or other indices presented in the Prospectuses.
Aristotle
Capital, Aristotle Boston, Aristotle Atlantic and Aristotle Pacific Atlantic
Compensation.
Aristotle Capital’s, Aristotle Boston’s, Aristotle Atlantic’s and Aristotle
Pacific’s Atlantic’s portfolio managers are paid a base salary and are eligible
to participate in the relevant Aristotle entity’s annual bonus pool. The
portfolio managers’ compensation arrangements are not determined on the basis of
specific funds or accounts managed. Bonus amounts are determined by a number of
factors including an individual’s team contribution to company objectives as
well as the overall profitability of the company. Each portfolio manager is an
equity partner of his or her Aristotle adviser entity and receives a portion of
the overall profits of the entity as part of his ownership
interest.
PLFA
PLFA
uses a compensation structure that is designed to attract and retain
high-caliber investment professionals. Portfolio managers are compensated based
primarily on the scale and complexity of all of their job responsibilities,
including but not limited to portfolio responsibilities. Portfolio manager
compensation is reviewed annually and may be modified at any time as appropriate
to adjust the factors used to determine bonuses or other compensation
components.
Each
portfolio manager is paid a base salary that PLFA believes is competitive in
light of the portfolio manager’s experience and responsibility. The base salary
may be increased in recognition of the individual’s performance and/or an
increase or change in duties and responsibilities.
In
addition to a base salary, investment professionals may be eligible to receive
annual and long-term incentives, each of which is derived from both quantitative
and non-quantitative factors, as described below. High performing portfolio
managers may receive annual and long-term incentives that constitute a
substantial portion of their respective total compensation.
Annual
Incentive:
The
financial performance of PLFA and its parent company impact overall funding for
annual incentives. Individual incentive awards are determined on a discretionary
basis and consider the individual’s target incentive and personal performance,
which may include both quantitative and qualitative factors. Fund performance is
not a specific factor in determining a PLFA portfolio
manager’s
incentive compensation. However, several factors, including but not limited to
an evaluation of sub-adviser selection, appropriate risk positioning, asset
class allocation and investment thesis development, are taken into consideration
in determining a PLFA portfolio manager’s incentive pay. Annual incentives are
paid in cash with no deferral.
Long-Term
Incentive:
Investment
professionals are eligible to receive long-term incentive awards on an annual
basis. Awards pay out at the end of three years based on PLFA’s achievement
against both quantitative and qualitative factors, with pre-tax fund performance
on a rolling three-year time frame as compared against peer group benchmarks,
accounting for the majority of the performance measurement. Target incentives
are based on the individual’s role and responsibilities. For comparison purposes
with respect to measuring the performance of the portfolio managers of Aristotle
Portfolio Optimization Conservative Fund is Morningstar U.S. Fund Allocation –
15% to 30% Equity; for Aristotle Portfolio Optimization Moderate Conservative
Fund is Morningstar U.S. Fund Allocation – 30% to 50% Equity; for Aristotle
Portfolio Optimization Moderate Fund is the Morningstar U.S. Fund Allocation –
50% to 70% Equity; for Aristotle Portfolio Optimization Growth Fund is
Morningstar U.S. Fund Allocation – 50% to 70% Equity; and for Aristotle
Portfolio Optimization Aggressive Growth Fund is Morningstar U.S. Fund
Allocation – 70% to 85% Equity.
Portfolio
managers also participate in benefit and retirement plans available generally to
all employees.
Other
Accounts Managed
The
following table includes information for each portfolio manager of the Trust
regarding the number and total assets of other accounts managed as of the fiscal
year ended March 31, 2024 (unless otherwise noted) that each portfolio
manager has day-to-day management responsibilities for, other than the Funds
they manage within the Trust (“Other Accounts Managed”). For these Other
Accounts Managed, it is possible that a portfolio manager may only manage a
portion of the assets of a particular account and that such portion may be
substantially lower than the total assets of such account. See the Prospectuses
for information on the Funds that each portfolio manager listed in the table
manages within the Trust.
Other
Accounts Managed are grouped into three categories: (i) registered investment
companies, (ii) other pooled investment vehicles, and (iii) other accounts. The
table also reflects for each category if any of these Other Accounts Managed
have an advisory fee based upon the performance of the account. Table data has
been provided by the applicable Manager. Portfolio managers are listed
alphabetically by Manager.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Manager,
Portfolio
Manager(s) |
Number
of Other Accounts Managed |
Total
Assets of Other Accounts Managed |
Number
of Other Accounts Managed Paying Performance Fees |
Total
Assets of Other Accounts Managed Paying Performance
Fees |
Aristotle
Atlantic |
|
|
|
|
|
|
|
|
| |
Thomas
M. Hynes, Jr. |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
130,598,614 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
1 |
| $ |
629,581,473 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
299 |
| $ |
1,242,895,235 |
|
|
0 |
|
| N/A |
|
Owen
Fitzpatrick |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
130,598,614 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
1 |
| $ |
629,581,473 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
299 |
| $ |
1,242,895,235 |
|
|
0 |
|
| N/A |
|
Brendan
O'Neill |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
130,598,614 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
1 |
| $ |
629,581,473 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
299 |
| $ |
1,242,895,235 |
|
|
0 |
|
| N/A |
|
Aristotle
Boston |
|
|
|
|
|
|
|
|
| |
David
M. Adams |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
1 |
| $ |
56,005,413 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
7 |
| $ |
1,096,165,541 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
142 |
| $ |
1,937,876,383 |
|
|
1 |
| $ |
132,802,437 |
| |
Jack
McPherson |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
1 |
| $ |
56,005,413 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
7 |
| $ |
1,096,165,541 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
142 |
| $ |
1,937,876,383 |
|
|
1 |
| $ |
132,802,437 |
| |
Aristotle
Capital |
|
|
|
|
|
|
|
|
| |
Howard
Gleicher |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
11 |
| $ |
16,674,238,098 |
|
|
1 |
| $ |
11,990,800,508 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other
Pooled Investment Vehicles |
17 |
| $ |
10,274,455,146 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
5,874 |
| $ |
25,395,050,425 |
|
|
3 |
| $ |
638,966,251 |
| |
Gregory
D. Padilla |
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
9 |
| $ |
16,564,482,889 |
|
|
1 |
| $ |
11,990,800,508 |
| |
Other
Pooled Investment Vehicles |
15 |
| $ |
9,571,276,677 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
4,959 |
| $ |
21,639,185,468 |
|
|
3 |
| $ |
638,966,251 |
| |
Geoffrey
S. Stewart |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
109,755,209 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
2 |
| $ |
703,178,469 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
909 |
| $ |
3,753,064,604 |
|
|
0 |
|
| N/A |
|
Sean
M. Thorpe |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
109,755,209 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
2 |
| $ |
703,178,469 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
909 |
| $ |
3,753,064,604 |
|
|
0 |
|
| N/A |
|
Aristotle
Pacific |
|
|
|
|
|
|
|
|
| |
C.
Robert Boyd |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
764,192,541 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
3 |
| $ |
134,528,021 |
|
| 1 |
| $ |
37,590,767 |
| |
Other
Accounts |
11 |
| $ |
10,612,275,714 |
|
| 8 |
| $ |
2,705,045,641 |
| |
J.P.
Leasure |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
480,495,166 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
3 |
| $ |
1,917,142,074 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
12 |
| $ |
3,676,763,795 |
|
|
8 |
| $ |
2,705,045,641 |
| |
Michael
Marzouk |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
4 |
| $ |
1,449,112,936 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
3 |
| $ |
1,917,142,074 |
|
|
0 |
|
| N/A |
|
Other
Accounts |
13 |
| $ |
3,740,677,736 |
|
| 8 |
| $ |
2,705,045,641 |
| |
Ying
Qiu |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
4 |
| $ |
1,197,409,048 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
1 |
| $ |
37,590,767 |
|
| 1 |
| $ |
37,590,767 |
| |
Other
Accounts |
11 |
| $ |
9,265,639,210 |
|
|
0 |
|
| N/A |
|
Brian
M. Robertson |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
2 |
| $ |
1,488,061,987 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
| N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
0 |
| N/A |
|
0 |
|
| N/A |
|
David
Weismiller |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
3 |
| $ |
972,617,665 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
| N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
8 |
| $ |
1,358,409,137.06 |
|
|
0 |
|
| N/A |
|
John
Brueggemann |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
1 |
| $ |
539,401,158 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
| N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
1 |
| $ |
84,726,979 |
|
|
0 |
|
| N/A |
|
PLFA |
|
|
|
|
|
|
|
|
| |
Howard
T. Hirakawa |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
11 |
| $ |
23,690,392,926 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Carleton
J. Muench |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
11 |
| $ |
23,690,392,926 |
|
|
0 |
|
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other
Pooled Investment Vehicles |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Edward
Sheng |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
11 |
| $ |
23,690,392,926 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Samuel
S. Park |
|
|
|
|
|
|
|
|
| |
Registered
Investment Companies |
11 |
| $ |
23,690,392,926 |
|
|
0 |
|
| N/A |
|
Other
Pooled Investment Vehicles |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Other
Accounts |
0 |
|
N/A |
|
0 |
|
| N/A |
|
Material
Conflicts of Interest
Actual
or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one investment
account. Portfolio managers who manage other investment accounts in addition to
the Fund or Funds(s) of the Trust in which the Manager acts as sub-adviser may
be presented with the following potential conflicts:
Aristotle
Pacific
Aristotle
Pacific may manage client assets with similar investment strategies, creating
the potential for conflicts of interest as the fees for managing client accounts
may differ from one another. As a registered investment adviser and a fiduciary,
Aristotle Pacific exercises due care to ensure that investment opportunities are
allocated equitably among all participating clients.
In
general, investment decisions for each client will be made independently from
those of other clients, with specific reference to the individual needs and
objectives of each client. Different account guidelines and/or differences
within particular investment strategies may lead to the use of different
investment practices for client accounts within a similar investment strategy.
In addition, Aristotle Pacific will not necessarily purchase or sell the same
securities at the same time or in the same proportionate amounts for all
accounts, particularly if different accounts have materially different amounts
of capital under management by Aristotle Pacific or different amounts of
investable cash available. As a result, although Aristotle Pacific manages
multiple accounts with similar or identical investment goals, or may manage
accounts with different objectives that trade in the same securities, the
portfolio management decisions relating to these accounts, and the performance
resulting from such decisions, may differ from account to account. Aristotle
Pacific has implemented policies and procedures to address trade allocation and
aggregation decisions. These policies and procedures seek to ensure fair and
equitable treatment of all participating clients over time. The policies and
procedures include compliance monitoring and oversight of allocation and
aggregation practices.
PLFA
From
time to time, a potential conflict of interest may arise between a portfolio
manager’s management of a Portfolio Optimization Fund, on the one hand, and
other Portfolio Optimization Funds or the Aristotle Underlying Funds on the
other hand. This might occur, for example, if an Aristotle Underlying Fund in
which multiple Portfolio Optimization Funds invest has limited capacity for
further investment; or if certain Aristotle Underlying Funds are more profitable
than others. PLFA has a process in place to address these types of
risks.
Aristotle
Capital
Aristotle
Capital may provide investment advisory services to individuals,
foundations/charitable organizations, corporations, pension plans, a private
fund and registered investment companies, such as mutual funds (together,
“clients”). An investment adviser has a fiduciary duty to act in the best
interests of each of its investment advisory clients and to place the interests
of its clients above those of itself. An adviser’s fiduciary duty also includes,
but is not limited to, providing full, fair and accurate disclosure of all
relevant facts and any potential or actual conflicts of interest, a duty of
loyalty and good faith, providing recommendations that are suitable, and seeking
best execution of all client transactions.
If
a particular transaction or situation does not cause a real or potential
conflict of interest, or if Aristotle Capital can establish appropriate
safeguards, Aristotle Capital may grant exceptions to the Compliance Manual’s
requirements.
Such
exceptions must be requested of and may be granted only by the Chief Compliance
Officer (CCO) or President.
Aristotle
Capital cannot guarantee that it will grant an exception in any particular
case.
Any
exception granted will be documented by the appropriate party along with the
reasons.
Aristotle
Boston
Aristotle
Boston may provide investment advisory services to individuals,
foundations/charitable organizations, corporations, pension plans and registered
investment companies, such as mutual funds (together, “clients”).
An
investment adviser has a fiduciary duty to act in the best interests of each of
its investment advisory clients and to place the interests of its clients above
those of itself. An adviser’s fiduciary duty also includes, but is not limited
to, providing full, fair and accurate disclosure of all relevant facts and any
potential
or actual conflicts of interest, a duty of loyalty and good faith, providing
recommendations that are suitable, and seeking best execution of all client
transactions.
If
a particular transaction or situation does not cause a real or potential
conflict of interest, or if Aristotle Boston can establish appropriate
safeguards, Aristotle Boston may grant exceptions to the Compliance Manual’s
requirements.
Such
exceptions must be requested of and may be granted only by the Chief Compliance
Officer (CCO) or President.
Aristotle
Boston cannot guarantee that it will grant an exception in any particular
case.
Any
exception granted will be documented by the appropriate party along with the
reasons.
Aristotle
Atlantic
Aristotle
Atlantic may provide investment advisory services to individuals,
foundations/charitable organizations, corporations, pension plans and registered
investment companies, such as mutual funds (together, “clients”).
An
investment adviser has a fiduciary duty to act in the best interests of each of
its investment advisory clients and to place the interests of its clients above
those of itself. An adviser’s fiduciary duty also includes, but is not limited
to, providing full, fair and accurate disclosure of all relevant facts and any
potential or actual conflicts of interest, a duty of loyalty and good faith,
providing recommendations that are suitable, and seeking best execution of all
client transactions.
If
a particular transaction or situation does not cause a real or potential
conflict of interest, or if Aristotle Atlantic can establish appropriate
safeguards, Aristotle Atlantic may grant exceptions to the Compliance Manual’s
requirements.
Such
exceptions must be requested of and may be granted only by the Chief Compliance
Officer (CCO) or Senior Partner on the Executive Board.
Aristotle
Atlantic cannot guarantee that it will grant an exception in any particular
case.
Any
exception granted will be documented by the appropriate party along with the
reasons.
Beneficial
Interest of Portfolio Managers
Portfolio
managers are not required to own shares of the Fund(s) that they manage on
behalf of the Trust. As of March 31, 2024, the portfolio managers
beneficially owned shares in the Funds that they manage as disclosed in the
table below. The ownership presented is of the Funds corresponding predecessor
fund, as none of the Funds were operational on March 31, 2024. In addition,
although the level of a portfolio manager’s securities ownership may be an
indicator of his or her confidence in a Fund’s investment strategy, it does not
necessarily follow that a portfolio manager who owns few or no securities has
any less confidence or is any less concerned about the applicable Fund’s
performance. As of March 31, 2024, none of the portfolio managers
beneficially owned shares in the Funds that they manage except as disclosed in
the table below. Portfolio managers are not required to own shares of the
Fund(s) that they manage on behalf of the Trust. In addition, although the level
of a portfolio manager’s securities ownership may be an indicator of his or her
confidence in a Fund’s investment strategy, it does not necessarily follow that
a portfolio manager who owns few or no securities has any less confidence or is
any less concerned about the applicable Fund’s performance. As of March 31,
2024, none of the portfolio managers beneficially owned shares in the Funds that
they manage except as disclosed in the table below. The following table sets
forth the dollar range of each portfolio manager’s ownership of the outstanding
shares of the Funds as of March 31, 2024.
Aristotle
Atlantic
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Fund
Managed and Owned |
Dollar
Range of Equity Securities Beneficially Owned |
Owen
Fitzpatrick |
Aristotle
Core Equity Fund |
Over
$1,000,000 |
Thomas
M. Hynes, Jr. |
Aristotle
Core Equity Fund |
Over
$1,000,000 |
Brendan
O'Neill |
Aristotle
Core Equity Fund
Aristotle
Growth Equity Fund |
$100,001
- $500,000
$50,001
- $100,000 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Aristotle
Boston
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Fund
Managed and Owned |
Dollar
Range of Equity Securities Beneficially Owned |
David
M. Adams |
Aristotle
Small Cap Equity Fund
Aristotle
Small/Mid Cap Equity Fund |
$100,001
- $500,000
$100,001
- $500,000 |
Jack
McPherson |
Aristotle
Small Cap Equity Fund
Aristotle
Small/Mid Cap Equity Fund |
$50,001
- $100,000
$100,001
- $500,000 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Aristotle
Capital
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Fund
Managed and Owned |
Dollar
Range of Equity Securities Beneficially Owned |
Howard
Gleicher |
Aristotle
International Equity Fund
Aristotle
Value Equity Fund
Aristotle/Saul
Global Equity Fund |
Over
$1,000,000
Over
$1,000,000
Over
$1,000,000 |
Gregory
D. Padilla |
Aristotle
Value Equity Fund
Aristotle/Saul
Global Equity Fund |
$100,001
- $500,000
$500,001
- $1,000,000 |
Sean
M. Thorpe |
Aristotle
International Equity Fund |
$100,001
- $500,000 |
Geoffrey
S. Stewart |
Aristotle
International Equity Fund |
$50,001
- $100,000 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Aristotle
Pacific
|
|
|
|
|
|
|
| |
Portfolio
Manager |
Fund
Managed and Owned |
Dollar
Range of Equity Securities Beneficially Owned |
C.
Robert Boyd |
Aristotle
High Yield Bond Fund |
$100,001
- $500,000 |
John
Brueggemann |
Aristotle
High Yield Bond Fund |
$50,001
- $100,000 |
J.P.
Leasure |
Aristotle
Floating Rate Income Fund |
$50,001
- $100,000 |
Michael
Marzouk |
Aristotle
Core Income Fund
Aristotle
Floating Rate Income Fund
Aristotle
Short Duration Income Fund
Aristotle
Strategic Income Fund |
$100,001
- $500,000
Over
$1,000,000
$50,001
- $100,000
$500,001
- $1,000,000 |
Ying
Qiu |
Aristotle
Core Income Fund
Aristotle
ESG Core Bond Fund
Aristotle
Short Duration Income Fund
Aristotle
Ultra Short Income Fund |
$10,001
- $50,000
$1
- $10,000
$10,001
- $50,000
$10,001
- $50,000 |
Brian
M. Robertson |
Aristotle
Core Income Fund
Aristotle
High Yield Bond Fund
Aristotle
Strategic Income Fund |
$500,001
- $1,000,000
$500,001
- $1,000,000
Over
$1,000,000 |
David
Weismiller |
Aristotle
Core Income Fund
Aristotle
ESG Core Bond Fund
Aristotle
Short Duration Income Fund
Aristotle
Strategic Income Fund
Aristotle
Ultra Short Income Fund |
$100,001
- $500,000
$10,001
- $50,000
$100,001
- $500,000
$1
- $10,000
$100,001
- $500,000 |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
FUND
TRANSACTIONS AND BROKERAGE
Investment
Decisions
Investment
decisions for the Trust and for the other investment advisory clients of the
Adviser, or applicable Manager, are made with a view to achieving their
respective investment goals. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved
(including the Trust). Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for other clients
at the same time. There may be circumstances when purchases or sales of
securities for one or more clients will have an adverse effect on other clients,
including a Fund.
It
also sometimes happens that the Adviser or Manager purchases or sells the same
security for two or more clients. In such instances, transactions in securities
will be allocated between the Fund and the Adviser’s or Manager’s other clients
in a manner deemed fair and reasonable by the Adviser or Manager. To the extent
any Fund seeks to acquire the same security at the same time as another Adviser
or Manager client, such Fund may not be able to acquire as large a portion of
such security as it desires, or it may have to pay a higher price for such
security. It is recognized that in some cases this could have a detrimental
effect on the price or value of the security insofar as a specific Fund is
concerned. The Adviser or Manager may, at its discretion, aggregate orders for
the same security for two or more clients, and then allocate purchases or sales
in an equitable manner, providing average prices to all such
clients.
Brokerage
and Research Services
The
Portfolio Optimization Funds invest primarily in their respective Underlying
Funds and do not incur commissions or sales charges in connection with
investments in the Aristotle Underlying Funds, but they may incur such costs if
they invest directly in other types of securities, and they bear such costs
indirectly through their investment in the Underlying Funds. Accordingly, the
following description is relevant for all Funds.
The
Adviser or Manager for a Fund places all orders for the purchase and sale of
securities, options, and futures contracts and other investments for a Fund
through a substantial number of brokers and dealers or FCMs selected at its
discretion. In executing transactions, the Adviser or Manager will seek to
obtain the best net results for a Fund taking into account such factors as price
(including the applicable brokerage commission or dollar spread), size of order,
the nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer involved,
the quality of the service, the difficulty of execution and operational
facilities of the firms involved, and the firm’s risk in positioning a block of
securities. In transactions on stock exchanges in the U.S., payments of
brokerage commissions are negotiated. In effecting purchases and sales of
securities in transactions on U.S. stock exchanges for a Fund, the Adviser or
Manager may pay higher commission rates than the lowest available when the
Adviser or Manager believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Adviser or Manager may be unable to
negotiate commission rates for these transactions. In the case of securities
traded on the OTC markets, there is generally no stated commission, but the
price includes an undisclosed commission or markup. Consistent with the policy
of obtaining the best net results, a portion of a Fund’s brokerage and futures
transactions, including transactions on a national securities exchange, may be
conducted through an affiliated broker, subject to compliance with the Trust’s
policies and applicable law. In addition, all Managers (including the Adviser)
that have day-to-day portfolio management responsibilities for Funds have
adopted policies regarding their duty to seek best execution for transactions
conducted on behalf of these Funds. These policies generally cover the selection
of brokers and dealers, order aggregation, allocation of orders, affiliated
transactions, and brokerage and research services (soft dollars), as
applicable.
There
is generally no stated commission in the case of debt securities, which are
traded in the OTC markets, but the price paid by a Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by a Fund includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. Transactions on U.S. stock exchanges and other agency
transactions involve the payment by a Fund of negotiated brokerage commissions.
Such commissions vary among different brokers. Also, a particular broker could
charge different commissions according to such factors as the difficulty and
size of the transaction. In the case of securities traded on some foreign stock
exchanges, brokerage commissions may be fixed and the Adviser or Manager may be
unable to negotiate commission rates for these transactions.
As
permitted by Section 28(e) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”), the Adviser or Manager may cause a Fund to pay a
broker-dealer, which provides “brokerage and research services” (as defined in
the 1934 Act) to the Adviser or Manager, a commission amount that exceeds the
amount charged by another broker-dealer because of the value of the brokerage
and research services provided. For many years, it has been a common practice in
the investment advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research services from
broker-dealers which execute transactions for the clients of such advisers.
Consistent with this practice, the Adviser or Manager for a Fund may receive
brokerage and research services from many broker-dealers with which the Adviser
or Manager places the Fund’s transactions. The Adviser or Manager for a Fund may
also receive research or research credits from brokers which are generated from
underwriting commissions when purchasing new issues of debt securities or other
assets for a Fund. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Adviser or Manager in advising its various clients (including the Trust),
although not all of these services are necessarily useful and of value in
managing a Fund within the Trust. The advisory fee paid by a Fund is not reduced
because the Adviser or Manager and its affiliates receive such
services.
