2021-03-02MSIFNonUSandGlobalPortfolios_485B_PSP_April2021
MORGAN
STANLEY INSTITUTIONAL FUND, INC.
Statement
of Additional Information
April 30,
2021
Morgan
Stanley Institutional Fund, Inc. (the “Company”) is an open-end management
investment company consisting of 31 funds offering a
variety of investment alternatives, all of which are included in this Statement
of Additional Information (“SAI”) (each a “Fund” and
collectively the “Funds”). Some or all of the Funds offer the following shares:
Class I, Class A, Class L, Class C, Class IS and Class
IR. Following is a list of the 31 Funds included in this SAI:
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Share
Class and Ticker Symbol |
|
I |
A |
L* |
C |
IS |
IR |
GLOBAL
AND INTERNATIONAL EQUITY FUNDS: |
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Active
International Allocation Portfolio |
MSACX |
MSIBX |
MSLLX |
MSAAX |
MAIJX |
MAIHX |
Asia
Opportunity Portfolio |
MSAQX |
MSAUX |
— |
MSAWX |
MSAYX |
— |
China
Equity Portfolio |
MAKIX |
MAKAX |
— |
MAKCX |
MAKSX |
— |
Counterpoint
Global Portfolio |
GLCIX |
GLCAX |
— |
GLCDX |
GLCSX |
— |
Developing
Opportunity Portfolio |
MDOEX |
MDOAX |
— |
MDOBX |
MDODX |
— |
Emerging
Markets Leaders Portfolio |
MELIX |
MELAX |
— |
MEMLX |
MELSX |
MSIWX |
Emerging
Markets Portfolio |
MGEMX |
MMKBX |
MSELX |
MSEPX |
MMMPX |
MRGEX |
Emerging
Markets Small Cap Portfolio |
MSEMX |
MSEOX |
— |
MSESX |
MSETX |
— |
Frontier
Markets Portfolio |
MFMIX |
MFMPX |
MFMLX |
MSFEX |
MSRFX |
— |
Global
Concentrated Portfolio |
MLNIX |
MLNAX |
— |
MLNCX |
MLNSX |
— |
Global
Core Portfolio |
MLMIX |
MLMAX |
— |
MLMCX |
MLMSX |
— |
Global
Endurance Portfolio |
MSJIX |
MSJAX |
— |
MSJCX |
MSJSX |
— |
Global
Franchise Portfolio |
MSFAX |
MSFBX |
MSFLX |
MSGFX |
MGISX |
— |
Global
Insight Portfolio |
MIGIX |
MIGPX |
MIGLX |
MSPTX |
— |
— |
Global
Opportunity Portfolio** |
MGGIX |
MGGPX |
MGGLX |
MSOPX |
MGTSX |
MGORX |
Global
Permanence Portfolio |
MGKIX |
MGKAX |
— |
MGKCX |
MGKQX |
— |
Global
Sustain Portfolio |
MGQIX |
MGQAX |
MGQLX |
MSGQX |
MGQSX |
— |
International
Advantage Portfolio |
MFAIX |
MFAPX |
MSALX |
MSIAX |
IDVSX |
— |
International
Equity Portfolio |
MSIQX |
MIQBX |
MSQLX |
MSECX |
MIQPX |
— |
International
Opportunity Portfolio |
MIOIX |
MIOPX |
MIOLX |
MSOCX |
MNOPX |
MRNPX |
U.S.
EQUITY FUNDS: |
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Advantage
Portfolio |
MPAIX |
MAPPX |
MAPLX |
MSPRX |
MADSX |
— |
Permanence
Portfolio |
MSHMX |
MSHNX |
— |
MSHOX |
MSHPX |
— |
Growth
Portfolio |
MSEQX |
MSEGX |
MSHLX |
MSGUX |
MGRPX |
MGHRX |
Inception
Portfolio*** |
MSSGX |
MSSMX |
MSSLX |
MSCOX |
MFLLX |
— |
US
Core Portfolio |
MUOIX |
MUOAX |
— |
MUOCX |
MUOSX |
— |
FIXED
INCOME FUND: |
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Emerging
Markets Fixed Income Opportunities Portfolio |
MEAIX |
MEAPX |
MEALX |
MSEDX |
MRDPX |
— |
LISTED
REAL ASSET FUNDS: |
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Global
Concentrated Real Estate Portfolio |
MCQIX |
MCQAX |
— |
MCQCX |
MCQJX |
— |
Global
Infrastructure Portfolio |
MTIIX |
MTIPX |
MTILX |
MSGTX |
MSGPX |
MRGOX |
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Global
Real Estate Portfolio |
MRLAX |
MRLBX |
MGRLX |
MSRDX |
MGREX |
MRLEX |
Real
Assets Portfolio |
MRJIX |
MRJAX |
— |
MRJCX |
MRJSX |
— |
U.S.
Real Estate Portfolio |
MSUSX |
MUSDX |
MSULX |
MSURX |
MURSX |
MRETX |
* |
The
Company has suspended offering Class L shares of each Fund for sale to all
investors. Existing Class L shareholders may invest in additional Class L
shares through
reinvestment of dividends and distributions. Class L shares of the Asia
Opportunity, China Equity, Counterpoint Global, Developing Opportunity,
Emerging
Markets Leaders, Emerging Markets Small Cap, Global Concentrated, Global
Concentrated Real Estate, Global Core, Global Endurance, Global
Permanence,
Permanence, Real Assets and US Core Portfolios are not being offered for
sale at this time. You do not currently have the option of purchasing
Class L
shares. |
** |
The
Company has suspended offering Class I, Class A, Class C, Class IS and
Class IR shares of the Fund to new investors, except as follows. The
Company will continue
to offer Class I, Class A, Class C, Class IS and Class IR shares of the
Fund: (1) through certain retirement plan accounts, (2) to clients of
certain registered
investment advisers who currently offer shares of the Fund in their asset
allocation programs, (3) to directors and trustees of the Morgan Stanley
Funds, (4)
to Morgan Stanley affiliates and their employees, (5) to benefit plans
sponsored by Morgan Stanley and its affiliates and (6) omnibus accounts
sponsored or serviced
by a financial intermediary that currently hold shares of the Fund in such
accounts. The Company will continue to offer Class I, Class A, Class C,
Class IS
and Class IR shares of the Fund to existing shareholders. The Company may
recommence offering shares of the Fund to new investors in the future. Any
such offerings
of the Fund’s shares may be limited in amount and may commence and
terminate without any prior notice. |
*** |
The
Company has suspended offering Class I, Class A, Class C and Class IS
shares of the Fund to new investors, except as follows. The Company will
continue to offer
Class I, Class A, Class C and Class IS shares of the Fund: (1) through
certain retirement plan accounts, (2) to clients of certain registered
investment advisers who
currently offer shares of the Fund in their asset allocation programs, (3)
to directors and trustees of the Morgan Stanley Funds, (4) to Morgan
Stanley affiliates
and their employees, (5) to benefit plans sponsored by Morgan Stanley and
its affiliates and (6) omnibus accounts sponsored or serviced by a
financial intermediary
that currently hold shares of the Fund in such accounts. The Company will
continue to offer Class I, Class A, Class C and Class IS shares of the
Fund
to existing shareholders. The Company may recommence offering shares of
the Fund to new investors in the future. Any such offerings of the Fund’s
shares may
be limited in amount and may commence and terminate without any prior
notice. |
This SAI
is not a prospectus, but should be read in conjunction with the Funds’
prospectuses, each dated April 30, 2021, as may be supplemented
from time to time. To obtain any of these prospectuses, please call the Fund
toll-free at 1-800-548-7786.
Certain
Funds are “non-diversified” and, as such, such Funds’ investments are not
required to meet certain diversification requirements
under federal securities law. Compared with “diversified” funds or portfolios,
each such Fund may invest a greater percentage
of its assets in the securities of an individual corporation or governmental
entity. Thus, the Fund’s assets may be focused in fewer
securities than other funds. A decline in the value of those investments could
cause the Fund’s overall value to decline to a greater
degree. The China Equity, Emerging Markets Fixed Income Opportunities, Emerging
Markets Leaders, Global Concentrated,
Global Concentrated Real Estate, Global Core, Global Franchise, Global
Infrastructure, Global Sustain, US Core and U.S. Real
Estate Portfolios are non-diversified portfolios.
INVESTMENT
POLICIES AND STRATEGIES
This SAI
provides additional information about the investment policies and operations of
the Company and its Funds. Morgan Stanley
Investment Management Inc. (the “Adviser”) acts as investment adviser to each
Fund. Under the supervision of the Adviser, Morgan
Stanley Investment Management Limited (“MSIM Limited”) acts as investment
sub-adviser to the Emerging Markets Fixed Income
Opportunities, Global Franchise, Global Real Estate, Global Sustain,
International Equity and Real Assets Portfolios; Morgan
Stanley Investment Management Company (“MSIM Company”) acts as investment
sub-adviser to the China Equity, Asia Opportunity,
Counterpoint Global, Developing Opportunity, Emerging Markets Fixed Income
Opportunities, Emerging Markets Leaders,
Emerging Markets, Global Opportunity, Global Real Estate, International
Advantage and International Opportunity Portfolios
(MSIM Limited and MSIM Company are each referred to herein individually as the
“Sub-Adviser” and together as the “Sub-Advisers”).
References to the Adviser, when used in connection with its activities as
investment adviser, include any Sub-Adviser acting
under its supervision.
The
following tables summarize the permissible strategies and investments for each
Fund. These tables should be used in conjunction with the
investment summaries for each Fund contained in the Prospectus in order to
provide a more complete description of such Fund’s
investment policies. More details about each investment and related risks are
provided in the discussion following the tables.
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GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Active
International
Allocation |
Asia
Opportunity |
China
Equity |
Developing
Opportunity |
Emerging
Markets |
Emerging
Markets
Leaders |
Emerging
Markets
Small
Cap |
Frontier
Markets |
Global
Insight |
Global
Concentrated |
Equity
Securities: |
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Common
Stocks |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Depositary
Receipts |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Preferred
Stocks |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Rights |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Warrants |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
IPOs |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Convertible
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Limited
Partnership
and
Limited Liability
Company
Interests |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Investment
Company
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Exchange-Traded
Funds |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Real
Estate Investing |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—REITs |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—Foreign
Real
Estate Companies |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—Specialized
Ownership
Vehicles |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Special
Purpose
Acquisition
Companies |
|
X |
|
X |
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X |
|
Fixed-Income
Securities: |
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GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Active
International
Allocation |
Asia
Opportunity |
China
Equity |
Developing
Opportunity |
Emerging
Markets |
Emerging
Markets
Leaders |
Emerging
Markets
Small
Cap |
Frontier
Markets |
Global
Insight |
Global
Concentrated |
Investment
Grade
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
High
Yield Securities |
|
X |
X |
|
X |
X |
X |
X |
|
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U.S.
Government
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Agencies |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Corporates |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Money
Market
Instruments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Cash
Equivalents |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Chinese
Fixed-Income
Investments |
|
|
X |
|
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Mortgage-Related
Securities |
|
X |
|
X |
|
|
|
X |
X |
X |
Repurchase
Agreements |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Municipals |
|
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X |
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Asset-Backed
Securities |
|
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|
X |
|
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Loan-Related
Investments |
|
|
X |
|
X |
X |
X |
X |
|
|
Temporary
Investments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Zero
Coupons,
Pay-In-Kind
Securities
or Deferred
Payment
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Floaters |
|
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Inverse
Floaters |
|
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Eurodollar
and
Yankee Dollar
Obligations |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Foreign
Investment: |
|
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Foreign
Equity
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Foreign
Government
Fixed-Income
Securities |
X |
X |
|
X |
X |
X |
X |
X |
X |
X |
Foreign
Corporate
Fixed-Income
Securities |
X |
X |
|
X |
X |
X |
X |
X |
X |
X |
|
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GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Active
International
Allocation |
Asia
Opportunity |
China
Equity |
Developing
Opportunity |
Emerging
Markets |
Emerging
Markets
Leaders |
Emerging
Markets
Small
Cap |
Frontier
Markets |
Global
Insight |
Global
Concentrated |
Emerging
Market
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Foreign
Currency
Transactions |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Brady
Bonds |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Investment
Funds |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Exchange-Listed
Equities via
Stock Connect
Program |
X |
X |
X |
X |
X |
X |
X |
|
X |
|
Investments
in Saudi
Arabia and
the QFI Regime |
X |
|
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|
X |
X |
X |
X |
|
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Other
Securities
and Investment
Strategies: |
|
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Loans
of Portfolio
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Non-Publicly
Traded
Securities,
Private
Placements
and
Restricted Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
When-Issued
and
Delayed Delivery
Securities
and Forward
Commitments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Borrowing
for Investment
Purposes |
|
|
|
|
|
|
|
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|
Temporary
Borrowing |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Reverse
Repurchase
Agreements |
|
|
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|
|
|
X |
X |
|
|
Short
Sales |
|
|
|
|
|
|
|
|
|
|
Illiquid
Investments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Bitcoin
Exposure |
|
X |
|
X |
|
|
|
|
X |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Currency
Forwards |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Futures
Contracts |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Options |
X |
X |
X |
X |
|
X |
|
|
X |
X |
|
|
|
|
|
|
|
|
|
|
|
GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Active
International
Allocation |
Asia
Opportunity |
China
Equity |
Developing
Opportunity |
Emerging
Markets |
Emerging
Markets
Leaders |
Emerging
Markets
Small
Cap |
Frontier
Markets |
Global
Insight |
Global
Concentrated |
Swaps |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Contracts
for Difference |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Structured
Investments |
|
X |
X |
X |
X |
X |
X |
X |
X |
X |
Combined
Transactions |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Commodity-Linked
Investments |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Global
Core |
Counterpoint
Global |
Global
Endurance |
Global
Franchise |
Global
Opportunity |
Global
Permanence |
Global
Sustain |
International
Advantage |
International
Equity |
International
Opportunity |
Equity
Securities: |
|
|
|
|
|
|
|
|
|
|
Common
Stocks |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Depositary
Receipts |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Preferred
Stocks |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Rights |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Warrants |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
IPOs |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Convertible
Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Limited
Partnership and Limited
Liability Company
Interests |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Investment
Company Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Exchange-Traded
Funds |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Real
Estate Investing |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—REITs |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—Foreign
Real Estate Companies |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
—Specialized
Ownership Vehicles |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Special
Purpose Acquisition
Companies |
|
X |
X |
|
X |
X |
|
|
|
X |
Fixed-Income
Securities: |
|
|
|
|
|
|
|
|
|
|
Investment
Grade Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
High
Yield Securities |
|
X |
|
|
|
|
|
|
|
|
U.S.
Government Securities |
X |
X |
X |
* |
X |
X |
X |
X |
* |
X |
Agencies |
X |
X |
X |
* |
X |
X |
X |
X |
* |
X |
Corporates |
X |
X |
X |
* |
X |
X |
X |
X |
* |
X |
Money
Market Instruments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Cash
Equivalents |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Chinese
Fixed-Income Investments |
|
|
|
|
|
|
|
|
|
|
Mortgage-Related
Securities |
X |
X |
X |
|
X |
X |
|
X |
|
X |
Repurchase
Agreements |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Municipals |
|
|
|
|
|
|
|
|
|
|
Asset-Backed
Securities |
|
|
|
|
|
|
|
|
|
|
Loan-Related
Investments |
|
|
|
|
|
|
|
|
|
|
Temporary
Investments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Zero
Coupons, Pay-In-Kind
Securities or Deferred
Payment Securities |
X |
X |
X |
|
X |
X |
|
X |
X |
X |
Floaters |
|
|
|
|
|
|
|
|
|
|
Inverse
Floaters |
|
|
|
|
|
|
|
|
|
|
Eurodollar
and Yankee Dollar
Obligations |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Foreign
Investment: |
|
|
|
|
|
|
|
|
|
|
Foreign
Equity Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
|
|
|
|
|
|
|
|
|
|
|
GLOBAL
AND INTERNATIONAL EQUITY FUNDS |
|
Global
Core |
Counterpoint
Global |
Global
Endurance |
Global
Franchise |
Global
Opportunity |
Global
Permanence |
Global
Sustain |
International
Advantage |
International
Equity |
International
Opportunity |
Foreign
Government Fixed-Income
Securities |
X |
X |
X |
|
X |
X |
|
X |
X |
X |
Foreign
Corporate Fixed-Income
Securities |
X |
X |
X |
|
X |
X |
|
X |
X |
X |
Emerging
Market Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Foreign
Currency Transactions |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Brady
Bonds |
X |
X |
X |
|
X |
X |
|
|
X |
X |
Investment
Funds |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Exchange-Listed
Equities via
Stock Connect Program |
|
X |
X |
X |
X |
X |
X |
X |
X |
X |
Investments
in Saudi Arabia
and the QFI Regime |
|
|
|
|
|
|
|
|
|
|
Other
Securities and Investment
Strategies: |
|
|
|
|
|
|
|
|
|
|
Loans
of Portfolio Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Non-Publicly
Traded Securities,
Private Placements
and Restricted Securities |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
When-Issued
and Delayed Delivery
Securities and Forward
Commitments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Borrowing
for Investment Purposes |
|
|
|
|
|
|
|
|
|
|
Temporary
Borrowing |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Reverse
Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
Short
Sales |
|
|
|
|
|
|
|
|
|
|
Illiquid
Investments |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Bitcoin
Exposure |
|
X |
|
|
X |
X |
|
X |
|
X |
Derivatives: |
|
|
|
|
|
|
|
|
|
|
Currency
Forwards |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Futures
Contracts |
X |
X |
X |
|
X |
X |
X |
X |
X |
X |
Options |
X |
X |
X |
|
X |
X |
X |
X |
X |
X |
Swaps |
X |
X |
X |
|
X |
X |
X |
X |
X |
X |
Contracts
for Difference |
X |
X |
X |
|
X |
X |
X |
X |
X |
X |
Structured
Investments |
X |
X |
X |
|
X |
X |
|
X |
|
X |
Combined
Transactions |
X |
X |
X |
|
X |
X |
X |
X |
X |
X |
Commodity-Linked
Investments |
|
|
|
|
|
|
|
|
|
|
* |
This
Fund may invest in certain U.S. Government Securities, Agencies and
Corporates as described under Money Market Instruments and Temporary
Investments. |
|
|
|
|
|
|
U.S.
EQUITY FUNDS |
|
|
Advantage |
Growth |
Inception |
US
Core |
Permanence |
Equity
Securities: |
|
|
|
|
|
Common
Stocks |
X |
X |
X |
X |
X |
Depositary
Receipts |
X |
X |
X |
X |
X |
Preferred
Stocks |
X |
X |
X |
X |
X |
Rights |
X |
X |
X |
X |
X |
Warrants |
X |
X |
X |
X |
X |
IPOs |
X |
X |
X |
X |
X |
Convertible
Securities |
X |
X |
X |
X |
X |
Limited
Partnership and Limited Liability
Company Interests |
X |
X |
X |
X |
X |
Investment
Company Securities |
X |
X |
X |
X |
X |
Exchange-Traded
Funds |
X |
X |
X |
X |
X |
Real
Estate Investing |
X |
X |
X |
X |
X |
—REITs |
X |
X |
X |
X |
X |
—Foreign
Real Estate Companies |
X |
X |
X |
X |
X |
—Specialized
Ownership Vehicles |
X |
X |
X |
X |
X |
Special
Purpose Acquisition Companies |
X |
X |
X |
|
X |
Fixed-Income
Securities: |
|
|
|
|
|
Investment
Grade Securities |
X |
X |
X |
X |
X |
High
Yield Securities |
|
|
|
|
|
U.S.
Government Securities |
X |
X |
X |
X |
X |
Agencies |
X |
X |
X |
X |
X |
Corporates |
X |
X |
X |
X |
X |
Money
Market Instruments |
X |
X |
X |
X |
X |
Cash
Equivalents |
X |
X |
X |
X |
X |
Chinese
Fixed-Income Investments |
|
|
|
|
|
Mortgage-Related
Securities |
X |
|
|
|
X |
Repurchase
Agreements |
X |
X |
X |
X |
X |
Municipals |
|
|
|
|
|
Asset-Backed
Securities |
|
|
|
|
|
Loan-Related
Investments |
|
|
|
|
|
Temporary
Investments |
X |
X |
X |
X |
X |
Zero
Coupons, Pay-In-Kind Securities or
Deferred Payment Securities |
X |
X |
X |
X |
X |
Floaters |
|
|
|
|
|
Inverse
Floaters |
|
|
|
|
|
Eurodollar
and Yankee Dollar Obligations |
X |
|
|
|
X |
Foreign
Investment: |
|
|
|
|
|
Foreign
Equity Securities |
X |
X |
X |
X |
X |
Foreign
Government Fixed-Income Securities |
X |
|
|
|
X |
Foreign
Corporate Fixed-Income Securities |
X |
|
|
|
X |
Emerging
Market Securities |
X |
X |
X |
X |
X |
Foreign
Currency Transactions |
X |
X |
X |
X |
X |
Brady
Bonds |
X |
|
|
|
X |
Investment
Funds |
X |
X |
X |
X |
X |
Exchange-Listed
Equities via Stock Connect
Program |
X |
|
|
|
X |
Investments
in Saudi Arabia and the QFI
Regime |
|
|
|
|
|
|
|
|
|
|
|
U.S.
EQUITY FUNDS |
|
|
Advantage |
Growth |
Inception |
US
Core |
Permanence |
Other
Securities and Investment Strategies: |
|
|
|
|
|
Loans
of Portfolio Securities |
X |
X |
X |
X |
X |
Non-Publicly
Traded Securities, Private
Placements and Restricted Securities |
X |
X |
X |
X |
X |
When-Issued
and Delayed Delivery Securities
and Forward Commitments |
X |
X |
X |
X |
X |
Borrowing
for Investment Purposes |
|
|
|
|
|
Temporary
Borrowing |
X |
X |
X |
X |
X |
Reverse
Repurchase Agreements |
|
X |
|
X |
|
Short
Sales |
|
|
|
|
|
Illiquid
Investments |
X |
X |
X |
X |
X |
Bitcoin
Exposure |
X |
X |
X |
|
X |
Derivatives: |
|
|
|
|
|
Currency
Forwards |
X |
X |
X |
X |
X |
Futures
Contracts |
X |
X |
X |
X |
X |
Options |
X |
X |
X |
X |
X |
Swaps |
X |
X |
X |
X |
X |
Contracts
for Difference |
X |
X |
X |
X |
X |
Structured
Investments |
X |
X |
X |
X |
X |
Combined
Transactions |
X |
X |
X |
X |
X |
Commodity-Linked
Investments |
|
|
|
|
|
|
|
FIXED
INCOME FUND |
|
Emerging
Markets Fixed
Income Opportunities |
Equity
Securities: |
|
Common
Stocks |
X |
Depositary
Receipts |
X |
Preferred
Stocks |
X |
Rights |
X |
Warrants |
X |
IPOs |
X |
Convertible
Securities |
X |
Limited
Partnership and Limited Liability Company Interests |
|
Investment
Company Securities |
X |
Exchange-Traded
Funds |
X |
Real
Estate Investing |
|
—REITs |
|
—Foreign
Real Estate Companies |
X |
—Specialized
Ownership Vehicles |
|
Special
Purpose Acquisition Companies |
|
Fixed-Income
Securities: |
|
Investment
Grade Securities |
X |
High
Yield Securities |
X |
U.S.
Government Securities |
X |
Agencies |
X |
Corporates |
X |
Money
Market Instruments |
X |
Cash
Equivalents |
X |
Chinese
Fixed-Income Investments |
X |
Mortgage-Related
Securities |
X |
Repurchase
Agreements |
X |
Municipals |
X |
Asset-Backed
Securities |
X |
Loan-Related
Investments |
X |
Temporary
Investments |
X |
Zero
Coupons, Pay-In-Kind Securities or Deferred Payment
Securities |
X |
Floaters |
X |
Inverse
Floaters |
X |
Eurodollar
and Yankee Dollar Obligations |
X |
Foreign
Investment: |
|
Foreign
Equity Securities |
X |
Foreign
Government Fixed-Income Securities |
X |
Foreign
Corporate Fixed-Income Securities |
X |
Emerging
Market Securities |
X |
Foreign
Currency Transactions |
X |
Brady
Bonds |
X |
Investment
Funds |
X |
Exchange-Listed
Equities via Stock Connect Program |
|
Investments
in Saudi Arabia and the QFI Regime |
|
Other
Securities and Investment Strategies: |
|
Loans
of Portfolio Securities |
X |
Non-Publicly
Traded Securities, Private Placements and Restricted
Securities |
X |
When-Issued
and Delayed Delivery Securities and Forward Commitments |
X |
|
|
FIXED
INCOME FUND |
|
Emerging
Markets Fixed
Income Opportunities |
Borrowing
for Investment Purposes |
X |
Temporary
Borrowing |
X |
Reverse
Repurchase Agreements |
X |
Short
Sales |
X |
Bitcoin
Exposure |
|
Derivatives: |
|
Currency
Forwards |
X |
Futures
Contracts |
X |
Options |
X |
Swaps |
X |
Contracts
for Difference |
X |
Structured
Investments |
X |
Combined
Transactions |
X |
Commodity-Linked
Investments |
|
|
|
|
|
|
|
LISTED
REAL ASSET FUNDS |
|
|
|
|
|
|
Global
Concentrated Real
Estate |
Global
Infrastructure |
Global
Real Estate |
Real
Assets |
U.S.
Real Estate |
Equity
Securities: |
|
|
|
|
|
Common
Stocks |
X |
X |
X |
X |
X |
Depositary
Receipts |
X |
X |
X |
X |
X |
Preferred
Stocks |
X |
X |
X |
X |
X |
Rights |
X |
X |
X |
X |
X |
Warrants |
X |
X |
X |
X |
X |
IPOs |
X |
X |
X |
X |
X |
Convertible
Securities |
X |
X |
X |
X |
X |
Limited
Partnership and Limited Liability
Company Interests |
X |
X |
X |
X |
X |
Investment
Company Securities |
X |
X |
X |
X |
X |
Exchange-Traded
Funds |
X |
X |
X |
X |
X |
Real
Estate Investing |
X |
X |
X |
X |
X |
—REITs |
X |
X |
X |
X |
X |
—Foreign
Real Estate Companies |
X |
X |
X |
X |
X |
—Specialized
Ownership Vehicles |
X |
X |
X |
X |
X |
Special
Purpose Acquisition Companies |
|
|
|
|
|
Fixed-Income
Securities: |
|
|
|
|
|
Investment
Grade Securities |
X |
X |
X |
X |
X |
High
Yield Securities |
|
X |
|
X |
|
U.S.
Government Securities |
X |
X |
X |
X |
X |
Agencies |
X |
X |
X |
X |
X |
Corporates |
X |
X |
X |
X |
X |
Money
Market Instruments |
X |
X |
X |
X |
X |
Cash
Equivalents |
X |
X |
X |
X |
X |
Chinese
Fixed-Income Investments |
|
|
|
|
|
Mortgage-Related
Securities |
|
X |
|
X |
|
Repurchase
Agreements |
X |
X |
X |
X |
X |
Municipals |
|
X |
|
X |
|
Asset-Backed
Securities |
|
X |
|
X |
|
Loan-Related
Investments |
|
X |
|
X |
|
Temporary
Investments |
X |
X |
X |
X |
X |
Zero
Coupons, Pay-In-Kind Securities or
Deferred Payment Securities |
X |
X |
X |
X |
X |
Floaters |
|
|
|
X |
|
Inverse
Floaters |
|
|
|
X |
|
Eurodollar
and Yankee Dollar Obligations |
X |
X |
X |
X |
|
Foreign
Investment: |
|
|
|
|
|
Foreign
Equity Securities |
X |
X |
X |
X |
X |
Foreign
Government Fixed-Income Securities |
|
X |
|
X |
|
Foreign
Corporate Fixed-Income Securities |
X |
X |
X |
X |
X |
Emerging
Market Securities |
X |
X |
X |
X |
X |
Foreign
Currency Transactions |
X |
X |
X |
X |
X |
Brady
Bonds |
X |
X |
X |
X |
|
Investment
Funds |
X |
X |
X |
X |
X |
Exchange-Listed
Equities via Stock Connect
Program |
|
|
|
|
|
|
|
|
|
|
|
LISTED
REAL ASSET FUNDS |
|
|
|
|
|
|
Global
Concentrated Real
Estate |
Global
Infrastructure |
Global
Real Estate |
Real
Assets |
U.S.
Real Estate |
Investments
in Saudi Arabia and the QFI
Regime |
|
|
|
|
|
Other
Securities and Investment Strategies: |
|
|
|
|
|
Loans
of Portfolio Securities |
X |
X |
X |
X |
X |
Non-Publicly
Traded Securities, Private
Placements and Restricted Securities |
X |
X |
X |
X |
X |
When-Issued
and Delayed Delivery Securities
and Forward Commitments |
X |
X |
X |
X |
X |
Borrowing
for Investment Purposes |
|
|
|
X |
|
Temporary
Borrowing |
X |
X |
X |
X |
X |
Reverse
Repurchase Agreements |
|
|
|
X |
|
Short
Sales |
|
|
|
X |
|
Illiquid
Investments |
X |
X |
X |
X |
X |
Bitcoin
Exposure |
|
|
|
|
|
Derivatives: |
|
|
|
|
|
Currency
Forwards |
X |
X |
X |
X |
|
Futures
Contracts |
X |
|
|
X |
|
Options |
|
|
|
X |
|
Swaps |
|
|
|
X |
|
Contracts
for Difference |
|
|
|
X |
|
Structured
Investments |
|
|
|
X |
|
Combined
Transactions |
X |
|
|
X |
|
Commodity-Linked
Investments |
|
|
|
X |
|
Morgan
Stanley Investment Management Inc. is the adviser (the “Adviser” or “MSIM”) to
each
Fund.
Equity
Securities. Equity
securities generally represent an ownership interest in an issuer, or may be
convertible into or represent a right to
acquire an ownership interest in an issuer. While there are many types of equity
securities, prices of all equity securities will fluctuate.
Economic, political and other events may affect the prices of broad equity
markets. For example, changes in inflation or consumer
demand may affect the prices of equity securities generally in the United
States. Similar events also may affect the prices of particular
equity securities. For example, news about the success or failure of a new
product may affect the price of a particular issuer’s
equity securities.
Common
Stocks. Common
stocks are equity securities representing an ownership interest in a
corporation, entitling the stockholder to voting
rights and receipt of dividends paid based on proportionate
ownership.
Depositary
Receipts.
Depositary receipts represent an ownership interest in securities of foreign
companies (an “underlying issuer”) that are
deposited with a depositary. Depositary receipts are not necessarily denominated
in the same currency as the underlying securities.
Depositary receipts include American depositary receipts (“ADRs”), global
depositary receipts (“GDRs”) and other types of depositary
receipts (which, together with ADRs and GDRs, are hereinafter collectively
referred to as “Depositary Receipts”). ADRs are
dollar-denominated Depositary Receipts typically issued by a U.S. financial
institution and evidence an ownership interest in a security
or pool of securities issued by a foreign issuer. ADRs are listed and traded in
the United States. ADRs also include American depositary
shares. GDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also
may be issued by U.S. financial institutions, and evidence ownership interests
in a security or pool of securities issued by either a
foreign or a U.S. corporation. Generally, Depositary Receipts in registered form
are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States.
Depositary
Receipts may be “sponsored” or “unsponsored.” Sponsored Depositary Receipts are
established jointly by a depositary and the
underlying issuer, whereas unsponsored Depositary Receipts may be established by
a depositary without participation by the underlying
issuer. Holders of unsponsored Depositary Receipts generally bear all the costs
associated with establishing unsponsored Depositary
Receipts. In addition, the issuers of the securities underlying unsponsored
Depositary Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may
not be a correlation between such information and the market value of the
Depositary Receipts. For purposes of a Fund’s
investment
policies, a Fund’s
investments in Depositary Receipts will be deemed to be an investment in the
underlying securities, except
that ADRs may be deemed to be issued by a U.S. issuer.
Preferred
Stocks. Preferred
stocks are securities that evidence ownership in a corporation and pay a fixed
or variable stream of dividends.
Preferred stocks have a preference over common stocks in the event of the
liquidation of an issuer and usually do not carry voting
rights. Preferred stocks have many of the characteristics of both equity
securities and fixed-income securities.
Rights. Rights
represent the right, but not the obligation, for a fixed period of time to
purchase additional shares of an issuer’s common
stock at the time of a new issuance, usually at a price below the initial
offering price of the common stock and before the common
stock is offered to the general public. Rights are usually freely transferable.
The risk of investing in a right is that the right may expire
prior to the market value of the common stock exceeding the price fixed by the
right.
Sector
Risk. Each Fund
may, from time to time, invest more heavily in companies in a particular
economic sector or sectors. Economic
or regulatory changes adversely affecting such sectors may have more of an
impact on a Fund’s
performance than if the Fund held
a broader range of investments.
Warrants. Warrants
give holders the right, but not the obligation, to buy common stock of an issuer
at a given price, usually higher than the
market price at the time of issuance, during a specified period. Warrants are
usually freely transferable. The risk of investing in a
warrant is that the warrant may expire prior to the market value of the common
stock exceeding the price fixed by the warrant.
IPOs. Certain
Funds may purchase equity securities issued as part of, or a short period
after, a company’s initial public offering (“IPO”),
and may at times dispose of those securities shortly after their
acquisition. A Fund’s
purchase of securities issued in IPOs exposes it
to the risks associated with companies that have little operating history as
public companies, as well as to the risks inherent in those
sectors of the market where these issuers operate. The market for IPO issuers
has been volatile, and share prices of newly-public
companies have fluctuated significantly over short periods of time.
Convertible
Securities. A
convertible security is a bond, debenture, note, preferred stock, right, warrant
or other security that may be
converted into or exchanged for a prescribed amount of common stock or other
security of the same or a different issuer or into cash
within a particular period of time at a specified price or formula. A
convertible security generally entitles the holder to receive interest
paid or accrued on debt securities or the dividend paid on preferred stock until
the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities generally have
characteristics similar to both debt and equity
securities. The value of convertible securities tends to decline as interest
rates rise and, because of the conversion feature, tends to vary
with fluctuations in the market value of the underlying securities. Convertible
securities ordinarily provide a stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities generally rank senior to
common
stock in a corporation’s capital structure but are usually subordinated to
comparable nonconvertible fixed-income securities in such
capital structure. Convertible securities generally do not participate directly
in any dividend increases or decreases of the underlying
securities although the market prices of convertible securities may be affected
by any dividend changes or other changes in the
underlying securities. Certain of the convertible securities in
which a Fund may
invest are rated below investment grade or are unrated.
The prices of such securities are likely to be more sensitive to adverse
economic changes than higher-rated securities, resulting
in increased volatility of market prices of these securities during periods of
economic uncertainty, or adverse individual corporate
developments. In addition, during an economic downturn or substantial period of
rising interest rates, lower rated issuers may
experience financial stress.
Limited
Partnership and Limited Liability Company Interests. A limited
partnership interest entitles a Fund
to participate in the investment
return of the partnership’s assets as defined by the agreement among the
partners. As a limited partner, a Fund
generally is not
permitted to participate in the management of the partnership. However, unlike a
general partner whose liability is not limited, a limited
partner’s liability generally is limited to the amount of its commitment to the
partnership. A Fund may
invest in limited liability
company interests to the same extent it invests in limited partnership
interests. Limited liability company interests have similar
characteristics as limited partnership interests.
Certain
Funds may invest in master limited partnerships (“MLPs”), which are
generally organized under state law as limited partnerships
or limited liability companies and generally treated as partnerships for U.S.
federal income tax purposes. The securities issued by
many MLPs are listed and traded on a securities exchange. If publicly traded, to
be treated as a partnership for U.S. federal income tax
purposes, the entity must receive at least 90% of its income from qualifying
sources as set forth in the Internal Revenue Code of
1986, as amended (the “Code”). These qualifying sources include interest,
dividends, real estate rents, gain from the sale or disposition
of real property, income and gain from mineral or natural resources activities,
income and gain from the transportation or storage of
certain fuels, gain from the sale or disposition of a capital asset held for the
production of income described in the foregoing,
and, in certain circumstances, income and gain from commodities or futures,
forwards and options with respect to commodities.
Investment
Company Securities.
Investment company securities are equity securities and include securities of
other open-end, closed-end
and unregistered investment companies, including foreign investment companies,
hedge funds and exchange-traded
funds (“ETFs”).
A Fund
may, to the extent noted in the Fund’s non-fundamental limitations, invest in
investment company securities as may be
permitted by (i) the Investment
Company Act of 1940, as amended (the “1940 Act”); (ii) the rules and regulations
promulgated
by the Securities
and Exchange Commission (the “SEC”) under the 1940 Act; or (iii) an exemption or
other relief applicable
to the Fund from provisions of the 1940 Act. The 1940 Act generally prohibits an
investment company from acquiring more than
3% of the outstanding voting shares of an investment company and limits such
investments to no more than 5% of a
Fund’s
total assets in any one investment company and no more than 10% in any
combination of investment companies. The 1940 Act also
prohibits a Fund
from acquiring in the aggregate more than 10% of the outstanding voting shares
of any registered closed-end
investment company. A Fund may
invest in investment company securities of investment companies managed by the
Adviser or its
affiliates to the extent permitted under the 1940 Act or as otherwise authorized
by the SEC. To the extent a Fund
invests a portion of
its assets in investment company securities, those assets will be subject to the
risks of the purchased investment company’s portfolio
securities, and a shareholder in the Fund will bear not only their proportionate
share of the expenses of the Fund, but also, indirectly
the expenses of the purchased investment company. The SEC has adopted changes to
the regulatory framework governing investments
by investment companies in other investment companies, which may adversely
affect a Fund’s
ability to invest in one or more
investment companies in excess of applicable statutory
limits.
Money
Market Funds. To
the extent permitted by applicable law, a Fund may
invest all or some of its short term cash investments in any money
market fund advised or managed by the Adviser or its affiliates. In connection
with any such investments, a Fund, to
the extent
permitted by the 1940 Act, will pay its share of all expenses (other than
advisory and administrative fees) of a money market fund in
which it invests, which may result in the Fund bearing some additional
expenses. The rules governing money market funds: (1) permit
(and, under certain circumstances, require) certain money market funds to impose
a “liquidity fee” (up to 2%), or a “redemption
gate” that temporarily restricts redemptions from a money market fund, if weekly
liquidity levels fall below the required regulatory
threshold, and (2) require “institutional money market funds” to operate with a
floating NAV per share rounded to a minimum of
the fourth decimal place in the case of a fund with a $1.0000 share price or an
equivalent or more precise level of accuracy
for money market funds with a different share price (e.g., $10.000 per share, or
$100.00 per share). These may affect the investment
strategies, performance and operating expenses of money market funds.
“Government money market funds,” as defined under Rule
2a-7 of the 1940 Act, are exempt from these requirements, though such funds may
choose to opt-in to the implementation
of liquidity fees and redemption gates.
Exchange-Traded
Funds. Certain
Funds may invest in ETFs. Investments in ETFs are subject to a variety of risks,
including risks of a direct
investment in the underlying securities that the ETF holds. For example, the
general level of stock prices may decline, thereby adversely
affecting the value of the underlying investments of the ETF and, consequently,
the value of the ETF. In addition, the market
value of the ETF shares may differ from their NAV because the supply and demand
in the market for ETF shares at any point
is not
always identical to the supply and demand in the market for the underlying
securities. Also, ETFs that track particular indices typically
will be unable to match the performance of the index exactly due to, among other
things, the ETF’s operating expenses and transaction
costs. ETFs typically incur fees that are separate from those fees incurred
directly by the Funds.
Therefore, as a shareholder
in an ETF (as with other investment companies), a Fund
would bear its ratable share of that entity’s expenses. At the same time,
the Fund would continue to pay its own investment management fees and other
expenses. As a result, a Fund and
its shareholders,
in effect, will be absorbing duplicate levels of fees with respect to
investments in ETFs. Further, certain of the ETFs in which a Fund may
invest are leveraged. Leveraged ETFs seek to deliver multiples of the
performance of the index or other benchmark they track
and use derivatives in an effort to amplify the returns of the underlying index
or benchmark. While leveraged ETFs may offer the
potential for greater return, the potential for loss and the speed at which
losses can be realized also are greater. Most leveraged
ETFs “reset” daily, meaning they are designed to achieve their stated objectives
on a daily basis. Leveraged ETFs can deviate substantially
from the performance of their underlying benchmark over longer periods of time,
particularly in volatile periods. The more a Fund
invests in such leveraged ETFs, the more this leverage will magnify any losses
on those investments. Furthermore, disruptions
in the markets for the securities underlying ETFs purchased or sold by the Fund
could result in losses on the Fund’s investment
in ETFs.
Real
Estate Investing.
Investments in securities of issuers engaged in the real estate industry entail
special risks and considerations. In particular,
securities of such issuers may be subject to risks associated with the direct
ownership of real estate. These risks include the cyclical
nature of real estate values, risks related to general and local economic
conditions, overbuilding and increased competition, increases
in property taxes and operating expenses, demographic trends and variations in
rental income, changes in zoning laws, casualty
or condemnation losses, environmental risks, regulatory limitations on rents,
changes in neighborhood values, changes in the appeal of
properties to tenants, increases in interest rates and other real estate capital
market influences. Generally, increases in interest
rates will increase the costs of obtaining financing, which could directly and
indirectly decrease the value of a Fund’s
investments.
Real
Estate Investment Trusts and Foreign Real Estate Companies.
Certain
Funds may invest in real estate investment trusts (“REITs”) and/or
foreign real estate companies, which are similar to entities organized and
operated as REITs in the United States. REITs and foreign
real estate companies pool investors’ funds for investment primarily in real
estate properties or real estate-related loans. REITs and
foreign real estate companies generally derive their income from rents on the
underlying properties or interest on the underlying loans, and
their value is impacted by changes in the value of the underlying property or
changes in interest rates affecting the underlying
loans owned by the REITs and/or foreign real estate companies. REITs and foreign
real estate companies are more susceptible
to risks associated with the ownership of real estate and the real estate
industry in general. These risks can include fluctuations
in the value of underlying properties; defaults by borrowers or tenants; market
saturation; changes in general and local economic
conditions; decreases in market rates for rents; increases in competition,
property taxes, capital expenditures or operating expenses;
and other economic, political or regulatory occurrences affecting the real
estate industry. In addition, REITs and foreign real
estate companies depend upon specialized management skills, may not be
diversified (which may increase the volatility of a REIT’s
and/or foreign real estate company’s value), may have less trading volume and
may be subject to more abrupt or erratic price movements
than the overall securities market. Foreign real estate companies may be subject
to laws, rules and regulations governing those
entities and their failure to comply with those laws, rules and regulations
could negatively impact the performance of those entities.
Operating REITs and foreign real estate companies requires specialized
management skills and a Fund
indirectly bears REIT and
foreign real estate company management expenses along with the direct expenses
of the Fund. REITs are generally not taxed on income
distributed to shareholders provided they comply with several requirements of
the Code.
REITs are subject to the risk of failing to
qualify for tax-free pass-through income under the Code.
Specialized
Ownership Vehicles.
Specialized ownership vehicles pool investors’ funds for investment primarily in
income-producing real
estate or real estate-related loans or interests. Such specialized ownership
vehicles in which the Funds may
invest include property unit
trusts, foreign real estate companies, REITs and other similar specialized
investment vehicles. Investments in such specialized ownership
vehicles may have favorable or unfavorable legal, regulatory or tax implications
for a Fund
and, to the extent such vehicles are
structured similarly to investment funds, a shareholder in the Fund will bear
not only their proportionate share of the expenses of the Fund,
but also, indirectly the expenses of the specialized ownership
vehicle.
Fixed-Income
Securities.
Fixed-income securities generally represent an issuer’s obligation to repay to
the investor (or lender) the amount
borrowed plus interest over a specified time period. A typical fixed-income
security specifies a fixed date when the amount borrowed
(principal) is due in full, known as the maturity date, and specifies dates when
periodic interest (coupon) payments will be made over
the life of the security.
Fixed-income
securities come in many varieties and may differ in the way that interest is
calculated, the amount and frequency of payments,
the type of collateral, if any, and the presence of special features (e.g.,
conversion rights). Prices of fixed-income securities fluctuate
and, in particular, are subject to several key risks including, but not limited
to, interest rate risk, credit risk, prepayment risk and spread
risk.
Interest
rate risk arises due to general changes in the level of market rates after the
purchase of a fixed-income security. Generally, the values of
fixed-income securities vary inversely with changes in interest rates. During
periods of falling interest rates, the values of most
outstanding fixed-income securities generally rise and during periods of rising
interest rates, the values of most fixed-income securities
generally decline. The Funds may
face a heightened level of interest rate risk in times of monetary policy
change and/or uncertainty,
such as when the Federal Reserve Board adjusts a quantitative easing program
and/or changes rates. A changing interest rate
environment increases certain risks, including the potential for periods of
volatility, increased redemptions, shortened durations (i.e.,
prepayment risk) and extended durations (i.e., extension risk). Certain
Funds are not
limited as to the maturities (when a debt security
provides its final payment) or duration (measure of interest rate sensitivity)
of the securities in which it may invest. While fixed-income
securities with longer final maturities often have higher yields than those with
shorter maturities, they usually possess greater
price sensitivity to changes in interest rates and other factors. Traditionally,
the remaining term to maturity has been used as a barometer
of a fixed-income security’s sensitivity to interest rate changes. This measure,
however, considers only the time until the final
principal payment and takes no account of the pattern or amount of principal or
interest payments prior to maturity. Duration combines
consideration of yield, coupon, interest and principal payments, final maturity
and call (prepayment) features. Duration measures
the likely percentage change in a fixed-income security’s price for a small
parallel shift in the general level of interest rates; it is also an
estimate of the weighted average life of the remaining cash flows of a
fixed-income security. In almost all cases, the duration of a
fixed-income security is shorter than its term to maturity.
Credit
risk represents the possibility that an issuer may be unable to meet scheduled
interest and principal payment obligations. It is most often
associated with corporate bonds, although it can be present in other
fixed-income securities as well (note that the market generally
assumes that obligations of the U.S. Treasury are free from credit risk). Credit
ratings and quantitative models attempt to measure
the degree of credit risk in fixed-income securities, and provide insight as to
whether prevailing yield spreads afford sufficient compensation
for such risk. Other things being equal, fixed-income securities with high
degrees of credit risk should trade in the market at
lower prices (and higher yields) than fixed-income securities with low degrees
of credit risk.
Prepayment
risk, also known as call risk, arises due to the issuer’s ability to prepay all
or most of the fixed-income security prior to the stated
final maturity date. Prepayments generally rise in response to a decline in
interest rates as debtors take advantage of the opportunity
to refinance their obligations. This risk is often associated with mortgage
securities where the underlying mortgage loans can be
refinanced, although it can also be present in corporate or other types of bonds
with call provisions. When a prepayment occurs, a Fund may
be forced to reinvest in lower yielding fixed-income securities. Quantitative
models are designed to help assess the degree of
prepayment risk, and provide insight as to whether prevailing yield spreads
afford sufficient compensation for such risk.
Spread
risk is the potential for the value of a Fund’s
assets to fall due to the widening of spreads. Fixed-income securities generally
compensate
for greater credit risk by paying interest at a higher rate. The difference (or
“spread”) between the yield of a security and the yield
of a benchmark, such as a U.S. Treasury security with a comparable maturity,
measures the additional interest paid for credit
risk. As the spread on a security widens (or increases), the price (or value) of
the security falls. Spread widening may occur, among
other reasons, as a result of market concerns over the stability of the market,
excess supply, general credit concerns in other markets,
security- or market-specific credit concerns or general reductions in risk
tolerance.
While
assets in fixed-income markets have grown rapidly in recent years, the capacity
for traditional dealer counterparties to engage in
fixed-income trading has not kept pace and in some cases has decreased. For
example, primary dealer inventories of corporate bonds,
which provide a core indication of the ability of financial intermediaries to
“make markets,” are at or near historic lows in relation
to market size. This reduction in market-making capacity may be a persistent
change, to the extent it is resulting from broader
structural changes, such as fewer proprietary trading desks at broker-dealers
and increased regulatory capital requirements. Because
market makers provide stability to a market through their intermediary services,
the significant reduction in dealer inventories
could potentially lead to decreased liquidity and increased volatility in the
fixed-income markets. Such issues may be exacerbated
during periods of economic uncertainty.
Economic,
political and other events also may affect the prices of broad fixed-income
markets, although the risks associated with such events are
transmitted to the market via changes in the prevailing levels of interest
rates, credit risk, prepayment risk or spread risk.
Certain of
the Funds’
investments are subject to inflation risk, which is the risk that the value of
assets or income from investments will be
less in the future as inflation decreases the value of money (i.e., as inflation
increases, the values of the Fund’s assets can decline).
Inflation rates may change frequently and significantly as a result of various
factors, including unexpected shifts in the domestic
or global economy and changes in economic policies, and a Fund’s
investments may not keep pace with inflation, which may result
in losses to Fund shareholders. This risk is greater for fixed-income
instruments with longer maturities.
Investment
Grade Securities.
Investment grade securities are fixed-income securities rated by one or more of
the rating agencies in one of the
four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB
by S&P
Global Ratings Group, a division of S&P
Global Inc. (“S&P”) or Fitch
Ratings (“Fitch”) or Aaa, Aa, A or Baa by Moody’s
Investors Service, Inc. (“Moody’s”)) or determined
to be of equivalent quality by the Adviser. Securities rated BBB or Baa
represent the lowest of four levels of investment grade
securities and are regarded as borderline between sound obligations and those in
which speculative elements predominate.
A Fund
is permitted to hold investment grade securities or “high grade” securities, and
may hold unrated securities if the Adviser considers the
risks involved in owning that security to be equivalent to the risks involved in
holding an investment grade security. Ratings
assigned to fixed-income securities represent only the opinion of the rating
agency assigning the rating and are not dispositive of the
credit risk associated with the purchase of a particular fixed-income security.
Moreover, market risk also will affect the prices of even the
highest rated fixed-income securities so that their prices may rise or fall even
if the issuer’s capacity to repay its obligations remains
unchanged.
High
Yield Securities. High
yield securities are generally considered to include fixed-income securities
rated below the four highest rating
categories at the time of purchase (e.g., Ba through C by Moody’s, or BB through
D by S&P or Fitch) and
unrated fixed-income
securities considered by the Adviser to be of equivalent quality. High yield
securities are not considered investment grade and are
commonly referred to as “junk bonds” or high yield, high risk securities.
Investment grade securities that a Fund
holds may be downgraded
to below investment grade by the rating agencies. If a Fund
holds a security that is downgraded, the Fund may choose to retain the
security.
While high
yield securities offer higher yields, they also normally carry a high degree of
credit risk and are considered speculative by the major
credit rating agencies. High yield securities may be issued as a consequence of
corporate restructuring or similar events. High yield
securities are often issued by smaller, less creditworthy issuers, or by highly
leveraged (indebted) issuers, that are generally less able
than more established or less leveraged issuers to make scheduled payments of
interest and principal. In comparison to investment
grade securities, the price movement of these securities is influenced less by
changes in interest rates and more by the financial
and business position of the issuer. The values of high yield securities are
more volatile and may react with greater sensitivity to market
changes.
High yield
securities are frequently ranked junior to claims by other creditors. If the
issuer cannot meet its obligations, the senior obligations
are generally paid off before the junior obligations, which will potentially
limit a Fund’s
ability to fully recover principal or to
receive interest payments when senior securities are in default. Thus, investors
in high yield securities have a lower degree of protection
with respect to principal and interest payments then do investors in higher
rated securities. In addition, lower-rated securities
frequently have call or redemption features that would permit an issuer to
repurchase the security from a Fund. If
a call were
exercised by the issuer during a period of declining interest
rates, a Fund
likely would have to replace such called security with a lower
yielding security, thus decreasing the net investment income to the Fund and any
dividends to investors.
The
secondary market for high yield securities is concentrated in relatively few
market makers and is dominated by institutional investors,
including mutual funds, insurance companies and other financial institutions.
Accordingly, the secondary market for such securities
is not as liquid as, and is more volatile than, the secondary market for
higher-rated securities. Because high yield securities are less
liquid, judgment may play a greater role in valuing certain of a Fund’s securities
than is the case with securities trading in a more
liquid market. Also, future legislation may have a possible negative impact on
the market for high yield, high risk securities.
The credit
rating of a high yield security does not necessarily address its market value
risk. Ratings and market value may change from time
to time, positively or negatively, to reflect new developments regarding the
issuer.
The high
yield securities markets may react strongly to adverse news about an issuer or
the economy, or to the perception or expectation
of adverse news, whether or not it is based on fundamental analysis.
Additionally, prices for high yield securities may be affected
by legislative and regulatory developments. These developments could adversely
affect a Fund’s
NAV and investment practices,
the secondary market for high yield securities, the financial condition of
issuers of these securities and the value and liquidity
of outstanding high yield securities, especially in a thinly traded
market.
U.S.
Government Securities. U.S.
government securities refer to a variety of fixed-income securities issued or
guaranteed by the U.S. Government
and its various instrumentalities and agencies. The U.S. government securities
that certain
Funds may purchase include U.S.
Treasury bills, notes and bonds, all of which are direct obligations of the U.S.
Government. In addition, certain
Funds may purchase
securities issued by agencies and instrumentalities of the U.S. Government that
are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing these obligations
are the
Government National Mortgage Association
(“Ginnie Mae”) and the Federal Housing Administration. Certain
Funds may also purchase securities issued by agencies and
instrumentalities that are not backed by the full faith and credit of the United
States, but whose issuing agency or instrumentality has the
right to borrow, to meet its obligations, from the U.S. Treasury. Among these
agencies and instrumentalities are the
Federal National
Mortgage Association (“Fannie Mae”), the
Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal
Home Loan
Banks. Further, certain
Funds may purchase securities issued by agencies and instrumentalities that are
backed solely by the credit
of the issuing agency or instrumentality. Among these agencies and
instrumentalities is the Federal Farm Credit System.
Agencies. Agencies
refer to fixed-income securities issued or guaranteed by federal agencies and
U.S. government sponsored instrumentalities.
They may or may not be backed by the full faith and credit of the United States.
If they are not backed by the full faith and
credit of the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation
for ultimate repayment, and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality
does not meet its commitment. Agencies that are backed by the full faith and
credit of the United States include the
Export-Import
Bank, Farmers Home Administration, Federal Financing Bank and others. Certain
debt issued by Resolution Funding
Corporation has both its principal and interest backed by the full faith and
credit of the U.S. Treasury in that its principal is backed by
U.S. Treasury zero coupon issues, while the U.S. Treasury is explicitly required
to advance funds sufficient to pay interest on it, if
needed. Certain agencies and instrumentalities, such as Ginnie
Mae, are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make “indefinite and
unlimited” drawings on the Treasury if needed to service
their debt. Debt from certain other agencies and instrumentalities, including
the Federal Home Loan Banks, Fannie
Mae and Freddie
Mac, are not guaranteed by the United States, but those institutions are
protected by the discretionary authority of the U.S.
Treasury to purchase certain amounts of their securities to assist them in
meeting their debt obligations. Finally, other agencies
and instrumentalities, such as the Farm Credit System, are federally chartered
institutions under U.S. Government supervision,
but their debt securities are backed only by the creditworthiness of those
institutions, not the U.S. Government. Some of the U.S.
government agencies that issue or guarantee securities include the Export-Import
Bank of the United States, Farmers Home Administration,
Federal Housing Administration, Maritime Administration, Small Business
Administration and the Tennessee
Valley
Authority (“TVA”).
In
September 2008, the U.S. Treasury Department announced that the U.S. Government
would be taking over Fannie Mae and Freddie
Mac and placing the companies into a conservatorship. In addition, the U.S.
Treasury announced additional steps that it intended
to take with respect to the debt and mortgage-backed securities (“MBS”) issued
by Fannie Mae and Freddie Mac in order to support
the conservatorship. Fannie Mae and Freddie Mac are continuing to operate as
going concerns while in conservatorship and each
remains liable for all of its respective obligations, including its guaranty
obligations, associated with its MBS. No assurance can be given
that these initiatives will be successful. The maximum potential liability of
the issuers of some U.S. government securities held
by a Fund 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.
An
instrumentality of the U.S. Government is a government agency organized under
federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Bank, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Fannie
Mae.
Corporates.
Corporates are fixed-income securities issued by private businesses. Holders, as
creditors, have a prior legal claim over holders of
equity securities of the issuer as to both income and assets for the principal
and interest due to the holder.
Money
Market Instruments. Money
market instruments are high quality short-term fixed-income securities. Money
market instruments
may include obligations of governments, government agencies, banks, corporations
and special purpose entities and repurchase
agreements relating to these obligations. Certain money market instruments may
be denominated in a foreign currency.
Cash
Equivalents. Cash
equivalents are short-term fixed-income securities comprising:
■ |
Time
deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers’ acceptances issued by a
commercial bank or savings and loan association. Time deposits are
non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Certificates of
deposit are negotiable short-term obligations issued
by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates
of deposit are certificates of deposit on which the interest rate is
periodically adjusted prior to their stated maturity based
upon a specified market rate. A bankers’ acceptance is a time draft drawn
on a commercial bank by a borrower, usually in connection
with an international commercial transaction (to finance the import,
export, transfer or storage of goods); |
■ |
Obligations
of U.S. banks, foreign branches of U.S. banks (Eurodollars) and U.S.
branches of foreign banks (Yankee dollars). Eurodollar
and Yankee dollar investments will involve some of the same risks of
investing in international securities that are discussed
in various foreign investing sections of this
SAI; |
■ |
Any
security issued by a commercial bank if (i) the bank has total assets of
at least $1 billion, or the equivalent in other currencies
or, in the case of domestic banks which do not have total assets of at
least $1 billion, the aggregate investment made in
any one such bank is limited to $250,000 principal amount per certificate
and the principal amount of such investment is 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 branches of U.S. banks, the security is
deemed by the Adviser to be of an investment quality
comparable with other debt securities which the Fund may
purchase; |
■ |
Commercial
paper rated at time of purchase by one or more nationally recognized
statistical rating organizations (“NRSROs”) in
one of their two highest categories (e.g., A-l or A-2 by S&P,
Prime 1 or Prime 2 by Moody’s
or F1 or F2 by Fitch)
or, if unrated,
determined to be of comparable quality by the
Adviser; |
■ |
Short-term
corporate obligations rated high-grade at the time of purchase by an NRSRO
(e.g., A or better by Moody’s, S&P or Fitch); |
■ |
U.S.
government obligations, including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in interest rates,
maturities and dates of issue; |
■ |
Government
agency securities issued or guaranteed by U.S. government sponsored
instrumentalities and Federal agencies. These include
securities issued by the Federal Home Loan Banks, Federal Land Bank,
Farmers Home Administration, Farm Credit Banks,
Federal Intermediate Credit Bank, Fannie
Mae, Federal Financing Bank, TVA
and others; and |
■ |
Repurchase
agreements collateralized by the securities listed
above. |
Chinese
Fixed-Income Investments. A Fund
may invest in Chinese fixed-income securities traded in the China Interbank Bond
Market
(“CIBM”) through the Bond Connect program (“Bond Connect”), which allows
non-Chinese-domiciled investors (such as a
Fund) to
purchase certain fixed-income investments available in China’s interbank bond
market. Bond Connect utilizes the trading infrastructure
of both Hong Kong and China. Bond Connect therefore is not available when there
are trading holidays in Hong Kong. As a
result, prices of securities purchased through Bond Connect may fluctuate at
times when a Fund is
unable to add to or exit its
position. Securities offered via Bond Connect may lose their eligibility for
trading through the program at any time, in which case they
may be sold but could no longer be purchased through Bond Connect. Because Bond
Connect is relatively new, its effects on the
Chinese interbank bond are uncertain. In addition, the trading, settlement and
information technology systems required for non-Chinese
investors in Bond Connect are relatively new and continuing to evolve. In the
event that the relevant systems do not function
properly, trading via Bond Connect could be disrupted, adversely affecting the
ability of a Fund to
acquire or dispose of securities
through Bond Connect in a timely manner, which in turn could adversely impact
the Fund’s performance.
Bond
Connect is subject to regulation by both Hong Kong and China. There can be no
assurance that further regulations will not affect the
availability of securities in the program, the frequency of redemptions or other
limitations. In China, Bond Connect securities
are held on behalf of ultimate investors (such as a Fund) by
the Hong Kong Monetary Authority Central Money Markets Unit via
accounts maintained with China’s two clearinghouses for fixed-income securities.
While Chinese regulators have affirmed that the
ultimate investors hold a beneficial interest in Bond Connect securities, the
law surrounding such rights continues to develop,
and the mechanisms that beneficial owners may use to enforce their rights are
untested and therefore pose uncertain risks, with legal
and regulatory risks potentially having retroactive effect. Further, courts in
China have limited experience in applying the concept of
beneficial ownership, and the law surrounding beneficial ownership will continue
to evolve as they do so. There is accordingly
a risk that, as the law is tested and developed, a Fund’s
ability to enforce its ownership rights may be negatively impacted, which
could expose the Fund to the risk of loss on such investments. A Fund may
not be able to participate in corporate actions affecting
Bond Connect securities due to time constraints or for other operational
reasons, and payments of distributions could be delayed.
Market volatility and potential lack of liquidity due to low trading volume of
certain bonds may result in prices of those bonds
fluctuating significantly; in addition, the bid-ask spreads of the prices of
such securities may be large, and a Fund may
therefore
incur significant costs and suffer losses when selling such investments. More
generally, bonds traded in CIBM may be difficult
or impossible to sell, which could further impact a Fund’s
ability to acquire or dispose of such securities at their expected prices.
Bond Connect trades are settled in Renminbi (“RMB”), the Chinese currency, and
investors must have timely access to a reliable
supply of RMB in Hong Kong, which cannot be guaranteed. Moreover, securities
purchased through Bond Connect generally
may not be sold, purchased or otherwise transferred other than through Bond
Connect in accordance with applicable rules. Finally,
uncertainties in the Chinese tax rules governing taxation of income and gains
from investments via Bond Connect could result in
unexpected tax liabilities for a Fund.