As
noted above, the Adviser or Manager may purchase new issues of securities for a
Fund in underwritten fixed price offerings. In those situations, the underwriter
or selling group member may provide the Adviser or Manager with research in
addition to selling the securities (at the fixed public offering price) to the
Fund or other advisory clients. Because the offerings are conducted at a fixed
price, the ability to obtain research from a broker-dealer in this situation
provides knowledge that may benefit the Fund, or other advisory clients, and the
Adviser without incurring additional costs. These arrangements may not fall
within the safe harbor of Section 28(e) because the broker-dealer is considered
to be acting in a principal capacity in underwritten transactions. However, the
Financial Industry Regulatory Authority (“FINRA”) has adopted rules expressly
permitting broker-dealers to provide bona fide research to advisers in
connection with fixed price offerings under certain circumstances, although
compliance with these rules does not necessarily ensure compliance with all
federal securities laws. As a general matter in these situations, the
underwriter or selling group member will provide research credits at a rate that
is higher than that which is available for secondary market transactions.
For
the fiscal year ended March 31, 2024, the Funds paid the following in
brokerage commissions:
|
|
|
|
|
|
|
| |
Fund |
|
Brokerage
Commissions |
Aristotle
Core Equity Fund1 |
| $8,143
|
Aristotle
Core Income Fund |
|
$0 |
Aristotle
ESG Core Bond Fund |
|
$0 |
Aristotle
Floating Rate Income Fund |
| $144,848
|
Aristotle
Growth Equity Fund |
| $40,985
|
Aristotle
High Yield Bond Fund |
| $2,520
|
Aristotle
International Equity Fund1 |
| $33,013
|
Aristotle
Portfolio Optimization Aggressive Growth Fund |
| $23,533
|
Aristotle
Portfolio Optimization Conservative Fund |
| $14,880
|
Aristotle
Portfolio Optimization Growth Fund |
| $57,480
|
Aristotle
Portfolio Optimization Moderate Conservative Fund |
| $20,463
|
Aristotle
Portfolio Optimization Moderate Fund |
| $59,184
|
Aristotle
Short Duration Income Fund |
|
$0 |
Aristotle
Small Cap Equity Fund1 |
| $8,608
|
Aristotle
Small/Mid Cap Equity Fund |
| $45,081
|
Aristotle
Strategic Income Fund |
|
$0 |
Aristotle
Ultra Short Income Fund |
|
$0 |
Aristotle
Value Equity Fund1 |
| $26,758
|
Aristotle/Saul
Global Equity Fund1 |
| $568
|
1 As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. Brokerage Commissions shown include the fees paid during the period
from the Fund’s commencement of operations through March 31, 2024.
For
the fiscal year ended March 31, 2024, the Funds, except those listed below,
did not acquire or hold any securities of their Regular Broker-Dealers and/or
their Regular Broker-Dealers’ parent company.
|
|
|
|
|
|
|
| |
Name
of Fund |
Broker-Dealer |
Amount |
Aristotle
Core Equity Fund1 |
JP
Morgan Chase & Co. |
$12,048,445
|
1 As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. The Amount shown include the securities acquired or held during the
period from the Fund’s commencement of operations through March 31,
2024.
Portfolio
Turnover
For
reporting purposes, each Fund’s portfolio turnover rate is calculated by
dividing the value of the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of portfolio securities
owned by the Fund during the fiscal year. In determining such portfolio
turnover, generally long-term securities are included and the purchase and sale
of certain investments such as most derivative instruments, investments made on
a shorter-term basis or instruments with a maturity of one year or less at the
time of investment are excluded. A 100% portfolio turnover rate would occur, for
example, if all of the securities in a Fund (other than short-term securities)
were replaced once during the fiscal year. The portfolio turnover rate for each
of the Funds will vary from year to year, depending on market conditions and
trading opportunities. Such changes do not necessarily reflect a change in
long-term trading strategies of the Managers. Any changes in portfolio turnover
rates which are less than 100% change from the prior year’s rates are not
considered significant. Changes in Managers and investment personnel and
reorganizations of Funds may result in the sale of portfolio securities, which
may increase trading costs and the portfolio turnover for the affected Funds.
Significant changes in turnover rates may occur in certain Funds for reasons
other than market conditions and trading opportunities. All Funds may engage in
active and frequent trading which could result in higher trading costs and
reduce performance, and may also increase a Fund's realized capital gains or
losses, which may affect the taxes you pay as a shareholder.
In
addition, many of the Funds are Aristotle Underlying Funds of the Portfolio
Optimization Funds. As a result, changes to the allocations of the Portfolio
Optimization Funds may result in the transfer of assets from one Aristotle
Underlying Fund to another. These changes, as well as changes in Managers and
investment personnel and reorganizations of the Aristotle Underlying Funds, may
result in the purchase or sale of portfolio securities, which may increase
trading costs and the portfolio turnover for the affected Aristotle Underlying
Funds. Significant changes in turnover rates may occur in certain Aristotle
Underlying Funds for reasons other than market conditions and trading
opportunities.
Disclosure
of Portfolio Holdings
The
Trust publicly discloses portfolio holdings periodically on the Trust’s website.
The website address is aristotlefunds.com. Unaudited month-end holdings for each
Fund are generally posted approximately three to five business days following
month-end. There could be delays in reporting month-end holdings for certain
Funds as noted on the website (“lag time”). The Trust reserves the right to post
holdings for any Fund more frequently than monthly but may subsequently resume
monthly posting. Holdings information will remain available on the Trust’s
website until the next period’s holdings are posted or longer if required by
law. Portfolio holdings will also be included in periodic filings with the
SEC.
It
is the policy of the Trust to maintain the confidentiality of non-public
portfolio holdings information and not to divulge non-public portfolio holdings
information to other parties except for legitimate business purposes and then
only in accordance with the Trust’s disclosure of portfolio holdings policy and
related procedures (“Disclosure of Portfolio Holdings Policy”). The Disclosure
of Portfolio Holdings Policy is meant to protect the interests of the Trust’s
shareholders and to address potential conflicts of interest that could arise
between the interests of the Trust’s shareholders and those of a Trust and
Adviser service provider, including the Adviser, a Manager, the Distributor or
their affiliates.
More
current, non-public holdings information is available to certain service
providers in order for such service providers to fulfill their contractual
obligations to (or on behalf of) the Trust and Adviser service providers. Such
service providers, including (but not limited to) the Adviser, each Manager, the
Trust’s custodian, auditors, counsel and Independent Trustees’ counsel, can
receive or have access to non-public portfolio holdings without any lag time on
an as-needed basis. Each of these service providers has entered into an
agreement with the Trust or Adviser whereby the service provider has a
contractual duty to maintain the confidentiality of such non-public information,
as well as not to trade on such information. In addition to the Adviser and each
Manager, these service providers include:
|
|
|
|
| |
Broadridge
Financial Solutions, Inc. |
Tait,
Weller & Baker LLP |
Foreside
Financial Services, LLC |
U.S.
Bancorp Fund Services, LLC |
Ropes
& Gray LLP |
U.S.
Bank N.A. |
Securities
Class Actions Services, LLC (SCAS) |
|
The
release of portfolio holdings information to a party, including the parties
listed above, in advance of its release to all shareholders or the general
public is permitted by the Disclosure of Portfolio Holdings Policy only when (i)
the Trust, the Adviser, or the Manager or other Trust service provider releasing
the information has a legitimate business purpose for releasing the information
to the recipient, (ii) the release of information is believed not to violate the
antifraud provisions of the federal securities laws or the Adviser’s or
applicable Manager’s fiduciary duties, and (iii) the recipient is subject to a
contractual duty of confidentiality with substantially the same terms and
conditions as that of a Trust service provider, including a duty not to trade on
the information (which duty may be encompassed by broader language, such as a
duty to comply with anti-fraud provisions of, or applicable provisions of,
federal securities laws), provided, however that the Adviser or Manager will not
trade on such information in a manner inconsistent with applicable law or
inconsistent with any internal policy adopted by the firm to govern trading by
its employees.
In
addition, when the Trust, the Adviser or Managers purchase and sell securities
through broker-dealers, engage in OTC trading with certain counterparties
(i.e.
swap dealers), request bids on securities, or obtain price quotations on
securities, the Trust may disclose one or more of its holdings. Companies which
clear and settle trades may also have access to portfolio holdings information.
The Trust has not entered into formal confidentiality agreements in connection
with such situations; however, the Trust would not continue to conduct business
with an entity believed to be misusing the disclosed information.
The
Trust, or its duly authorized service providers, can disclose portfolio holdings
to analysts, rating agencies, or other parties, the day after it has been posted
to the Trust’s website or immediately after it has been filed with the SEC in a
filing requiring the portfolio holdings to be included. There are no specific
individuals or categories of individuals who authorize the release of portfolio
holdings.
If
the Trust or one of its duly authorized service providers seeks to disclose
portfolio holdings to analysts, rating agencies, pricing services, trade and
settlement or administrative services companies or any other parties prior to
the time such information is made public, such disclosure would be conditioned
on the recipient (e.g.,
a service provider to a Trust service provider) agreeing in writing to treat
such portfolio holdings as confidential under substantially the same terms and
conditions as that of the Trust’s service providers.
The
Trust relies on the contractual obligations of the Trust’s service providers to
maintain confidentiality of portfolio holdings information, and currently does
not independently monitor the use of such information by service providers. The
Trust has an established process whereby Managers are asked to provide written
confirmation as to their compliance with the Disclosure of Portfolio Holdings
Policy.
No
compensation is received by the Trust or the Adviser in connection with the
disclosure of portfolio holdings information.
Notwithstanding
anything in this section or the Disclosure of Portfolio Holdings Policy, the
Trust’s Board, its General Counsel or its CCO may, on a case-by-case basis,
authorize disclosure of the Trust’s portfolio securities, provided that, in
their judgment, such disclosure is not inconsistent with the best interests of
shareholders and, unless otherwise required by law, subject to the
confidentiality
requirements set forth in the Disclosure of Portfolio Holdings Policy. Each may
also impose additional restrictions on the dissemination of portfolio
information beyond those found in the Disclosure of Portfolio Holdings
Policy.
The
Trust’s CCO receives reports of violations of the Disclosure of Portfolio
Holdings Policy by the Trust, the Adviser, its service providers, and Managers.
If such a report is received, and if the CCO, in the exercise of his or her
duties, deems that such violation constitutes a “Material Compliance Matter”
within the meaning of Rule 38a-1 under the 1940 Act, he or she will report it to
the Trust’s Board, as required by Rule 38a-1.
NET
ASSET VALUE (“NAV”)
When
you buy shares, you pay the NAV plus any applicable sales charge. When you sell
shares, you receive the NAV minus any applicable Contingent Deferred Sales
Charge (“CDSC”). Exchange orders within the Funds are effected at NAV. Each
Fund’s shares are purchased, sold or exchanged at the Fund’s NAV next calculated
after a request to buy, sell or exchange shares is received by the Trust or its
designee in proper form. However, a Fund may, subject to approval by the Board,
pay for a sale or exchange, in whole or in part, by a distribution of
investments from a Fund, in lieu of cash, in accordance with applicable
rules.
The
calculation of each Fund’s NAV is discussed further in the
Prospectuses.
The
value of each security or other investment is the amount which a Fund might
reasonably expect to receive for the investment upon its current sale in the
ordinary course of business. For purposes of calculating the NAV, the value of
investments held by each Fund is based primarily on pricing data obtained from
various sources approved by the Board or its delegate. Valuation of investments
held by the Funds is discussed in the Prospectuses.
DISTRIBUTION
OF TRUST SHARES
Distributor
and Multi-Class Plan
Foreside
Financial Services, LLC, serves as the principal underwriter and distributor
(the “Distributor”) of the continuous offering of each class of the Trust’s
shares pursuant to a Distribution Agreement (the “Distribution Agreement”) with
the Trust, which is subject to annual approval by the Trust’s Board or the vote
of a majority of the outstanding voting securities of a Fund, in accordance with
Section 15 of the 1940 Act. The Distributor, located at Three Canal Plaza, Suite
100, Portland, ME 04101, is a broker-dealer registered with the SEC. The
Distribution Agreement is terminable with respect to a Fund or class without
penalty, at any time, by the Fund or class by not more than 60 days nor less
than 30 days written notice to the Distributor, or by the Distributor upon not
more than 60 days nor less than 30 days written notice to the Trust. The
Distributor is not obligated to sell any specific amount of the Trust’s shares.
The Trust bears all expenses in connection with the offering of shares and
communications with shareholders of the Funds, including but not limited to fees
and disbursements of its counsel and independent accountants; the costs and
expenses of the preparation, filing, printing and mailing of Registration
statements and related marketing materials; costs and expenses of the
preparation, printing and mailing of annual and interim reports, proxy materials
and other communications to shareholders of the Funds; and fees required in
connection with the offer and sale of shares. The Distributor shall bear the
expenses of registration or qualification of the Distributor as a dealer or
broker and under federal or state laws and the expenses of continuing such
registration or qualification. The Distribution Agreement will continue in
effect with respect to each Fund and each class of shares thereof for successive
one-year periods, provided that each such continuance is specifically approved
(i) by the vote of a majority of the Trustees or (ii) by the vote of a majority
of the outstanding voting securities of a Fund, in accordance with Section 15 of
the 1940 Act. If the Distribution Agreement is terminated (or not renewed) with
respect to a Fund or one or more of the classes thereof, it will continue in
effect with respect to any class of any Fund as to which it has not been
terminated (or has been renewed).
The
Trust currently offers Class A, Class C, Class I, Class R6 and Class I-2 shares
(collectively, the “Shares”). Although certain Funds may offer multiple classes
of shares, not all Funds offer all share classes discussed herein. Certain share
classes are limited to eligible investors. Investors who held an eligible
account for a share class at time of purchase but may no longer be eligible to
purchase such share class may continue to purchase those shares. Please refer to
the Prospectuses for more information on the share classes offered by a
particular Fund.
Class
A, Class C, Class I and Class I-2 shares of the applicable Funds are generally
offered through firms which are members of FINRA, and which have selling or
dealer agreements with the Adviser (each, a “selling group member”). Class A,
Class I, Class R6 and Class I-2 shares are offered through the Fund’s
Distributor to employer sponsored retirement and benefit plans pursuant to a
separate agreement with the Trust’s administrator and Distributor.
Under
the Multi-Class Plan adopted by the Trust, shares of each class of each Fund
represent an equal pro rata interest in such Fund and, generally, have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(i) each class has a different designation; (ii) each class bears any
class-specific expenses allocated to it; and (iii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements, and each class has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
Each
class of shares bears specific expenses allocated to such class, such as
expenses related to the distribution and/or shareholder servicing of such class.
In addition, each class may, at the Trustees’ discretion, also pay a different
share of other expenses, not including advisory or custodial fees or other
expenses related to the management of each Fund’s assets, if these expenses are
actually incurred in a different amount by that class, or if the class receives
services of a different kind or to a different degree than the other
classes.
All other expenses are allocated to each class on the basis of the NAV of that
class in relation to the NAV of the particular Fund. In addition, each class may
have a differing sales charge structure, and differing exchange and conversion
features.
Initial
Sales Charges and Contingent Deferred Sales Charges
As
described in the Prospectus, the Funds are grouped into different categories for
determining initial sales charges, which declines as the amount of the purchase
reaches defined levels. The initial sales charge may be waived or reduced for
certain purchases, as described in the Prospectus. A CDSC is imposed upon
certain redemptions of Class A and Class C shares, subject to certain waivers
described in the Prospectus.
Category
I: Portfolio Optimization Funds
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|
| |
|
| Maximum
Sales Charge (Load) |
| |
Class
A |
| Investment |
| Front-end
Charge |
|
Amount
Reallowed to Dealers1 |
|
|
Under
$50,000 |
| 5.50% |
| 4.75% |
|
|
$50,000
to under $100,000 |
| 4.75% |
| 4.00% |
|
|
$100,000
to under $250,000 |
| 3.75% |
| 3.00% |
|
|
$250,000
to under $500,000 |
| 3.00% |
| 2.50% |
|
|
$500,000
to under $1,000,000 |
| 2.10% |
| 1.60% |
|
|
$1,000,000
and over2 |
| 0.00% |
|
0.00%3 |
1 The
Distributor will also pay selling group members an annual servicing fee (through
a trail commission) of 0.25% of the amount of Class A assets. Trail commission
is paid quarterly, unless other arrangements have been mutually agreed to
between the Adviser and the selling group member. For any Class A purchases of
$1,000,000 or more of Category I Funds, the annual servicing fee will not begin
to accumulate and pay until the 1st
anniversary date of the trade. The Distributor receives a distribution and
service fee from the Fund of 0.25% of Class A assets pursuant to the
Distribution and Service Plan (12b-1 plan).
2 For
purchases in which the account value totals $1,000,000 or more, there is a CDSC
of 1% (on the shares for which a front-end sales charge was not paid) if sold
(redeemed) within 1 year of purchase.
3 The
Distributor will pay selling group members a sales commission out of its own
assets based upon the following tiered schedule of the amount invested in Class
A shares for Category I Funds. Commissions are based on cumulative investments
with no annual reset.
Category
II: Aristotle Core Equity Fund, Aristotle Core Income Fund, Aristotle Growth
Equity Fund, Aristotle High Yield Bond Fund, Aristotle International Equity
Fund, Aristotle Small Cap Equity Fund, Aristotle Small/Mid Cap Equity Fund,
Aristotle Strategic Income Fund, Aristotle Value Equity Fund and Aristotle/Saul
Global Equity Fund.
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|
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|
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|
|
| |
|
| Maximum
Sales Charge (Load) |
| |
Class
A |
| Investment |
| Front-end
Charge |
|
Amount
Reallowed to Dealers1 |
|
| Under
$100,000 |
| 4.25% |
| 3.75% |
|
| $100,000
to under $250,000 |
| 3.50% |
| 3.25% |
|
| $250,000
to under $500,000 |
| 2.25% |
| 2.00% |
|
|
$500,000
and over2 |
| 0.00% |
|
0.00%3 |
1 The
Distributor will also pay selling group members an annual servicing fee (through
a trail commission) of 0.25% of the amount of Class A assets, out of its own
assets. Trail commission is paid quarterly, unless other arrangements have been
mutually agreed to between the Adviser and the selling group member. For any
Class A purchases of $500,000 or more of Category II Funds, the annual servicing
fee will not begin to accumulate and pay until the 1st
anniversary date of the trade. The Distributor receives a distribution and
service fee from the Fund of 0.25% of Class A assets pursuant to the
Distribution and Service Plan (12b-1 plan).
2 For
purchases in which the account value totals $500,000 or more, there is a CDSC of
1% (on the shares for which a front-end sales charge was not paid) if sold
(redeemed) within 1 year of purchase.
3 The
Distributor will pay selling group members a sales commission out of its own
assets based upon the following tiered schedule of the amount invested in Class
A shares of this Category: for Aristotle Small/Mid Cap Equity Fund and Aristotle
Small Cap Equity Fund, 1% for $500,000 or more; for Aristotle Core Income Fund,
Aristotle High Yield Bond Fund and Aristotle Strategic Income Fund, 1% for
$500,000 to $4 million and thereafter 0.50% for amounts over $4 million.
Commissions are based on cumulative investments with no annual
reset.
Category
III: Aristotle Floating Rate Income Fund and Aristotle Short Duration Income
Fund
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| |
|
| Maximum
Sales Charge (Load) |
| |
Class
A |
| Investment |
| Front-end
Charge |
|
Amount
Reallowed to Dealers
|
|
| Under
$100,000 |
| 3.00% |
| 2.50% |
|
| $100,000
to under $250,000 |
| 2.25% |
| 1.75% |
|
| $250,000
to under $500,000 |
| 1.50% |
| 1.25% |
|
|
$500,000
and over2 |
| 0.00% |
|
0.00%3 |
1 The
Distributor will also pay selling group members an annual servicing fee (through
a trail commission) of 0.25% of the amount of Class A assets, out of its own
assets. Trail commission is paid quarterly, unless other arrangements have been
mutually agreed to between the Adviser and the selling group member. For any
Class A purchases of $500,000 or more of Category II Funds, the annual servicing
fee will not begin to accumulate and pay until the 1st anniversary date of the
trade. The Distributor receives a distribution and service fee from the Fund of
0.25% of Class A assets pursuant to the Distribution and Service Plan (12b-1
plan).
2 For
purchases in which the account value totals $500,000 or more, there is a CDSC of
1% (on the shares for which a front-end sales charge was not paid) if sold
(redeemed) within 1 year of purchase.
3 The
Distributor will pay selling group members a sales commission out of its own
assets based upon the following tiered schedule of the amount invested in Class
A shares of this Category: for Aristotle Floating Rate Income Fund, 1% for
$500,000 to $4 million and thereafter; 0.50% for amounts over $4 million and for
Aristotle Short Duration Income Fund, 0.75% for $500,000 to $4 million and
thereafter 0.50% for amounts over $4 million. Commissions are based on
cumulative investments with no annual reset.
Category
IV: Aristotle Ultra Short Income Fund
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| |
|
| Maximum
Sales Charge (Load) |
| |
Class
A |
| Investment |
| Front-end
Charge |
|
Amount
Reallowed to Dealers
|
|
| N/A |
| None |
| None |
1 The
Distributor will pay selling group members an annual servicing fee (through a
trail commission) of 0.25% of the amount of Class A assets, out of its own
assets. Trail commission is paid quarterly, unless other arrangements have been
mutually agreed to between the Adviser and the selling group member. The
Distributor receives a distribution and service fee from the Fund of 0.25% of
Class A assets pursuant to the Distribution and Service Plan (12b-1
plan).
For
All Applicable Funds
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|
|
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|
|
|
|
| |
|
|
|
| Contingent
Deferred Sales
Charge
(Load) (CDSC) |
Class
C |
| Maximum
Sales Charge (Load) |
| Years
After Purchase: |
| CDSC
on Shares
Being
Sold: |
|
|
No
initial sales charge (load)1 |
| 1st |
| 1.00% |
1 The
Distributor will pay selling group members a sales commission and first year
servicing fee out of its own assets of 1% of the amount invested. The Adviser
will also pay selling group members a sales commission and servicing fee
(through a trail commission) out of its own assets of 1.0% of the Class C
assets. Trail commission is paid quarterly beginning in the thirteenth month,
unless other arrangements have been mutually agreed to between the Adviser and
the selling group member. The Distributor receives a distribution fee of 0.75%
and a service fee of 0.25% of Class C assets from the Fund pursuant to the
Distribution and Service Plan (12b-1 Plan). Class C shares automatically convert
to Class A shares after a holding period of six years.
|
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|
|
| |
Class
I |
| Maximum
Sales Charge (Load) |
| Contingent
Deferred Sales
Charge
(Load) (CDSC) |
|
|
No
initial sales charge (load)1 |
| None |
1 There
is no front-end or trail commission.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Class
I-2 |
| Maximum
Sales Charge (Load) |
| Contingent
Deferred Sales
Charge
(Load) (CDSC) |
|
|
No
initial sales charge (load)1 |
| None |
1 There
is no front-end or trail commission.
|
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|
|
|
|
|
|
|
|
|
|
|
| |
Class
R6 |
| Maximum
Sales Charge (Load) |
| Contingent
Deferred Sales
Charge
(Load) (CDSC) |
|
|
No
initial sales charge (load)1 |
| None |
1 There
is no front-end or trail commission.