The withholding tax treatment of dividends and capital gains payable to overseas
investors
currently is unsettled.
Under the
prevailing applicable Bond Connect regulations, a Fund
participates in Bond Connect through an offshore custody agent, registration
agent or other third parties (as the case may be), who would be responsible for
making the relevant filings and account opening
with the relevant authorities. A Fund is
therefore subject to the risk of default or errors on the part of such
agents.
Commercial
Paper.
Commercial paper refers to short-term fixed-income securities with maturities
ranging from 1 to 397 days. They are
primarily issued by corporations needing to finance large amounts of
receivables, but may be issued by banks and other borrowers.
Commercial paper is issued either directly or through broker-dealers, and may be
discounted or interest bearing. Commercial
paper is unsecured. Virtually all commercial paper is rated by Moody’s, Fitch or
S&P.
Commercial
paper rated A-1 by S&P has the following characteristics: (1) liquidity
ratios are adequate to meet cash requirements; (2) long-term
senior debt is rated “A” or better; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings
and cash flow have an upward trend with allowance made for unusual
circumstances; (5) typically, the issuer’s industry is well
established and the issuer has a strong position within the industry; and (6)
the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer’s commercial paper is A-1, A-2 or A-3.
The rating
Prime-1 is the highest commercial paper rating assigned by Moody’s. Among the
factors considered by Moody’s in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer’s industry or industries
and the appraisal of speculative-type risks which may be inherent in certain
areas; (3) evaluation of the issuer’s products in relation
to competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of
ten years; (7) financial strength of a parent company and the relationships that
exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations.
With
respect to Fitch, a short-term issuer or obligation rating is based in all cases
on the short-term vulnerability to default of the rated
entity and relates to the capacity to meet financial obligations in accordance
with the documentation governing the relevant
obligation.
Short-term deposit ratings may be adjusted for loss severity. Short-term ratings
are assigned to obligations whose initial maturity
is viewed as “short term” based on market convention. Typically, this means up
to 13 months for corporate, sovereign, and structured
obligations and up to 36 months for obligations in U.S. public finance markets.
An F1 rating indicates the strongest intrinsic
capacity for timely payment of financial commitments whereas an F2 rating
indicates good intrinsic capacity for timely payment of
financial commitments.
Mortgage-Related
Securities.
Mortgage-related securities are securities that, directly or indirectly,
represent a participation in, or are secured by
and payable from, mortgage loans on real property. Mortgage-related securities
include collateralized mortgage obligations and MBS
issued or guaranteed by agencies or instrumentalities of the U.S. Government or
by private sector entities.
Mortgage-Backed
Securities. With MBS,
many mortgagees’ obligations to make monthly payments to their lending
institution are pooled
together and the risk of the mortgagees’ payment obligations is passed through
to investors. The pools are assembled by various
governmental, government-related and private organizations. A Fund may
invest in securities issued or guaranteed by Ginnie Mae,
Freddie Mac or Fannie Mae, private issuers and other government agencies. MBS
issued by non-agency issuers, whether or not such
securities are subject to guarantees, may entail greater risk, since private
issuers may not be able to meet their obligations under the
policies. If there is no guarantee provided by the issuer, a Fund
will purchase only MBS that, at the time of purchase, are rated investment
grade by one or more NRSROs or, if unrated, are deemed by the Adviser to be of
comparable quality.
MBS are
issued or guaranteed by private sector originators of or investors in mortgage
loans and structured similarly to governmental pass-through
securities. Because private pass-throughs typically lack a guarantee by an
entity having the credit status of a governmental
agency or instrumentality, however, they are generally structured with one or
more of the types of credit enhancement described
below. Fannie Mae and Freddie Mac obligations are not backed by the full faith
and credit of the U.S. Government as Ginnie Mae
certificates are. Freddie Mac securities are supported by Freddie Mac’s right to
borrow from the U.S. Treasury. Each of Ginnie
Mae, Fannie Mae and Freddie Mac guarantees timely distributions of interest to
certificate holders. Each of Ginnie Mae and Fannie Mae
also guarantees timely distributions of scheduled principal. Although Freddie
Mac has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan, Freddie Mac now issues
MBS (Freddie Mac Gold PCS) that also guarantee
timely payment of monthly principal reductions. Resolution Funding Corporation
obligations are backed, as to principal payments,
by zero coupon U.S. Treasury bonds and, as to interest payments, ultimately by
the U.S. Treasury.
There are
two methods of trading MBS. A specified pool transaction is a trade in which the
pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical MBS transaction, called a to-be-announced
(“TBA”) transaction, in which the type of MBS to be delivered is specified at
the time of trade but the actual pool numbers of
the securities that will be delivered are not known at the time of the trade.
The pool numbers of the pools to be delivered at
settlement are announced shortly before settlement takes place. The terms of the
TBA trade may be made more specific if desired. Generally,
agency pass-through MBS are traded on a TBA basis. Investments in TBAs may give
rise to a form of leverage and may cause a Fund’s
portfolio turnover rate to appear higher. Leverage may cause a Fund to
be more volatile than if the Fund had not been leveraged.
Like
fixed-income securities in general, MBS will generally decline in price when
interest rates rise. Rising interest rates also tend to discourage
refinancings of home mortgages, with the result that the average life of MBS
held by a Fund may
be lengthened. As average
life extends, price volatility generally increases. This extension of average
life causes the market price of the MBS to decrease further
when interest rates rise than if their average lives were fixed. However, when
interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the
range of the average life movement could be and to calculate the effect that it
will have on the price of the MBS. In selecting MBS, the
Adviser looks for those that offer a higher yield to compensate for any
variation in average maturity. 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.
A Fund may
invest, without limit, in MBS issued by private
issuers when the Adviser deems that the quality of the investment, the quality
of the issuer, and market conditions warrant such
investments. A Fund
will purchase securities issued by private issuers that are rated investment
grade at the time of purchase by Moody’s,
Fitch or S&P or are deemed by the Adviser to be of comparable investment
quality.
Fannie
Mae Certificates. Fannie
Mae is a federally chartered and privately owned corporation organized and
existing under the Federal National
Mortgage Association Charter Act of 1938. Each Fannie Mae certificate represents
a pro rata interest in one or more pools of
mortgage loans insured by the Federal Housing Administration under the National
Housing Act of 1934, as amended (the “Housing
Act”), or Title V of the Housing Act of 1949 (“FHA Loans”), or guaranteed by the
Department of Veteran Affairs under the
Servicemen’s Readjustment Act of 1944, as amended (“VA Loans”), or conventional
mortgage loans (i.e., mortgage loans that are not
insured or guaranteed by any governmental agency) of the following types: (i)
fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other
adjustable rate mortgage loans; and (vi) fixed rate and adjustable mortgage
loans secured by multi-family projects.
Freddie
Mac Certificates. Freddie
Mac is a corporate instrumentality of the United States created pursuant to the
Emergency Home Finance
Act of 1970, as amended (the “FHLMC Act”). Freddie Mac certificates represent a
pro rata interest in a group of mortgage loans (a
“Freddie Mac Certificate group”) purchased by Freddie Mac. The mortgage loans
underlying the Freddie Mac Certificates consist of
fixed rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which
are secured by first liens on one-to-four-family residential properties or
multi-family projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A Freddie Mac Certificate group
may include whole loans, participation interests
in whole loans and undivided interests in whole loans and participations
comprising another Freddie Mac Certificate group.
In
September 2008, the U.S. Treasury Department announced that the government would
be taking over Fannie Mae and Freddie Mac and
placing the companies into a conservatorship. In addition, the U.S. Treasury
announced additional steps that it intended to take with
respect to the debt and MBS issued by Fannie Mae and Freddie Mac in order to
support the conservatorship. Fannie Mae and
Freddie Mac are continuing to operate as going concerns while in conservatorship
and each remains liable for all of its respective obligations,
including its guaranty obligations, associated with its MBS. No assurance can be
given that these initiatives will be successful.
The maximum potential liability of the issuers of some U.S. government
securities held by a Fund 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.
Ginnie
Mae Certificates. Ginnie
Mae is a wholly-owned corporate instrumentality of the United States within the
Department of Housing
and Urban Development. The Housing Act authorizes Ginnie Mae to guarantee the
timely payment of the principal and interest
on certificates that are based on and backed by a pool of FHA Loans, VA Loans or
by pools of other eligible mortgage loans. The
Housing Act provides that the full faith and credit of the United States is
pledged to the payment of all amounts that may be required
to be paid under any guaranty. In order to meet its obligations under such
guaranty, Ginnie Mae is authorized to borrow from the
U.S. Treasury with no limitations as to amount.
Each
Ginnie Mae certificate represents a pro rata interest in one or more of the
following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate
mortgage loans secured by manufactured (mobile) homes; (v) mortgage loans on
multi-family residential properties under construction;
(vi) mortgage loans on completed multi-family projects; (vii) fixed rate
mortgage loans as to which escrowed funds are used to
reduce the borrower’s monthly payments during the early years of the mortgage
loans (“buydown” mortgage loans); (viii) mortgage
loans that provide for adjustments in payments based on periodic changes in
interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be FHA Loans or VA loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on
one-to-four-family housing units.
Collateralized
Mortgage Obligations. Certain
Funds may invest in collateralized mortgage obligations (“CMOs”), which
are MBS
that are
collateralized by mortgage loans or mortgage pass-through securities, and
multi-class pass-through securities, which are equity interests
in a trust composed of mortgage loans or other MBS. Unless the context indicates
otherwise, the discussion of CMOs below also
applies to multi-class pass-through securities.
CMOs may
be issued by governmental or government-related entities or by private entities,
such as banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market traders. CMOs are issued in multiple
classes, often referred to as “tranches,” with each tranche having a specific
fixed or floating coupon rate and stated maturity or final
distribution date. Under the traditional CMO structure, the cash flows generated
by the mortgages or mortgage pass-through securities
in the collateral pool are used to first pay interest and then pay principal to
the holders of the CMOs. Subject to the various provisions
of individual CMO issues, the cash flow generated by the underlying collateral
(to the extent it exceeds the amount required
to pay the stated interest) is used to retire the bonds.
The
principal and interest on the underlying collateral may be allocated among the
several tranches of a CMO in innumerable ways, including
“interest only” and “inverse interest only” tranches. In a common CMO structure,
the tranches are retired sequentially in the order
of their respective stated maturities or final distribution dates (as opposed to
the pro-rata return of principal found in traditional
pass-through obligations). The fastest-pay tranches would initially receive all
principal payments. When those tranches are retired,
the next tranches in the sequence receive all of the principal payments until
they are retired. The sequential retirement of bond
groups continues until the last tranche is retired. Accordingly, the CMO
structure allows the issuer to use cash flows of long maturity,
monthly-pay collateral to formulate securities with short, intermediate, and
long final maturities and expected average lives and risk
characteristics.
The
primary risk of CMOs is the uncertainty of the timing of cash flows that results
from the rate of prepayments on the underlying mortgages
serving as collateral and from the structure of the particular CMO transaction
(that is, the priority of the individual tranches).
An increase or decrease in prepayment rates (resulting from a decrease or
increase in mortgage interest rates) may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates and will affect the yield and price of CMOs. In
addition, if the collateral securing CMOs or any third-party guarantees are
insufficient to make payments, a Fund
could sustain a
loss. The prices of certain CMOs, depending on their structure and the rate of
prepayments, can be volatile. Some CMOs
may also
not be as liquid as other types of mortgage-backed securities. As a result, it
may be difficult or impossible to sell the securities
at an advantageous time or price.
Privately
issued CMOs are arrangements in which the underlying mortgages are held by the
issuer, which then issues debt collateralized
by the underlying mortgage assets. Such securities may be backed by mortgage
insurance, letters of credit, or other credit
enhancing features. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may
be guaranteed by the U.S. Government or its agencies and instrumentalities,
these CMOs represent obligations solely of the
private issuer and are not insured or guaranteed by the U.S. Government, its
agencies and instrumentalities or any other person or entity.
Privately issued CMOs are subject to prepayment risk due to the possibility that
prepayments on the underlying assets will alter the
cash flow. Yields on privately issued CMOs have been historically higher than
the yields on CMOs backed by mortgages guaranteed
by U.S. government agencies and instrumentalities. The risk of loss due to
default on privately issued CMOs, however, is historically
higher since the U.S. Government has not guaranteed them.
New types
of CMO tranches have evolved. These include floating rate CMOs, planned
amortization classes, accrual bonds and CMO
residuals. These newer structures affect the amount and timing of principal and
interest received by each tranche from the underlying
collateral. For example, an inverse interest-only class CMO entitles holders to
receive no payments of principal and to receive
interest at a rate that will vary inversely with a specified index or a multiple
thereof. Under certain of these newer structures, given
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the
type of CMOs in which a Fund
invests, the investment may be subject to a greater or lesser risk of prepayment
than other types of
MBS.
CMOs may
include real estate mortgage investment conduits (“REMICs”). REMICs, which were
authorized under the Tax Reform Act of
1986, are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. A REMIC is a
CMO that qualifies for special tax treatment under the Code, and
invests in certain mortgages principally secured by interests
in real property.
A Fund
may invest in, among others, parallel pay CMOs and planned amortization class
CMOs (“PAC Bonds”). Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one tranche. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each tranche which, as with other CMO structures,
must be retired by its stated maturity date or final distribution date but may
be retired earlier. PAC Bonds are a form of parallel
pay CMO, with the required principal payment on such securities having the
highest priority after interest has been paid to all
classes. PAC Bonds generally require payments of a specified amount of principal
on each payment date.
Stripped
Mortgage-Backed Securities. Certain
Funds may invest in stripped mortgage-backed securities (“SMBS”). An SMBS is a
derivative
multi-class mortgage-backed security. SMBS usually are structured with two
classes that receive different proportions of the interest
and principal distribution on a pool of mortgage assets. In the most extreme
case, one class will receive all of the interest (the interest-only
or “IO” class), while the other class will receive all of the principal (the
principal-only or “PO” class). 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 such security’s yield to maturity. 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. Conversely, if the underlying mortgage assets experience
less than anticipated prepayments of principal, the yield
of POs could be materially adversely affected. The market values of IOs and POs
are subject to greater risk of fluctuation in response
to changes in market rates of interest than many other types of mortgage-backed
securities. To the extent a Fund
invests in IOs and
POs, it may increase the risk of fluctuations in the NAV
of a
Fund.
Credit
Enhancement.
Mortgage-related securities are often backed by a pool of assets representing
the obligations of a number of parties.
To lessen the effect of failure by obligors on underlying assets to make
payments, these securities may have various types of credit
support. Credit support falls into two primary categories: (i) liquidity
protection, and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
generally refers to the provision of advances, typically
by the entity administering the pool of assets, to ensure that the pass-through
of payments due on the underlying pool occurs in
a timely fashion. Protection against losses resulting from ultimate default
enhances the likelihood of ultimate payment of the
obligations on at least a portion of the assets in the pool. Such protection may
be provided through guarantees, insurance policies or letters
of credit obtained by the issuer or sponsor from third-parties (referred to
herein as “third-party credit support”), through various
means of structuring the transaction or through a combination of such
approaches.
The
ratings of mortgage-related securities for which third-party credit enhancement
provides liquidity protection or protection against
losses from default are generally dependent upon the continued creditworthiness
of the provider of the credit enhancement. The
ratings of such securities could decline in the event of deterioration in the
creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples
of credit support arising out of the structure of the transaction include
“senior-subordinated securities” (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal and interest thereon, with defaults on
the
underlying assets being borne first by the holders of the most subordinated
class), creation of “reserve funds” (where cash or investments,
sometimes funded from a portion of the payments on the underlying assets, are
held in reserve against future losses) and “over-collateralization”
(where the scheduled payments on, or the principal amount of, the underlying
assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each security is generally
based on historical information with respect to the level of credit risk
associated with the underlying assets. Delinquency or loss in
excess of that which is anticipated could adversely affect the return on an
investment in such a security.
Commercial
Mortgage-Backed Securities. Commercial
mortgage-backed securities (“CMBS”) are generally multi-class or
pass-through
securities issued by special purpose entities that represent an undivided
interest in a portfolio of mortgage loans backed by commercial
properties, including, but not limited to, industrial and warehouse properties,
office buildings, retail space and shopping malls,
hotels, healthcare facilities, multifamily properties and cooperative
apartments. Private lenders, such as banks or insurance companies,
originate these loans and then sell the loans directly into a CMBS trust or
other entity. The commercial mortgage loans that
underlie CMBS are generally not amortizing or not fully amortizing. That is, at
their maturity date, repayment of the remaining principal
balance or “balloon” is due and is repaid through the attainment of an
additional loan or sale of this property. An extension of the
final payment on commercial mortgages will increase the average life of the
CMBS, generally resulting in a lower yield for discount
bonds and a higher yield for premium bonds.
CMBS are
subject to credit risk and prepayment risk. Although prepayment risk is present,
it is of a lesser degree in the CMBS than in the
residential mortgage market; commercial real estate property loans often contain
provisions which substantially reduce the likelihood
that such securities will be prepaid (e.g., significant prepayment penalties on
loans and, in some cases, prohibition on principal
payments for several years following origination).
Repurchase
Agreements.
Repurchase agreements are transactions in which a Fund
purchases a security or basket of securities and simultaneously
commits to resell that security or basket to the seller (a bank, broker or
dealer) at a mutually agreed-upon date and price. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or date of
maturity of the purchased security. The term of these agreements usually ranges
from overnight to one week, and never exceeds
one year. Repurchase agreements with a term of over seven days are considered
illiquid.
In these
transactions, a Fund
receives securities that have a market value at least equal to the purchase
price (including accrued interest)
of the repurchase agreement, and this value is maintained during the term of the
agreement. These securities are held by the
Custodian
or an approved third-party for the benefit of the Fund until repurchased.
Repurchase agreements permit a Fund to
remain fully
invested while retaining overnight flexibility to pursue investments of a
longer-term nature. If the seller defaults and the value of the
repurchased securities declines, a Fund
might incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, a
Fund’s
realization upon the collateral may be delayed.
While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, each Fund
follows procedures
approved by the Directors
that are designed to minimize such risks. These procedures include effecting
repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored
by the Adviser. In addition, as described above, the value of the collateral
underlying the repurchase agreement will be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy
by a selling financial institution, the Funds will
seek to liquidate such collateral. However, the exercising of the Fund’s
right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. Repurchase agreements involving obligations
other than U.S. government securities may be subject to special risks.
Repurchase agreements secured by obligations that are not
eligible for direct investment under a Fund’s
investment objectives and restrictions may require the Fund to promptly dispose
of such
collateral if the seller or guarantor becomes insolvent.
A Fund
may enter into repurchase agreements on a forward commitment basis. To the
extent a Fund
does so and the counterparty to the trade
fails to effectuate the trade at the scheduled time, a Fund may
be forced to deploy its capital in a repurchase agreement with a less
favorable rate of return than it otherwise may have achieved or may be unable to
enter into a repurchase agreement at all at the desired
time.
Municipals. Municipal
securities are fixed-income securities issued by local, state and regional
governments that provide interest income
which is exempt from federal income taxes. Municipals include both municipal
bonds (those securities with maturities of five years or
more) and municipal notes (those with maturities of less than five years).
Municipal bonds are issued for a wide variety of reasons:
to construct public facilities, such as airports, highways, bridges, schools,
hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions
and facilities. Certain industrial development bonds are also considered
municipal bonds if their interest is exempt from federal
income tax. Industrial development bonds are issued by, or on behalf of, public
authorities to obtain funds for various privately-operated
manufacturing facilities, housing, sports arenas, convention centers, airports,
mass transportation systems and
water, gas
or sewage works. Industrial development bonds are ordinarily dependent on the
credit quality of a private user, not the public
issuer.
The two
principal classifications of municipal bonds are “general obligation” and
“revenue” or “special tax” bonds. General obligation
bonds are secured by the issuer’s pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue or
special tax bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases,
from the proceeds of a special excise or other tax, but not from general tax
revenues.
Industrial
revenue bonds in most cases are revenue bonds and generally do not have the
pledge of the credit of the issuer. The payment of
the principal and interest on such industrial revenue bonds is dependent solely
on the ability of the user of the facilities financed
by the bonds to meet its financial obligations and the pledge, if any, of real
and personal property so financed as security for such
payment. Short-term municipal obligations issued by states, cities,
municipalities or municipal agencies, include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
short-term discount notes.
Municipal
notes are issued to meet the short-term funding requirements of local, regional
and state governments. Municipal notes include
bond anticipation notes, revenue anticipation notes and tax and revenue
anticipation notes. These are short-term debt obligations
issued by state and local governments to aid cash flows while waiting for taxes
or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which a Fund may
invest are construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes and similar instruments.
Municipal
bonds generally include debt obligations issued by states and their political
subdivisions, and duly constituted authorities and
corporations, to obtain funds to construct, repair or improve various public
facilities such as airports, bridges, highways, hospitals,
housing, schools, streets and water and sewer works. Municipal bonds may also be
issued to refinance outstanding obligations
as well as to obtain funds for general operating expenses and for loans to other
public institutions and facilities. In addition,
municipal bonds may include obligations of municipal housing authorities and
single-family mortgage revenue bonds. Weaknesses
in federal housing subsidy programs and their administration may result in a
decrease of subsidies available for payment of
principal and interest on housing authority bonds. Economic developments,
including fluctuations in interest rates and increasing construction
and operating costs, may also adversely impact revenues of housing authorities.
In the case of some housing authorities, inability
to obtain additional financing could also reduce revenues available to pay
existing obligations. Single-family mortgage revenue
bonds are subject to extraordinary mandatory redemption at par in whole or in
part from the proceeds derived from prepayments
of underlying mortgage loans and also from the unused proceeds of the issue
within a stated period which may be within a
year from the date of issue.
Note
obligations with demand or put options may have a stated maturity in excess of
one year, but permit any holder to demand payment of
principal plus accrued interest upon a specified number of days’ notice.
Frequently, such obligations are secured by letters of credit
or other credit support arrangements provided by banks. The issuer of such notes
normally has a corresponding right, after a given
period, to repay at its discretion the outstanding principal of the note plus
accrued interest upon a specific number of days’ notice to
the bondholders. The interest rate on a demand note may be based upon a known
lending rate, such as the prime lending rate, and
be adjusted when such rate changes, or the interest rate on a demand note may be
a market rate that is adjusted at specified intervals.
Each note purchased by the Funds will
meet the quality criteria set out in the applicable Prospectus for the
Fund.
The yields
of municipal bonds depend on, among other things, general money market
conditions, conditions in the municipal bond market,
the size of a particular offering, the maturity of the obligation, and the
rating of the issue. The ratings of Moody’s
and S&P
represent
their opinions of the quality of the municipal bonds rated by them. It should be
emphasized that such ratings are general and are
not absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different
yields, while municipal bonds of the same maturity and coupon, but with
different ratings, may have the same yield. It will be the
responsibility of the Adviser to appraise independently the fundamental quality
of the bonds held by the Funds.
Municipal
bonds are sometimes purchased on a “when-issued” or “delayed-delivery” basis,
which means a Fund has
committed to purchase
certain specified securities at an agreed-upon price when they are issued. The
period between commitment date and issuance
date can be a month or more. It is possible that the securities will never be
issued and the commitment canceled.
From time
to time proposals have been introduced before Congress to restrict or eliminate
the federal income tax exemption for interest
on municipal bonds. Similar proposals may be introduced in the
future.
Similarly,
from time to time proposals have been introduced before state and local
legislatures to restrict or eliminate the state and local
income tax exemption for interest on municipal bonds. Similar proposals may be
introduced in the future.
The Funds may
also purchase bonds the income on which is subject to the alternative minimum
tax (“AMT bonds”). AMT bonds are
tax-exempt private activity bonds issued after August 7, 1986, the proceeds of
which are directed, at least in part, to private, for-profit
organizations. While the income from AMT bonds is exempt from regular federal
income tax, it is a tax preference item in the calculation
of the alternative minimum tax. The alternative minimum tax is a special
separate tax that applies to some taxpayers who have
certain adjustments to income or tax preference items.
Build
America Bonds are taxable municipal securities on which the issuer receives
federal support of the interest paid. Assuming certain
specified conditions are satisfied, issuers of Build America Bonds may either
(i) receive reimbursement from the U.S. Treasury with
respect to a portion of its interest payments on the bonds (“direct pay” Build
America Bonds) or (ii) provide tax credits to investors
in the bonds (“tax credit” Build America Bonds). Unlike most other municipal
securities, interest received on Build America Bonds is
subject to federal and state income tax. Issuance of Build America Bonds ceased
on December 31, 2010. The number of Build
America Bonds available in the market is limited, which may negatively affect
the value of the Build America Bonds.
The
Funds may
hold municipal private placements. These securities are sold through private
negotiations, usually to institutions or mutual
funds, and generally have resale restrictions. Their yields are usually higher
than comparable public securities to compensate the
investor for their limited marketability. No more than 15% of a Fund’s
net assets may be comprised of illiquid investments that are
assets, including unmarketable private placements, measured at the time of
purchase.
Lease
Obligations. Included
within the revenue bonds category in which a Fund may
invest are participations in lease obligations or installment
purchase contracts (hereinafter collectively called “lease obligations”) of
municipalities. State and local governments, agencies
or authorities issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated
with general obligation or other revenue bonds. Leases, and installment purchase
or conditional sale contracts (which may provide
for title to the leased asset to pass eventually to the issuer), have developed
as a means for governmental issuers to acquire property
and equipment without the necessity of complying with the constitutional and
statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain “non-appropriation” clauses
that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative
body on an annual or other periodic basis. Consequently, continued lease
payments on those lease obligations containing “non-appropriation”
clauses are dependent on future legislative actions. If such legislative actions
do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
In
addition, lease obligations do not have the depth of marketability associated
with more conventional municipal obligations, and, as a
result, certain of such lease obligations may be considered illiquid securities.
The Adviser, pursuant to procedures adopted by the Directors,
will make a determination as to the liquidity of each lease obligation purchased
by the Funds. If
a lease obligation is determined
to be “liquid,” the security will not be included within the category “illiquid
securities.”
Asset-Backed
Securities. Certain
Funds may invest in asset-backed securities. Asset-backed securities utilize the
securitization techniques
used to develop MBS. These
techniques are also applied to a broad range of other assets. Various types of
assets, primarily automobile
and credit card receivables and home equity loans, are being securitized in
pass-through structures similar to the mortgage pass-through
structures. These types of securities are known as asset-backed
securities. A Fund may
invest in any type of asset-backed security.
Asset-backed securities have risk characteristics similar to MBS. Like MBS, they
generally decrease in value as a result of interest
rate increases, but may benefit less than other fixed-income securities from
declining interest rates, principally because of prepayments.
Also, as in the case of MBS, prepayments generally increase during a period of
declining interest rates although other factors,
such as changes in credit use and payment patterns, may also influence
prepayment rates. Asset-backed securities also involve the risk
that various federal and state consumer laws and other legal, regulatory and
economic factors may result in the collateral backing
the securities being insufficient to support payment on the
securities.
Loan-Related
Investments. Loan-related
investments may include, without limitation, bank loans, direct lending and loan
participations
and assignments. In addition to risks generally associated with debt
investments, loan-related investments are subject to other
risks. Loans in which a Fund may
invest may not be rated by a rating agency, will not be registered with the
SEC or
any state securities
commission and will not be listed on any national securities exchange. Investors
in loans, such as a Fund,
may not be entitled
to rely on the anti-fraud protections of the federal securities laws, although
they may be entitled to certain contractual remedies.
The amount of public information available with respect to loans will generally
be less extensive than that available for registered
or exchange-listed securities. In evaluating the creditworthiness of borrowers,
the Adviser will consider, and may rely in part on,
analyses performed by others.
The market
for loan obligations may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods.
Because transactions in many loans are subject to extended trade settlement
periods, a Fund may
not receive the proceeds from the
sale of a loan for a period after the sale. As a result, sale proceeds related
to the sale of loans may not be available to make additional
investments or to meet a Fund’s
redemption obligations for a period after the sale of the loans, and, as a
result, the Fund may have
to sell other investments or engage in borrowing transactions, such as borrowing
from its credit facility, if necessary to raise cash to
meet its obligations. In addition, a Fund may
not be able to readily dispose of its loans at prices that approximate those at
which the
Fund could sell such loans if they were more widely-traded and, as a result of
such illiquidity, a Fund may
have to sell other
investments or engage in borrowing transactions, such as borrowing from its
credit facility, if necessary to raise cash to meet its obligations,
including redemption obligations. To the extent a readily available market
ceases to exist for a particular investment, such investment
would be treated as illiquid for purposes of a Fund’s
limitations on illiquid investments.
Loans are
subject to the risk of non-payment of scheduled interest or principal. Such
non-payment would result in a reduction of income
to a Fund, a
reduction in the value of the investment and a potential decrease in the Fund’s
NAV. There can be no assurance that the
liquidation of any collateral securing a loan would satisfy a borrower’s
obligation in the event of non-payment of scheduled interest
or principal payments, or that such collateral could be readily liquidated. In
the event of bankruptcy of a borrower, a Fund
could
experience delays or limitations with respect to its ability to realize the
benefits of the collateral securing a loan. The collateral securing a
loan may lose all or substantially all of its value in the event of the
bankruptcy of a borrower. Some loans are subject to the risk that
a court, pursuant to fraudulent conveyance or other similar laws, could
subordinate such loans to presently existing or future indebtedness
of the borrower or take other action detrimental to the holders of loans
including, in certain circumstances, invalidating such loans
or causing interest previously paid to be refunded to the borrower. If interest
were required to be refunded, it could negatively
affect a Fund’s
performance.
Direct
Lending. When
a Fund
acts as a direct lender, it may participate in structuring the loan. Under these
circumstances, 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 have rights with respect to any funds acquired by other lenders through
set-off. Lenders also have 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 some specified percentage of the outstanding principal amount of the
loan. Certain decisions, such as reducing the amount of
interest on or principal of a loan, releasing collateral, changing the maturity
of a loan or a change in control of the borrower,
frequently require the unanimous vote or consent of all lenders
affected.
Loan
Participations and Assignments. Loan
participations are interests in loans or other direct debt instruments relating
to amounts owed by a
corporate, governmental or other borrower to another party. These loans may
represent amounts owed to lenders or lending
syndicates, to suppliers of goods or services (trade claims or other
receivables), or to other parties (“Lenders”) and may be fixed-rate
or floating rate. These loans also may be arranged through private negotiations
between an issuer of sovereign debt obligations
and Lenders.
A Fund’s
investments in loans may be in the form of a participation in loans
(“Participations”) and assignments of all or a portion of loans
(“Assignments”) from third parties. In the case of a
Participation, a Fund
will have the right to receive payments of principal, interest
and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments
from the borrower. In the event of an insolvency of the Lender selling a
Participation, a Fund may
be treated as a general creditor
of the Lender and may not benefit from any set-off between the Lender and the
borrower. Certain Participations may be structured
in a manner designed to avoid purchasers of Participations being subject to the
credit risk of the Lender with respect to the Participation.
Even under such a structure, in the event of a Lender’s insolvency, the Lender’s
servicing of the Participation may be delayed
and the assignability of the Participation may be impaired. A Fund
will acquire Participations only if the Lender interpositioned
between a Fund and
the borrower is determined by the Adviser to be creditworthy.
When a Fund
purchases Assignments from Lenders it will acquire direct rights against the
borrower on the loan. However, because Assignments
are arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired
by a Fund as
the purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender.
Because there is no liquid market for Participations and Assignments, it is
likely that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market may
have an adverse impact on the value of such securities
and a Fund’s
ability to dispose of particular Assignments or Participations when necessary to
meet a Fund’s
liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary
market for Participations and Assignments also may make it more difficult
for a Fund to
assign a value to these securities for
purposes of valuing a Fund’s
securities and calculating its NAV.
Participations
and Assignments involve a risk of loss in case of default or insolvency of the
borrower. In addition, they may offer less legal
protection to a Fund in
the event of fraud or misrepresentation and may involve a risk of insolvency of
the Lender. Certain Participations
and Assignments may also include standby financing commitments that obligate the
investing Fund to supply additional
cash to the borrower on demand. Participations involving emerging market country
issuers may relate to loans as to which there has
been or currently exists an event of default or other failure to make payment
when due, and may represent amounts owed to Lenders
that are themselves subject to political and economic risks, including the risk
of currency devaluation, expropriation, or failure.
Such Participations and Assignments present additional risk of default or
loss.
Bank loans
generally are negotiated between a borrower and several financial institutional
lenders represented by one or more lenders acting as
agent of all the lenders. The agent is responsible for negotiating the loan
agreement that establishes the terms and conditions of the
loan and the rights of the borrower and the lenders, monitoring any collateral,
and collecting principal and interest on the loan. By
investing in a loan, a Fund
becomes a member of a syndicate of lenders. Investments in bank loans entail
those risks described
above, such as liquidity risk and risk of default.
Some of
the loans in which a Fund may
invest or obtain exposure to may be “covenant lite” loans. Certain financial
institutions may define
“covenant lite” loans differently. Covenant lite loans or securities, which have
varied terms and conditions, may contain fewer
or no
restrictive covenants compared to other loans that might enable an investor to
proactively enforce financial covenants or prevent
undesired actions by the borrower. As a result, a Fund may
experience relatively greater difficulty or delays in enforcing its rights on
its holdings of certain covenant lite loans and debt securities than its
holdings of loans or securities with more traditional financial
covenants, which may result in losses to the Fund.
Temporary
Defensive Investments. When the
Adviser believes that changes in market, economic, political or other conditions
make it
advisable, a Fund may
invest up to 100% of its assets in cash, cash equivalents and other fixed-income
securities for temporary defensive
purposes that may be inconsistent with the Fund’s investment strategies. These
temporary investments may consist of obligations
of the U.S. or foreign governments, their agencies and instrumentalities; money
market instruments; and instruments issued by
international development agencies.
Zero
Coupons, Pay-In-Kind Securities or Deferred Payment Securities. Zero
coupon, pay-in-kind and deferred payment securities
are all types of fixed-income securities on which the holder does not receive
periodic cash payments of interest or principal. Generally,
these securities are subject to greater price volatility and lesser liquidity in
the event of adverse market conditions than comparably
rated securities paying cash interest at regular intervals.
Although a Fund
will not receive cash periodic coupon payments on these
securities, the Fund may be deemed to have received interest income, or “phantom
income” during the life of the obligation. The Fund
may have to distribute such phantom income to avoid taxes at the Fund level,
although it has not received any cash payment.
Zero
Coupons. Zero
coupons are fixed-income securities that do not make regular interest payments.
Instead, zero coupons are sold at a discount
from their face value. The difference between a zero coupon’s issue or purchase
price and its face value represents the imputed
interest an investor will earn if the obligation is held until maturity. For tax
purposes, a portion of this imputed interest is deemed as
income received by zero coupon bondholders each year. Each Fund
intends to pass along such interest as a component of the Fund’s
distributions of net investment income.
Zero
coupons may offer investors the opportunity to earn a higher yield than that
available on ordinary interest-paying obligations of similar
credit quality and maturity. However, zero coupon prices may also exhibit
greater price volatility than ordinary fixed-income securities
because of the manner in which their principal and interest are returned to the
investor.
Pay-In-Kind
Securities.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the
securities.
Deferred
Payment Securities. Deferred
payment securities are securities that remain zero coupons until a predetermined
date, at which time the
stated coupon rate becomes effective and interest becomes payable at regular
intervals.
Floaters. Floaters
are fixed-income securities with a rate of interest that varies with changes in
specified market rates or indices, such as the
prime rate, or at specified intervals. Certain floating or variable rate
obligations may carry a demand feature that permits the holder to
tender them back to the issuer of the underlying instrument, or to a third
party, at par value prior to maturity. When the demand
feature of certain floating or variable rate obligations represents an
obligation of a foreign entity, the demand feature will be subject to
certain risks discussed under “Foreign Securities.”
Inverse
Floaters. Inverse
floating rate obligations are obligations which pay interest at rates that vary
inversely with changes in market
rates of interest. Because the interest rate paid to holders of such obligations
is generally determined by subtracting a variable or
floating rate from a predetermined amount, the interest rate paid to holders of
such obligations will decrease as such variable or floating
rate increases and increase as such variable or floating rate
decreases.
Like most
other fixed-income securities, the value of inverse floaters will decrease as
interest rates increase. They are more volatile, however,
than most other fixed-income securities because the coupon rate on an inverse
floater typically changes at a multiple of the change in
the relevant index rate. Thus, any rise in the index rate (as a consequence of
an increase in interest rates) causes a correspondingly
greater drop in the coupon rate of an inverse floater while a drop in the index
rate causes a correspondingly greater increase
in the coupon of an inverse floater. Some inverse floaters may also increase or
decrease in value substantially because of changes in
the rate of prepayments.
Inverse
floating rate investments tend to underperform the market for fixed-rate bonds
in a rising interest rate environment, but tend to
outperform the market for fixed-rate bonds when interest rates decline or remain
relatively stable. Inverse floating rate investments have
varying degrees of liquidity.
Eurodollar
and Yankee Dollar Obligations. Certain
Funds may invest in Eurodollar and Yankee dollar obligations. Eurodollar and
Yankee
dollar obligations are fixed-income securities that include time deposits, which
are non-negotiable deposits maintained in a bank for a
specified period of time at a stated interest rate. The Eurodollar obligations
may include bonds issued and denominated in euros.
Eurodollar obligations may be issued by government and corporate issuers in
Europe. Yankee dollar obligations, which include time
deposits and certificates of deposit, are U.S. dollar-denominated obligations
issued in the U.S. capital markets by foreign banks. Eurodollar
bank obligations, which include time deposits and certificates of deposit, are
U.S. dollar-denominated obligations issued
outside
the U.S. capital markets by foreign branches of U.S. banks and by foreign
banks. The Funds may
consider Yankee dollar obligations
to be domestic securities for purposes of their investment
policies.
Eurodollar
and Yankee dollar obligations are subject to the same risks as domestic issues,
notably credit risk, market risk and liquidity risk.
However, Eurodollar (and to a limited extent, Yankee dollar) obligations are
also subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital from flowing across
its borders. Other risks include adverse political and
economic developments; the extent and quality of government regulations of
financial markets and institutions; the imposition of foreign
withholding taxes; and the expropriation or nationalization of foreign
issuers.
Foreign
Securities. Investing
in foreign securities involves certain special considerations which are not
typically associated with investments
in the securities of U.S. issuers. Foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting
standards and may have policies that are not comparable to those of domestic
issuers. As a result, there may be less information
available about foreign issuers than about domestic issuers. Securities of some
foreign issuers may be less liquid and more volatile
than securities of comparable domestic issuers. There is generally less
stringent investor protections and disclosure standards, less
government supervision and regulation of stock exchanges, brokers and listed
issuers than in the United States. In addition, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political and social instability, or diplomatic
developments which could affect U.S. investments in those countries. The costs
of investing in foreign countries frequently
are higher than the costs of investing in the United States. Although the
Adviser endeavors to achieve the most favorable execution
costs in portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions
on U.S. exchanges. In addition, investments in certain foreign markets that have
historically been considered stable may become
more volatile and subject to increased risk due to ongoing developments and
changing conditions in such markets. Moreover,
the growing interconnectivity of global economies and financial markets has
increased the probability that adverse developments
and conditions in one country or region will affect the stability of economies
and financial markets in other countries or
regions. For instance, if one or more countries leave the European Union (“EU”)
or the EU dissolves, the world’s securities markets
likely will be significantly disrupted.
Investments
in foreign markets may also be adversely affected by governmental actions such
as the imposition of capital controls, nationalization
of companies or industries, expropriation of assets or the imposition of
punitive taxes. The governments of certain countries
may prohibit or impose substantial restrictions on foreign investing in their
capital markets or in certain sectors or industries.
In addition, a foreign government may limit or cause delay in the convertibility
or repatriation of its currency which would
adversely affect the U.S. dollar value and/or liquidity of investments
denominated in that currency. Certain foreign investments
may become less liquid in response to market developments or adverse investor
perceptions, or become illiquid after purchase
by a Fund,
particularly during periods of market turmoil. When a Fund
holds illiquid investments, its portfolio may be harder to
value.
Investments
in securities of foreign issuers may be denominated in foreign currencies.
Accordingly, the value of a Fund’s
assets, as measured
in U.S. dollars, may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. A Fund may
incur costs in connection with conversions between various
currencies.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments,
the imposition of economic sanctions against a particular country or countries,
organizations, companies, entities and/or
individuals, changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures. International trade
barriers or economic sanctions against foreign countries, organizations,
companies, entities and/or individuals, may adversely affect
a Fund’s
foreign holdings or exposures. Investments in foreign markets may also be
adversely affected by governmental actions such as
the imposition of capital controls, nationalization of companies or industries,
expropriation of assets, or the imposition of punitive
taxes. Governmental actions can have a significant effect on the economic
conditions in foreign countries, which also may adversely
affect the value and liquidity of a Fund’s
investments. For example, the governments of certain countries may prohibit or
impose
substantial restrictions on foreign investing in their capital markets or in
certain sectors or industries. In addition, a foreign government
may limit or cause delay in the convertibility or repatriation of its currency
which would adversely affect the U.S. dollar value
and/or liquidity of investments denominated in that currency. Any of these
actions could severely affect security prices, impair a
Fund’s
ability to purchase or sell foreign securities or transfer a Fund’s
assets back into the U.S., or otherwise adversely affect a Fund’s
operations.
Certain foreign investments may become less liquid in response to market
developments or adverse investor perceptions, or become
illiquid after purchase by a Fund,
particularly during periods of market turmoil. Certain foreign investments may
become illiquid
when, for instance, there are few, if any, interested buyers and sellers or when
dealers are unwilling to make a market for certain
securities. When a Fund
holds illiquid investments, its portfolio may be harder to value.
Certain
foreign governments may levy withholding or other taxes on dividend and interest
income. Although in some countries a portion of
these taxes may be recoverable, the non-recovered portion of foreign withholding
taxes will reduce the income received from
investments in such countries. The Funds may
be able to pass through to their shareholders
a credit for U.S. tax purposes with respect to
any such foreign taxes.
The
Adviser may consider an issuer to be from a particular country (including the
United States) or geographic region if: (i) its principal
securities trading market is in that country or geographic region;
(ii) alone or on a consolidated basis it derives 50% or more of its
annual revenue or profits from goods produced, sales made or services performed
in that country or geographic region or has at least 50%
of its assets in that country or geographic region; or (iii) it is
organized under the laws of, or has a principal office in, that country or
geographic region. By applying these tests, it is possible that a particular
issuer could be deemed to be from more than one country or
geographic region.
Foreign
securities may include, without limitation, foreign equity securities, which are
equity securities of a non-U.S. issuer, foreign government
fixed-income securities, which are fixed-income securities issued by a
government other than the U.S. Government or government-related
issuer in a country other than the United States, and foreign corporate
fixed-income securities, which are fixed-income
securities issued by a private issuer in a country other than the United
States.
Investments
in foreign companies and countries are subject to economic sanction and trade
laws in the United States and other jurisdictions.
These laws and related governmental actions may, from time to time, prohibit
a Fund
from investing in certain countries
and in certain companies. Investments in certain countries and companies may be,
and have in the past been, restricted as a result of
the imposition of economic sanctions. In addition, economic sanction laws in the
United States and other jurisdictions may prohibit
a Fund
from transacting with a particular country or countries, organizations,
companies, entities and/or individuals. These types of
sanctions may significantly restrict or completely prohibit investment
activities in certain jurisdictions.
Economic
sanctions and other similar governmental actions could, among other things,
effectively restrict or eliminate a Fund’s
ability to
purchase or sell securities or groups of securities, and thus may make the
Fund’s investments in such securities less liquid or more
difficult to value. In addition, as a result of economic sanctions, the Fund may
be forced to sell or otherwise dispose of investments
at inopportune times or prices, which could result in losses to the Fund and
increased transaction costs. These conditions may be in
place for a substantial period of time and enacted with limited advance notice
to the Fund.
In
addition, such economic sanctions or other government restrictions may
negatively impact the value or liquidity of a Fund’s
investments,
and could impair the Fund’s ability to meet its investment objective or invest
in accordance with its investment strategy because
the Fund may, for example, be prohibited from investing in securities issued by
companies subject to such restrictions and the Fund
could be required to freeze or divest its existing investments that the Adviser
would otherwise consider to be attractive.
The risks
posed by economic sanctions against a particular foreign country, its nationals
or industries or businesses within the country may be
heightened to the extent a Fund
invests significantly in the affected country or region or in issuers from the
affected country that
depend on global markets.
Referendum
on the UK’s EU Membership. In
an advisory referendum held in June 2016, the United Kingdom (“UK”) electorate
voted to leave
the EU, an event widely referred to as “Brexit.” On January 31, 2020, the UK
officially withdrew from the EU and the UK entered a
transition period which ended on December 31, 2020. On December 30, 2020, the EU
and UK signed the EU-UK Trade and
Cooperation Agreement (“TCA”), an agreement on the terms governing certain
aspects of the EU’s and the UK’s relationship following
the end of the transition period. Notwithstanding the TCA, following the
transition period, there is likely to be considerable
uncertainty as to the UK’s post-transition framework.
The impact
on the UK and the EU and the broader global economy is still unknown but could
be significant and could result in increased
volatility and illiquidity and potentially lower economic growth. Brexit may
have a negative impact on the economy and currency
of the UK and the EU as a result of anticipated, perceived or actual changes to
the UK’s economic and political relations with the
EU. The impact of Brexit, and its ultimate implementation, on the economic,
political and regulatory environment of the UK and the
EU could have global ramifications.
The Funds may
make investments in the UK, other EU members and in non-EU countries that are
directly or indirectly affected by the exit
of the UK from the EU. Adverse legal, regulatory or economic conditions
affecting the economies of the countries in which the
Funds
conduct their
business (including making investments) and any corresponding deterioration in
global macro-economic conditions
could have a material adverse effect on a Fund’s
investment returns. Potential consequences to which the Funds may
be exposed,
directly or indirectly, as a result of the UK referendum vote include, but are
not limited to, market dislocations, economic and
financial instability in the UK and in other EU members, increased volatility
and reduced liquidity in financial markets, reduced availability
of capital, an adverse effect on investor and market sentiment, Sterling and
Euro destabilization, reduced deal flow in a
Fund’s
target markets, increased counterparty risk and regulatory, legal and compliance
uncertainties. Any of the foregoing or similar risks
could have a material adverse effect on the operations, financial condition or
investment returns of a Fund
and/or the Adviser in general.
The effects on the UK, European and global economies of the exit of the UK
(and/or other EU members during the term of a Fund)
from the EU, or the exit of other EU members from the European monetary area
and/or the redenomination of financial instruments
from the Euro to a different currency, are difficult to predict and to protect
fully against. Many of the foregoing risks are outside of
the control of a Fund
and the Adviser. These risks may affect a Fund,
the Adviser and other service providers given economic,
political and regulatory uncertainty created by Brexit.
Emerging
Market Securities. Certain
Funds may invest in emerging market securities. An emerging market security is a
security issued by
an emerging market foreign government or private issuer. An emerging market
foreign government or private issuer has one or more of
the following characteristics: (i) its principal securities trading market
is in an emerging market or developing country; (ii) alone
or on a consolidated basis it derives 50% or more of its annual revenue or
profits from goods produced, sales made or services
performed in an emerging market or developing country or has at least 50% of its
assets in an emerging market or developing country;
or (iii) it is organized under the laws of, or has a principal office in,
an emerging market or developing country. Based on these
criteria it is possible for a security to be considered issued by an issuer in
more than one country. Therefore, it is possible for the securities
of any issuer that has one or more of these characteristics in connection with
any emerging market or developing country to be
considered an emerging market security when held in one Fund, but not considered
an emerging market security when held in another
Fund if it has one or more of these characteristics in connection with a
developed country.
Emerging
market describes any country that is generally considered to be an emerging or
developing country by major organizations in the
international financial community or by a Fund’s
benchmark index.
The
economies of individual emerging market or developing countries may differ
favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation or deflation,
currency depreciation, capital reinvestment, resource self-sufficiency
and balance of payments position. Further, the economies of developing countries
generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures. These
economies also have been, and may continue
to be, adversely affected by economic conditions in the countries with which
they trade.
Prior
governmental approval for foreign investments may be required under certain
circumstances in some emerging market or developing
countries, and the extent of foreign investment in certain fixed-income
securities and domestic companies may be subject to
limitation in other emerging market or developing countries. Foreign ownership
limitations also may be imposed by the charters of
individual companies in emerging market or developing countries to prevent,
among other concerns, violation of foreign investment
limitations. Repatriation of investment income, capital and the proceeds of
sales by foreign investors may require governmental
registration and/or approval in some emerging countries. A Fund
could be adversely affected by delays in, or a refusal to grant,
any required governmental registration or approval for such repatriation. Any
investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this process
will take more than seven days.
Certain
emerging market countries may be subject to less stringent requirements
regarding accounting, auditing, financial reporting and record
keeping and therefore, material information related to an investment may not be
available or reliable. In addition, a Fund
is limited
in its ability to exercise its legal rights or enforce a counterparty’s legal
obligations in certain jurisdictions outside of the United
States, in particular, in emerging markets countries.
Investment
in emerging market or developing countries may entail purchasing securities
issued by or on behalf of entities that are insolvent,
bankrupt, in default or otherwise engaged in an attempt to reorganize or
reschedule their obligations and in entities that have
little or no proven credit rating or credit history. In any such case, the
issuer’s poor or deteriorating financial condition may increase
the likelihood that a Fund
will experience losses or diminution in available gains due to bankruptcy,
insolvency or fraud. Emerging
market or developing countries also pose the risk of nationalization,
expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) that could adversely affect the economies
of such countries or the value of a Fund’s
investments in those countries. In addition, it may be difficult to obtain and
enforce a
judgment in a court outside the United States.
A Fund
may also be exposed to an extra degree of custodial and/or market risk,
especially where the securities purchased are not traded on
an official exchange or where ownership records regarding the securities are
maintained by an unregulated entity (or even the issuer
itself).
Foreign
Currency Transactions. The U.S.
dollar value of the assets of the Funds, to
the extent they invest in securities denominated in foreign
currencies, may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations,
and the Funds may
incur costs in connection with conversions between various currencies. Currency
exchange rates may fluctuate
significantly over short periods of time for a number of reasons, including
changes in interest rates and the overall economic health of
the issuer. Devaluation of a currency by a country’s government or banking
authority also will have a significant impact on the value
of any investments denominated in that currency. The Funds may
conduct their
foreign currency exchange transactions on a spot
(i.e., cash) basis at the then-prevailing spot rate in the foreign currency
exchange market. The Funds also
may manage their
foreign
currency transactions by entering into foreign currency forward exchange
contracts to purchase or sell foreign currencies or by using
other instruments and techniques described under “Derivatives.”
Under
normal circumstances, consideration of the prospect for changes in the values of
currency will be incorporated into the long-term
investment decisions made with regard to overall diversification strategies.
However, the Adviser believes that it is important to have the
flexibility to use such derivative products when it determines that it is in the
best interests of a Fund. It
may not be practicable
to hedge foreign currency risk in all markets, particularly emerging
markets.
Foreign
Currency Warrants. The Funds may
invest in foreign currency warrants, which entitle the holder to receive from
the issuer an amount of
cash (generally, for warrants issued in the United States, in U.S. dollars)
which is calculated pursuant to a predetermined formula
and based on the exchange rate between a specified foreign currency and the U.S.
dollar as of the exercise date of the warrant.
Foreign currency warrants generally are exercisable upon their issuance and
expire as of a specified date and time.
Foreign
currency warrants have been issued in connection with U.S. dollar-denominated
debt offerings by major corporate issuers in an attempt
to reduce the foreign currency exchange risk which, from the point of view of
prospective purchasers of the securities, is inherent
in the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by
purchasers of a security by, for example, providing for a supplemental payment
in the event that the U.S. dollar depreciates
against the value of a major foreign currency such as the Japanese Yen. The
formula used to determine the amount payable
upon exercise of a foreign currency warrant may make the warrant worthless
unless the applicable foreign currency exchange rate moves
in a particular direction (e.g., unless the U.S. dollar appreciates or
depreciates against the particular foreign currency to which the
warrant is linked or indexed). Foreign currency warrants are severable from the
debt obligations with which they may be offered,
and may be listed on exchanges.
Foreign
currency warrants may be exercisable only in certain minimum amounts, and an
investor wishing to exercise warrants who possesses
less than the minimum number required for exercise may be required either to
sell the warrants or to purchase additional warrants,
thereby incurring additional transaction costs. In the case of any exercise of
warrants, there may be a delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the
exchange rate could change significantly, thereby affecting both the market and
cash settlement values of the warrants being exercised.
The expiration date of the warrants may be accelerated if the warrants should be
delisted from an exchange or if their trading
should be suspended permanently, which would result in the loss of any remaining
“time value” of the warrants (i.e., the difference
between the current market value and the exercise value of the warrants), and,
in the case where the warrants were “out-of-the-money,”
in a total loss of the purchase price of the warrants.
Foreign
currency warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by
the Options Clearing Corporation (“OCC”). Unlike foreign currency options issued
by the OCC, the terms of foreign exchange
warrants generally will not be amended in the event of governmental or
regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign
currency warrants is generally considerably in excess of the price that a
commercial user of foreign currencies might pay in the interbank
market for a comparable option involving significantly larger amounts of foreign
currencies. Foreign currency warrants are subject to
complex political or economic factors.
Principal
Exchange Rate Linked Securities. Principal
exchange rate linked securities are debt obligations the principal of which is
payable at
maturity in an amount that may vary based on the exchange rate between the U.S.
dollar and a particular foreign currency at or
about that time. The return on “standard” principal exchange rate linked
securities is enhanced if the foreign currency to which the
security is linked appreciates against the U.S. dollar, and is adversely
affected by increases in the foreign exchange value of the U.S.
dollar; “reverse” principal exchange rate linked securities are like the
“standard” securities, except that their return is enhanced by
increases in the value of the U.S. dollar and adversely impacted by increases in
the value of foreign currency. Interest payments on the
securities are generally made in U.S. dollars at rates that reflect the degree
of foreign currency risk assumed or given up by the purchaser
of the notes (i.e., at relatively higher interest rates if the purchaser has
assumed some foreign currency risk).
Brady
Bonds. Brady
Bonds are fixed-income securities that are created through the exchange of
existing commercial bank loans to foreign
entities for new obligations in connection with debt restructuring under a plan
introduced by Nicholas F. Brady when he was the U.S.
Secretary of the Treasury. They may be collateralized or uncollateralized and
issued in various currencies (although most are U.S.
dollar-denominated) and they are actively traded in the over-the-counter
(“OTC”) secondary market. A Fund
will invest in Brady
Bonds only if they are consistent with the Fund’s quality specifications.
Dollar-denominated, collateralized Brady Bonds may be
fixed-rate par bonds or floating rate discount bonds. Interest payments on Brady
Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed-rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year’s rolling interest payments
based on the applicable interest rate at that time and is
adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to
“value recovery payments” in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized.
Brady
Bonds are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the “residual
risk”). In the event of a default with respect to collateralized
Brady Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations
held as collateral for the payment of principal will not be distributed to
investors, nor will such obligations be sold and the
proceeds distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments due on the
Brady
Bonds in the normal course. However, Brady Bonds should be viewed as speculative
in light of the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds.
Investment
Funds. Some
emerging market countries have laws and regulations that currently preclude
direct investment or make it undesirable
to invest directly in the securities of their companies. However, indirect
investment in the securities of companies listed and traded
on the stock exchanges in these countries is permitted by certain emerging
market countries through investment funds that have
been specifically authorized. A Fund may
invest in these investment funds subject to the provisions of the 1940 Act, as
applicable,
and other applicable laws. The Funds will
invest in such investment funds only where appropriate given that the Fund’s
shareholders
will bear indirectly the layer of expenses of the underlying investment funds in
addition to their proportionate share of the
expenses of the Fund.
Exchange-Listed
Equities via Stock Connect Program. The
Shanghai-Hong Kong Stock Connect program and the Shenzhen-Hong Kong
Stock Connect programs (“Stock Connect”) allow non-Chinese investors (such
as a Fund) to
purchase certain listed equities
via brokers in Hong Kong. Although Stock Connect allows non-Chinese investors to
trade Chinese equities without a license,
purchases of securities through Stock Connect are subject to daily market-wide
quota limitations, which may prevent a Fund
from
purchasing Stock Connect securities when it is otherwise advantageous to do so.
An investor cannot purchase and sell the same security
on the same trading day, which may restrict a Fund’s
ability to invest in China A-shares through Stock Connect and to enter
into or
exit trades where it is advantageous to do so on the same trading day. Because
Stock Connect trades are routed through Hong Kong
brokers and the Hong Kong Stock Exchange, Stock Connect is affected by trading
holidays in either China or Hong Kong, and there
are trading days in China when Stock Connect investors will not be able to
trade. As a result, prices of securities purchased through
Stock Connect may fluctuate at times when a Fund is
unable to add to or exit its position. Only certain China A-shares are
eligible
to be accessed through Stock Connect. Such securities may lose their eligibility
at any time, in which case they could be sold but could
no longer be purchased through Stock Connect. Because Stock Connect is
relatively new, its effects on the market for trading
China A-shares are uncertain. In addition, the trading, settlement and IT
systems required to operate Stock Connect are relatively
new and continuing to evolve. In the event that the relevant systems do not
function properly, trading through Stock Connect
could be disrupted.
Stock
Connect is subject to regulation by both Hong Kong and China. There can be no
assurance that further regulations will not affect the
availability of securities in the program, the frequency of redemptions or
other limitations. Stock Connect transactions are not
covered by investor protection programs of either the Hong Kong or Shanghai
and Shenzhen Stock Exchanges, although any default by
a Hong Kong broker should be subject to established Hong Kong law. In
China, Stock Connect securities are held on behalf of
ultimate investors (such as a Fund) by
the Hong Kong Securities Clearing Company Limited (“HKSCC”) as nominee.
While
Chinese regulators have affirmed that the ultimate investors hold a
beneficial interest in Stock Connect securities, the law surrounding
such rights is in its early stages and the mechanisms that beneficial owners may
use to enforce their rights are untested
and therefore pose uncertain risks. Further, courts in China have limited
experience in applying the concept of beneficial ownership
and the law surrounding beneficial ownership will continue to evolve as
they do so. There is accordingly a risk that as the law is
tested and developed, a Fund’s
ability to enforce its ownership rights may be negatively impacted.
A Fund may
not be able to participate
in corporate actions affecting Stock Connect securities due to time constraints
or for other operational reasons. A Fund
will not
be able to attend shareholders’ meetings. Stock Connect trades are settled
in RMB, the Chinese currency, and investors must have timely
access to a reliable supply of RMB in Hong Kong, which cannot be
guaranteed.
Stock
Connect trades are either subject to certain pre-trade requirements or must be
placed in special segregated accounts that allow brokers to
comply with these pre-trade requirements by confirming that the
selling shareholder has sufficient Stock Connect securities
to complete the sale. If a Fund
does not utilize a special segregated account, the Fund will not be able to
sell the shares on any
trading day where it fails to comply with the pre-trade checks. In
addition, these pre-trade requirements may, as a practical matter,
limit the number of brokers that a Fund may
use to execute trades. While a Fund may
use special segregated accounts in lieu of
the pre-trade check, some market participants have yet to fully implement
IT systems necessary to complete trades involving securities
in such accounts in a timely manner. Market practice with respect to special
segregated accounts is continuing to evolve. Investments
via Stock Connect are subject to regulation by Chinese authorities. Chinese
law may require aggregation of a Fund’s
holdings
of Stock Connect securities with securities of other clients of the Adviser
for purposes of disclosing positions held in the market,
acquiescing to trading halts that may be imposed until regulatory filings
are completed or complying with China’s short-term trading
rules.
Risks
Related to Investments in Saudi Arabia and the QFI Regime. To the
extent a Fund
invests in securities issued by Saudi Arabian
issuers, a Fund may
be subject to the risk of investing in those issuers. Saudi Arabian issuers may
be impacted by the Saudi Arabian
economy, which is significantly tied to petroleum exports. As a result, a
reduction in petroleum exports with key partners or in
petroleum prices could have an overall impact on the Saudi Arabian economy. The
Saudi Arabian economy also relies heavily on cheap,
foreign labor, and changes in the availability of this labor supply could have
an adverse effect on the economy.
Although
liberalization in the wider Saudi Arabian economy is underway, the government of
Saudi Arabia exercises substantial influence
over many aspects of the private sector. Currently, the political situation in
Saudi Arabia is largely stable; however, there
remains
the possibility that the stability will not hold in the future or that
instability in the larger Middle East region could adversely impact the
economy of Saudi Arabia. Instability may be caused by, among other things:
military developments; government interventions
in the marketplace; terrorism; extremist attitudes; attempted social or
political reforms; religious differences; and other factors.
Additionally, anti-Western views held by certain groups in the Middle East may
influence the government of Saudi Arabia’s policies
regarding foreign investment. In addition, certain issuers located in Saudi
Arabia may operate in, or have dealings with, countries
subject to sanctions and/or embargoes imposed by the U.S. government and the
United Nations and/or countries identified by the
U.S. government as state sponsors of terrorism. As a result, an issuer may
sustain damage to its reputation if it is identified as an issuer
that operates in, or has dealings with, such countries. A Fund, as
an investor in such issuers, will be indirectly subject to those
risks. A Fund is
also subject to the risk of expropriation or nationalization of assets and
property or the risk of restrictions on foreign
investments and repatriation of capital.
The
ability of foreign investors, including a Fund, to
invest in Saudi Arabian issuers is relatively new and untested, and such ability
may be
revoked or restricted by the government of Saudi Arabia in the future, which may
materially affect a Fund.