Each
Fund receives the entire NAV of all its shares sold. The Distributor receives
the applicable sales charge on sales of Class A shares from which it allows
discounts from the applicable public offering price to dealers, which discounts
are uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above tables. Upon notice to all
dealers with whom it has sales agreements, the Distributor does not keep these
sales charges for profit but may reallow to dealers up to the full applicable
sales charge, as shown in the above table, or may establish other sales programs
during periods and for transactions specified in such notice and such
reallowances may be based upon attainment of minimum sales levels.
In
certain cases described in the Prospectus, the CDSC is waived on redemptions of
Class A or Class C shares for certain classes of individuals or entities on
account of (i) the fact that the Fund’s sales-related expenses are lower for
certain of such classes than for classes for which the CDSC is not waived, (ii)
waiver of the CDSC with respect to certain of such classes is consistent with
certain policies under the Code concerning the favored tax treatment of
accumulations, or (iii) with respect to certain of such classes, considerations
of fairness, and competitive and administrative factors.
The
Distributor did not retain any amount in sales charges during the fiscal year
ended March 31, 2024.
Distribution
and Service Plan for Class A and Class C Shares
Pursuant
to the Class A and Class C Distribution and Service Plan (the “Plan”), in
connection with the distribution of Shares of the Trust and in connection with
services rendered to the shareholders of the Trust and the maintenance of
shareholder accounts, the Distributor receives certain distribution and/or
servicing fees from the Funds. Subject to the percentage limitations on these
distribution and servicing fees set forth below, the distribution and servicing
fees shall be paid with respect to services rendered and expenses borne in the
past with respect to the Shares as to which no distribution and servicing fees
were paid on account of such limitations. The Distributor pays (i) all or a
portion of the distribution fees it receives from the Funds to selling group
members, and (ii) all or a portion of the servicing fees it receives from the
Funds to selling group members, certain banks and other financial
intermediaries, in both cases subject to compensation schedules which is based
on the amount of Shares held by customers of such brokers, banks or other
financial intermediaries.
The
Distributor makes distribution and servicing payments to selling group members,
certain banks and other financial intermediaries in connection with the sale of
Shares. In the case of Class C shares, these parties are also compensated based
on the amount of the front-end sales charge reallowed by the Distributor, except
for Class A shares in cases where such shares are sold without a front-end sales
charge (although the Adviser may pay brokers additional compensation in
connection with sales of Class A shares without a sales charge). In the case of
Class I shares and Class R6 shares, no dealer compensation, marketing support
payments, or sub-transfer agency fees are paid from Fund assets on sales of
Class I shares and Class R6 shares. Pursuant to the Distribution Agreement with
the Trust, with respect to each Fund’s Shares, the Distributor bears various
other promotional and sales related expenses, including the cost of printing and
mailing prospectuses to persons other than current shareholders.
The
Plan was adopted pursuant to Rule 12b-l under the 1940 Act. The Plan is the type
known as “compensation” plan. This means that, although the Trustees of the
Trust are expected to take into account the expenses of the Distributor in their
periodic review of the Plan, the fees are payable to compensate the Distributor
for services rendered even if the amount paid exceeds the Distributor’s
expenses. The Distributor does not retain Rule 12b-1 fees for profit. Instead,
it holds these fees in retention for present and future distribution related
expenses. The Adviser compensates the Distributor for certain distribution
related activities. The distribution and service fees applicable to the Shares
typically are spent by the Distributor on any activities or expenses primarily
intended to result in the sale of Shares, including, but not limited to, costs
of payments, including incentive compensation to, the employees of, agents for,
and consultants to the Distributor or any other broker-dealers that engage in
distribution of Shares; payments made to, and expenses of, persons who provide
support services in connection with the distribution of a Fund’s shares or
maintenance of shareholder accounts, including without limitation personnel,
office space and equipment, telephone facilities, processing shareholder
transactions, and any other shareholder transactions; costs relating to the
formulation and implementation of marketing and promotional activities,
including without limitation direct mail promotions and television, radio,
newspaper, magazine, and other mass media advertising; costs of printing and
distributing prospectuses, statements of additional information, and reports of
the Funds to prospective shareholders of a Fund; costs of preparing, printing,
and distributing sales literature pertaining to a Fund; and costs involved in
obtaining information, analyses, and reports with respect to marketing and
promotional activities.
The
Distributor makes payments to brokers who have selling agreements with the funds
(and with respect to servicing fees only, to certain banks and other financial
intermediaries) of up to the following percentages annually of the average daily
net assets attributable to shares in the accounts of their customers or
clients:
|
|
|
|
|
|
|
|
|
|
| |
| Servicing Fee |
| Distribution
Fee |
Class
A1 |
up
to 0.25%1 |
|
up
to 0.25%1 |
Class
C |
0.25% |
| 0.75% |
Class
I, Class I-2 and Class R62 |
None |
| None |
1 Class
A shares bear a 0.25% distribution and service fee. Any or all of that fee may
be used entirely for servicing or distribution. The total servicing and
distribution fee will never exceed 0.25%.
2 Class
I, Class I-2 and Class R6 shares do not charge service or distribution
fees.
In
addition, the Adviser from time to time may pay marketing support or other fees
or incentives to selected selling group members in connection with the sale or
servicing of any class of shares of the Funds, except for Class I shares and
Class R6 shares of the Funds. On some occasions, such bonuses, fees or
incentives may be conditioned upon the sale of a specified minimum dollar amount
of the shares of a Fund and/or all of the Funds together or a particular class
of shares, during a specific period of time. The Trust, AIS or its affiliates
may also pay selling group members and other intermediaries for transfer agency
and other services provided through omnibus account arrangements or networked
accounts.
The
Plan will be terminated with respect to any Fund or any class to which the Plan
relates by vote of the Trustees, by vote of a majority of the Independent
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the “Rule 12b-1 Trustees”), or by vote
of a majority of the outstanding shares of the Fund, or the relevant class of
that Fund. Any change in any Plan that would materially increase the cost to the
class of shares of any Fund to which the Plan relates must be approved by (i) a
vote of a majority of the outstanding shares of the affected class(es) of that
Fund, and (ii) a majority of both the Trust’s Board and the Rule 12b-1 Trustees.
The Distributor is required to submit to the Trustees quarterly written reports
of such costs and the purposes for which such costs have been incurred. Each
Plan can be amended by (i) a vote of a majority of the outstanding shares of the
class(es) of shares of the Fund affected, if required under Rule 12b-1 and (ii)
vote of the Rule 12b-1 Trustees. As long as the Plan are in effect, selection
and nomination of those Trustees who are not interested persons of the Trust
shall be committed to the discretion of such Independent Trustees.
The
Plan shall continue in full force and effect as to each of the Class A and the
Class C shares of the Funds for so long as such continuance is specifically
approved at least annually.
If
a Plan is terminated (or not renewed) with respect to one or more Funds or
classes of shares, it will continue in effect with respect to any class of any
Fund as to which it has not been terminated (or has been renewed).
For
the fiscal year ended March 31, 2024, the Trust paid the Distributor the
following with respect to the Funds:
|
|
|
|
|
|
|
| |
Fund |
|
Distributor
Fees Paid |
Aristotle
Core Equity Fund1 |
| $30 |
Aristotle
Core Income Fund |
| $467,315 |
Aristotle
ESG Core Bond Fund |
| $0 |
Aristotle
Floating Rate Income Fund |
| $1,664,073 |
Aristotle
Growth Equity Fund |
| $179 |
Aristotle
High Yield Bond Fund |
| $21,787 |
Aristotle
International Equity Fund1 |
| $6 |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
| $786,565 |
Aristotle
Portfolio Optimization Conservative Fund |
| $493,747 |
Aristotle
Portfolio Optimization Growth Fund |
| $1,928,625 |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
| $622,992 |
Aristotle
Portfolio Optimization Moderate Fund |
| $2,161,982 |
Aristotle
Short Duration Income Fund |
| $518,274 |
Aristotle
Small Cap Equity Fund1 |
| $4,713 |
Aristotle
Small/Mid Cap Equity Fund |
| $63,444 |
Aristotle
Strategic Income Fund |
| $962,432 |
|
|
|
|
|
|
|
| |
Fund |
|
Distributor
Fees Paid |
Aristotle
Ultra Short Income Fund |
| $820 |
Aristotle
Value Equity Fund1 |
| $35 |
Aristotle/Saul
Global Equity Fund1 |
| $5 |
1 As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. The Distributor Fees Paid include the fees paid during the period from
the Fund’s commencement of operations through March 31, 2024.
The
Trustees believe that the Plan will provide benefits to the Trust. The Trustees
believe that the Plan will result in greater sales and/or fewer redemptions of
Fund shares, although it is impossible to know for certain the level of sales
and redemptions of Fund shares that would occur in the absence of the Plan or
under alternative distribution and servicing schemes. Although the Trust’s
expenses are essentially fixed, the Trustees believe that the effect of the Plan
on sales and/or redemptions may benefit the Funds by reducing Fund expense
ratios and/or by affording greater flexibility to Managers. From time to time,
expenses of the Distributor incurred in connection with the sale of any class of
shares of the Funds, and in connection with the servicing of shareholders of the
Funds and the maintenance of shareholder accounts, may or may not exceed the
distribution and servicing fees collected by the Distributor. The Trustees
consider such unreimbursed amounts or profits, among other factors, in
determining whether to cause the Funds to continue payments of distribution and
servicing fees in the future with respect to each class of shares.
Independent
financial intermediaries unaffiliated with Aristotle or its affiliates may
perform administrative services and/or transfer agency functions with respect to
applicable clients whose assets may be invested in the Funds. These
administrative services and transfer agency functions, normally provided by the
Trust’s Administrator or the Funds’ transfer agent and/or sub-administrator
(“Service Providers”) directly to Fund shareholders, may include, among other
services, acting as shareholder of record, processing purchase and redemption
orders, answering questions, establishing and maintaining individual account
records (e.g.,
sub-accounting, cost basis reporting, beneficial owner account statements), and
delivering account statements, applicable tax forms, and proxy materials to
beneficial owners. Aristotle may pay these amounts out of its own resources to
compensate or reimburse such unaffiliated entities for the provision of these
services and functions, which Aristotle or the Funds’ Service Providers normally
would perform.
Distribution
and Servicing Arrangements
The
Adviser or an affiliate may pay expense allowances and reimbursements and
training allowances. Such payments may offset the selling group member’s
expenses in connection with activities that it would be required to perform in
any event, such as educating personnel and maintaining records. The Adviser may
also make payments to certain firms that sell shares of the funds in connection
with client maintenance support, statement preparation and transaction
processing. The types of payments the Adviser may make include, among others,
payment of ticket charges per purchase or exchange orders placed by a financial
intermediary, payment of networking fees in connection with certain mutual fund
trading systems, or payments for ancillary services such as setting up funds on
a firm’s mutual fund trading system. Registered representatives may also receive
non-cash compensation such as expense-paid educational or training seminars
involving travel within and outside the U.S. or promotional
merchandise.
The
Adviser or its affiliates may provide financial assistance to firms that enable
the Adviser to participate in and/or present at conferences or seminars, sales
or training programs for invited registered representatives and other employees,
client entertainment, client and investor events, and other firm-sponsored
events, and travel expenses, including lodging incurred by registered
representatives and other employees in connection with client prospecting,
retention and due diligence trips. Other compensation may be offered to the
extent not prohibited by federal or state laws or any self-regulatory agency,
such as the FINRA. The Adviser may make payments for entertainment events they
deem appropriate, subject to the Adviser’s guidelines and applicable law. These
payments may vary depending upon the nature of the event or the
relationship.
The
Adviser and its affiliates may have other relationships with firms relating to
the provisions of services to the funds, such as providing omnibus account
services, transaction services, or effecting portfolio transactions for funds.
If a firm provides these services, the investment adviser or the funds may
compensate the firm for these services. In addition, a firm may have other
compensated or uncompensated relationships with the investment adviser or its
affiliates that are not related to the funds.
Portfolio
managers may, from time to time, bear all or a portion of the expenses of
conferences or meetings sponsored by AIS that are attended by, among others,
registered representatives of the Adviser, who would receive information and/or
training regarding the Funds of the Trust and their management by the Managers.
Other persons may also attend all or a portion of any such conferences or
meetings, including directors, officers and employees of AIS or the officers and
Trustees of the Trust, and spouses/guests of the foregoing. The Trust’s Board
may hold meetings concurrently with such a conference or meeting. The Trust pays
for the expenses of the meetings of its Board, including the pro rata share of
expenses for attendance by the Trustees at the concurrent conferences or
meetings sponsored by AIS. Additional expenses and promotional items may be paid
for by AIS and/or Managers.
Purchases,
Redemptions, Exchanges and Conversions
Purchases,
exchanges, and redemptions of Class A, Class C, Class I, Class R6 and Class I-2
shares are discussed in the Prospectus and that information is incorporated
herein by reference.
The
Funds have adopted a policy with respect to limitations on exchanges which is
discussed in the Prospectus.
Shares
of any Fund are redeemed on any day the Trust is open for business upon receipt
of a request for redemption. Redemptions are effected at the per share NAV next
determined after receipt of the redemption request, pursuant to the timing
discussed in further detail in the Prospectus. Redemption proceeds will
ordinarily be paid within three days following receipt of instructions in proper
form, or sooner, if required by law. However, the Trust has the right to take up
to seven days to pay redemption proceeds. The Trust reserves the right to
suspend the right of redemption of shares of any Fund and postpone payment for
more than seven days for any period: (i) during which the NYSE is closed other
than customary weekend and holiday closings or during which trading on the NYSE
is restricted; (ii) when the SEC determines that a state of emergency exists
which makes payment or transfer not reasonably practicable; (iii) as the SEC may
by order permit for the protection of the security holders of a Fund; or (iv) at
any other time when a Fund may, under applicable laws and regulations, suspend
payment on the redemption of its shares. If the Board should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Fund to make payment wholly or partly in cash, a Fund may pay the redemption
price in whole or in part by a distribution in kind of securities from a Fund,
in lieu of cash, in conformity with applicable rules of the SEC. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets into cash.
Certain
managed account clients of AIS or its affiliates may purchase shares of a Fund.
To avoid the imposition of duplicative fees, AIS or its affiliates may be
required to make adjustments in the management fees charged separately by AIS or
the affiliate to these clients to offset the generally higher level of
management fees and expenses resulting from a client’s investment in the Fund.
As
described in the Prospectus, a shareholder may exchange shares of a Fund for
shares of the same class of any other available Fund without paying any
additional sales charge. The original purchase date(s) of shares exchanged for
purposes of calculating any contingent deferred sales charge will carry over to
the investment in the new Fund. For example, if a shareholder invests in the
Class C shares of an available Fund and 6 months later (when the contingent
deferred sales charge upon redemption would normally be 1%) exchanges his shares
for Class C shares of another available Fund, the investment in the other Fund
would be subject to the 1% contingent deferred sales charge until one year after
the date of the shareholder’s investment in the first Fund.
With
respect to Class C shares, or Class A shares subject to a CDSC, if less than all
of an investment is exchanged out of a Fund, any portion of the investment
attributable to capital appreciation and/or reinvested dividends or capital
gains distributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund from which the
exchange was made. For additional information regarding exchanges and permitted
exchanges, please see the Prospectus.
Orders
for exchanges received after the close of regular trading on the NYSE on any
business day will be executed at the respective NAVs determined at the close of
the next business day.
An
excessive number of exchanges may be disadvantageous to a Fund. Therefore, the
Trust, in addition to its right to reject any exchange, reserves the right to
adopt a policy of terminating the exchange privilege of any shareholder who
makes more than a specified number of exchanges in a 12-month period or in any
calendar month. The Trust reserves the right to modify or discontinue the
exchange privilege at any time.
Class
A or Class C shares of a Fund held by or through a financial intermediary may be
converted to a share class of the same Fund that is eligible for fee-based
programs (e.g., Class I-2 or Class I) by the intermediary. In addition, Class C
shares of a Fund held by or through a financial intermediary may be converted to
Class A shares of the same Fund at NAV (without an initial sales charge) by the
intermediary. In some instances, a financial intermediary may convert shares of
a Fund in a share class that is eligible for fee-based programs (e.g., Class I-2
or Class I) to shares of a Fund in a share class that is eligible for a
brokerage account program (e.g., Class A at NAV or an eligible no-load share
class, as applicable) where the advisory arrangement is terminated but the
relationship as a brokerage client with the financial intermediary continues. To
be eligible for such a conversion, the financial intermediary must: (i) initiate
the conversion; (ii) hold shares on behalf of investors who meet all eligibility
requirements for the share class into which the shareholder is being converted
(Class I-2 shares or Class A shares), as described in the Prospectus and this
SAI; (iii) structure the conversion as a non-taxable conversion; and (iv)
provide such additional information as may be requested by the Distributor or
Fund, including a written certification that the financial intermediary meets
all eligibility requirements for the conversion. Orders for conversions accepted
prior to the close of trading on the NYSE on any day the Trust is open for
business will be executed at the respective NAVs determined as of the close of
business that day. Orders for conversions accepted after the close of trading on
the NYSE on any business day will be executed at the respective NAVs determined
at the close of the next business day. Once an approved financial intermediary
has completed an initial conversion of accounts pursuant to this process, that
financial intermediary may subsequently convert additional eligible accounts.
Shareholders should consult their financial firm for more information about the
conditions under which their accounts may be converted. Shareholders should
consult their tax advisers regarding any federal, state and other tax
consequences of a conversion. This policy applies to all financial
intermediaries authorized to sell Fund shares.
The
Trust, on behalf of each Fund, has made an election pursuant to Rule 18f-1 under
the 1940 Act committing each Fund to pay in cash any request for redemption
received during any 90-day period of up to the lesser of (1) $250,000 or (2) 1%
of the Fund’s NAV at the beginning of the period. This election is irrevocable
without prior approval by the SEC. Subject to that commitment, the Trust has
adopted a process under which it may make redemptions-in-kind to shareholders.
Under this process, a Fund generally may make redemptions in-kind, provided
that: (a) the redemption-in-kind is effected at approximately the shareholder’s
pro-rata share of the distributing Fund’s current net assets, and thus does not
result in the dilution of the interests of the remaining shareholders; (b) the
distributed securities are valued in the same manner as they are valued for
purposes of computing the distributing Fund’s NAV; (c) the redemption-in-kind is
consistent with the Fund’s Prospectus and SAI; and (d) neither the shareholder
nor any other party with the ability and the pecuniary incentive to influence
the redemption-in-kind selects, or influences the selection of, the distributed
securities. The Trust has elected to retain the ability to redeem affiliated
persons in-kind upon approval of the affiliated person’s written request
and
for affiliated and non-affiliated persons when AIS deems it to be appropriate.
An “affiliated person” for purposes of this redemptions-in-kind process is
defined as a shareholder who holds 5% or more of all outstanding voting shares
of that Fund, or any other shareholder that may be deemed to be an “affiliated
person” under Section 2(a)(3) of the 1940 Act.
Due
to the relatively high cost of maintaining smaller accounts, the Trust reserves
the right to close an account and redeem shares if the account does not have a
value of at least the minimum initial investment. The Prospectus may set
different minimum account balances for one or more classes from time to time
depending upon the Trust’s current policy. The Declaration of Trust also
authorizes the Trust to redeem shares under certain other circumstances as may
be specified by its Board.
The
Distributor may have an agreement with certain financial intermediaries
(“Intermediary”) that permits the Intermediary to accept orders on behalf of the
Trust in accordance with the Prospectus (“Proper Form”), currently prior to the
close of the NYSE, which usually closes at 4:00 p.m. Eastern time. Such
agreements typically include authorization for the Intermediary to designate
other financial intermediaries (“Sub-Designees”) to accept orders on behalf of
the Trust on the same terms that apply to the Intermediary (each an “Authorized
Agent”). If the Intermediary or, if applicable, its Sub-Designee, receives an
order in Proper Form, and such order is transmitted to the Trust in accordance
with the agreement between the Distributor and the Intermediary, then the Trust
will price the order at the Fund’s next NAV calculated after such Intermediary
or, if applicable, its Sub-Designee, received such order.
If
you are investing indirectly in the Funds through an Intermediary such as a
broker-dealer, a bank (including a bank trust department), an investment
adviser, an administrator, or a sponsor of a fee-based program that maintains a
master account (an omnibus account) with the Funds for trading on behalf of its
customers, different guidelines, conditions, and restrictions may apply than if
you held your shares of the Funds directly. These differences may include but
are not limited to: (i) different eligibility standards to purchase and sell
shares; (ii) different standards to effect transactions by telephone; (iii)
inability to offer certain privileges, such as a Letter of Intent, preauthorized
investment programs, systematic withdrawal plan, etc.; or (iv) inability to link
accounts held through different Intermediaries for rights of accumulation. The
Intermediary through which you are investing may also charge transaction or
other fees, including service fees, for maintaining your account. Consult with
your Intermediary to determine what fees, guidelines, conditions, limitations
and/or restrictions, including any of the foregoing, are applicable to
you.
Conversion
of Class C Shares into Class A Shares
The
automatic conversion of Class C shares into Class A shares after six years is
discussed in the applicable Prospectus and that information is incorporated
herein by reference. Your ability to have Class C shares in accounts held
through a financial intermediary automatically convert to Class A shares may be
limited due to operational limitations at your financial intermediary, and
specific intermediaries may have different policies and procedures regarding the
conversion of Class C shares to Class A shares including a different conversion
schedule or different eligibility requirements. Please contact your financial
intermediary for additional information.
Other
Conversions
Pursuant
to the Multi-Class Plan, each class of shares of a Fund shall have any
additional conversion features as specified in the applicable Prospectus or in
any resolution duly adopted by the Board.
PERFORMANCE
INFORMATION
From
time to time, the Trust may make available certain information about the
performance of some or all of the classes of shares of some or all of the Funds.
Information about a Fund’s performance is based on that Fund’s record to a
recent date and is not intended to indicate future performance.
The
total return of classes of shares of Funds may be included in advertisements or
other written material. When a Fund’s total return is advertised, it will be
calculated for the past year, the past five years, and the past ten years (or if
the Fund has been offered for a period shorter than one, five or ten years, that
period will be substituted) since the establishment of the Fund, or for other
periods as permissible under applicable regulation, as more fully described
below. For periods prior to the initial offering date of a particular class of
shares, total return presentations for the class will be based on the historical
performance of an older class of the Fund (if any) restated to reflect any
different sales charges and/or operating expenses (such as different
administrative fees and/or 12b-1 and servicing fee charges) associated with the
newer class. In certain cases, such a restatement will result in performance of
the newer class which is higher than if the performance of the older class were
not restated to reflect the different operating expenses of the newer class. In
such cases, the Fund’s advertisements may also show the lower performance figure
reflecting the actual operating expenses incurred by the older class for periods
prior to the initial offering date of the newer class. Total return for each
class is measured by comparing the value of an investment in a Fund at the
beginning of the relevant period to the redemption value of the investment in
the Fund at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions at NAV). Total return may be advertised
using alternative methods that reflect all elements of return, but that may be
adjusted to reflect the cumulative impact of alternative fee and expense
structures.