The Fund may be unable to
obtain or maintain the required licenses, which would affect a Fund’s
ability to buy and sell securities at full value. Additionally,
a Fund’s
ownership of any single issuer listed on the Saudi Arabian Stock Exchange may be
limited by the Saudi Arabia Capital
Market Authority (“CMA”). Major disruptions or regulatory changes may occur in
the Saudi Arabian market, which could negatively
impact a Fund.
The
securities markets in Saudi Arabia may not be as developed as those in other
countries. As a result, securities markets in Saudi Arabia are
subject to greater risks associated with market volatility, lower market
capitalization, lower trading volume, illiquidity, inflation,
greater price fluctuations, uncertainty regarding the existence of trading
markets, governmental control and heavy regulation
of labor and industry. Shares of certain Saudi Arabian companies tend to trade
less frequently than those of companies on exchanges
in more developed markets, which may adversely affect the pricing of these
securities and the Fund’s ability to sell these securities
in the future. Current regulations in the Saudi Arabian securities markets may
require a Fund
to execute trades of securities through a
single broker. As a result, the Adviser will have less flexibility to choose
among brokers on behalf of a Fund
than is typically the case
for investment managers.
A Fund’s
ability to invest in Saudi Arabian securities depends on the ability of the
Adviser and/or a Fund
to maintain its respective status as
a Foreign Portfolio Manager and/or a Qualified Foreign Investor (“QFI”), as
applicable, with the CMA and, if applicable, a Fund
as a client of a QFI who has been approved by the CMA (“QFI Client”). Even if
a Fund
obtains QFI or QFI Client status, a Fund
may not have an exclusive investment quota and will be subject to foreign
investment limitations and other regulations imposed by
the CMA on QFIs and QFI Clients (individually and in the aggregate), as well as
local market participants. QFI regulations
and local market infrastructure are relatively new and have not been tested and
the CMA may discontinue the QFI regime at
any time. Any change in the QFI system generally, including the possibility of
the Adviser or a Fund
losing its Foreign Portfolio
Manager, QFI and/or QFI Client status, as applicable, may adversely affect
a Fund.
A Fund is
required to use a trading account to buy and sell securities in Saudi Arabia.
This trading account can be held directly with a broker
or a custodian. Under the Independent Custody Model (“ICM”), securities are
under the control of the custodian and would be
recoverable in the event of the bankruptcy of the custodian. When a Fund
utilizes the ICM approach, a Fund
relies on a broker
standing instruction letter to authorize the Fund’s subcustodian to move
securities to a trading account for settlement based on the
details supplied by the broker. The risk of a fraudulent or erroneous
transaction through the ICM approach is mitigated by the short
trading hours in Saudi Arabia, a manual pre-matching process conducted by the
custodian, which validates the Fund’s settlement
instructions with the local broker contract note, and the transaction report
from the depository. When a Fund
utilizes a direct
broker trading account, the account is set up in the Fund’s name and the assets
are likely to be separated from any other accounts
at the broker. However, if the broker defaults, there may be a delay to
recovering the Fund’s assets that are held in the broker
account and legal proceedings may need to be initiated in order to do
so.
Loans
of Portfolio Securities. Each Fund
may lend its portfolio securities to brokers, dealers, banks and other
institutional investors. By lending
its portfolio securities, a Fund
attempts to increase its net investment income through the receipt of interest
on the cash collateral
with respect to the loan or fees received from the borrower in connection with
the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund
employs an agent to
implement the securities lending program and the agent receives a fee from
the Funds for
its services. A Fund
will not lend more than
33⅓% of the value of its total assets.
Each Fund
may lend its portfolio securities so long as the terms, structure and the
aggregate amount of such loans are not inconsistent
with the 1940 Act or the rules and regulations or interpretations of the
SEC thereunder,
which currently require that (i) the
borrower pledge and maintain with the Fund collateral consisting of liquid,
unencumbered assets having a value not less than 100% of
the value of the securities loaned; (ii) the borrower adds to such collateral
whenever the price of the securities loaned rises (i.e., the
borrower “marks-to-market” on a daily basis); (iii) the loan be made subject to
termination by the Fund at any time; and (iv) the Fund
receives a reasonable return on the loan (which may include the Fund investing
any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase in
their market value. In addition, voting rights may
pass with
the loaned securities, but a Fund
will retain the right to call any security in anticipation of a vote that the
Adviser deems material
to the security on loan.
Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to maintain the proper amount of collateral,
which may result in a loss of money by a Fund.
There may be risks of delay and costs involved in recovery of securities or
even loss
of rights in the collateral should the borrower of the securities fail
financially. These delays and costs could be greater for foreign
securities. However, loans will be made only to borrowers deemed by the Adviser
to be creditworthy and when, in the judgment
of the Adviser, the income that can be earned from such securities loans
justifies the attendant risk. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer, bank or institution, will
be considered in making decisions with respect to
the lending of securities, subject to review by the Company’s
Board of Directors. Each Fund
also bears the risk that the reinvestment
of collateral will result in a principal loss. Finally, there is the risk that
the price of the securities will increase while they are on
loan and the collateral will not be adequate to cover their value.
Non-Publicly
Traded Securities, Private Placements and Restricted Securities.
The Funds may
invest in securities that are neither listed on
a stock exchange nor traded OTC,
including privately placed and restricted securities. Such unlisted securities
may involve a higher
degree of business and financial risk that can result in substantial losses. As
a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by the Fund or less than what may be
considered the fair value of such securities. Furthermore, companies whose
securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. The illiquidity
of the market, as well as the lack of publicly available information regarding
these securities, may also adversely affect the ability of
the Funds to
arrive at a fair value for certain securities at certain times and could make it
difficult for the Funds to
sell certain
securities. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being sold, a Fund may
be required to bear the expenses of registration.
The Funds may
purchase equity securities, in a private placement, that are issued by issuers
who have outstanding, publicly-traded equity
securities of the same class (“private investments in public equity” or
“PIPEs”). Shares in PIPEs generally are not registered with the
SEC until after a certain time period from the date the private sale is
completed. This restricted period can last many months.
Until the public registration process is completed, PIPEs are restricted as to
resale and the Funds
cannot freely trade the securities.
Generally, such restrictions cause the PIPEs to be illiquid during this time.
PIPEs may contain provisions that the issuer will pay
specified financial penalties to the holder if the issuer does not publicly
register the restricted equity securities within a specified
period of time, but there is no assurance that the restricted equity securities
will be publicly registered, or that the registration
will remain in effect.
When-Issued
and Delayed Delivery Securities and Forward Commitments. From time
to time, the Funds may
purchase securities
on a when-issued or delayed delivery basis or may purchase or sell securities on
a forward commitment basis. When these transactions
are negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after
the date of commitment. The Funds may
sell the securities before the settlement date if it is deemed advisable. The
securities
so purchased or sold are subject to market fluctuation and no interest or
dividends accrue to the purchaser prior to the settlement
date.
At the
time a Fund
makes the commitment to purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis, it
will record the transaction and thereafter reflect the value, each day, of such
security purchased, or if a sale, the proceeds to be received,
in determining its NAV. At the time of delivery of the securities, their value
may be more or less than the purchase or sale price. An
increase in the percentage of a Fund’s
assets committed to the purchase of securities on a when-issued, delayed
delivery or forward
commitment basis may increase the volatility of its NAV. Each Fund
will also earmark or segregate cash or liquid assets or establish
a segregated account on the Fund’s books in which it will continually maintain
cash or cash equivalents or other liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis.
Borrowing
for Investment Purposes. Borrowing
for investment purposes creates leverage which is a speculative characteristic.
Funds authorized
to borrow will do so only when the Adviser believes that borrowing will benefit
the Fund after taking into account considerations
such as the costs of borrowing and the likely investment returns on securities
purchased with borrowed funds. Borrowing
by a Fund will create the opportunity for increased net income but, at the same
time, will involve special risk considerations.
Leverage that results from borrowing will magnify declines as well as increases
in a Fund’s NAV and net yield. Each Fund that
engages in borrowing expects that all of its borrowing will be made on a secured
basis. The Fund will either segregate the assets
securing the borrowing for the benefit of the lenders or arrangements will be
made with a suitable sub-custodian. If assets used to secure
the borrowing decrease in value, a Fund may be required to pledge additional
collateral to the lender in the form of cash or securities
to avoid liquidation of those assets.
Temporary
Borrowing. Each Fund
is permitted to borrow from banks in an amount up to 10% of its total assets for
extraordinary or
emergency purposes, except that the Emerging Markets Fixed Income Opportunities
Portfolio may borrow in accordance with fundamental
investment limitation number (5) below. For example, the Funds may
borrow for temporary defensive purposes or to meet
shareholder redemptions when the Adviser believes that it would not be in the
best interests of a Fund to
liquidate portfolio holdings.
Each Fund
(other than the Emerging Markets Fixed Income Opportunities Portfolio) will not
purchase additional securities
while temporary borrowings exceed 5% of its total assets.
The Board
of Directors of the Company has approved procedures whereby
the Funds
together with other investment companies advised by
the Adviser or its affiliates may enter into a joint line of credit arrangement
with a bank. Each Fund
would be liable only for its
own temporary borrowings under the joint line of credit
arrangements.
Reverse
Repurchase Agreements. Under a
reverse repurchase agreement, a Fund
sells a security and promises to repurchase that security
at an agreed-upon future date and price. The price paid to repurchase the
security reflects interest accrued during the term of the
agreement. Reverse repurchase agreements may be entered into for, among other
things, obtaining leverage, facilitating short-term
liquidity or when the Adviser expects that the interest income to be earned from
the investment of the transaction proceeds will be greater
than the related interest expense. A Fund
will earmark or segregate cash or liquid assets or establish a segregated
account holding
cash and other liquid assets in an amount not less than the purchase obligations
of the agreement. Please see “Derivatives Agreements
-- Regulatory Matters”, above. Reverse repurchase agreements may be viewed as a
speculative form of borrowing called leveraging.
Furthermore, reverse repurchase agreements involve the risks that (i) the
interest income earned in the investment of the proceeds
will be less than the interest expense, (ii) the market value of the securities
retained in lieu of sale by a Fund may
decline below the
price of the securities the Fund has sold but is obligated to repurchase, (iii)
the market value of the securities sold will decline
below the price at which the Fund is required to repurchase them and (iv) the
securities will not be returned to the Fund.
In
addition, the use of leverage may cause a Fund to
liquidate portfolio positions when it may not be advantageous to do so to
satisfy its
obligations or to meet earmarking requirements. Leverage, including borrowing,
may cause a Fund to
be more volatile than if the Fund had
not been leveraged. This is because leverage tends to exaggerate the effect of
any increase or decrease in the value of a
Fund’s
portfolio securities.
Short
Sales. A short
sale is a transaction in which a Fund
sells securities that it owns or has the right to acquire at no added cost
(i.e., “against
the box”) or does not own (but has borrowed) in anticipation of a decline in the
market price of the securities. To deliver the securities
to the buyer, a Fund
arranges through a broker to borrow the securities and, in so doing, the Fund
becomes obligated to replace
the securities borrowed at their market price at the time of replacement. When
selling short, a Fund
intends to replace the securities
at a lower price and therefore, profit from the difference between the cost to
replace the securities and the proceeds received from the
sale of the securities. When a Fund
makes a short sale, the proceeds it receives from the sale will be held on
behalf of a broker
until the Fund replaces the borrowed securities. A Fund may
have to pay a premium to borrow the securities and must pay any
dividends or interest payable on the securities until they are
replaced.
A Fund’s
obligation to replace the securities borrowed in connection with a short sale
will be secured by collateral deposited with the broker
that consists of cash or other liquid securities. In addition, a Fund
will earmark or segregate cash or liquid assets or place in a segregated
account an amount of cash or other liquid assets equal to the difference, if
any, between (i) the current market value of the securities
sold at the time they were sold short, and (ii) any cash or other liquid
securities deposited as collateral with the broker in connection
with the short sale. This amount will be adjusted daily to reflect changes in
the value of the securities sold short. A Fund
also can
cover its obligations by owning another security (such as a call option) at a
price no higher than the price at which the securities
were sold short, giving it the right to obtain the same kind and amount of the
security it sold short. Short sales by a Fund
involve
certain risks and special considerations. If the Adviser incorrectly predicts
that the price of the borrowed security will decline, a Fund
will have to replace the securities with securities with a greater value than
the amount received from the sale. As a result,
losses from short sales differ from losses that could be incurred from a
purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested. Please see “Derivatives Agreements -- Regulatory
Matters”, above.
Illiquid
Investments. In
accordance with Rule 22e-4 (the “Liquidity Rule”) under the 1940 Act,
each Fund
may invest up to 15% of
its net assets in “illiquid investments” that are assets. For these
purposes, “illiquid investments” are investments that a Fund
reasonably
expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition
significantly changing the market value of the investment. For each Fund,
each portfolio investment must be classified at least
monthly into one of four liquidity categories (illiquid, as discussed above, as
well as highly liquid, moderately liquid and less liquid),
which are defined pursuant to the Liquidity Rule and classified in accordance
with the Funds’ written
liquidity risk management
program by the program administrator designated by the Trust’s Board of
Trustees. Such classification is to be made using
information obtained after reasonable inquiry and taking into account relevant
market, trading and investment-specific considerations.
In making such classifications, a Fund
determines whether trading varying portions of a position in a particular
portfolio
investment or asset class, in sizes that the Fund would reasonably anticipate
trading, is reasonably expected to significantly affect its
liquidity. If so, this determination is taken into account when classifying the
liquidity of that investment. The Funds may
be
assisted
in classification determinations by one or more third-party service providers.
Assets classified according to this process as “illiquid
investments” are those subject to the 15% limit on illiquid
investments.
In the
event that changes in the portfolio or other external events cause a Fund to
exceed this limit, the Fund must take steps to bring its
illiquid investments that are assets to or below the applicable limit of its net
assets within a reasonable period of time. This requirement
would not force a Fund to
liquidate any portfolio investment.
Derivatives.
Certain
Funds may, but are not
required to, use various derivatives and related investment strategies as
described below. Derivatives
may be used for a variety of purposes including hedging, risk management,
portfolio management or to earn income. Any or all of
the investment techniques described herein may be used at any time and there is
no particular strategy that dictates the use of one
technique rather than another, as the use of any derivative by a Fund
is a function of numerous variables, including market conditions.
A Fund
complies with applicable regulatory requirements when using derivatives,
including the earmarking or segregating of cash or
liquid assets when mandated by SEC rules
or SEC staff positions. Although the Adviser seeks to use derivatives to further
a Fund’s
investment objective, no assurance can be given that the use of derivatives will
achieve this result.
General
Risks of Derivatives.
Derivatives utilized by a Fund may
involve the purchase and sale of derivative instruments. A derivative is
a
financial instrument the value of which depends upon (or derives from) the value
of another asset, security, interest rate or index. Derivatives
may relate to a wide variety of underlying instruments, including equity and
debt securities, indices, interest rates, currencies
and other assets. Certain derivative instruments that a Fund may
use and the risks of those instruments are described in further
detail below. A Fund may
in the future also utilize derivatives techniques, instruments and strategies
that may be newly developed
or permitted as a result of regulatory changes, consistent
with a Fund’s
investment objective and policies. Such newly developed
techniques, instruments and strategies may involve risks different than or in
addition to those described herein. No assurance
can be given that any derivatives strategy employed by a Fund
will be successful.
The risks
associated with the use of derivatives are different from, and possibly greater
than, the risks associated with investing directly
in the instruments underlying such derivatives. Derivatives are highly
specialized instruments that require investment techniques
and risk analyses different from other portfolio investments. The use of
derivative instruments requires an understanding not only
of the underlying instrument but also of the derivative itself. Certain risk
factors generally applicable to derivative transactions
are described below.
■ |
Derivatives
are subject to the risk that the market value of the derivative itself or
the market value of underlying instruments will change
in a way adverse to a
Fund’s interests. A
Fund bears the risk that the Adviser may incorrectly forecast future
market trends
and other financial or economic factors or the value of the underlying
security, index, interest rate or currency when establishing
a derivatives position for a
Fund. |
■ |
Derivatives
may be subject to pricing risk, which exists when a derivative becomes
extraordinarily expensive (or inexpensive) relative
to historical prices or corresponding instruments. Under such market
conditions, it may not be economically feasible to initiate
a transaction or liquidate a position at an advantageous time or
price. |
■ |
Many
derivatives are complex and often valued subjectively. Improper valuations
can result in increased payment requirements to
counterparties or a loss of value to a
Fund. |
■ |
Using
derivatives as a hedge against a portfolio investment
subjects a
Fund to the risk that the derivative will have imperfect correlation
with the portfolio investment, which could result in a
Fund incurring substantial losses. This correlation risk may be
greater
in the case of derivatives based on an index or other basket of
securities, as the portfolio securities being hedged may not duplicate
the components of the underlying index or the basket may not be of exactly
the same type of obligation as those underlying
the derivative. The use of derivatives for “cross hedging” purposes (using
a derivative based on one instrument as a hedge
on a different instrument) may also involve greater correlation
risks. |
■ |
While
using derivatives for hedging purposes can reduce a
Fund’s risk of loss, it may also limit a
Fund’s opportunity for gains or result
in losses by offsetting or limiting a
Fund’s ability to participate in favorable price movements in portfolio
investments. |
■ |
Derivatives
transactions for non-hedging purposes involve greater risks and may result
in losses which would not be offset by increases
in the value of portfolio securities or declines in the cost of securities
to be acquired. In the event that a
Fund enters into
a derivatives transaction as an alternative to purchasing or selling the
underlying instrument or in order to obtain desired exposure
to an index or market, a
Fund will be exposed to the same risks as are incurred in purchasing or
selling the underlying instruments
directly as well as the additional risks associated with derivatives
transactions. |
■ |
The
use of certain derivatives transactions, including OTC
derivatives, involves the risk of loss resulting from the insolvency or
bankruptcy
of the counterparty to the contract or the failure by the counterparty to
make required payments or otherwise comply
with the terms of the contract. In the event of default by a
counterparty, a
Fund may have contractual remedies pursuant
to the agreements related to the
transaction. |
■ |
Liquidity
risk exists when a particular derivative is difficult to purchase or sell.
If a derivative transaction is particularly large or if the
relevant market is illiquid, a
Fund may be unable to initiate a transaction or liquidate a position at an
advantageous time or price. |
■ |
While
some derivatives are cleared through a regulated, central clearinghouse,
many derivatives transactions are not entered into or
traded on exchanges or in markets regulated by the U.S. Commodity Futures
Trading Commission (“CFTC”) or the SEC. |
|
Instead,
in some cases, certain types of bilateral OTC derivatives are entered into
directly by a
Fund and a counterparty and may be
traded only through financial institutions acting as market makers. OTC
derivatives transactions can only be entered into with
a willing counterparty that is approved by the Adviser in accordance with
guidelines established by the Board. Where no such
counterparty is available, a
Fund will be unable to enter into a desired OTC transaction. There also
may be greater risk that
no liquid secondary market in the trading of OTC derivatives will exist,
in which case a
Fund may be required to hold such instruments
until exercise, expiration or maturity. Many of the protections afforded
to participants in the cleared derivatives markets
are not available to participants in bilateral OTC derivatives
transactions. Bilateral OTC derivatives transactions are not subject
to the guarantee of a clearinghouse and, as a result, a
Fund would bear greater risk of default by the counterparties to
such
transactions. |
■ |
A Fund
may be required to make physical delivery of portfolio securities
underlying a derivative in order to close out a derivatives
position or to sell portfolio securities at a time or price at which it
may be disadvantageous to do so in order to obtain cash
to close out or to maintain a derivatives
position. |
■ |
As a
result of the structure of certain derivatives, adverse changes in, among
other things, interest rates, volatility or the value of the
underlying instrument can result in losses substantially greater than the
amount invested in the derivative itself. Certain derivatives
have the potential for unlimited loss, regardless of the size of the
initial investment. |
■ |
Certain
derivatives may be considered illiquid and therefore subject
to a
Fund’s limitation on investments in illiquid
securities. |
■ |
Derivatives
transactions conducted outside the United States may not be conducted in
the same manner as those entered into on
U.S. exchanges, and may be subject to different margin, exercise,
settlement or expiration procedures. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign
exchanges. Many of the risks of OTC derivatives
transactions are also applicable to derivatives transactions conducted
outside the United States. Derivatives transactions
conducted outside the United States are subject to the risk of
governmental action affecting the trading in, or the prices
of, foreign securities, currencies and other instruments. The value of
such positions could be adversely affected by foreign political
and economic factors; lesser availability of data on which to make trading
decisions; delays on a
Fund’s ability to act upon
economic events occurring in foreign markets; and less liquidity than U.S.
markets. |
■ |
Currency
derivatives are subject to additional risks. Currency derivatives
transactions may be negatively affected by government exchange
controls, blockages and manipulation. Currency exchange rates may be
influenced by factors extrinsic to a country’s economy.
There is no systematic reporting of last sale information with respect to
underlying foreign currencies. As a result, the available
information on which trading in currency derivatives will be based may not
be as complete as comparable data for other
transactions. Events could occur in the foreign currency market which will
not be reflected in currency derivatives until the
following day, making it more difficult for a
Fund to respond to such events in a timely
manner. |
Regulatory
Matters. As
described herein, a Fund
may be required to cover its potential economic exposure to certain derivatives
transactions
by holding an offsetting financial position and/or earmarking or segregating
cash or liquid assets equal in value to a Fund’s
potential economic exposure under the transaction. A Fund
will cover such transactions as described herein or in such other manner in
accordance with applicable laws and regulations. Assets used to cover
derivatives transactions cannot be sold while the derivatives
position is open, unless they are replaced by other appropriate assets.
Earmarked or segregated cash or liquid assets and assets
held in margin accounts are not otherwise available to a Fund for
investment purposes. If a large portion of a Fund’s
assets are used to
cover derivatives transactions or are otherwise earmarked or segregated, it
could affect portfolio management or a Fund’s
ability to
meet redemption requests or other current obligations. With respect to
derivatives which are cash-settled (i.e., have no physical
delivery requirement), a Fund is
permitted to earmark or segregate cash or liquid assets in an amount equal
to a Fund’s
daily marked-to-market
net obligations (i.e., a Fund’s
daily net liability) under the derivative, if any, rather than the derivative’s
full notional
amount or the market value of the instrument underlying the derivative, as
applicable. By earmarking or segregating cash or assets
equal to only its net obligations under cash-settled
derivatives, a Fund
will have the ability to employ leverage to a greater extent
than if a Fund
were required to earmark or segregate cash or assets equal to the full notional
amount of the derivative or the market
value of the underlying instrument, as applicable.
Regulatory
developments affecting the exchange-traded and OTC derivatives markets may
impair a Fund’s ability to manage or hedge its
investment portfolio through the use of derivatives. In particular, in October
2020, the SEC adopted a final rule related to the use of
derivatives, short sales, reverse repurchase agreements and certain other
transactions by registered investment companies that will
rescind and withdraw the guidance of the SEC and its staff regarding asset
segregation and cover transactions reflected in the Funds’
asset segregation and cover practices discussed herein. Compliance with these
new requirements will be required after an eighteen-month
transition period. Following the compliance date, these requirements may limit
the ability of a Fund to use derivatives
and reverse repurchase agreements and similar financing transactions as part of
its investment strategies. The final rule requires
Funds to trade derivatives and other transactions that create future payment or
delivery obligations (except reverse repurchase agreements
and similar financing transactions) subject to a value-at-risk (“VaR”) leverage
limit, certain derivatives risk management program
and reporting requirements. Generally, these requirements apply unless a Fund
qualifies as a “limited derivatives user,” as defined in
the final rule. Under the final rule, when a Fund trades reverse repurchase
agreements or similar financing transactions, including
certain tender option bonds, it needs to aggregate the amount of indebtedness
associated with the reverse repurchase agreements
or similar financing transactions with the aggregate amount of any other senior
securities representing indebtedness when calculating
the Fund’s asset coverage ratio or treat all such transactions as derivatives
transactions. Reverse repurchase agreements or
similar
financing transactions aggregated with other indebtedness do not need to be
included in the calculation of whether a Fund is a limited
derivatives user, but for funds subject to the VaR testing, reverse repurchase
agreements and similar financing transactions must be
included for purposes of such testing whether treated as derivatives
transactions or not. The SEC also provided guidance in connection
with the new rule regarding use of securities lending collateral that may limit
the Funds’ securities lending activities. These
requirements may increase the cost of a Fund’s investments and cost of doing
business, which could adversely affect investors. The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
and the rules promulgated thereunder may limit
the ability of a Fund to enter into one or more exchange-traded or OTC
derivatives transactions.
A Fund’s
use of derivatives may also be limited by the requirements of the Code for
qualification as a regulated
investment company (“RIC”)
for U.S. federal income tax purposes.
The
Adviser, with respect to each Fund,
has filed a notice of eligibility with the National Futures Association (“NFA”)
claiming an exclusion
from the definition of the term “commodity pool operator” (“CPO”) pursuant to
CFTC Regulation 4.5, as promulgated under the
Commodity Exchange Act, as amended (“CEA”), with respect to each Fund’s
operations. In addition, the Adviser will operate
each Subsidiary (as defined below) in reliance on an exemption from registration
as a CPO under CFTC Regulation 4.13(a)(3).
Therefore, neither the Funds nor the Adviser (with respect to the Funds and each
Subsidiary) is subject to registration or regulation
as a commodity pool or CPO under the CEA. If the Adviser or a Fund becomes
subject to these requirements, as well as related
NFA rules, the Fund may incur additional compliance and other
expenses.
With
respect to investments in swap transactions, commodity futures, commodity
options or certain other commodity interests used for
purposes other than bona fide hedging purposes, an investment company must meet
one of the following tests under the amended
regulations in order for its investment adviser to claim an exemption from being
considered a CPO. First, the aggregate initial
margin and premiums required to establish an investment company’s positions in
such investments may not exceed five percent
(5%) of the liquidation value of the investment company’s portfolio (after
accounting for unrealized profits and unrealized losses on
any such investments). Alternatively, the aggregate net notional value of such
instruments, determined at the time of the most
recent position established, may not exceed one hundred percent (100%) of the
liquidation value of the investment company’s portfolio
(after accounting for unrealized profits and unrealized losses on any such
positions). In addition to meeting one of the foregoing
trading limitations, the investment company may not market itself as a commodity
pool or otherwise as a vehicle for trading in
the commodity futures, commodity options or swaps and derivatives
markets.
Regulations
recently adopted by federal banking regulators under the Dodd-Frank Act require
that certain qualified financial contracts
(“QFCs”) with counterparties that are part of U.S. or foreign global
systemically important banking organizations be amended to
include contractual restrictions on close-out and cross-default rights. QFCs
include, but are not limited to, securities contracts,
commodities contracts, forward contracts, repurchase agreements, securities
lending agreements and swaps agreements, as well as
related master agreements, security agreements, credit enhancements, and
reimbursement obligations. If a covered counterparty
of a Fund or
certain of the covered counterparty’s affiliates were to become subject to
certain insolvency proceedings, a
Fund may
be temporarily unable to exercise certain default rights, and the QFC may be
transferred to another entity. These requirements
may impact a Fund’s
credit and counterparty risks.
Currency
Forwards. A
foreign currency forward exchange contract is a negotiated agreement between two
parties to exchange specified
amounts of two or more currencies at a specified future time at a specified
rate. The rate specified by the foreign currency forward
exchange contract can be higher or lower than the spot rate between the
currencies that are the subject of the contract. A
Fund may
also invest in non-deliverable foreign currency forward exchange contracts
(“NDFs”). NDFs are similar to other foreign currency
forward exchange contracts, but do not require or permit physical delivery of
currency upon settlement. Instead, settlement is made in
cash based on the difference between the contracted exchange rate and the spot
foreign exchange rate at settlement. Currency
futures are similar to foreign currency forward exchange contracts, except that
they are traded on an exchange and standardized
as to contract size and delivery date. Most currency futures call for payment or
delivery in U.S. dollars. Unanticipated changes in
currency prices may result in losses to a Fund and
poorer overall performance for a Fund
than if it had not entered into foreign
currency forward exchange contracts. The typical use of a foreign currency
forward exchange contract is to “lock in” the price of a
security in U.S. dollars or some other foreign currency, which a Fund is
holding in its portfolio. By entering into a foreign currency
forward exchange contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, a Fund may
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar or other currency which is
being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the
date on which payment is made or received. The Adviser also may from time to
time utilize foreign currency forward exchange
contracts for other purposes. For example, they may be used to hedge a foreign
security held in the portfolio against a decline in
value of the applicable foreign currency. They also may be used to lock in the
current exchange rate of the currency in which
those securities anticipated to be purchased are denominated. At times,
a Fund may
enter into “cross-currency” hedging transactions
involving currencies other than those in which securities are held or proposed
to be purchased are denominated.
A Fund
will not enter into foreign currency forward exchange contracts or maintain a
net exposure to these contracts where the consummation
of the contracts would obligate a Fund to
deliver an amount of foreign currency in excess of the value
of a Fund’s
portfolio
securities.
When
required by law, a Fund
will earmark or segregate cash or U.S. government securities or other
appropriate liquid portfolio securities
in an amount equal to the value of a Fund’s
total assets committed to the consummation of foreign currency forward
exchange
contracts entered into under the circumstances set forth above or will hold
offsetting positions or enter into offsetting transactions.
If the value of the securities so earmarked or segregated declines, additional
cash or securities will be earmarked or segregated
on a daily basis so that the value of such securities will equal the amount of
a Fund’s
commitments with respect to such contracts.
A Fund
may be limited in its ability to enter into hedging transactions involving
foreign currency forward exchange contracts by the
Code
requirements relating to qualification as a RIC.
Foreign
currency forward exchange contracts may limit gains on portfolio securities that
could otherwise be realized had they not been
utilized and could result in losses. The contracts also may
increase a Fund’s
volatility and may involve a significant amount of risk
relative to the investment of cash.
Futures
Contracts. A futures
contract is a standardized agreement to buy or sell a specific quantity of an
underlying asset, reference rate or
index at a specific price at a specific future time (the “settlement date”).
Futures contracts may be based on, among other things, a
specified equity security (securities futures), a specified debt security or
reference rate (interest rate futures), the value of a specified
securities index (index futures) or the value of a foreign currency (currency
futures). While the value of a futures contract tends to
increase and decrease in tandem with the value of the underlying instrument,
differences between the futures market and the market for
the underlying asset may result in an imperfect correlation. The buyer of a
futures contract agrees to purchase the underlying
instrument on the settlement date and is said to be “long” the contract. The
seller of a futures contract agrees to sell the underlying
instrument on the settlement date and is said to be “short” the contract.
Futures contracts call for settlement only on the expiration
date and cannot be “exercised” at any other time during their term.
Depending
on the terms of the particular contract, futures contracts are settled through
either physical delivery of the underlying instrument
on the settlement date (such as in the case of futures based on a specified debt
security) or by payment of a cash settlement
amount on the settlement date (such as in the case of futures contracts relating
to broad-based securities indices). In the case of
cash-settled futures contracts, the settlement amount is equal to the difference
between the reference instrument’s price on the last
trading day of the contract and the reference instrument’s price at the time the
contract was entered into. Most futures contracts, particularly
futures contracts requiring physical delivery, are not held until the settlement
date, but instead are offset before the settlement
date through the establishment of an opposite and equal futures position (buying
a contract that had been sold, or selling a contract
that had been purchased). All futures transactions are effected through a
clearinghouse associated with the exchange on which the
futures are traded.
The buyer
and seller of a futures contract are not required to deliver or pay for the
underlying commodity unless the contract is held until the
settlement date. However, both the buyer and seller are required to deposit
“initial margin” with a futures commission merchant
(“FCM”) when the futures contract is entered into. Initial margin deposits are
typically calculated as a percentage of the contract’s
market value. If the value of either party’s position declines, the party will
be required to make additional “variation margin”
payments to settle the change in value on a daily basis. The process is known as
“marking-to-market.” Upon the closing of a futures
position through the establishment of an offsetting position, a final
determination of variation margin will be made and additional
cash will be paid by or released to a
Fund.
In
addition, a Fund may
be required to earmark or segregate cash or liquid assets or maintain earmarked
or segregated cash or liquid assets in
order to cover futures transactions. A Fund
will earmark or segregate cash or liquid assets in an amount equal to the
difference
between the market value of a futures contract entered into by a Fund and
the aggregate value of the initial and variation margin
payments made by a Fund
with respect to such contract or as otherwise permitted by SEC rules or SEC
staff positions. See “Regulatory
Matters.”
Additional
Risks of Futures Transactions. The risks
associated with futures contract transactions are different from, and possibly
greater than, the
risks associated with investing directly in the underlying instruments. Futures
are highly specialized instruments that require investment
techniques and risk analyses different from those associated with other
portfolio investments. The use of futures requires an
understanding not only of the underlying instrument but also of the futures
contract itself. Futures may be subject to the risk factors
generally applicable to derivatives transactions described herein, and may also
be subject to certain additional risk factors, including:
■ |
The
risk of loss in buying and selling futures contracts can be substantial.
Small price movements in the commodity, security, index,
currency or instrument underlying a futures position may result in
immediate and substantial loss (or gain) to a
Fund. |
■ |
Buying
and selling futures contracts may result in losses in excess of the amount
invested in the position in the form of initial margin.
In the event of adverse price movements in the underlying commodity,
security, index, currency or instrument, a
Fund |
|
would
be required to make daily cash payments to maintain its required
margin. A
Fund may be required to sell portfolio securities,
or make or take delivery of the underlying securities in order to meet
daily margin requirements at a time when it may be
disadvantageous to do so. A
Fund could lose margin payments deposited with an FCM if the FCM breaches
its agreement with
a
Fund, becomes insolvent or declares
bankruptcy. |
■ |
Most
exchanges limit the amount of fluctuation permitted in futures contract
prices during any single trading day. Once the daily
limit has been reached in a particular futures contract, no trades may be
made on that day at prices beyond that limit. If futures
contract prices were to move to the daily limit for several trading days
with little or no trading, a
Fund could be prevented
from prompt liquidation of a futures position and subject to substantial
losses. The daily limit governs only price movements
during a single trading day and therefore does not limit a
Fund’s potential losses. |
■ |
Index
futures based upon a narrower index of securities may present greater
risks than futures based on broad market indices, as narrower
indices are more susceptible to rapid and extreme fluctuations as a result
of changes in value of a small number of securities. |
Options. An option
is a contract that gives the holder of the option the right, but not the
obligation, to buy from (in the case of a call
option) or sell to (in the case of a put option) the buyer or seller, as
applicable, of the option (the “option writer”) the underlying instrument
at a specified fixed price (the “exercise price”) on or prior to a specified
date for American options or only at expiration for European
options (the “expiration date”). The buyer of the option pays to the option
writer the option premium, which is the purchase
price of the option.
Exchange-traded
options are issued by a regulated intermediary such as the OCC, which
guarantees the performance of the obligations
of the parties to such options. OTC options are purchased from or sold to
counterparties through direct bilateral agreements
between a Fund
and its counterparties. Certain options, such as options on individual
securities, are settled through physical
delivery of the underlying security, whereas other options, such as index
options, may be settled in cash in an amount based on the
difference between the value of the underlying instrument and the strike price,
which is then multiplied by a specified multiplier.
Writing
Options. Certain
Funds may write call and put options. As the writer of a call
option, a Fund
receives the premium from the purchaser
of the option and has the obligation, upon exercise of the option, to deliver
the underlying security upon payment of the exercise
price. If the option expires without being exercised a Fund is
not required to deliver the underlying security and retains the premium
received.
Certain
Funds may only write call options that are “covered.” A call option on a
security is covered if (a) a Fund
owns the security underlying
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional
cash consideration is required, such amount is maintained by a Fund in
earmarked or segregated cash or liquid assets) upon
conversion or exchange of other securities held by a Fund; or
(b) a Fund has
purchased a call on the underlying security, the exercise
price of which is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written,
provided the difference is maintained by a Fund in
earmarked or segregated cash or liquid assets.
Selling
call options involves the risk that a Fund may
be required to sell the underlying security at a disadvantageous price, below
the market
price of such security, at the time the option is exercised. 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
underlying security covering the option above the sum of the
premium and the exercise price but retains the risk of loss should the price of
the underlying security decline.
Certain
Funds may write put options. As the writer of a put
option, a Fund
receives the premium from the purchaser of the option and has
the obligation, upon exercise of the option, to pay the exercise price and
receive delivery of the underlying security. If the option
expires without being exercised, a Fund is
not required to receive the underlying security in exchange for the exercise
price and retains
the option premium.
A Fund
may only write put options that are “covered.” A put option on a security is
covered if (a) a Fund
earmarks or segregates cash or liquid
assets equal to the exercise price; or (b) a Fund has
purchased a put on the same security as the put written, the exercise price
of which
is (i) equal to or greater than the exercise price of the put written, or (ii)
less than the exercise price of the put written, provided
the difference is maintained by a Fund in
earmarked or segregated cash or liquid assets.
Selling
put options involves the risk that a Fund may
be required to buy the underlying security at a disadvantageous price, above the
market
price of such security, at the time the option is exercised.
While a Fund’s
potential gain in writing a covered put option is limited to
the premium received plus the interest earned on the liquid assets covering the
put option, a Fund’s
risk of loss is equal to the entire
value of the underlying security, offset only by the amount of the premium
received.
A Fund
may close out an options position that it has written through a closing purchase
transaction. A Fund
could execute a closing purchase
transaction with respect to a written call option by purchasing a call option on
the same underlying security that has the same
exercise price and expiration date as the call option written
by a
Fund. A Fund
could execute a closing purchase transaction with
respect to a put option written by purchasing a put option on the same
underlying security and having the same exercise price and
expiration date as the put option written by a Fund. A
closing purchase transaction may or may not result in a profit
to a
Fund. A Fund can
close out its position as an option writer only if a liquid market exists for
options on the same underlying security that have
the same exercise price and expiration date as the option written
by a Fund.
There is no assurance that such a market will exist with
respect to any particular option.
The writer
of an American option generally has no control over the time when the option is
exercised and the option writer is required
to deliver or acquire the underlying security. Once an option writer has
received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option. Thus, the use
of options may require a Fund to
buy or sell portfolio
securities at inopportune times or for prices other than the current market
values of such securities, which may limit the amount of
appreciation a Fund can
realize on an investment, or may cause a Fund to
hold a security that it might otherwise sell.
Purchasing
Options. Certain
Funds may purchase call and put options. As the buyer of a call
option, a Fund
pays the premium to the option
writer and has the right to purchase the underlying security from the option
writer at the exercise price. If the market price of the
underlying security rises above the exercise price, a Fund
could exercise the option and acquire the underlying security at a
below-market
price, which could result in a gain to a Fund,
minus the premium paid. As the buyer of a put option, a Fund
pays the premium to
the option writer and has the right to sell the underlying security to the
option writer at the exercise price. If the market price of
the underlying security declines below the exercise price, a Fund
could exercise the option and sell the underlying security at an
above-market price, which could result in a gain to a Fund,
minus the premium paid. A Fund may
buy call and put options whether or
not it holds the underlying securities.
As a buyer
of a call or put option, a Fund may
sell put or call options that it has purchased at any time prior to such
option’s expiration
date through a closing sale transaction. 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, the underlying security’s dividend
policy, and the time remaining until the expiration date. A closing
sale transaction may or may not result in a profit to a
Fund. A Fund’s
ability to initiate a closing sale transaction is dependent upon the
liquidity of the options market and there is no assurance that such a market
will exist with respect to any particular option. If a Fund
does not exercise or sell an option prior to its expiration date, the option
expires and becomes worthless.
OTC
Options. Unlike
exchange-traded options, which are standardized with respect to the underlying
instrument, expiration date, contract
size and strike price, the terms of OTC options generally are established
through negotiation between the parties to the options
contract. This type of arrangement allows the purchaser and writer greater
flexibility to tailor the option to their needs. OTC options
are available for a greater variety of securities or baskets of securities, and
in a wider range of expiration dates and exercise prices,
than exchange-traded options. However, unlike exchange-traded options, which are
issued and guaranteed by a regulated intermediary,
such as the OCC, OTC options are entered into directly with the counterparty.
Unless the counterparties provide
for it, there is no central clearing or guaranty function for an OTC option.
Therefore, OTC options are subject to the risk of default or
non-performance by the counterparty. Accordingly, the Adviser must assess the
creditworthiness of the counterparty to determine
the likelihood that the terms of the option will be satisfied. There can be no
assurance that a continuous liquid secondary market
will exist for any particular OTC option at any specific time. As a result,
a Fund may
be unable to enter into closing sale transactions
with respect to OTC options.
Index
Options. Call and
put options on indices operate similarly to options on securities. Rather than
the right to buy or sell a single security
at a specified price, options on an index give the holder the right to receive,
upon exercise of the option, an amount of cash determined
by reference to the difference between the value of the underlying index and the
strike price. The underlying index may be a
broad-based index or a narrower market index. Unlike many options on securities,
all settlements are in cash. The settlement amount,
which the writer of an index option must pay to the holder of the option upon
exercise, is generally equal to the difference between
the strike price of the option and the value of the underlying index, multiplied
by a specified multiplier. The multiplier determines
the size of the investment position the option represents. Gain or loss
to a Fund on
index options transactions will depend, in
part, on price movements of the underlying index generally or in a particular
segment of the index rather than price movements
of individual components of the index. As with other options, a Fund may
close out its position in index options through closing
purchase transactions and closing sale transactions provided that a liquid
secondary market exists for such options.
Index
options written by a Fund
will generally be covered in a manner similar to the covering of other types of
options, by holding an offsetting
financial position and/or earmarking or segregating cash or liquid
assets. A Fund may
cover call options written on an index by
owning securities or other assets whose price changes, in the opinion of the
Adviser, are expected to correlate to those of the underlying
index.
Foreign
Currency Options. Options
on foreign currencies operate similarly to options on securities. Rather than
the right to buy or sell a single
security at a specified price, options on foreign currencies give the holder the
right to buy or sell foreign currency for a fixed amount in
U.S. dollars or other base currencies. Options on foreign currencies are traded
primarily in the OTC market, but may also be traded
on U.S. and foreign exchanges. The value of a foreign currency option is
dependent upon the value of the underlying foreign
currency relative to the U.S. dollar or other base currency. The price of the
option may vary with changes, among other things, in
the value of either or both currencies and has no relationship to the investment
merits of a foreign security. Options on
foreign
currencies are affected by all of those factors that influence foreign exchange
rates and foreign investment generally. As with other
options, a Fund may
close out its position in foreign currency options through closing purchase
transactions and closing sale transactions
provided that a liquid market exists for such options.
Foreign
currency options written by a Fund
will generally be covered in a manner similar to the covering of other types of
options, by holding an
offsetting financial position and/or earmarking or segregating cash or liquid
assets.
Options
on Futures Contracts. Options
on futures contracts are similar to options on securities except that options on
futures contracts give the
purchasers the right, in return for the premium paid, to assume a position in a
futures contract (a long position in the case of a call
option and a short position in the case of a put option) at a specified exercise
price at any time prior to the expiration of the option.
Upon exercise of the option, the parties will be subject to all of the risks
associated with futures transactions and subject to margin
requirements. As the writer of options on futures contracts, a Fund
would also be subject to initial and variation margin requirements
on the option position.
Options on
futures contracts written by a Fund
will generally be covered in a manner similar to the covering of other types of
options,
by holding an offsetting financial position and/or earmarking or segregating
cash or liquid assets. A Fund may
cover an option on
a futures contract by purchasing or selling the underlying futures contract. In
such instances the exercise of the option will serve to
close out a Fund’s
futures position.
Additional
Risks of Options Transactions. The risks
associated with options transactions are different from, and possibly greater
than, the risks
associated with investing directly in the underlying instruments. Options are
highly specialized instruments that require investment
techniques and risk analyses different from those associated with other
portfolio investments. The use of options requires an
understanding not only of the underlying instrument but also of the option
itself. Options may be subject to the risk factors generally
applicable to derivatives transactions described herein, and may also be subject
to certain additional risk factors, including:
■ |
The
exercise of options written or purchased by a
Fund could cause a
Fund to sell portfolio securities, thus increasing a
Fund’s portfolio
turnover. |
■ |
A Fund
pays brokerage commissions each time it writes or purchases an option or
buys or sells an underlying security in connection
with the exercise of an option. Such brokerage commissions could be higher
relative to the commissions for direct purchases
of sales of the underlying securities. |
■ |
A Fund’s
options transactions may be subject to limitations on options positions
established by the SEC, the CFTC or the exchanges
on which such options are traded. |
■ |
The
hours of trading for exchange-listed options may not coincide with the
hours during which the underlying securities are traded.
To the extent that the options markets close before the markets for the
underlying securities, significant price and rate movements
can take place in the underlying securities that cannot be reflected in
the options markets. |
■ |
Index
options based upon a narrow index of securities or other assets may
present greater risks than options based on broad market
indices, as narrower indices are more susceptible to rapid and extreme
fluctuations as a result of changes in the values of a
smaller number of securities or other
assets. |
■ |
A Fund
is subject to the risk of market movements between the time that an option
is exercised and the time of performance thereunder,
which could increase the extent of any losses suffered
by a
Fund in connection with options
transactions. |
Swaps. An OTC
swap contract is an agreement between two parties pursuant to which the parties
exchange payments at specified dates on
the basis of a specified notional amount, with the payments calculated by
reference to specified securities, indices, reference rates,
currencies or other instruments. Most swap agreements provide that when the
period payment dates for both parties are the same, the
payments are made on a net basis (i.e., the two payment streams are netted out,
with only the net amount paid by one party to
the other). A Fund’s
obligations or rights under a swap contract entered into on a net basis will
generally be equal only to the net amount
to be paid or received under the agreement, based on the relative values of the
positions held by each counterparty. Many swap
agreements are not entered into or traded on exchanges and often there is no
central clearing or guaranty function for swaps. These OTC
swaps are often subject to the risk of default or non-performance by the
counterparty. Accordingly, the Adviser must assess the
creditworthiness of the counterparty to determine the likelihood that the terms
of the swap will be satisfied.
Swap
agreements allow for a wide variety of transactions. For example, fixed-rate
payments may be exchanged for floating rate payments,
U.S. dollar-denominated payments may be exchanged for payments denominated in
foreign currencies, and payments tied to the
price of one security, index, reference rate, currency or other instrument may
be exchanged for payments tied to the price of a different
security, index, reference rate, currency or other instrument. Swap contracts
are typically individually negotiated and structured
to provide exposure to a variety of particular types of investments or market
factors. Swap contracts can take many different
forms and are known by a variety of names. To the extent consistent
with a Fund’s
investment objective and policies, a
Fund is
not limited to any particular form or variety of swap
contract. A Fund may
utilize swaps to increase or decrease its exposure to the
underlying instrument, reference rate, foreign currency, market index or other
asset. Certain
Funds may also enter into related derivative
instruments including caps, floors and collars.
A Fund
may be required to cover swap transactions. Obligations under swap agreements
entered into on a net basis are generally accrued
daily and any accrued but unpaid amounts owed by a Fund to
the swap counterparty will be covered by earmarking or segregating
cash or liquid assets. If a Fund
enters into a swap agreement on other than a net basis, a Fund
will earmark or segregate cash or
liquid assets with a value equal to the full notional amount
of a Fund’s
accrued obligations under the agreement.
The Dodd-Frank
Act and related regulatory developments require the eventual clearing and
exchange-trading of many standardized OTC
derivative instruments that the CFTC and SEC defined as “swaps” and “security
based swaps,” respectively. Mandatory exchange-trading
and clearing is occurring on a phased-in basis based on the type of market
participant and CFTC approval of contracts
for central clearing and exchange-trading. In a cleared swap, a Fund’s
ultimate counterparty is a central clearinghouse rather than a
brokerage firm, bank or other financial institution. A Fund
initially will enter into cleared swaps through an executing broker.
Such
transactions will then be submitted for clearing and, if cleared, will be held
at regulated FCMs that are members of the clearinghouse
that serves as the central counterparty. When a Fund
enters into a cleared swap, it must deliver to the central counterparty
(via an FCM) an amount referred to as “initial margin.” Initial margin
requirements are determined by the central counterparty,
but an FCM may require additional initial margin above the amount required by
the central counterparty. During the term of
the swap agreement, a “variation margin” amount may also be required to be paid
by a Fund or
may be received by a Fund in
accordance
with margin controls set for such accounts, depending upon changes in the price
of the underlying reference asset subject to the
swap agreement. At the conclusion of the term of the swap agreement,
if a Fund has
a loss equal to or greater than the margin amount,
the margin amount is paid to the FCM along with any loss that is greater than
such margin amount. If a Fund has
a loss of less than
the margin amount, the excess margin is returned to the Fund.
If a Fund has
a gain, the full margin amount and the amount of
the gain is paid to the Fund.
Central
clearing is designed to reduce counterparty credit risk compared to uncleared
swaps because central clearing interposes the central
clearinghouse as the counterparty to each participant’s swap, but it does not
eliminate those risks completely. There is also a risk of
loss by a Fund of
the initial and variation margin deposits in the event of bankruptcy of the FCM
with which the Fund has an open
position in a swap contract. The assets of a Fund may
not be fully protected in the event of the bankruptcy of the FCM or central
counterparty because the Fund might be limited to recovering only a pro rata
share of all available funds and margin segregated
on behalf of an FCM’s or central counterparty’s customers or clearing members.
If the FCM does not provide accurate reporting, a Fund is
also subject to the risk that the FCM could use the Fund’s assets, which are
held in an omnibus account with assets
belonging to the FCM’s other customers, to satisfy its own financial obligations
or the payment obligations of another customer
to the central counterparty.
As a
result of recent regulatory developments, certain standardized swaps are
currently subject to mandatory central clearing and some of these
cleared swaps must be traded on an exchange or swap execution facility (“SEF”).
An SEF is an electronic trading platform in which
multiple market participants can execute swap transactions by accepting bids and
offers made by multiple other participants on the
platform. Transactions executed on an SEF may increase market transparency and
liquidity but may cause a Fund to
incur increased
expenses to execute swaps. Central clearing should decrease counterparty risk
and increase liquidity compared to bilateral swaps
because central clearing interposes the central clearinghouse as the
counterparty to each participant’s swap. However, central clearing
does not eliminate counterparty risk or liquidity risk entirely. In addition,
depending on the size of a Fund and
other factors, the margin
required under the rules of a clearinghouse and by a clearing member may be in
excess of the collateral required to be posted by
a Fund to
support its obligations under a similar bilateral swap. However, the CFTC and
other applicable regulators have adopted
rules imposing certain margin requirements, including minimums, on uncleared
swaps which may result in a Fund and
its counterparties
posting higher margin amounts for uncleared swaps. Requiring margin on uncleared
swaps may reduce, but not eliminate,
counterparty credit risk.
In
addition, with respect to cleared swaps, a Fund may
not be able to obtain as favorable terms as it would be able to negotiate for an
uncleared
swap. In addition, an FCM may unilaterally impose position limits or additional
margin requirements for certain types of swaps in
which a Fund may
invest. Central counterparties and FCMs generally can require termination of
existing cleared swap transactions
at any time, and can also require increases in margin above the margin that is
required at the initiation of the swap agreement.
Margin requirements for cleared swaps vary on a number of factors, and the
margin required under the rules of the clearinghouse
and FCM may be in excess of the collateral required to be posted
by a Fund to
support its obligations under a similar uncleared
swap. However, as noted above, regulators have adopted rules imposing certain
margin requirements, including minimums,
on uncleared swaps, which may result in a Fund and
its counterparties posting higher margin amounts for uncleared swaps.
Requiring margin on uncleared swaps may reduce, but not eliminate, counterparty
credit risk.
A Fund
is also subject to the risk that, after entering into a cleared swap with an
executing broker, no FCM or central counterparty is willing or
able to clear the transaction. In such an event, the central counterparty would
void the trade. Before a Fund can
enter into a new
trade, market conditions may become less favorable to the Fund.
The
Adviser will continue to monitor developments regarding trading and execution of
cleared swaps on exchanges, particularly to the extent
regulatory changes affect a Fund’s
ability to enter into swap agreements and the costs and risks associated with
such investments.
Interest
Rate Swaps, Caps, Floors and Collars. Interest
rate swaps consist of an agreement between two parties to exchange their
respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed-rate payments). Interest rate swaps are
generally entered into on a net basis. Interest rate swaps do not involve the
delivery of securities, other underlying assets, or principal.
Accordingly, the risk of market loss with respect to interest rate and total
rate of return swaps is typically limited to the net amount of
interest payments that a Fund is
contractually obligated to make.
Certain
Funds may also buy or sell interest rate caps, floors and collars. The
purchase of an interest rate cap entitles the purchaser, to the extent
that a specified interest rate index exceeds a predetermined level, to receive
payments of interest on a specified notional amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified
interest rate falls below a predetermined level, to receive payments of interest
on a specified notional amount from the party selling
the interest rate floor. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of
interest rates. Caps, floors and collars may be less liquid than other types of
derivatives. If a Fund
sells caps, floors and collars,
it will earmark or segregate cash or liquid assets with a value equal to the
full amount, accrued daily, of a Fund’s
net obligations
with respect to the caps, floors or collars.
Total
Return Swaps. Total
return swaps are contracts in which one party agrees to make periodic payments
to another party based on the change
in market value of the assets underlying the contract, which may include, but
not be limited to, a specified security, basket of
securities or securities indices during the specified period, in return for
periodic payments based on a fixed or variable interest rate or the
total return from other underlying assets. Total return swaps may be used to
obtain long or short exposure to a security or market
without owning or taking physical custody of such security or investing directly
in such market. Total return swaps may effectively
add leverage to a Fund’s
portfolio because, in addition to its total net assets, a Fund
would be subject to investment exposure
on the notional amount of the swap.
Total
return swaps are subject to the risk that a counterparty will default on its
payment obligations to a Fund
thereunder, and conversely,
that a Fund
will not be able to meet its obligation to the counterparty. Generally,
a Fund
will enter into total return swaps on a
net basis (i.e., the two payment streams are netted against one another with
a Fund
receiving or paying, as the case may be, only
the net amount of the two payments). The net amount of the excess, if any, of
a Fund’s
obligations over its entitlements with respect to
each total return swap will be accrued on a daily basis, and an amount of liquid
assets having an aggregate net asset value at least
equal to the accrued excess will be designated by a Fund in
its books and records. If the total return swap transaction is entered
into on
other than a net basis, the full amount of a Fund’s
obligations will be accrued on a daily basis, and the full amount of
a
Fund’s
obligations will be designated by a Fund in
an amount equal to or greater than the market value of the liabilities under the
total
return swap or the amount it would have cost a Fund
initially to make an equivalent direct investment, plus or minus any
amount
a Fund is
obligated to pay or is to receive under the total return swap.
Index
Swaps. An index
swap consists of an agreement between two parties in which a party typically
exchanges a cash flow based on a notional
amount of a reference index for a cash flow based on a different index or on
another specified instrument or reference rate. Index
swaps are generally entered into on a net basis.
Inflation
Swaps. Inflation
swap agreements are contracts in which one party typically agrees to pay the
cumulative percentage increase in a price
index, such as the Consumer Price Index, over the term of the swap (with some
lag on the referenced inflation index), and the other
party pays a compounded fixed rate. Inflation swap agreements may be used to
protect the NAV
of a Fund
against an unexpected
change in the rate of inflation measured by an inflation index. The value of
inflation swap agreements is expected to change in
response to changes in real interest rates. Real interest rates are tied to the
relationship between nominal interest rates and the rate
of inflation.
Currency
Swaps. A
currency swap consists of an agreement between two parties to exchange cash
flows on a notional amount of two or more
currencies based on the relative value differential among them, such as
exchanging a right to receive a payment in foreign currency
for the right to receive U.S. dollars. Currency swap agreements may be entered
into on a net basis or may involve the delivery
of the entire principal value of one designated currency in exchange for the
entire principal value of another designated currency.
In such cases, the entire principal value of a currency swap is subject to the
risk that the counterparty will default on its contractual
delivery obligations.
Credit
Default Swaps. A credit
default swap consists of an agreement between two parties in which the “buyer”
typically agrees to pay to the
“seller” a periodic stream of payments over the term of the contract and the
seller agrees to pay the buyer the par (or other agreed-upon)
value of a referenced debt obligation upon the occurrence of a credit event with
respect to the issuer of that referenced debt
obligation. Generally, a credit event means bankruptcy, failure to pay,
obligation acceleration or modified restructuring. A Fund
may be
either the buyer or seller in a credit default swap. Where a Fund is
the buyer of a credit default swap contract, it would typically
be entitled to receive the par (or other agreed-upon) value of a referenced debt
obligation from the counterparty to the contract
only in the event of a default or similar event by the issuer of the debt
obligation. If no default occurs, a Fund
would have paid to
the counterparty a periodic stream of payments over the term of the contract and
received no benefit from the contract. A
Fund will
generally earmark or segregate cash or liquid assets to cover any potential
obligation under a credit default swap sold by a
Fund. The
use of credit default swaps could result in losses to a Fund if
the Adviser fails to correctly evaluate the creditworthiness of the issuer
of the referenced debt obligation.
Swaptions. An option
on a swap agreement, also called a “swaption,” is an option that gives the buyer
the right, but not the obligation,
to enter into a swap on a future date in exchange for a premium. A receiver
swaption gives the owner the right to receive the return
of a specified asset, reference rate, or index. A payer swaption gives the owner
the right to pay the return of a specified asset,
reference rate, or index. Swaptions also include options that allow an existing
swap to be terminated or extended by one of the counterparties.
General
Risks of Swaps. The risks
associated with swap transactions are different from, and possibly greater than,
the risks associated with
investing directly in the underlying instruments. Swaps are highly specialized
instruments that require investment techniques and risk
analyses different from those associated with other portfolio investments. The
use of swaps requires an understanding not only of
the underlying instrument but also of the swap contract itself. Swap
transactions may be subject to the risk factors generally applicable
to derivatives transactions described above, and may also be subject to certain
additional risk factors, including:
■ |
OTC
swap agreements are not traded on exchanges and may be subject to
liquidity risk, which exists when a particular swap is difficult
to purchase or sell. |
■ |
In
addition to the risk of default by the counterparty, if the
creditworthiness of a counterparty to a swap agreement declines, the
value
of the swap agreement would be likely to decline, potentially resulting in
losses. |
■ |
The
swaps market is subject to extensive regulation under the Dodd-Frank Act
and certain CFTC and SEC rules promulgated thereunder.
It is possible that further developments in the swaps market, including
new and additional governmental regulation, could
result in higher Fund costs and expenses and could adversely
affect a
Fund’s ability to utilize swaps, terminate existing swap
agreements or realize amounts to be received under such
agreements. |
Contracts
for Difference. Certain
Funds may purchase contracts for difference (“CFDs”). A CFD is a privately
negotiated contract between
two parties, buyer and seller, stipulating that the seller will pay to or
receive from the buyer the difference between the nominal
value of the underlying instrument at the opening of the contract and that
instrument’s value at the end of the contract. The underlying
instrument may be a single security, stock basket or index. A CFD can be set up
to take either a short or long position on the
underlying instrument. The buyer and seller are typically both required to post
margin, which is adjusted daily. The buyer will also pay
to the seller a financing rate on the notional amount of the capital employed by
the seller less the margin deposit. A CFD is usually
terminated at the buyer’s initiative. The seller of the CFD will simply match
the exposure of the underlying instrument in the open
market and the parties will exchange whatever payment is due.
As is the
case with owning any financial instrument, there is the risk of loss associated
with buying a CFD. For example, if a Fund
buys a
long CFD and the underlying security is worth less at the end of the contract,
the Fund would be required to make a payment to the
seller and would suffer a loss. Also, there may be liquidity risk if the
underlying instrument is illiquid because the liquidity of a CFD is
based on the liquidity of the underlying instrument. A further risk is that
adverse movements in the underlying security will require
the buyer to post additional margin. CFDs also carry counterparty risk, i.e.,
the risk that the counterparty to the CFD transaction
may be unable or unwilling to make payments or to otherwise honor its financial
obligations under the terms of the contract.
If the counterparty were to do so, the value of the contract, and
of a Fund’s
shares, may be reduced. A Fund
will not enter into a CFD
transaction that is inconsistent with its investment objective, policies and
strategies.
Structured
Investments. Certain
Funds may invest in structured investments. A structured investment is a
derivative security designed
to offer a return linked to a particular underlying security, currency,
commodity or market, for which the amount of principal
repayment and/or interest payments is based on the change in value of such
underlying security, currency, commodity or market,
including, among others, currency exchange rates, interest rates, referenced
bonds and stock indices or other financial references.
Structured investments may come in various forms, including notes, warrants and
options to purchase securities, and may be listed
and traded on an exchange or otherwise traded in the OTC market.
The Funds will
typically use structured investments to gain exposure to a permitted underlying
security, currency, commodity or market
when direct access to such security, currency, commodity or market is limited or
inefficient from a tax, cost or regulatory standpoint.
Investments in structured investments involve risks including issuer risk,
counterparty risk and market risk. Holders of structured
investments bear risks of the underlying investment and are subject to issuer or
counterparty risk because the holders are relying on
the creditworthiness of such issuer or counterparty and have no rights with
respect to the underlying investment. Certain structured
investments may be thinly traded or have a limited trading market and may have
the effect of increasing a Fund’s
illiquidity
to the extent that the Fund, at a particular point in time, may be unable to
find qualified buyers for these investments.
A
structured investment may be linked either positively or negatively to an
underlying security, currency, commodity, index or market and
a change in interest rates, principal amount, volatility, currency values or
other factors, depending on the structured investment’s
design, may result in a gain or loss that is a multiple of the movement of such
interest rates, principal amount, volatility, currency
values or other factors. Application of a multiplier is comparable to the use of
financial leverage, a speculative technique.
Leverage
magnifies the potential for gain and the risk of loss. As a result, a relatively
small decline in the value of the referenced factor could
result in a relatively large loss in the value of a structured
investment.
Other
types of structured investments include interests in entities organized and
operated for the purpose of restructuring the investment
characteristics of underlying investment interests or securities. This type of
securitization or restructuring usually involves the
deposit or purchase of an underlying security by a U.S. or foreign entity, such
as a corporation or trust of specified instruments, and the
issuance by that entity of one or more classes of securities backed by, or
representing an interest in, the underlying instruments.
The cash flow or rate of return on the underlying investments may be apportioned
among the newly issued securities to create
different investment characteristics, such as varying maturities, credit
quality, payment priorities and interest rate provisions. Structured
investments that are subordinated, for example, in payment priority often offer
higher returns, but may result in increased risks
compared to other investments.
Combined
Transactions. Combined
transactions involve entering into multiple derivatives transactions (such as
multiple options transactions,
including purchasing and writing options in combination with each other;
multiple futures transactions; and combinations
of options, futures, forward and swap transactions) instead of a single
derivatives transaction in order to customize the risk and
return characteristics of the overall position. Combined transactions typically
contain elements of risk that are present in each of
the component transactions. A Fund may
enter into a combined transaction instead of a single derivatives transaction
when, in the
opinion of the Adviser, it is in the best interest of the Fund to do so. Because
combined transactions involve multiple transactions,
they may result in higher transaction costs and may be more difficult to close
out.
Commodity-Linked
Investments. The
Funds may
seek to provide exposure to the investment returns of real assets that trade in
the commodity
markets through investments in commodity-linked derivative securities, such as
structured notes, which are designed to provide
this exposure without direct investment in physical commodities or commodities
futures contracts. Real assets are assets such as oil,
gas, industrial and precious metals, livestock, and agricultural or meat
products, or certain other tangible items, as compared to stocks or
bonds, which are intangible financial instruments. In choosing investments, the
Adviser seeks to provide exposure to various commodities
and commodity sectors. The value of commodity-linked derivative securities held
by a Fund may
be affected by a variety of
factors, including, but not limited to, overall market movements and other
factors affecting the value of particular industries
or commodities, such as weather, disease, embargoes, acts of war or terrorism,
or political and regulatory developments.
The prices
of commodity-linked derivative securities may move in different directions than
investments in traditional equity and debt securities
when the value of those traditional securities is declining due to adverse
economic conditions. As an example, during periods of
rising inflation, debt securities have historically tended to decline in value
due to the general increase in prevailing interest rates.
Conversely, during those same periods of rising inflation, the prices of certain
commodities, such as oil and metals, have historically
tended to increase. Of course, there cannot be any guarantee that these
investments will perform in that manner in the future,
and at certain times the price movements of commodity-linked instruments have
been parallel to those of debt or equity securities.
Commodities have historically tended to increase and decrease in value during
different parts of the business cycle than financial
assets. Nevertheless, at various times, commodities prices may move in tandem
with the prices of financial assets and thus may not
provide overall portfolio diversification benefits. Under favorable economic
conditions, the Funds’
investments may underperform
an investment in traditional securities. Over the long term, the returns on the
Funds’
investments are expected to exhibit
low or negative correlation with stocks and bonds.
Special
Purpose Acquisition Companies. A special
purpose acquisition company (“SPAC”) is a publicly traded company that raises
investment
capital for the purpose of acquiring or merging with an existing company.
Typically, the acquisition target is an existing privately
held company that wants to trade publicly, which it accomplishes through a
combination with a SPAC rather than by conducting
a traditional initial public offering (“IPO”). SPACs and similar entities are
blank check companies and do not have any operating
history or ongoing business other than seeking acquisitions. The long term value
of a SPAC’s securities is particularly dependent
on the ability of the SPAC’s management to identify a merger target and complete
an acquisition. Some SPACs pursue acquisitions
only within certain industries or regions, which may increase the time horizon
for an acquisition as well as other risks associated
with these investments, including price volatility. In addition, certain
securities issued by a SPAC, particularly in private placements
conducted by the SPAC after its IPO, may be classified as illiquid and/or be
subject to restrictions on resale, which restrictions
may be imposed for at least a year or possibly a more extended time, and may
potentially be traded only in the over-the-counter
market.
Until an
acquisition or merger is completed, a SPAC generally invests its assets, less a
portion retained to cover expenses, in U.S. government
securities, money market securities and cash and does not typically pay
dividends in respect of its common stock. If an acquisition
or merger that meets the requirements of the SPAC is not completed within a
pre-established period of time (typically, two
years), the funds invested in the SPAC plus any interest paid on such funds
while held in trust (less any permitted expenses and any losses
experienced by the SPAC) are returned to its shareholders. As a result,
a Fund may
be subject to opportunity costs to the extent
that alternative investments would have produced higher returns. Any warrants or
other rights with respect to a SPAC held by a Fund may
expire worthless or may be repurchased or retired by the
SPAC.
In
connection with a proposed acquisition, a SPAC may raise additional funds in
order to fund the acquisition, post-acquisition working
capital, redemptions or some combination of those purposes. This additional
fundraising may be in the form of a private placement
of a class of equity securities or debt. The debt could be secured by the assets
of the SPAC or the operating company existing
after the acquisition or it could be unsecured. The debt may also be investment
grade debt or below investment grade debt.
A Fund
may invest in stock, warrants, rights and other securities of SPACs or similar
special purpose entities in a private placement transaction
or as part of a public offering. If the Fund purchases securities in the SPAC’s
IPO, typically it will receive publicly-traded securities
called “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 of common stock. At a specified time, the rights and
warrants may be separated from the common stock at
the election of the holder, after which each security typically is freely
tradeable. An investment in the IPO securities of a SPAC may
be diluted by additional, later offerings of securities by the SPAC or by other
investors exercising existing rights to purchase
securities of the SPAC. If the Fund invests in equity securities issued in a
private placement after the IPO, those shares will not be
publicly tradable unless and until there is a registration statement filed by
the SPAC and approved by the SEC or if an exemption
from registration is available, which exemptions typically become available at
least a year after the date of the business combination.
Equity investments in the SPAC made in connection with a proposed business
combination will be diluted by the acquisition
itself and further fundraising by the ongoing operating business.
If there
is no market for the shares of the SPAC or only a thinly traded market for
shares or interests in the SPAC develops, a Fund
may not be
able to sell its interest in a SPAC or it may only sell its interest at a price
below what the Fund believes is the SPAC interest’s
value. If not subject to a restriction on resale, a Fund may
sell its investments in a SPAC at any time, including before, at or after the
time of an acquisition or merger. Generally, SPACs provide the opportunity for
common shareholders who hold publicly traded
shares to have some or all of their shares redeemed by the SPAC at or around the
time of a proposed acquisition or merger. However,
there is often a limit to the number of shares that can be redeemed in
connection with a business combination. If a Fund
holds
shares of publicly traded SPAC stock, this means that a Fund may
not be able to redeem those shares prior to an acquisition and may
have to hold those shares until after the completion of the acquisition. If
a Fund
purchases shares in a private placement, those
shares will not be redeemable in connection with a transaction. In addition,
a Fund may
elect not to participate in a proposed SPAC
transaction or may be required to divest its interests in the SPAC due to
regulatory or other considerations.
An
investment in a SPAC is subject to the risks that any proposed acquisition or
merger may not obtain the requisite approval of SPAC
shareholders, may require governmental or other approvals that it fails to
obtain or that an acquisition or merger, once effected,
may prove unsuccessful and lose value. In addition, among other conflicts of
interest, the economic interests of the management,
directors, officers and related parties of a SPAC can differ from the economic
interests of public shareholders, which may lead
to conflicts as they evaluate, negotiate and recommend business combination
transactions to shareholders. This risk may become
more acute as the deadline for the completion of a business combination nears or
in the event that attractive acquisition or merger
targets become scarce.
An
investment in a SPAC is also subject to the risk that a significant portion of
the funds raised by the SPAC may be expended during the
search for a target acquisition or merger. The value of investments in SPACs may
be highly volatile and may depreciate over
time.
In
addition, investments in SPACs may be subject to the same risks as investing in
any initial public offering, including the risks associated
with companies that have little operating history as public companies, including
unseasoned trading, small number of shares
available for trading and limited information about the issuer. In addition, the
market for IPO issuers may be volatile, and share
prices of newly-public companies have fluctuated significantly over short
periods of time. Although some IPOs may produce high
returns, such returns are not typical and may not be sustainable. Certain
investments in SPACs are privately placed securities and are
also subject to the risks of such securities.
Special
Risks Related to Cyber Security.
The Company
and its service providers are susceptible to cyber security risks that include,
among
other things, theft, unauthorized monitoring, release, misuse, loss, destruction
or corruption of confidential and highly restricted
data; denial of service attacks; unauthorized access to relevant systems;
compromises to networks or devices that the Company
and its service providers use to service the Company’s
operations; or operational disruption or failures in the physical infrastructure
or operating systems that support the Company
and its service providers. Cyber attacks against or security breakdowns
of
the Company or
its service providers may adversely impact the Company
and its shareholders, potentially resulting in, among other
things, financial losses; the inability of Fund shareholders to transact
business and a Fund to
process transactions; inability to calculate a Fund’s
NAV; violations of applicable privacy and other laws; regulatory fines,
penalties, reputational damage, reimbursement
or other compensation costs; and/or additional compliance costs.
The Company
may incur additional costs for cyber security
risk management and remediation purposes. In addition, cyber security risks may
also impact issuers of securities in which a
Fund
invests, which may cause a Fund’s
investment in such issuers to lose value. There can be no assurance that
the Company or
its service
providers will not suffer losses relating to cyber attacks or other information
security breaches in the future.
Regulatory
and Legal Risk. U.S. and
non-U.S. governmental agencies and other regulators regularly implement
additional regulations
and legislators pass new laws that affect the investments held by a Fund,
the strategies used by a Fund or
the level of regulation
or taxation applying to the Fund (such as regulations related to investments in
derivatives and other transactions). These regulations
and laws impact the investment strategies, performance, costs and operations of
the Fund or taxation of shareholders.
LIBOR
Discontinuance or Unavailability Risk. A Fund’s
investments, payment obligations and financing terms may be based on
floating
rates, such as the London Interbank Offered Rates (collectively,
“LIBOR”), Euro Interbank Offered Rate and other similar types of
reference rates (each, a “Reference Rate”). These Reference Rates are generally
intended to represent the rate at which contributing
banks may obtain short-term borrowings from each other within certain financial
markets. On July 27, 2017, the Chief Executive
of the UK Financial Conduct Authority (“FCA”), which regulates LIBOR, announced
that the FCA will no longer persuade
nor require banks to submit rates for the calculation of LIBOR and certain other
Reference Rates after 2021. Such announcement
indicates that the continuation of LIBOR and other Reference Rates on the
current basis cannot and will not be guaranteed
after the end of 2021. On March 5, 2021, the FCA announced that LIBOR will
either cease to be provided by any administrator,
or no longer be representative for many LIBOR settings after December 31, 2021,
and for certain commonly-used tenors of
U.S. dollar LIBOR after June 30, 2023. This announcement and any additional
regulatory or market changes may have an adverse
impact on a Fund or
its investments.
In advance
of 2022, regulators and market participants are currently engaged in identifying
successor Reference Rates (“Alternative Reference
Rates”). Additionally, prior to the end of 2021 (or a later date, if a
particular Reference Rate is expected to continue beyond
2021), it is expected that market participants will focus on the transition
mechanisms by which the Reference Rates in existing
contracts or instruments may be amended, whether through marketwide protocols,
fallback contractual provisions, bespoke negotiations
or amendments or otherwise. Nonetheless, the termination of certain Reference
Rates presents risks to a Fund.
At this time, it
is not possible to completely identify or predict the effect of any such
changes, any establishment of Alternative Reference Rates or
any other reforms to Reference Rates that may be enacted in the UK or elsewhere.
The elimination of a Reference Rate or any other
changes or reforms to the determination or supervision of Reference Rates could
have an adverse impact on the market for or value
of any securities or payments linked to those Reference Rates and other
financial obligations held by a Fund or
on its overall financial
condition or results of operations.
The
transition process might lead to increased volatility and illiquidity in markets
that currently rely on Reference Rates to determine interest
rates. It could also lead to a reduction in the value of some Reference
Rate-based investments held by a Fund and
reduce the effectiveness
of new hedges placed against existing Reference Rate-based instruments. While
market participants are endeavoring to minimize
the economic impact of the transition from Reference Rates to Alternative
Reference Rates, the transition away from LIBOR and
certain other Reference Rates could, among other negative
consequences:
■ |
Adversely
impact the pricing, liquidity, value of, return on and trading for a broad
array of financial products, including any Reference
Rate-linked securities, loans and derivatives in which a
Fund may invest; |
■ |
Require
extensive negotiations of and/or amendments to agreements and other
documentation governing Reference Rate-linked investments
products; |
■ |
Lead
to disputes, litigation or other actions with counterparties or portfolio
companies regarding the interpretation and enforceability
of “fallback” provisions that provide for an alternative reference
rate in the event of Reference Rate unavailability; or |
■ |
Cause
a
Fund to incur additional costs in relation to any of the above
factors. |
The risks
associated with the above factors, including decreased liquidity, are heightened
with respect to investments in Reference Rate-based
products that do not include a fallback provision that addresses how interest
rates will be determined if LIBOR and certain
other Reference Rates stop being published. Even with some Reference Rate-based
instruments that may contemplate a scenario
where Reference Rates are no longer available by providing for an alternative
rate-setting methodology and/or increased costs for
certain Reference Rate-related instruments or financing transactions, there may
be significant uncertainty regarding the effectiveness
of any such alternative methodologies, resulting in prolonged adverse market
conditions for a Fund.
Since the usefulness of LIBOR
and certain other Reference Rates as benchmarks could deteriorate during the
transition period, these effects could occur prior to
the end of 2021 (or the applicable later date, if a particular Reference Rate is
expected to continue beyond 2021). There also remains
uncertainty and risk regarding the willingness and ability of issuers to include
enhanced provisions in new and existing contracts
or instruments. In addition, when a Reference Rate is discontinued, the
Alternative Reference Rate may be lower than market
expectations, which could have an adverse impact on the value of preferred and
debt securities with floating or fixed-to-floating
rate coupons. In addition, any substitute Reference Rate and any pricing
adjustments imposed by a regulator or counterparties
or otherwise may adversely affect a Fund’s
performance or NAV.
ESG
Investment Risk. To the
extent that a Fund
considers environmental, social and governance (“ESG”) criteria and application
of related
analyses when selecting investments, the Fund’s performance may be affected
depending on whether such investments are in or out of
favor and relative to similar funds that do not adhere to such criteria or apply
such analyses. A company’s ESG practices or the
Adviser’s assessment of such may change over time. Additionally, a Fund’s
adherence to its ESG criteria and application of related
analyses
in connection with identifying and selecting investments may require subjective
analysis and may be difficult if data about a particular
company is limited. A Fund’s
consideration of ESG criteria may result in the Fund buying certain
securities or forgoing opportunities
to buy certain securities. A Fund’s
investments in certain companies may be susceptible to various factors that may
impact
their businesses or operations, including the effects of general economic
conditions throughout the world, increased competition
from other providers of services, unfavorable tax laws or accounting policies
and high leverage.
Market
and Geopolitical Risk. The value
of your investment in a Fund is
based on the values of a Fund’s
investments. These values change
daily due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries,
companies or governments. Price movements, sometimes called volatility, may be
greater or less depending on the types of securities
a Fund
owns and the markets in which the securities trade. The increasing
interconnectivity between global economies and financial
markets increases the likelihood that events or conditions in one region or
financial market may adversely impact issuers in a different
country, region or financial market. Securities in a Fund’s
portfolio may underperform due to inflation (or expectations for inflation),
interest rates, global demand for particular products or resources, natural
disasters, pandemics, epidemics, terrorism, regulatory
events and governmental or quasi-governmental actions. The occurrence of global
events similar to those in recent years, such as
terrorist attacks around the world, natural disasters, social and political
discord or debt crises and downgrades, among others, may result
in market volatility and may have long term effects on both the U.S. and global
financial markets. The occurrence of such events may
be sudden and unexpected, and it is difficult to predict when similar events
affecting the U.S. or global financial markets may occur,
the effects that such events may have and the duration of those effects. Any
such event(s) could have a significant adverse impact on
the value, liquidity and risk profile of a Fund’s
portfolio, as well as its ability to sell securities to meet redemptions. There
is a risk
that you may lose money by investing in a
Fund.
Social,
political, economic and other conditions and events, such as war, natural
disasters, health emergencies (e.g., epidemics and pandemics),
terrorism, conflicts and social unrest, may occur and could significantly impact
issuers, industries, governments and other
systems, including the financial markets. 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, adversely impact issuers in other
countries, regions or markets. These impacts can be exacerbated
by failures of governments and societies to adequately respond to an emerging
event or threat. These types of events quickly
and significantly impact markets in the U.S. and across the globe leading to
extreme market volatility and disruption. The extent and
nature of the impact on supply chains or economies and markets from these events
is unknown, particularly if a health emergency
or other similar event, such as the recent COVID-19 (the “Coronavirus”)
outbreak, persists for an extended period of time.
Social, political, economic and other conditions and events, such as natural
disasters, health emergencies (e.g., epidemics and pandemics),
terrorism, conflicts and social unrest, could reduce consumer demand or economic
output, result in market closures, travel
restrictions or quarantines, and generally have a significant impact on the
economies and financial markets and the Adviser’s investment
advisory activities and services of other service providers, which in turn could
adversely affect a Fund’s
investments and other
operations. The value of a Fund’s
investment may decrease as a result of such events, particularly if these events
adversely impact the
operations and effectiveness of the Adviser or key service providers or if these
events disrupt systems and processes necessary
or beneficial to the investment advisory or other activities on behalf
a
Fund.
Many
countries have experienced outbreaks of infectious illnesses in recent decades,
including swine flu, avian influenza, SARS and the
Coronavirus. In December 2019, an initial outbreak of the Coronavirus was
reported in Hubei, China. Since then, a large and growing
number of cases have been confirmed around the world. The Coronavirus outbreak
has resulted in numerous deaths and the imposition
of both local and more widespread “work from home” and other quarantine
measures, border closures and other travel restrictions,
causing social unrest and commercial disruption on a global scale and
significant volatility in financial markets. In March 2020, the
World Health Organization declared the Coronavirus outbreak a
pandemic.
The
ongoing spread of the Coronavirus has had, and is expected to continue to have,
a material adverse impact on local economies in the
affected jurisdictions and also on the global economy, as cross border
commercial activity and market sentiment are increasingly impacted
by the outbreak and government and other measures seeking to contain its spread.
The global impact of the outbreak has been
rapidly evolving, and many countries have reacted by instituting quarantines and
restrictions on travel. These actions are creating
disruption in supply chains, and adversely impacting a number of industries,
including but not limited to retail, transportation,
hospitality and entertainment. In addition to these developments having adverse
consequences for certain companies and other
issuers in which a Fund
invests and the value of a Fund’s
investments therein, the operations of the Adviser (including those
relating to the Fund) could be impacted adversely, including through quarantine
measures and travel restrictions imposed on the
Adviser’s or service providers’ personnel located in affected countries, regions
or local areas, or any related health issues of such personnel.
Any of the foregoing events could materially and adversely affect the Adviser’s
ability to source, manage and divest investments
on behalf of a Fund and
pursue a Fund’s
investment objectives and strategies. Similar consequences could arise with
respect to
other infectious diseases. Given the significant economic and financial market
disruptions associated with the Coronavirus pandemic,
it is expected that the valuation and performance of the Fund’s investments may
be impacted adversely.
Certain
countries and regulatory bodies use negative interest rates as a monetary policy
tool to encourage economic growth during periods of
deflation.
In a
negative interest rate environment, debt instruments may trade at negative
yields, which means the purchaser of the instrument may
receive at maturity less than the total amount invested. In addition, in a
negative interest rate environment, if a bank charges negative
interest rates, instead of receiving interest on deposits, a depositor must pay
the bank fees to keep money with the bank. To the extent
a Fund
holds a debt instrument or has a bank deposit with a negative interest rate,
a Fund
would generate a negative return on that
investment.
In light
of current market conditions, interest rates and bond yields in the United
States and many other countries are at or near historic
lows, and in some cases, such rates and yields are negative. During periods of
very low or negative interest rates, a Fund’s
susceptibility
to interest rate risk (i.e., the risks associated with changes in interest
rates) may be magnified, its yield and income may be
diminished and its performance may be adversely affected (e.g., during periods
of very low or negative interest rates, the Fund may be unable
to maintain positive returns). These levels of interest rates (or negative
interest rates) may magnify the risks associated with rising
interest rates. Changing interest rates, including rates that fall below zero,
may have unpredictable effects on markets, including market
volatility and reduced liquidity, and may adversely affect a Fund’s
yield, income and performance.
Government
and other public debt, including municipal obligations in which a Fund may
invest, can be adversely affected by large and sudden
changes in local and global economic conditions that result in increased debt
levels. Although high levels of government and other
public debt do not necessarily indicate or cause economic problems, high levels
of debt may create certain systemic risks if sound debt
management practices are not implemented. A high debt level may increase market
pressures to meet an issuer’s funding needs,
which may increase borrowing costs and cause a government or public or municipal
entity to issue additional debt, thereby increasing
the risk of refinancing. A high debt level also raises concerns that the issuer
may be unable or unwilling to repay the principal
or interest on its debt, which may adversely impact instruments held by
a Fund
that rely on such payments. Governmental and
quasi-governmental responses to certain economic or other conditions may lead to
increasing government and other public debt, which
heighten these risks. Unsustainable debt levels can lead to declines in the
value of currency, and can prevent a government from
implementing effective counter-cyclical fiscal policy during economic downturns,
can generate or contribute to an economic downturn
or cause other adverse economic or market developments, such as increases in
inflation or volatility. Increasing government and other
public debt may adversely affect issuers, obligors, guarantors or instruments
across a variety of asset classes.
Bitcoin
Exposure. Certain
Funds may have exposure to bitcoin indirectly through cash settled futures or
indirectly through investments
in Grayscale Bitcoin Trust (BTC) (“GBTC”), a privately offered investment
vehicle that invests in bitcoin. To the extent a Fund
invests in bitcoin futures or GBTC, it will do so through a wholly-owned
subsidiary, which is organized as an exempted company
under the laws of the Cayman Islands (each, a “Subsidiary”). A Fund may at times
have no exposure to bitcoin.
Bitcoin is
a digital asset whose ownership and behavior are determined by participants in
an online, peer-to-peer network that connects
computers that run publicly accessible, or “open source,” software that follows
the rules and procedures governing the bitcoin
network (commonly referred to as the bitcoin protocol). The value of bitcoin,
like the value of other cryptocurrencies, is not backed by
any government, corporation, or other identified body. The further development
of the bitcoin network, which is part of a new and
rapidly changing industry, is subject to a variety of factors that are difficult
to evaluate.
Bitcoin
Cash Settled Futures. Certain
Funds may engage in futures contracts based on bitcoin. The only bitcoin futures
in which a Fund may
invest are cash settled bitcoin futures traded on futures exchanges registered
with the CFTC.
Bitcoin
futures expose a Fund to all of the risks related to bitcoin discussed below and
also expose the Fund to risks specific to bitcoin futures.
Regulatory changes or actions may alter the nature of an investment in bitcoin
futures or restrict the use of bitcoin or the operations
of the bitcoin network or exchanges on which bitcoin trades in a manner that
adversely affects the price of bitcoin futures, which
could adversely impact a Fund and necessitate the payment of large daily
variation margin payments to settle the Fund’s losses.
A Fund’s
investment in bitcoin futures may involve illiquidity risk, as bitcoin futures
are not as heavily traded as other futures given that the
bitcoin futures market is relatively new. In addition, exchanges on which
bitcoin futures are traded and their related clearinghouses
and a Fund’s FCMs generally require a Fund to maintain relatively high levels of
initial margin at the clearinghouse and FCM in
connection with bitcoin futures. Initial margin requirements will increase if a
Fund’s bitcoin futures investments increase
in value.
Exchanges
on which bitcoin is traded (which are the source of the price(s) used to
determine the cash settlement amount for a Fund’s bitcoin
futures) have experienced, and may in the future experience, technical and
operational issues, making bitcoin prices unavailable
at times. In addition, the cash market in bitcoin has been the target of fraud
and manipulation, which could affect the pricing of
bitcoin futures contracts.
In
addition, bitcoin and bitcoin futures have generally exhibited significant price
volatility relative to traditional asset classes. Bitcoin futures
may also experience significant price volatility as a result of the market fraud
and manipulation noted above.
Futures
contracts based on bitcoin are also subject to the risks otherwise applicable to
derivatives, in particular those described in “Futures
Contracts.”
Investments
in GBTC. Certain
Funds may obtain investment exposure to bitcoin indirectly through investing in
GBTC. The amount of a
Fund’s investment in GBTC will be subject to certain limits at the time of
investment. GBTC’s investment objective is for the shares of
GBTC to reflect the value of bitcoin held by GBTC, less expenses and other
liabilities, and the risks of investing in GBTC are
similar to the risks of investing in cryptocurrencies generally. Investments in
GBTC expose a Fund to all of the risks related to bitcoin
discussed below and also expose the Fund to risks specific to GBTC.
Shares of
GBTC have historically traded, and may continue to trade, at a significant
premium or discount to NAV. To the extent GBTC
trades at a discount to NAV, the value of a Fund’s investment in GBTC would
typically decrease, even if the value of GBTC’s
underlying holdings in bitcoin does not decrease. In addition, there is no
guarantee that an active trading market for GBTC will exist
at any time. A Fund’s investment in GBTC will be subject to the operating
expenses associated with GBTC. If GBTC incurs
expenses in U.S. dollars, GBTC would be required to sell bitcoins to pay these
expenses. The sale of GBTC’s bitcoins to pay expenses
in U.S. dollars at a time of low bitcoin prices could adversely affect the value
of a Fund’s investment in GBTC. Over time, sales of
bitcoin by GBTC to pay expenses will decrease the amount of bitcoin associated
with each share of GBTC. In addition, GBTC is
susceptible to theft of its bitcoin holdings, which would negatively affect an
investment by a Fund in GBTC.
A Fund’s
investments in GBTC are also subject to the risks associated with private funds
generally, including liquidity risk. The securities
of such private funds are generally not registered under the 1940 Act, the
Securities Act of 1933, as amended, or any state securities
laws, and therefore a Fund’s investments in GBTC will not benefit from the
protections and restrictions of such laws.
GBTC is
expected to be treated as a grantor trust for U.S. federal income tax purposes,
and therefore an investment by a Subsidiary in GBTC
will generally be treated as a direct investment by the Subsidiary in bitcoin
for such purposes and will be subject to the tax risks
related to investment in bitcoin.
Risks
Related to Bitcoin.
Cryptocurrencies (also referred to as “virtual currencies” and “digital
currencies”) are digital assets designed to act as a
medium of exchange. Although cryptocurrency is an emerging asset class, there
are thousands of cryptocurrencies, the most well-known
of which is bitcoin.
Cryptocurrency
facilitates decentralized, peer-to-peer financial exchange and value storage
that is used like money, without the oversight
of a central authority or banks. The value of cryptocurrency is not backed by
any government, corporation, or other identified
body. Similar to fiat currencies (i.e., a currency that is backed by a central
bank or a national, supra-national or quasinational
organization), cryptocurrencies are susceptible to theft, loss and destruction.
For example, the bitcoin held by GBTC (and a
Fund’s indirect exposure to such bitcoin) is also susceptible to these
risks.
The value
of a Fund’s investments in cryptocurrency is subject to fluctuations in the
value of the cryptocurrency, which have been and may in
the future be highly volatile. The value of cryptocurrencies is determined by
the supply and demand for cryptocurrency in the
global market for the trading of cryptocurrency, which consists primarily of
transactions on electronic exchanges. The price of bitcoin
could drop precipitously (including to zero) for a variety of reasons,
including, but not limited to, regulatory changes, a crisis of
confidence, flaw or operational issue in the bitcoin network or a change in user
preference to competing cryptocurrencies. A Fund’s
exposure to cryptocurrency could result in substantial losses to the
Fund.
Cryptocurrencies
trade on exchanges, which are largely unregulated and, therefore, are more
exposed to fraud and failure than established,
regulated exchanges for securities, derivatives and other currencies.
Cryptocurrency exchanges have in the past, and may in the
future, cease operating temporarily or even permanently, resulting in the
potential loss of users’ cryptocurrency or other market disruptions.
Cryptocurrency exchanges are more exposed to the risk of market manipulation
than exchanges for traditional assets. Cryptocurrency
exchanges that are regulated typically must comply with minimum net capital,
cybersecurity, and anti-money laundering
requirements, but are not typically required to protect customers or their
markets to the same extent that regulated securities
exchanges or futures exchanges are required to do so. Furthermore, many
cryptocurrency exchanges lack certain safeguards established
by traditional exchanges to enhance the stability of trading on the exchange,
such as measures designed to prevent sudden drops in
value of items traded on the exchange (i.e., “flash crashes”). As a result, the
prices of cryptocurrencies on exchanges may be subject to
larger and more frequent sudden declines than assets traded on traditional
exchanges. In addition, cryptocurrency exchanges
are also subject to the risk of cybersecurity threats and have been breached,
resulting in the theft and/or loss of bitcoin and other
cryptocurrencies. A cyber or other security breach or a business failure of a
cryptocurrency exchange or custodian may affect the price of a
particular cryptocurrency or cryptocurrencies generally. A risk also exists with
respect to malicious actors or previously unknown
vulnerabilities, which may adversely affect the value of bitcoin.
Factors
affecting the further development of cryptocurrency include, but are not limited
to: continued worldwide growth or possible cessation
or reversal in the adoption and use of cryptocurrency and other digital assets;
government and quasi-government regulation or
restrictions on or regulation of access to and operation of digital asset
networks; changes in consumer demographics and public preferences;
maintenance and development of open-source software protocol; availability and
popularity of other forms or methods of
buying and
selling goods and services; the use of the networks supporting digital assets,
such as those for developing smart contracts and
distributed applications; general economic conditions and the regulatory
environment relating to digital assets; negative consumer
or public perception; and general risks tied to the use of information
technologies, including cyber risks. A breach or failure of one
cryptocurrency may lead to a loss in confidence in, and thus decreased usage or
and or value of, other cryptocurrencies.
Currently,
there is relatively limited use of cryptocurrency in the retail and commercial
marketplace, which contributes to price volatility.
A lack of expansion by cryptocurrencies into retail and commercial markets, or a
contraction of such use, may result in increased
volatility or a reduction in the value of cryptocurrencies, either of which
could adversely impact a Fund’s investment in cryptocurrency.
In addition, to the extent market participants develop a preference for one
cryptocurrency over another, the value of the less
preferred cryptocurrency would likely be adversely affected.
Cryptocurrency
is a new technological innovation with a limited history; it is a highly
speculative asset and future regulatory actions or
policies may limit, perhaps to a materially adverse extent, the value of a
Fund’s indirect investment in cryptocurrency and the ability to
exchange a cryptocurrency or utilize it for payments.
Many
significant aspects of the tax treatment of investments in cryptocurrency are
uncertain, and a direct or indirect investment in cryptocurrency
may produce income that if directly earned by a RIC, like a Fund, would be
treated as non-qualifying income for purposes
of the income test applicable to RICs. Accordingly, to the extent a Fund invests
in bitcoin futures or GBTC, it will do so through a
Subsidiary.
In 2014,
the Internal Revenue Service (“IRS”) released a notice (the “Notice”) discussing
certain aspects of “convertible virtual currency”
(that is, digital assets that have an equivalent value in fiat currency or that
act as a substitute for fiat currency) for U.S. federal
income tax purposes and, in particular, stating that such a digital asset (i) is
“property,” (ii) is not “currency” for purposes of the rules
relating to foreign currency gain or loss and (iii) may be held as a capital
asset. In 2019, the IRS released a revenue ruling and a set
of “Frequently Asked Questions” (the “Ruling & FAQs”) that provide some
additional guidance. However, the Notice and the Ruling
& FAQs do not address other significant aspects of the U.S. federal income
tax treatment of digital assets. Moreover, although
the Ruling & FAQs address the treatment of hard forks, there continues to be
uncertainty with respect to the income and withholding
taxation of incidental rights received through a fork in the blockchain,
airdrops offered to bitcoin holders and other similar
events, including situations where such rights are disclaimed, as is expected
with respect to GBTC’s intended treatment of such
events.
The taxing
authorities of certain states (i) have announced that they will follow the
Notice with respect to the treatment of digital assets for
state income tax purposes and/or (ii) have issued guidance exempting the
purchase and/or sale of digital assets for fiat currency
from state sales tax. It is unclear what further guidance on the treatment of
digital assets for state tax purposes may be issued in the
future.
It is
unclear what additional guidance on the treatment of digital assets for U.S.
federal, state and local income tax purposes may be issued in
the future. Because of the evolving nature of digital assets, it is not possible
to predict potential future developments that may arise
with respect to digital assets. Any future guidance on the treatment of digital
assets for federal, state or local tax purposes could
result in adverse tax consequences for investors in the Fund and could have an
adverse effect on the value of bitcoin.
Special
Risks Related to the Cayman Islands Subsidiary. Each of
the Advantage Portfolio, Asia Opportunity Portfolio, Counterpoint
Global Portfolio, Developing Opportunity Portfolio, Global Insight Portfolio,
Global Opportunity Portfolio, Global Permanence
Portfolio, Growth Portfolio, Inception Portfolio, International Advantage
Portfolio, International Opportunity Portfolio and
Permanence Portfolio may, consistent with its principal investment strategies,
invest up to 25% of its total assets in a wholly-owned
subsidiary of the Fund organized as a company under the laws of the Cayman
Islands. Each Subsidiary may invest in GBTC, cash-settled
bitcoin futures and other investments. Investments in each Subsidiary are
expected to provide a Fund with exposure to bitcoin
within the limitations of Subchapter M of the Code and IRS revenue rulings, as
discussed below under “Taxes.” Each Subsidiary
is a company organized under the laws of the Cayman Islands and is overseen by
its own board of directors. Each Fund is the sole
shareholder of its respective Subsidiary, and it is not currently expected that
shares of any Subsidiary will be sold or offered to other
investors. To the extent that a Fund invests in a Subsidiary, the Fund may be
subject to the risks associated with such bitcoin and other
bitcoin related investments.
While each
Subsidiary may be considered similar to investment companies, it is not
registered under the 1940 Act and, unless otherwise
noted in the Prospectus and this SAI, is not subject to all of the investor
protections of the 1940 Act and other U.S. regulations.
Changes in the laws of the United States and/or the Cayman Islands could result
in the inability of a Fund and/or the Subsidiary
to operate as described in the applicable Prospectus and this SAI and could
eliminate or severely limit the Fund’s ability to invest in
the Subsidiary which may adversely affect the Fund and its
shareholders.
INVESTMENT
LIMITATIONS
Fundamental
Limitations
Each Fund
has adopted the following restrictions, which are fundamental policies and may
not be changed without the approval of the lesser
of: (i) at least 67% of the voting securities of the Fund present at a meeting
if the holders of more than 50% of the outstanding
voting securities of the Fund are present or represented by proxy; or (ii) more
than 50% of the outstanding voting securities
of the Fund. Each Fund (except for the Global Franchise and Inception
Portfolios) will not:
1 |
purchase
or sell physical commodities unless acquired as a result of ownership of
securities or other instruments; provided that this
restriction shall not prohibit the Fund from purchasing or selling
options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial
instruments or from investing in securities or other instruments
backed by physical commodities or as otherwise permitted by (i) the 1940
Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as
amended from time to time; |
2 |
purchase
or sell real estate, although it may purchase and sell securities of
companies that deal in real estate and may purchase and
sell securities that are secured by interests in real
estate; |
3 |
make
loans of money or property to any person, except (a) to the extent that
securities or interests in which the Fund may invest are
considered to be loans, (b) through the loan of portfolio securities, (c)
by engaging in repurchase agreements or (d) as may otherwise
be permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief applicable to the Company from the
provisions of the 1940 Act, as amended from time to
time; |
4 |
except
with respect to the China Equity, Emerging Markets Fixed Income
Opportunities, Emerging Markets Leaders, Global Concentrated,
Global Concentrated Real Estate, Global Core, Global Infrastructure,
Global Sustain, US Core and U.S. Real Estate
Portfolios, invest in a manner inconsistent with its classification as a
“diversified company” as provided by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief applicable to the Fund
from the provisions of the 1940 Act, as amended from
time to time; |
5 |
borrow
money, except the Fund may borrow money to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or
other relief applicable to the Fund from the provisions of the 1940 Act,
as amended from time to time; |
6 |
issue
senior securities, except the Fund may issue senior securities to the
extent permitted by (i) the 1940 Act, as amended from time
to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an
exemption or other relief applicable to the Fund from the provisions of
the 1940 Act, as amended from time to time; |
7 |
underwrite
securities issued by others, except to the extent that the Fund may be
considered an underwriter within the meaning of
the 1933 Act in the disposition of restricted
securities; |
8 |
except
with respect to the Global Concentrated Real Estate, Global
Infrastructure, Global Sustain and Real Assets Portfolios, acquire
any securities of companies within one industry if, as a result of such
acquisition, more than 25% of the value of the Fund’s
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, except that
the U.S. Real Estate Portfolio will invest more than 25% of its total
assets in the U.S. real estate industry, as described in its Prospectus,
that the Global Real Estate Portfolio will invest more than 25% of its
total assets in the real estate industry, as described
in its Prospectus, and that the Frontier Markets Portfolio will invest
more than 25% of its total assets in the banking industry; |
9 |
with
respect to the Global Concentrated Real Estate, Global Infrastructure,
Global Sustain and Real Assets Portfolios only, acquire
any securities of companies within one industry if, as a result of such
acquisition, 25% or more of the value of the Fund’s
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, except that
the Global Concentrated Real Estate Portfolio will invest 25% or more of
its total assets in the real estate industry, that the Global
Infrastructure Portfolio will invest 25% or more of its total assets in
the infrastructure industry and that the Real Assets Portfolio
will invest 25% or more of its total assets in the real estate and
infrastructure group of industries; and |
10 |
except
with respect to the Global Concentrated Real Estate, Global Real Estate
and Real Assets Portfolios, write or acquire options
or interests in oil, gas or other mineral exploration or development
programs. |
Each of
the Global Franchise and Inception Portfolios will not:
1 |
purchase
or sell physical commodities unless acquired as a result of ownership of
securities or other instruments (except this shall not
prevent the Fund from purchasing or selling options or futures contracts
or from investing in securities or other instruments backed
by physical commodities); |
2 |
purchase
or sell real estate, although it may purchase and sell securities of
companies that deal in real estate and may purchase and
sell securities that are secured by interests in real
estate; |
3 |
lend
any security or make any other loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or repurchase
agreements; |
4 |
except
with respect to the Global Franchise Portfolio, with respect to 75% of its
total assets (i) purchase more than 10% of any class
of the outstanding voting securities of any issuer and (ii) purchase
securities of an issuer (except obligations of the U.S. Government
and its agencies and instrumentalities) if as a result more than 5% of the
Fund’s total assets, at market value, would be
invested in the securities of such issuer; |
5 |
issue
senior securities and will not borrow, except from banks and as a
temporary measure for extraordinary or emergency purposes
and then, in no event, in excess of 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than
borrowings); |
6 |
underwrite
securities issued by others, except to the extent that the Fund may be
considered an underwriter within the meaning of
the 1933 Act in the disposition of restricted
securities; |
7 |
acquire
any securities of companies within one industry if, as a result of such
acquisition, more than 25% of the value of the Fund’s
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation
on the purchase of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
and |
8 |
write
or acquire options or interests in oil, gas or other mineral exploration
or development programs. |
Non-Fundamental
Limitations
In
addition, each Fund has adopted the following non-fundamental investment
limitations, which may be changed by the Board without
shareholder approval. Each Fund will not:
1 |
purchase
on margin or sell short except (i) that the Emerging Markets Fixed Income
Opportunities Portfolio may sell securities short
without limitation but consistent with applicable legal requirements as
stated in its Prospectus; (ii) that each Fund may enter
into option transactions and futures contracts as described in its
Prospectus; and (iii) as specified above in fundamental investment
limitation number (1) above; |
2 |
except
with respect to the Global Real Estate Portfolio, make loans except (i) by
purchasing bonds, debentures or similar obligations
(including repurchase agreements, subject to the limitations as described
in the respective Prospectuses) that are publicly
distributed; and (ii) by lending its portfolio securities to banks,
brokers, dealers and other financial institutions so long as
such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC
thereunder; |
3 |
borrow
money, except from banks for extraordinary or emergency purposes, and then
only in amounts up to 10% of the value of
the Fund’s total assets (including, in each case, the amount borrowed less
liabilities (other than borrowings)), or purchase securities
while borrowings exceed 5% of its total assets, except that (i) the
Emerging Markets Fixed Income Opportunities Portfolio
may borrow in accordance with fundamental investment limitation number (5)
above and (ii) the Emerging Markets Fixed
Income Opportunities Portfolio may purchase securities while borrowings
exceed 5% of its total assets, provided that the sole
purpose of such borrowings is to honor redemption requests;
and |
4 |
invest
in other investment companies in reliance on Sections 12(d)(1)(F),
12(d)(1)(G) or 12(d)(1)(J) of the 1940 Act. |
Whether
diversified or non-diversified, each Fund will satisfy the diversification
requirements for tax treatment as a RIC. As a result, each Fund
will diversify its holdings so that, at the close of each quarter of its taxable
year or within 30 days thereafter, (i) at least 50% of the
market value of the Fund’s total assets is represented by cash (including cash
items and receivables), U.S. government securities,
securities of other RICs and other securities, with such other securities
limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the 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
in the securities of any one issuer (other than U.S. government
securities or securities of other RICs) or of one or more “qualified” publicly
traded partnerships.
The
percentage limitations contained in these fundamental and non-fundamental
limitations apply at the time of purchase of securities.
A later change in percentage resulting from changes in the value of the Fund’s
assets or in total or net assets of the Fund will not
be considered a violation of the restriction and the sale of securities will not
be required. The foregoing does not apply to borrowings.
Future portfolios of the Company may adopt different limitations.
The
investment policies, limitations or practices of the Funds may not apply during
periods of unusual or adverse market, economic, political
or other conditions. Such market, economic, political or other conditions may
include periods of abnormal or heightened market
volatility, strained credit and/or liquidity conditions or increased
governmental intervention in the markets or industries. During
such periods, a Fund may not invest according to its principal investment
strategies or in the manner in which its name may suggest,
and may be subject to different and/or heightened risks. It is possible that
such unusual or adverse conditions may continue for
extended periods of time.
DISCLOSURE
OF PORTFOLIO HOLDINGS
The
Company’s Board of Directors and the Adviser have adopted policies and
procedures regarding disclosure of portfolio holdings (the
“Policy”). Pursuant to the Policy, the Adviser may disclose information
concerning Company portfolio holdings only if such disclosure
is consistent with the antifraud provisions of the federal securities laws and
the Company’s and the Adviser’s fiduciary duties to
Company shareholders. In no instance may the Adviser, Sub-Advisers or the
Company receive compensation or any other consideration
in connection with the disclosure of information about the portfolio securities
of the Company. Consideration includes any
agreement to maintain assets in the Company or in other investment companies or
accounts managed by the Adviser or by any affiliated
person of the Adviser. Non-public information concerning portfolio holdings may
be divulged to third parties only when the
Company has a legitimate business purpose for doing so and the recipients of the
information are subject to a duty of confidentiality.
Under no circumstances shall current or prospective Company shareholders receive
non-public portfolio holdings information,
except as described below.
The
Company makes available on its public website the following portfolio holdings
information:
■ |
complete
portfolio holdings information monthly, at least 15 calendar days after
the end of each month (except with respect to the
Advantage, Asia Opportunity, Counterpoint Global, Developing Opportunity,
Global Concentrated, Global Core, Global Endurance,
Global Franchise, Global Insight, Global Opportunity, Global Permanence,
Global Sustain, Growth, Inception, International
Advantage, International Opportunity, Permanence and US Core
Portfolios); |
■ |
complete
portfolio holdings information quarterly, at least 45 calendar days after
the end of each quarter (with respect to the Advantage,
Counterpoint Global, Global Insight, Global Endurance, Global Permanence,
Growth, Inception and Permanence Portfolios);
and |
■ |
top
10 holdings monthly, at least 15 calendar days after the end of each
month. |
With
respect to the Global Concentrated, Global Core, Global Franchise, Global
Sustain and US Core Portfolios, complete holdings will be
publicly available on a quarterly basis 15 calendar days after the quarter-end
by calling (800) 548-7786 or email client service at
[email protected].
With
respect to the Asia Opportunity, Developing Opportunity, Global Opportunity,
International Advantage and International Opportunity
Portfolios, complete holdings will be publicly available on a quarterly basis 45
calendar days after the quarter-end by calling
(800) 548-7786 or email client service at [email protected].
The
Company provides a complete schedule of portfolio holdings for the second and
fourth fiscal quarters in its Semi-Annual and Annual
reports, and for the first and third fiscal quarters in its filings with the SEC
as an exhibit to Form N-PORT. These portfolio holdings
will be available on or about the date of this Statement of Additional
Information on the Fund’s public website, www.morganstanley.com/im/shareholderreports.
All other
portfolio holdings information that has not been disseminated in a manner making
it available generally as described above is
non-public information for purposes of the Policy.
The
Company may make selective disclosure of non-public portfolio holdings
information pursuant to certain exemptions set forth in the
Policy. Third parties eligible for exemptions under the Policy and therefore
eligible to receive such disclosures currently include clients/shareholders
(such as redeeming shareholders in-kind), fund rating agencies, information
exchange subscribers, proxy voting or
advisory services, pricing services, consultants and analysts, portfolio
analytics providers, transition managers and service providers, provided
that the third party expressly agrees to maintain the disclosed information in
confidence and not to trade portfolio securities or related
derivative securities based on the non-public information. Non-public portfolio
holdings information may not be disclosed to a third
party pursuant to an exemption unless and until the third party recipient has
entered into a non-disclosure agreement with the
Company and the arrangement has been reviewed and approved as set forth in the
Policy and discussed below. In addition, persons
who owe a duty of trust or confidence to the Company or the Adviser may receive
non-public portfolio holdings information without
entering into a non-disclosure agreement. Currently, these persons include (i)
the Funds’ independent registered public accounting
firm (as of the Company’s fiscal year end and on an as-needed basis), (ii)
counsel to the Company (on an as needed basis), (iii)
counsel to the Independent Directors (on an as-needed basis) and (iv) members of
the Board of Directors (on an as-needed basis).
Subject to the terms and conditions of any agreement between the Adviser or the
Company and the third party recipient, if these
conditions for disclosure are satisfied, there shall be no restriction on the
frequency with which Company non-public portfolio holdings
information is released, and no lag period shall apply (unless otherwise
indicated below).
The
Adviser and/or Sub-Advisers may provide interest lists to broker-dealers who
execute securities transactions for the Company without
entering into a non-disclosure agreement with the broker-dealers, provided that
the interest list satisfies all of the following criteria:
(1) the interest list must contain only the CUSIP numbers and/or ticker symbols
of securities held in all registered management
investment companies advised by the Adviser and Sub-Advisers or any affiliate of
the Adviser or Sub-Advisers (the “Morgan
Stanley Funds”) on an aggregate, rather than a fund-by-fund basis; (2) the
interest list will not disclose portfolio holdings on a
fund-by-fund basis; (3) the interest list must not contain information about the
number or value of shares owned by a specified Morgan
Stanley Fund; (4) the interest list may identify the investment strategy, but
not the particular Morgan Stanley Funds, to
which the
list relates; and (5) the interest list may not identify the portfolio manager
or team members responsible for managing the Morgan
Stanley Funds.
The
Company may discuss or otherwise disclose performance attribution analyses
(i.e., mention the effects of having a particular security
in the portfolio(s)) where such discussion is not contemporaneously made public,
provided that the particular holding has been
disclosed publicly or the information that includes such holding(s) has been
made available to shareholders requesting such information.
Additionally, any discussion of the analyses may not be more current than the
date the holding was disclosed publicly or the
information that includes such holding(s) has been made available to
shareholders requesting such information.
Portfolio
holdings information may be provided to broker-dealers, prime brokers, futures
commission merchants, or similar providers in
connection with each Fund’s portfolio trading or operational processing
activities; such entities generally need access to such information
in the performance of their duties and responsibilities to fund service
providers and are subject to a duty of confidentiality,
including a duty not to trade on material nonpublic information, imposed by law
or contract. Portfolio holdings information
may also be provided to affiliates of MSIM pursuant to regulatory requirements
or for legitimate business purposes, which may
include risk management, or may be reported by each Fund’s counterparties to
certain global trade repositories pursuant to
regulatory requirements.
The
Adviser, the Sub-Advisers, the Company and/or certain Funds currently have
entered into ongoing arrangements regarding the selective
disclosure of complete portfolio holdings information, except as otherwise
noted, with the following parties:
|
|
|
Name |
Frequency1
|
Lag
Time |
Service
Providers |
|
|
State
Street Bank and Trust Company |
Daily
basis |
Daily |
BlackRock
Financial Management Inc.2
|
Daily
basis |
3
|
KellyCo
Marketing |
Monthly
basis and Quarterly basis |
Varying
lag times after the date of the information |
Commcise
Software Limited |
Monthly
basis |
Approximately
three business days |
Virtu
Financial, Inc. |
Monthly
basis |
Approximately
three business days |
R.R.
Donnelley & Sons Company |
Monthly
basis and Quarterly basis |
Varying
lag times after the date of the information |
Toppan
Merrill4
|
Semi-Annual
basis |
Approximately
15 business days after month end |
Clients |
|
|
Baylor
University5
|
Monthly
basis |
Approximately
15 days |
Fund
Rating Agencies |
|
|
Refinitiv
Lipper |
Monthly
basis |
Approximately
six business days after month end |
Consultants
and Analysts |
|
|
Aon
Hewitt Inc.6
|
Monthly
basis |
Approximately
30 days after month end |
Portfolio
Analytics Providers |
|
|
Bloomberg
Finance, L.P. |
Daily
basis |
Daily |
FactSet
Research Systems, Inc. |
Daily
basis |
Daily |
BestX
Ltd. |
Daily
basis |
Daily |
Essentia
Analytics Inc.7
|
Daily
basis |
One
day |
Abel
Noser Solutions, LLC |
Daily
basis |
Daily |
1 |
Dissemination
of portfolio holdings information to entities listed above may occur less
frequently than indicated (or not at all). |
2 |
With
respect to the Emerging Markets Fixed Income Opportunities Portfolio,
only. |
3 |
Information
will typically be provided on a real time basis or as soon thereafter as
possible. |
4 |
With
respect to the Advantage, Asia Opportunity, Counterpoint Global,
Developing Opportunity, Global Endurance, Global Insight, Global
Opportunity, Global
Permanence, Growth, Inception, International Advantage, International
Opportunity and Permanence Portfolios, only. |
5 |
With
respect to the International Opportunity Portfolio,
only. |
6 |
With
respect to the Global Franchise Portfolio,
only. |
7 |
With
respect to the Active International Allocation, China Equity, Emerging
Markets Leaders and Emerging Markets Small Cap Portfolios,
only. |
All
disclosures of non-public portfolio holdings information made to third parties
pursuant to the exemptions set forth in the Policy must be
reviewed and approved by the Adviser, which will also determine from
time-to-time whether such third parties should continue
to receive portfolio holdings information.
The Adviser
and/or Sub-Advisers shall report quarterly to the Board of Directors (or a
designated committee thereof) at the next regularly
scheduled meeting: (i) any material information concerning all parties receiving
non-public portfolio holdings information pursuant
to an exemption; and (ii) any new non-disclosure agreements entered into during
the reporting period. Procedures to monitor
the use of such non-public portfolio holdings information may include requiring
annual certifications that the recipients have
utilized such information only pursuant to the terms of the agreement between
the recipient and the Adviser and, for those
recipients
receiving information electronically, acceptance of the information will
constitute reaffirmation that the third party expressly
agrees to maintain the disclosed information in confidence and not to trade
portfolio securities based on the non-public information.
PURCHASE
AND REDEMPTION OF SHARES
The
Company has suspended offering Class L shares of each Fund for sale to all
investors. Class L shareholders of the Funds do not have the option
of purchasing additional Class L shares. However, the existing Class L
shareholders may invest in additional Class L shares through reinvestment
of dividends and distributions. Class L shares of the Asia Opportunity, China
Equity, Counterpoint Global, Developing Opportunity,
Emerging Markets Leaders, Emerging Markets Small Cap, Global Concentrated,
Global Concentrated Real Estate, Global Core,
Global Endurance, Global Permanence, Permanence, Real Assets and US Core
Portfolios are not being offered at this time. You do not currently
have the option of purchasing Class L shares.
Information
concerning how Fund shares are offered to the public (and how they are redeemed
or exchanged) is provided in the applicable
Fund’s Prospectus. Each Fund
reserves the right in its sole discretion (i) to suspend the offering of its
shares; (ii) to reject purchase
orders when in the judgment of management such rejection is in the best interest
of the Company; and (iii) to reduce or waive the
minimum for initial investments for certain categories of
investments.
The NAV of
each Fund
is calculated on days that the New York Stock Exchange (“NYSE”) is open for
business. NAV is determined as of the
close of trading of the NYSE (normally 4:00 p.m. Eastern time)
(for each Fund,
the “Pricing Time”). Shares will generally not be
priced on days that the NYSE is closed, although Fund shares may be priced on
such days if the Securities Industry and Financial
Markets Association (“SIFMA”) recommends that the bond markets remain open for
all or part of the day. On any business
day when SIFMA recommends that the bond markets close early, a Fund
reserves the right to close at or prior to the SIFMA recommended
closing time. If a Fund
does so, it will cease granting same day credit for purchase and redemption
orders received after a Fund’s
closing time and credit will be given on the next business day. If the NYSE is
closed due to inclement weather, technology problems
or any other reason on a day it would normally be open for business, or the NYSE
has an unscheduled early closing on a day it has
opened for business, a Fund
reserves the right to treat such day as a business day and accept purchase and
redemption orders
until, and calculate its NAV as of, the normally scheduled close of regular
trading on the NYSE for that day, so long as the Adviser
believes there generally remains an adequate market to obtain reliable and
accurate market quotations. Certain
Funds may elect to
remain open and price their shares on days when the NYSE is closed but the
primary securities markets on which the Funds’
securities
trade remain open.
Additional
Purchase Information
You may
purchase Class I, Class A, Class C, Class IS and Class IR shares directly from
the Funds by
Federal Funds wire or by check; however,
on days that the NYSE is open but the custodian bank is closed, you may only
purchase shares by check. Investors may also invest in
the Funds by
purchasing Class I, Class A, Class C, Class IS and/or Class IR shares
through certain third-parties, such as brokers,
dealers or other financial intermediaries that have entered into a selling
agreement with Morgan Stanley Distribution, Inc. (the
“Distributor”) (each, a “Financial Intermediary”). Some Financial Intermediaries
may charge an additional service or transaction fee (see
also “Investment Through Financial Intermediaries”). If a purchase is canceled
due to nonpayment or because your check does not
clear, you will be responsible for any loss the Funds or their agents incur. If
you are already a shareholder, the Funds may redeem
shares from your account(s) to reimburse the Funds or their agents for any loss.
In addition, you may be prohibited or restricted
from making future investments in the Funds.
Check. An
account may be opened and you may purchase Class I, Class A, Class C, Class
IS and Class IR shares by completing and signing a
New Account Application and mailing it, together with a check payable to “Morgan
Stanley Institutional Fund, Inc. — [Fund
name]” to:
Morgan
Stanley Institutional Fund, Inc.
c/o DST
Asset Manager Solutions, Inc.
P.O. Box
219804 Kansas City, MO 64121-9804
A purchase
of shares by check ordinarily will be credited to your account at the NAV of
each of the Funds determined on the day of receipt.
Investment
Through Financial Intermediaries
Certain
Financial Intermediaries have made arrangements with the Company so that an
investor may purchase Class I, Class A, Class C, Class
IS and Class IR shares or redeem Class I, Class A, Class L, Class C, Class
IS and Class IR at the NAV (after any applicable sales load
or contingent deferred sales charge (“CDSC”)) next determined after the
Financial Intermediary receives the share order. In other
instances, the Company has also authorized such Financial Intermediaries to
designate other intermediaries to receive purchase and
redemption orders on the Company’s behalf at the share price next determined
after such designees receive the share order.
Under
these arrangements, the Company will be deemed to have received a purchase or
redemption order when the Financial Intermediary
or, if applicable, a Financial Intermediary’s authorized designee, receives the
share order from an investor.
Conversion
to a New Share Class
If the
value of an account containing shares of a Fund
falls below the investment minimum for the class of shares held by the account
because of
shareholder redemption(s) or the failure to meet one of the waiver criteria set
forth in the applicable Fund’s Prospectus and, if
the account value remains below such investment minimum, the shares in such
account may, at the Adviser’s discretion, convert to
another class of shares offered by the Fund, if an account meets the minimum
investment amount for such class, and will be subject
to the shareholder services fee and other features applicable to such shares.
Conversion to another class of shares will result in holding
a share class with higher fees. The Company will not convert to another class of
shares based solely upon changes in the market
that reduce the NAV of shares. Under current tax law, conversion between share
classes is generally not a taxable event to the shareholder.
Shareholders will be notified prior to any such conversion.
Involuntary
Redemption of Shares
If your
account has been converted to a new share class and the value of an account
falls below the investment minimum for that class
because of shareholder redemption(s) or you no longer meet one of the waiver
criteria set forth in the applicable Fund’s Prospectus,
and if the account value remains below such investment minimum, the shares in
such account may be subject to redemption
by the Company. The Company will not redeem shares based solely upon changes in
the market that reduce the NAV of shares. If
shares are redeemed, redemption proceeds will be promptly paid to the
shareholder. Shareholders will be notified prior to any such
redemption.
Suspension
of Redemptions
The
Company may suspend the right of redemption or postpone the date of payment (i)
during any period that the NYSE is closed, or trading
on the NYSE is restricted as determined by the SEC; (ii) during any period when
an emergency exists as determined by the SEC as a
result of which it is not practicable for a Fund to
dispose of securities it owns, or fairly to determine the value of its assets;
and (iii)
for such other periods as the SEC may permit.
Further
Redemption Information
To protect
your account and the Company from fraud, signature guarantees are required for
certain redemptions. Signature guarantees
enable the Fund to verify the identity of the person who has authorized a
redemption from your account. Signature guarantees
are required in connection with: (i) all redemptions, regardless of the amount
involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (ii) share
transfer requests. An “eligible guarantor institution”
may include a bank, a trust company, a credit union or savings and loan
association, a member firm of a domestic stock exchange,
or a foreign branch of any of the foregoing. Notaries public are not acceptable
guarantors. The signature guarantees must appear
either: (i) on the written request for redemption; (ii) on a separate instrument
for assignment (“stock power”) which should specify
the total number of shares to be redeemed; or (iii) on all stock certificates
tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
ACCOUNT
POLICIES AND FEATURES
Transfer
of Shares
Shareholders
may transfer shares of a Fund to
another person by making a written request to the Company. The request should
clearly
identify the account and number of shares to be transferred, and include the
signature of all registered owners and all stock certificates,
if any, which are subject to the transfer. It may not be possible to transfer
shares purchased through a Financial Intermediary.
The signature on the letter of request, the stock certificate or any stock power
must be guaranteed in the same manner as
described in the applicable Fund’s Prospectus. As in the case of redemptions,
the written request must be received in good order before any
transfer can be made. Transferring shares may affect the eligibility of an
account for a given class of a Fund’s
shares and may result
in involuntary conversion or redemption of such shares. Under certain
circumstances, the person who receives the transfer may be
required to complete a New Account Application.
Valuation
of Shares
NAV of a
class is determined by dividing the total market value of a Fund’s
investments and other assets attributable to that class, less the total
market value of all liabilities attributable to that class, by the total number
of outstanding shares of the respective class of that Fund.
The NAV for each class of shares offered by the Company may differ due to
class-specific expenses paid by each class, including
the shareholder servicing fees charged to Class A shares, Class C shares and
Class L shares.
In the
calculation of a Fund’s
NAV: (1) an equity portfolio security listed or traded on an exchange is valued
at its latest reported sale price (or
at the exchange official closing price if such exchange reports an official
closing price), and if there were no sales on a given day and if
there is no official exchange closing price for that day, the security is valued
at the mean between the last reported bid and
asked
prices if such bid and asked prices are available on the relevant exchanges; and
(2) all other equity portfolio securities for which OTC market
quotations are readily available are valued at the latest reported sale price
(or at the market official closing price if such market
reports an official closing price), and if there was no trading in the security
on a given day and if there is no official closing price from
the relevant markets for that day, the security is valued at the mean between
the last reported bid and asked prices if such bid and
asked prices are available on the relevant markets. Listed securities not traded
on the valuation date with no reported bid and asked
prices available on the exchange are valued at the mean between the current bid
and asked prices obtained from one or more reputable
brokers or dealers. An unlisted equity security that does not trade on the
valuation date and for which bid and asked prices from the
relevant markets are unavailable is valued at the mean between the current bid
and asked prices obtained from one or more reputable
brokers or dealers. In cases where a security is traded on more than one
exchange, the security is valued on the exchange designated
as the primary market. When market quotations are not readily available,
including circumstances under which it is determined
by the Adviser and/or Sub-Advisers, as applicable, that the closing price, the
last sale price or the mean between the last reported
bid and asked prices are not reflective of a security’s market value, portfolio
securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Company’s Board. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the NYSE.
Certain
of a Fund’s
securities may be valued using as an input evaluated prices provided by an
outside pricing service approved by the Board.
Prices obtained from these approved sources are monitored and reviewed by the
Adviser’s Valuation Committee and if not deemed to
represent fair value, may be overridden and valued using procedures adopted by
the Board. The pricing service may utilize a matrix
system or other model incorporating attributes such as security quality,
maturity and coupon as the evaluation model parameters,
and/or research evaluations by its staff, including review of broker-dealer
market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service. Pricing services generally value securities assuming
orderly transactions of an institutional round lot size, but a Fund
may hold or transact in such securities in smaller, odd lot sizes. Odd
lots often trade at lower prices than institutional round lots. In certain cases
where a valuation is not available from any of the
approved pricing services, then a quote from a broker or dealer may be
used.