The
Trust may also provide current distribution information to its shareholders in
shareholder reports or other shareholder communications, or in certain types of
sales literature provided to prospective investors. Current distribution
information for a particular class of a Fund will be based on distributions for
a specified period (i.e.,
total dividends from net investment income), divided by the relevant class NAV
per share on the last day of the period and annualized. The rate of current
distributions does not reflect deductions for unrealized losses from
transactions in derivative instruments such as options and futures, which may
reduce total
return.
Current distribution rates differ from standardized yield rates in that they
represent what a class of a Fund has declared and paid to shareholders as of the
end of a specified period rather than a Fund’s actual net investment income for
that period.
Performance
information is computed separately for each class of a Fund. The Trust may, from
time to time, include the yield and total return for each class of shares of all
of the Funds in advertisements or information furnished to shareholders or
prospective investors. Each Fund may from time to time include in advertisements
the ranking of the Fund’s performance figures relative to such figures for
groups of mutual funds categorized by Lipper Analytical Services or other firms
as having the same investment goals. Information provided to any newspaper or
similar listing of a Fund’s NAV and public offering prices will separately
present each class of shares. The Funds also may compute current distribution
rates and use this information in their prospectus and statement of additional
information, in reports to current shareholders, or in certain types of sales
literature provided to prospective investors.
Performance
information for a Fund often is compared in advertisements, sales literature,
and reports to shareholders to (i) various indices so that investors may compare
a Fund’s results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services Inc., Morningstar
or another independent research firm which ranks mutual funds by overall
performance, investment goals, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and/or (iii) the CPI (measure for inflation) to assess the
real rate of return from an investment in the Fund. Unmanaged indices typically
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
The
Trust may use, in its advertisements and other information, data concerning the
projected cost of a college education in future years based on current or recent
costs of college and an assumed rate of increase for such costs.
In
its advertisements and other materials, a Fund may compare the returns over
periods of time of investments in equities, debt and treasury bills to each
other and to the general rate of inflation.
A
Fund may also compare the relative historic returns and range of returns for an
investment in each of equities, debt and treasury bills to a fund that blends
all three investments.
A
Fund may use in its advertisement and other materials examples designed to
demonstrate the effect of compounding when an investment is maintained over
several or many years.
A
Fund may set forth in its advertisements and other materials information
regarding the relative reliance in recent years on personal savings for
retirement income versus reliance on Social Security benefits and company
sponsored retirement plans.
Articles
or reports which include information relating to performance, rankings and other
characteristics of the Funds may appear in various national publications and
services including, but not limited to: The Wall Street Journal, Barron’s,
Pensions and Investments, Forbes, Smart Money, The New York Times, Kiplinger’s
Personal Finance, Fortune, Money Magazine, Morningstar and Lipper. Some or all
of these publications or reports may publish their own rankings or performance
reviews of mutual funds, including the Trust. From time to time, the Trust may
include references to or reprints of such publications or reports in its
advertisements and other information relating to the Funds.
From
time to time, the Trust may set forth in its advertisements and other materials
information about the growth of a certain dollar amount invested in one or more
of the Funds over a specified period of time and may use charts and graphs to
display that growth.
TAXATION
The
following summarizes certain additional U.S federal income tax considerations
generally affecting the Funds and their shareholders. The discussion is for
general information only and does not purport to consider all aspects of U.S.
federal income taxation that might be relevant to beneficial owners of shares of
a Fund. The discussion is based upon current provisions of the Code, existing
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, which change could
be retroactive. The discussion applies only to beneficial owners of Fund shares
in whose hands such shares are capital assets within the meaning of Section 1221
of the Code, and may not apply to certain types of beneficial owners of shares
(such as insurance companies, tax exempt organizations, and broker-dealers) who
may be subject to special rules. Persons who may be subject to tax in more than
one country should consult the provisions of any applicable tax treaty to
determine the potential tax consequences to them. Prospective investors should
consult their own tax advisers with regard to the U.S. federal tax consequences
of the purchase, ownership and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, local, foreign country, or
other taxing jurisdiction. The discussion here and in the Prospectus is not
intended as a substitute for careful tax planning.
Each
Fund intends to qualify annually and elect to be treated as a regulated
investment company (“RIC”) under Subchapter M of the Code. To be taxed as a RIC,
each Fund electing to be a RIC generally must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, net income from certain publicly
traded partnerships and gains from the sale or other disposition of stock,
securities or foreign currencies or other income derived with respect to its
business of investing in such stock, securities or currencies (“Qualifying
Income Test”); (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a Fund’s assets is
represented by cash, U.S. government securities, the securities of other RICs
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of a Fund’s total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested,
including through corporations in which
the
Fund owns 20% or more voting stock interest, in the securities of any one issuer
(other than U.S. government securities or the securities of other RICs) or in
two or more controlled issuers in the same or similar trades or businesses or in
certain publicly traded partnerships; and (c) distribute (or be deemed to
distribute pursuant to the consent dividend procedure described below) each
taxable year dividends of an amount at least equal to the sum of (i) at least
90% of its investment company taxable income (which includes dividends, interest
and net short-term capital gains in excess of any net long-term capital losses)
and (ii) 90% of its tax exempt interest, net of expenses allocable thereto. The
U.S. Treasury is authorized to promulgate regulations under which gains from
foreign currencies (and options, futures, and forward contracts on foreign
currency) would constitute qualifying income for purposes of the Qualifying
Income Test only if such gains are directly related to investing in securities.
To date, such regulations have not been issued.
As
a RIC, each Fund generally will not be subject to U.S. federal income tax on its
investment company taxable income and net capital gains (any net long-term
capital gains in excess of the sum of net short-term capital losses and
available capital loss carryovers from prior years) reported by a Fund as
capital gain dividends, if any, that it distributes to shareholders on a timely
basis. Each Fund electing to be a RIC intends to distribute to its shareholders,
at least annually, all or substantially all of its investment company taxable
income and any net capital gains. Each Fund may utilize the consent dividend
provisions of the Code to make deemed distributions. Provided that all
shareholders agree in a consent filed with the return of each Fund to treat as a
dividend the amount specified in the consent, the amount will be considered a
distribution and taxed just as any other distribution paid in money and
reinvested back into each Fund with a corresponding increase in cost basis for
the shareholder. Any taxable income including any net capital gain retained by a
Fund will be subject to tax at the Fund level at regular corporate rates. In
addition, amounts not distributed by a Fund on a timely basis in accordance with
a calendar year distribution requirement may be subject to a nondeductible 4%
excise tax. To avoid the tax, a Fund subject to the excise tax must distribute
(or be deemed to have distributed) during each calendar year an amount at least
equal to the sum of, (i) 98% of its ordinary income (taking into account certain
deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains
in excess of its capital losses for the twelve month period ending on October 31
of the calendar year (adjusted for certain ordinary losses), and (iii) all
ordinary income and capital gains for previous years that were not distributed
or taxed to the Fund during such years. To avoid application of the excise tax,
each Fund subject to the excise tax intends to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if it is declared by a
Fund during October, November, or December of that year to shareholders of
record on a date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders
(other than those not subject to U.S. federal income tax) for the calendar year
in which the distributions are declared, rather than the calendar year in which
the distributions are received. To avoid application of the excise tax, each
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
In
years when a Fund distributes amounts in excess of its earnings and profits,
such distributions may be treated in part as a return of capital. A return of
capital is not taxable to a shareholder and has the effect of reducing the
shareholder’s basis in the shares; any amounts distributed in excess of such
basis will be taxable to the shareholder in the same manner as a sale or
exchange of such shares.
The
capital losses of a Fund, if any, do not flow through to shareholders. Rather, a
Fund may use its capital losses, subject to applicable limitations, to offset
its capital gains without being required to pay taxes on or distribute to
shareholders such gains that are offset by the losses. If a Fund has a “net
capital loss” (that is, capital losses in excess of capital gains) for a taxable
year, the excess (if any) of the Fund’s net short-term capital losses over its
net long-term capital gains is treated as a short-term capital loss arising on
the first day of the Fund’s next taxable year, and the excess (if any) of the
Fund’s net long-term capital losses over its net short-term capital gains is
treated as a long-term capital loss arising on the first day of the Fund’s next
taxable year. Any such net capital losses of a Fund that are not used to offset
capital gains may be carried forward indefinitely to reduce any future capital
gains realized by the Fund in succeeding taxable years. The amount of capital
losses that can be carried forward and used in any single year is subject to an
annual limitation if there is a more than 50% “change in ownership” of a Fund.
An ownership change generally results when shareholders owning 5% or more of a
Fund increase their aggregate holdings by more than 50% over a three-year
look-back period. An ownership change could result in capital loss carryovers
being used at a slower rate, thereby reducing a Fund’s ability to offset capital
gains with those losses. An increase in the amount of taxable gains distributed
to a Fund’s shareholders could result from an ownership change. No Fund
undertakes any obligation to avoid or prevent an ownership change, which can
occur in the normal course of shareholder purchases and redemptions or as a
result of engaging in a tax-free reorganization with another fund. Moreover,
because of circumstances beyond a Fund’s control, there can be no assurance that
a Fund will not experience, or has not already experienced, an ownership change.
Additionally, if a Fund engages in a tax-free reorganization with another Fund,
the effect of these and other rules not discussed herein may be to disallow or
postpone the use by the Fund of its capital loss carryovers (including any
current year losses and built-in losses when realized) to offset its own gains
or those of the other Fund, or vice versa, thereby reducing the tax benefits
Fund shareholders would otherwise have enjoyed from the use of such capital loss
carryovers. As of the fiscal year ended March 31, 2024, the Funds had the
following capital loss carryovers:
|
|
|
|
|
|
|
|
|
|
| |
|
Unlimited
Period of Net Capital Loss Carryover |
|
Fund |
Short
Term |
Long
Term |
Accumulated
Capital Loss Carryover |
Aristotle
Core Equity Fund1 |
N/A |
N/A |
N/A |
Aristotle
Core Income Fund |
$(18,049,239) |
$(37,056,079) |
$(55,105,318) |
Aristotle
ESG Core Bond Fund |
$(574,896) |
$(1,188,437) |
$(1,763,333) |
Aristotle
Floating Rate Income Fund |
$(41,086,688) |
$(201,314,832) |
$(242,401,520) |
Aristotle
Growth Equity Fund |
N/A |
N/A |
N/A |
Aristotle
High Yield Bond Fund |
$(4,484,062) |
$(14,216,364) |
$(18,700,426) |
Aristotle
International Equity Fund1 |
$(2,121,142) |
$(14,108,363) |
$(16,229,505) |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
N/A |
$(16,833,610) |
$(16,833,610) |
Aristotle
Portfolio Optimization Conservative Fund |
$(2,479,492) |
$(15,018,659) |
$(17,498,151) |
Aristotle
Portfolio Optimization Growth Fund |
N/A |
$(30,089,010) |
$(30,089,010) |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
$(3,286,779) |
$(20,455,937) |
$(23,742,716) |
Aristotle
Portfolio Optimization Moderate Fund |
$(17,665,632) |
$(22,178,761) |
$(39,844,393) |
Aristotle
Short Duration Income Fund |
$(6,212,686) |
$(17,567,115) |
$(23,779,801) |
Aristotle
Small Cap Equity Fund1 |
$(1,323,414) |
N/A |
$(1,323,414) |
Aristotle
Small/Mid Cap Equity Fund |
N/A |
N/A |
N/A |
Aristotle
Strategic Income Fund |
$(9,822,601) |
$(79,599,343) |
$(89,421,944) |
Aristotle
Ultra Short Income Fund |
$(139,028) |
$(33,346) |
$(172,374) |
Aristotle
Value Equity Fund1 |
N/A |
$(3,940,950) |
$(3,940,950) |
Aristotle/Saul
Global Equity Fund1 |
N/A |
N/A |
N/A |
1
As
of March 14, 2024, the Fund changed its fiscal year end from December 31 to
March 31. The Advisory Fees Paid include the fees paid during the period from
the Fund’s commencement of operations through March 31, 2024.
If,
in any taxable year, a Fund fails to qualify as a RIC under the Code or fails to
meet the distribution requirement, it would be taxed in the same manner as an
ordinary corporation, and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, the Fund’s
distributions, to the extent derived from its current or accumulated earnings
and profits, would constitute dividends which generally are taxable to
shareholders as ordinary income (except to the extent that they are “qualified
dividends”), even though those distributions might otherwise, at least in part,
have been treated in the shareholders’ hands as long-term capital gains. If a
Fund fails to qualify as a RIC in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a RIC. Moreover,
if the Fund failed to qualify as a RIC for a period greater than two taxable
years, the Fund may be required to recognize any net built-in gains with respect
to certain of its assets in order to qualify as a RIC in a subsequent
year.
Distributions
All
dividends and distributions of a Fund, regardless of whether received in shares
or cash, generally are taxable and must be reported on each shareholder’s U.S.
federal income tax return. Dividends paid from a Fund’s investment company
taxable income (which includes any net short-term capital gains) will be taxable
to a U.S. shareholder as ordinary income. Distributions received by tax-exempt
shareholders will generally not be subject to U.S. federal income tax to the
extent permitted under the applicable tax exemption.
Dividends
paid by a Fund may be eligible for the corporate dividends received deduction to
the extent derived from dividends received by a Fund from a domestic corporation
and assuming certain holding period and other requirements are satisfied.
Because many companies in which certain Funds invest do not pay significant
dividends on their stock, such Funds will generally not derive significant
amounts of qualified dividend income that would be eligible for the corporate
dividends received deduction.
Distributions
of net capital gains, if any, properly reported as capital gain dividends, are
taxable as long-term capital gains, regardless of how long the shareholder has
held the shares and are not eligible for the corporate dividends received
deduction. Any distributions that are not from a Fund’s investment company
taxable income or net realized capital gains may be characterized as a return of
capital to shareholders to the extent of the shareholder’s tax basis in its
shares, and thereafter as capital gain. The tax treatment of dividends and
distributions will be the same regardless of whether a shareholder reinvests
them in additional shares or elects to receive them in cash.
Current
tax law generally provides for a maximum long-term capital gains tax rate for
individual taxpayers of either 15% or 20%, depending on whether the individual’s
income exceeds certain threshold amounts on long-term capital gains and on
certain qualified dividend income. The rate reductions do not apply to corporate
taxpayers. Each Fund will be able to separately report distributions of any
qualifying long-term capital gains or qualified dividends earned by the Fund
that would be eligible for the lower maximum rate. A shareholder would also have
to satisfy a holding period of more than 60 days with respect to any
distributions of qualified dividends in order to obtain the benefit of the lower
rate. Distributions from Funds investing in REITs, bonds, and other debt
instruments and swaps generally will not qualify for the lower rates. Further,
because many companies in which certain Funds invest do not pay significant
dividends on their stock, such Funds will not generally derive significant
amounts of qualified dividend income that would be eligible for the lower rate
on qualified dividends.
Certain
distributions reported by a Fund as Section 163(j) interest dividends may be
eligible to be treated as interest income by shareholders for purposes of the
tax rules applicable to interest expense limitations under Section 163(j) of the
Code. Such treatment by the shareholder is generally subject to holding period
requirements and other potential limitations, although the holding period
requirements are generally not applicable to dividends declared by money market
funds and certain other funds that declare dividends daily and pay such
dividends on a monthly or more frequent basis. The amount that a Fund is
eligible to report as a Section 163(j) dividend for a tax year is generally
limited to the excess of the Fund’s business interest income over the sum of the
Fund’s (i) business interest expense and (ii) other deductions properly
allocable to the Fund’s business interest income.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from a
Fund and net gains from redemptions or other taxable dispositions of Fund
shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
For
any traditional IRA account that becomes dormant and subject to escheatment
under state unclaimed property law, the IRS requires reporting of the amount
escheated on IRS Form 1099R and income tax withholding at the time of
escheatment in accordance with any prior withholding election or at 10%, if no
prior withholding election is in place.
A
Portfolio Optimization Fund will not be able to offset gains distributed by one
Underlying Fund in which it invests against losses in another Underlying Fund in
which such Portfolio Optimization Fund invests. Capital losses of an Underlying
Fund will not offset capital gains (if any) of a Portfolio Optimization Fund.
Redemptions of shares in an Underlying Fund, including those resulting from
changes in the allocation among Underlying Funds, could also cause additional
distributable gains to shareholders of a Portfolio Optimization Fund. A portion
of any such gains may be short-term capital gains that would be distributable as
ordinary income to shareholders of the Portfolio Optimization Fund. Further, a
portion of losses on redemptions of shares in the Underlying Funds may be
deferred indefinitely under the wash sale rules. As a result of these factors,
the use of the fund-of-funds structure by the Portfolio Optimization Funds could
therefore affect the amount, timing and character of distributions to
shareholders. It is expected that the Portfolio Optimization Funds can elect to
pass through to the extent passed through from the Underlying Funds, the ability
to claim foreign tax credits or deductions, and such Funds may also be eligible
to elect to pass-through any potential benefit from income from certain federal
obligations (that may be exempt from state tax). However, even if a Fund
qualifies to make such election for any year, it may determine not to do so.
Sales
of Shares
Upon
the disposition of shares of a Fund (whether by redemption, sale or exchange), a
shareholder will realize a gain or loss. Such gain or loss will be capital gain
or loss if the shares are capital assets in the shareholder’s hands, and will be
long-term or short-term generally depending upon the shareholder’s holding
period for the shares. Any loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of shares
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of capital gain dividends
received by the shareholder with respect to such shares.
If,
within 90 days after purchasing Fund shares with a sales charge, a shareholder
exchanges the shares and acquires new shares before January 31 of the calendar
year following the calendar year in which the original stock was disposed of at
a reduced (or without any) sales charge pursuant to a right acquired with the
original shares, then the shareholder may not take the original sales charge
into account in determining the shareholder’s gain or loss on the disposition of
the shares. Gain or loss will generally be determined by excluding all or a
portion of the sales charge from the shareholder’s tax basis in the exchanged
shares, and the amount excluded will be treated as an amount paid for the new
shares.
Each
Fund (or its administrative agent) is required to report to the IRS and furnish
to shareholders the cost basis information for sale transactions of shares
purchased on or after January 1, 2012. Shareholders may elect to have one of
several cost basis methods applied to their account when calculating the cost
basis of shares sold, including average cost, FIFO (“first-in, first-out”) or
some other specific identification method. Unless you instruct otherwise, each
Fund will use average cost as its default cost basis method, and will treat
sales as first coming from shares purchased prior to January 1, 2012. If average
cost is used for the first sale of shares covered by these new rules, the
shareholder may only use an alternative cost basis method for shares purchased
prospectively. Shareholders should consult with their tax advisors to determine
the best cost basis method for their tax situation. Shareholders that hold their
shares through a financial intermediary should contact such financial
intermediary with respect to reporting of cost basis and available elections for
their accounts.
Backup
Withholding
Each
Fund may be required to withhold tax at the current rate of 24% from all taxable
distributions and redemption proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder’s U.S. federal tax
liability.
Options,
Futures and Forward Contracts, and Swap Agreements
The
diversification requirements applicable to each Fund’s assets may limit the
extent to which a Fund will be able to engage in transactions in options,
futures and forward contracts, and swap agreements. Some of the options, futures
contracts, forward contracts, and swap agreements used by the Funds may be
“Section 1256 contracts.” Any gains or losses on Section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
(60/40) although certain foreign currency gains and losses from such contracts
may be treated as ordinary in character. Also, Section 1256 contracts held by a
Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on
certain other dates as prescribed under the Code) are “marked to market” with
the result that unrealized gains or losses are treated as though they were
realized and the resulting gain or loss is treated as ordinary or 60/40 gain or
loss.
Generally,
the hedging transactions and certain other transactions in options, futures and
forward contracts undertaken by a Fund, may result in “straddles” for U.S.
federal income tax purposes. In some cases, the straddle rules also could apply
in connection with swap agreements. The straddle rules may affect the amount,
timing and character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to the Funds are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund, which is taxed as ordinary income when distributed to
shareholders.
A
Fund may make one or more of the elections available under the Code that is
applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because
application of the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules
governing the tax aspects of swap agreements are in a developing stage and are
not entirely clear in certain respects. Accordingly, while each Fund intends to
account for such transactions in a manner it deems to be appropriate, the IRS
might not accept such treatment. If it did not, the status of the Fund as a RIC
might be affected. The Fund intends to monitor developments in this area.
Certain requirements that must be met under the Code in order for each Fund to
qualify as a RIC may limit the extent to which a Fund will be able to engage in
swap agreements.
The
qualifying income and diversification requirements applicable to a Fund’s assets
may limit the extent to which a Fund will be able to engage in transactions in
options, futures contracts, forward contracts, and swap agreements.
Short
Sales
Short
sales may increase the amount of short-term capital gain realized by a Fund,
which is taxed as ordinary income when distributed to shareholders. Short sales
may also be subject to the “Constructive Sales” rules, discussed
below.
Debt
Obligations at Risk of Default
Investments
in debt obligations that are at risk of or in default present tax issues for a
Fund. Tax rules are not entirely clear about issues such as whether and to what
extent a Fund should recognize market discount on a debt obligation, when a Fund
may cease to accrue interest, OID or market discount, when and to what extent a
Fund may take deductions for bad debts or worthless securities and how a Fund
should allocate payments received on obligations in default between principal
and income. These and other related issues will be addressed by a Fund in order
to ensure that it distributes sufficient income to preserve its status as a
RIC.
Qualified
Business Income Deduction
Distributions
by a Fund to its shareholders that the Fund properly reports as “section 199A
dividends,” as defined and subject to certain conditions described below, are
treated as qualified REIT dividends in the hands of non-corporate shareholders.
Non-corporate shareholders are permitted a U.S. federal income tax deduction
equal to 20% of qualified REIT dividends received by them, subject to certain
limitations. Very generally, a “section 199A dividend” is any dividend or
portion thereof that is attributable to certain dividends received by the Fund
from REITs, to the extent such dividends are properly reported as such by the
RIC in a written notice to its shareholders. A section 199A dividend is treated
as a qualified REIT dividend only if the shareholder receiving such dividend
holds the dividend-paying RIC shares for at least 46 days of the 91-day period
beginning 45 days before the shares become ex-
dividend,
and is not under an obligation to make related payments with respect to a
position in substantially similar or related property. A Fund is permitted to
report such part of its dividends as section 199A dividends as are eligible, but
is not required to do so.
Subject
to future regulatory guidance to the contrary, distributions attributable to
certain publicly traded partnership income from a Fund’s investments in publicly
traded partnerships will ostensibly not qualify for the deduction available to
non-corporate taxpayers in respect of such amounts received directly from a
publicly traded partnership.