Listed
options are valued at the last reported sales price on the exchange on which
they are listed (or at the exchange official closing price if
such exchange reports an official closing price). If an official closing price
or last reported sale price is unavailable, the listed option
should be fair valued at the mean between its latest bid and ask prices. If an
exchange closing price or bid and asked prices are not
available from the exchange, then the quotes from one or more brokers or dealers
may be used. Unlisted options and swaps are valued by
an outside pricing service approved by the Board or quotes from a broker or
dealer. Unlisted options and swaps cleared on a
clearinghouse or exchange may be valued using the closing price provided by the
clearinghouse or exchange. Futures are valued at the
settlement price on the exchange on which they trade or, if a settlement price
is unavailable, then at the last sale price on the exchange.
If the
Adviser determines that the valuation received from the outside pricing service
or broker or dealer is not reflective of the security’s
market value, such security is valued at its fair value as determined in good
faith under procedures established by and under the
general supervision of the Board.
Generally,
trading in foreign securities, as well as corporate bonds, U.S. government
securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the NAV of the
Fund is determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE.
Occasionally, events which may affect the values of such securities and such
exchange rates may occur between the times at which
they are determined and the close of the NYSE. If events that may affect the
value of such securities occur during such period,
then these securities may be valued at their fair value as determined in good
faith under procedures established by and under the
supervision of the Board.
Although
the legal rights of Class I, Class A, Class L, Class C, Class IS and Class
IR shares will be identical, the different expenses borne by
each class will result in different NAVs and dividends for the class. Dividends
will differ by approximately the amount of the class
specific expenses (distribution, transfer agency and sub transfer agency fees).
The NAV of Class A, Class L and Class C shares
will generally be lower than the NAV of Class I, Class IS and Class IR shares as
a result of the shareholder services fees charged to Class A
and the distribution and shareholder services fees charged to Class C and Class
L shares and certain other class-specific expenses
of Class A, Class L and Class C shares.
MANAGEMENT
OF THE COMPANY
Directors
and Officers
The Board
of the Company consists of nine Directors. These same individuals also serve as
directors or trustees for certain of the funds
advised by the Adviser and Morgan Stanley AIP GP LP. None of the Directors have
an affiliation or business connection with the
Adviser or any of its affiliated persons or own any stock or other securities
issued by the Adviser’s parent company, Morgan Stanley.
These Directors are the “non-interested” or “Independent” Directors of the
Company as defined under the 1940 Act.
Board
Structure and Oversight Function
The
Board’s leadership structure features an Independent Director serving as
Chairperson and the Board Committees described below. The
Chairperson participates in the preparation of the agenda for meetings of the
Board and the preparation of information to be
presented to the Board with respect to matters to be acted upon by the Board.
The Chairperson also presides at all meetings of the Board
and is involved in discussions regarding matters pertaining to the oversight of
the management of the Company between meetings.
The Board
of Directors operates using a system of committees to facilitate the timely and
efficient consideration of all matters of importance
to the Directors, the Company and Company stockholders, and to facilitate
compliance with legal and regulatory requirements
and oversight of the Company’s activities and associated risks. The Board of
Directors has established six standing committees:
(1) Audit Committee, (2) Governance Committee, (3) Compliance and Insurance
Committee and (4) Equity Investment
Committee, (5) Fixed Income, Liquidity and Alternatives Investment Committee and
(6) Risk Committee, which are each
comprised exclusively of Independent Directors. Each committee charter governs
the scope of the committee’s responsibilities with
respect to the oversight of the Company. The responsibilities of each committee,
including their oversight responsibilities, are described
further under the caption “Independent Directors and the
Committees.”
A Fund is
subject to a number of risks, including investment, compliance, operational and
valuation risk, among others. The Board of
Directors oversees these risks as part of its broader oversight of the Company’s
affairs through various Board and committee activities.
The Board has adopted, and periodically reviews, policies and procedures
designed to address various risks to a Fund. In
addition,
appropriate personnel, including but not limited to the Company’s Chief
Compliance Officer, members of the Company’s administration
and accounting teams, representatives from a Fund’s
independent registered public accounting firm, the Company’s Treasurer,
portfolio management personnel, risk management personnel and independent
valuation and brokerage evaluation service providers,
make regular reports regarding the Company’s activities and related risks to the
Board of Directors and the committees, as appropriate.
These reports include, among others, quarterly performance reports, quarterly
risk reports and discussions with members of the
risk teams relating to each asset class. The Board’s committee structure allows
separate committees to focus on different aspects of risk
and the potential impact of these risks on some or all of the funds in the
complex and then report back to the full Board. In between
regular meetings, Company officers also communicate with the Directors regarding
material exceptions and items relevant to the
Board’s risk oversight function. The Board recognizes that it is not possible to
identify all of the risks that may affect a Fund,
and that it is
not possible to develop processes and controls to eliminate all of the risks
that may affect a Fund.
Moreover, the Board recognizes
that it may be necessary for a Fund to
bear certain risks (such as investment risk) to achieve their respective
investment objectives.
As needed
between meetings of the Board, the Board or a specific committee receives and
reviews reports relating to the Company and
engages in discussions with appropriate parties relating to the Company’s
operations and related risks.
Directors
The
Company seeks as Directors individuals of distinction and experience in business
and finance, government service or academia. In
determining that a particular Director was and continues to be qualified to
serve as Director, the Board has considered a variety of criteria,
none of which, in isolation, was controlling. Based on a review of the
experience, qualifications, attributes or skills of each Director,
including those enumerated in the table below, the Board has determined that
each of the Directors is qualified to serve as a Director
of the Company. In addition, the Board believes that, collectively, the
Directors have balanced and diverse experience, qualifications,
attributes and skills that allow the Board to operate effectively in governing
the Company and protecting the interests of
shareholders. Information about the Company’s Governance Committee and Board of
Directors nomination process is provided below
under the caption “Independent Directors and the Committees.”
The
Directors of the Company, their birth years, addresses, positions held, length
of time served, their principal business occupations during the
past five years and other relevant professional experience, the number of
portfolios in the Fund Complex (described below)
overseen by each Independent Director and other directorships, if any, held by
the Directors, are shown below (as of January 1,
2021). The
Fund Complex includes all open-end and closed-end funds (including all of their
portfolios) advised by the Adviser and any
registered funds that have an adviser that is an affiliate of the Adviser
(including, but not limited to, Morgan Stanley AIP GP LP) (the
“Morgan Stanley AIP Funds”).
|
|
|
|
|
|
Name,
Address and Birth
Year of Independent
Director |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s)
During Past
5 Years and Other
Relevant Professional
Experience |
Number
of Funds in
Fund Complex Overseen
by Independent
Director |
Other
Directorships Held by Independent
Director** |
Frank
L. Bowman c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1944 |
Director |
Since
August 2006 |
President,
Strategic Decisions,
LLC (consulting)
(since February
2009); Director
or Trustee of various
Morgan Stanley Funds
(since August 2006);
Chairperson of the
Compliance and Insurance
Committee (since
October 2015); formerly,
Chairperson of
the Insurance Sub-Committee
of the Compliance
and Insurance
Committee (2007-2015);
served as President
and Chief Executive
Officer of the Nuclear
Energy Institute
(policy organization)
(February 2005-November
2008); retired
as Admiral, U.S. Navy
after serving over 38
years on active duty including
8 years as Director
of the Naval Nuclear
Propulsion Program
in the Department
of the Navy
and the U.S. Department
of Energy (1996-2004);
served as Chief
of Naval Personnel
(July 1994-September
1996) and on
the Joint Staff as Director
of Political Military
Affairs (June 1992-July
1994); knighted
as Honorary Knight
Commander of the
Most Excellent Order
of the British Empire;
awarded the Officier
de l’Orde National
du Mérite by the
French Government;
elected to the
National Academy of
Engineering (2009). |
79 |
Director
of Naval and Nuclear Technologies
LLP; Director Emeritus
of the Armed Services
YMCA; Member of the
National Security Advisory Council
of the Center for U.S. Global
Engagement and a member
of the CNA Military Advisory
Board; Trustee of Fairhaven
United Methodist Church;
Member of the Board of
Advisors of the Dolphin Scholarship
Foundation; Director
of other various nonprofit
organizations; formerly,
Director of BP, plc (November
2010-May 2019). |
|
|
|
|
|
|
Name,
Address and Birth
Year of Independent
Director |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s)
During Past
5 Years and Other
Relevant Professional
Experience |
Number
of Funds in
Fund Complex Overseen
by Independent
Director |
Other
Directorships Held by Independent
Director** |
Kathleen
A. Dennis c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1953 |
Director |
Since August 2006 |
Chairperson
of the Governance
Committee
(since January
2021), Chairperson
of the Liquidity
and Alternatives
Sub-Committee
of the Investment
Committee (2006-2020)
and Director
or Trustee of various
Morgan Stanley Funds
(since August 2006);
President, Cedarwood
Associates (mutual
fund and investment
management
consulting)
(since July 2006);
formerly, Senior Managing
Director of Victory
Capital Management
(1993-2006). |
79 |
Board
Member, University of Albany
Foundation (2012-present);
Board Member, Mutual
Funds Directors Forum
(2014-present); Director
of various non-profit organizations. |
Nancy
C. Everett c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1955 |
Director |
Since January 2015 |
Chairperson
of the Equity
Investment Committee
(since January
2021); Director
or Trustee of various
Morgan Stanley Funds
(since January 2015);
Chief Executive Officer,
Virginia Commonwealth
University
Investment Company
(since November
2015); Owner,
OBIR, LLC (institutional
investment
management
consulting)
(since June 2014);
formerly, Managing
Director, BlackRock,
Inc. (February
2011-December
2013) and Chief
Executive Officer,
General Motors
Asset Management
(a/k/a Promark
Global Advisors,
Inc.) (June 2005-May
2010). |
80 |
Formerly,
Member of Virginia Commonwealth
University School
of Business Foundation
(2005-2016); Member
of Virginia Commonwealth
University Board
of Visitors (2013-2015);
Member of Committee
on Directors for Emerging
Markets Growth Fund,
Inc. (2007-2010); Chairperson
of Performance Equity
Management, LLC (2006-2010);
and Chairperson,
GMAM Absolute
Return Strategies Fund,
LLC (2006-2010). |
|
|
|
|
|
|
Name,
Address and Birth
Year of Independent
Director |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s)
During Past
5 Years and Other
Relevant Professional
Experience |
Number
of Funds in
Fund Complex Overseen
by Independent
Director |
Other
Directorships Held by Independent
Director** |
Jakki
L. Haussler c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1957 |
Director |
Since January 2015 |
Director
or Trustee of various
Morgan Stanley Funds
(since January 2015);
Chairman, Opus
Capital Group (since
1996); formerly, Chief
Executive Officer,
Opus Capital Group
(1996-2019); Director,
Capvest Venture
Fund, LP (May
2000-December 2011);
Partner, Adena Ventures,
LP (July 1999-December
2010); Director,
The Victory Funds
(February 2005-July
2008). |
80 |
Director
of Cincinnati Bell Inc.
and Member, Audit Committee
and Chairman, Governance
and Nominating Committee;
Director of Service
Corporation International
and Member, Audit
Committee and Investment
Committee; Director
of Northern Kentucky
University Foundation
and Member, Investment
Committee; Member
of Chase College of Law
Transactional Law Practice
Center Board of Advisors;
Director of Best Transport;
Director of Chase College
of Law Board of Visitors;
formerly, Member, University
of Cincinnati Foundation
Investment Committee;
Member, Miami University
Board of Visitors (2008-2011);
Trustee of Victory
Funds (2005-2008) and
Chairman, Investment Committee
(2007-2008) and Member,
Service Provider Committee
(2005-2008). |
Dr.
Manuel H. Johnson c/o
Johnson Smick International,
Inc. 220 I
Street, NE Suite
200 Washington,
D.C. 20002 Birth
Year: 1949 |
Director |
Since July
1991 |
Senior
Partner, Johnson Smick
International, Inc.
(consulting firm); Chairperson
of the Fixed
Income, Liquidity
and Alternatives
Investment Committee
(since January
2021), Chairperson
of the Investment
Committee (2006-2020)
and Director
or Trustee of various
Morgan Stanley Funds
(since July 1991);
Co-Chairman and a
founder of the Group
of Seven Council
(G7C) (international
economic commission);
formerly, Chairperson
of the Audit
Committee (July 1991-September
2006); Vice
Chairman of the Board
of Governors of the
Federal Reserve System
and Assistant Secretary
of the U.S. Treasury. |
79 |
Director
of NVR, Inc. (home construction). |
|
|
|
|
|
|
Name,
Address and Birth
Year of Independent
Director |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s)
During Past
5 Years and Other
Relevant Professional
Experience |
Number
of Funds in
Fund Complex Overseen
by Independent
Director |
Other
Directorships Held by Independent
Director** |
Joseph
J. Kearns c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1942 |
Director |
Since August 1994 |
Senior
Adviser, Kearns &
Associates LLC (investment
consulting);
Chairperson
of the Audit
Committee (since
October 2006) and
Director or Trustee of
various Morgan Stanley
Funds (since August
1994); formerly,
Deputy Chairperson
of the Audit
Committee (July 2003-September
2006) and
Chairperson of the Audit
Committee of various
Morgan Stanley Funds
(since August 1994);
CFO of the J. Paul
Getty Trust (1982-1999). |
80 |
Director,
Rubicon Investments
(since February 2019);
Prior to August 2016, Director
of Electro Rent Corporation
(equipment leasing).
Prior to December 31,
2013, Director of The Ford
Family Foundation. |
Michael
F. Klein c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1958 |
Director |
Since August 2006 |
Chairperson
of the Risk Committee
(since January
2021); Managing
Director, Aetos
Alternatives Management,
LP (since March
2000); Co-President,
Aetos Alternatives
Management,
LP (since January
2004) and Co-Chief
Executive Officer of
Aetos Alternatives Management,
LP (since August
2013); Chairperson
of the Fixed
Income Sub-Committee
of the Investment
Committee (2006-2020)
and Director
or Trustee of various
Morgan Stanley Funds
(since August 2006);
formerly, Managing
Director, Morgan
Stanley & Co. Inc.
and Morgan Stanley
Dean Witter Investment
Management
and President,
various Morgan
Stanley Funds (June
1998-March 2000);
Principal, Morgan
Stanley & Co. Inc.
and Morgan Stanley
Dean Witter Investment
Management
(August 1997-December
1999). |
79 |
Director
of certain investment funds
managed or sponsored by
Aetos Alternatives Management,
LP; Director of Sanitized
AG and Sanitized Marketing
AG (specialty chemicals). |
|
|
|
|
|
|
Name,
Address and Birth
Year of Independent
Director |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s)
During Past
5 Years and Other
Relevant Professional
Experience |
Number
of Funds in
Fund Complex Overseen
by Independent
Director |
Other
Directorships Held by Independent
Director** |
Patricia
Maleski c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1960 |
Director |
Since January 2017 |
Director
or Trustee of various
Morgan Stanley Funds
(since January 2017);
Managing Director,
JPMorgan Asset
Management (2004-2016);
Oversight and
Control Head of Fiduciary
and Conflicts of
Interest Program (2015-2016);
Chief Control
Officer—Global
Asset Management
(2013-2015);
President, JPMorgan
Funds (2010-2013);
Chief Administrative
Officer (2004-2013);
various other
positions including
Treasurer and
Board Liaison (since
2001). |
80 |
None |
W.
Allen Reed c/o
Perkins Coie LLP Counsel
to the Independent
Directors 1155
Avenue of the Americas 22nd
Floor New
York, NY 10036 Birth
Year: 1947 |
Chair
of the Board and Director |
Chair
of the Board since
August 2020 and Director
since August 2006 |
Chair
of the Boards of various
Morgan Stanley Funds
(since August 2020);
Director or Trustee
of various Morgan
Stanley Funds (since
August 2006); formerly,
Vice Chair of the
Boards of various Morgan
Stanley Funds (January
2020-August 2020);
President and Chief
Executive Officer of
General Motors Asset
Management; Chairman
and Chief Executive
Officer of the GM
Trust Bank and Corporate
Vice President
of General Motors
Corporation (August
1994-December
2005). |
79 |
Formerly,
Director of Legg Mason,
Inc. (2006-2019); and Director
of the Auburn University
Foundation (2010-2015). |
* |
This
is the earliest date the Director began
serving the Morgan Stanley Funds. Each Director serves
an indefinite term, until his or her successor is
elected. |
** |
This
includes any directorships at public companies and registered investment
companies held by the Director at
any time during the past five years. |
The
executive officers of the Company,
their birth years, addresses, positions held, length of time served and their
principal business occupations
during the past five years are shown below (as of December
31, 2020).
|
|
|
|
Name,
Address and Birth Year
of Executive Officer |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s) During Past 5 Years |
John
H. Gernon 522
Fifth Avenue New
York, NY 10036 Birth
Year: 1963 |
President
and Principal
Executive Officer |
Since
September 2013 |
President
and Principal Executive Officer of the Equity and Fixed Income Funds
and
the Morgan Stanley AIP Funds (since September 2013) and the Liquidity
Funds
and various money market funds (since May 2014) in the Fund Complex;
Managing
Director of the Adviser; Head of Public Markets Product Development
(since
2006). |
|
|
|
|
Name,
Address and Birth Year
of Executive Officer |
Position(s)
Held with Registrant |
Length
of Time Served* |
Principal
Occupation(s) During Past 5 Years |
Timothy
J. Knierim 1633
Broadway New
York, NY 10019 Birth
Year: 1959 |
Chief
Compliance Officer |
Since
December 2016 |
Managing
Director of the Adviser and various entities affiliated with the Adviser;
Chief
Compliance Officer of various Morgan Stanley Funds and the Adviser (since
December
2016) and Chief Compliance Officer of Morgan Stanley AIP GP LP
(since
2014). Formerly, Managing Director and Deputy Chief Compliance Officer
of
the Adviser (2014-2016). |
Francis
J. Smith 522
Fifth Avenue New
York, NY 10036 Birth
Year: 1965 |
Treasurer
and Principal
Financial Officer |
Treasurer
since July 2003
and Principal Financial
Officer since September
2002 |
Managing
Director of the Adviser and various entities affiliated with the Adviser;
Treasurer
(since July 2003) and Principal Financial Officer of various Morgan
Stanley
Funds (since September 2002). |
Mary
E. Mullin 1633
Broadway New
York, NY 10019 Birth
Year: 1967 |
Secretary |
Since
June 1999 |
Managing
Director of the Adviser; Secretary of various Morgan Stanley Funds
(since
June 1999). |
Michael
J. Key 522
Fifth Avenue New
York, NY 10036 Birth
Year: 1979 |
Vice
President |
Since
June 2017 |
Vice
President of the Equity and Fixed Income Funds, Liquidity Funds, various
money
market funds and the Morgan Stanley AIP Funds in the Fund Complex
(since
June 2017); Executive Director of the Adviser; Head of Product
Development
for Equity and Fixed Income Funds (since August
2013). |
* |
This
is the earliest date the officer began serving the Morgan Stanley Funds.
Each officer serves an indefinite term, until his or her successor is
elected. |
In
addition, the following individuals who are officers of the Adviser or its
affiliates serve as assistant secretaries of the Company: Princess
Kludjeson, Kristina B. Magolis, Francesca Mead and Jill R.
Whitelaw.
It is a
policy of the Company’s Board that each Director shall invest in any combination
of the Morgan Stanley Funds that the Director
determines meets his or her own specific investment objectives, without
requiring any specific investment in any particular Fund.
For each
Director, the dollar range of equity securities beneficially owned by the
Director in the Funds and
in the Family of Investment
Companies (Family of Investment Companies includes all of the registered
investment companies advised by the Adviser and Morgan
Stanley AIP GP LP) for the calendar year ended December
31, 2020 is set forth in the table below.
|
|
|
Name
of Director |
Dollar
Range of Equity Securities in the Funds (as
of December 31, 2020) |
Aggregate
Dollar Range of Equity Securities in All Registered
Investment Companies Overseen by Director
in Family of Investment Companies (as of
December 31, 2020) |
Independent: |
Frank
L. Bowman |
1
|
over
$100,000 |
Kathleen
A. Dennis |
2
|
over
$100,000 |
Nancy
C. Everett |
3
|
over
$100,000 |
Jakki
L. Haussler |
4
|
over
$100,000 |
Manuel
H. Johnson |
None |
over
$100,000 |
Joseph
J. Kearns5
|
6
|
over
$100,000 |
Michael
F. Klein5
|
7
|
over
$100,000 |
Patricia
Maleski |
None |
over
$100,000 |
W.
Allen Reed5
|
8
|
over
$100,000 |
1 |
Growth
Portfolio (over $100,000); and Inception Portfolio
($50,001-$100,000). |
2 |
Inception
Portfolio (over $100,000). |
3 |
Global
Insight Portfolio (over $100,000); and Global Opportunity Portfolio (over
$100,000). |
4 |
Emerging
Markets Portfolio (over $100,000); Emerging Markets Fixed Income
Opportunities Portfolio (over $100,000); and International Equity
Portfolio ($50,001-$100,000). |
5 |
Includes
the total amount of compensation deferred by the Director at his election
pursuant to a deferred compensation plan. Such deferred compensation is
placed
in a deferral account and deemed to be invested in one or more of the
Morgan Stanley Funds (or portfolio thereof) that are offered as investment
options under
the plan. |
6 |
Emerging
Markets Portfolio (over $100,000); and U.S. Real Estate Portfolio (over
$100,000). |
7 |
Emerging
Markets Portfolio (over $100,000); Global Franchise Portfolio (over
$100,000); Global Real Estate Portfolio ($50,001-$100,000); Growth
Portfolio (over
$100,000); and International Equity Portfolio (over
$100,000). |
8 |
Emerging
Markets Portfolio ($10,001-$50,000); International Equity Portfolio
($10,001-$50,000); Global Franchise Portfolio (over $100,000); and U.S.
Real Estate
Portfolio (over $100,000). |
As to each
Independent Director and his or her immediate family members, no person owned
beneficially or of record securities of an investment
adviser or principal underwriter of the Company, or a person (other than a
registered investment company) directly or indirectly
controlling, controlled by or under common control with an investment adviser or
principal underwriter of the Company.
As of
April 1, 2021, the Directors and officers of the Company, as a group, owned less
than 1% of any class of the outstanding common
stock of each
Fund.
Independent
Directors and the Committees
Law and
regulation establish both general guidelines and specific duties for the
Independent Directors. The Board has six committees:
(1) Audit Committee, (2) Governance Committee, (3) Compliance and Insurance
Committee, (4) Equity Investment Committee,
(5) Fixed Income, Liquidity and Alternatives Investment Committee and (6) Risk
Committee.
The
Independent Directors are charged with recommending to the full Board approval
of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing fund performance; checking on the pricing of
portfolio securities, brokerage commissions, transfer agent costs and
performance and trading among funds in the same complex;
and approving fidelity bond and related insurance coverage and allocations, as
well as other matters that arise from time to time. The
Independent Directors are required to select and nominate individuals to fill
any Independent Director vacancy on the board of
any fund that has a Rule 12b-1 plan of distribution.
The Board
of Directors has a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (the “1934 Act”). The Audit
Committee is charged with recommending to the full Board the
engagement or discharge of the Funds’ independent
registered public accounting firm; directing investigations into matters
within the
scope of the independent registered public accounting firm’s duties, including
the power to retain outside specialists; reviewing
with the independent registered public accounting firm the audit plan and
results of the auditing engagement; approving professional
services provided by the independent registered public accounting firm and other
accounting firms prior to the performance
of the services; reviewing the independence of the independent registered public
accounting firm; considering the range of audit
and non-audit fees; reviewing the adequacy of the Company’s system of internal
controls; and reviewing the valuation process.
The Company has adopted a formal, written Audit Committee Charter.
The
members of the Audit Committee of the Company are Nancy C. Everett, Jakki L.
Haussler and Joseph J. Kearns. None of the members of
the Company’s Audit Committee is an “interested person,” as defined under the
1940 Act, of the Company (with such disinterested
Directors being “Independent Directors” or individually, an “Independent
Director”). Each Independent Director is also
“independent” from the Company under the listing standards of the NYSE. The
Chairperson of the Audit Committee of the Company is
Joseph J. Kearns.
The Board
of Directors of the Company also has a Governance Committee. The Governance
Committee identifies individuals qualified
to serve as Independent Directors on the Company’s Board and on committees of
such Board and recommends such qualified
individuals for nomination by the Company’s Independent Directors as candidates
for election as Independent Directors, advises
the Company’s Board with respect to Board composition, procedures and
committees, develops and recommends to the Company’s
Board a set of corporate governance principles applicable to the Company,
monitors and makes recommendations on corporate
governance matters and policies and procedures of the Company’s Board of
Directors and any Board committees and oversees
periodic evaluations of the Company’s Board and its committees. The members of
the Governance Committee of the Company
are Kathleen A. Dennis, Manuel H. Johnson, Michael F. Klein, Patricia Maleski
and W. Allen Reed, each of whom is an Independent
Director. In addition, W. Allen Reed (as Chair of the Morgan Stanley Funds)
periodically may attend other operating committee
meetings. The Chairperson of the Governance Committee is Kathleen A.
Dennis.
The
Company does not have a separate nominating committee. While the Company’s
Governance Committee recommends qualified
candidates for nominations as Independent Directors, the Board of Directors of
the Company believes that the task of nominating
prospective Independent Directors is important enough to require the
participation of all current Independent Directors, rather
than a separate committee consisting of only certain Independent Directors.
Accordingly, all the Independent Directors participate
in the selection and nomination of candidates for election as Independent
Directors for the Company. Persons recommended
by the Company’s Governance Committee as candidates for nomination as
Independent Directors shall possess such experience,
qualifications, attributes, skills and diversity so as to enhance the Board’s
ability to manage and direct the affairs and business
of the Company, including, when applicable, to enhance the ability of committees
of the Board to fulfill their duties and/or to satisfy
any independence requirements imposed by law, regulation or any listing
requirements of the NYSE. While the Independent
Directors of the Company expect to be able to continue to identify from their
own resources an ample number of qualified
candidates for the Company’s Board as they deem appropriate, they will consider
nominations from shareholders to the Board.
Nominations from shareholders should be in writing and sent to the Independent
Directors as described below under the caption
“Shareholder Communications.”
The Board
formed the Compliance and Insurance Committee to address insurance coverage and
oversee the compliance function for the
Company and the Board. The Compliance and Insurance Committee consists of Frank
L. Bowman, Kathleen A. Dennis and
Patricia
Maleski, each of whom is an Independent Director. The Chairperson of the
Compliance and Insurance Committee is Frank L.
Bowman.
The Equity
Investment Committee and the Fixed Income, Liquidity and Alternatives Investment
Committee oversee the Company’s portfolio
investment process and review the performance of the Company’s investments. The
Equity Investment Committee and the Fixed
Income, Liquidity and Alternatives Investment Committee also recommend to the
Board to approve or renew the Company’s Investment
Advisory, Sub-Advisory and Administration Agreements. Each Investment Committee
focuses on the Company’s primary
areas of investment, namely equities, fixed income, liquidity and alternatives.
Kathleen A. Dennis, Nancy C. Everett, Jakki L.
Haussler and Michael F. Klein are members of the Equity Investment Committee.
The Chairperson of the Equity Investment Committee
is Nancy C. Everett. Frank L. Bowman, Manuel H. Johnson, Joseph J. Kearns and
Patricia Maleski are members of the Fixed
Income, Liquidity and Alternatives Investment Committee. The Chairperson of the
Fixed Income, Liquidity and Alternatives Investment
Committee is Manuel H. Johnson.
The Risk
Committee assists the Board in connection with the oversight of the Trust’s
risks, including investment risks, operational risks and
risks posed by the Trust’s service providers as well as the effectiveness of the
guidelines, policies and processes for monitoring
and mitigating such risks. The members of the Risk Committee of the Trust are
Manuel H. Johnson, Michael F. Klein and W.
Allen Reed, each of whom is an Independent Trustee. The Chairperson of the Risk
Committee is Michael F. Klein.
During the
Company’s fiscal year ended December
31, 2020, the Board of Directors held the following meetings:
|
|
Board
of Directors/Committee/Sub-Committee |
Number
of Meetings |
Board
of Directors |
12 |
Audit
Committee |
4 |
Governance
Committee |
4 |
Compliance
and Insurance Committee |
4 |
Investment
Committee |
4 |
Equity
Sub-Committee |
5 |
Fixed
Income Sub-Committee |
5 |
Liquidity
and Alternatives Sub-Committee |
9 |
The Board
has concluded, based on each Director‘s
experience, qualifications and attributes that each Board member should serve as
a
Director.
Following is a brief summary of the information that led to and/or supports this
conclusion.
Mr. Bowman
has experience in a variety of business and financial matters through his prior
service as a Director or Trustee for various
funds in the Fund Complex, where he serves as Chairperson of the Compliance and
Insurance Committee (and formerly served as
Chairperson of the Insurance Sub-Committee of the Compliance and Insurance
Committee). Mr. Bowman also serves as a Director
of Naval and Nuclear Technologies LLP and Director Emeritus for the Armed
Services YMCA, and formerly served as a Director
of BP, plc. Mr. Bowman serves as a Trustee of the Fairhaven United Methodist
Church. Mr. Bowman is also a member of the
National Security Advisory Council of the Center for U.S. Global Engagement, a
member of the CNA Military Advisory Board and a
member of the Dolphin Scholarship Foundation Advisory Board. Mr. Bowman retired
as an Admiral in the U.S. Navy after serving
over 38 years on active duty including eight years as Director of the Naval
Nuclear Propulsion Program in the Department of the Navy
and the U.S. Department of Energy (1996-2004). Additionally, Mr. Bowman served
as the U.S. Navy’s Chief of Naval Personnel
(1994-1996), where he was responsible for the planning and programming of all
manpower, personnel, training and education
resources for the U.S. Navy and on the Joint Staff as Director of Political
Military Affairs (1992-1994). In addition, Mr. Bowman
served as President and Chief Executive Officer of the Nuclear Energy Institute.
Mr. Bowman has received such distinctions as a
knighthood as Honorary Knight Commander of the Most Excellent Order of the
British Empire and the Officier de l’Orde National
du Mérite from the French Government and was elected to the National Academy of
Engineering (2009). He is President of the
consulting firm Strategic Decisions, LLC.
Ms. Dennis
has over 25 years of business experience in the financial services industry and
related fields including serving as a Director or Trustee
of various other funds in the Fund Complex, where she serves as Chairperson of
the Governance Committee. Ms. Dennis possesses
a strong understanding of the regulatory framework under which investment
companies must operate based on her years of service to
this Board and her position as Senior Managing Director of Victory Capital
Management.
Ms.
Everett has over 35 years of experience in the financial services industry,
including roles with both registered investment companies
and registered investment advisers. By serving on the boards of other registered
funds, such as GMAM Absolute Return Strategies
Fund, LLC and Emerging Markets Growth Fund, Inc., Ms. Everett has acquired
significant experience with financial, accounting,
investment and regulatory matters. Ms. Everett is also a Chartered Financial
Analyst.
With more
than 30 years of experience in the financial services industry, including her
years of entrepreneurial and managerial experience
in the development and growth of Opus Capital Group, Ms. Haussler brings a
valuable perspective to the Company‘s
Board.
Through her role at Opus Capital and her service as a director of several
venture capital funds and other boards, Ms. Haussler has gained
valuable experience dealing with accounting principles and evaluating financial
results of large corporations. She is a certified
public accountant (inactive) and a licensed attorney in the State of Ohio
(inactive).
In
addition to his tenure as a Director or Trustee of various other funds in the
Fund Complex, where he formerly served as Chairperson
of the Audit Committee, Dr. Johnson has also served as an officer or a board
member of numerous companies for over 20 years.
These positions included Co-Chairman and a founder of the Group of Seven
Council, Director of NVR, Inc., Director of Evergreen
Energy and Director of Greenwich Capital Holdings. He also has served as Vice
Chairman of the Board of Governors of the
Federal Reserve System and Assistant Secretary of the U.S. Treasury. In
addition, Dr. Johnson also served as Chairman of the Financial
Accounting Foundation, which oversees the Financial Accounting Standards Board,
for seven years.
Mr. Kearns
gained extensive experience regarding accounting through his experience on the
Audit Committees of the boards of other funds in
the Fund Complex, including serving as either Chairperson or Deputy Chairperson
of the Audit Committee for nearly 20 years, and
through his position as Chief Financial Officer of the J. Paul Getty Trust. He
also has experience in financial, accounting, investment
and regulatory matters through his position as President and founder of Kearns
& Associates LLC, a financial consulting company.
Mr. Kearns previously served as a Director of Electro Rent Corporation and
previously served as Director of The Ford Family
Foundation. The Board has determined that Mr. Kearns is an “audit committee
financial expert” as defined by the SEC.
Through
his prior positions as a Managing Director of Morgan Stanley & Co. Inc. and
Morgan Stanley Dean Witter Investment Management
and as President and a Trustee of the Morgan Stanley Institutional Funds, Mr.
Klein has experience in the management and
operation of registered investment companies, enabling him to provide management
input and investment guidance to the Board. Mr.
Klein also has extensive experience in the investment management industry based
on his current positions as Managing Director
and Co-Chief Executive and Co-President of Aetos Alternatives Management, LP and
as Director of certain investment funds
managed or sponsored by Aetos Alternatives Management, LP. In addition, he also
has experience as a member of the board of other
funds in the Fund Complex.
Ms.
Maleski has over 30 years of experience in the financial services industry and
extensive experience with registered investment companies.
Ms. Maleski began her career as a certified public accountant at Price
Waterhouse LLP (“PW”) and was a member of PW’s
Investment Company Practice. After a brief stint at the Bank of New York, Ms.
Maleski began her affiliation with the JPMorgan
Funds, at the Pierpont Group and then with J.P. Morgan Investment Management
Inc. From 2001-2013, Ms. Maleski held roles
with increasing responsibilities, from Vice President and Board Liaison,
Treasurer and Principal Financial Officer, Chief Administrative
Officer and finally President and Principal Executive Officer for the JPMorgan
Fund complex. Between 2013 and 2016, Ms.
Maleski served as Global Head of Oversight and Control of JPMorgan Asset
Management and then as Head of JPMorgan Chase’s
Fiduciary and Conflicts of Interest Program. Ms. Maleski has extensive
experience in the management and operation of funds in
addition to regulatory and accounting and valuation matters.
Mr. Reed
has experience on investment company boards and is experienced with financial,
accounting, investment and regulatory matters
through his prior service as a Director of iShares, Inc. and his service as
Chair of the Board and as Trustee or Director of other
funds in the Fund Complex. Mr. Reed also gained substantial experience in the
financial services industry through his prior positions
as a Director of Legg Mason, Inc. and as President and CEO of General Motors
Asset Management.
The
Directors‘
principal occupations and other relevant professional experience during the past
five years or more are shown in the above
tables.
The Board
has adopted a policy that Board members are expected to retire no later than the
end of the year they reach the age of 78. The
Governance Committee has discretion to grant waivers from this retirement policy
under special circumstances, including for Board
members to continue serving in Chair or Chair-related roles beyond the
retirement age. Current Board members who have reached
the age of 75 as of January 1, 2021, are grandfathered as exceptions to the
retirement policy and may continue to serve on the Board
until the end of the year in which they turn 80 years of age.
Advantages
of Having the Same Individuals as Directors for the Morgan Stanley
Funds
The
Independent Directors and the Company’s management believe that having the same
Independent Directors for each of the Morgan
Stanley Funds avoids the duplication of effort that would arise from having
different groups of individuals serving as Independent
Directors for each of the funds or even of sub-groups of funds. They believe
that having the same individuals serve as Independent
Directors of all the Morgan Stanley Funds tends to increase their knowledge and
expertise regarding matters which affect the
Fund Complex generally and enhances their ability to negotiate on behalf of
each fund with the fund’s service providers. This
arrangement also precludes the possibility of separate groups of Independent
Directors arriving at conflicting decisions regarding operations
and management of the funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent
Directors serve on all fund boards enhances the ability of each fund to obtain,
at modest cost to each separate fund, the services
of Independent Directors of the caliber, experience and business acumen of the
individuals who serve as Independent Directors
of the Morgan Stanley Funds.
Director
and Officer Indemnification
The
Company’s Articles of Incorporation provides that no Director, officer, employee
or agent of the Company is liable to the Company or
to a shareholder, nor is any Director, officer, employee or agent liable to any
third persons in connection with the affairs of the
Company, except as such liability may arise from his/her or its own bad faith,
willful malfeasance, gross negligence or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to Company property for satisfaction of claims arising in
connection with the affairs of the Company. With the exceptions stated, the
Articles of Incorporation provides that a Director,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Company.
Shareholder
Communications
Shareholders
may send communications to the Company’s Board of Directors. Shareholders should
send communications intended for the
Company’s Board by addressing the communications directly to the Board (or
individual Board members) and/or otherwise clearly
indicating in the salutation that the communication is for the Board (or
individual Board members) and by sending the communication
to either the Company’s office or directly to such Board member(s) at the
address specified for each Director previously
noted. Other shareholder communications received by the Company not directly
addressed and sent to the Board will be reviewed
and generally responded to by management, and will be forwarded to the Board
only at management’s discretion based on the
matters contained therein.
Compensation
Effective
January 1, 2021, each
Director (except for the Chair of the Boards) receives an annual retainer fee of
$295,000 for serving as a
Director of the Morgan Stanley Funds.
The Audit
Committee Chairperson receives an additional annual retainer fee of $80,000, the
Risk Committee Chairperson, the Equity
Investment Committee Chairperson, Fixed Income, Liquidity and Alternatives
Investment Committee Chairperson and Governance
Committee Chairperson each receive an additional annual retainer fee of $50,000
and the Compliance and Insurance Committee
Chairperson receives an additional annual retainer fee of $65,000. The aggregate
compensation paid to each Director is paid by
the Morgan Stanley Funds, and is allocated on a pro rata basis among each of the
operational funds of the Morgan Stanley Funds
based on the relative net assets of each of the funds. The Chair of the Boards
receives a total annual retainer fee of $590,000 for his
services and for administrative services provided to each Board.
The
Company also reimburses such Directors for travel and other out-of-pocket
expenses incurred by them in connection with attending
such meetings. Directors of the Company who are employed by the Adviser receive
no compensation or expense reimbursement
from the Company for their services as a Director.
Effective
April 1, 2004, the Company began a Deferred Compensation Plan (the “DC Plan”),
which allows each Director to defer payment of
all, or a portion, of the fees he or she receives for serving on the Board of
Directors throughout the year. Each eligible Director
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan
Stanley Funds that are offered as investment options under the DC Plan. At the
Director’s election, distributions are either in one
lump sum payment, or in the form of equal annual installments over a period of
five years. The rights of an eligible Director and the
beneficiaries to the amounts held under the DC Plan are unsecured and such
amounts are subject to the claims of the creditors
of the Company.
Prior to
April 1, 2004, the Company maintained a similar Deferred Compensation Plan (the
“Prior DC Plan”), which also allowed each
Independent Director to defer payment of all, or a portion, of the fees he or
she received for serving on the Board of Directors throughout
the year. Generally, the DC Plan amends and supersedes the Prior DC Plan and all
amounts payable under the Prior DC Plan are
now subject to the terms of the DC Plan (except for amounts paid during the
calendar year 2004, which remain subject to the terms
of the Prior DC Plan).
The
following table shows aggregate compensation payable to each of the Company’s
Directors from the Company for the fiscal year ended
December
31, 2020 and the aggregate compensation payable to each of the Company’s
Directors by the Fund Complex (which
includes all of the Morgan Stanley Funds) for the calendar year ended
December
31, 2020.
|
|
|
Compensation1
|
Name |
Aggregate
Compensation
From the
Company2
|
Total
Compensation From
Company and Fund
Complex Paid to
the Directors3
|
Frank
L. Bowman |
$41,620 |
$355,000 |
Kathleen
A. Dennis |
39,241 |
335,000 |
Nancy
C. Everett |
34,503 |
295,000 |
Jakki
L. Haussler |
34,503 |
295,000 |
|
|
|
Compensation1 |
Name |
Aggregate
Compensation
From the
Company2 |
Total
Compensation From
Company and Fund
Complex Paid to
the Directors3 |
Manuel
H. Johnson |
40,426 |
345,000 |
Joseph
J. Kearns2,3
|
45,665 |
375,000 |
Michael
F. Klein2,3
|
39,245 |
335,000 |
Patricia
Maleski |
34,503 |
295,000 |
W.
Allen Reed2,3
|
54,301 |
448,831 |
1 |
Includes
all amounts paid for serving as director/trustee of the funds in the Fund
Complex, as well as serving as Chair of the Boards or a Chairperson of a
Committee
or Sub-Committee. |
2 |
The
amounts shown in this column represent the aggregate compensation before
deferral with respect to the Company’s fiscal year. The following
Directors deferred
compensation from the Company during the fiscal year ended December
31, 2020: Mr. Kearns, $9,380, Mr. Klein, $39,245 and Mr. Reed,
$47,668. |
3 |
The
amounts shown in this column represent the aggregate compensation paid by
all of the funds in the Fund Complex as of December
31, 2020 before deferral by
the Directors under the DC Plan. As of December
31, 2020, the value (including interest) of the deferral accounts across
the Fund Complex for Messrs. Kearns,
Klein and Reed pursuant to the deferred compensation plan was $737,610,
$2,622,993 and $4,123,461, respectively. Because the funds in the Fund
Complex
have different fiscal year ends, the amounts shown in this column are
presented on a calendar year basis. |
Prior to
December 31, 2003, 49 of the Morgan Stanley Funds (the “Adopting Funds”) had
adopted a retirement program under which an
Independent Director who retired after serving for at least five years as an
Independent Director of any such fund (an “Eligible
Director”) would have been entitled to retirement payments, based on factors
such as length of service, upon reaching the eligible
retirement age. On December 31, 2003, the amount of accrued retirement benefits
for each Eligible Director was frozen, and will be
payable, together with a return of 8% per annum, at or following each such
Eligible Director’s retirement as shown in the table
below.
The
following table illustrates the retirement benefits accrued to the Company’s
Independent Directors by the Adopting Funds for the fiscal
year ended December
31, 2020, and the estimated retirement benefits for the Independent Directors
from the Adopting Funds for
each calendar year following retirement. Only the Directors noted below
participated in the retirement program.
|
|
|
|
|
|
Retirement
Benefits Accrued as Company
Expenses |
Estimated
Annual Benefits Upon Retirement1
|
Name
of Independent Director: |
By
the Company2
|
By
all Adopting Funds |
From
the Company2
|
From
all Adopting
Funds |
Manuel
H. Johnson |
$1,589 |
$32,332 |
$2,840 |
$57,237 |
1 |
Total
compensation accrued under the retirement plan, together with a return of
8% per annum, will be paid annually commencing upon retirement and
continuing
for the remainder of the Director’s life. |
2 |
Global
Infrastructure Portfolio and Growth Portfolio |
Code
of Ethics
Pursuant
to Rule 17j-1 under the 1940 Act, the Board of Directors has adopted a Code of
Ethics for the Company and approved a Code of
Ethics adopted by the Adviser, each Sub-Adviser and the Distributor
(collectively the “Codes”). The Codes are intended to ensure
that the interests of shareholders and other clients are placed ahead of any
personal interest, that no undue personal benefit is obtained
from the person’s employment activities and that actual and potential conflicts
of interest are avoided.
The Codes
are designed to detect and prevent improper personal trading. The Codes permit
personnel subject to the Codes to invest in
securities, including securities that may be purchased, sold or held by the
Company, subject to a number of restrictions and controls,
including prohibitions against purchases of securities in an initial public
offering and a pre-clearance requirement with respect to
personal securities transactions.
INVESTMENT
ADVISORY AND OTHER SERVICES
Adviser
The
Adviser is a wholly-owned subsidiary of Morgan Stanley (NYSE: “MS”), a
preeminent global financial services firm engaged in securities
trading and brokerage activities, as well as providing investment banking,
research and analysis, financing and financial advisory
services. The principal offices of Morgan Stanley are located at 1585 Broadway,
New York, NY 10036, and the principal offices of
the Adviser are located at 522 Fifth Avenue, New York, NY 10036. As of March 31,
2021, the
Adviser, together with its affiliated
asset management companies, had approximately $1.4 trillion in assets under
management or supervision.
The
Adviser provides investment advice and portfolio management services pursuant to
an Investment Advisory Agreement and, subject to
the supervision of the Company’s Board of Directors, makes or oversees each of
the Fund’s day-to-day investment
decisions,
arranges for the execution of portfolio transactions and generally manages each
of the Fund’s investments. Pursuant to the Investment
Advisory Agreement, the Adviser is entitled to receive from each class of shares
of each Fund an annual management fee, payable
quarterly, equal to the percentage of average daily net assets set forth in the
below table reflecting the contractual advisory fee and the
maximum expense ratios for each Fund. The Adviser has agreed to a reduction in
the fees payable to it and to reimburse the Funds, if
necessary, if such fees would cause the total annual operating expenses of each
such Fund to exceed the percentage of average
daily net assets set forth in the below table reflecting the contractual
advisory fee and the maximum expense ratios for each Fund. In
determining the actual amount of fee waiver and/or expense reimbursement for a
Fund, if any, the Adviser excludes from total
annual operating expenses, acquired fund fees and expenses (as applicable),
certain investment related expenses, taxes, interest and other
extraordinary expenses (including litigation). The fee waivers and/or expense
reimbursements for each Fund will continue for at
least one year or until such time as the Company’s Board of Directors acts to
discontinue all or a portion of such waivers and/or reimbursements
when it deems such action is appropriate. The Adviser may make additional
voluntary fee waivers and/or expense reimbursements.
The Adviser may discontinue these voluntary fee waivers and/or expense
reimbursements at any time in the future.
Each of
the Advantage Portfolio, Asia Opportunity Portfolio, Counterpoint Global
Portfolio, Developing Opportunity Portfolio, Global
Insight Portfolio, Global Opportunity Portfolio, Global Permanence Portfolio,
Growth Portfolio, Inception Portfolio, International
Advantage Portfolio, International Opportunity Portfolio and Permanence
Portfolio may gain exposure to bitcoin and other
assets by investing up to 25% of its total assets in a wholly-owned subsidiary
of the Fund organized as a company under the laws of
the Cayman Islands. Each Subsidiary has entered into a separate contract with
the Adviser whereby the Adviser provides investment
advisory and other services to that Subsidiary. In consideration of these
services, each Subsidiary will pay to the Manager at the end
of each of the Subsidiary’s fiscal quarters, an advisory fee calculated by
applying a quarterly rate, based on the annual percentage
rate of 0.05%, to the average daily net assets of the Subsidiary for the
quarter. The Adviser will waive or credit such amounts
against the fees payable to the Adviser by the Funds. The Adviser, with respect
to each Subsidiary, has entered into a separate
contract with the Sub-Adviser whereby the Sub-Adviser provides investment
advisory services to each Subsidiary. The Adviser
pays the Sub-Adviser a portion of the net advisory fees the Adviser receives
from each Fund. The Sub-Adviser will waive or credit
such amounts against the fees payable to the Sub-Adviser by the
Adviser.
Each Fund
and each Subsidiary have entered into contracts for the provision of custody and
audit services with service providers.
Each
Subsidiary is managed pursuant to compliance policies and procedures that are
the same, in all material respects, as the policies and
procedures adopted by a Fund. As a result, the Adviser, in managing a
Subsidiary’s portfolio, is subject to the same investment policies
and restrictions that apply to the management of a Fund (as discussed above, the
Subsidiary may invest in cash settled bitcoin futures or
GBTC) and, in particular, to the requirements relating to portfolio leverage,
liquidity, brokerage and the timing and method of
valuation of the Subsidiary’s portfolio investments and shares of the
Subsidiary. Certain of these policies and restrictions are
described in detail in this SAI.
The
consolidated financial statements of each Subsidiary will be included in the
Annual Report and Semi-Annual Report of the Funds
provided to shareholders.
The
following table reflects for each Fund
(i) the advisory fee paid; and (ii) the advisory fee waived and/or affiliated
rebates for each of the
past three fiscal years ended December 31, 2018, 2019
and 2020.
|
|
|
|
|
|
|
|
|
|
|
Advisory
Fees Paid (After Fee Waivers and/or
Affiliated Rebates) |
Advisory
Fees Waived |
Affiliated
Rebates |
Fund |
2018 (000) |
2019 (000) |
2020 (000) |
2018 (000) |
2019 (000) |
2020 (000) |
2018 (000) |
2019 (000) |
2020 (000) |
Active
International Allocation |
$1,210 |
$1,132 |
937 |
$108 |
$42 |
$204 |
$33 |
$26 |
$20 |
Advantage |
783 |
2,394 |
4,069 |
167 |
53 |
0 |
13 |
40 |
40 |
Asia
Opportunity |
93 |
434 |
2,211 |
221 |
124 |
0 |
6 |
12 |
39 |
China
Equity Portfolio |
* |
0 |
0 |
* |
14 |
96 |
* |
@ |
1 |
Counterpoint
Global |
0 |
0 |
0 |
27 |
57 |
133 |
@ |
1 |
2 |
Developing
Opportunity
Portfolio |
* |
* |
460 |
* |
* |
196 |
* |
* |
10 |
Emerging
Markets Fixed
Income Opportunities |
0 |
101 |
41 |
206 |
265 |
300 |
2 |
8 |
4 |
Emerging
Markets Leaders |
395 |
239 |
367 |
211 |
202 |
196 |
4 |
3 |
3 |
Emerging
Markets |
9,984 |
6,187 |
5,193 |
0 |
777 |
310 |
88 |
33 |
13 |
|
|
|
|
|
|
|
|
|
|
|
Advisory
Fees Paid (After Fee Waivers and/or
Affiliated Rebates) |
Advisory
Fees Waived |
Affiliated
Rebates |
Fund |
2018 (000) |
2019 (000) |
2020 (000) |
2018 (000) |
2019 (000) |
2020 (000) |
2018 (000) |
2019 (000) |
2020 (000) |
Emerging
Markets Small
Cap |
208 |
477 |
399 |
323 |
319 |
424 |
2 |
2 |
3 |
Frontier
Markets |
7,091 |
2,443 |
786 |
0 |
34 |
170 |
9 |
1 |
@ |
Global
Concentrated |
0 |
0 |
0 |
159 |
136 |
200 |
1 |
@ |
1 |
Global
Concentrated Real
Estate |
0 |
0 |
0 |
20 |
35 |
27 |
@ |
@ |
@ |
Global
Core |
0 |
0 |
0 |
96 |
77 |
82 |
@ |
@ |
@ |
Global
Endurance |
0 |
0 |
0 |
@ |
20 |
38 |
0 |
@ |
@ |
Global
Franchise |
9,184 |
12,970 |
18,436 |
0 |
0 |
0 |
55 |
84 |
101 |
Global
Infrastructure |
2,687 |
2,516 |
2,121 |
334 |
322 |
294 |
16 |
15 |
8 |
Global
Insight |
91 |
1,037 |
1,886 |
170 |
0 |
0 |
3 |
7 |
18 |
Global
Opportunity |
18,643 |
23,006 |
36,129 |
0 |
0 |
0 |
297 |
450 |
569 |
Global
Permanence |
* |
0 |
0 |
* |
13 |
21 |
* |
@ |
@ |
Global
Real Estate |
10,335 |
6,625 |
2,714 |
0 |
6 |
270 |
15 |
11 |
4 |
Global
Sustain |
0 |
0 |
70 |
93 |
160 |
205 |
1 |
1 |
2 |
Growth |
21,554 |
26,732 |
41,936 |
0 |
0 |
0 |
360 |
552 |
840 |
Inception |
2.056 |
1,542 |
2,329 |
505 |
476 |
570 |
20 |
18 |
38 |
International
Advantage |
3,682 |
11,864 |
23,227 |
81 |
0 |
0 |
83 |
297 |
427 |
International
Equity |
27,772 |
18,654 |
15,839 |
0 |
18 |
58 |
108 |
67 |
53 |
International
Opportunity |
8,319 |
11,046 |
19,232 |
76 |
0 |
0 |
145 |
183 |
327 |
Permanence |
* |
* |
0 |
* |
* |
13 |
* |
* |
-@ |
Real
Assets |
0 |
0 |
0 |
32 |
61 |
85 |
@ |
1 |
1 |
US
Core |
0 |
0 |
0 |
76 |
84 |
109 |
@ |
@ |
-@ |
U.S.
Real Estate |
2,712 |
1,427 |
390 |
148 |
204 |
235 |
4 |
3 |
1 |
|
@
Amount is less than $500. |
|
* Not
operational for the period. |
The
following table reflects the contractual advisory fee and the maximum expense
ratios for each Fund.
|
|
|
|
|
|
|
|
Fund |
Contractual
Rate of Advisory Fees |
Expense
Cap Class
I |
Expense
Cap Class
A |
Expense
Cap Class
L |
Expense
Cap Class
C |
Expense
Cap Class
IS |
Expense
Cap Class
IR |
Active
International
Allocation |
0.65%
of the portion of the daily net assets not
exceeding $1 billion; and 0.60% of the portion
of the daily net assets exceeding $1 billion. |
0.90% |
1.25% |
1.75% |
2.00% |
0.85% |
0.85% |
Advantage |
0.65%
of the portion of the daily net assets not
exceeding $750 million; 0.60% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.55% of the portion of the daily
net assets exceeding $1.5 billion. |
0.85% |
1.20% |
0.99% |
1.95% |
0.81% |
N/A |
Asia
Opportunity |
0.80%
portion of the daily net assets not exceeding
$750 million; 0.75% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.70% of the portion of the daily
net assets exceeding $1.5 billion. |
1.10% |
1.45% |
N/A |
2.20% |
1.05% |
N/A |
China
Equity |
0.80%
of daily net assets. |
1.20% |
1.55% |
N/A |
2.30% |
1.15% |
N/A |
Counterpoint
Global |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the portion
of the daily net assets exceeding $1 billion. |
1.05% |
1.40% |
N/A |
2.15% |
1.00% |
N/A |
|
|
|
|
|
|
|
|
Fund |
Contractual
Rate of Advisory Fees |
Expense
Cap Class
I |
Expense
Cap Class
A |
Expense
Cap Class
L |
Expense
Cap Class
C |
Expense
Cap Class
IS |
Expense
Cap Class
IR |
Developing
Opportunity |
0.90%
of the portion of the daily net assets not
exceeding $1 billion; and 0.85% of the portion
of the daily net assets exceeding $1 billion. |
1.15% |
1.50% |
N/A |
2.25% |
1.10% |
N/A |
Emerging
Markets Fixed
Income Opportunities |
0.75%
of the portion of the daily net assets not
exceeding $500 million; 0.70% of the portion
of the daily net assets exceeding $500
million but not exceeding $1 billion; and
0.65% of the portion of the daily net assets
exceeding $1 billion. |
0.85% |
1.20% |
1.45% |
1.95% |
0.82% |
N/A |
Emerging
Markets Leaders |
0.90%
of the portion of the daily net assets not
exceeding $1 billion; and 0.85% of the portion
of the daily net assets exceeding $1 billion. |
1.20% |
1.55% |
N/A |
2.30% |
1.10% |
1.10% |
Emerging
Markets |
0.85%
of the portion of the daily net assets not
exceeding $500 million; 0.75% of the portion
of the daily net assets exceeding $500
million but not exceeding $1 billion; 0.70%
of the portion of the daily net assets exceeding
$1 billion but not exceeding $2.5
billion; and 0.65% of the daily net assets
exceeding $2.5 billion. |
1.05% |
1.40% |
1.90% |
2.15% |
0.95% |
0.95% |
Emerging
Markets Small
Cap |
1.25%
of daily net assets. |
1.30% |
1.65% |
N/A |
2.40% |
1.25% |
N/A |
Frontier
Markets |
1.25%
of daily net assets. |
1.85% |
2.20% |
2.70% |
2.95% |
1.80% |
N/A |
Global
Concentrated |
0.75%
of the portion of the daily net assets not
exceeding $750 million; 0.70% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.65% of the portion of the daily
net assets exceeding $1.5 billion. |
1.00% |
1.35% |
N/A |
2.10% |
0.95% |
N/A |
Global
Concentrated
Real Estate |
0.75%
of the portion of the daily net assets not
exceeding $2 billion; and 0.70% of the portion
of the daily net assets exceeding $2 billion. |
0.95% |
1.30% |
N/A |
2.05% |
0.90% |
N/A |
Global
Core |
0.75%
of the portion of the daily net assets not
exceeding $750 million; 0.70% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.65% of the portion of the daily
net assets exceeding $1.5 billion. |
1.00% |
1.35% |
N/A |
2.10% |
0.95% |
N/A |
Global
Endurance |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the daily
net assets exceeding $1 billion. |
1.00% |
1.35% |
N/A |
2.10% |
0.95% |
N/A |
Global
Franchise |
0.80%
of the portion of the daily net assets not
exceeding $500 million; 0.75% of the portion
of the daily net assets exceeding $500
million but not exceeding $1 billion; and
0.70% of the portion of the daily net assets
exceeding $1 billion. |
1.00% |
1.35% |
1.85% |
2.10% |
0.95% |
N/A |
Global
Infrastructure |
0.85%
of daily net assets. |
0.97% |
1.21% |
1.78% |
2.07% |
0.94% |
0.94% |
Global
Insight |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the daily
net assets exceeding $1 billion. |
1.00% |
1.32% |
1.85% |
2.10% |
N/A |
N/A |
Global
Opportunity |
0.80%
of the portion of the daily net assets not
exceeding $750 million; 0.75% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.70% of the portion of the daily
net assets exceeding $1.5 billion. |
1.00% |
1.35% |
1.40% |
2.10% |
0.95% |
0.95% |
|
|
|
|
|
|
|
|
Fund |
Contractual
Rate of Advisory Fees |
Expense
Cap Class
I |
Expense
Cap Class
A |
Expense
Cap Class
L |
Expense
Cap Class
C |
Expense
Cap Class
IS |
Expense
Cap Class
IR |
Global
Permanence |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the daily
net assets exceeding $1 billion. |
1.00% |
1.35% |
N/A |
2.10% |
0.95% |
N/A |
Global
Real Estate |
0.80%
of the portion of the daily net assets not
exceeding $2 billion; and 0.75% of the portion
of the daily net assets exceeding $2 billion. |
1.00% |
1.35% |
1.85% |
2.10% |
0.94% |
0.94% |
Global
Sustain |
0.70%
of the portion of the daily net assets not
exceeding $500 million; and 0.65% of the
portion of the daily net assets exceeding
$500 million. |
0.90% |
1.25% |
1.75% |
2.00% |
0.85% |
N/A |
Growth |
0.50%
of the portion of the daily net assets not
exceeding $1 billion; 0.45% of the portion
of the daily net assets exceeding $1 billion
but not exceeding $2 billion; 0.40%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion;
and 0.35% of the portion of the daily
net assets exceeding $3 billion. |
0.80% |
1.15% |
1.65% |
1.90% |
0.73% |
0.73% |
Inception |
0.92%
of the portion of the daily net assets not
exceeding $1 billion; 0.85% of the portion
of the daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.80%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2
billion; and 0.75% of the portion of the daily
net assets exceeding $2 billion. |
1.00% |
1.35% |
1.85% |
2.10% |
0.93% |
N/A |
International
Advantage |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the daily
net assets exceeding $1 billion. |
1.00% |
1.35% |
1.85% |
2.10% |
0.95% |
N/A |
International
Equity |
0.80%
of the portion of the daily net assets not
exceeding $3 billion; and 0.75% of the portion
of the daily net assets exceeding $3 billion. |
0.95% |
1.30% |
1.80% |
2.05% |
0.91% |
N/A |
International
Opportunity |
0.80%
of the portion of the daily net assets not
exceeding $1 billion; and 0.75% of the portion
of the daily net assets exceeding $1 billion. |
1.00% |
1.35% |
1.85% |
2.10% |
0.94% |
0.94% |
Permanence |
0.65%
of the portion of the daily net assets not
exceeding $1 billion; and 0.60% of the portion
of the daily net assets exceeding $1 billion. |
0.85% |
1.20% |
N/A |
1.95% |
0.80% |
N/A |
Real
Assets |
0.60%
of the portion of the daily net assets not
exceeding $1 billion; and 0.55% of the portion
of the daily net assets exceeding $1 billion. |
0.80% |
1.15% |
N/A |
1.90% |
0.75% |
N/A |
US
Core |
0.60%
of the portion of the daily net assets not
exceeding $750 million; 0.55% of the portion
of the daily net assets exceeding $750
million but not exceeding $1.5 billion;
and 0.50% of the portion of the daily
net assets exceeding $1.5 billion. |
0.80% |
1.15% |
N/A |
1.90% |
0.75% |
N/A |
U.S.
Real Estate |
0.70%
of the portion of the daily net assets not
exceeding $500 million; 0.65% of the portion
of the daily net assets exceeding $500
million but not exceeding $1 billion; and
0.60% of the portion of the daily net assets
exceeding $1 billion. |
0.90% |
1.25% |
1.75% |
2.00% |
0.83% |
0.83% |
Sub-Advisers
The
Adviser has entered into Sub-Advisory Agreements with Morgan Stanley Investment
Management Limited, located at 25 Cabot Square,
Canary Wharf, London, E14 4QA, England (with respect to the Emerging Markets
Fixed Income Opportunities, Global
Franchise,
Global Real Estate, Global Sustain, International Equity and Real Assets
Portfolios) and Morgan Stanley Investment Management
Company, located at 23 Church Street, 16-01 Capital Square, Singapore 049481
(with respect to the Asia Opportunity,
China Equity, Counterpoint Global, Developing Opportunity, Emerging Markets
Fixed Income Opportunities, Emerging
Markets Leaders, Emerging Markets, Global Opportunity, Global Real Estate,
International Advantage and International Opportunity
Portfolios ). The Sub-Advisers are wholly owned subsidiaries of Morgan Stanley.
The Sub-Advisers provide the relevant Funds with
investment advisory services subject to the overall supervision of the Adviser
and the Company’s officers and Directors. The
Adviser pays the Sub-Advisers on a monthly basis a portion of the net advisory
fees the Adviser receives from the relevant Funds.
Participating
Affiliate
In
rendering investment advisory services to the Asia Opportunity, Emerging
Markets, China Equity, Counterpoint Global, Global Opportunity,
International Advantage and International Opportunity Portfolios, the Adviser
uses the portfolio management, research
and other resources of Morgan Stanley Asia Limited (“MSAL”), a foreign
(non-U.S.) affiliate of MSIM that is not registered under the
Investment Advisers Act of 1940, as amended (the “Advisers Act”). One or more
MSAL employees may provide services to the Funds
through a “participating affiliate” arrangement, as that term is used in relief
granted by the staff of the SEC allowing U.S. registered
investment advisers to use portfolio management or research resources of
advisory affiliates subject to the regulatory supervision
of the registered investment adviser. Under the participating affiliate
arrangement, MSAL is considered a Participating Affiliate
of MSIM, and MSAL and its employees are considered “associated persons” of MSIM
(as that term is defined in the Advisers Act) and
investment professionals from MSAL may render portfolio management, research and
other services to the Funds, subject to the
supervision of MSIM.
In
rendering investment advisory services to the Global Real Estate Portfolio, MSIM
will use the portfolio management, research and other
resources of MSIM Fund Management (Ireland) Limited (“MSIM FMIL”). MSIM FMIL is
a foreign (non-U.S.) affiliate of MSIM that
is not registered under the Advisers Act. One or more MSIM FMIL employees may
provide services to the Global Real Estate
Portfolio through a “participating affiliate” arrangement, as that term is used
in relief granted by the staff of the SEC allowing U.S.
registered investment advisers to use portfolio management or research resources
of advisory affiliates subject to the regulatory supervision
of the registered investment adviser. Under the participating affiliate
arrangement, MSIM FMIL is considered a Participating
Affiliate of MSIM, and MSIM FMIL and its employees are considered “associated
persons” of MSIM (as that term is defined in
the Advisers Act) and investment professionals from MSIM FMIL may render
portfolio management, research and other services
to the Global Real Estate Portfolio, subject to the supervision of
MSIM.
Proxy
Voting Policy and Proxy Voting Record
The Board
of Directors believes that the voting of proxies on securities held by the
Company is an important element of the overall investment
process. As such, the Directors have delegated the responsibility to vote such
proxies to MSIM.
A copy of
MSIM’s Proxy Voting Policy (“Proxy Policy”) is attached hereto as Appendix A. In
addition, a copy of the Proxy Policy, as well as
the Company’s most recent proxy voting record for the 12-month period ended June
30, as filed with the SEC, are available without
charge on our web site at www.morganstanley.com/im. The Company’s proxy voting
record is also available without charge on the
SEC’s web site at http://www.sec.gov.
Principal
Underwriter
Morgan
Stanley Distribution, Inc., an indirect wholly-owned subsidiary of Morgan
Stanley with principal offices at 522 Fifth Avenue,
New York, NY 10036, acts as the exclusive principal underwriter with respect to
the continuous offering of the Fund’s shares
pursuant to the Distribution Agreement. The Distribution Agreement continues in
effect so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act.
The Distribution Agreement provides that the
Company will bear the costs of the registration of its shares with the SEC and
various states and the printing of its prospectuses,
statements of additional information and reports to shareholders.
Fund
Administration
The
Adviser also provides administrative services to the Company pursuant to an
Administration Agreement. The services provided under the
Administration Agreement are subject to the supervision of the officers and the
Board of Directors of the Company and include
day-to-day administration of matters related to the corporate existence of the
Company, maintenance of records, preparation of
reports, supervision of the Company’s arrangements with its custodian, and
assistance in the preparation of the Company’s registration
statement under federal laws. For its services under the Administration
Agreement, the Company pays the Adviser a monthly
fee which on an annual basis equals 0.08% of the average daily net assets of the
Fund. The Adviser may compensate other service
providers for performing shareholder servicing and administrative
services.
For the
fiscal years ended December 31, 2018, 2019
and 2020, the Company paid the following administrative fees (no administrative
fees were waived):
|
|
|
|
Administrative
Fees Paid |
Fund |
2018 (000) |
2019 (000) |
2020 (000) |
Active
International Allocation |
$166 |
$148 |
$143 |
Advantage |
119 |
306 |
507 |
Asia
Opportunity |
32 |
57 |
225 |
China
Equity |
* |
1 |
10 |
Counterpoint
Global |
3 |
6 |
13 |
Developing
Opportunity |
* |
* |
59 |
Emerging
Markets Fixed Income Opportunities |
22 |
40 |
37 |
Emerging
Markets Leaders |
54 |
39 |
50 |
Emerging
Markets |
1,037 |
694 |
535 |
Emerging
Markets Small Cap |
34 |
51 |
53 |
Frontier
Markets |
454 |
159 |
61 |
Global
Concentrated |
17 |
14 |
21 |
Global
Concentrated Real Estate |
2 |
4 |
3 |
Global
Core |
10 |
8 |
9 |
Global
Endurance |
@ |
2 |
4 |
Global
Franchise |
970 |
1,406 |
2,033 |
Global
Infrastructure |
286 |
268 |
228 |
Global
Insight |
26 |
104 |
190 |
Global
Opportunity |
2,036 |
2,552 |
4,065 |
Global
Permanence |
* |
1 |
2 |
Global
Real Estate |
999 |
664 |
299 |
Global
Sustain |
10 |
18 |
32 |
Growth |
4,323 |
5,536 |
9,092 |
Inception |
224 |
177 |
255 |
International
Advantage |
385 |
1,245 |
2,470 |
International
Equity |
2,788 |
1,874 |
1,595 |
International
Opportunity |
861 |
1,144 |
2,033 |
Permanence |
* |
* |
2 |
Real
Assets |
4 |
8 |
11 |
US
Core |
10 |
11 |
15 |
U.S.
Real Estate |
302 |
187 |
72 |
|
@
Amount is less than $500. |
|
* Not
operational for the period. |
Sub-Administrator. Under an
agreement between the Administrator and State Street Bank and Trust Company
(“State Street”), State Street
provides certain administrative services to the Company. For such services, the
Administrator pays State Street a portion of the administrative
fee the Administrator receives from the Company. The Administrator supervises
and monitors the administrative and accounting
services provided by State Street. Their services are also subject to the
supervision of the officers and Board of Directors of the
Company.
Custodian
State
Street, located at One Lincoln Street, Boston, MA 02111-2101, acts as the
Company’s custodian. State Street is not an affiliate of the
Adviser or the Distributor. In maintaining custody of foreign assets held
outside the United States, State Street has contracted with
various foreign banks and depositaries in accordance with regulations of the SEC
for the purpose of providing custodial services for such
assets.
In the
selection of foreign sub-custodians, the Directors or their delegates consider a
number of factors, including, but not limited to, the
reliability and financial stability of the institution, the ability of the
institution to provide efficiently the custodial services required
for the Company, and the reputation of the institution in the particular country
or region.
Dividend
Disbursing and Transfer Agent
DST Asset
Manager Solutions, Inc., 2000 Crown Colony Drive, Quincy, MA 02169-0953,
provides dividend disbursing and transfer
agency services for the Company.
Portfolio
Managers
Other
Accounts Managed by the Portfolio Managers
Because
the portfolio managers may manage assets for other investment companies, pooled
investment vehicles and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals),
there may be an incentive to favor one client over
another resulting in conflicts of interest. For instance, the Adviser
and/or Sub-Advisers may receive fees from certain accounts that are
higher than the fee they receive from the Company, or they may receive a
performance-based fee on certain accounts. In those
instances, the portfolio managers may have an incentive to favor the higher
and/or performance-based fee accounts over the Company.
In addition, a conflict of interest could exist to the extent
the Adviser
and/or Sub-Advisers have proprietary investments in certain
accounts, where portfolio managers have personal investments in certain accounts
or when certain accounts are investment options in
the Adviser’s and/or Sub-Advisers’ employee benefits and/or deferred
compensation plans. The portfolio manager may have an
incentive to favor these accounts over others. If the Adviser
and/or Sub-Advisers manage accounts that engage in short sales of
securities of the type in which the Company invests, the Adviser
and/or Sub-Advisers could be seen as harming the performance of the
Company for the benefit of the accounts engaging in short sales if the short
sales cause the market value of the securities to fall. The Adviser
and/or Sub-Advisers have adopted trade allocation and other policies and
procedures that they believe are reasonably designed
to address these and other conflicts of interest.
Portfolio
Manager Compensation Structure
Morgan
Stanley’s compensation structure is based on a total reward system of base
salary and incentive compensation, which is paid either in
the form of cash bonus, or for employees meeting the specified deferred
compensation eligibility threshold, partially as a cash bonus
and partially as mandatory deferred compensation. Deferred compensation granted
to MSIM employees are generally granted as
a mix of deferred cash awards under the Investment Management Alignment Plan
(“IMAP”) and equity-based awards in the form
of stock units. The portion of incentive compensation granted in the form of a
deferred compensation award and the terms of such
awards are determined annually by the Compensation, Management Development and
Succession Committee of the Morgan Stanley
Board of Directors.
Base
salary compensation.
Generally, portfolio managers receive base salary compensation based on the
level of their position with the Adviser.
Incentive
compensation. In
addition to base compensation, portfolio managers may receive discretionary
year-end compensation.
Incentive
compensation may include:
■ |
A
mandatory program that defers a portion of incentive compensation into
restricted stock units or other awards based on Morgan
Stanley common stock or other plans that are subject to vesting and other
conditions.
|
■ |
IMAP
is a cash-based deferred compensation plan designed to increase the
alignment of participants’ interests with the interests
of the Adviser’s clients. For eligible employees, a portion of their
deferred compensation is mandatorily deferred into
IMAP on an annual basis. Awards granted under IMAP are notionally invested
in referenced funds available pursuant to
the plan, which are funds advised by MSIM. Portfolio managers are required
to notionally invest a minimum of 25% of their
account balance in the designated funds that they manage and are included
in the IMAP notional investment fund menu.
|
■ |
Deferred
compensation awards are typically subject to vesting over a multi-year
period and are subject to cancellation through
the payment date for competition, cause (i.e., any act or omission that
constitutes a breach of obligation to the Company,
including failure to comply with internal compliance, ethics or risk
management standards, and failure or refusal
to perform duties satisfactorily, including supervisory and management
duties), disclosure of proprietary information,
and solicitation of employees or clients. Awards are also subject to
clawback through the payment date if an employee’s
act or omission (including with respect to direct supervisory
responsibilities) causes a restatement of the Firm’s consolidated
financial results, constitutes a violation of the Firm’s global risk
management principles, policies and standards,
or causes a loss of revenue associated with a position on which the
employee was paid and the employee operated
outside of internal control policies.
|
MSIM
compensates employees based on principles of pay-for-performance, market
competitiveness and risk management. Eligibility for, and
the amount of any, discretionary compensation is subject to a multi-dimensional
process. Specifically, consideration is given to one or
more of the following factors, which can vary by portfolio management team and
circumstances:
■ |
Revenue
and profitability of the business and/or each fund/account managed by
the portfolio manager
|
■ |
Revenue
and profitability of the Firm
|
■ |
Return
on equity and risk factors of both the business units and Morgan
Stanley
|
■ |
Assets
managed by the portfolio manager
|
■ |
External
market conditions
|
■ |
New
business development and business sustainability
|
■ |
Contribution
to client objectives
|
■ |
Team,
product and/or MSIM performance
|
■ |
The
pre-tax investment performance of the funds/accounts managed by the
portfolio manager (which may, in certain cases, be measured
against the applicable benchmark(s) and/or peer group(s) over one, three
and five-year periods
|
■ |
Individual
contribution and performance
|
Further,
the Firm’s Global Incentive Compensation Discretion Policy requires compensation
managers to consider only legitimate, business
related factors when exercising discretion in determining variable incentive
compensation, including adherence to Morgan Stanley’s
core values, conduct, disciplinary actions in the current performance year, risk
management and risk outcomes.
Other
Accounts Managed by Portfolio Managers as of December
31, 2020 (unless otherwise indicated)
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Fund
and Portfolio Managers |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Active
International Allocation |
|
|
|
|
|
|
Ben
V. Rozin |
0 |
$0 |
0 |
$0 |
31
|
$1.6
billion1
|
Jitania
Kandhari |
0 |
$0 |
0 |
$0 |
42
|
$1.6
billion2
|
Asia
Opportunity |
|
|
|
|
|
|
Kristian
Heugh |
7 |
$17.0
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Anil
Agarwal |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Advantage |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$46.1
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$46.1
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Jason
C. Yeung |
21 |
$46.1
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Armistead
B. Nash |
21 |
$46.1
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
David
S. Cohen |
21 |
$46.1
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Alexander
T. Norton |
21 |
$46.1
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
China
Equity |
|
|
|
|
|
|
Amay
Hattangadi |
4 |
$1.6
billion |
8 |
$4.0
billion |
135
|
$8.6
billion5
|
Leon
Sun |
0 |
$0 |
0 |
$0 |
0 |
$0 |
Counterpoint
Global |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$47.0
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Kristian
Heugh |
7 |
$17.4
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Developing
Opportunity |
|
|
|
|
|
|
Kristian
Heugh |
7 |
$17.2
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Emerging
Markets |
|
|
|
|
|
|
Eric
Carlson |
2 |
$544.3
million |
8 |
$4.2
billion |
136
|
$3.8
billion6
|
Amay
Hattangadi |
4 |
$840.0
billion |
8 |
$4.0
billion |
137
|
$8.6
billion7
|
Paul
C. Psaila |
2 |
$544.3
million |
8 |
$4.2
billion |
136
|
$3.8
billion6
|
Ruchir
Sharma |
3 |
$830.0
million |
6 |
$3.9
billion |
138
|
$3.8
billion8
|
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
|
Eric
J. Baurmeister |
3 |
$861.2
million |
12 |
$3.3
billion |
14 |
$642.2
million |
Warren
Mar |
3 |
$861.2
million |
12 |
$3.3
billion |
14 |
$642.2
million |
Sahil
Tandon |
3 |
$861.2
million |
12 |
$3.3
billion |
14 |
$642.2
million |
Budi
Suharto |
0 |
$0 |
7 |
$2.8
billion |
10 |
$226.5
million |
Emerging
Markets Leaders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Fund
and Portfolio Managers |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Vishal
Gupta |
0 |
$0 |
3 |
$1.2
billion |
2 |
$192.5
million |
Emerging
Markets Small Cap |
|
|
|
|
|
|
Omair
Ansari |
1 |
$65.7
million |
2 |
$138.0
million |
19
|
$42.9
million9
|
Steven
Quattry |
1 |
$65.7
million |
2 |
$138.0
million |
19
|
$42.9
million9
|
Frontier
Markets |
|
|
|
|
|
|
Steven
Quattry |
1 |
$84.8
million |
1 |
$138.0
million |
19
|
$42.9
million |
Omair
Ansari |
1 |
$84.8
million |
2 |
$138.0
million |
19
|
$42.9
million9
|
Global
Concentrated |
|
|
|
|
|
|
Andrew
Slimmon |
2 |
$43.3
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
Phillip
Kim |
2 |
$43.3
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
Global
Concentrated Real Estate |
|
|
|
|
|
|
Laurel
Durkay |
5 |
$783.6
million |
13 |
$2.7
billion |
1110
|
$546.9
million10
|
Global
Core |
|
|
|
|
|
|
Andrew
Slimmon |
2 |
$85.0
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
Phillip
Kim |
2 |
$85.5
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
Global
Endurance |
|
|
|
|
|
|
Manas
Gautam |
2 |
$6.7
million |
3 |
$35.9
million |
0 |
$0 |
Global
Franchise |
|
|
|
|
|
|
Vladimir
A. Demine |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Alex
Gabriele |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
William
D. Lock |
5 |
$3.2
billion |
35 |
$36.0
billion |
7111
|
$25.5
billion11
|
Bruno
Paulson |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Richard
Perrott |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nic
Sochovsky |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Marcus
Watson |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nathan
Wong |
5 |
$3.2
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Global
Infrastructure |
|
|
|
|
|
|
Matthew
King |
2 |
$95.4
million |
6 |
$1.4
billion |
312
|
$791.1
million12
|
Global
Insight |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$46.6
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$46.6
billion |
21 |
$29.2
billion |
164
|
$19.4
billion4
|
Jason
C. Yeung |
21 |
$46.6
billion |
21 |
$29.2
billion |
164
|
$19.4
billion4
|
Armistead
B. Nash |
21 |
$46.6
billion |
21 |
$29.2
billion |
164
|
$19.4
billion4
|
David
S. Cohen |
21 |
$46.6
billion |
21 |
$29.2
billion |
164
|
$19.4
billion4
|
Alexander
T. Norton |
21 |
$46.6
billion |
21 |
$29.2
billion |
164
|
$19.4
billion4
|
Global
Opportunity |
|
|
|
|
|
|
Kristian
Heugh |
7 |
$10.3
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Global
Permanence |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$47.0
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Jason
C. Yeung |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Armistead
B. Nash |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
David
S. Cohen |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Alexander
T. Norton |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Manas
Gautam |
2 |
$14.1
million |
3 |
$35.9
million |
0 |
$0 |
Global
Real Estate |
|
|
|
|
|
|
Laurel
Durkay |
5 |
$482.4
million |
13 |
$2.7
billion |
1110
|
$546.9
million10
|
Desmond
Foong |
1 |
$53.3
million |
6 |
$2.2
billion |
513
|
$248.3
million13
|
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Fund
and Portfolio Managers |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Angeline
Ho |
1 |
$53.3
million |
6 |
$2.2
billion |
613
|
$385.4
million13
|
Michiel
te Paske |
1 |
$53.3
million |
6 |
$2.2
billion |
613
|
$1.2
billion13
|
Sven
van Kemenade |
1 |
$53.3
million |
6 |
$2.2
billion |
613
|
$1.2
billion13
|
Global
Sustain |
|
|
|
|
|
|
Vladimir
A. Demine |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Alex
Gabriele |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
William
D. Lock |
5 |
$6.3
billion |
35 |
$36.0
billion |
7111
|
$25.5
billion11
|
Bruno
Paulson |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Richard
Perrott |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nic
Sochovsky |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Marcus
Watson |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nathan
Wong |
5 |
$6.3
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Growth |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$29.9
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$29.9
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Jason
C. Yeung |
21 |
$29.9
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Armistead
B. Nash |
21 |
$29.9
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
David
S. Cohen |
21 |
$29.9
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Alexander
T. Norton |
21 |
$29.9
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Inception |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$46.2
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$46.2
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Jason
C. Yeung |
21 |
$46.2
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Armistead
B. Nash |
21 |
$46.2
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
David
S. Cohen |
21 |
$46.2
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Alexander
T. Norton |
21 |
$46.2
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
International
Advantage |
|
|
|
|
|
|
Kristian
Heugh |
7 |
$12.9
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Wendy
Wang |
2 |
$800.8
million |
2 |
$1.5
billion |
0 |
$0 |
International
Equity |
|
|
|
|
|
|
Vladimir
A. Demine |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Alex
Gabriele |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
William
D. Lock |
5 |
$4.1
billion |
35 |
$36.0
billion |
7111
|
$25.5
billion11
|
Bruno
Paulson |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Richard
Perrott |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nic
Sochovsky |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Marcus
Watson |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
Nathan
Wong |
5 |
$4.1
billion |
35 |
$36.0
billion |
7011
|
$25.4
billion11
|
International
Opportunity |
|
|
|
|
|
|
Kristian
Heugh |
7 |
$13.3
billion |
23 |
$54.3
billion |
323
|
$4.4
billion3
|
Permanence |
|
|
|
|
|
|
Dennis
P. Lynch |
22 |
$47.0
billion |
22 |
$29.2
billion |
174
|
$9.5
billion4
|
Sam
G. Chainani |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Armistead
B. Nash |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Jason
C. Yeung |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
David
S. Cohen |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Alexander
T. Norton |
21 |
$47.0
billion |
21 |
$29.2
billion |
164
|
$9.4
billion4
|
Manas
Gautam |
2 |
$13.9
million |
3 |
35.9
million |
0 |
$0 |
|
|
|
|
|
|
|
|
Other
Registered Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Fund
and Portfolio Managers |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Number
of Accounts |
Total
Assets in the Accounts |
Real
Assets |
|
|
|
|
|
|
Mark
A. Bavoso |
4 |
$2.2
billion |
4 |
$728.0
million |
614
|
$6.7
billion14
|
Laurel
Durkay |
5 |
$769.2
million |
13 |
$2.7
billion |
1110
|
$546.9
million10
|
Matthew
King |
2 |
$364.8
million |
6 |
$1.4
billion |
312
|
$791.1
million12
|
Ryan
Meredith |
0 |
$0 |
13 |
$1.7
billion |
1615
|
$12.6
billion15
|
Christian
G. Roth |
0 |
$1.3
billion |
1 |
$30.1
million |
0 |
0 |
US
Core |
|
|
|
|
|
|
Andrew
Slimmon |
2 |
$69.1
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
Phillip
Kim |
2 |
$69.1
million |
6 |
$1.3
billion |
28 |
$4.9
billion |
U.S.
Real Estate |
|
|
|
|
|
|
Laurel
Durkay |
5 |
$740.7
million |
13 |
$2.7
billion |
1110
|
$546.9
million10
|
1 |
Of
these other accounts, two accounts with a total of approximately $1.5
billion in assets had performance-based fees. |
2 |
Of
these other accounts, three accounts with a total of $1.5 billion in
assets had performance-based fees. |
3 |
Of
these other accounts, eight accounts with a total of $292.0 million in
assets had performance-based fees. |
4 |
Of
these other accounts, two accounts with a total of $671.8 million in
assets had performance-based fees. |
5 |
Of
these other accounts, five accounts with a total of $1.4 billion in assets
had performance-based fees. |
6 |
Of
these other accounts, four accounts with a total of $1.4 billion in assets
had performance-based fees. |
7 |
Of
these other accounts, five accounts with a total of approximately $1.4
billion in assets had performance-based fees. |
8 |
Of
these other accounts, five accounts with a total of $1.5 billion in assets
had performance-based fees. |
9 |
Of
these other accounts, one account with a total of $42.9 million in assets
had performance-based fees. |
10 |
Of
these other accounts, one accounts with a total of $109.1 million in
assets had performance-based fees. |
11 |
Of
these other accounts, four accounts with a total of $2.1 billion in assets
had performance-based fees. |
12 |
Of
these other accounts, two accounts with a total of $300.3 million in
assets had performance-based fees. |
13 |
Of
these other accounts, one account with a total of $109.1 million in assets
had performance-based fees. |
14 |
Of
these other accounts, two accounts with a total of $3.7 billion in assets
had performance-based fees. |
15 |
Of
these other accounts, four accounts with a total of $5.7 billion in assets
had performance-based fees. |
Securities
Ownership of Portfolio Managers
As of
December
31, 2020 (unless otherwise noted), the dollar range of securities beneficially
owned (or held notionally through IMAP) by
each portfolio manager in the Company is shown below:
|
|
Fund
and Portfolio Managers |
Fund
Holdings |
Active
International Allocation |
|
Ben
V. Rozin |
$100,001-$500,000 |
Jitania
Kandhari |
$50,001-$100,000 |
Asia
Opportunity |
|
Kristian
Heugh |
Over
$1 million |
Anil
Agarwal |
None |
Advantage |
|
Dennis
P. Lynch |
Over
$1 million |
Sam
G. Chainani |
Over
$1 million |
Jason
C. Yeung |
$500,001-$1,000,000 |
Armistead
B. Nash |
$100,001-$500,000 |
David
S. Cohen |
Over
$1 million |
Alexander
T. Norton |
$10,001-$50,000 |
China
Equity |
|
Amay
Hattangadi |
None |
Leon
Sun |
None |
Counterpoint
Global |
|
Dennis
P. Lynch |
Over
$1 million |
Kristian
Heugh |
None |
|
|
Developing
Opportunity |
|
Kristian
Heugh |
Over
$1 million |
Emerging
Markets |
|
Eric
Carlson |
$10,001-$50,000 |
Amay
Hattangadi |
$10,001-$50,000 |
Paul
C. Psaila |
$50,001-$100,000 |
Ruchir
Sharma |
Over
$1 million |
Emerging
Markets Fixed Income Opportunities |
|
Eric
J. Baurmeister |
$50,001-$100,000 |
Warren
Mar |
$10,001-$50,000 |
Sahil
Tandon |
None |
Budi
Suharto |
None |
Emerging
Markets Leaders |
|
Vishal
Gupta |
$500,001-$1,000,000 |
Emerging
Markets Small Cap |
|
Omair
Ansari |
$10,001-$50,000 |
Steven
Quattry |
None |
Frontier
Markets |
|
Steven
Quantry |
None |
Omair
Ansari |
$10,001-$50,000 |
Global
Concentrated |
|
Andrew
Slimmon |
Over
$1 million |
Phillip
Kim |
$10,001-$50,000 |
Global
Concentrated Real Estate |
|
Laurel
Durkay |
None |
Global
Core |
|
Andrew
Slimmon |
$100,001-$500,000 |
Phillip
Kim |
None |
Global
Endurance |
|
Manas
Gautam |
$500,001-
$1,000,000 |
Global
Franchise |
|
Vladimir
A. Demine |
$100,001-$500,000 |
Alex
Gabriele |
$100,001-$500,000 |
William
D. Lock |
Over
$1 million |
Bruno
Paulson |
Over
$1 million |
Richard
Perrott |
$100,001-$500,000 |
Nic
Sochovsky |
None |
Marcus
Watson |
$100,001-$500,000 |
Nathan
Wong |
Over
$1 million |
Global
Infrastructure |
|
Matthew
King |
None |
Global
Insight |
|
Dennis
P. Lynch |
Over
$1 million |
Sam
G. Chainani |
Over
$1 million |
Jason
C. Yeung |
None |
Armistead
B. Nash |
$100,001-$500,000 |
David
S. Cohen |
Over
$1 million |
Alexander
T. Norton |
None |
Global
Opportunity |
|
Kristian
Heugh |
Over
$1 million |
Global
Permanence |
|
Dennis
P. Lynch |
$500,001-$1,000,000 |
|
|
Sam
G. Chainani |
$500,001-$1,000,000 |
Jason
C. Yeung |
None |
Armistead
B. Nash |
$50,001-$100,000 |
David
S. Cohen |
$100,001-$500,000 |
Alexander
T. Norton |
$1-$10,000 |
Manas
Gautam |
$10,001-$50,000 |
Global
Real Estate |
|
Laurel
Durkay |
None |
Desmond
Foong |
None |
Angeline
Ho |
None |
Michiel
te Paske |
$1-$10,000 |
Sven
van Kemenade |
$10,001-$50,000 |
Global
Sustain |
|
Vladimir
A. Demine |
$50,001-$100,000 |
Alex
Gabriele |
None |
William
D. Lock |
Over
$1 million |
Bruno
Paulson |
Over
$1 million |
Richard
Perrott |
$100,001-$500,000 |
Nic
Sochovsky |
Over
$1 million |
Marcus
Watson |
$100,001-$500,000 |
Nathan
Wong |
None |
Growth |
|
Dennis
P. Lynch |
Over
$1 million |
Sam
G. Chainani |
Over
$1 million |
Jason
C. Yeung |
Over
$1 million |
Armistead
B. Nash |
$100,001-$500,000 |
David
S. Cohen |
Over
$1 million |
Alexander
T. Norton |
Over
$1 million |
Inception |
|
Dennis
P. Lynch |
Over
$1 million |
Sam
G. Chainani |
Over
$1 million |
Jason
C. Yeung |
$100,001-$500,000 |
Armistead
B. Nash |
$100,001-$500,000 |
David
S. Cohen |
$500,001-$1,000,000 |
Alexander
T. Norton |
$100,001-$500,000 |
International
Advantage |
|
Kristian
Heugh |
Over
$1 million |
Wendy
Wang |
$100,001-$500,000 |
International
Equity |
|
Vladimir
A. Demine |
$1-$10,000 |
Alex
Gabriele |
None |
William
D. Lock |
$100,001-$500,000 |
Bruno
Paulson |
Over
$1 million |
Richard
Perrott |
$100,001
- $500,000 |
Nic
Sochovsky |
None |
Marcus
Watson |
None |
Nathan
Wong |
None |
International
Opportunity |
|
Kristian
Heugh |
Over
$1 million |
Permanence |
|
Dennis
P. Lynch |
$500,001-$1,000,000 |
Sam
G. Chainani |
$500,001-$1,000,000 |
|
|
Armistead
B. Nash |
$10,001-$50,000 |
Jason
C. Yeung |
None |
David
S. Cohen |
$100,001-$500,000 |
Alexander
T. Norton |
None |
Manas
Gautam |
None |
Real
Assets |
|
Mark
A. Bavoso |
None |
Laurel
Durkay |
None |
Matthew
King |
None |
Ryan
Meredith |
None |
Christian
G. Roth |
None |
US
Core |
|
Andrew
Slimmon |
$100,001-$500,000 |
Phillip
Kim |
$10,001-$50,000 |
U.S.
Real Estate |
|
Laurel
Durkay |
None |
Independent
Registered Public Accounting Firm
Ernst
& Young LLP, located at 200 Clarendon Street, Boston, MA 02116-5021, serves
as the Funds’
independent registered public accounting
firm and provides audit and audit-related services, tax-related services and
assistance in connection with various SEC filings.
Fund
Counsel
Dechert
LLP, located at 1095 Avenue of the Americas, New York, NY 10036-6797, acts as
the Company’s legal counsel.
Securities
Lending
Pursuant
to an agreement between the Company and State Street, the Funds may lend their
securities through State Street as securities
lending agent to certain qualified borrowers. As securities lending agent of the
Company, State Street administers the Funds’
securities lending program. These services include arranging the loans of
securities with approved borrowers and their return to the
Fund upon loan termination, negotiating the terms of such loans, selecting the
securities to be loaned and monitoring dividend activity
relating to loaned securities. State Street also marks-to-market daily the value
of loaned securities and collateral and may require
additional collateral as necessary from borrowers. State Street may also, in its
capacity as securities lending agent, invest cash received
as collateral in pre-approved investments in accordance with the Securities
Lending Authorization Agreement. State Street maintains
records of loans made and income derived therefrom and makes available such
records that the Company deems necessary to monitor
the securities lending program.
For the
fiscal year ended December
31, 2020, the following Funds earned income and incurred the following costs and
expenses as a result of
their securities lending activities:
|
|
|
|
|
|
|
|
|
|
Fund |
Gross Income1
|
Revenue Split2
|
Cash Collateral Management Fees3
|
Administrative Fees4
|
Indemnification Fees5
|
Rebates
to Borrowers |
Other Fees |
Total
Cost of
the Securities Lending Activities |
Net
Income from
the Securities Lending
Activities |
Active
International
Allocation |
$17,038 |
$2,015 |
$0 |
$0 |
$0 |
$3,587 |
$0 |
$5,602 |
$11,436 |
Advantage |
273,279 |
40,985 |
0 |
0 |
0 |
0 |
0 |
40,985 |
232,294 |
Asia
Opportunity |
250,267 |
37,537 |
0 |
0 |
0 |
0 |
0 |
37,537 |
212,730 |
Emerging
Markets |
135,075 |
19,833 |
0 |
0 |
0 |
2,846 |
0 |
22,679 |
112,396 |
Emerging
Markets
Small Cap |
40,875 |
6,024 |
0 |
0 |
0 |
689 |
0 |
6,713 |
34,162 |
Global
Concentrated
Real
Estate |
192 |
29 |
0 |
0 |
0 |
0 |
0 |
29 |
163 |
|
|
|
|
|
|
|
|
|
|
Fund |
Gross Income1 |
Revenue Split2 |
Cash Collateral Management Fees3 |
Administrative Fees4 |
Indemnification Fees5 |
Rebates
to Borrowers |
Other Fees |
Total
Cost of
the Securities Lending Activities |
Net
Income from
the Securities Lending
Activities |
Global
Endurance |
14,532 |
2,178 |
0 |
0 |
0 |
4 |
0 |
2,182 |
12,350 |
Global
Infrastructure |
14,068 |
2,109 |
0 |
0 |
0 |
0 |
0 |
2,109 |
11,959 |
Global
Insight |
4,207 |
631 |
0 |
0 |
0 |
0 |
0 |
631 |
3,576 |
Global
Real Estate |
5,801 |
869 |
0 |
0 |
0 |
3 |
0 |
872 |
4,929 |
Growth |
275,694 |
41,340 |
0 |
0 |
0 |
90 |
0 |
41,430 |
234,264 |
Inception |
1,411,065 |
211,460 |
0 |
0 |
0 |
1,230 |
0 |
212,690 |
1,198,375 |
International
Advantage |
260,585 |
38,421 |
0 |
0 |
0 |
4,440 |
0 |
42,861 |
217,724 |
International
Equity |
119,928 |
17,500 |
0 |
0 |
0 |
3,252 |
0 |
20,752 |
99,176 |
International
Opportunity |
873,237 |
130,563 |
0 |
0 |
0 |
2,798 |
0 |
133,361 |
739,876 |
Real
Assets |
273 |
41 |
0 |
0 |
0 |
0 |
0 |
41 |
232 |
1 |
Gross
income includes income from the reinvestment of cash
collateral. |
2 |
Revenue
split represents the share of revenue generated by the securities lending
program and paid to State Street. |
3 |
Cash
collateral management fees include fees deducted from a pooled cash
collateral reinvestment vehicle that are not included in the revenue
split. |
4 |
These
administrative fees are not included in the revenue
split. |
5 |
These
indemnification fees are not included in the revenue
split. |
DISTRIBUTION
AND SHAREHOLDER SERVICES PLANS
Morgan
Stanley Distribution, Inc., an indirect wholly owned subsidiary of Morgan
Stanley, serves as the Company’s exclusive distributor
of Fund shares pursuant to a Distribution Agreement. In addition, to promote the
sale of Company shares, the Company has
adopted a Shareholder Services Plan with respect to the Class A shares of each
Fund and Distribution and Shareholder Services Plans with
respect to Class L and Class C shares of applicable Funds under Rule 12b-1 of
the 1940 Act (each, a “Plan”). Under the Plans,
each Fund
pays the Distributor a shareholder services fee of up to 0.25% of the Class A
shares’ average daily net assets on an annualized
basis. Each Fund
pays the Distributor a shareholder services fee of up to 0.25% of the Class L
shares’ average daily net assets on
an annualized basis and a distribution fee of up to 0.50% (0.25% with respect to
the Emerging Markets Fixed Income Opportunities
Portfolio) of the Class L shares’ average daily net assets on an annualized
basis. Each Fund
pays the Distributor a shareholder
services fee of up to 0.25% of the Class C shares’ average daily net assets on
an annualized basis and a distribution fee of up to
0.75% of the Class C shares’ average daily net assets on an annualized basis.
For at least one year, the Distributor has agreed to waive the
12b-1 fee on Class L shares of the Global Opportunity Portfolio to the extent it
exceeds 0.30% of the average daily net assets of
such shares on an annualized basis. The Distributor has agreed to waive the
12b-1 fee on Class L shares of the Advantage Portfolio
to the extent it exceeds 0.04% of the average daily net assets of such shares on
an annualized basis. These waivers will continue
for at least one year or until such time as the Board of Directors acts to
discontinue all or a portion of such waiver when it deems such
action is appropriate. The Distributor may retain any portion of the fees it
does not expend in meeting its obligations to the
Company. The Distributor may compensate Financial Intermediaries, plan
fiduciaries and administrators, which may or may not be
affiliated with Morgan Stanley, for providing distribution-related and/or
shareholder support services, including account maintenance
services, to shareholders (including, where applicable, underlying beneficial
owners) of the Company. The Distributor and the
Adviser also may compensate third-parties out of their own assets. For the
Company’s fiscal year ended December
31, 2020, certain
amounts paid by the Company with respect to the distribution fee were used to
compensate Financial Intermediaries for sales of Class L
and Class C shares of the respective Funds.
The Plans
for the Class A, Class L and Class C shares were approved by the Company’s Board
of Directors, including the Independent
Directors, none of whom has a direct or indirect financial interest in the
operation of a Plan or in any agreements related
thereto.
With
respect to sales of Class C shares of the Company, a commission or transaction
fee generally will be compensated by the Distributor
at the time of purchase directly out of the Distributor’s assets (and not out of
the Company’s assets) to Financial Intermediaries
who initiate and are responsible for such purchases computed based on a
percentage of the dollar value of such shares sold of up
to 1.00% on Class C shares.
Proceeds
from any CDSC and any distribution fees on Class C shares are paid to the
Distributor and are used by the Distributor to defray its
distribution related expenses in connection with the sale of the Company’s
shares, such as the payment to Financial Intermediaries
for selling such shares. With respect to Class C shares, the Financial
Intermediaries generally receive from the Distributor
ongoing distribution fees of up to 1.00% of the average daily net assets of the
Company’s Class C shares annually commencing
in the second year after purchase.
The
following table describes the distribution and/or shareholder servicing fees
paid by each Fund
with respect to its Class A, Class L and Class
C shares, as applicable, pursuant to the Plans and the distribution-related
expenses for each Fund
with respect to its Class A, Class L
and Class C shares, as applicable, for the fiscal year ended December
31, 2020. To the extent that expenditures on distribution-related
activities exceed the fees paid by a Fund, the excess amounts were paid by the
Adviser or the Distributor out of its own
resources.
|
|
|
|
Fund |
Total
Distribution and/or
Shareholder Servicing
Fees Paid by
Fund |
Distribution
and/or Shareholder
Servicing
Expenses* |
Distribution
and/or Shareholder Servicing
Fees Retained by Morgan Stanley
Distribution, Inc. (Expenditures
in Excess of Distribution
and/or Shareholder Servicing
Fees) |
Class
A |
|
|
|
Active
International Allocation |
$137,016 |
$135,396 |
$1,620 |
Advantage |
$237,413 |
$231,201 |
$6,212 |
Asia
Opportunity |
$141,489 |
$140,312 |
$1,177 |
China
Equity |
$30 |
$0 |
$30 |
Counterpoint
Global |
$559 |
$528 |
$31 |
Developing
Opportunity†
|
$8,019 |
$8,099 |
($80) |
Emerging
Markets Fixed Income Opportunities |
$7,973 |
$7,487 |
$486 |
Emerging
Markets Leaders |
$6,003 |
$6,038 |
($35) |
Emerging
Markets |
$20,846 |
$20,767 |
$79 |
Emerging
Markets Small Cap |
$531 |
$505 |
$26 |
Frontier
Markets |
$20,924 |
$20,873 |
$51 |
Global
Concentrated |
$11,172 |
$11,155 |
$17 |
Global
Concentrated Real Estate |
$18 |
$0 |
$18 |
Global
Core |
$4,490 |
$4,455 |
$35 |
Global
Endurance |
$1,777 |
$1,755 |
$22 |
Global
Franchise |
$720,804 |
$713,826 |
$6,978 |
Global
Infrastructure |
$527,768 |
$499,533 |
$28,235 |
Global
Insight |
$144,550 |
$152,748 |
($8,198) |
Global
Opportunity |
$3,219,297 |
$3,146,769 |
$72,528 |
Global
Permanence |
$30 |
$2 |
$28 |
Global
Real Estate |
$14,935 |
$14,668 |
$267 |
Global
Sustain |
$8,560 |
$8,193 |
$367 |
Growth |
$9,050,858 |
$8,958,844 |
$92,014 |
Inception |
$197,308 |
$195,921 |
$1,387 |
International
Advantage |
$1,096,440 |
$1,168,815 |
($72,375) |
International
Equity |
$224,182 |
$219,260 |
$4,922 |
International
Opportunity |
$1,076,908 |
$1,079,768 |
($2,860) |
Permanence‡
|
$56 |
$33 |
$23 |
Real
Assets |
$72 |
$48 |
$24 |
US
Core |
$9,395 |
$9,380 |
$15 |
U.S.
Real Estate |
$42,549 |
$41,865 |
$684 |
Class
L |
|
|
|
Active
International Allocation |
$34,780 |
$34,213 |
$567 |
Advantage1
|
$1,767 |
$30,735 |
($28,968) |
Emerging
Markets Fixed Income Opportunities |
$3,197 |
$2,726 |
$471 |
Emerging
Markets |
$1,167 |
$1,094 |
$73 |
Frontier
Markets |
$2,818 |
$2,811 |
$7 |
|
|
|
|
Fund |
Total
Distribution and/or
Shareholder Servicing
Fees Paid by
Fund |
Distribution
and/or Shareholder
Servicing
Expenses* |
Distribution
and/or Shareholder Servicing
Fees Retained by Morgan Stanley
Distribution, Inc. (Expenditures
in Excess of Distribution
and/or Shareholder Servicing
Fees) |
Global
Franchise |
$59,195 |
$59,104 |
$91 |
Global
Infrastructure |
$24,278 |
$23,799 |
$479 |
Global
Insight |
$5,057 |
$4,674 |
$383 |
Global
Opportunity2
|
$136,123 |
$257,805 |
($121,682) |
Global
Real Estate |
$6,681 |
$6,662 |
$19 |
Global
Sustain |
$10,021 |
$8,889 |
$1,132 |
Growth |
$976,421 |
$970,115 |
$6,306 |
Inception |
$11,915 |
$11,894 |
$21 |
International
Advantage |
$1,939 |
$1,543 |
$396 |
International
Equity |
$38,313 |
$37,940 |
$373 |
International
Opportunity |
$3,684 |
$3,543 |
$141 |
U.S.
Real Estate |
$12,167 |
$12,090 |
$77 |
Class
C |
|
|
|
Active
International Allocation |
$632 |
$297 |
$335 |
Advantage |
$519,087 |
$395,556 |
$123,531 |
Asia
Opportunity |
$109,974 |
$48,070 |
$61,904 |
China
Equity |
$233 |
$0 |
$233 |
Counterpoint
Global |
$166 |
$0 |
$166 |
Developing
Opportunity†
|
$16,332 |
$247 |
$16,085 |
Emerging
Markets Fixed Income Opportunities |
$4,258 |
$2,799 |
$1,459 |
Emerging
Markets Leaders |
$14,659 |
$10,070 |
$297 |
Emerging
Markets |
$4,241 |
$3,944 |
$297 |
Emerging
Markets Small Cap |
$306 |
$200 |
$106 |
Frontier
Markets |
$7,321 |
$6,840 |
$481 |
Global
Concentrated |
$27,159 |
$19,226 |
$7,933 |
Global
Concentrated Real Estate |
$71 |
$0 |
$71 |
Global
Core |
$14,544 |
$14,294 |
$250 |
Global
Endurance |
$1,399 |
$1 |
$1,398 |
Global
Franchise |
$1,105,397 |
$713,921 |
$391,476 |
Global
Infrastructure |
$25,925 |
$23,696 |
$2,229 |
Global
Insight |
$132,372 |
$109,680 |
$22,692 |
Global
Opportunity |
$3,212,775 |
$2,343,410 |
$869,365 |
Global
Permanence |
$110 |
$0 |
$110 |
Global
Real Estate |
$2,692 |
$2,155 |
$537 |
Global
Sustain |
$32,031 |
$23,908 |
$8,123 |
Growth |
$3,104,477 |
$2,033,455 |
$1,071,022 |
Inception |
$28,498 |
$7,837 |
$20,661 |
International
Advantage |
$189,746 |
$122,254 |
$67,492 |
International
Equity |
$6,811 |
$5,095 |
$1,716 |
International
Opportunity |
$613,168 |
$459,574 |
$153,594 |
Permanence‡
|
$117 |
$0 |
$117 |
Real
Assets |
$1,829 |
$450 |
$1,379 |
US
Core |
$23,979 |
$18,727 |
$5,252 |
U.S.
Real Estate |
$2,003 |
$1,443 |
$560 |
Fund
Total |
$27,463,807 |
$24,536,030 |
$2,828,777 |
* |
Includes
payments for distribution and/or shareholder servicing to third-parties
and affiliated entities. |
† |
Class
A and Class C shares of Developing Opportunity Portfolio commenced
offering on February 14, 2020. |
‡ |
Class
A and Class C shares of Permanence Portfolio commenced offering on
March 31, 2020. |
1 |
The
distribution and shareholder servicing fee paid by the Advantage Portfolio
pursuant to the Class L Plan reflects a waiver of
$31,359. |
2 |
The
distribution and shareholder servicing fee paid by the Global Opportunity
Portfolio pursuant to the Class L Plan reflects a waiver of
$204,185. |
Revenue
Sharing
This
section does not apply to Class IS shares. The Adviser and/or the Distributor
may pay compensation, out of their own funds and not as
an expense of the Funds, to
certain Financial Intermediaries, including recordkeepers and administrators of
various deferred
compensation plans, in connection with the sale, distribution, marketing and
retention of shares of the Funds
and/or shareholder
servicing. For example, the Adviser or the Distributor may pay additional
compensation to a Financial Intermediary for, among
other things, promoting the sale and distribution of Fund shares, providing
access to various programs, mutual fund platforms
or preferred or recommended mutual fund lists that may be offered by a Financial
Intermediary, granting the Distributor access to
a Financial Intermediary’s financial advisors and consultants, providing
assistance in the ongoing education and training of a Financial
Intermediary’s financial personnel, furnishing marketing support, maintaining
share balances and/or for sub-accounting, recordkeeping,
administrative, shareholder, or transaction processing services. Such payments
are in addition to any distribution fees, shareholder
servicing fees and/or transfer agency fees that may be payable by the
Funds. The
additional payments may be based on various
factors, including level of sales (based on gross or net sales or some specified
minimum sales or some other similar criteria related to
sales of the Funds and/or
some or all other Morgan Stanley Funds), amount of assets invested by the
Financial Intermediary’s
customers (which could include current or aged assets of the Funds and/or
some or all other Morgan Stanley Funds), a
Fund’s
advisory fees, some other agreed upon amount or other measures as determined
from time to time by the Adviser and/or the Distributor.
The amount of these payments may be different for different Financial
Intermediaries.
With
respect to Morgan Stanley Smith Barney LLC, these payments may include the
following amounts, which are paid in accordance
with the applicable compensation structure:
1 |
an
ongoing annual fee in an amount of $243,300 in consideration of the
Adviser’s participation at various Morgan Stanley Smith
Barney LLC events, including seminars, conferences and meetings as
determined by Morgan Stanley Smith Barney LLC; |
2 |
an
ongoing annual fee in an amount of $615,000 in consideration of Morgan
Stanley Smith Barney LLC providing Adviser with
access to distribution analytical data in relation to sales of the
Funds and
certain other products managed and/or sponsored by
the Adviser or its affiliates; |
3 |
on
Class I, Class A, Class L and Class C shares of the Funds held
in Morgan Stanley Smith Barney LLC brokerage and advisory accounts,
an ongoing annual fee in an amount up to 0.10% of the total average daily
NAV of such shares for the applicable quarterly
period; |
4 |
on
Class I shares of a
Fund held in Morgan Stanley Smith Barney LLC brokerage and advisory
accounts as of June 30, 2014, where
each such account holds $5 million or more in Class I shares of the Fund,
or had $4 million or more in assets (but less than
$5 million) as of June 30, 2014 and reached $5 million by December 31,
2014, an ongoing annual fee in an amount equal to
35% of the advisory fee the Adviser receives from such Fund based on the
average daily NAV of such shares for the applicable quarterly
period; |
5 |
on
purchases of $1 million or more of Class A shares (for which no initial
sales charge was paid), Morgan Stanley Smith Barney LLC
may, at the discretion of the Distributor, receive a gross sales credit of
up to 1.00% (with respect to the U.S. Equity, Global
and International Equity and Listed Real Asset Funds) or 0.50% (with
respect to the Fixed Income Funds) of the amount
sold, as applicable*; |
6 |
on
certain Class I shares of the Global Real Estate Portfolio purchased prior
to August 2018, an ongoing annual fee in an amount
up to 25% of the advisory fee the Adviser receives from such Fund based on
the average daily NAV of such shares for the
applicable quarterly period. |
7 |
on
Class IR shares converted from Class I shares of a Fund held in Morgan
Stanley Smith Barney LLC brokerage and advisory accounts
as of June 30, 2014, where each such account holds $5 million or more in
Class I shares of the Fund, or had $4 million
or more in assets (but less than $5 million) as of June 30, 2014 and
reached $5 million by December 31, 2014, an ongoing
annual fee in an amount equal to 35% of the advisory fee the Adviser
receives from such Fund based on the average daily
NAV of such shares for the applicable quarterly
period; |
8 |
on
Class IR shares of a Fund, an ongoing annual fee in an amount up to 25% of
the advisory fee the Adviser receives from such Fund
based on the average daily NAV of such shares for the applicable quarterly
period; and |
9 |
on
shares of the Global Real Estate Portfolio, Growth Portfolio or
International Opportunity Portfolio converted into Class IR shares
of the same Fund prior to August 31, 2018, a one-time fee in an amount
equal to 0.07% of assets under management of such
shares of the applicable Fund at the date of
conversion. |
With
respect to Morgan Stanley & Co. LLC, these payments may include the
following amounts, which are paid in accordance with the
applicable compensation structure:
1 |
on
shares of a
Fund, a fee in an amount up to 20% of the advisory fee the Adviser
receives from such Fund attributable to such shares
for the applicable period, not to exceed one
year. |
With
respect to other Financial Intermediaries, these payments may include the
following amounts, which are paid in accordance with the
applicable compensation structure for each Financial Intermediary:
1 |
on
Class I, Class A, Class L and Class C shares of the Funds,
reimbursement for ticket charges applied to Fund
shares; |
2 |
on
Class I, Class A, Class L and Class C shares of the Funds held
in brokerage and/or advisory program accounts, an ongoing annual
fee in an amount up to 0.225% of the total average daily NAV of such
shares for the applicable quarterly period; |
3 |
an
ongoing annual fee in an amount up to 0.25% on sales of Class I, Class A,
Class L and Class C shares of the Funds through
brokerage
accounts; |
4 |
on
purchases of $1 million or more of Class A shares (for which no initial
sales charge was paid), Financial Intermediaries may, at
the discretion of the Distributor, receive a gross sales credit of up to
1.00% (with respect to the U.S. Equity, Global and International
Equity and Listed Real Asset Funds) or 0.50% (with respect to the
Fixed Income Funds) of the amount sold, as applicable;
and |
5 |
on
Class IR shares of a Fund, an ongoing annual fee in an amount up to 25% of
the advisory fee the Adviser receives from such Fund
based on the average daily NAV of such shares for the applicable quarterly
period. |
|
*
Commissions or transaction fees paid when Morgan Stanley Smith Barney LLC
or other Financial Intermediaries initiate and are
responsible for purchases of $1 million or more are computed on a
percentage of the dollar value of such shares sold as follows:
(i)
with respect to the U.S. Equity, Global and International Equity and
Listed Real Asset Funds: 1.00% on sales of $1 million to $4
million, plus 0.50% on sales over $4 million to $15 million, plus 0.25% on
the excess over $15 million; and (ii) with respect to the
Fixed Income Funds: 0.50% on sales of $1 million to $4 million, plus 0.25%
on sales over $4 million to $15 million, plus 0.15%
on the excess over $15 million. Purchases of Class A shares for which no
initial sales charge is paid are subject to a CDSC of
1% if the redemption of such shares occurs within 18 months after
purchase. The full amount of such CDSC will be retained by
the Distributor. |
The
prospect of receiving, or the receipt of, additional compensation as described
above by Morgan Stanley Smith Barney LLC or other
Financial Intermediaries may provide Morgan Stanley Smith Barney LLC or other
Financial Intermediaries and their financial advisors
and other salespersons with an incentive to favor sales of shares of the
Funds over
other investment options with respect to which
Morgan Stanley Smith Barney LLC or other Financial Intermediaries do not receive
additional compensation (or receives lower
levels of additional compensation). These payment arrangements, however, will
not change the price that an investor pays for shares of
the Funds
or the amount that the Funds receive to invest on behalf of an investor.
Investors may wish to take such payment arrangements
into account when considering and evaluating any recommendations relating to
Fund shares and should review carefully
any disclosure provided by Morgan Stanley Smith Barney LLC and other Financial
Intermediaries as to their compensation.
Dealer
Reallowances
Upon
notice to selected broker-dealers, the Distributor may reallow up to the full
applicable front-end sales charge during periods specified
in such notice. During periods when 90% or more of the sales charge is
reallowed, such selected broker-dealers may be deemed to
be underwriters as that term is defined in the 1933 Act.
BROKERAGE
PRACTICES
Portfolio
Transactions
The
Adviser
and/or Sub-Advisers are responsible for decisions to buy and sell securities for
a Fund,
for broker-dealer selection and for negotiation
of commission rates. The Adviser and/or Sub-Advisers are prohibited from
directing brokerage transactions on the basis of the
referral of clients or the sale of shares of advised investment companies.
Purchases and sales of securities on a stock exchange are effected
through brokers who charge a commission for their services. In the OTC market,
securities may be traded as agency transactions
through broker-dealers or traded on a “net” basis with dealers acting as
principal for their own accounts without a stated commission,
although the price of the security usually includes profit to the dealer. In
underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter’s concession or discount.
When securities are purchased or sold directly from or to an issuer, no
commissions or discounts are paid.
On
occasion, a Fund may
purchase certain money market instruments directly from an issuer without
payment of a commission or concession.
Money market instruments are generally traded on a “net” basis with dealers
acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer.
The
Company anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. There is
also generally less government supervision and regulation of foreign securities
exchanges and brokers than in the United States.
The
Adviser and/or Sub-Advisers select broker-dealers for the execution of
transactions for the Funds in
accordance with their duty to seek “best
execution” (i.e., the most favorable terms of execution). In seeking best
execution, the Adviser and/or Sub-Advisers are not
obligated
to choose the broker-dealer offering the lowest available commission rate if, in
the Adviser’s and/or Sub-Advisers’ reasonable
judgment, (i) the total costs or proceeds from the transaction might be less
favorable than may be obtained elsewhere; (ii) a higher
commission is justified by the brokerage and research services provided by the
broker-dealer that fall within the safe harbor of Section
28(e) of the 1934 Act or otherwise is permitted under applicable law; or (iii)
other considerations, such as the order size, the time
required for execution, the depth and breadth of the market for the security or
minimum credit quality requirements to transact
business with a particular broker-dealer. The research services received include
services which aid the Adviser and/or Sub-Advisers
in fulfilling their investment decision-making responsibilities, including (a)
furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; and (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance
of accounts.
When
effecting transactions on behalf of the Funds, the Adviser and/or Sub-Advisers
may trade with any broker-dealer on their list of approved
broker-dealers. Approved broker-dealers have met criteria as established by the
Adviser’s Trading and Research Governance team
(“TRG”). TRG reviews and approves broker-dealers periodically to determine
whether broker-dealers on the approved list continue
to meet such criteria. The approval lists are reported quarterly to the
Adviser’s Counterparty Governance Committee. When
selecting an approved broker-dealer (including an affiliate) to execute
securities transactions, the following factors may be considered:
(i) best available price; (ii) reliability, integrity and reputation in the
industry (which may include a review of financial information
and creditworthiness); (iii) execution capabilities, including block
positioning, speed of execution and quality and responsiveness
of its trading desk; (iv) knowledge of and access to the markets for the
securities being traded; (v) potential ability to obtain
price improvement; (vi) ability to maintain confidentiality; (vii) ability to
handle non-traditional trades; (viii) commission and commission-equivalent
rates; (ix) technology infrastructure; (x) clearance and settlement
capabilities; (xi) the size of the trade relative to other
trades in the same instrument; (xii) ability of a counterparty to commit its
capital to each Fund’s trade and its access to liquidity;
(xiii) counterparty restrictions associated with a portfolio, including
regulatory trading, documentation requirement or any specific
clearing broker-dealer requirements; (xiv) client-directed execution; (xv)
client-specific restrictions; and (xvi) such other factors as
may be appropriate.
Subject to
the duty to seek best execution, the Adviser uses a portion of the commissions
generated when executing client transactions to acquire
brokerage and research services that aid in fulfilling investment
decision-making responsibilities in accordance with Section 28(e) and
applicable law. Commissions paid to broker-dealers providing brokerage and
research services may be higher than those charged by
other broker-dealers. Subject to applicable law, the Adviser receives a benefit
when using client commissions to obtain brokerage
and research services because the Adviser does not have to produce or pay for
the brokerage research services itself. Therefore,
the Adviser has an incentive to select or recommend a broker-dealer based on its
interest in receiving brokerage and research
services, rather than solely on its clients’ interest in obtaining the best
price.
The
Adviser has adopted policies and procedures designed to help track and evaluate
the benefits received from brokerage and research
services, as well as to track how much clients pay above the amount that
broker-dealers from which the Adviser receives brokerage
and research services may have charged solely for execution of such trades. The
Adviser utilizes a voting system to assist in making a
good faith determination of the value of brokerage and research services it
receives in accordance with Section 28(e) and applicable
law. In many cases, these involve subjective judgments or approximations. The
Adviser has established a process for budgeting
research costs and allocating such costs across client accounts.
The
Adviser and certain other affiliated advisers have entered into commission
sharing arrangements (“CSAs”) with executing brokers (“CSA
Partners”) and a third-party vendor (“CSA Aggregator”). Pursuant to these
arrangements, and under the Adviser’s supervision, the CSA
Partners and CSA Aggregator track execution and research commissions separately
and pool and distribute research credits in
accordance with the policies and procedures discussed above to approved research
providers (which may include executing brokerage
firms or independent research providers (“Approved Research Providers”)) that
provide brokerage and research services. The CSA
Aggregator also reconciles research credits from trades with CSA Partners, and
pays Approved Research Providers and provides
other related administrative functions. In addition, a CSA Partner may provide
the Adviser with proprietary research it has developed
and, upon instruction, may retain research commission credits as compensation
for the provision of such proprietary research
services. The Adviser believes that these arrangements allow it to monitor the
amount of trading costs that are attributable to execution
services on the one hand and other brokerage and research services on the
other.
Transactions
that generate research credits include equity transactions executed on an agency
basis or via a riskless principal transaction
where the executing broker-dealer receives a commission. The Adviser does not
use CSAs or otherwise have arrangements to pay for
brokerage and research services with client commissions in connection with
trading fixed-income securities. Consistent with
long-standing industry practice in the fixed-income markets, however, the
Adviser, subject to applicable law, may receive brokerage
and research services and other information, including access to fixed-income
trading platforms that dealers provide for no charge to
their customers in the ordinary course of business. Fixed-income instruments
typically trade at a bid/ask spread and without an
explicit brokerage charge. While there is not a formal trading expense or
commission, clients will bear the implicit trading costs reflected
in these spreads.
The
Adviser may receive “mixed use” products and services from an Approved Research
Provider, where a portion of the product or service
assists in its investment decision-making process in accordance with Section
28(e) and a portion may be used for other purposes.
Where a product or service has a mixed use, the Adviser will make a reasonable
allocation of its cost according to its use and will use
client commissions to pay only for the portion of the product or service that
assists in its investment decision-making process. The
Adviser may have an incentive to allocate the costs to uses that assist in its
investment decision-making process because the Adviser
may pay for such costs with client commissions rather than its own resources. To
the extent the Adviser receives “mixed use” products
and services, the Adviser will allocate the anticipated costs of a mixed use
product or service in good faith and maintain records
concerning allocations in order to mitigate such conflicts.
Client
accounts that pay a greater amount of commissions relative to other accounts may
bear a greater share of the cost of brokerage and
research services than such other accounts. The Adviser may use brokerage and
research services obtained with brokerage commissions
from some clients for the benefit of other clients whose brokerage commissions
do not pay for such brokerage and research
services. The Adviser may also share brokerage and research services with its
affiliated advisers, and the clients of its affiliated advisers
may receive the benefits of such brokerage and research services. These
arrangements remain subject to the Adviser’s overall obligation
to seek best execution for client trading.
The EU’s
Markets in Financial Instruments Directive II (“MiFID II”), which became
effective January 3, 2018, requires investment advisers
regulated under MiFID II to pay for research services separately from trade
execution services, either through their own resources
or a research payment account funded by a specific charge to a client. Although
the Adviser is not directly subject to the provisions
of MiFID II, certain of its affiliated advisers are, such as Morgan Stanley
Investment Management Limited; accordingly, as applicable,
the Adviser makes a reasonable valuation and allocation of the cost of research
services as between MiFID II client accounts
and other accounts that participate in CSAs and will pay for research services
received with respect to MiFID II client accounts
from its own resources. The Adviser and affiliated advisers subject to MiFID II
may separately pay for fixed-income research from their
own resources. Following its withdrawal from the EU on January 31, 2020, the
United Kingdom has entered a transition period,
during which EU law (including MiFID II) will continue to apply in the United
Kingdom. Following the transition period, investment
managers in the United Kingdom may still be required to comply with certain
MiFID II equivalent requirements in accordance
with the handbook of rules and guidance issued by the Financial Conduct
Authority.
When
permitted under applicable law, portfolio managers generally will aggregate
orders of their clients for the same securities in a single
order so that such orders are executed simultaneously in order to facilitate
best execution and to reduce brokerage costs. The Adviser
and/or Sub-Advisers effect aggregated orders in a manner designed to ensure that
no participating client is favored over any other
client.
In
general, accounts that participate in an aggregated order will participate on a
pro rata or other objective basis. Pro rata allocation of securities
and other instruments will generally consist of allocation based on the order
size of a participating client account in proportion
to the size of the orders placed for other accounts participating in the
aggregated order. However, the Adviser and/or Sub-Advisers
may allocate such securities and other instruments using a method other than pro
rata if their supply is limited, based on differing
portfolio characteristics among accounts or to avoid odd lots or small
allocations, among other reasons. These allocations are made in
the good faith judgment of the Adviser and/or the Sub-Advisers with a goal of
seeking to ensure that fair and equitable allocation
occurs over time. There may be times that the Adviser and/or Sub-Advisers are
not able to aggregate orders because of applicable
law or other considerations when doing so might otherwise be
advantageous.