Passive
Foreign Investment Companies
The
Funds may invest in the stock of foreign corporations, which may be classified
under the Code as PFICs. In general, a foreign corporation is classified as a
PFIC for a taxable year if 75% or more of its gross income is passive income as
defined in Section 1297 of the Code, or if 50% or more of the value of its
assets either produce or are held for the production of passive income. If a
Fund receives a so-called “excess distribution” with respect to PFIC stock, the
Fund itself may be subject to tax on a portion of the excess distribution,
whether or not the corresponding income is distributed by a Fund to
shareholders. In general, under the PFIC rules, an excess distribution is
treated as having been realized ratably over the period during which a Fund held
the PFIC stock. A Fund itself will be subject to tax on the portion, if any, of
an excess distribution that is so allocated to prior taxable years and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. Certain distributions from a PFIC as well as gain from the
sale of PFIC stock are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital
gain.
A
Fund may be eligible to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently is available in some circumstances, a
Fund generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions are
received from the PFIC in a given year. If this election were made, the special
rules, discussed above, relating to the taxation of excess distributions would
not apply. Alternatively, another election may be available that would involve
marking to market the Fund’s PFIC shares at the end of each taxable year (and on
certain other dates prescribed in the Code), with the result that unrealized
gains are treated as though they were realized and reported as ordinary income.
Any mark-to-market losses and any loss from an actual disposition of PFIC shares
would be deductible as ordinary losses to the extent of any net mark-to-market
gains included in income in prior years. If this election were made, tax at the
Fund level under the PFIC rules would generally be eliminated, but the Fund
could, in limited circumstances, incur nondeductible interest charges. Each
Fund’s intention to qualify annually as a RIC may limit its elections with
respect to PFIC shares.
Because
the application of the PFIC rules may affect, among other things, the character
of gains and the amount of gain or loss and the timing of the recognition of
income with respect to PFIC shares, and may subject the Fund itself to tax on
certain income from PFIC shares, the amount that must be distributed to
shareholders and will be taxed to shareholders as ordinary income or long-term
capital gain may be increased or decreased substantially as compared to a fund
that did not invest in PFIC shares.
Investments
in the Underlying Funds
Because
the Portfolio Optimization Funds’ will normally invest all of its assets in
shares of the Underlying Funds, its distributable income and gains will normally
consist substantially of distributions from the Underlying Funds and gains and
losses on the disposition of shares of the Underlying Funds.
To
the extent that an Underlying Fund realizes net losses on its investments for a
given taxable year, the Portfolio Optimization Funds will not be able to benefit
from those losses until and only to the extent that (i) the underlying fund
realizes gains that it can reduce by those losses, or (ii) the Portfolio
Optimization Funds recognize its share of those losses (so as to offset
distributions or capital gains from other Underlying Funds) when it disposes of
shares of the Underlying Funds in a transaction qualifying for sale or exchange
treatment.
Moreover,
even when the Portfolio Optimization Funds do make such a disposition, a portion
of its loss may be recognized as a long-term capital loss, which will not be
treated as favorably for U.S. federal income tax purposes as a short-term
capital loss or an ordinary deduction.
In
particular, the Portfolio Optimization Funds will not be able to offset any
capital losses from its dispositions of Underlying Fund shares against its
ordinary income (including distributions deriving from net short-term capital
gains realized by an Underlying Fund).
In
addition, in certain circumstances, the “wash sale” rules under Section 1091 of
the Code may apply to the Portfolio Optimization Funds’ sales of Underlying Fund
shares that have generated losses.
A
wash sale occurs if shares of an Underlying Fund are sold by the Portfolio
Optimization Funds at a loss and the Portfolio Optimization Funds acquire
additional shares of that same Underlying Fund 30 days before or after the date
of the sale.
The
wash-sale rules could defer losses in the Portfolio Optimization Funds’ hands on
sales of Underlying Fund shares (to the extent such sales are wash sales) for
extended (and, in certain cases, potentially indefinite) periods of
time.
As
a result of the foregoing rules, and certain other special rules, it is possible
that the amounts of net investment income and net capital gain that the
Portfolio Optimization Funds will be required to distribute to shareholders will
be greater than such amounts would have been had the Portfolio Optimization
Funds invested directly in the securities held by the Underlying Funds, rather
than investing in shares of the Underlying Funds.
For
similar reasons, the amount or timing of distributions from the Portfolio
Optimization Funds qualifying for treatment as a particular character (e.g.,
long-term capital gain, exempt interest, eligibility for dividends-received
deduction, etc.) will not necessarily be the same as it would have been had the
Fund invested directly in the securities held by the Underlying
Funds.
If
the Portfolio Optimization Funds were to own 20% or more of the voting interests
of an Underlying Fund, subject to a safe harbor in respect of certain fund of
funds arrangements, the Portfolio Optimization Funds would be required to “look
through” the Underlying Fund to its holdings and combine the appropriate
percentage (as determined pursuant to the applicable Treasury Regulations) of
the underlying fund’s assets with the Fund’s assets for purposes of satisfying
the 25% diversification test described above.
If
the Portfolio Optimization Funds receive dividends from an Underlying Fund, and
the Underlying Fund reports such dividends as qualified dividend income, then
the Portfolio Optimization Funds are permitted, in turn, to report a portion of
its distributions as “qualified dividend income,” provided the Portfolio
Optimization Funds meet the holding period and other requirements with respect
to shares of the Underlying Fund.
If
the Portfolio Optimization Funds receive dividends from an Underlying Fund, and
the Underlying Fund reports such dividends as eligible for the
dividends-received deduction, then the fund is permitted, in turn, to report a
portion of its distributions as eligible for the dividends-received deduction,
provided the Portfolio Optimization Funds meet the holding period and other
requirements with respect to shares of the Underlying Fund.
If
an Underlying Fund in which the Portfolio Optimization Funds invest elects to
pass through tax credit bond credits to its shareholders, then the Portfolio
Optimization Funds are permitted in turn to elect to pass through its
proportionate share of those tax credits to its shareholders, provided that the
Portfolio Optimization Funds meet the shareholder notice and other
requirements.
If
at the close of each quarter of the Portfolio Optimization Funds’ taxable year,
at least 50% of its total assets consists of interests in other regulated
investment companies, the Portfolio Optimization Funds will be a “qualified fund
of funds.”
In
that case, the Portfolio Optimization Funds are permitted to elect to pass
through to its shareholders foreign income and other similar taxes paid by the
Portfolio Optimization Funds in respect of foreign securities held directly by
the Portfolio Optimization Funds or by an Underlying Fund in which its invests
that itself elected to pass such taxes through to shareholders, so that
shareholders of the Portfolio Optimization Funds will be eligible to claim a tax
credit or deduction for such taxes.
However,
even if the Portfolio Optimization Funds qualifies to make such election for any
year, it may determine not to do so. In addition, the Portfolio Optimization
Funds are permitted to distribute exempt-interest dividends and thereby pass
through to its shareholders the tax-exempt character of any exempt-interest
dividends it receives from Underlying Funds in which it invests, or interest on
any tax-exempt obligations in which it directly invests, if any.
Foreign
Currency Transactions
Under
the Code, gains or losses attributable to fluctuations in exchange rates which
occur between the time a Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time a
Fund actually collects such receivables or pays such liabilities generally are
treated as ordinary income or loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain other
instruments, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as “Section 988” gains or losses, may
increase or decrease the amount of the Fund’s investment company taxable income
to be distributed to its shareholders as ordinary income.
Foreign
Taxation
Income
received by a Fund from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. If
more than 50% of the value of a Fund’s total assets at the close of its taxable
year consists of securities of foreign corporations, or at least 50% of the
value of a Fund’s total assets at the close of each quarter of its taxable year
is represented by interests in other RICs, a Fund will be eligible to elect to
“pass-through” to the Fund’s shareholders the amount of foreign income and
similar taxes paid by a Fund. 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 pro rata share of the foreign taxes
paid by the Fund, 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 (subject to limitations) as a foreign tax credit
against his or her U.S. federal income tax liability. However, even if a Fund
qualifies to make such election for any year, it may determine not to do so. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. No credit may be claimed by a shareholder with respect to Fund
shares that have been held less than 16 days. Each shareholder will be notified
whether the foreign taxes paid by the Fund 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 a Fund’s income will flow through to shareholders of the Fund. In that
case, gains from the sale of securities may 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 may 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. Shareholders may be unable to claim a credit
for the full amount of their proportionate share of the foreign taxes paid by a
Fund. For individuals, their foreign taxes generally are not deductible in
computing alternative minimum taxable income.
Commodity-Linked
Instruments
The
Fund’s use of commodity-linked instruments can bear on or be limited by the
Fund’s intention to qualify as a RIC. Income and gains from certain
commodity-linked instruments does not constitute qualifying income to a RIC for
purposes of the 90% gross income test described above. The tax treatment of
certain other commodity-linked instruments in which the Fund might invest is not
certain, in particular with respect to whether income or gains from such
instruments constitute qualifying income to a RIC. If the Fund were to treat
income or gain from a particular instrument as qualifying income and the income
or gain were later determined not to constitute qualifying income and, together
with any other non-qualifying income, caused the Fund’s non-qualifying income to
exceed 10% of its gross income in any taxable year, the Fund would fail to
qualify as a RIC unless it is eligible to and does pay a tax at the Fund
level.
Original
Issue Discount and Market Discount
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 a Fund may be treated as debt
securities that are issued originally at a discount. Generally, the amount of
the 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/high risk corporate debt
securities may be treated as a dividend for U.S. federal income tax purposes. In
addition, payment-in-kind securities will give rise to income which is required
to be distributed and is taxable even though the Fund holding the security
receives no interest payment in cash on the security during the
year.
Some
debt securities (with a fixed maturity date of one year or less from the date of
issuance) that may be acquired by a Fund may be treated as having acquisition
discount, or as OID in the case of certain types of debt securities. Generally,
a Fund 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 Fund
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.
If
a Fund purchases a debt security at a price lower than the stated redemption
price of such debt security, the excess of the stated redemption price over the
purchase price is generally “market discount.” If the amount of market discount
is more than a de minimis amount, a portion of such market discount must be
included in ordinary income (not capital gain) by the Fund in each taxable year
in which the Fund owns an interest in such debt security and receives a
principal payment on it. In particular, a Fund will be required to allocate that
principal payment first to the portion of the market discount on the debt
security that has accrued but has not previously been includable in income. In
general, the amount of market discount that must be included for each period is
equal to the lesser of (i) the amount of market discount accruing during such
period (plus any accrued market discount for prior periods not previously taken
into account) or (ii) the amount of the principal payment with respect to such
period. Generally, market discount accrues on a daily basis for each day the
debt security is held by a Fund at a constant rate over the time remaining to
the debt security’s maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding interest.
Gain realized on the disposition of a market discount obligation must be
recognized as ordinary interest income (not capital gain) to the extent of the
“accrued market discount.”
Each
Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by a Fund.
Cash to pay such dividends may be obtained from sales proceeds of securities
held by the Fund.
Real
Estate Investment Trusts (“REITs”)
The
Funds may invest in REITs. REITs are pooled investment vehicles that invest
primarily in income producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs primarily invest directly
in real property and derive income from the collection of rents. Equity REITs
may also sell properties that have appreciated in value and thereby realize
capital gains. Mortgage REITs invest primarily in real estate mortgages and
derive income from interest payments. Like RICs, REITs are not taxed on income
distributed to shareholders if the REITs comply with Code
requirements.
REITs
pay distributions to their shareholders based upon available cash flow from
operations. In many cases, because of “non-cash” expenses such as property
depreciation, an equity REIT’s cash flow will exceed its earnings and profits.
Distributions received from a REIT do not qualify for the intercorporate
dividends received deductions and are taxable as ordinary income to the extent
of the REIT’s earnings and profits. In addition, ordinary income distributions
from a REIT generally do not qualify for the lower rate on “qualifying
dividends,” although individuals receive REIT ordinary dividends as described
above. Distributions in excess of a REIT’s earnings and profits are reported as
return of capital and are generally not taxable to shareholders. However, return
of capital distributions reduce tax basis in the REIT shares. Once a
shareholder’s cost basis is reduced to zero, any return of capital is taxable as
a capital gain. The Funds intend to include the gross dividends received from
such REITs in its distributions to shareholders, and accordingly, a portion of
that fund’s distributions may also be reported as a return of
capital.
REITs
often do not provide complete tax information until after the calendar year-end.
Consequently, because of the delay, it may be necessary for a Fund to extend the
deadline for issuance of Forms 1099-DIV.
Mortgage-Related
Securities
The
Funds may invest directly or indirectly in residual interests in real estate
mortgage investment conduits (“REMICs”) (including by investing in residual
interests in collateralized mortgage obligations (“CMOs”) with respect to which
an election to be treated as a REMIC is in effect) or equity interests in
taxable mortgage pools (“TMPs”). Under a notice issued by the IRS in October
2006 and Treasury regulations that have yet to be issued but may apply
retroactively, a portion of a Fund’s income (including income allocated to the
Fund from a REIT or other pass-through entity) that is attributable to a
residual interest in a REMIC or an equity interest in a TMP (referred to in the
Code as an “excess inclusion”) will be subject to U.S. federal income tax in all
events. This notice also provides, and the regulations are expected to provide,
that excess inclusion income of a RIC will be allocated to shareholders of the
RIC in proportion to the dividends received by such shareholders, with the same
consequences as if the shareholders held the related interest directly. As a
result, a RIC investing in such interests may not be a suitable investment for
charitable remainder trusts (“CRTs”).
Excess
Inclusion Income
Under
current law, the Fund serves to block unrelated business taxable income (“UBTI”)
from being realized by its tax-exempt shareholders. Notwithstanding the
foregoing, a tax-exempt shareholder could realize UBTI by virtue of its
investment in the Fund if shares in the Fund constitute debt-financed property
in the hands of the tax-exempt shareholder within the meaning of Section 514(b)
of the Code. The Fund’s direct or indirect investments in REITs, REMICs, taxable
mortgage pools or other investments may cause the Fund to recognize “excess
inclusion income.”
Depending
on the circumstances, the Fund may allocate the excess inclusion income among
Fund shareholders. Such excess inclusion income may: (i) constitute taxable
income as UBTI for those shareholders who would otherwise be tax-exempt such as
individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and
certain charitable entities; (ii) not be offset by otherwise allowable
deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding
for non-U.S. shareholders even from tax treaty countries; and (iv) cause the
Fund to be subject to tax if certain “disqualified organizations,” as defined by
the Code, are Fund shareholders. If a charitable remainder annuity trust or a
charitable remainder unitrust (each as defined in Section 664 of the Code) has
UBTI for a taxable year, a 100% excise tax on the UBTI is imposed on the trust.
To the extent a Fund’s “excess inclusion income” is attributable to a charitable
remainder trust, the Fund is subject to tax on the portion of “excess inclusion
income” that is so attributable at the 21% corporate income tax rate, and the
Fund may allocate the tax paid on the “excess inclusion income” attributable to
the charitable remainder trust or other tax-exempt shareholder to such trust or
shareholder. Such election would reduce such shareholders’ distributions for the
year by the amount of the tax attributable to such shareholders’ proportionate
interests in the Fund.
Constructive
Sales
Under
certain circumstances, a Fund may recognize gain from a constructive sale of an
“appreciated financial position” it holds if it enters into a short sale,
forward contract or other transaction that substantially reduces the risk of
loss with respect to the appreciated position. In that event, the Fund would be
treated as if it had sold and immediately repurchased the property and would be
taxed on any gain (but not loss) from the constructive sale. The character of
gain from a constructive sale would depend upon the Fund’s holding period in the
property. Constructive sale treatment does not apply to transactions if such
transaction is closed before the end of the 30th day after the close of the
Fund’s taxable year and the Fund holds the appreciated financial position
throughout the 60-day period beginning with the day such transaction was
closed.
Non-U.S.
Shareholders
Withholding
of Income Tax on Dividends: Dividends paid (including distributions of any net
short-term capital gains) on shares beneficially held by a person who is a
“foreign person” within the meaning of the Code are, in general, subject to
withholding of U.S. federal income tax at a rate of 30% of the gross dividend,
which may, in some cases, be reduced by an applicable tax treaty. However, if
the dividends are effectively connected with the conduct by a beneficial holder
of a trade or business in the United States, the dividend will generally be
subject to U.S. federal net income taxation at regular income tax rates.
Distributions of long-term net realized capital gains will generally not be
subject to withholding of U.S. federal income tax.
Dividends
that are properly reported by a Fund as interest-related dividends or short-term
capital gain dividends attributable to certain U.S. source interest or
short-term capital gains received by a Fund may not be subject to U.S. federal
income tax when received by certain foreign shareholders, provided the Fund
properly reports such amounts and certain conditions are met. However, it is not
anticipated that a substantial portion of the income and gains of the Funds will
be eligible for this potential exemption from withholding. Additionally,
depending on the circumstances, a Fund may report all, some or none of such
Fund’s potentially eligible dividends as eligible for this potential
exemption.
Income
Tax on Sale of a Fund’s shares: Under U.S. federal tax law, a beneficial holder
of shares who is a foreign person is not, in general, subject to U.S. federal
income tax on gains (and is not allowed a deduction for losses) realized on the
sale of such shares unless (i) the shares in question are effectively connected
with a trade or business in the United States of the beneficial holder and such
gain is effectively connected with the conduct of a trade or business carried on
by such holder within the United States or (ii) in the case of an individual
holder, the holder is present in the United States for a period or periods
aggregating 183 days or more during the year of the sale and certain other
conditions are met.
A
Fund is required to withhold U.S. tax (at a 30% rate) on payments of dividends
made to certain non-U.S. entities that fail to comply (or be deemed compliant)
with extensive reporting and withholding requirements designed to inform the
U.S. Treasury of
U.S.-owned
foreign investment accounts. Shareholders may be requested to provide additional
information to the Fund to enable the Fund to determine whether withholding is
required.
Under
the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), a foreign
shareholder is subject to withholding tax in respect of a disposition of a U.S.
real property interest and any gain from such disposition is subject to U.S.
federal income tax as if such person were a U.S. person. Such gain is sometimes
referred to as “FIRPTA gain.” If the Fund is a “United States real property
holding corporation” within the meaning of the Code and is not domestically
controlled, any gain realized on the sale or exchange of Fund shares by a
foreign shareholder that owns at any time during the five-year period ending on
the date of disposition more than 5% of a class of Fund shares would be FIRPTA
gain. A Fund will be a “United States real property holding corporation” if, in
general, 50% or more of the fair market value of its assets consists of U.S.
real property interests, including stock of certain U.S. REITs.
The
Code provides a look-through rule for distributions of FIRPTA gain by a RIC if
all of the following requirements are met: (i) the RIC is classified as a
“qualified investment entity” (which includes a RIC if, in general more than 50%
of the RIC’s assets consists of interest in REITs and U.S. real property holding
corporations); and (ii) you are a foreign shareholder that owns more than 5% of
the Fund’s shares at any time during the one-year period ending on the date of
the distribution. If these conditions are met, Fund distributions to you, to the
extent derived from gain from the disposition of a U.S. real property interest,
may also be treated as FIRPTA gain, therefore subjecting you to U.S. federal
income tax and requiring you to file a nonresident U.S. income tax return. Also,
such gain may be subject to a 30% branch profits tax in the hands of a foreign
shareholder that is a corporation. Even if a foreign shareholder does not own
more than 5% of the Fund’s shares, Fund distributions attributable to gain from
the sale or disposition of a U.S. real property interest will be taxable as
ordinary dividends subject to withholding at a 30% or lower treaty
rate.
State
and Local Tax: A beneficial holder of shares who is a foreign person may be
subject to state and local tax in addition to the U.S. federal tax on income
referred above.
Estate
and Gift Taxes: Under existing law, upon the death of a beneficial holder of
shares who is a foreign person, such shares will be deemed to be property
situated within the United States and may be subject to U.S. federal estate tax.
If at the time of death the deceased holder is a resident of a foreign country
and not a citizen or resident of the United States, such tax will generally be
imposed at graduated rates as in effect at that time on the total value (less
allowable deductions and allowable credits) of the decedent’s property situated
within the United States. In general, there is no gift tax on gifts of shares by
a beneficial holder who is a foreign person.
The
availability of reduced U.S. taxation pursuant to a treaty or an applicable
estate tax convention depends upon compliance with established procedures for
claiming the benefits thereof and may further, in some circumstances, depend
upon making a satisfactory demonstration to U.S. tax authorities that a foreign
investor qualifies as a foreign person under U.S. domestic tax law and any
applicable treaty or convention.
Other
Taxation
Distributions
also may be subject to additional state, local and foreign taxes, depending on
each shareholder’s particular situation. Under the laws of various states,
distributions of investment company taxable income generally are taxable to
shareholders even though all or a substantial portion of such distributions may
be derived from interest on certain federal obligations which, if the interest
were received directly by a resident of such state, would be exempt from such
state’s income tax (qualifying federal obligations). However, some states may
exempt all or a portion of such distributions from income tax to the extent the
shareholder is able to establish that the distribution is derived from
qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Fund will provide information annually to
shareholders indicating the amount and percentage of the Fund’s dividend
distribution that is attributable to interest on federal obligations, and will
indicate to the extent possible from what types of federal obligations such
dividends are derived. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
OTHER
INFORMATION
Transfer
Agency Services
U.S.
Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services, located at 615
E. Michigan Street, 3rd Floor, Milwaukee, WI 53202, also serves as the transfer
agent and dividend disbursing agent of the Trust (the “Transfer Agent”) pursuant
to a Transfer Agent Servicing Agreement among the Trust and U.S. Bank Global
Fund Services (the “Transfer Agency Agreement”). Under the Transfer Agency
Agreement, the Transfer Agent, among other things, receives and processes all
orders for transactions of shares, processes purchase and redemption orders,
processes transfers of shares, makes changes to shareholder records, mails
shareholder reports and prospectuses to current shareholders, pays dividends and
distributions, provides shareholder account information and performs certain
shareholder servicing functions. AIS is responsible for compensating the
Transfer Agent for the services it provides under the Transfer Agency
Agreement.
Custody
Services
Pursuant
to a Custody Agreement entered into between the Trust and U.S. Bank National
Association (the “Custodian”), the Custodian provides asset custody services
including safeguarding and controlling the Trust’s cash and securities, handling
the receipt and delivery of securities, determining income and collecting
interest on the Trust’s investments, and maintaining the required books
and
accounts in connection with such activity. The Custodian will place and maintain
foreign assets of the Trust in the care of eligible foreign custodians
determined by the Custodian and will monitor the appropriateness of maintaining
foreign assets with eligible custodians, which does not include mandatory
securities depositories. AIS is responsible for compensating the Custodian for
the services it provides under the Custodian Services Agreement.
Capitalization
The
Trust is a Delaware statutory trust established pursuant to a Declaration of
Trust dated November 29, 2022. The capitalization of the Trust consists solely
of an unlimited number of shares of beneficial interest with no par value. The
Board may establish additional Funds (with different investment goals and
fundamental policies) and additional classes of shares within each Fund at any
time in the future without approval of shareholders. Establishment and offering
of additional Funds will not alter the rights of the Fund’s shareholders. When
issued, shares are fully paid, redeemable, freely transferable, and
non-assessable by the Trust. Shares do not have preemptive rights or
subscription rights. In liquidation of a Fund, each shareholder is entitled to
receive his or her pro rata share of the net assets of that Fund.
Shareholder
and Trustee Liability
Under
the Trust’s organizational documents, shareholders may not be held personally
liable for the liabilities and obligations of any Fund or the Trust. A
shareholder of any Fund held to be personally liable solely by reason of being a
shareholder of such Fund and not because of his or her acts or omissions or for
some other reason, shall be held harmless and indemnified out of the applicable
Fund’s assets for all loss and expense arising from such liability.
In
addition, the Trust’s organizational documents, the Trustees and the officers of
the Trust shall be advanced expenses, held harmless and indemnified in certain
circumstances in connection with their service to the Trust. However, they are
not protected from liability by reason of their willful misfeasance, bad faith,
gross negligence, or reckless disregard. In addition, the Trust has entered into
an agreement with each Trustee which provides that the Trust will indemnify and
hold harmless each Trustee against any expenses reasonably incurred by any
Independent Trustee in any proceeding arising out of or in connection with the
Trustee’s services to the Trust to the fullest extent authorized by its
organizational documents, state law, the 1940 Act and 1933 Act.
Control
Persons and Principal Holders of Securities
Generally,
a shareholder who owns more than 25% of the outstanding shares of a Fund could
be deemed to “control” the voting securities of the particular Fund, as such
term is defined in the 1940 Act.
With
respect to the Underlying Funds.
Any Portfolio Optimization Fund owning more than 25% of an Underlying Fund could
be deemed to control the voting securities of the particular Underlying Fund.
However, each of the Portfolio Optimization Funds would exercise voting rights
attributable to any shares of an Underlying Fund owned by it in accordance with
the proxy voting policies established by the Fund. See the “How Shares will be
voted by the Portfolio Optimization Funds” sub-section of the “Proxy Voting
Policies and Procedures” section of this SAI for more information.
The
following tables contain information about the control persons and principal
shareholders of the Funds as of July 10, 2024.
|
|
|
|
|
|
|
| |
Name
and Address |
%
Ownership |
Type
of Ownership |
|
| |
Aristotle
Core Equity Fund |
Class
A |
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
60.82% |
RECORD |
US
BANK NA CUST
STEVEN
M WISE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
18.43% |
BENEFICIAL |
US
BANK NA CUST
BETH
A DORMAN BENE
OF
THE MARY JOAN DORMAN IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
8.20% |
BENEFICIAL |
Class
I |
| |
|
|
|
|
|
|
|
| |
ARISTOTLE
PORTFOLIO OPTIMIZATION
GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
36.63% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
36.15% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
AGGRESSIVE-GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
18.23% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE-CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
6.44% |
RECORD |
Class
I-2 |
| |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY A/C FBO CUSTOMERS ATTN MUTUAL
FUNDS 211 MAIN ST SAN FRANCISCO CA 94105-1901 |
60.20% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS 499
WASHINGTON BLVD JERSEY CITY NJ 07310-1995 |
26.82% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS OF
MSSB 1 NEW YORK PLAZA 12TH FLOOR NEW YORK NY 10004-1965 |
6.38% |
RECORD |
Aristotle
Core Income Fund |
Class
A |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
21.57% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
11.66% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
11.62% |
RECORD |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
10.73% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
9.22% |
RECORD |
|
|
|
|
|
|
|
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
5.83% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
5.78% |
RECORD |
Class
C |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
20.73% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
19.12% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF
CUSTOMERS
OF MSSB
1
NEW YORK PLAZA 12TH FLOOR
NEW
YORK NY 10004-1965 |
17.24% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
11.07% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
9.68% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
5.40% |
RECORD |
Class
I |
| |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
35.17% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
23.53% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
10.30% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE-CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
10.18% |
RECORD |
|
|
|
|
|
|
|
| |
ARISTOTLE
PORTFOLIO OPTIMIZATION
CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
7.98% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
5.55% |
RECORD |
Class
I-2 |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
18.31% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
18.11% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF
CUSTOMERS
OF MSSB
1
NEW YORK PLAZA 12TH FLOOR
NEW
YORK NY 10004-1965 |
15.87% |
RECORD |
MERRILL
LYNCH PIERCE FENNER &
SMITH
INC
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
11.18% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
11.10% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
6.79% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
6.31% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
5.19% |
RECORD |
Aristotle
ESG Core Bond Fund |
Class
I |
| |
PACIFIC
LIFE INSURANCE COMPANY
700
NEWPORT CENTER DR
NEWPORT
BEACH CA 92660-6307 |
62.74% |
RECORD |
ESG
BOND PORTFOLIO
700
NEWPORT CENTER DR
NEWPORT
BEACH CA 92660-6307 |
30.19% |
RECORD |
|
|
|
|
|
|
|
| |
PSF
ESG DIVERSIFED GROWTH
PORTFOLIO
700
NEWPORT CENTER DR
NEWPORT
BEACH CA 92660-6307 |
6.73% |
RECORD |
Class
I-2 |
| |
PACIFIC
LIFE INSURANCE COMPANY
700
NEWPORT CENTER DR
NEWPORT
BEACH CA 92660-6307 |
98.92% |
RECORD |
Aristotle
Floating Rate Income Fund |
Class
A |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
23.28% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
16.65% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
12.53% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
10.55% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC 5OR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
8.41% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
5.85% |
RECORD |
Class
C |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
22.25% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
20.82% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
19.12% |
RECORD |
|
|
|
|
|
|
|
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
11.35% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
6.16% |
RECORD |
AMERIPRISE
FINANCIAL SERVICES LLC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
6.14% |
RECORD |
Class
I |
| |
SEI
PRIVATE TRUST COMPANY
C/O
MELLON BANK ID XXX
ONE
FREEDOM VALLEY DRIVE
OAKS
PA 19456-9989 |
31.79% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
15.69% |
RECORD |
CAPINCO
C/O US BANK NA
1555
N RIVERCENTER DRIVE STE 302
MILWAUKEE
WI 53212-3958 |
9.40% |
RECORD |
SAXON
& CO
FBO
XXXXX
P
O BOX 7780-1888
PHILADELPHIA
PA 19182-0001 |
7.28% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
6.93% |
RECORD |
MAC
& CO A/C XXXXX
ATTN
MUTUAL FUND OPERATIONS
500
GRANT STREET
ROOM
151-1010
PITTSBURGH
PA 15219-2502 |
5.38% |
RECORD |
RELIANCE
TRUST CO FBO
COMERICA
EB R/R
PO
BOX 570788
ATLANTA
GA 30357-3114 |
5.26% |
RECORD |
Class
I-2 |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
16.80% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
15.20% |
RECORD |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
13.97% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
11.93% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
8.92% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
8.80% |
RECORD |
AMERIPRISE
FINANCIAL SERVICES LLC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
6.55% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF
CUSTOMERS
OF MSSB
1
NEW YORK PLAZA 12TH FLOOR
NEW
YORK NY 10004-1965 |
6.52% |
RECORD |
Aristotle
Growth Equity Fund |
| |
Class
A |
| |
US
BANK NA CUST
STEVEN
ROCKOFF SEP IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
55.23% |
BENEFICIAL |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
13.47% |
RECORD |
US
BANK NA CUST
REGINA
M ZARTMAN ROTH IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.89% |
BENEFICIAL |
TOUR
IMAGE INC CASH BALANCE PLAN
SCOTT
WILSON TTEE
FBO
SCOTT WILSON
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.21% |
BENEFICIAL |
US
BANK NA CUST
JACQUELIN
ANN TOKHEIM SIMPLE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
5.35% |
BENEFICIAL |
Class
I |
| |
|
|
|
|
|
|
|
| |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
38.55% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
36.70% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
AGGRESSIVE-GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
16.68% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE-CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
5.65% |
RECORD |
Class
I-2 |
| |
ARISTOTLE
INVESTMENT SERVICES LLC
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
91.30% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
8.70% |
RECORD |
Aristotle
High Yield Bond Fund |
Class
A |
| |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
20.15% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
16.89% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
9.41% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
8.60% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
6.12% |
RECORD |
Class
C |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
37.45% |
RECORD |
|
|
|
|
|
|
|
| |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
18.76% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
13.25% |
RECORD |
US
BANK NA CUST
MARK
KENNETH JOHNSON SIMPLE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.37% |
BENEFICIAL |
Class
I |
| |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
41.89% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
24.78% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE-CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
15.85% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
8.82% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
AGGRESSIVE-GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
5.14% |
RECORD |
Class
I-2 |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
55.86% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
25.43% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
12.32% |
RECORD |
Aristotle
International Equity Fund |
Class
A |
| |
CHARLES
SCHWAB & COMPANY INC
SPECIAL
CUSTODY A/C FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
97.97% |
RECORD |
Class
I |
| |
|
|
|
|
|
|
|
| |
ARISTOTLE
PORTFOLIO OPTIMIZATION
GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
41.09% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
25.27% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
AGGRESSIVE-GROWTH
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
21.69% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE-CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
9.56% |
RECORD |
Class
I-2 |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS 499
WASHINGTON BLVD JERSEY CITY NJ 07310-1995 |
28.70% |
RECORD |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY A/C FBO CUSTOMERS ATTN MUTUAL
FUNDS 211 MAIN ST SAN FRANCISCO CA 94105-1901 |
22.30% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC FBO CUSTOMERS OF MSSB 1 NEW YORK PLAZA 12TH
FL NEW YORK NY 10004-1965 |
16.15% |
RECORD |
JOHN
HANCOCK TRUST COMPANY LLC 200 BERKELEY ST STE 7 BOSTON MA
02116-5038 |
11.20% |
RECORD |
UBS
WM USA XXXXX OMNI ACCOUNT M/F ATTN DEPT MANAGER SPEC CDY AC EBOC
UBSFSI 1000 HARBOR BLVD WEEHAWKEN NJ 07086-6761 |
7.39% |
RECORD |
Aristotle
Portfolio Optimization Aggressive Growth Fund |
Class
A |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
9.00% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
6.22% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
6.06% |
RECORD |
|
|
|
|
|
|
|
| |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
5.82% |
RECORD |
Class
I-2 |
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
23.83% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
15.38% |
RECORD |
US
BANK NA CUST
JULIA
K KAGIWADA BENE
OF
THE REYNOLD S KAGIWADA IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
14.04% |
BENEFICIAL |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
8.49% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
7.94% |
RECORD |
Aristotle
Portfolio Optimization Conservative Fund |
Class
A |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
12.75% |
RECORD |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO CUSTOMERS ATTN MUTUAL
FUNDS 211 MAIN ST SAN FRANCISCO CA 94105-1901 |
9.97% |
RECORD |
LPL
FINANCIAL OMNIBUS CUSTOMER ACCOUNT ATTN LINDSAY OTOOLE 4707
EXECUTIVE DR SAN DIEGO CA 92121-3091 |
9.27% |
RECORD |
PERSHING
LLC 1 PERSHING PLAZA JERSEY CITY NJ 07399-0002 |
8.76% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO
63103-2523 |
6.22% |
RECORD |
Class
C |
| |
|
|
|
|
|
|
|
| |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO CUSTOMERS ATTN MUTUAL
FUNDS 211 MAIN ST SAN FRANCISCO CA 94105-1901
|
21.34% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO
63103-2523 |
10.78% |
RECORD |
PERSHING
LLC 1 PERSHING PLAZA JERSEY CITY NJ 07399-0002 |
7.45% |
RECORD |
LPL
FINANCIAL OMNIBUS CUSTOMER ACCOUNT ATTN LINDSAY OTOOLE 4707
EXECUTIVE DR SAN DIEGO CA 92121-3091 |
6.37% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
5.47% |
RECORD |
Class
I-2 |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
21.67% |
RECORD |
UBS
WM USA XXXXX SPEC CUSTODY A/C EXL BEN CUSTOMERS OF UBSFSI 1000
HARBOR BLVD WEEHAWKEN NJ 07086-6761 |
15.76% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
15.51% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
13.86% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
12.35% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
11.85% |
RECORD |
|
|
|
|
|
|
|
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
5.60% |
RECORD |
Aristotle
Portfolio Optimization Growth Fund |
Class
A |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
12.62% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
8.06% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
7.20% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
6.34% |
RECORD |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
5.19% |
RECORD |
Class
I-2 |
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
29.88% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
14.17% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
12.83% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
12.64% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
11.48% |
RECORD |
Aristotle
Portfolio Optimization Moderate Fund |
Class
A |
| |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
13.81% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
10.69% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
8.39% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
8.29% |
RECORD |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
5.54% |
RECORD |
Class
C |
| |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
5.88% |
RECORD |
Class
I-2 |
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
32.73% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
15.63% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
11.41% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
11.36% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
7.97% |
RECORD |
Aristotle
Portfolio Optimization Moderate Conservative Fund |
Class
A |
| |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
14.39% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
8.69% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
8.65% |
RECORD |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO CUSTOMERS ATTN MUTUAL
FUNDS 211 MAIN ST SAN FRANCISCO CA 94105-1901 |
7.10% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO
63103-2523 |
5.60% |
RECORD |
EDWARD
D JONES AND CO FOR THE BENEFIT OF CUSTOMERS 12555 MANCHESTER
RD SAINT LOUIS MO 63131-3710 |
5.14% |
RECORD |
Class
C |
| |
WELLS
FARGO CLEARING SERVICES LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO
63103-2523 |
11.77% |
RECORD |
PERSHING
LLC 1 PERSHING PLAZA JERSEY CITY NJ 07399-0002 |
7.63% |
RECORD |
LPL
FINANCIAL OMNIBUS CUSTOMER ACCOUNT ATTN LINDSAY OTOOLE 4707
EXECUTIVE DR SAN DIEGO CA 92121-3091 |
5.32% |
RECORD |
Class
I-2 |
| |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
21.72% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMER 2801 MARKET ST SAINT LOUIS MO
63103-2523 |
19.65% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
15.99% |
RECORD |
|
|
|
|
|
|
|
| |
UBS
WM USA XXXXX SPEC CUSTODY A/C EXL BEN CUSTOMERS OF UBSFSI 1000
HARBOR BLVD WEEHAWKEN NJ 07086-6761 |
13.62% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
10.34% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
9.09% |
RECORD |
Aristotle
Short Duration Income Fund |
Class
A |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
34.11% |
RECORD |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
9.25% |
RECORD |
RBC
CAPITAL MARKETS LLC
INOVIO
PHARMACEUTICALS INC
6769
MESA RIDGE ROAD
SAN
DIEGO CA 92121-2995 |
9.18% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
9.10% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
6.68% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
6.45% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
6.19% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
6.03% |
RECORD |
Class
C |
| |
|
|
|
|
|
|
|
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
33.21% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
16.54% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
13.65% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
6.59% |
RECORD |
Class
I |
| |
EDWARD
D JONES AND CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
54.16% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
MODERATE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
14.37% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
9.44% |
RECORD |
ARISTOTLE
PORTFOLIO OPTIMIZATION
CONSERVATIVE
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
6.44% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
6.14% |
RECORD |
Class
I-2 |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
18.81% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
18.59% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
14.55% |
RECORD |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
14.01% |
RECORD |
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE BENEFIT OF
CUSTOMERS
OF MSSB
1
NEW YORK PLAZA 12TH FLOOR
NEW
YORK NY 10004-1965 |
8.65% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
8.33% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
7.78% |
RECORD |
Aristotle
Small Cap Equity Fund |
| |
Class
A |
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
13.81% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
12.97% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
9.38% |
RECORD |
JKW
401K PLAN
FBO
JIAKUN WANG
JIAKUN
WANG TR
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.20% |
BENEFICIAL |
AZEVEDO
INVESTMENT CORP 401K PLAN
FBO
RAYMOND G AZEVEDO
SHERRY
ANN AZEVEDO TR
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.10% |
BENEFICIAL |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
3.77% |
RECORD |
Class
C |
| |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
21.61% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
9.45% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
8.62% |
RECORD |
US
BANK NA CUST
TERRY
R KEELEN SIMPLE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
5.50% |
BENEFICIAL |
Class
I |
| |
ARISTOTLE
INVESTMENT SERVICES LLC
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
100.00% |
RECORD |
Class
R6 |
| |
TINA
JONES
TOD
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
47.93% |
BENEFICIAL |
JOSEPH
EDWARD BELLANTONI AND
LUCY
ANN BELLANTONI JTWROS
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
38.27% |
BENEFICIAL |
PAUL
ALEXANDER ROUKIS
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
12.48% |
BENEFICIAL |
Class
I-2 |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
47.31% |
RECORD |
SEI
PRIVATE TRUST COMPANY
C
O PRINCIPAL FINANCIAL ID 636
ATTN
MUTUAL FUND ADMINISTRATOR
ONE
FREEDOM VALLEY DRIVE
OAKS
PA 19456-9989 |
17.11% |
RECORD |
VANGUARD
FIDUCIARY TRUST COMPANY
FBO
INL EMPLOYEE INVESTMENT PLAN
ATTN
INVESTMENT SERVICES
PO
BOX 2600 VM L20
VALLEY
FORGE PA 19482-2600 |
13.35% |
RECORD |
|
|
|
|
|
|
|
| |
NORTHERN
NEW ENGLAND BENEFIT TRUST
51
GOFFSTOWN RD STE 2
MANCHESTER
NH 03102-2746 |
5.22% |
RECORD |
Aristotle
Small/Mid Cap Equity Fund |
Class
A |
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
18.43% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
14.37% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
13.16% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
12.22% |
RECORD |
Class
C |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
16.41% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
13.38% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
11.56% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
10.13% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
9.19% |
RECORD |
UBS
WM USA XXXXX SPEC CUSTODY A/C EXL BEN CUSTOMERS OF UBSFSI 1000
HARBOR BLVD WEEHAWKEN NJ 07086-6761 |
5.14% |
RECORD |
Class
I |
| |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
73.43% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
10.88% |
RECORD |
GREUEL-SCHRAMM
LIVING TRUST
DEAN
ANDREW SCHRAMM &
WENDY
GREUEL TR
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
5.16% |
BENEFICIAL |
Class
I-2 |
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
34.12% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
29.00% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
11.82% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
8.55% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
6.23% |
RECORD |
Aristotle
Strategic Income Fund |
Class
A |
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
18.86% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
17.12% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
13.68% |
RECORD |
|
|
|
|
|
|
|
| |
MERRILL
LYNCH PIERCE FENNER &
SMITH
INC
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
12.45% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
11.05% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
7.58% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
6.58% |
RECORD |
Class
C |
| |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
32.95% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
23.40% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
12.01% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
10.18% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
8.18% |
RECORD |
MERRILL
LYNCH PIERCE FENNER &
SMITH
INC
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
5.59% |
RECORD |
Class
I |
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUND
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
31.56% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
31.30% |
RECORD |
|
|
|
|
|
|
|
| |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
30.22% |
RECORD |
ATTN
MUTUAL FUND OPERATIONS
MAC
& CO A/C XXXX
500
GRANT STREET ROOM 151-1010
PITTSBURGH
PA 15219-2502 |
5.11% |
RECORD |
Class
I-2 |
| |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
25.39% |
RECORD |
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0002 |
14.43% |
RECORD |
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
13.05% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR THE EXCLUSIVE BENEFIT OF OUR CUST ATTN
MUTUAL FUNDS DEPT 4TH FLOOR 499 WASHINGTON BLVD JERSEY CITY NJ
07310-1995 |
11.93% |
RECORD |
MERRILL
LYNCH PIERCE FENNER &
SMITH
INC
4800
DEER LAKE DR E
JACKSONVILLE
FL 32246-6484 |
10.88% |
RECORD |
RAYMOND
JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCOUNT FIRM XXXX ATTN
COURTNEY WALLER 880 CARILLON PKWY SAINT PETERSBURG FL
33716-1102 |
8.17% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
6.79% |
RECORD |
UBS
WM USA XXXXX SPEC CUSTODY A/C EXL BEN CUSTOMERS OF UBSFSI 1000
HARBOR BLVD WEEHAWKEN NJ 07086-6761 |
5.30% |
RECORD |
Aristotle
Ultra Short Income Fund |
Class
A |
| |
US
BANK NA CUST
JACK
J MAZZARA IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
75.79% |
BENEFICIAL |
|
|
|
|
|
|
|
| |
US
BANK NA CUST
ROBERT
WALTER BARR SIMPLE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
9.67% |
BENEFICIAL |
US
BANK NA CUST
RICHARD
SCOTT REID SIMPLE IRA
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
7.83% |
BENEFICIAL |
Class
I |
| |
PACIFIC
LIFE INSURANCE COMPANY 700 NEWPORT CENTER DR NEWPORT BEACH CA
92660-6307 |
89.05% |
RECORD |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO CUSTOMERS ATTN MUTUAL
FUND 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4151 |
6.75% |
RECORD |
Class
I-2 |
| |
PACIFIC
LIFE INSURANCE COMPANY 700 NEWPORT CENTER DR NEWPORT BEACH CA
92660-6307 |
46.97% |
RECORD |
CHARLES
SCHWAB & CO INC SPECIAL CUSTODY ACCT FBO CUSTOMERS ATTN MUTUAL
FUND 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4151 |
33.58% |
RECORD |
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
12.57% |
RECORD |
Aristotle
Value Equity Fund |
| |
Class
A |
| |
US
BANK NA CUST
RANDALL
J TONKOVICH IRA ROLLOVER
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
89.28% |
BENEFICIAL |
ARISTOTLE
INVESTMENT SERVICES LLC 11100 SANTA MONICA BLVD STE 1700 LOS ANGELES
CA 90025-3395 |
9.72% |
RECORD |
Class
I |
| |
EQUITABLE
TRUST COMPANY 0
4400
HARDING PIKE STE 310
NASHVILLE
TN 37205-2314 |
70.65% |
RECORD |
ARISTOTLE
INVESTMENT SERVICES LLC 11100 SANTA MONICA BLVD STE 1700 LOS ANGELES
CA 90025-3395 |
29.35% |
RECORD |
Class
R6 |
| |
ARISTOTLE
INVESTMENT SERVICES LLC 11100 SANTA MONICA BLVD STE 1700 LOS ANGELES
CA 90025-3395 |
100.00% |
RECORD |
Class
I-2 |
| |
|
|
|
|
|
|
|
| |
MORGAN
STANLEY SMITH BARNEY LLC FBO CUSTOMERS OF MSSB 1 NEW YORK PLAZA 12TH
FL NEW YORK NY 10004-1965 |
58.09% |
RECORD |
SEI
PRIVATE TRUST COMPANY
C
O ID XXX
ATTN
MUTUAL FUNDS
ONE
FREEDOM VALLEY DRIVE
OAKS
PA 19456-9989 |
11.22% |
RECORD |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY A/C FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
10.72% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS 499
WASHINGTON BLVD JERSEY CITY NJ 07310-1995 |
6.75% |
RECORD |
Aristotle/Saul
Global Equity Fund |
| |
Class
A |
| |
ARISTOTLE
INVESTMENT SERVICES LLC
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
99.03% |
RECORD |
Class
I |
| |
ARISTOTLE
INVESTMENT SERVICES LLC
11100
SANTA MONICA BLVD STE 1700
LOS
ANGELES CA 90025-3395 |
100.00% |
RECORD |
Class
I-2 |
| |
MERRILL
LYNCH PIERCE FENNER & SMITH FOR SOLE BENEFIT OF ITS
CUSTOMERS 4800 DEER LAKE DRIVE EAST JACKSONVILLE FL
32246-6484 |
38.21% |
RECORD |
NATIONAL
FINANCIAL SERVICES LLC FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS 499
WASHINGTON BLVD JERSEY CITY NJ 07310-1995 |
14.10% |
RECORD |
GLEICHER
FAMILY TRUST
HOWARD
R GLEICHER TTEE
U/A
DTD 07/31/2007
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
10.28% |
BENEFICIAL |
|
|
|
|
|
|
|
| |
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY A/C FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
10.08% |
RECORD |
DONN
B CONNER TRUST
DONN
B CONNER TTEE
U/A
DTD 4/2/2013
C/O
ARISTOTLE INVESTMENT SERVICES, LLC
11100
SANTA MONICA BLVD., SUITE 1700
LOS
ANGELES, CA 900257 |
6.41% |
BENEFICIAL |
Voting
Rights
Shareholders
of each Fund are given certain voting rights as described in the Trust’s
Declaration of Trust and By-Laws. Each share of each Fund will be given one
vote.