Affiliated
Brokers
Subject to
the overriding objective of obtaining the best execution of orders, the Company
may use broker-dealer affiliates of the Adviser to
effect Fund brokerage transactions, including transactions in futures contracts
and options on futures contracts, under procedures
adopted by the Company’s Board of Directors. In order to use such affiliates,
the commission rates and other remuneration
paid to the affiliates must be fair and reasonable in comparison to those of
other broker-dealers for comparable transactions
involving similar securities being purchased or sold during a comparable time
period. This standard would allow the affiliated
broker or dealer to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker.
Pursuant
to an order issued by the SEC, the Company is permitted to engage in principal
transactions in money market instruments, subject to
certain conditions, with Morgan Stanley & Co. LLC, a broker-dealer
affiliated with the Company’s Adviser.
During the
fiscal years ended December 31, 2018, 2019 and 2020, the Funds did
not effect any principal transactions with Morgan Stanley
& Co. LLC.
Brokerage
Commissions Paid
During the
fiscal years ended December 31, 2018, 2019
and 2020, the Company paid brokerage commissions of approximately $9,886,317,
$8,619,316 and $8,167,837, respectively. During the fiscal years ended December
31, 2018, 2019
and 2020, the Company
paid in the aggregate $6,210, $1,664 and $0, respectively, in brokerage
commissions to Morgan Stanley & Co. LLC and/
or its
affiliated broker-dealers. During the fiscal year ended December
31, 2020, the brokerage commissions paid to Morgan Stanley & Co.
LLC and/or its affiliated broker-dealers represented approximately 0.00% of the
total brokerage commissions paid by the Company
during the period and were paid on account of transactions having an aggregate
dollar value equal to approximately 0.00% of the
aggregate dollar value of all portfolio transactions of the Company during the
period for which commissions were paid.
For the
fiscal year ended December
31, 2020, each Fund
paid brokerage commissions, including brokerage commissions paid to affiliated
broker-dealers as follows:
|
|
|
|
|
|
Brokerage
Commissions Paid During Fiscal Year Ended December
31, 2020 |
|
|
Commissions
Paid to Morgan Stanley & Co. LLC and/or its affiliated
broker-dealers |
Fund |
Total
Commissions Paid |
Total
Commissions |
Percent
of Total Commissions |
Percent
of Total Brokered Transactions |
Active
International Allocation |
$177,181 |
$0 |
0.00% |
0.00% |
Advantage |
$128,650 |
$0 |
0.00% |
0.00% |
Asia
Opportunity |
$293,436 |
$0 |
0.00% |
0.00% |
China
Equity |
$4,595 |
$0 |
0.00% |
0.00% |
Counterpoint
Global |
$10,407 |
$0 |
0.00% |
0.00% |
Developing
Opportunity1
|
92,231 |
$0 |
0.00% |
0.00% |
Emerging
Markets Fixed Income Opportunities |
$0 |
$0 |
0.00% |
0.00% |
Emerging
Markets Leaders |
$49,690 |
$0 |
0.00% |
0.00% |
Emerging
Markets |
$706,952 |
$0 |
0.00% |
0.00% |
Emerging
Markets Small Cap |
$209,988 |
$0 |
0.00% |
0.00% |
Frontier
Markets |
$385,043 |
$0 |
0.00% |
0.00% |
Global
Concentrated |
$2,786 |
$0 |
0.00% |
0.00% |
Global
Concentrated Real Estate |
$1,300 |
$0 |
0.00% |
0.00% |
Global
Core |
$528 |
$0 |
0.00% |
0.00% |
Global
Endurance |
$3,735 |
$0 |
0.00% |
0.00% |
Global
Franchise |
$236,018 |
$0 |
0.00% |
0.00% |
Global
Infrastructure |
$209,308 |
$0 |
0.00% |
0.00% |
Global
Insight |
$85,145 |
$0 |
0.00% |
0.00% |
Global
Opportunity |
$854,365 |
$0 |
0.00% |
0.00% |
Global
Permanence |
$1,141 |
$0 |
0.00% |
0.00% |
Global
Real Estate |
$364,236 |
$0 |
0.00% |
0.00% |
Global
Sustain |
$3,928 |
$0 |
0.00% |
0.00% |
Growth |
$1,810,323 |
$0 |
0.00% |
0.00% |
Inception |
$400,649 |
$0 |
0.00% |
0.00% |
International
Advantage |
$739,821 |
$0 |
0.00% |
0.00% |
International
Equity |
$326,216 |
$0 |
0.00% |
0.00% |
International
Opportunity |
$969,282 |
$0 |
0.00% |
0.00% |
Permanence2
|
$568 |
$0 |
0.00% |
0.00% |
Real
Assets |
$6,098 |
$0 |
0.00% |
0.00% |
US
Core |
$1,438 |
$0 |
0.00% |
0.00% |
U.S.
Real Estate |
$92,779 |
$0 |
0.00% |
0.00% |
1 |
The
Fund commenced operations on February 14, 2020. |
2 |
The
Fund commenced operations on March 31, 2020. |
For the
fiscal years ended December 31, 2018 and 2019, each Fund
paid brokerage commissions, including brokerage commissions paid to
affiliated broker-dealers, as follows:
|
|
|
|
|
|
Brokerage
Commissions Paid During Fiscal Year Ended December 31, 2018 and
2019 |
|
Fiscal
Year Ended December 31, 2018 |
Fiscal
Year Ended December 31, 2019 |
Fund |
Total |
Morgan
Stanley & Co. LLC and/or
its affiliated broker-dealers |
Total |
Morgan
Stanley & Co.
LLC and/or its affiliated
broker-dealers |
Active
International Allocation |
$86,397 |
$0 |
$104,512 |
$0 |
|
|
|
|
|
|
Brokerage
Commissions Paid During Fiscal Year Ended December 31, 2018 and
2019 |
|
Fiscal
Year Ended December 31, 2018 |
Fiscal
Year Ended December 31, 2019 |
Fund |
Total |
Morgan
Stanley & Co. LLC and/or
its affiliated broker-dealers |
Total |
Morgan
Stanley & Co.
LLC and/or its affiliated
broker-dealers |
Advantage |
$47,382 |
$0 |
$102,061 |
$0 |
Asia
Opportunity |
$43,304 |
$0 |
$65,486 |
$0 |
China
Equity1
|
— |
— |
$11,157 |
$0 |
Counterpoint
Global2
|
$4,395 |
$0 |
$2,876 |
$0 |
Developing
Opportunity3
|
— |
— |
— |
— |
Emerging
Markets Fixed Income Opportunities |
$10 |
$0 |
$0 |
$0 |
Emerging
Markets Leaders |
$64,659 |
$716 |
$50,762 |
$0 |
Emerging
Markets |
$1,227,920 |
$1,286 |
$1,220,613 |
$1,664 |
Emerging
Markets Small Cap |
$93,136 |
$0 |
$105,190 |
$0 |
Frontier
Markets |
$1,946,870 |
$926 |
$1,007,956 |
$0 |
Global
Concentrated |
$4,570 |
$0 |
$5,200 |
$0 |
Global
Concentrated Real Estate Portfolio4
|
$2,576 |
$0 |
$1,272 |
$0 |
Global
Core |
$2,038 |
$0 |
$1,639 |
$0 |
Global
Endurance5
|
$236 |
$0 |
$1,658 |
$0 |
Global
Franchise |
$199,868 |
$0 |
$139,269 |
$0 |
Global
Infrastructure |
$192,944 |
$0 |
$142,921 |
$0 |
Global
Insight |
$30,665 |
$7 |
$60,635 |
$0 |
Global
Opportunity |
$1,043,045 |
$1,199 |
$287,245 |
$0 |
Global
Permanence6
|
— |
— |
$958 |
$0 |
Global
Real Estate |
$756,207 |
$0 |
$907,534 |
$0 |
Global
Sustain |
$3,703 |
$0 |
$1,897 |
$0 |
Growth |
$1,099,794 |
$0 |
$2,331,431 |
$0 |
Inception |
$256,326 |
$981 |
$192,602 |
$0 |
International
Advantage |
$301,446 |
$100 |
$561,174 |
$0 |
International
Equity |
$1,324,595 |
$0 |
$502,952 |
$0 |
International
Opportunity |
$799,946 |
$995 |
$639,137 |
$0 |
Permanence3
|
— |
— |
— |
— |
Real
Assets4
|
$3,156 |
$0 |
$2,589 |
$0 |
US
Core |
$828 |
$0 |
$1,233 |
$0 |
U.S.
Real Estate |
$275,048 |
$0 |
$119,957 |
$0 |
1 |
The
Fund commenced operations on October 31, 2019. |
2 |
The
Fund commenced operations on June 29, 2018. |
3 |
Not
operational during the period. |
4 |
The
Fund commenced operations on June 18, 2018. |
5 |
The
Fund commenced operations on December 31, 2018. |
6 |
The
Fund commenced operations on April 30, 2019. |
Regular
Broker-Dealers
During the
fiscal year ended December
31, 2020, the following Funds
purchased securities issued by the following issuers, which issuers
were among the ten brokers or ten dealers that executed transactions for or with
the Company or the Fund in the largest dollar amounts
during the period.
|
|
Fund |
Issuer |
Frontier
Markets |
BRAC
EPL Stock Brokerage Limited |
Real
Assets |
Barclays
Bank PLC Goldman
Sachs & Co. HSBC
Holdings PLC JP
Morgan Chase & Co. |
At
December
31, 2020, the following Funds held securities issued by such brokers or dealers
with the following market values:
|
|
|
Fund |
Regular
Broker-Dealer |
Approximate
Market Value at
12/31/20 |
Frontier
Markets |
BRAC
EPL Stock Brokerage Limited |
$1,527,000 |
Real
Assets |
JP
Morgan Chase & Co. Goldman
Sachs & Co. |
$78,000 $37,000 |
Portfolio
Turnover
The Funds
generally do not invest for short-term trading purposes; however, when
circumstances warrant, each Fund
may sell investment
securities without regard to the length of time they have been held. Market
conditions in a given year could result in a higher or
lower portfolio turnover rate than expected and the Funds will not consider
portfolio turnover rate a limiting factor in making
investment decisions consistent with their investment objectives and policies.
Higher portfolio turnover (e.g., over 100%) necessarily
will cause the Funds to pay correspondingly increased brokerage and trading
costs. In addition to transaction costs, higher portfolio
turnover may result in the realization of capital gains. As discussed under
“Taxes,” to the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
GENERAL
INFORMATION
Company
History
The
Company was incorporated pursuant to the laws of the State of Maryland on June
16, 1988 under the name Morgan Stanley Institutional
Fund, Inc. The Company filed a registration statement with the SEC registering
itself as an open-end management investment
company offering diversified and non-diversified series under the 1940 Act and
its shares under the 1933 Act, as amended,
and commenced operations on November 15, 1988. On December 1, 1998, the Company
changed its name to Morgan Stanley
Dean Witter Institutional Fund, Inc. Effective May 1, 2001, the Company changed
its name to Morgan Stanley Institutional Fund, Inc.
Effective
March 31, 2021, the Company’s Global Advantage Portfolio was renamed the Global
Insight Portfolio.
Description
of Shares and Voting Rights
The
Company’s Amended and Restated Articles of Incorporation permit the Directors to
issue 119 billion shares of common stock, par value
$.001 per share, from an unlimited number of classes or series of shares. The
shares of each Fund
of the Company, when issued,
are fully paid and nonassessable, and have no preference as to conversion,
exchange, dividends, retirement or other features. Fund
shares have no pre-emptive rights. The shares of the Company have non-cumulative
voting rights, which means that the holders of
more than 50% of the shares voting for the election of Directors can elect 100%
of the Directors if they choose to do so. Shareholders
are entitled to one vote for each full share held (and a fractional vote for
each fractional share held), then standing in their name
on the books of the Company. No portfolio of the Company is subject to the
liabilities of any other portfolio of the Company.
Dividends
and Capital Gains Distributions
The
Company’s policy is to distribute substantially all of each Fund’s
net investment income, if any. The Company may also distribute
any net realized capital gains in the amount and at the times that will avoid
both income (including taxable gains) taxes on it and the
imposition of the federal excise tax on income and capital gains (see “Taxes”).
However, the Company may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or capital gains distributions cannot be
predicted.
Any
dividend or distribution paid shortly after the purchase of shares
of a Fund by
an investor may have the effect of reducing the per share NAV
of the Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although
in effect a return of capital, are subject to income taxes for shareholders
subject to tax as set forth herein and in the applicable
Prospectus.
As set
forth in the Prospectuses, unless the shareholder elects otherwise in writing,
all dividends and capital gains distributions for a class of
shares are automatically reinvested in additional shares of the same class of
the Fund at NAV (as of the business day following the record
date). This automatic reinvestment of dividends and distributions will remain in
effect until the shareholder notifies the Company by
telephone or in writing that either the Income Option (income dividends in cash
and capital gain distributions reinvested
in shares at NAV) or the Cash Option (both income dividends and capital gains
distributions in cash) has been elected. It may take
up to three business days to effect this change. An account statement is
sent to shareholders whenever a dividend or distribution
is paid.
TAXES
The
following is only a summary of certain additional federal income tax
considerations generally affecting the Company, Funds and
their
shareholders. No attempt is made to present a detailed explanation of the
federal, state or local tax treatment of the Company, Funds or
shareholders, and the discussion here and in the Prospectuses is not intended to
be a substitute for careful tax planning.
The
following general discussion of certain federal income tax consequences is based
on the Code and the regulations issued thereunder
as in effect on the date of this SAI. New legislation, as well as administrative
changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
Each Fund
within the Company is generally treated as a separate corporation for federal
income tax purposes. Thus, the provisions of the Code
generally will be applied to each Fund
separately, rather than to the Company as a whole.
Regulated
Investment Company Qualifications
Each Fund
intends to qualify and elect to be treated for each taxable year as a RIC under
Subchapter M of the Code. In order to so qualify,
a Fund
must, among other things, (i) derive at least 90% of its gross income each
taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, and other income
derived with respect to its business of investing in such stock, securities or
currencies, including, generally, certain gains from options,
futures and forward contracts; and (ii) diversify its holdings so that, at the
end of each fiscal quarter of the Fund’s taxable year, (a)
at least 50% of the market value of the Fund’s total assets is represented by
cash and cash items, U.S. government securities, securities
of other RICs, and other securities, with such other securities limited, in
respect to any one issuer, to an amount not greater than 5% of
the value of the Fund’s total assets or 10% of the outstanding voting securities
of such issuer, and (b) not more than 25% of the
value of its total assets are invested in the securities (other than U.S.
government securities or securities of other RICs) of any one issuer
or two or more issuers which a Fund
controls and which are engaged in the same, similar, or related trades or
businesses. For
purposes of the 90% gross income requirement described above, foreign currency
gains will generally be treated as qualifying income
under current federal income tax law. However, the Code expressly provides the
U.S. Treasury with authority to issue regulations
that would exclude foreign currency gains from qualifying income if such gains
are not directly related to a RIC’s business of
investing in stock or securities (or options or futures with respect to stocks
or securities). While to date the U.S. Treasury has not exercised
this regulatory authority, there can be no assurance that it will not issue
regulations in the future (possibly with retroactive application)
that would treat some or all of the Fund’s foreign currency gains as
non-qualifying income.
For
purposes of the 90% test described above, dividends received by a Fund
will be treated as qualifying income to the extent they are attributable
to the issuer’s current and accumulated earnings and profits. Distributions in
excess of the distributing issuer’s current and
accumulated earnings and profits will first reduce the Fund’s basis in the stock
as a return of capital and will not qualify as gross income.
Distributions in excess of the Fund’s basis in the stock will qualify for the
90% test discussed above as the distribution will be treated
as gain from the sale of stock. This gain will be long-term capital gain if
a Fund
held the stock for more than a year.
For
purposes of the diversification requirement described above, a Fund
will not be treated as in violation of such requirement as a result of
a discrepancy between the value of its various investments and the
diversification percentages described above, unless such discrepancy
exists immediately following the acquisition of any security or other property
and is wholly or partly the result of such acquisition.
Moreover, even in the event of noncompliance with the diversification
requirement as of the end of any given quarter, a Fund
is permitted to cure the violation by eliminating the discrepancy causing such
noncompliance within a period of 30 days from the close
of the relevant quarter other than its first quarter following its election to
be taxed as a RIC.
Net income
derived from an interest in a “qualified publicly traded partnership,” as
defined in the Code, will be treated as qualifying income for
purposes of the income requirement in clause (i) above. In addition, for the
purposes of the diversification requirements in clause
(ii) above, the outstanding voting securities of any issuer includes the equity
securities of a qualified publicly traded partnership,
and no more than 25% of the value of a RIC’s total assets may be invested in the
securities of one or more qualified publicly
traded partnerships. The separate treatment for publicly traded partnerships
under the passive loss rules of the Code applies to a RIC
holding an interest in a qualified publicly traded partnership, with respect to
items attributable to such interest.
Each of
the Advantage Portfolio, Asia Opportunity Portfolio, Counterpoint Global
Portfolio, Developing Opportunity Portfolio, Global
Insight Portfolio, Global Opportunity Portfolio, Global Permanence Portfolio,
Growth Portfolio, Inception Portfolio, International
Advantage Portfolio, International Opportunity Portfolio and Permanence
Portfolio may seek to gain exposure to bitcoin
through investments in a Subsidiary. Historically, the IRS has issued private
letter rulings in which the IRS specifically concluded
that income and gains from investments in a wholly-owned foreign subsidiary that
invests in commodity-linked instruments
are “qualifying income” for purposes of the 90% gross income test described
above. The Funds have not received such a private
letter ruling, and are not able to rely on private letter rulings issued to
other taxpayers. The IRS recently issued final regulations
that would generally treat a Fund’s income inclusion with respect to a
Subsidiary as qualifying income either if (i) there is a
distribution out of the earnings and profits of the Subsidiary that are
attributable to such income inclusion or (ii) such inclusion is derived
with respect to the Fund’s business of investing in stock, securities or
currencies. The tax treatment of a Fund’s investments in a
Subsidiary may be adversely affected by future legislation, court decisions,
Treasury Regulations and/or guidance issued by the
IRS that
could affect whether income derived from such investments is “qualifying income”
under Subchapter M of the Code, or otherwise
affect the character, timing and/or amount of the Fund’s taxable income or any
gains and distributions made by a Fund.
No
assurances can be provided that the IRS would not be able to successfully assert
that a Fund’s income from such investments was not
“qualifying income,” in which case a Fund
would fail to qualify as a RIC under Subchapter M of the Code if over 10% of its
gross
income was derived from these investments. If a Fund
failed to qualify as a RIC, it would be subject to federal and state income
tax on all
of its taxable income at regular corporate tax rates with no deduction for any
distributions paid to shareholders, which would
significantly adversely affect the returns to, and could cause substantial
losses for, Fund shareholders.
A foreign
corporation, such as a Subsidiary, will generally not be subject to U.S. federal
income taxation unless it is deemed to be engaged in
a U.S. trade or business. The rules regarding whether the Subsidiary will be
treated as engaged in a U.S. trade or business as a
result of its bitcoin related investments are not certain. It is expected that
each Subsidiary will conduct its activities in a manner so as to
meet the requirements of a safe harbor under Section 864(b)(2) of the Code under
which the Subsidiary may engage in trading in
stocks or securities or certain commodities without being deemed to be engaged
in a U.S. trade or business. However, if certain of
a Subsidiary’s activities were determined not to be of the type described in the
safe harbor, then the activities of the Subsidiary
may constitute a U.S. trade or business, or be taxed as such. In general, a
foreign corporation, such as a Subsidiary, that does not
conduct a U.S. trade or business is nonetheless subject to tax at a flat rate of
30 percent (or lower tax treaty rate), generally payable
through withholding, on the gross amount of certain U.S.-source income that is
not effectively connected with a U.S. trade or
business. There is presently no tax treaty in force between the U.S. and the
Cayman Islands that would reduce this rate of withholding
tax. It is not expected that any Subsidiary will derive income subject to such
withholding tax.
Each
Subsidiary will be treated as a controlled foreign corporation and each Fund
will be treated as a “U.S. shareholder” of the Subsidiary.
As a result, each Fund will be required to include in gross income for U.S.
federal income tax purposes all of a Subsidiary’s
“Subpart F income,” whether or not such income is distributed by the Subsidiary.
Each Fund’s recognition of a Subsidiary’s
“Subpart F income” will increase the Fund’s tax basis in its respective
Subsidiary. Distributions by a Subsidiary to a Fund will be
tax-free, to the extent of their previously undistributed “Subpart F income,”
and will correspondingly reduce the Fund’s tax basis in
the Subsidiary. “Subpart F income” is generally treated as ordinary income,
regardless of the character of a Subsidiary’s underlying
income. If a net loss is realized by a Subsidiary, such loss is not generally
available to offset the income earned by a Fund, and such
loss cannot be carried forward to offset taxable income of a Fund
or the Subsidiary in future periods.
If a Fund
fails to satisfy either the income test or asset diversification test described
above, in certain cases, however, a Fund
may be able to
avoid losing its status as a RIC by timely providing notice of such failure to
the IRS, curing such failure and possibly paying an
additional tax or penalty.
Tax
Treatment of the Funds
and Shareholders
Each Fund
intends to distribute substantially all of its net investment income (including,
for this purpose, net short-term capital gains) to
shareholders. Dividends from a Fund’s
net investment income generally are taxable to shareholders as ordinary income,
whether
received in cash or in additional shares. Certain income distributions paid by
the Fund to individual shareholders are taxed at rates
equal to those applicable to net long-term capital gains (currently either 15%
or 20%, depending on whether the individual’s income
exceeds certain threshold amounts). This tax treatment applies only if certain
holding period requirements are satisfied by the shareholder
and the dividends are attributable to qualified dividends received by the Fund
itself. For this purpose, “qualified dividends”
means dividends received by a Fund
from certain U.S. corporations and qualifying foreign corporations, provided
that a Fund
satisfies certain holding period and other requirements in respect of the stock
of such corporations. Distributions received from REITs
are generally comprised of ordinary income dividends and capital gains
dividends, which are generally passed along to shareholders
retaining the same character and are subject to tax accordingly, as described
above. In the case of securities lending transactions,
payments in lieu of dividends are not qualified dividends. Dividends received by
a Fund
from REITs are qualified dividends
eligible for this lower tax rate only in limited circumstances. Dividends
received by a Fund
from a passive foreign investment
company (discussed below) are generally not eligible to be treated as qualified
dividends.
Under
recent tax legislation, individuals and certain other noncorporate entities are
generally eligible for a 20% deduction with respect to
ordinary dividends received from REITs (“qualified REIT dividends”) and certain
taxable income from MLPs. Applicable Treasury
regulation permit a RIC to pass through to its shareholders qualified REIT
dividends eligible for the 20% deduction. However,
the regulations do not provide a mechanism for a RIC to pass through to its
shareholders income from MLPs that would be
eligible for such deduction if received directly by the
shareholders.
A dividend
paid by a Fund to
a shareholder will not be treated as qualified dividend income of the
shareholder if (1) the dividend is received
with respect to any share held for fewer than 61 days during the 121-day period
beginning on the date which is 60 days before the
date on which such share becomes ex-dividend with respect to such dividend, (2)
to the extent that the recipient is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or
related property or (3) if the recipient elects to have the dividend treated as
investment income for purposes of the limitation
on deductibility of investment interest.
You should
also be aware that the benefits of the reduced tax rate applicable to long-term
capital gains and qualified dividend income may be
impacted by the application of the alternative minimum tax to individual
shareholders.
Dividends
paid to you out of a Fund’s
investment company taxable income that are not attributable to qualified
dividends generally will be
taxable to you as ordinary income (currently at a maximum federal income tax
rate of 37% in the case of an individual shareholder
for taxable years before 2026 and, in the case of a corporate shareholder, 21%
for taxable years beginning in 2018 or later) to
the extent of the Fund’s earnings and profits.
Under
recently issued Treasury regulations, certain distributions reported by
a Fund as
section 163(j) interest dividends may be treated as
interest income by shareholders for purposes of the tax rules applicable to
interest expense limitations under Code section 163(j).
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.
Distributions
of net long-term capital gains, if any, are taxable to shareholders as long-term
capital gains regardless of how long a shareholder
has held a Fund’s
shares and regardless of whether the distribution is received in additional
shares or in cash. The maximum
individual rate applicable to long-term capital gains is generally either 15% or
20%, depending on whether the individual’s
income exceeds certain threshold amounts.
Each Fund
will decide whether to distribute or to retain all or part of any net capital
gains (the excess of net long-term capital gains over net
short-term capital losses) in any year for reinvestment. Distributions of net
capital gains are taxable to shareholders as a long-term
capital gain regardless of how long shareholders have held their
shares. Each Fund
will send reports annually to shareholders regarding
the federal income tax status of all distributions made for the preceding year.
To the extent such amounts include distributions
received from a REIT, they may be based on estimates and be subject to change as
REITs do not always have the information
available by the time these reports are due and can recharacterize certain
amounts after the end of the tax year. As a result,
the final character and amount of distributions may differ from that initially
reported. If any capital gains are retained, a Fund
will pay
federal income tax thereon, and, if a Fund
makes an election, the shareholders will include such undistributed gains in
their income,
and will increase their tax basis in Fund shares by the difference between the
amount of the includable gains and the tax deemed
paid by the shareholder in respect of such shares. The shareholder will be able
to claim their share of the tax paid by a Fund
as a
refundable credit.
Shareholders
generally are taxed on any ordinary dividend or capital gain distributions
from a Fund in
the year they are actually distributed.
However, if any such dividends or distributions are declared in October,
November or December, to shareholders of record of
such month and paid in January, then such amounts will be treated for tax
purposes as received by the shareholders on December
31.
After the
end of each calendar year, shareholders will be sent information on their
dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains, and the amount of any dividends
eligible for the federal dividends-received deduction for
corporations.
Gains or
losses on the sale of securities by a Fund
held as a capital asset will generally be long-term capital gains or losses if
the securities
have a tax holding period of more than one year at the time of such sale. Gains
or losses on the sale of securities with a tax holding
period of one year or less will be short-term capital gains or losses. Special
tax rules described below may change the normal treatment
of gains and losses recognized by a Fund
when it makes certain types of investments. Those special tax rules can, among
other
things, affect the treatment of capital gain or loss as long-term or short-term
and may result in ordinary income or loss rather than
capital gain or loss. The application of these special rules would therefore
also affect the character of distributions made by a
Fund.
A gain or
loss realized by a shareholder on the sale, exchange or redemption of shares of
a Fund
held as a capital asset will be capital gain or
loss, and such gain or loss will be long-term if the holding period for the
shares exceeds one year and otherwise will be short-term. Any
loss realized on a sale, exchange or redemption of shares of a Fund
will be disallowed to the extent the shares disposed of are
replaced with substantially identical shares within the 61-day period beginning
30 days before and ending 30 days after the shares are
disposed of. Any loss realized by a shareholder on the disposition of shares
held six months or less is treated as a long-term capital loss to
the extent of any distributions of net long-term capital gains received by the
shareholder with respect to such shares or any inclusion
of undistributed capital gain with respect to such shares. The ability to deduct
capital losses may otherwise be limited under the
Code.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions
received from each 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.
The Funds (or
their administrative agent) are required to report to the IRS and furnish to
Fund 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
Fund shares covered by these new rules, the shareholder may only use an
alternative cost basis method for shares purchased prospectively.
Fund shareholders should consult with their tax advisors to determine the best
cost basis method for their tax situation.
Each Fund
will generally be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar
year an amount at least equal to the sum of 98% of its ordinary income (taking
into account certain deferrals and elections) for that
year and 98.2% of its capital gain net income (the excess of short- and
long-term capital gains over short- and long-term capital
losses, including any available capital loss carryforwards) for the one-year
period ending on October 31 of that year, plus certain
other amounts. Each Fund
intends to make sufficient distributions or deemed distributions of its ordinary
income and capital gain net
income, prior to the end of each calendar year to avoid liability for federal
excise tax, but can give no assurances that all such liability
will be eliminated. The amounts of a Fund’s
distributions are driven by federal tax requirements. A Fund’s
required taxable distributions
to shareholders may be significant even if the Fund’s overall performance for
the period is negative.
The
Company may be required to withhold and remit to the U.S. Treasury an amount
equal to 24% of any dividends, capital gains distributions
and redemption proceeds paid to any individual or certain other non-corporate
shareholder (i) who has failed to provide a correct
taxpayer identification number (generally an individual’s social security number
or non-individual’s employer identification number) on
the New Account Application; (ii) who is subject to backup withholding as
notified by the IRS; or (iii) who has not certified
to the Company that such shareholder is not subject to backup withholding. This
backup withholding is not an additional tax, and
any amounts withheld would be sent to the IRS as an advance payment of taxes due
on a shareholder’s income for such year.
The
Company may make investments in which it recognizes income or gain prior to
receiving cash with respect to such investment. For
example, under certain tax rules, the Company may be required to accrue a
portion of any discount at which certain securities are purchased
as income each year even though the Company receives no payments in cash on the
security during the year. To the extent that the
Company makes such investments, it generally would be required to pay out such
income or gain as a distribution in each year to
avoid taxation at the Company level. Such distributions will be made from the
available cash of the Company or by liquidation
of portfolio securities if necessary. If a distribution of cash necessitates the
liquidation of portfolio securities, the Adviser will
select which securities to sell. The Company may realize a gain or loss from
such sales. In the event the Company realizes net capital
gains from such transactions, the Company and consequently its shareholders may
receive a larger capital gain distribution, if any, than
they would in the absence of such transactions.
Special
Rules for Certain Foreign Currency and Derivatives Transactions
In
general, gains from foreign currencies and from foreign currency options,
foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies are currently
considered to be qualifying income for purposes
of determining whether the Fund qualifies as a RIC.
Under
Section 988 of the Code, special rules are provided for certain transactions in
a foreign currency other than the taxpayer’s functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses
from forward contracts, from futures contracts that are not “regulated futures
contracts,” and from unlisted options will be treated as
ordinary income or loss under Section 988 of the Code. Also, certain foreign
exchange gains or losses derived with respect to foreign
fixed-income securities are also subject to Section 988 treatment. In general,
therefore, Section 988 gains or losses will increase
or decrease the amount of the Fund’s investment company taxable income available
to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund’s net
capital gain.
A Fund’s
investment in options, swaps and related transactions, futures contracts and
forward contracts, options on futures contracts and stock
indices and certain other securities, including transactions involving actual or
deemed short sales or foreign exchange gains or losses
are subject to many complex and special tax rules. For example, OTC options on
debt securities and equity options, including
options on stock and on narrow-based stock indices, will be subject to tax under
Section 1234 of the Code, generally producing
a long-term or short-term capital gain or loss upon exercise, lapse or closing
out of the option or sale of the underlying stock or
security. By contrast, a Fund’s
treatment of certain other options, futures and forward contracts entered into
by the Fund is generally
governed by Section 1256 of the Code. These “Section 1256” positions generally
include listed options on debt securities, options on
broad-based stock indices, options on securities indices, options on futures
contracts, regulated futures contracts and certain
foreign currency contracts and options thereon.
When a Fund
holds options or futures contracts which substantially diminish their risk of
loss with respect to other positions (as might
occur in some hedging transactions), this combination of positions could be
treated as a “straddle” for tax purposes, resulting
in
possible deferral of losses, adjustments in the holding periods of Fund
securities and conversion of short-term capital losses into long-term
capital losses. Certain tax elections exist for mixed straddles (i.e., straddles
comprised of at least one Section 1256 position and at
least one non-Section 1256 position) which may reduce or eliminate the operation
of these straddle rules.
A Section
1256 position held by a Fund
will generally be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last
business day of the Fund’s fiscal year, and all gain or loss associated with
fiscal year transactions and mark-to-market positions at fiscal
year end (except certain currency gain or loss covered by Section 988 of the
Code) will generally be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or
to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses
into long-term capital losses within a Fund.
The acceleration of income on Section 1256 positions may
require a Fund to
accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the
Code, a Fund may
be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from
other sources. Any or all of these rules may, therefore, affect the amount,
character and timing of income earned and, in turn,
distributed to shareholders by a
Fund.
Special
Tax Considerations Relating to Foreign Investments
Gains or
losses attributable to foreign currency contracts, or to fluctuations in
exchange rates that occur between the time a Fund
accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time a Fund’s
net
investment income available to be distributed to its shareholders as ordinary
income.
It is
expected that a Fund’s
total assets at the close of the taxable year consists of stock or securities of
foreign corporations, a Fund
makes the
election, shareholders will be required to include in income their proportionate
share of the amount of foreign income taxes
treated as imposed on a Fund
and will be entitled to claim either a credit (subject to the limitations
discussed below) or, if they itemize
deductions, a deduction, for their shares of the foreign income taxes in
computing their federal income tax liability.
Shareholders
who choose to utilize a credit (rather than a deduction) for foreign taxes will
be subject to a number of complex limitations
regarding the availability and utilization of the credit. Because of these
limitations, shareholders may be unable to claim a credit for
the full amount of their proportionate shares of the foreign income taxes paid
by a Fund.
Shareholders are urged to consult their tax
advisors regarding the application of these rules to their particular
circumstances.
The Fund
may invest in stocks of foreign companies that may be classified under the Code
as passive foreign investment companies (“PFICs”).
In general, a foreign company is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or
more of its gross income is investment-type income. When investing in PFIC
securities, a Fund is
unable to identify an investment
as a PFIC and thus does not make a mark-to-market election, a Fund
may be subject to U.S. federal income tax and interest
on a portion of any “excess distribution” or gain from the disposition of such
shares even if such income is distributed as a taxable
dividend by a Fund
to its shareholders.
Taxes
and Foreign Shareholders
Taxation
of a shareholder who, as to the United States, is a nonresident alien
individual, a foreign trust or estate, a foreign corporation
or a foreign partnership (“Foreign Shareholder”) depends on whether the income
from a Fund
is “effectively connected” with a
U.S. trade or business carried on by such shareholder.
Shareholders
who are not citizens or residents of the United States and certain foreign
entities will generally be subject to withholding of U.S.
tax of 30% on distributions made by a Fund
of investment income and short-term capital gains. Prospective investors are
urged to
consult their tax advisors regarding the specific tax consequences discussed
above and the potential applicability of the U.S. estate
tax.
If the
income from a Fund
is effectively connected with a U.S. trade or business carried on by a Foreign
Shareholder, then distributions
from a Fund
and any gains realized upon the sale of shares of a Fund
will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens and residents or domestic corporations. In addition,
Foreign Shareholders that are corporations may be subject
to a branch profit tax.
A Fund
may be required to withhold federal income tax on distributions that are
otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with IRS
certification requirements.
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 a Fund
is a “U.S. real property holding corporation”
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 “U.S. 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, a Fund’s
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 and therefore subject to U.S. federal income tax, and requiring that you
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 a Fund’s
shares, Fund distributions that are 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.
The Fund
is required to withhold U.S. tax (at a 30% rate) on payments of taxable
dividends made to certain non-U.S. entities that fail to
comply (or be deemed compliant) with extensive new reporting and withholding
requirements designed to inform the U.S. Department
of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be
requested to provide additional information
to a Fund
to enable a Fund
to determine whether withholding is required.
The tax
consequences to a Foreign Shareholder entitled to claim the benefits of an
applicable tax treaty may differ from those described
here. Furthermore, Foreign Shareholders are strongly urged to consult their own
tax advisors with respect to the particular tax
consequences to them of an investment in a Fund,
including the possible applicability of the U.S. estate tax.
State
and Local Tax Considerations
Rules of
state and local taxation of dividend and capital gains from RICs often differ
from the rules for federal income taxation described
above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules regarding
an investment in a
Fund.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of
April 1, 2021, the following persons or entities owned, of record or
beneficially, more than 5% of the shares of any class of the following
Funds’ outstanding shares.
|
|
|
Fund |
Name
and Address |
%
of Class |
Class
I |
|
|
Active
International Allocation |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
84.87% |
|
National
Fincl Services Corp For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
5.95% |
Advantage |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
10.15% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
For Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy St
Petersburg Fl 33716-1102 |
12.05 |
|
Charles
Schwab & Co., Inc ATTN
Mutual Funds 101
Montgomery Street San
Francisco, CA 94104-4151 |
10.48% |
|
National
Fincl Services For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
23.36% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Pershing
LLC ATTN
Joe Mattiello One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399-0001 |
11.91% |
|
Lpl
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr San
Diego CA 92121-3091 |
14.02% |
Emerging
Markets Fixed Income Opportunities |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
64.51% |
|
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
26.85% |
Emerging
Markets Leaders |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
65.90% |
|
Raymond
James Omnibus For
Mutual Funds House
Acct Firm 92500015 ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
11.51% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
7.92% |
Emerging
Markets |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
24.82% |
|
MAC
& Co A/C 121019 ATTN
Mutual Funds Ops 500
Grant St RM 151-1010 Pittsburgh,
PA 15219-2502 |
5.26% |
|
Charles
Schwab & Co Inc. ATTN
Mutual Funds 101
Montgomery St San
Francisco, CA 94104-4151 |
21.02% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
22.84% |
Frontier
Markets |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
24.27% |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
13.23% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
25.80% |
Global
Insight |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
24.50% |
|
Pershing
LLC. 1
Pershing Plaza. Jersey
City, NJ 07399-0002 |
8.46% |
|
Raymond
James, House
Acct Firm 92500015 Omnibus
for Mutual Funds ATTN
Courtney Waller 880
Carillon PKWY St.
Petersburg, FL 33716-1102 |
10.69% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
13.65% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
17.08% |
|
RBC
Capital Markets LLC Mutual
Fund Omnibus Processing
Omnibus ATTN Mutual
Fund Ops 60
South Sixth Street-PO8 Minneapolis
MN 55402-4413 |
6.03% |
Global
Franchise |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
32.66% |
|
Pershing
LLC. ATTN
Joe Mattiello One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399-0001 |
7.32% |
|
Wells
Fargo Clearing Services, LLC A/C
1699-0135 Special
Custody Acct for The
exclusive benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
5.54% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
for Mutual Funds ATTN
Courtney Waller 880
Carillon PKWY. St.
Petersburg, FL 33716-1102 |
8.11% |
|
Charles
Schwab & Co., Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
8.04% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
16.21% |
|
|
|
Fund |
Name
and Address |
%
of Class |
Global
Infrastructure |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
39.97% |
|
Charles
Schwab & Co., Inc. Special
Custody A/C FBO Customers ATTN
Mutual Funds 211
Main Street San
Francisco, CA 94104-1905 |
17.31% |
|
Pershing
LLC ATTN
Joe Mattiello One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399-0001 |
24.53% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 5th Floor 499
Washington BLVD. Jersey
City, NJ 07310-2010 |
11.97% |
Global
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
18.61% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-0002 |
6.85% |
|
Wells
Fargo Clearing Services, LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
11.89% |
|
LPL
Financial Omnibus
Customer A/C ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
7.31% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
for Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
14.91% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 211
Main St. San
Francisco, CA 94105-1905 |
8.15% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
14.48% |
Global
Real Estate |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
11.72% |
|
SSQ
Life Insurance Company Inc. C/O
Direction Comptabilite Des Fonds 2515
Laurier Boulevard, P.O. Box 10510 Station
Sainte-Foy Quebec
(Quebec) G1V 0A3 |
16.67% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
MAC
& Co. A/C 884464 ATTN:
Mutual Fund Operations 500
Grant St. Room
151-1010 Pittsburgh,
PA 15219-2502 |
34.52% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
11.53% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
9.80% |
Global
Sustain |
Attn
Mutual Funds C/O
Id 225 SEI
Private Trust Company One
Freedom Valley Drive Oaks
PA 19456-9989 |
7.18% |
|
Morgan
Stanley Investment Managemen ATTN
Michael Agosta 750
Seventh Ave 12th Fl New
York NY 10019-6835 |
7.25% |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II 3rd Floor Jersey
City NJ 07311 |
31.97% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City NJ 07399-0002 |
8.11% |
|
UBS
WM USA 0O0
11011 6100 Omni
Account M/F SPEC
CDY A/C EBOC UBSFSI 1000
Harbor BLVD Weehawken
NJ 07086-6761 |
8.75% |
|
National
Fincl Services For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
14.52% |
|
Wells
Fargo Bank Na FBO Concord
Academy Endowment Account 25653700 PO
Box 1533 Minneapolis
MN 55480-1533 |
11.35% |
Growth |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
20.44% |
|
Merrill
Lynch Pierce Fenner & Smith Inc
For The Sole Benefit Of Its Customers 4800
Deer Lake Dr. E Jacksonville,
FL 32246-6484 |
15.47% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
for Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
7.62% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
8.45% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
12.44% |
|
LPL
Financial Omnibus
Customer A/C ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
6.37% |
Inception |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
21.26% |
|
Wells
Fargo Clearing Services, LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
9.51% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
for Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
5.40% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
14.88% |
|
National
Financial Services LLC For
Exclusive Benefit of our Cust ATTN
Mutual Funds Dept 4th Fl. 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
22.56% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-0002 |
10.87% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
7.83% |
International
Advantage |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
13.18% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-0002 |
5.49% |
|
TD
Ameritrade Inc. For The
Exclusive Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
5.95% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Raymond
James House
Acct Firm 92500015 Omnibus
For Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
7.80% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
21.42% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
26.31% |
International
Equity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
5.02% |
|
Charles
Schwab & Co., Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
24.29% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
47.06% |
|
Mitra
& Co FBO 98 C/O
Reliance Trust Company WI Mailcode:BD1N-ATTN:MF 4900
W Brown Deer RD Milwaukee
WI 53223-2422 |
5.86% |
International
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
17.86% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-0002 |
8.33% |
|
Wells
Fargo Clearing Services, LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
5.33% |
|
UBS
WM USA 0O0
11011 6100 Omni
Account M/F SPEC
CDY A/C EBOC UBSFSI 1000
Harbor Blvd. Weehawken,
NJ 07086-6761 |
9.58% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
For Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy. St.
Petersburg, FL 33716-1102 |
10.76% |
|
Charles
Schwab & Co., Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
7.25% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
16.94% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
8.95% |
U.S.
Government Securities |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
40.26% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
17.60% |
|
R&Q
Bermuda(SAC) Limited ATTN
Stewart Ritchie F B
Perry Building 40
Church St Po Box HM2062 Hamilton
HMHX |
8.67% |
|
R&Q
Bermuda(SAC) Limited ATTN
Stewart Ritchie F B
Perry Building 40
Church St Po Box HM2062 Hamilton
HMHX |
10.53% |
U.S.
Real Estate |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
20.45% |
|
TD
Ameritrade Inc. For The Exclusive
Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
6.18% |
|
Charles
Schwab & Co Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
6.69% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
11.50% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
27.33% |
|
|
|
Fund |
Name
and Address |
%
of Class |
Class
A |
|
|
Active
International Allocation |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
74.14% |
Advantage |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
25.46% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
17.61% |
|
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-002 |
7.94% |
|
TD
Ameritrade Inc for the Exclusive
Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
5.94% |
|
Charles
Schwab & Co Inc. ATTN
Mutual Funds 101
Montgomery Street San
Francisco, CA 94104-4151 |
16.76% |
Emerging
Markets Fixed Income Opportunities |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
6.42% |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
84.96% |
Emerging
Markets Leaders |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
43.93% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
35.21% |
|
TD
Ameritrade Inc for the Exclusive
Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
6.58% |
Emerging
Markets |
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
58.56% |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
26.53% |
Frontier
Markets |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
18.35% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
32.68% |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
10.56% |
|
Charles
Schwab & Co Inc. ATTN
Mutual Funds 101
Montgomery St San
Francisco, CA 94104-4151 |
21.76% |
Global
Insight |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II 3rd Floor Jersey
City NJ 07311 |
14.90% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
47.07% |
|
TD
Ameritrade Inc. for the Exclusive
Benefit of our client P.O.
Box 2226 Omaha,
NE 68103-2226 |
5.30% |
|
LPL
Financial Omnibus
Customer Account ATN
Mutual Fund Trading 4707
Executive Dr San
Diego CA 92121-3091 |
14.58% |
|
Charles
Schwab & Co Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
7.16 |
Global
Franchise |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
57.10% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
10.76% |
|
Charles
Schwab & Co. Inc. Special
Custody A/C FBO Customer ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
11.71% |
Global
Infrastructure |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
67.83% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
6.29% |
Global
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
15.95% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
National
Financial Services LLC For
Exclusive Benefit Of Our Cust ATTN
Mutual Funds Dept 4Th Floor 499
Washington Blvd Jersey
City NJ 07310-1995 |
44.00% |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct For The Exclusive
Benefit Of Customer 2801
Market St
Saint Louis Mo 63103-2523 |
5.03% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
7.82% |
Global
Real Estate |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
30.55% |
|
National
Financial Services LLC For
Exclusive Benefit of our Cust ATTN
Mutual Funds Dept 4th Fl. 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
33.86% |
|
TD
Ameritrade Inc. for the Exclusive
Benefit of our client P.O.
Box 2226 Omaha,
NE 68103-2226 |
5.67% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
6.18% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
10.68% |
Global
Sustain |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
55.90% |
|
Pershing
LLC 1
Pershing Plaza. Jersey
City, NJ 07399-0002 |
7.46% |
|
TD
Ameritrade Inc. For
The Exclusive Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
14.23% |
Growth |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
39.81% |
|
National
Financial Services LLC For
Exclusive Benefit of our Cust ATTN
Mutual Funds Dept 4th Fl. 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
17.87% |
|
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
11.84% |
|
|
|
Fund |
Name
and Address |
%
of Class |
Inception |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
11.57% |
|
National
Financial Services LLC For
Exclusive Benefit of our Cust ATTN
Mutual Funds Dept 4th Fl. 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
63.87% |
|
Charles
Schwab & Co. Inc. Special
Custody Account For The Exclusive
Benefit Of Customers ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
9.27% |
International
Advantage |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
6.91% |
|
National
Financial Services LLC For
Exclusive Benefit of our Cust ATTN
Mutual Funds Dept 4th Fl. 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
17.98% |
|
Charles
Schwab & Co. Inc. Special
Custody Account For The Exclusive
Benefit Of Customers ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
59.23% |
|
TD
Ameritrade Inc. For The
Exclusive Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
7.57% |
International
Equity |
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
22.01% |
|
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
49.58% |
International
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
13.51% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
49.76% |
|
TD
Ameritrade Inc. for The
Exclusive Benefit of our Clients P.O.
Box 2226 Omaha,
NE 68103-2226 |
9.07% |
|
Charles
Schwab & Co. Special
Custody Account for The
exclusive benefit of Customers ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
12.24% |
|
|
|
Fund |
Name
and Address |
%
of Class |
U.S.
Real Estate |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
56.24% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
5.46% |
|
Nationwide
Trust Company FSB FBO
Participating Retirement Plans Ntc-Plns C/O
Ipo Portfolio Accounting PO
Box 182029 Columbus
OH 43218-2029 |
10.15% |
Class
L |
|
|
Active
International Allocation |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
78.78% |
Advantage |
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
44.88% |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct For The Exclusive
Benefit Of Customer 2801
Market St
Saint Louis MO 63103-2523 |
6.13% |
|
National
Fincl Services For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
24.00% |
|
TD
Ameritrade FBO Richard
Burt & Pamela
Burt JT Ten 44
Woodrow St West
Hartford CT 06107-2725 |
5.42% |
Emerging
Markets Fixed Income Opportunities |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
17.09% |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
82.55% |
Emerging
Markets |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., Fl. 12 New
York, NY 10019-6835 |
5.38% |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
94.61% |
Frontier
Markets |
Robert
W Baird & Co Inc A/C
4745-0220 777
East Wisconsin Avenue Milwaukee
WI 53202-5391 |
12.84% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Morgan
Stanley & Co Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
49.42% |
|
LPL
Financial Omnibus
Customer Account ATTN
Mutual Fund Trading 4707
Executive Dr. San
Diego, CA 92121-3091 |
36.87% |
Global
Insight |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., Fl. 12 New
York, NY 10019-6835 |
7.99% |
|
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
92.00% |
Global
Franchise |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
98.81% |
Global
Infrastructure |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
83.94% |
Global
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
36.47% |
|
Wells
Fargo Clearing Services LLC A/C#
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 10750
Wheat First Dr. Ws1165 Glen
Allen, VA 23060-9243 |
9.00% |
|
Merrill
Lynch Pierce Fenner & Smith Inc
For The Sole Benefit Of Its Customers 4800
Deer Lake Dr. E, Jacksonville,
FL 32246-6484 |
5.56% |
Global
Real Estate |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
94.38% |
Global
Sustain |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave. 12th Fl. New
York, NY 10019-6835 |
11.10% |
|
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
83.18% |
|
Pershing
LLC 1
Pershing Plaza. Jersey
City, NJ 07399-0002 |
5.71% |
Growth |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
73.57% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct For The Exclusive
Benefit Of Customer 2801
Market Street St.
Louis, MO 63103-2523 |
6.74% |
Inception |
Charles
Schwab & Co. Inc. Special
Custody A/C FBO Customers ATTN
Mutual Funds 211
Main St. San
Francisco, CA 94105-1905 |
9.04% |
|
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
81.42% |
International
Advantage |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave. 12th Fl. New
York, NY 10019-6835 |
5.08% |
|
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
82.55% |
|
Patricia
A Murphy TOD
DTD Subject
To STA TOD Rules 35
Appleby Ave. Spotswood,
NJ 08884-1119 |
12.35% |
International
Equity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
91.09% |
International
Opportunity |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
89.74% |
|
Raymond
James House
Acct Firm 92500015 Omnibus
For Mutual Funds ATTN
Courtney Waller 880
Carillon Pkwy St
Petersburg Fl 33716-1102 |
5.31% |
U.S.
Real Estate |
Morgan
Stanley & Co. Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
80.09% |
|
Wells
Fargo Clearing Services LLC A/C
1699-0135 Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St. Saint
Louis, MO 63103-2523 |
6.65% |
Class
C |
|
|
Active
International Allocation |
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
47.30% |
|
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
27.84% |
|
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
25.85% |
|
|
|
Fund |
Name
and Address |
%
of Class |
Advantage |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
28.00% |
|
National
Financial Services LLC 499
Washington BLVD. Jersey
City, NJ 07310 |
22.29% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
19.80% |
|
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
7.17% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
7.10% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
6.44% |
Asia
Opportunity |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
94.76% |
Counterpoint
Global |
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
100.00% |
Emerging
Markets Fixed Income Opportunities |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
97.19% |
Emerging
Markets Leaders |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
92.40% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
5.35% |
Emerging
Markets |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
81.51% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
14.30% |
Emerging
Markets Small Cap |
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
37.42% |
|
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
30.99% |
|
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
28.81% |
Frontier
Markets |
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
46.59% |
|
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
40.70% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
7.89% |
Global
Insight |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
41.86% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
6.00% |
|
UBS
WM USA 1000
Harbor BLVD., Fl. 5 Weehawken,
NJ 07086 |
5.19% |
Global
Concentrated |
Morgan
Stanley Smith Barney LLC 1 New
York Plaza, Floor 12 New
York, NY 10004 |
98.43% |
Global
Concentrated Real Estate |
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
100.00% |
Global
Core |
Morgan
Stanley Smith Barney LLC 1 New
York Plaza, Floor 12 New
York, NY 10004 |
88.17% |
|
J.P.
Morgan Securities LLC 4
Chase Metrotech Center, Third Floor Brooklyn,
NY 11245 |
10.29% |
Global
Endurance |
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
100.00% |
Global
Franchise |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
55.57% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
15.19% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
6.38% |
|
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
6.24% |
Global
Infrastructure |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
73.75% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
9.56% |
Global
Opportunity |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
35.06% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
23.54% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
18.09% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
9.34% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
UBS
WM USA 1000
Harbor BLVD., Fl. 5 Weehawken,
NJ 07086 |
5.01% |
Global
Real Estate |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
86.34% |
|
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
11.01% |
Global
Sustain |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
90.08% |
Growth |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
44.74% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
17.59% |
|
Merrill
Lynch Pierce Fenner & Smith 4800
Deer Lake Dr. E, 2nd Fl. Jacksonville,
FL 32246 |
10.26% |
|
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
6.02% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
5.56% |
Inception |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
54.89% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
42.26% |
International
Advantage |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
38.14% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
24.27% |
|
National
Financial Services 499
Washington BLVD., Fl. 5 Jersey
City, NJ 07310 |
15.73% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
6.68% |
|
UBS
WM USA 1000
Harbor BLVD., Fl. 5 Weehawken,
NJ 07086 |
5.39% |
|
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
5.00% |
International
Equity |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
28.62% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
25.23% |
|
National
Financial Services 499
Washington BLVD., Fl. 5 Jersey
City, NJ 07310 |
18.73% |
|
Wells
Fargo Clearing Services, LLC 2801
Market St. Saint
Louis, MO 63103 |
13.79% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
5.84% |
International
Opportunity |
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
42.52% |
|
UBS
WM USA 1000
Harbor BLVD., Fl. 5 Weehawken,
NJ 07086 |
17.68% |
|
Raymond
James 880
Carillon Pkwy. St.
Petersburg, FL 33716 |
14.07% |
|
National
Financial Services LLC 499
Washington BLVD. Jersey
City, NJ 07310 |
6.26% |
Real
Assets |
Morgan
Stanley Investment Management 750
Seventh Ave., Fl. 12 New
York, NY 10019 |
100.00% |
US
Core |
Morgan
Stanley Smith Barney LLC 1 New
York Plaza, Floor 12 New
York, NY 10004 |
93.85% |
U.S.
Real Estate |
LPL
Financial P.O.
Box 509046 San
Diego, CA 92150 |
38.39% |
|
Morgan
Stanley & Co. LLC Harborside
Financial Center Plaza
II, 3rd Fl. Jersey
City, NJ 07311 |
28.01% |
|
Pershing
LLC One
Pershing Plaza, 14th Fl. Jersey
City, NJ 07399 |
16.20% |
|
Carol
Norman and Douglas Norman P.O.
Box 117 Inkom,
ID 83245-0117 |
14.31% |
Class
IS |
|
|
Advantage |
PIMS/Prudential
Retirement As
Nominee for the TTEE/Cust PL 007 Keller
Technology Corporation P.O.
Box 103 Buffalo,
NY 14217-0103 |
21.81% |
|
PIMS/Prudential
Retirement As
Nominee for the TTEE/Cust PL 764 Lexington
Center Retirement Plan 127 E
State St. Gloversville,
NY 12078-1204 |
7.08% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customers 499
Washington BLVD. ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
56.28% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
PIMS/Prudential
Retirement As
Nominee for the TTEE/Cust PL 764 PCCA
Employees’ 401(K) Savings 9901
S Wilcrest Dr. Houston,
TX 77099-5132 |
14.16% |
Core
Plus Fixed Income |
Northern
TR CO Cust FBO Mather Foundation
FX Income TR A/C2678267 P.O.
Box 92956 Chicago,
IL 60675-2956 |
56.17% |
|
ATTN
Mutual Funds C/O
ID 701 SEI
Private Trust Company One
Freedom Valley Drive OAKS,
PA 19456-9989 |
29.53% |
|
ATTN
Mutual Funds C/O
ID 701 SEI
Private Trust Company One
Freedom Valley Drive OAKS,
PA 19456-9989 |
9.57% |
Emerging
Markets Fixed Income Opportunities |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
100.00% |
Emerging
Markets Leaders |
Bell
Atlantic Master Trust 295 N
Maple Ave Building
7, 1st Floor. Basking
Ridge, NJ 07920 |
99.87% |
Emerging
Markets |
State
Street Bank And Trust Co FBO
New York State Deferred
Com Plan ATTN
Mutual Fund Operations 1200
Crown Colony DR Quincy
MA 02169-0938 |
93.99% |
Global
Infrastructure |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl. New
York, NY 10019-6835 |
100.00% |
Global
Opportunity |
National
Financial Services LLC For
Exclusive Benefit of our Customers 499
Washington BLVD. ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
41.01% |
|
Texas
Tech University System 2500
Broadway Lubbock
TX 79409 |
16.55% |
|
The
Wallace Foundation 140
Broadway FL 49 New
York, NY 10005-1105 |
16.52% |
Global
Real Estate |
State
Street BK & TR Co Trustee Fbo
Lockheed Martin Corp Def Mgmt
Incentive Comp Trust ATTN
Matt Snyder 1200
Crown Colony Dr # Cc1 Quincy
MA 02169-0938 |
5.62% |
|
National
Fincl Services For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
10.17% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
State
Street Bank & TR Co As TTEE Lockheed
Martin Corp Savings Plns Attn
Mike Rogerson PO
Box 5501 Boston
MA 02206-5501 |
79.22% |
Global
Sustain |
Pratt
Institute 200
Willoughby Ave Brooklyn,
NY 11205-3899 |
99.85% |
Growth |
Northern
Trust Company as TTEE FBO Morgan
Stanley 401K Savings Plan DV P.O.
Box 92994 Chicago,
IL 60675-2994 |
66.77% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
13.33% |
Inception |
Charles
Schwab & Co. Inc. ATTN
Mutual Funds 101
Montgomery St. San
Francisco, CA 94104-4151 |
45.78% |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer ATTN
Mutual Funds Dept - 4th Floor 499
Washington BLVD. Jersey
City, NJ 07310-1995 |
53.87% |
International
Advantage |
Reliance
Trust Co Cust FBO
Massmutual RP PO
Box 38004 Atlanta
GA 30358 |
13.69% |
|
C/O
First Hawaiian Bank SEI
Private Trust Company 1
Freedom Valley Drive Oaks
PA 19456-9989 |
12.67% |
|
C/O
First Hawaiian Bank SEI
Private Trust Company 1
Freedom Valley Drive Oaks
PA 19456-9989 |
36.01% |
|
First
National Trust Company 532
Main Street Suite 7 Johnstown
PA 15901-2093 |
33.12% |
International
Equity |
Charles
Schwab & Co. Inc ATTN
Mutual Funds 211
Main St. San
Francisco, CA 94105-1905 |
20.01% |
|
Capinco C/O
U.S. Bank P.O.
Box 1787 Milwaukee,
WI 53201-1787 |
8.17% |
|
Department
of Foreign Affairs Trade
and Development Canada 200
Promenade Du Portage 11th Floor Office
C11010 Gatineau, Canada |
5.44% |
|
The
TJX Companies Inc. Retirement
Plan ATTN
Mary B Reyonolds- Treasurer 770
Cochituate Rd. Framingham,
MA 01701-4666 |
21.06% |
|
|
|
Fund |
Name
and Address |
%
of Class |
|
National
Financial Services LLC For
Exclusive Benefit of our Customer 499
Washington BLVD ATTN
Mutual Funds Dept - 4th Floor Jersey
City, NJ 07310-1995 |
23.59% |
|
C/O
Legacy TX SEI
Private Trust Company 1
Freedom Valley Drive Oaks,
PA 19456-9989 |
12.55% |
International
Opportunity |
Fulton
Bank Na FBO Fulton
Financial Corporation PO
Box 3215 Lancaster
PA 17604-3215 |
9.94% |
|
Reliance
Trust Company FBO Massmutual
RP PO
Box 78446 Atlanta
GA 30357-2446 |
11.66% |
|
Voya
Institutional Trust Company One
Orange Way B3N Windsor
CT 06095-4773 |
5.09% |
|
National
Fincl Services For
Exclusive Benefit Of Our Customers 499
Washington Blvd ATTN
Mutual Funds Dept - 4Th Floor Jersey
City NJ 07310-1995 |
40.38% |
U.S.
Real Estate |
Voya
Retirement Insurance And Annuity
Company One
Orange Way B3N Windsor
CT 06095-4773 |
7.97% |
|
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave 12th Fl New
York, NY 10019-6835 |
5.08% |
|
Matrix
Trust Company Cust FBO
Retirement Advantage Ira 717
17Th Street Suite 1300 Denver
Co 80202-3304 |
57.36 |
|
Matrix
Trust Company Cust FBO
Retirement Advantage Ira 717
17Th Street Suite 1300 Denver
Co 80202-3304 |
8.89% |
Class
IR |
|
|
Emerging
Markets |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
100.00% |
Global
Infrastructure |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl. New
York, NY 10019-6835 |
100.00% |
Global
Opportunity |
Northern
Trust Company As Custodian FBO
RWJ Barnabas Health Inc. A/C
#44-76819 P.O.
Box 92956 Chicago,
IL 60675-2956 |
99.98% |
Global
Real Estate |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave. 12th Fl. New
York, NY 10019-6835 |
100.00% |
|
|
|
Fund |
Name
and Address |
%
of Class |
Growth |
Northern
Trust As Custodian FBO
Barnabas UCI Trust A/C 4476819 P.O.
Box 92956 Chicago,
IL 60675-2956 |
78.37% |
|
Mitra
& Co FBO FCB DB C/O
Reliance Trust Company WI Mailcode:
Bd1N - Attn: MF 4900
W Brown Deer Rd Milwaukee
WI 53223-2422 |
7.66% |
|
Vallee
& Co FBO FCB DB C/O
Reliance Trust Company WI Mailcode:
Bd1N - Attn: MF 4900
W Brown Deer Rd Milwaukee
WI 53223-2422 |
9.36% |
High
Yield |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave., 12th Fl New
York, NY 10019-6835 |
100.00% |
International
Opportunity |
Northern
Trust as Custodian FBO
RWJBH Corporate Services INC LP’S
and MF’S A/C 44-76819 P.O.
Box 92956 Chicago,
IL 60675-2956 |
99.99% |
U.S.
Real Estate |
Morgan
Stanley Investment Management ATTN
Michael Agosta 750
Seventh Ave 12th Fl New
York, NY 10019-6835 |
100.00% |
As of
April 1, 2021, no person was known by the Company to own beneficially or of
record 5% or more of any outstanding class of shares of
a Fund not listed above.