Under
the Declaration of Trust and applicable Delaware law, the Fund is not required
to hold annual meetings of Fund shareholders to elect Trustees or for other
purposes. It is not anticipated that the Fund will hold shareholders’ meetings
unless required by law, although special meetings may be called for a specific
Fund, or for the Fund as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies, or approving a new or amended Advisory
Agreement or sub-advisory agreement. In this regard, the Fund will be required
to hold a shareholders’ meeting to elect Trustees to fill any existing vacancies
on the Board if, at any time, less than a majority of the Trustees have been
elected by the shareholders of the Fund. In addition, the Declaration of Trust
provides that holders of not less than two-thirds of the outstanding shares of
the Fund may remove a person serving as Trustee at any meeting of shareholders.
The Trust’s shares do not have cumulative voting rights. Consistent with
applicable law, the Board may cause a Fund to dissolve or enter into
reorganizations without the approval of shareholders.
Financial
Statements
The
Funds commenced operations on April 17, 2023, except for Aristotle Value Equity
Fund and Aristotle/Saul Global Equity Fund, which commenced operations on
October 23, 2023. The audited financial statements for the Funds’ fiscal year
ended March 31, 2024 are incorporated into this SAI by reference to the
Funds’ annual
report to shareholders,
which was filed with the SEC on June 7, 2024 as part of the Trust’s filing on
Form N-CSR (SEC Accession No. 0001133228-24-005853). The annual
report
is available, without charge, upon request by calling 844-ARISTTL (844-274-7885)
or through the Funds’ website at www.aristotlefunds.com.
Independent
Registered Public Accounting Firm
Tait,
Weller & Baker LLP serves as the independent registered public accounting
firm for the Trust (the “Auditor”) and provides audit services and review of
certain documents to be filed with the SEC. The address of Auditor is Two
Liberty Place, 50 South 16th Street, Suite 2900, Philadelphia, Pennsylvania
19102.
Counsel
Ropes
& Gray, LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199, passes
upon certain legal matters in connection with the shares offered by the Trust
and also acts as outside counsel to the Trust.
Code
of Ethics
The
Trust, the Adviser, the Distributor, and each sub-adviser have adopted codes of
ethics designed to meet the requirements of Rule 17j-1 of the 1940 Act which
have been approved by the Trust’s Board. Subject to certain limitations and
procedures, these codes permit personnel that they cover, including employees of
the Adviser, the Distributor or sub-advisers who regularly have access to
information about securities purchased for the Trust, to invest in securities
for their own accounts. This could include securities that may be purchased by
Funds of the Trust. The codes are intended to prevent these personnel from
taking inappropriate advantage of their positions and to prevent fraud upon the
Trust. The Trust’s Code of Ethics requires reporting to the Board on material
compliance violations.
Proxy
Voting Policies and Procedures
With
respect to each Fund, except the Portfolio Optimization Funds, the Board has
delegated proxy voting responsibilities with respect to each Fund to such Fund’s
Manager, subject to the Board’s general oversight, with the direction that
proxies should be voted consistent with the Fund’s best interests as determined
by the Manager and applicable regulations. Each Manager has adopted its own
Proxy Voting Policies and Procedures (“Policies”) for this purpose. The Policies
address, among other things, conflicts of interest that may arise between the
interests of the Fund and the interests of the Manager and its affiliates. Due
to the nature of the assets in which certain of the Funds invest (e.g.,
debt, currency, or derivatives), actions requiring proxy voting may not arise.
In the event that proxy voting is required, the Manager’s Policies would
apply.
The
Policies set forth each Manager’s general position on various proposals.
However, a Manager may, consistent with the Fund’s best interests, determine
under some circumstances to vote contrary to those positions. The Policies on a
particular issue may or may not reflect the view of individual members of the
Board or of a majority of the Board. In addition, the Policies may reflect a
voting position that differs from the actual practices of other investment
companies or advisory clients for which a Manager or its affiliates serve as
investment manager. Because each Manager will vote proxies consistent with its
own Policies, it is possible that different Funds will vote differently on the
same proposals or categories of proposals.
Set
forth in Appendix B are the Policies for each Manager, as prepared and provided
by each Manager, respectively. Generally, information regarding how each Fund
has voted proxies relating to its portfolio securities during the most recent
twelve-month period ended June 30 is available after filing, without charge, (i)
on the Trust’s website at
https://www.aristotlefunds.com/resources/prospectuses-reports, and (ii) on the
SEC’s website at http://www.sec.gov.
How
shares will be voted by the Portfolio Optimization Funds.
The Portfolio Optimization Funds, in their capacity as shareholders of
Underlying Funds, may be requested to vote on matters pertaining to the
Underlying Funds. If an Underlying Fund calls a shareholder meeting and solicits
proxies, the Portfolio Optimization Funds will vote their shares in accordance
with the following: (i) if there are shareholders of an Underlying Fund other
than one or more of the Portfolio Optimization Funds, the Trust may vote any
proxies of an Underlying Fund in the same proportion as the vote of all
shareholders of the Underlying Fund other than the Portfolio Optimization Funds;
(ii) if the only shareholders of an Underlying Fund are one or more of the
Portfolio Optimization Funds, the Trust may seek voting instructions from the
shareholders of the Portfolio Optimization Fund, in which case the Trust will
vote proxies in the same proportion as the instructions timely received from
shareholders of the Portfolio Optimization Funds; (iii) in the event the
Portfolio Optimization Fund, and an Underlying Fund solicit a proxy for an
identical proposal and the only shareholders of an Underlying Fund are Portfolio
Optimization Funds, then the Portfolio Optimization Funds may vote its proxies
of the Underlying Funds in the same proportions as the votes cast on the
proposal by the shareholders of the Portfolio Optimization Funds; or (iv) the
Trust may vote proxies in a manner as determined by the Board.
Registration
Statement
This
SAI and the Prospectuses do not contain all the information included in the
Trust’s Registration Statement filed with the SEC under the 1933 Act, with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. The Registration
Statement, including the exhibits filed therewith (and including specifically
all applicable Codes of Ethics), are available on the SEC’s website at
www.sec.gov.
Statements
contained herein and in the Prospectuses as to the contents of any contract or
other documents are not necessarily complete, and, in each instance, reference
is made to the copy of such contract or other documents filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
APPENDICES
Appendix
A: Description of Fixed Income/Debt Instrument Ratings
Three
of the most common nationally recognized statistical rating organizations
(“Rating Agencies”) are Standard and Poor’s Rating Services (“Standard &
Poor’s”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch, Inc. (“Fitch”)
. Information regarding ratings from each of these Rating Agencies is listed
below.
If
the Rating Agencies assign different ratings to the same security, a Fund may
use the highest rating for purposes of determining an instrument’s credit
quality for investment grade, and may use the lowest rating for purposes of
determining an instrument’s credit quality for non-investment
grade.
Long-Term
Ratings
Long-term
debt instruments include notes, bond, loans and other debt instruments generally
with maturities in excess of thirteen months as defined more specifically by
each Rating Agency.
Investment
Grade
Standard
& Poor’s
(The
ratings from ‘AA’ to ‘BBB’ may be modified by the addition of a plus (+) or
minus (–) sign to show relative standing within the rating
categories.)
AAA An
obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s.
The obligor’s capacity to meet its financial commitment on the obligation is
extremely strong.
AA An
obligation rated ‘AA’ differs from the highest-rated obligations only to a small
degree. The obligor’s capacity to meet its financial commitment on the
obligation is very strong.
A An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is still strong.
BBB An
obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Moody’s
(Moody’s
appends numerical modifiers 1, 2, and 3 to each generic rating classification
from ‘Aa’ through ‘Caa’. The modifier 1 indicates that the obligation ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.)
Aaa Obligations
rated ‘Aaa’ are judged to be of the highest quality, subject to the lowest level
of credit risk.
Aa Obligations
rated ‘Aa’ are judged to be of high quality and are subject to very low credit
risk.
A Obligations
rated ‘A’ are judged to be upper-medium grade and are subject to low credit
risk.
Baa Obligations
rated ‘Baa’ are judged to be medium-grade and subject to moderate credit risk
and as such may possess certain speculative characteristics.
Fitch
(The
ratings from ‘AA’ to ‘BBB’ may be modified by the addition of a plus (+) or
minus (–) sign to show relative standing within the rating
categories.)
AAA Highest
credit quality.
‘AAA’ ratings denote the lowest expectation of credit risk. They are assigned
only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
AA Very
high credit quality.
‘AA’ ratings denote expectations of very low credit risk. They indicate very
strong capacity for payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A High
credit quality.
‘A’ ratings denote expectations of low credit risk. The capacity for payment of
financial commitments is considered strong. This capacity may, nevertheless, be
more vulnerable to adverse business or economic conditions than is the case for
higher ratings.
BBB Good
credit quality.
‘BBB’ ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments is considered adequate, but
adverse business or economic conditions are more likely to impair this
capacity.
Non-Investment
Grade
Standard
& Poor’s
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
(The
ratings from ‘BB’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (–) sign to show relative standing within the rating
categories.)
BB An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the obligation.
B An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor’s capacity or willingness to meet its financial commitment on
the obligation.
CCC An
obligation rated ‘CCC’ is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’
rating is used when a default has not yet occurred, but Standard & Poor’s
expects default to be a virtual certainty, regardless of the anticipated time to
default.
C An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher.
D An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when payments on
an obligation are not made on the date due, unless Standard & Poor’s
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or 30 calendar days. The ‘D’ rating also will be used upon the filing of
a bankruptcy petition or the taking of similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
An obligation’s rating is lowered to ‘D’ if it is subject to a distressed
exchange offer.
Moody’s
(Moody’s
also applies numerical indicators 1, 2 and 3 to rating categories. The modifier
1 indicates that the security is in the higher end of its rating category; 2
indicates a mid-range ranking; and 3 indicates a ranking toward the lower end of
the category.)
Ba Obligations
rated ‘Ba’ are judged to be speculative and are subject to substantial credit
risk.
B Obligations
rated ‘B’ are considered speculative and are subject to high credit
risk.
Caa Obligations
rated ‘Caa’ are judged to be speculative of poor standing and are subject to
very high credit risk.
Ca Obligations
rated ‘Ca’ are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C Obligations
rated ‘C’ are the lowest rated and are typically in default, with little
prospect for recovery of principal or interest.
Fitch
(The
ratings from ‘BB’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (–) sign to show relative standing within the rating
categories.)
BB Speculative.
‘BB’ ratings indicate an elevated vulnerability to credit risk, particularly in
the event of adverse changes in business or economic conditions over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
B Highly
speculative. ‘B’
ratings indicate that material credit risk is present.
CCC Substantial
credit risk.
‘CCC’ ratings indicate that substantial credit risk is present.
CC Very
high levels of credit risk.
‘CC’ ratings indicate very high levels of credit risk.
C Exceptionally
high levels of credit risk.
‘C’ indicates exceptionally high levels of credit risk.
Short-Term
Ratings
Short-term
instruments include those instruments such as commercial paper and other
instruments with maturities of thirteen months or less as defined more
specifically by each Rating Agency.
Standard
& Poor’s
A-1 A
short-term obligation rated ‘A-1’ is rated in the highest category by Standard
& Poor’s. The obligor’s capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor’s capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A
short-term obligation rated ‘B’ is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitments; however, it faces major ongoing uncertainties which could
lead to the obligor’s inadequate capacity to meet its financial commitments.
C A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is used
when payments on an obligation are not made on the date due, unless Standard
& Poor’s believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The ‘D’ rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for example due to automatic stay
provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a
distressed exchange offer.
Moody’s
P-1 Issuers
(or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2 Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
P-3 Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP Issuers
(or supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
Fitch
F1 Highest
credit quality.
Indicates the strongest intrinsic capacity for timely payment of financial
commitments; may have an added “+” to denote any exceptionally strong credit
feature.
F2 Good
credit quality.
Good intrinsic capacity for timely payment of financial
commitments.
F3 Fair
credit quality.
The intrinsic capacity for timely payment of financial commitments is
adequate.
B Speculative
short-term credit quality.
Minimal capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions.
C High
short-term default risk.
Default is a real possibility.
RD Restricted
default.
Indicates an entity that has defaulted on one or more of its financial
commitments, although it continues to meet other financial obligations.
Typically applicable to entity ratings only.
D Default.
Indicates a broad-based default event for an entity, or the default of a
short-term obligation.
APPENDIX
B: PROXY VOTING POLICIES AND PROCEDURES FOR EACH OF THE FOLLOWING
MANAGERS
Aristotle
Investment Services, LLC
Proxy
Voting Policies and Procedures
1.PROXY
VOTING
The
Investment Company Act of 1940 requires that funds that invest in voting
securities disclose their proxy voting policies and procedures in their
registration statement and file annually with the SEC and make available to
their shareholders their actual proxy voting record. Aristotle Investment does
not have authority to trade securities. In the event Aristotle Investment
obtains such authority, Aristotle Investment will (i) adopt proxy policies
reasonably designed to ensure that the adviser votes proxies in the best
interest of its clients, including addressing material conflicts of interest;
(ii) disclose to shareholders information about its proxy policies; and (iii)
maintain certain records relating to proxy voting. These requirements are
designed to ensure greater transparency in the voting of proxies.
OPERATIONAL
GUIDELINES
Aristotle
Investment has delegated proxy voting responsibility to each Fund sub-adviser.
Aristotle Investment Compliance is responsible for monitoring that each
sub-adviser has appropriate policies and procedures for fulfilling proxy voting
obligation with respect to their holdings and has fulfilled their obligation or
disclosed to Aristotle Investment Compliance reasons why a proxy ballot was not
acted upon. The Aristotle Funds Series Trust counsel with the support of the
Fund Administrator is responsible for ensuring that appropriate disclosures are
made in the Trust prospectus and statement of additional information.
Aristotle
Atlantic Partners, LLC
Proxy
Voting Policies and Procedures
Last
Updated
October
3, 2023
Introduction
Aristotle
Atlantic Partners, LLC (“Aristotle Atlantic”), in compliance with the principles
of Rule 204-2 of the Advisers Act, has adopted and implemented policies and
procedures for voting proxies in the best interest of clients, to describe the
procedures to clients, and to tell clients how they may obtain information about
how Aristotle Atlantic has actually voted their proxies. While decisions about
how to vote must be determined on a case-by-case basis, Aristotle Atlantic’s
general policies and procedures for voting proxies are set forth
below.
Specific
Proxy Voting Policies and Procedures
Aristotle
Atlantic believes that the voting of proxies is an important part of portfolio
management as it represents an opportunity for shareholders to make their voices
heard and to influence the direction of a company. Unless otherwise directed by
the client, Aristotle Atlantic will vote proxies and will vote such proxies in
the manner that, in its opinion, serves the best interests of the clients in
accordance with this policy.
Aristotle
Atlantic has contracted with Institutional Shareholder Services (“ISS”) to
provide proxy voting support. Under the terms of its arrangement with ISS,
Aristotle Atlantic directs each custodian to forward proxy ballots to ISS for
processing. Aristotle Atlantic has access to the ballots through the ISS website
and may provide ISS with instructions on how to vote the ballots or Aristotle
Atlantic may vote the ballots through the website. ISS records the votes and
provides proxy voting accounting and reporting. Case-by-case proxy voting
decisions are generally made by the Portfolio Manager or his designee. All
voting records are maintained by ISS, except that Aristotle Atlantic will
maintain copies of any document created by Aristotle Atlantic that was material
in making a determination of how to vote a “case-by-case” proxy or that
memorializes the basis for that decision.
The
following details Aristotle Atlantic’s philosophy and practice regarding the
voting of proxies.
Voting
Guidelines
Aristotle
Atlantic has adopted guidelines for certain types of matters to assist the
Portfolio Manager or designee in the review and voting of proxies on a
case-by-case basis. These guidelines are set forth below:
1.Corporate
Governance
a.Election
of Directors and Similar Matters
In
an uncontested election, Aristotle Atlantic will generally vote in favor of
management’s proposed directors. In a contested election, Aristotle Atlantic
will evaluate proposed directors on a case-by-case basis. With respect to
proposals regarding the structure of a company’s board of directors, Aristotle
Atlantic will review any contested proposal on its merits.
Notwithstanding
the foregoing, Aristotle Atlantic expects to support
proposals
to:
•Limit
directors’ liability and broaden directors’ indemnification rights;
And
expects to generally vote
against proposals
to:
•Adopt
or continue the use of a classified Board structure; and
•Add
special interest directors to the board of directors (e.g., efforts to expand
the board of directors to control the outcome of a particular
decision).
a.Audit
Committee Approvals
Aristotle
Atlantic generally supports proposals that help ensure that a company’s auditors
are independent and capable of delivering a fair and accurate opinion of a
company’s finances. Aristotle Atlantic will generally vote to ratify
management’s recommendation and selection of auditors.
b.Shareholder
Rights
Aristotle
Atlantic may consider all proposals that will have a material effect on
shareholder rights on a case-by-case basis.
Notwithstanding
the foregoing, Aristotle Atlantic expects to generally support
proposals
to:
•Adopt
confidential voting and independent tabulation of voting results;
and
•Require
shareholder approval of poison pills;
And
expects to generally vote
against proposals
to:
•Adopt
super-majority voting requirements; and
•Restrict
the rights of shareholders to call special meetings, amend the bylaws or act by
written consent.
2.Anti-Takeover
Measures, Corporate Restructurings and Similar Matters
Aristotle
Atlantic may review any proposal to adopt an anti-takeover measure, to undergo a
corporate restructuring (e.g., change of entity form or state of incorporation,
mergers or acquisitions) or to take similar action by reviewing the potential
short and long-term effects of the proposal on the company. These effects may
include, without limitation, the economic and financial impact the proposal may
have on the company, and the market impact that the proposal may have on the
company’s stock.
Notwithstanding
the foregoing, Aristotle Atlantic expects to generally support
proposals
to:
•Prohibit
the payment of greenmail (i.e., the purchase by the company of its own shares to
prevent a hostile takeover);
•Adopt
fair price requirements (i.e., requirements that all shareholders be paid the
same price in a tender offer or takeover context), unless the Portfolio Manager
deems them sufficiently limited in scope; and
•Require
shareholder approval of “poison pills.”
And
expects to generally vote
against proposals
to:
•Adopt
classified boards of directors;
•Reincorporate
a company where the primary purpose appears to the Portfolio Manager to be the
creation of takeover defenses; and
•Require
a company to consider the non-financial effects of mergers or
acquisitions.
3.Capital
Structure Proposals
Aristotle
Atlantic will seek to evaluate capital structure proposals on their own merits
on a case- by-case basis.
Notwithstanding
the foregoing, Aristotle Atlantic expects to generally support
proposals
to:
•Eliminate
preemptive rights.
4.Compensation
a.General
Aristotle
Atlantic generally supports proposals that encourage the disclosure of a
company’s compensation policies. In addition, Aristotle Atlantic generally
supports proposals that fairly compensate executives, particularly those
proposals that link executive compensation to performance. Aristotle Atlantic
may consider any contested proposal related to a company’s compensation policies
on a case-by-case basis.
Notwithstanding
the foregoing, Aristotle Atlantic expects to generally support
proposals
to:
•Require
shareholders approval of golden parachutes; and
•Adopt
golden parachutes that do not exceed 1 to 3 times the base compensation of the
applicable executives.
And
expects to generally vote
against proposals
to:
•Adopt
measures that appear to the Portfolio Manager to arbitrarily limit executive or
employee benefits.
5.Stock
Option Plans and Share Issuances
Aristotle
Atlantic evaluates proposed stock option plans and share issuances on a
case-by-case basis. In reviewing proposals regarding stock option plans and
issuances, Aristotle Atlantic may consider, without limitation, the potential
dilutive effect on shareholders and the potential short and long-term economic
effects on the company. We believe that stock option plans do not necessarily
align the interest of executives and outside directors with those of
shareholders. We believe that well thought out cash compensation plans can
achieve these objectives without diluting shareholders ownership. We will review
these proposals on a case-by-case basis to determine that shareholders interests
are being represented. We certainly are in favor of management, directors and
employees owning stock, but prefer that the shares are purchased in the open
market.
6.Corporate
Responsibility and Social Issues
Aristotle
Atlantic generally believes that ordinary business matters (including, without
limitation, positions on corporate responsibility and social issues) are
primarily the responsibility of a company’s management that should be addressed
solely by the company’s management. These types of proposals, often initiated by
shareholders, may request that the company disclose or amend certain business
practices.
Aristotle
Atlantic will consider proposals involving corporate responsibility and social
issues on a case-by-case basis.
7.Conflicts
In
cases where Aristotle Atlantic is aware of a conflict between the interests of a
client(s) and the interests of Aristotle Atlantic or an affiliated person of
Aristotle Atlantic (e.g., a portfolio holding is a client or an affiliate of a
client of Aristotle Atlantic), the Aristotle Atlantic will take the following
steps:
a.vote
matters that are specifically covered by this Proxy Voting Policy (e.g., matters
where the Aristotle Atlantic’s vote is strictly in accordance with this Policy
and not in its discretion) in accordance with this Policy; and
b.for
other matters, contact the client for instructions with respect to how to vote
the proxy.
8.Disclosure
of Proxy Voting Policy
Upon
receiving a written request from a client, Aristotle Atlantic will provide a
copy of this policy within a reasonable amount of time. If approved by the
client, this policy and any requested records may be provided
electronically.
9.Recordkeeping
Aristotle
Atlantic shall keep the following records for a period of at least five years,
the first two in an easily accessible place:
i.A
copy of this Policy;
ii.Proxy
Statements received regarding client securities;
iii.Records
of votes cast on behalf of clients;
iv.Any
documents prepared by Aristotle Atlantic that were material to making a decision
how to vote, or that memorialized the basis for the decision; and
v.Records
of client requests for proxy voting information.
Aristotle
Atlantic may rely on proxy statements filed on the SEC EDGAR system instead of
keeping its own copies, and may rely on proxy statements and records of proxy
votes cast by Aristotle Atlantic that are maintained with a third party such as
a proxy voting service, provided that Aristotle Atlantic has obtained an
undertaking from the third party to provide a copy of the documents promptly
upon request.
10.Proxy
Voting for Accounts Subject to ERISA
Department
of Labor (“DOL”) provided investment managers the following guidance about their
ERISA responsibilities, when voting proxies:
Where
the authority to manage plan assets has been delegated to an investment manager,
only the investment manager has authority to vote proxies, except when the named
fiduciary has reserved to itself or to another named fiduciary (as authorized by
the plan document) the right to direct a plan trustee regarding the voting of
proxies.2
DOL
has also indicated that an adviser with a duty to vote proxies has an obligation
to take reasonable steps under the circumstances to ensure that it receives the
proxies. Appropriate steps include informing the plan sponsor and its trustees,
bank custodian or broker-dealer custodian of the requirement that all proxies be
forwarded to the adviser and making periodic reviews during the proxy season,
including follow-up letters and phone calls if necessary. When voting proxies,
an investment manager must consider proxies as a plan asset and act solely in
accordance with the economic interest of the plan and its participants and
beneficiaries.3
DOL
has also indicated that the adviser must consider any costs involved when voting
proxies for plan assets. Adviser should evaluate material facts that form the
basis for any particular voting decision or other exercise of shareholder right.
Aristotle Atlantic may decide, after a facts and circumstances analysis, to
refrain from voting if it is determined that a plan client would incur
unreasonable costs.
DOL
has also indicated that the adviser must exercise prudence and diligence in the
selection and monitoring of persons, if any, selected to advise or otherwise
assist with exercises of shareholder rights. Aristotle Atlantic has contracted
with ISS to provide proxy voting support and periodically reviews ISS guidelines
as part of vendor oversight.
DOL
has also indicated that the adviser must properly document votes and that the
named fiduciary has a duty to monitor the proxy voting process of the adviser.
Advisers should be prepared to issue proxy voting reports to clients. Records of
“solicitation” activities by issuers (or others) should be maintained. Records
should reflect a verification of each proxy to each share in each account.
Records should be maintained in such a manner that it is easy to backtrack.
Copies of each executed ballot should be maintained. Aristotle Atlantic has
access to proxy voting records through ISS and can issue copies of proxy voting
reports to clients upon request. Aristotle Atlantic maintains a log of
solicitations it receives from issuers or others.
2
Interpretive Bulletin 94-2, July 28, 1994.
3
Department of Labor ERISA Rule 404a-1(e)(2)(ii).
Aristotle
Capital Boston, LLC
Proxy
Voting Policies and Procedures
Last
Updated
October
3, 2023
Introduction
Aristotle
Capital Boston, LLC (“Aristotle Boston”), in compliance with the principles of
Rule 204-2 of the Advisers Act, has adopted and implemented policies and
procedures for voting proxies in the best interest of clients, to describe the
procedures to clients, and to tell clients how they may obtain information about
how Aristotle Boston has actually voted their proxies. While decisions about how
to vote must be determined on a case-by-case basis, Aristotle Boston’s general
policies and procedures for voting proxies are set forth below.
Specific
Proxy Voting Policies and Procedures
Aristotle
Boston believes that the voting of proxies is an important part of portfolio
management as it represents an opportunity for shareholders to make their voices
heard and to influence the direction of a company. Unless otherwise directed by
the client, Aristotle Boston will vote proxies and will vote such proxies in the
manner that, in its opinion, serves the best interests of the clients in
accordance with this policy.
When
voting proxies for non-model holdings, Aristotle Boston can vote in accordance
with Institutional Shareholder Services (“ISS”) recommendation. (Non-model
holdings refers to securities where the client has provided instruction to
Aristotle Capital to restrict trading the securities.) Otherwise, the following
policies and procedures are implemented.
Aristotle
Boston has contracted with ISS to provide proxy voting support. Under the terms
of its arrangement with ISS, Aristotle Boston directs each custodian to forward
proxy ballots to ISS for processing. Aristotle Boston has access to the ballots
through the ISS website and may provide ISS with instructions on how to vote the
ballots or Aristotle Boston may vote the ballots through the website. ISS
records the votes and provides proxy voting accounting and reporting.
Case-by-case proxy voting decisions are generally made by Portfolio Managers or
their designee. All voting records are maintained by ISS, except that Aristotle
Boston will maintain copies of any document created by Aristotle Boston that was
material in making a determination of how to vote a “case-by-case” proxy or that
memorializes the basis for that decision.
The
following details Aristotle Boston’s philosophy and practice regarding the
voting of proxies.
Voting
Guidelines
Aristotle
Boston has adopted guidelines for certain types of matters to assist Portfolio
Managers in the review and voting of proxies on a case-by-case basis. These
guidelines are set forth below:
1.Corporate
Governance
a.Election
of Directors and Similar Matters
In
an uncontested election, Aristotle Boston will generally vote in favor of
management’s proposed directors. In a contested election, Aristotle Boston will
evaluate proposed directors on a case-by-case basis. With respect to proposals
regarding the structure of a company’s board of directors, Aristotle Boston will
review any contested proposal on its merits.
Notwithstanding
the foregoing, Aristotle Boston expects to support
proposals
to:
•Limit
directors’ liability and broaden directors’ indemnification rights;
And
expects to generally vote
against
proposals
to:
•Adopt
or continue the use of a classified board structure; and
•Add
special interest directors to the board of directors (e.g., efforts to expand
the board of directors to control the outcome of a particular
decision).
b.Audit
Committee Approvals
Aristotle
Boston generally supports proposals that help ensure that a company’s auditors
are independent and capable of delivering a fair and accurate opinion of a
company’s finances. Aristotle Boston will generally vote to ratify management’s
recommendation and selection of auditors.
c.Shareholder
Rights
Aristotle
Boston may consider all proposals that will have a material effect on
shareholder rights on a case-by-case basis. Notwithstanding the foregoing,
Aristotle Boston expects to generally support
proposals
to:
•Adopt
confidential voting and independent tabulation of voting results;
and
•Require
shareholder approval of poison pills;
And
expects to generally vote
against
proposals
to:
•Adopt
super-majority voting requirements; and
•Restrict
the rights of shareholders to call special meetings, amend the bylaws or act by
written consent.
2.Anti-Takeover
Measures, Corporate Restructurings and Similar Matters
Aristotle
Boston may review any proposal to adopt an anti-takeover measure, to undergo a
corporate restructuring (e.g., change of entity form or state of incorporation,
mergers or acquisitions) or to take similar action by reviewing the potential
short and long-term effects of the proposal on the company. These effects may
include, without limitation, the economic and financial impact the proposal may
have on the company, and the market impact that the proposal may have on the
company’s stock.
Notwithstanding
the foregoing, Aristotle Boston expects to generally support
proposals
to:
•Prohibit
the payment of greenmail (i.e., the purchase by the company of its own shares to
prevent a hostile takeover);
•Adopt
fair price requirements (i.e., requirements that all shareholders be paid the
same price in a tender offer or takeover context), unless Portfolio Managers
deems them sufficiently limited in scope; and
•Require
shareholder approval of “poison pills.”
And
expects to generally vote
against
proposals
to:
•Adopt
classified boards of directors;
•Reincorporate
a company where the primary purpose appears to Portfolio Managers to be the
creation of takeover defenses; and
3.Require
a company to consider the non-financial effects of mergers or
acquisitions.
4.Capital
Structure Proposals
Aristotle
Boston will seek to evaluate capital structure proposals on their own merits on
a case- by-case basis.
Notwithstanding
the foregoing, Aristotle Boston expects to generally support
proposals
to:
•Eliminate
preemptive rights.
5.Compensation
Aristotle
Boston generally supports proposals that encourage the disclosure of a company’s
compensation policies. In addition, Aristotle Boston generally supports
proposals that fairly compensate executives, particularly those proposals that
link executive compensation to performance. Aristotle Boston may consider any
contested proposal related to a company’s compensation policies on a
case-by-case basis.
Notwithstanding
the foregoing, Aristotle Boston expects to generally support
proposals
to:
•Require
shareholders approval of golden parachutes; and
•Adopt
golden parachutes that do not exceed 1 to 3 times the base compensation of the
applicable executives.
And
expects to generally vote
against
proposals
to:
•Adopt
measures that appear to Portfolio Managers to arbitrarily limit executive or
employee benefits.
6.Stock
Option Plans and Share Issuances
Aristotle
Boston evaluates proposed stock option plans and share issuances on a
case-by-case basis. In reviewing proposals regarding stock option plans and
issuances, Aristotle Boston may consider, without limitation, the potential
dilutive effect on shareholders and the potential short and long-term economic
effects on the company. We believe that stock option plans do not necessarily
align the interest of executives and outside directors with those of
shareholders. We believe that well thought out cash compensation plans can
achieve these objectives without diluting shareholders ownership. We will review
these proposals on a case-by-case basis to determine that shareholders interests
are being represented. We certainly are in favor of management, directors and
employees owning stock, but prefer that the shares are purchased in the open
market.
7.Corporate
Responsibility and Social Issues
Aristotle
Boston generally believes that ordinary business matters (including, without
limitation, positions on corporate responsibility and social issues) are
primarily the responsibility of a company’s management that should be addressed
solely by the company’s management. These types of proposals, often initiated by
shareholders, may request that the company disclose or amend certain business
practices.
Aristotle
Boston will consider proposals involving corporate responsibility and social
issues on a case-by-case basis.
8.Conflicts
In
cases where Aristotle Boston is aware of a conflict between the interests of a
client(s) and the interests of Aristotle Boston or an affiliated person of
Aristotle Boston (e.g., a portfolio holding is a client or an affiliate of a
client of Aristotle Boston), the Aristotle Boston will take the following
steps:
(a)vote
matters that are specifically covered by this proxy voting policy (e.g., matters
where Aristotle Boston’s vote is strictly in accordance with this policy and not
in its discretion) in accordance with this policy; and
(b)for
other matters, contact the client for instructions with respect to how to vote
the proxy
9.Disclosure
of Proxy Voting Policy
Upon
receiving a written request from a client, Aristotle Boston will provide a copy
of this policy within a reasonable amount of time. If approved by the client,
this policy and any requested records may be provided
electronically.
10.Recordkeeping
Aristotle
Boston shall keep the following records for a period of at least five years, the
first two in an easily accessible place:
(i)A
copy of this policy;
(ii)Proxy
statements received regarding client securities;
(iii)Records
of votes cast on behalf of clients;
(iv)Any
documents prepared by Aristotle Boston that were material to making a decision
how to vote, or that memorialized the basis for the decision; and
(v)Records
of client requests for proxy voting information.
Aristotle
Boston may rely on proxy statements filed on the SEC EDGAR system instead of
keeping its own copies, and may rely on proxy statements and records of proxy
votes cast by Aristotle Boston that are maintained with a third party such as a
proxy voting service, provided that Aristotle Boston has obtained an undertaking
from the third party to provide a copy of the documents promptly upon
request.
11.Proxy
Voting for Accounts Subject to ERISA
Department
of Labor (“DOL”) provided investment managers the following guidance about their
ERISA responsibilities, when voting proxies:
Where
the authority to manage plan assets has been delegated to an investment manager,
only the investment manager has authority to vote proxies, except when the named
fiduciary has reserved to itself or to another named fiduciary (as authorized by
the plan document) the right to direct a plan trustee regarding the voting of
proxies4.
DOL
has also indicated that an adviser with a duty to vote proxies has an obligation
to take reasonable steps under the circumstances to ensure that it receives the
proxies. Appropriate steps include informing the plan sponsor and its trustees,
bank custodian or broker-dealer custodian of the requirement that all proxies be
forwarded to the adviser and making periodic reviews during the proxy season,
including follow-up letters and phone calls if necessary. When voting proxies,
an investment manager must consider proxies as a plan asset and act solely in
accordance with the economic interest of the plan and its participants and
beneficiaries5.
DOL
has also indicated that the adviser must consider any costs involved when voting
proxies for plan assets. Adviser should evaluate material facts that form the
basis for any particular voting decision or other exercise of shareholder right.
Aristotle Boston may decide, after a facts and circumstances analysis, to
refrain from voting if it is determined that a plan client would incur
unreasonable costs.
DOL
has also indicated that the adviser must exercise prudence and diligence in the
selection and monitoring of persons, if any, selected to advise or otherwise
assist with exercises of shareholder rights. Aristotle Boston has
4
Interpretive
Bulletin 94-2, July 28, 1994.
5
Department
of Labor ERISA Rule 404a-1(e)(2)(ii).
contracted
with ISS to provide proxy voting support and periodically reviews ISS guidelines
as part of vendor oversight.
DOL
has also indicated that the adviser must properly document votes and that the
named fiduciary has a duty to monitor the proxy voting process of the adviser.
Advisers should be prepared to issue proxy voting reports to clients. Records of
“solicitation” activities by issuers (or others) should be maintained. Records
should reflect a verification of each proxy to each share in each account.
Records should be maintained in such a manner that it is easy to backtrack.
Copies of each executed ballot should be maintained. Aristotle Boston has access
to proxy voting records through ISS and can issue copies of proxy voting reports
to clients upon request. Aristotle Boston maintains a log of solicitations it
receives from issuers or others.
Aristotle
Capital Management, LLC
Proxy
Voting Policies and Procedures
Last
Updated
October
3, 2023
Introduction
Aristotle
Capital Management, LLC (“Aristotle Capital”), in compliance with the principles
of Rule 204-2 of the Advisers Act, has adopted and implemented policies and
procedures for voting proxies in the best interest of clients, to describe the
procedures to clients, and to tell clients how they may obtain information about
how Aristotle Capital has actually voted their proxies. While decisions about
how to vote must be determined on a case-by-case basis, Aristotle Capital’s
general policies and procedures for voting proxies are set forth
below.
Specific
Proxy Voting Policies and Procedures
Aristotle
Capital believes that the voting of proxies is an important part of portfolio
management as it represents an opportunity for shareholders to make their voices
heard and to influence the direction of a company. Unless otherwise directed by
the client, Aristotle Capital will vote proxies and will vote such proxies in
the manner that, in its opinion, serves the best interests of the clients in
accordance with this policy.
Aristotle
Capital has contracted with Institutional Shareholder Services (“ISS”) to
provide proxy voting support. Under the terms of its arrangement with ISS,
Aristotle Capital directs each custodian to forward proxy ballots to ISS for
processing. Aristotle Capital has access to the ballots through the ISS website
and may provide ISS with instructions on how to vote the ballots or Aristotle
Capital may vote the ballots through the website. ISS records the votes and
provides proxy voting accounting and reporting. Case-by-case proxy voting
decisions are generally made by the Chief Investment Officer (“CIO”) or his
designee. All voting records are maintained by ISS, except that Aristotle
Capital will maintain copies of any document created by Aristotle Capital that
was material in making a determination of how to vote a “case-by-case” proxy or
that memorializes the basis for that decision.
The
following details Aristotle’s philosophy and practice regarding the voting of
proxies.
Voting
Guidelines
Aristotle
Capital has adopted guidelines for certain types of matters to assist the CIO or
designee in the review and voting of proxies on a case-by-case basis. These
guidelines are set forth below:
1.Corporate
Governance
a.Election
of Directors and Similar Matters
In
an uncontested election, Aristotle Capital will generally vote in favor of
management’s proposed directors. In a contested election, Aristotle Capital will
evaluate proposed directors on a case-by-case basis. With respect to proposals
regarding the structure of a company’s Board of Directors, Aristotle Capital
will review any contested proposal on its merits.
Notwithstanding
the foregoing, Aristotle Capital expects to support
proposals
to:
•Limit
directors’ liability and broaden directors’ indemnification rights;
And
expects to generally vote
against proposals
to:
•Adopt
or continue the use of a classified Board structure; and
•Add
special interest directors to the board of directors (e.g., efforts to expand
the board of directors to control the outcome of a particular
decision).
b.Audit
Committee Approvals
Aristotle
Capital generally supports proposals that help ensure that a company’s auditors
are independent and capable of delivering a fair and accurate opinion of a
company’s finances. Aristotle Capital will generally vote to ratify management’s
recommendation and selection of auditors.
c.Shareholder
Rights
Aristotle
Capital may consider all proposals that will have a material effect on
shareholder rights on a case-by-case basis.
Notwithstanding
the foregoing, Aristotle Capital expects to generally support
proposals
to:
•Adopt
confidential voting and independent tabulation of voting results;
and
•Require
shareholder approval of poison pills;
And
expects to generally vote
against proposals
to:
•Adopt
super-majority voting requirements; and
•Restrict
the rights of shareholders to call special meetings, amend the bylaws or act by
written consent.
2.Anti-Takeover
Measures, Corporate Restructurings and Similar Matters
Aristotle
Capital may review any proposal to adopt an anti-takeover measure, to undergo a
corporate restructuring (e.g., change of entity form or state of incorporation,
mergers or acquisitions) or to take similar action by reviewing the potential
short and long-term effects of the proposal on the company. These effects may
include, without limitation, the economic and financial impact the proposal may
have on the company, and the market impact that the proposal may have on the
company’s stock.
Notwithstanding
the foregoing, Aristotle Capital expects to generally support
proposals
to:
•Prohibit
the payment of greenmail (i.e., the purchase by the company of its own shares to
prevent a hostile takeover);
•Require
shareholder approval of “poison pills.”
And
expects to generally vote
against proposals
to:
•Adopt
classified boards of directors;
•Reincorporate
a company where the primary purpose appears to the CIO to be the creation of
takeover defenses; and
•Require
a company to consider the non-financial effects of mergers or
acquisitions
3.Capital
Structure Proposals
Aristotle
Capital will seek to evaluate capital structure proposals on their own merits on
a case- by-case basis.
Notwithstanding
the foregoing, Aristotle Capital expects to generally support
proposals
to:
•Eliminate
preemptive rights.
4.Compensation
a.General
Aristotle
Capital generally supports proposals that encourage the disclosure of a
company’s compensation policies. In addition, Aristotle Capital generally
supports proposals that fairly compensate executives, particularly those
proposals that link executive compensation to performance. Aristotle Capital may
consider any contested proposal related to a company’s compensation policies on
a case-by-case basis.
Notwithstanding
the foregoing, Aristotle Capital expects to generally support
proposals
to:
•Require
shareholders approval of golden parachutes; and
•Adopt
golden parachutes that do not exceed 1 to 3 times the base compensation of the
applicable executives.
And
expects to generally vote
against proposals
to:
•Adopt
measures that appear to the CIO to arbitrarily limit executive or employee
benefits.
5.Stock
Option Plans and Share Issuances
Aristotle
Capital evaluates proposed stock option plans and share issuances on a
case-by-case basis. In reviewing proposals regarding stock option plans and
issuances, Aristotle Capital may consider, without limitation, the potential
dilutive effect on shareholders and the potential short and long-term economic
effects on the company. Aristotle Capital that stock option plans do not
necessarily align the interest of executives and outside directors with those of
shareholders. Aristotle Capital that well thought out cash compensation plans
can achieve these objectives without diluting shareholders ownership. We will
review these proposals on a case-by-case basis to determine that shareholders
interests are being represented. Aristotle Capital certainly is in favor of
management, directors and employees owning stock, but prefer that the shares are
purchased in the open market.
6.Corporate
Responsibility and Social Issues
Aristotle
Capital generally believes that ordinary business matters (including, without
limitation, positions on corporate responsibility and social issues) are
primarily the responsibility of a company’s management that should be addressed
solely by the company’s management. These types of proposals, often initiated by
shareholders, may request that the company disclose or amend certain business
practices.
Aristotle
Capital will consider proposals involving corporate responsibility and social
issues on a case-by-case basis.
7.Conflicts
In
cases where Aristotle Capital is aware of a conflict between the interests of a
client(s) and the interests of Aristotle Capital or an affiliated person of
Aristotle Capital (e.g., a portfolio holding is a client or an affiliate of a
client of Aristotle Capital), the Aristotle Capital will take the following
steps:
a.vote
matters that are specifically covered by this Proxy Voting Policy (e.g., matters
where the Aristotle Capital’s vote is strictly in accordance with this Policy
and not in its discretion) in accordance with this Policy; and
b.for
other matters, contact the client for instructions with respect to how to vote
the proxy.
8.Disclosure
of Proxy Voting Policy
Upon
receiving a written request from a client, Aristotle Capital will provide a copy
of this policy within a reasonable amount of time. If approved by the client,
this policy and any requested records may be provided
electronically.
9.Recordkeeping
Aristotle
Capital shall keep the following records for a period of at least five years,
the first two in an easily accessible place:
i.A
copy of this Policy;
ii.Proxy
Statements received regarding client securities;
iii.Records
of votes cast on behalf of clients;
iv.Any
documents prepared by Aristotle Capital that were material to making a decision
how to vote, or that memorialized the basis for the decision; and
v.Records
of client requests for proxy voting information.
Aristotle
Capital may rely on proxy statements filed on the SEC EDGAR system instead of
keeping its own copies, and may rely on proxy statements and records of proxy
votes cast by Aristotle Capital that are maintained with a third party such as a
proxy voting service, provided that Aristotle Capital has obtained an
undertaking from the third party to provide a copy of the documents promptly
upon request.
10.Proxy
Voting for Accounts Subject to ERISA
Department
of Labor (“DOL”) provided investment managers the following guidance about their
ERISA responsibilities, when voting proxies:
Where
the authority to manage plan assets has been delegated to an investment manager,
only the investment manager has authority to vote proxies, except when the named
fiduciary has reserved to itself or to another named fiduciary (as authorized by
the plan document) the right to direct a plan trustee regarding the voting of
proxies6.
DOL
has also indicated that an adviser with a duty to vote proxies has an obligation
to take reasonable steps under the circumstances to ensure that it receives the
proxies. Appropriate steps include informing the plan sponsor and its trustees,
bank custodian or broker-dealer custodian of the requirement that all proxies be
forwarded to the adviser and making periodic reviews during the proxy season,
including follow-up letters and phone calls if necessary. When voting proxies,
an investment manager must consider proxies as a plan asset and act solely in
accordance with the economic interest of the plan and its participants and
beneficiaries7.
DOL
has also indicated that the adviser must consider any costs involved when voting
proxies for plan assets. Adviser should evaluate material facts that form the
basis for any particular voting decision or other exercise of shareholder right.
Aristotle Capital may decide, after a facts and circumstances analysis, to
refrain from voting if it is determined that a plan client would incur
unreasonable costs.
DOL
has also indicated that the adviser must exercise prudence and diligence in the
selection and monitoring of persons, if any, selected to advise or otherwise
assist with exercises of shareholder rights. Aristotle Capital has contracted
with ISS to provide proxy voting support and periodically reviews ISS guidelines
as part of vendor oversight.
DOL
has also indicated that the adviser must properly document votes and that the
named fiduciary has a duty to monitor the proxy voting process of the adviser.
Advisers should be prepared to issue proxy voting reports to clients. Records of
“solicitation” activities by issuers (or others) should be maintained. Records
should reflect a verification of each proxy to each share in each account.
Records should be maintained in such a manner that it is easy to backtrack.
Copies of each executed ballot should be maintained. Aristotle Capital has
access to proxy voting records through ISS and can issue copies of proxy voting
reports to clients upon request. Aristotle Capital maintains a log of
solicitations it receives from issuers or others.
6
Interpretive
Bulletin 94-2, July 28, 1994.
7
Department
of Labor ERISA Rule 404a-1(e)(2)(ii).