The
persons listed above as owning 25% or more of the outstanding shares of a Fund
may be presumed to “control” (as that term is defined in
the 1940 Act) such Fund. Control persons could have the ability to vote a
majority of the shares of the respective Fund on any matter
requiring the approval of shareholders of such Fund.
PERFORMANCE
INFORMATION
Rates of
return for each class of shares of the Developing Opportunity Portfolio and
Permanence Portfolio will be provided once such classes
have completed a full calendar year of operations.
Performance
information for Class IR shares of the Emerging Markets Leaders Portfolio will
be provided once such class has completed
a full calendar year of operations.
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five Years |
Average
Annual Ten Years |
Average
Annual Since
Inception |
Active
International Allocation |
|
|
|
|
|
Class
I |
1/17/1992 |
30.48% |
10.93% |
6.53% |
6.53% |
Class
A |
1/2/1996 |
30.10% |
10.56% |
6.19% |
5.94% |
Class
L |
6/14/2012 |
29.38% |
9.98% |
N/A |
8.96% |
Class
C |
4/30/2015 |
29.13% |
9.69% |
N/A |
6.30% |
Class
IS |
10/31/2019 |
30.55% |
N/A |
N/A |
33.32% |
Class
IR |
10/31/2019 |
30.55% |
N/A |
N/A |
33.32% |
Advantage |
|
|
|
|
|
Class
I* |
6/30/2008 |
74.79% |
25.53% |
20.28% |
16.93% |
Class
A |
5/21/2010 |
74.27% |
25.12% |
19.90% |
20.80% |
Class
L* |
6/30/2008 |
74.65% |
25.40% |
20.16% |
16.80% |
Class
C |
4/30/2015 |
73.10% |
24.24% |
N/A |
21.91% |
Class
IS |
9/13/2013 |
74.93% |
25.58% |
N/A |
22.33% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five Years |
Average
Annual Ten Years |
Average
Annual Since
Inception |
Asia
Opportunity |
|
|
|
|
|
Class
I |
12/29/2015 |
52.53% |
27.17% |
N/A |
27.21% |
Class
A |
12/29/2015 |
52.15% |
26.76% |
N/A |
26.80% |
Class
C |
12/29/2015 |
51.02% |
25.80% |
N/A |
25.85% |
Class
IS |
12/29/2015 |
52.58% |
27.22% |
N/A |
27.26% |
China
Equity |
|
|
|
|
|
Class
I |
10/31/2019 |
28.80% |
N/A |
N/A |
33.52% |
Class
A |
10/31/2019 |
28.30% |
N/A |
N/A |
32.98% |
Class
C |
10/31/2019 |
27.38% |
N/A |
N/A |
32.05% |
Class
IS |
10/31/2019 |
28.82% |
N/A |
N/A |
33.54% |
Counterpoint
Global |
|
|
|
|
|
Class
I |
6/29/2018 |
72.70% |
N/A |
N/A |
31.30% |
Class
A |
6/29/2018 |
72.25% |
N/A |
N/A |
30.87% |
Class
C |
6/29/2018 |
70.89% |
N/A |
N/A |
29.86% |
Class
IS |
6/29/2018 |
72.88% |
N/A |
N/A |
31.36% |
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
Class
I |
5/24/2012 |
4.69% |
7.27% |
N/A |
4.90% |
Class
A |
5/24/2012 |
4.33% |
6.91% |
N/A |
4.55% |
Class
L |
5/24/2012 |
4.06% |
6.63% |
N/A |
4.26% |
Class
C |
4/30/2015 |
3.63% |
6.13% |
N/A |
4.05% |
Class
IS |
9/13/2013 |
4.84% |
7.31% |
N/A |
5.44% |
Emerging
Markets |
|
|
|
|
|
Class
I |
9/25/1992 |
14.58% |
10.26% |
3.11% |
7.78% |
Class
A |
1/2/1996 |
14.21% |
9.91% |
2.80% |
6.76% |
Class
L |
4/27/2012 |
13.65% |
9.31% |
N/A |
3.73% |
Class
C |
4/30/2015 |
13.32% |
9.05% |
N/A |
4.22% |
Class
IS |
9/13/2013 |
14.73% |
10.37% |
N/A |
5.04% |
Class
IR |
6/15/2018 |
14.73% |
N/A |
N/A |
7.75% |
Emerging
Markets Leaders |
|
|
|
|
|
Class
I** |
6/30/2011 |
59.36% |
17.62% |
N/A |
9.18% |
Class
A** |
6/30/2011 |
58.81% |
17.15% |
N/A |
8.91% |
Class
C |
4/30/2015 |
57.59% |
16.29% |
N/A |
11.99% |
Class
IS** |
6/30/2011 |
59.39% |
17.67% |
N/A |
9.21% |
Emerging
Markets Small Cap |
|
|
|
|
|
Class
I |
12/15/2015 |
5.80% |
5.54% |
N/A |
6.07% |
Class
A |
12/15/2015 |
5.43% |
5.14% |
N/A |
5.67% |
Class
C |
12/15/2015 |
4.72% |
4.37% |
N/A |
4.90% |
Class
IS |
12/15/2015 |
5.84% |
5.56% |
N/A |
6.09% |
Frontier
Markets |
|
|
|
|
|
Class
I*** |
8/25/2008 |
14.02% |
4.49% |
3.62% |
1.63% |
Class
A |
9/14/2012 |
13.57% |
4.14% |
N/A |
5.53% |
Class
L |
9/14/2012 |
13.01% |
3.55% |
N/A |
4.92% |
Class
C |
4/30/2015 |
12.74% |
3.35% |
N/A |
0.22% |
Class
IS |
2/27/2015 |
14.02% |
4.52% |
N/A |
1.77% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five Years |
Average
Annual Ten Years |
Average
Annual Since
Inception |
Global
Concentrated |
|
|
|
|
|
Class
I |
5/27/2016 |
23.52% |
N/A |
N/A |
13.09% |
Class
A |
5/27/2016 |
23.19% |
N/A |
N/A |
12.70% |
Class
C |
5/27/2016 |
22.23% |
N/A |
N/A |
11.87% |
Class
IS |
5/27/2016 |
23.67% |
N/A |
N/A |
13.16% |
Global
Concentrated Real Estate |
|
|
|
|
|
Class
I |
6/18/2018 |
-21.64% |
N/A |
N/A |
-8.23% |
Class
A |
6/18/2018 |
-21.90% |
N/A |
N/A |
-8.55% |
Class
C |
6/18/2018 |
-22.55% |
N/A |
N/A |
-9.27% |
Class
IS |
6/18/2018 |
-21.60% |
N/A |
N/A |
-8.19% |
Global
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
21.23% |
N/A |
N/A |
11.44% |
Class
A |
5/27/2016 |
20.88% |
N/A |
N/A |
11.03% |
Class
C |
5/27/2016 |
19.89% |
N/A |
N/A |
10.20% |
Class
IS |
5/27/2016 |
21.40% |
N/A |
N/A |
11.49% |
Global
Endurance Portfolio |
|
|
|
|
|
Class
I |
12/31/2018 |
110.03% |
N/A |
N/A |
65.43% |
Class
A |
12/31/2018 |
109.10% |
N/A |
N/A |
64.81% |
Class
C |
12/31/2018 |
107.59% |
N/A |
N/A |
63.58% |
Class
IS |
12/31/2018 |
110.08% |
N/A |
N/A |
65.51% |
Global
Franchise |
|
|
|
|
|
Class
I |
11/28/2001 |
13.22% |
13.95% |
12.48% |
11.78% |
Class
A |
11/28/2001 |
12.95% |
13.66% |
12.18% |
11.48% |
Class
L |
4/27/2012 |
12.38% |
13.10% |
N/A |
10.87% |
Class
C |
9/30/2015 |
12.09% |
12.81% |
N/A |
13.23% |
Class
IS |
5/29/2015 |
13.33% |
14.04% |
N/A |
12.56% |
Global
Infrastructure |
|
|
|
|
|
Class
I |
9/20/2010 |
-1.45% |
8.59% |
9.26% |
9.51% |
Class
A |
9/20/2010 |
-1.69% |
8.33% |
8.98% |
9.23% |
Class
L |
9/20/2010 |
-2.27% |
7.71% |
8.38% |
8.62% |
Class
C |
4/30/2015 |
-2.53% |
7.41% |
N/A |
2.93% |
Class
IS |
9/13/2013 |
-1.37% |
8.54% |
N/A |
7.01% |
Class
IR |
6/15/2018 |
-1.43% |
N/A |
N/A |
7.58% |
Global
Insight |
|
|
|
|
|
Class
I |
12/28/2010 |
94.98% |
27.94% |
19.09% |
19.09% |
Class
A |
12/28/2010 |
94.46% |
27.53% |
18.71% |
18.71% |
Class
L |
12/28/2010 |
93.38% |
26.85% |
18.10% |
18.10% |
Class
C |
4/30/2015 |
92.97% |
26.53% |
N/A |
22.41% |
Global
Opportunity |
|
|
|
|
|
Class
I* |
5/30/2008 |
55.47% |
24.57% |
18.97% |
16.18% |
Class
A |
5/21/2010 |
55.03% |
24.17% |
18.60% |
20.72% |
Class
L* |
5/30/2008 |
54.99% |
24.10% |
18.53% |
15.76% |
Class
C |
4/30/2015 |
53.99% |
23.32% |
N/A |
21.33% |
Class
IS |
9/13/2013 |
55.67% |
24.62% |
N/A |
23.25% |
Class
IR |
6/15/2018 |
55.66% |
N/A |
N/A |
23.65% |
Global
Permanence |
|
|
|
|
|
Class
I |
4/30/2019 |
27.06% |
N/A |
N/A |
19.70% |
Class
A |
4/30/2019 |
26.57% |
N/A |
N/A |
19.30% |
Class
C |
4/30/2019 |
25.60% |
N/A |
N/A |
18.41% |
Class
IS |
4/30/2019 |
27.09% |
N/A |
N/A |
19.79% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five Years |
Average
Annual Ten Years |
Average
Annual Since
Inception |
Global
Real Estate |
|
|
|
|
|
Class
I |
8/30/2006 |
-14.33% |
1.16% |
3.84% |
2.72% |
Class
A |
8/30/2006 |
-14.65% |
0.84% |
3.54% |
2.42% |
Class
L |
6/16/2008 |
-15.17% |
0.31% |
3.02% |
2.07% |
Class
C |
4/30/2015 |
-15.26% |
0.05% |
N/A |
-0.80% |
Class
IS |
9/13/2013 |
-14.36% |
1.21% |
N/A |
2.72% |
Class
IR |
6/15/2018 |
-14.36% |
N/A |
N/A |
-2.47% |
Global
Sustain |
|
|
|
|
|
Class
I |
8/30/2013 |
15.96% |
14.19% |
N/A |
12.46% |
Class
A |
8/30/2013 |
15.53% |
13.79% |
N/A |
12.08% |
Class
L |
8/30/2013 |
14.97% |
13.21% |
N/A |
11.51% |
Class
C |
4/30/2015 |
14.68% |
12.94% |
N/A |
11.30% |
Class
IS |
9/13/2013 |
16.00% |
14.23% |
N/A |
12.15% |
Growth |
|
|
|
|
|
Class
I |
4/2/1991 |
115.57% |
32.17% |
23.12% |
13.81% |
Class
A |
1/2/1996 |
115.09% |
31.82% |
22.80% |
13.40% |
Class
L |
4/27/2012 |
114.01% |
31.16% |
N/A |
23.91% |
Class
C |
4/30/2015 |
113.48% |
30.84% |
N/A |
27.34% |
Class
IS |
9/13/2013 |
115.76% |
32.28% |
N/A |
26.67% |
Class
IR |
6/15/2018 |
115.74% |
N/A |
N/A |
38.74% |
Inception |
|
|
|
|
|
Class
I |
11/1/1989 |
150.57% |
33.14% |
19.42% |
13.92% |
Class
A |
1/2/1996 |
149.86% |
32.76% |
19.08% |
13.75% |
Class
L |
11/11/2011 |
148.49% |
32.04% |
N/A |
21.25% |
Class
C |
5/31/2017 |
147.97% |
N/A |
N/A |
41.57% |
Class
IS |
9/13/2013 |
150.79% |
33.25% |
N/A |
20.92% |
International
Advantage |
|
|
|
|
|
Class
I |
12/28/2010 |
32.33% |
19.34% |
13.96% |
13.93% |
Class
A |
12/28/2010 |
31.90% |
18.95% |
13.61% |
13.59% |
Class
L |
12/28/2010 |
31.14% |
18.32% |
13.02% |
13.00% |
Class
C |
4/30/2015 |
31.03% |
18.09% |
N/A |
15.25% |
Class
IS |
6/15/2018 |
32.46% |
N/A |
N/A |
16.08% |
International
Equity |
|
|
|
|
|
Class
I |
8/4/1989 |
11.42% |
7.24% |
5.92% |
8.25% |
Class
A |
1/2/1996 |
11.00% |
6.89% |
5.60% |
7.29% |
Class
L |
6/14/2012 |
10.40% |
6.34% |
N/A |
6.79% |
Class
C |
4/30/2015 |
10.17% |
6.07% |
N/A |
3.51% |
Class
IS |
9/13/2013 |
11.39% |
7.27% |
N/A |
5.11% |
International
Opportunity |
|
|
|
|
|
Class
I |
3/31/2010 |
55.49% |
23.02% |
14.98% |
15.87% |
Class
A |
3/31/2010 |
55.06% |
22.64% |
14.63% |
15.51% |
Class
L |
3/31/2010 |
54.15% |
21.97% |
14.02% |
14.91% |
Class
C |
4/30/2015 |
53.94% |
21.74% |
N/A |
18.55% |
Class
IS |
9/13/2013 |
55.63% |
23.07% |
N/A |
19.19% |
Class
IR |
6/15/2018 |
55.64% |
N/A |
N/A |
21.63% |
Real
Assets |
|
|
|
|
|
Class
I |
6/18/2018 |
0.39% |
N/A |
N/A |
4.14% |
Class
A |
6/18/2018 |
0.07% |
N/A |
N/A |
3.78% |
Class
C |
6/18/2018 |
-0.81% |
N/A |
N/A |
2.97% |
Class
IS |
6/18/2018 |
0.42% |
N/A |
N/A |
4.17% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five Years |
Average
Annual Ten Years |
Average
Annual Since
Inception |
U.S.
Real Estate |
|
|
|
|
|
Class
I |
2/24/1995 |
-18.05% |
-0.40% |
5.12% |
9.98% |
Class
A |
1/2/1996 |
-18.28% |
-0.70% |
4.81% |
9.16% |
Class
L |
11/11/2011 |
-18.77% |
-1.24% |
N/A |
4.28% |
Class
C |
4/30/2015 |
-18.91% |
-1.48% |
N/A |
-0.85% |
Class
IS |
9/13/2013 |
-17.98% |
-0.32% |
N/A |
3.90% |
Class
IR |
6/15/2018 |
-17.98% |
N/A |
N/A |
-3.38% |
US
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
24.20% |
N/A |
N/A |
14.89% |
Class
A |
5/27/2016 |
23.77% |
N/A |
N/A |
14.48% |
Class
C |
5/27/2016 |
22.84% |
N/A |
N/A |
13.62% |
Class
IS |
5/27/2016 |
24.27% |
N/A |
N/A |
14.93% |
* |
Performance
shown for each Fund’s Class I and Class L shares, as applicable, for
periods prior to May 21, 2010 reflects the performance of the Class I,
Class A, and
Class C shares, respectively, of the applicable Predecessor
Fund. |
** |
Performance
shown for the Fund’s Class I, Class A and Class IS shares reflects the
performance of the limited partnership interests of the Private Fund (the
Predecessor
Fund) for periods prior to January 6, 2015, adjusted to reflect any
applicable sales charge of the class, but not adjusted for any other
differences in expenses.
If adjusted for other expenses, returns would be
different. |
*** |
Performance
shown for the Fund’s Class I shares reflects the performance of the common
shares of the Frontier Predecessor Fund for periods prior to September
17,
2012. |
The
average annual compounded rates of return, inclusive of a maximum sales charge
of 3.25% for Emerging Markets Fixed Income Opportunities
Portfolio and a maximum sales charge of 5.25% for all other Funds listed below
of the Class A shares of the Funds for the 1-, 5-
and 10-year periods ended December
31, 2020 and for the period from inception through December
31, 2020 are as follows:
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Active
International Allocation |
|
|
|
|
|
Class
A |
1/2/1996 |
23.26% |
9.37% |
5.62% |
5.71% |
Advantage |
|
|
|
|
|
Class
A |
5/21/2010 |
65.11% |
23.79% |
19.26% |
20.19% |
Asia
Opportunity |
|
|
|
|
|
Class
A |
12/29/2015 |
44.18% |
25.39% |
N/A |
25.45% |
China
Equity |
|
|
|
|
|
Class
A |
10/31/2019 |
21.59% |
N/A |
N/A |
27.02% |
Counterpoint
Global |
|
|
|
|
|
Class
A |
6/29/2018 |
63.14% |
N/A |
N/A |
28.10% |
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
Class
A |
5/24/2012 |
0.94% |
6.20% |
N/A |
4.15% |
Emerging
Markets |
|
|
|
|
|
Class
A |
1/2/1996 |
8.20% |
8.74% |
2.24% |
6.54% |
Emerging
Markets Leaders†
|
|
|
|
|
|
Class
A |
6/30/2011 |
50.52% |
15.90% |
N/A |
8.30% |
Emerging
Markets Small Cap |
|
|
|
|
|
Class
A |
12/15/2015 |
-0.14% |
4.01% |
N/A |
4.56% |
Frontier
Markets |
|
|
|
|
|
Class
A |
9/14/2012 |
7.61% |
3.02% |
N/A |
4.85% |
Global
Concentrated |
|
|
|
|
|
Class
A |
5/27/2016 |
16.76% |
N/A |
N/A |
11.40% |
Global
Concentrated Real Estate |
|
|
|
|
|
Class
A |
6/18/2018 |
-26.03% |
N/A |
N/A |
-10.46% |
Global
Core |
|
|
|
|
|
Class
A |
5/27/2016 |
14.53% |
N/A |
N/A |
9.75% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Global
Endurance |
|
|
|
|
|
Class
A |
12/31/2018 |
98.12% |
N/A |
N/A |
60.46% |
Global
Franchise |
|
|
|
|
|
Class
A |
11/28/2001 |
7.03% |
12.44% |
11.57% |
11.17% |
Global
Infrastructure |
|
|
|
|
|
Class
A |
9/20/2010 |
-6.86% |
7.16% |
8.39% |
8.66% |
Global
Insight |
|
|
|
|
|
Class
A |
12/28/2010 |
84.29% |
26.16% |
18.08% |
18.07% |
Global
Opportunity |
|
|
|
|
|
Class
A |
5/21/2010 |
46.88% |
22.84% |
17.96% |
20.11% |
Global
Permanence |
|
|
|
|
|
Class
A |
4/30/2019 |
19.91% |
N/A |
N/A |
15.54% |
Global
Real Estate |
|
|
|
|
|
Class
A |
8/30/2006 |
-19.17% |
-0.25% |
2.99% |
2.04% |
Global
Sustain |
|
|
|
|
|
Class
A |
8/30/2013 |
9.47% |
12.57% |
N/A |
11.26% |
Growth |
|
|
|
|
|
Class
A |
1/2/1996 |
103.82% |
30.40% |
22.14% |
13.16% |
Inception |
|
|
|
|
|
Class
A |
1/2/1996 |
136.79% |
31.33% |
18.44% |
13.51% |
International
Advantage |
|
|
|
|
|
Class
A |
12/28/2010 |
24.96% |
17.68% |
13.00% |
12.98% |
International
Equity |
|
|
|
|
|
Class
A |
1/2/1996 |
5.19% |
5.74% |
5.03% |
7.06% |
International
Opportunity |
|
|
|
|
|
Class
A |
3/31/2010 |
46.94% |
21.32% |
14.01% |
14.94% |
Real
Assets |
|
|
|
|
|
Class
A |
6/18/2018 |
-5.16% |
N/A |
N/A |
1.61% |
U.S.
Real Estate |
|
|
|
|
|
Class
A |
1/2/1996 |
-22.61% |
-1.77% |
4.25% |
8.92% |
US
Core |
|
|
|
|
|
Class
A |
5/27/2016 |
17.26% |
N/A |
N/A |
13.16% |
† |
Performance
shown for the Fund’s Class A shares reflects the performance of the
limited partnership interests of the Private Fund (the Predecessor Fund)
for periods
prior to January 6, 2015, adjusted to reflect any applicable sales charge
of the class, but not adjusted for any other differences in expenses. If
adjusted for other
expenses, returns would be different. |
The
average annual compounded rates of return, inclusive of a deferred sales charge
of 1.00% for all Funds listed below of the Class C shares
of the Fund for the 1-, 5- and 10-year periods ended December
31, 2020 and for the period from inception through December
31, 2020 are as follows:
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Active
International Allocation |
|
|
|
|
|
Class
C |
4/30/2015 |
28.13% |
9.69% |
N/A |
6.30% |
Advantage |
|
|
|
|
|
Class
C |
4/30/2015 |
72.10% |
24.24% |
N/A |
21.91% |
Asia
Opportunity |
|
|
|
|
|
Class
C |
12/29/2015 |
50.02% |
25.80% |
N/A |
25.85% |
China
Equity |
|
|
|
|
|
Class
C |
10/31/2019 |
26.38% |
N/A |
N/A |
32.05% |
Counterpoint
Global |
|
|
|
|
|
Class
C |
6/29/2018 |
69.89% |
N/A |
N/A |
29.86% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
Class
C |
4/30/2015 |
2.64% |
6.13% |
N/A |
4.05% |
Emerging
Markets |
|
|
|
|
|
Class
C |
4/30/2015 |
12.32% |
9.05% |
N/A |
4.22% |
Emerging
Markets Leaders |
|
|
|
|
|
Class
C |
4/30/2015 |
56.59% |
16.29% |
N/A |
11.99% |
Emerging
Markets Small Cap |
|
|
|
|
|
Class
C |
12/15/2015 |
3.72% |
4.37% |
N/A |
4.90% |
Frontier
Markets |
|
|
|
|
|
Class
C |
4/30/2015 |
11.74% |
3.35% |
N/A |
0.22% |
Global
Concentrated |
|
|
|
|
|
Class
C |
5/27/2016 |
21.23% |
N/A |
N/A |
11.87% |
Global
Concentrated Real Estate Port |
|
|
|
|
|
Class
C |
6/18/2018 |
-23.31% |
N/A |
N/A |
-9.27% |
Global
Core |
|
|
|
|
|
Class
C |
5/27/2016 |
18.89% |
N/A |
N/A |
10.20% |
Global
Endurance |
|
|
|
|
|
Class
C |
12/31/2018 |
106.59% |
N/A |
N/A |
63.58% |
Global
Franchise |
|
|
|
|
|
Class
C |
9/30/2015 |
11.09% |
12.81% |
N/A |
13.23% |
Global
Infrastructure |
|
|
|
|
|
Class
C |
4/30/2015 |
-3.47% |
7.41% |
N/A |
2.93% |
Global
Insight |
|
|
|
|
|
Class
C |
4/30/2015 |
91.97% |
26.53% |
N/A |
22.41% |
Global
Opportunity |
|
|
|
|
|
Class
C |
4/30/2015 |
52.99% |
23.32% |
N/A |
21.33% |
Global
Permanence |
|
|
|
|
|
Class
C |
04/30/2019 |
24.60% |
N/A |
N/A |
18.41% |
Global
Real Estate |
|
|
|
|
|
Class
C |
4/30/2015 |
-16.10% |
0.05% |
N/A |
-0.80% |
Global
Sustain |
|
|
|
|
|
Class
C |
4/30/2015 |
13.68% |
12.94% |
N/A |
11.30% |
Growth |
|
|
|
|
|
Class
C |
4/30/2015 |
112.48% |
30.84% |
N/A |
27.34% |
Inception |
|
|
|
|
|
Class
C |
5/31/2017 |
146.97% |
N/A |
N/A |
41.57% |
International
Advantage |
|
|
|
|
|
Class
C |
4/30/2015 |
30.03% |
18.09% |
N/A |
15.25% |
International
Equity |
|
|
|
|
|
Class
C |
4/30/2015 |
9.17% |
6.07% |
N/A |
3.51% |
International
Opportunity |
|
|
|
|
|
Class
C |
4/30/2015 |
52.94% |
21.74% |
N/A |
18.55% |
Real
Assets |
|
|
|
|
|
Class
C |
6/18/2018 |
-1.80% |
N/A |
N/A |
2.97% |
U.S.
Real Estate |
|
|
|
|
|
Class
C |
4/30/2015 |
-19.71% |
-1.48% |
N/A |
-0.85% |
US
Core |
|
|
|
|
|
Class
C |
5/27/2016 |
21.84% |
N/A |
N/A |
13.62% |
The
average annual compounded rates of return (after taxes on distributions) (unless
otherwise noted) for the Class I Shares of the Funds for
the 1-, 5- and 10- year periods ended December
31, 2020 and for the period from inception through December
31, 2020 are as
follows:
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Active
International Allocation |
|
|
|
|
|
Class
I |
1/17/1992 |
30.58% |
10.66% |
6.19% |
5.41% |
Advantage*
|
|
|
|
|
|
Class
I |
6/30/2008 |
72.14% |
24.12% |
19.00% |
15.87% |
Asia
Opportunity |
|
|
|
|
|
Class
I |
12/29/2015 |
51.97% |
26.74% |
N/A |
26.78% |
China
Equity |
|
|
|
|
|
Class
I |
10/31/2019 |
28.18% |
N/A |
N/A |
32.97% |
Counterpoint
Global |
|
|
|
|
|
Class
I |
6/29/2018 |
71.05% |
N/A |
N/A |
30.55% |
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
Class
I |
5/24/2012 |
2.35% |
4.89% |
N/A |
2.45% |
Emerging
Markets |
|
|
|
|
|
Class
I |
9/25/1992 |
14.43% |
9.55% |
2.58% |
6.97% |
Emerging
Markets Leaders**
|
|
|
|
|
|
Class
I |
6/30/2011 |
57.54% |
17.16% |
N/A |
8.94% |
Emerging
Markets Small Cap |
|
|
|
|
|
Class
I |
12/15/2015 |
5.19% |
5.18% |
N/A |
5.71% |
Frontier
Markets***
|
|
|
|
|
|
Class
I |
8/25/2008 |
14.01% |
4.21% |
3.41% |
1.43% |
Global
Concentrated |
|
|
|
|
|
Class
I |
5/27/2016 |
23.52% |
N/A |
N/A |
12.94% |
Global
Concentrated Real Estate |
|
|
|
|
|
Class
I |
6/18/2018 |
-22.13% |
N/A |
N/A |
-9.52% |
Global
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
21.23% |
N/A |
N/A |
11.27% |
Global
Endurance |
|
|
|
|
|
Class
I |
12/31/2018 |
108.36% |
N/A |
N/A |
64.77% |
Global
Franchise |
|
|
|
|
|
Class
I |
11/28/2001 |
12.30% |
12.78% |
11.36% |
10.76% |
Global
Infrastructure |
|
|
|
|
|
Class
I |
9/20/2010 |
-2.48% |
7.24% |
7.94% |
8.22% |
Global
Insight |
|
|
|
|
|
Class
I |
12/28/2010 |
93.40% |
26.59% |
17.66% |
17.65% |
Global
Opportunity*
|
|
|
|
|
|
Class
I |
5/30/2008 |
55.04% |
24.01% |
17.98% |
15.40% |
Global
Permanence |
|
|
|
|
|
Class
I |
4/30/2019 |
26.69% |
N/A |
N/A |
19.50% |
Global
Real Estate |
|
|
|
|
|
Class
I |
8/30/2006 |
-14.96% |
-0.83% |
2.42% |
1.46% |
Global
Sustain |
|
|
|
|
|
Class
I |
8/30/2013 |
15.26% |
12.68% |
N/A |
11.21% |
Growth |
|
|
|
|
|
Class
I |
4/2/1991 |
110.55% |
28.48% |
20.91% |
12.01% |
Inception |
|
|
|
|
|
Class
I |
11/1/1989 |
142.90% |
27.52% |
15.92% |
11.12% |
International
Advantage |
|
|
|
|
|
Class
I |
12/28/2010 |
32.37% |
19.02% |
13.11% |
13.09% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
International
Equity |
|
|
|
|
|
Class
I |
8/4/1989 |
11.21% |
6.03% |
5.08% |
6.86% |
International
Opportunity |
|
|
|
|
|
Class
I |
3/31/2010 |
55.40% |
22.91% |
14.60% |
15.51% |
Real
Assets |
|
|
|
|
|
Class
I |
6/18/2018 |
-0.11% |
N/A |
N/A |
3.28% |
U.S.
Real Estate |
|
|
|
|
|
Class
I |
2/24/1995 |
-19.12% |
-3.95% |
2.40% |
7.14% |
US
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
24.11% |
N/A |
N/A |
14.62% |
The
average annual compounded rates of return (after taxes on distributions and
redemptions) (unless otherwise noted) for the Class I shares
of the Funds for the 1-, 5- and 10-year periods ended December
31, 2020 and for the period from inception through December
31, 2020 are as follows:
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Active
International Allocation |
|
|
|
|
|
Class
I |
1/17/1992 |
18.16% |
8.72% |
5.23% |
5.04% |
Advantage* |
|
|
|
|
|
Class
I |
6/30/2008 |
45.14% |
20.57% |
16.92% |
14.21% |
Asia
Opportunity |
|
|
|
|
|
Class
I |
12/29/2015 |
31.19% |
22.36% |
N/A |
22.40% |
China
Equity |
|
|
|
|
|
Class
I |
10/31/2019 |
17.11% |
N/A |
N/A |
25.48% |
Counterpoint
Global |
|
|
|
|
|
Class
I |
6/29/2018 |
43.33% |
N/A |
N/A |
24.57% |
Emerging
Markets Fixed Income Opportunities |
|
|
|
|
|
Class
I |
5/24/2012 |
2.64% |
4.58% |
N/A |
2.65% |
Emerging
Markets |
|
|
|
|
|
Class
I |
9/25/1992 |
8.98% |
8.22% |
2.52% |
6.67% |
Emerging
Markets Leaders** |
|
|
|
|
|
Class
I |
6/30/2011 |
35.86% |
14.26% |
N/A |
7.49% |
Emerging
Markets Small Cap |
|
|
|
|
|
Class
I |
12/15/2015 |
3.58% |
4.35% |
N/A |
4.78% |
Frontier
Markets*** |
|
|
|
|
|
Class
I |
8/25/2008 |
8.30% |
3.56% |
2.94% |
1.33% |
Global
Concentrated |
|
|
|
|
|
Class
I |
5/27/2016 |
13.93% |
N/A |
N/A |
10.42% |
Global
Concentrated Real Estate |
|
|
|
|
|
Class
I |
6/18/2018 |
-12.74% |
N/A |
N/A |
-6.54% |
Global
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
12.57% |
N/A |
N/A |
9.05% |
Global
Endurance |
|
|
|
|
|
Class
I |
12/31/2018 |
66.11% |
N/A |
N/A |
52.36% |
Global
Franchise |
|
|
|
|
|
Class
I |
11/28/2001 |
8.46% |
10.99% |
10.14% |
10.00% |
Global
Infrastructure |
|
|
|
|
|
Class
I |
9/20/2010 |
-0.12% |
6.66% |
7.41% |
7.65% |
|
|
|
|
|
|
Fund |
Inception
Date |
One
Year |
Average
Annual Five
Years |
Average
Annual Ten
Years |
Average
Annual Since
Inception |
Global
Insight |
|
|
|
|
|
Class
I |
12/28/2010 |
57.33% |
22.70% |
15.69% |
15.68% |
Global
Opportunity* |
|
|
|
|
|
Class
I |
5/30/2008 |
33.13% |
20.05% |
15.77% |
13.61% |
Global
Permanence |
|
|
|
|
|
Class
I |
4/30/2019 |
16.01% |
N/A |
N/A |
15.13% |
Global
Real Estate |
|
|
|
|
|
Class
I |
8/30/2006 |
-8.30% |
0.48% |
2.66% |
1.78% |
Global
Sustain |
|
|
|
|
|
Class
I |
8/30/2013 |
9.93% |
11.03% |
N/A |
9.84% |
Growth |
|
|
|
|
|
Class
I |
4/2/1991 |
70.89% |
25.15% |
19.00% |
11.34% |
Inception |
|
|
|
|
|
Class
I |
11/1/1989 |
90.55% |
24.49% |
14.60% |
10.66% |
International
Advantage |
|
|
|
|
|
Class
I |
12/28/2010 |
19.20% |
15.68% |
11.35% |
11.33% |
International
Equity |
|
|
|
|
|
Class
I |
8/4/1989 |
7.16% |
5.64% |
4.71% |
6.79% |
International
Opportunity |
|
|
|
|
|
Class
I |
3/31/2010 |
32.91% |
18.96% |
12.52% |
13.43% |
Real
Assets |
|
|
|
|
|
Class
I |
6/18/2018 |
0.34% |
N/A |
N/A |
2.90% |
U.S.
Real Estate |
|
|
|
|
|
Class
I |
2/24/1995 |
-10.79% |
-0.49% |
3.82% |
7.75% |
US
Core |
|
|
|
|
|
Class
I |
5/27/2016 |
14.39% |
N/A |
N/A |
11.88% |
* |
Performance
shown for each Fund’s Class I shares, as applicable, for periods prior to
May 21, 2010 reflects the performance of the Class I shares of the
applicable Predecessor
Fund. |
** |
Performance
shown for the Fund’s Class I shares reflects the performance of the
limited partnership interests of the Private Fund (the Predecessor Fund)
for periods
prior to January 6, 2015, adjusted to reflect any applicable sales charge
of the Class, but not adjusted for any other differences in expenses. If
adjusted for other
expenses, returns would be different. |
*** |
Performance
shown for the Fund’s Class I shares reflects the performance of the common
shares of the Frontier Predecessor Fund for periods prior to September
17,
2012. |
Calculation
of Yield
The
current yields for the Emerging Markets Fixed Income Opportunities Portfolio and
the Real Assets Portfolio for the 30-day period
ended December
31, 2020 were as follows:
|
|
|
|
|
|
Fund |
Class
I |
Class
A |
Class
L |
Class
C |
Class
IS |
Emerging
Markets Fixed Income Opportunities |
4.25% |
3.78%1
|
3.65% |
3.15% |
4.29% |
Real
Assets |
1.25% |
0.94%2
|
N/A |
0.25% |
1.35% |
1 |
The
yield as of December 31, 2020 of Class A shares has been restated to
reflect the current maximum initial sales charge of
3.25%. |
2 |
The
yield as of December 31, 2020 of Class A shares has been restated to
reflect the current maximum initial sales charge of
5.25%. |
POTENTIAL
CONFLICTS OF INTEREST
As a
diversified global financial services firm, Morgan Stanley, the parent company
of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities,
lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal
securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course
of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where
Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of a Fund.
Morgan Stanley advises clients and sponsors, manages or advises other investment
funds and
investment programs, accounts and businesses (collectively, together with any
new or successor funds, programs, accounts or
businesses, the ‘‘Affiliated Investment Accounts’’) with a wide variety of
investment objectives that in some instances may overlap or
conflict with a Fund’s
investment objectives and present conflicts of interest. In addition, Morgan
Stanley may also from time to
time
create new or successor Affiliated Investment Accounts that may compete with
a Fund and
present similar conflicts of interest. The
discussion below enumerates certain actual, apparent and potential conflicts of
interest. There is no assurance that conflicts of interest
will be resolved in favor of Fund shareholders and, in fact, they may not be.
Conflicts of interest not described below may also
exist.
Material
Non-public and Other Information. It is
expected that confidential or material non-public information regarding an
investment
or potential investment opportunity may become available to the Adviser. If such
information becomes available, the Adviser
may be precluded (including by applicable law or internal policies or
procedures) from pursuing an investment or disposition opportunity
with respect to such investment or investment opportunity. The Adviser may also
from time to time be subject to contractual
‘‘stand-still’’ obligations and/or confidentiality obligations that may restrict
its ability to trade in certain investments on a
Fund’s
behalf. In addition, the Adviser may be precluded from disclosing such
information to an Investment team, even in circumstances
in which the information would be beneficial if disclosed. Therefore, the
Adviser may not be provided access to material
non-public information in the possession of Morgan Stanley that might be
relevant to an investment decision to be made by a Fund,
and the Adviser may initiate a transaction or sell an investment that, if such
information had been known to it, may not have been
undertaken. In addition, certain members of the Investment team may be recused
from certain investment-related discussions so that such
members do not receive information that would limit their ability to perform
functions of their employment with Morgan Stanley
unrelated to that of a Fund.
Furthermore, access to certain parts of Morgan Stanley may be subject to third
party confidentiality
obligations and to information barriers established by Morgan Stanley in order
to manage potential conflicts of interest
and regulatory restrictions, including without limitation joint transaction
restrictions pursuant to the 1940 Act. Accordingly, the
Adviser’s ability to source investments from other business units within Morgan
Stanley may be limited and there can be no assurance
that the Adviser will be able to source any investments from any one or more
parts of the Morgan Stanley network.
The
Adviser may restrict its investment decisions and activities on behalf of the
Funds in
various circumstances, including because of applicable
regulatory requirements or information held by the Adviser or Morgan Stanley.
The Adviser might not engage in transactions
or other activities for, or enforce certain rights in favor of, a Fund due
to Morgan Stanley’s activities outside the Funds
(e.g., the
Adviser may refrain from making investments for the Funds that
would cause Morgan Stanley to exceed position limits or cause
Morgan Stanley to have additional disclosure obligations and may limit purchases
or sales of securities in respect of which Morgan
Stanley is engaged in an underwriting or other distribution) and regulatory
requirements, policies and reputational risk assessments.
Morgan
Stanley has established certain information barriers and other policies to
address the sharing of information between different businesses
within Morgan Stanley. As a result of information barriers, the Adviser
generally will not have access, or will have limited access, to
certain information and personnel in other areas of Morgan Stanley relating to
business transactions for clients (including transactions
in investing, banking, prime brokerage and certain other areas), and generally
will not manage the Funds with
the benefit of
the information held by such other areas. Morgan Stanley, due to its access to
and knowledge of funds, markets and securities
based on its prime brokerage and other businesses, may make decisions based on
information or take (or refrain from taking)
actions with respect to interests in investments of the kind held (directly or
indirectly) by the Funds in a
manner that may be adverse to
the Funds, and
will not have any obligation or other duty to share information with the
Adviser.
In limited
circumstances, however, including for purposes of managing business and
reputational risk, and subject to policies and procedures
and any applicable regulations, personnel, including personnel of the investment
adviser, on one side of an information barrier
may have access to information and personnel on the other side of the
information barrier through “wall crossings.” The Adviser
faces conflicts of interest in determining whether to engage in such wall
crossings. Information obtained in connection with such wall
crossings may limit or restrict the ability of the Adviser to engage in or
otherwise effect transactions on behalf of the Funds
(including
purchasing or selling securities that the Adviser may otherwise have purchased
or sold for a Fund in
the absence of a wall crossing).
In managing conflicts of interest that arise because of the foregoing, the
Adviser generally will be subject to fiduciary requirements.
Information barriers also exist between certain businesses within the Adviser,
and the conflicts described herein with respect to
information barriers and otherwise with respect to Morgan Stanley and the
Adviser will also apply to the businesses within the
Adviser. As a result, a Fund may
not be permitted to transact in (e.g., dispose of a security in whole or in
part) during periods when it
otherwise would have been able to do so, which could adversely affect
a Fund.
Other investors in the security that are not subject to
such restrictions may be able to transact in the security during such periods.
There may also be circumstances in which, as a result of
information held by certain portfolio management teams in the Adviser, the
Adviser limits an activity or transaction for a
Fund,
including if the Fund is managed by a portfolio management team other than the
team holding such information.
Payments
to Broker-Dealers and Other Financial Intermediaries. The
Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of the Funds, to
certain Financial Intermediaries (which may include affiliates of the
Adviser
and Distributor), including recordkeepers and administrators of various deferred
compensation plans, in connection with the sale,
distribution, marketing and retention of shares of the Funds
and/or shareholder servicing. For example, the Adviser or the Distributor
may pay additional compensation to a Financial Intermediary for, among other
things, promoting the sale and distribution
of Fund shares, providing access to various programs, mutual fund platforms or
preferred or recommended mutual fund
lists that
may be offered by a Financial Intermediary, granting the Distributor access to a
Financial Intermediary’s financial advisors and
consultants, providing assistance in the ongoing education and training of a
Financial Intermediary’s financial personnel, furnishing
marketing support, maintaining share balances and/or for sub-accounting,
recordkeeping, administrative, shareholder or transaction
processing services. Such payments are in addition to any distribution fees,
shareholder servicing fees and/or transfer agency
fees that may be payable by the Funds. The
additional payments may be based on various factors, including level of sales
(based on
gross or net sales or some specified minimum sales or some other similar
criteria related to sales of the Funds
and/or some or all
other Morgan Stanley Funds), amount of assets invested by the Financial
Intermediary’s customers (which could include current or
aged assets of the Funds
and/or some or all other Morgan Stanley Funds), a Fund’s
advisory fees, some other agreed upon amount or
other measures as determined from time to time by the Adviser and/or the
Distributor. The amount of these payments may be
different for different Financial Intermediaries.
The
prospect of receiving, or the receipt of, additional compensation, as described
above, by Financial Intermediaries may provide such
Financial Intermediaries and their financial advisors and other salespersons
with an incentive to favor sales of shares of the Funds
over other
investment options with respect to which these Financial Intermediaries do not
receive additional compensation (or receives
lower levels of additional compensation). These payment arrangements, however,
will not change the price that an investor pays for
shares of the Funds or
the amount that the Funds
receive to invest on behalf of an investor. Investors may wish to take such
payment
arrangements into account when considering and evaluating any recommendations
relating to Fund shares and should review
carefully any disclosures provided by Financial Intermediaries as to their
compensation.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will
generally conduct its sales and trading businesses, publish research and
analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of
one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments
that is different from, and potentially adverse to that of
a Fund.
Furthermore, from time to time, the Adviser or its affiliates may invest “seed”
capital in a Fund,
typically to enable the Fund
to commence investment operations and/or achieve sufficient scale. The Adviser
and its affiliates may hedge such seed capital
exposure by investing in derivatives or other instruments expected to produce
offsetting exposure. Such hedging transactions, if any,
would occur outside of a
Fund.
Morgan
Stanley’s sales and trading, financing and principal investing businesses
(whether or not specifically identified as such, and including
Morgan Stanley’s trading and principal investing businesses) will not be
required to offer any investment opportunities to a Fund.
These businesses may encompass, among other things, principal trading activities
as well as principal investing.
Morgan
Stanley’s sales and trading, financing and principal investing businesses have
acquired or invested in, and in the future may acquire or
invest in, minority and/or majority control positions in equity or debt
instruments of diverse public and/or private companies.
Such activities may put Morgan Stanley in a position to exercise contractual,
voting or creditor rights, or management or other
control with respect to securities or loans of portfolio investments or other
issuers, and in these instances Morgan Stanley may, in its
discretion and subject to applicable law, act to protect its own interests or
interests of clients, and not a Fund’s
interests.
Subject to
the limitations of applicable law, a Fund may
purchase from or sell assets to, or make investments in, companies in which
Morgan
Stanley has or may acquire an interest, including as an owner, creditor or
counterparty.
Morgan
Stanley’s Investment Banking and Other Commercial Activities. Morgan
Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as
an advisor to clients, including other investment
funds that may compete with a Fund and
with respect to investments that a Fund may
hold. Morgan Stanley may give advice and
take action with respect to any of its clients or proprietary accounts that may
differ from the advice given, or may involve an action
of a different timing or nature than the action taken, by a Fund.
Morgan Stanley may give advice and provide recommendations
to persons competing with a Fund
and/or any of a Fund’s
investments that are contrary to the Fund’s best interests and/or the
best interests of any of its investments.
Morgan
Stanley could be engaged in financial advising, whether on the buy-side or
sell-side, or in financing or lending assignments that could
result in Morgan Stanley’s determining in its discretion or being required to
act exclusively on behalf of one or more third parties,
which could limit a Fund’s
ability to transact with respect to one or more existing or potential
investments. Morgan Stanley may have
relationships with third-party funds, companies or investors who may have
invested in or may look to invest in portfolio companies,
and there could be conflicts between a Fund’s
best interests, on the one hand, and the interests of a Morgan Stanley client
or
counterparty, on the other hand.
To the
extent that Morgan Stanley advises creditor or debtor companies in the financial
restructuring of companies either prior to or after
filing for protection under Chapter 11 of the Bankruptcy Code or similar laws in
other jurisdictions, the Adviser’s flexibility in making
investments in such restructurings on a Fund’s
behalf may be limited.
Morgan
Stanley could provide investment banking services to competitors of portfolio
companies, as well as to private equity and/or private
credit funds; such activities may present Morgan Stanley with a conflict of
interest vis-a-vis a Fund’s
investment and may also result in
a conflict in respect of the allocation of investment banking resources to
portfolio companies.
To the
extent permitted by applicable law, Morgan Stanley may provide a broad range of
financial services to companies in which a
Fund
invests, including strategic and financial advisory services, interim
acquisition financing and other lending and underwriting or placement
of securities, and Morgan Stanley generally will be paid fees (that may include
warrants or other securities) for such services.
Morgan Stanley will not share any of the foregoing interest, fees and other
compensation received by it (including, for the avoidance
of doubt, amounts received by the Adviser) with a Fund,
and any advisory fees payable will not be reduced thereby.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection
with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its
mergers and acquisition activities and may provide
lending and other related financing services in connection with such
transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in
substantial part, upon the closing of the transaction.
Under these circumstances, a Fund may
be precluded from participating in a transaction with or relating to the company
being sold
or participating in any financing activity related to merger or
acquisition.
The
involvement or presence of Morgan Stanley in the investment banking and other
commercial activities described above (or the financial
markets more broadly) may restrict or otherwise limit investment opportunities
that may otherwise be available to the Funds. For
example, issuers may hire and compensate Morgan Stanley to provide underwriting,
financial advisory, placement agency, brokerage
services or other services and, because of limitations imposed by applicable law
and regulation, a Fund may
be prohibited from
buying or selling securities issued by those issuers or participating in related
transactions or otherwise limited in its ability to engage in
such investments.
Morgan
Stanley’s Marketing Activities. Morgan
Stanley is engaged in the business of underwriting, syndicating, brokering,
administering,
servicing, arranging and advising on the distribution of a wide variety of
securities and other investments in which a
Fund may
invest. Subject to the restrictions of the 1940 Act, including Section 10(f)
thereof, a Fund may
invest in transactions in which
Morgan Stanley acts as underwriter, placement agent, syndicator, broker,
administrative agent, servicer, advisor, arranger or structuring
agent and receives fees or other compensation from the sponsors of such products
or securities. Any fees earned by Morgan
Stanley in such capacity will not be shared with the Adviser or the Funds.
Certain conflicts of interest, in addition to the receipt of
fees or other compensation, would be inherent in these transactions. Moreover,
the interests of one of Morgan Stanley’s clients
with respect to an issuer of securities in which a Fund has
an investment may be adverse to the Adviser’s or a Fund’s
best interests.
In conducting the foregoing activities, Morgan Stanley will be acting for its
other clients and will have no obligation to act in the
Adviser’s or a Fund’s
best interests.
Client
Relationships. Morgan
Stanley has existing and potential relationships with a significant number of
corporations, institutions and
individuals. In providing services to its clients, Morgan Stanley may face
conflicts of interest with respect to activities recommended
to or performed for such clients, on the one hand, and a Fund,
its shareholders or the entities in which the Fund invests,
on the other hand. In addition, these client relationships may present conflicts
of interest in determining whether to offer certain
investment opportunities to a
Fund.
In acting
as principal or in providing advisory and other services to its other clients,
Morgan Stanley may engage in or recommend activities
with respect to a particular matter that conflict with or are different from
activities engaged in or recommended by the Adviser on
a Fund’s
behalf.
Principal
Investments. To the
extent permitted by applicable law, there may be situations in which
a
Funds’
interests may conflict with the
interests of one or more general accounts of Morgan Stanley and its affiliates
or accounts managed by Morgan Stanley or their
affiliates. This may occur because these accounts hold public and private debt
and equity securities of many issuers which may be or
become portfolio companies, or from whom portfolio companies may be
acquired.
Transactions
with Portfolio Companies of Affiliated Investment Accounts. The
companies in which a Fund may
invest may be counterparties
to or participants in agreements, transactions or other arrangements with
portfolio companies or other entities of portfolio
investments of Affiliated Investment Accounts (for example, a company in which
a Fund
invests may retain a company in which an
Affiliated Investment Account invests to provide services or may acquire an
asset from such company or vice versa). Certain of these
agreements, transactions and arrangements involve fees, servicing payments,
rebates and/or other benefits to Morgan Stanley or its
affiliates. For example, portfolio entities may, including at the encouragement
of Morgan Stanley, enter into agreements regarding
group procurement and/or vendor discounts. Morgan Stanley and its affiliates may
also participate in these agreements and may
realize better pricing or discounts as a result of the participation of
portfolio entities. To the extent permitted by applicable law, certain of
these agreements may provide for commissions or similar payments and/or
discounts or rebates to be paid to a portfolio entity of
an Affiliated Investment Account, and such payments or discounts or rebates may
also be made directly to Morgan Stanley or its
affiliates. Under these arrangements, a particular portfolio company or other
entity may benefit to a greater degree than the other
participants, and the Morgan Stanley Funds, investment vehicles and accounts
(which may or may not include a Fund)
that
own an
interest in such entity will receive a greater relative benefit from the
arrangements than the Morgan Stanley Funds, investment
vehicles or accounts that do not own an interest therein. Fees and compensation
received by portfolio companies of Affiliated
Investment Accounts in relation to the foregoing will not be shared with
a Fund or
offset advisory fees payable.
Investments
in Portfolio Investments of Other Funds. To the
extent permitted by applicable law, when a Fund
invests in certain companies
or other entities, other funds affiliated with the Adviser may have made or may
be making an investment in such companies
or other entities. Other funds that have been or may be managed by the Adviser
may invest in the companies or other entities
in which a Fund has
made an investment. Under such circumstances, a Fund and
such other funds may have conflicts of interest
(e.g., over the terms, exit strategies and related matters, including the
exercise of remedies of their respective investments). If the
interests held by a Fund are
different from (or take priority over) those held by such other funds, the
Adviser may be required to make a
selection at the time of conflicts between the interests held by such other
funds and the interests held by a
Fund.
Allocation
of Expenses. Expenses
may be incurred that are attributable to a Fund and
one or more other Affiliated Investment Accounts
(including in connection with issuers in which a Fund and
such other Affiliated Investment Accounts have overlapping investments).
The allocation of such expenses among such entities raises potential conflicts
of interest. The Adviser and its affiliates intend to
allocate such common expenses among a Fund and
any such other Affiliated Investment Accounts on a pro rata basis or in
such other
manner as may be required by applicable law.
Temporary
Investments. To more
efficiently invest short-term cash balances held by a Fund,
the Adviser may invest such balances on an
overnight “sweep” basis in shares of one or more money market funds or other
short-term vehicles. It is anticipated that the investment
adviser to these money market funds or other short-term vehicles may be the
Adviser (or an affiliate) to the extent permitted
by applicable law, including Rule 12d1-1 under the 1940 Act. In such a case, the
affiliated investment adviser may receive asset-based
fees in respect of a Fund’s
investment (which will reduce the net return realized by a
Fund).
Transactions
with Affiliates. The
Adviser might purchase securities from underwriters or placement agents in which
an affiliate is a member of
a syndicate or selling group, as a result of which an affiliate might benefit
from the purchase through receipt of a fee or otherwise.
The Adviser will not purchase securities on behalf of a Fund
from an affiliate that is acting as a manager of a syndicate or selling
group. Purchases by the Adviser on behalf of a Fund
from an affiliate acting as a placement agent must meet the requirements
of
applicable law. Furthermore, Morgan Stanley may face conflicts of interest when
the Funds uses
service providers affiliated with Morgan
Stanley because Morgan Stanley receives greater overall fees when they are
used.
General
Process for Potential Conflicts. All of
the transactions described above involve the potential for conflicts of interest
between
the Adviser, related persons of the Adviser and/or their clients. The Advisers
Act, the 1940 Act and ERISA impose certain requirements
designed to decrease the possibility of conflicts of interest between an
investment adviser and its clients. In some cases, transactions
may be permitted subject to fulfillment of certain conditions. Certain other
transactions may be prohibited. In addition, the
Adviser has instituted policies and procedures designed to prevent conflicts of
interest from arising and, when they do arise, to ensure
that it effects transactions for clients in a manner that is consistent with its
fiduciary duty to its clients and in accordance with applicable
law. The Adviser seeks to ensure that potential or actual conflicts of interest
are appropriately resolved taking into consideration
the overriding best interests of the client.
FINANCIAL
STATEMENTS
APPENDIX
A — MORGAN STANLEY INVESTMENT MANAGEMENT EQUITY PROXY VOTING POLICY
AND PROCEDURES
I.
POLICY STATEMENT
Morgan
Stanley Investment Management’s policy and procedures for voting proxies, the
Equity Proxy Voting Policy and Procedures (the
“Policy”), with respect to securities held in the accounts of clients applies to
those Morgan Stanley Investment Management (“MSIM”)
entities that provide discretionary investment management services and for which
an MSIM entity has authority to vote proxies.
For purposes of this Policy, clients shall include: Morgan Stanley U.S.
registered investment companies, other Morgan Stanley
pooled investment vehicles, and MSIM separately managed accounts (including
accounts for Employee Retirement Income Security
(“ERISA”) clients and ERISA-equivalent clients). This Policy is reviewed and
updated as necessary to address new and evolving
proxy voting issues and standards.
The MSIM
entities covered by this Policy currently include the following: Morgan Stanley
AIP GP LP, Morgan Stanley Investment Management
Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment
Management Company, Morgan Stanley
Asia Limited, Morgan Stanley Investment Management (Japan) Co. Limited, Morgan
Stanley Investment Management Private
Limited MS 522 CLO Manager LLC, and MS 522 CLO CM LLC (each an “MSIM Affiliate”
and collectively referred to as the “MSIM
Affiliates” or as “we” below).
Each MSIM
Affiliate will use its best efforts to vote proxies as part of its authority to
manage, acquire and dispose of account assets.
■ |
With
respect to the U.S. registered investment companies sponsored, managed or
advised by any MSIM Affiliate (the “MS Funds”),
each MSIM Affiliate will vote proxies under this Policy pursuant to
authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by the Board
of Directors/Trustees of the MS Funds. |
■ |
For
other pooled investment vehicles (e.g., UCITS), each MSIM Affiliate will
vote proxies under this Policy pursuant to authority
granted under its applicable investment advisory agreement or, in the
absence of such authority, as authorized by the relevant
governing board. |
■ |
For
separately managed accounts (including ERISA and ERISA-equivalent
clients), each MSIM Affiliate will vote proxies under this
Policy pursuant to authority granted under the applicable investment
advisory agreement or investment management agreement.
Where an MSIM Affiliate has the authority to vote proxies on behalf of
ERISA and ERISA-equivalent clients, the MSIM
Affiliate must do so in accordance with its fiduciary duties under ERISA
(and the Internal Revenue Code). |
■ |
In
certain situations, a client or its fiduciary may reserve the authority to
vote proxies for itself or an outside party or may provide
an MSIM Affiliate with a statement of proxy voting policy. The MSIM
Affiliate will comply with the client’s
policy. |
An MSIM
Affiliate will not vote proxies unless the investment management agreement,
investment advisory agreement or other authority
explicitly authorizes the MSIM Affiliate to vote proxies.
MSIM
Affiliates will vote proxies in a prudent and diligent manner and in the best
interests of clients, including beneficiaries of and participants
in a client’s benefit plan(s) for which the MSIM Affiliates manage assets,
consistent with the objective of maximizing long-term
investment returns (“Client Proxy Standard”) and this Policy. In addition to
voting proxies of portfolio companies, MSIM routinely
engages with the management or board of companies in which we invest on a range
of environmental, social and governance
issues. Governance is a window into or proxy for management and board quality.
MSIM engages with companies where we have
larger positions, voting issues are material or where we believe we can make a
positive impact on the governance structure. MSIM’s
engagement process, through private communication with companies, allows us to
understand the governance structures at investee
companies and better inform our voting decisions.
Retention
and Oversight of Proxy Advisory Firms - ISS and
Glass Lewis (together with other proxy research providers as we may retain
from time to time, the “Research Providers”) are independent advisers that
specialize in providing a variety of fiduciary-level proxy-related
services to institutional investment managers, plan sponsors, custodians,
consultants, and other institutional investors. The
services provided include in-depth research, global issuer analysis, record
retention, ballot processing and voting recommendations.
To
facilitate proxy voting, MSIM has retained Research Providers to provide company
level reports that summarize key data elements contained
within an issuer’s proxy statement. Although we are aware of the voting
recommendations included in the Research Providers’
company level reports, these recommendations are not an input into our vote nor
is any potential vote prepopulated based on a
Research Provider’s research. MSIM votes all proxies based on its own proxy
voting policies in the best interests of each client. In
addition to research, MSIM retains ISS to provide vote execution, reporting, and
recordkeeping services.
As part of
MSIM’s ongoing oversight of the Research Providers, MSIM performs periodic due
diligence on the Research Providers. Topics of
the reviews include, but are not limited to, conflicts of interest,
methodologies for developing their policies and vote recommendations,
and resources.
Voting
Proxies for Certain Non-U.S. Companies - Voting
proxies of companies located in some jurisdictions may involve several
problems
that can restrict or prevent the ability to vote such proxies or entail
significant costs. These problems include, but are not
limited
to: (i) proxy statements and ballots being written in a language other than
English; (ii) untimely and/or inadequate notice of shareholder
meetings; (iii) restrictions on the ability of holders outside the issuer’s
jurisdiction of organization to exercise votes; (iv) requirements
to vote proxies in person; (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the
shareholder meeting; and (vi) requirements to provide local agents with power of
attorney to facilitate our voting instructions. As a
result, we vote clients’ non-U.S. proxies on a best efforts basis only, after
weighing the costs and benefits of voting such proxies, consistent
with the Client Proxy Standard. ISS has been retained to provide assistance in
connection with voting non-U.S. proxies.
Securities
Lending - MS
Funds or any other investment vehicle sponsored, managed or advised by a MSIM
affiliate may participate in a
securities lending program through a third party provider. The voting rights for
shares that are out on loan are transferred to the borrower
and therefore, the lender (i.e., an MS Fund or another investment vehicle
sponsored, managed or advised by a MSIM affiliate)
is not entitled to vote the lent shares at the company meeting. In general, MSIM
believes the revenue received from the lending
program outweighs the ability to vote and we will not recall shares for the
purpose of voting. However, in cases in which MSIM
believes the right to vote outweighs the revenue received, we reserve the right
to recall the shares on loan on a best efforts basis.
II.
GENERAL PROXY VOTING GUIDELINES
To promote
consistency in voting proxies on behalf of our clients, we follow this Policy
(subject to any exception set forth herein). The Policy
addresses a broad range of issues, and provides general voting parameters on
proposals that arise most frequently. However,
details of specific proposals vary, and those details affect particular voting
decisions, as do factors specific to a given company.
Pursuant to the procedures set forth herein, we may vote in a manner that is not
in accordance with the following general guidelines,
provided the vote is approved by the Proxy Review Committee (see Section III)
and is consistent with the Client Proxy Standard.
Morgan Stanley AIP GP LP (“Morgan Stanley AIP”) will follow the procedures as
described in Appendix A.
We
endeavor to integrate governance and proxy voting policy with investment goals,
using the vote to encourage portfolio companies to enhance
long-term shareholder value and to provide a high standard of transparency such
that equity markets can value corporate assets
appropriately.
We seek to
follow the Client Proxy Standard for each client. At times, this may result in
split votes, for example when different clients
have varying economic interests in the outcome of a particular voting matter
(such as a case in which varied ownership interests
in two companies involved in a merger result in different stakes in the
outcome). We also may split votes at times based on differing
views of portfolio managers.
We may
abstain from or vote against matters for which disclosure is
inadequate.
A.
Routine Matters.
We
generally support routine management proposals. The following are examples of
routine management proposals:
■ |
Approval
of financial statements and auditor reports if delivered with an
unqualified auditor’s opinion. |
■ |
General
updating/corrective amendments to the charter, articles of association or
bylaws, unless we believe that such amendments
would diminish shareholder rights. |
■ |
Most
proposals related to the conduct of the annual meeting, with the following
exceptions. We generally oppose proposals that relate
to “the transaction of such other business which may come before the
meeting,” and open-ended requests for adjournment.
However, where management specifically states the reason for requesting an
adjournment and the requested adjournment
would facilitate passage of a proposal that would otherwise be supported
under this Policy (i.e., an uncontested corporate
transaction), the adjournment request will be supported. We do not support
proposals that allow companies to call a special
meeting with a short (generally two weeks or less) time frame for
review. |
We
generally support shareholder proposals advocating confidential voting
procedures and independent tabulation of voting results.
B.
Board of Directors.
1 |
Election
of directors: Votes on board nominees can involve balancing a variety of
considerations. In vote decisions, we may take into
consideration whether the company has a majority voting policy in place
that we believe makes the director vote more meaningful.
In the absence of a proxy contest, we generally support the board’s
nominees for director except as follows: |
a |
We
consider withholding support from or voting against a nominee if we
believe a direct conflict exists between the interests
of the nominee and the public shareholders, including failure to meet
fiduciary standards of care and/or loyalty. We
may oppose directors where we conclude that actions of directors are
unlawful, unethical or negligent. We consider opposing
individual board members or an entire slate if we believe the board is
entrenched and/or dealing inadequately with
performance problems; if we believe the board is acting with insufficient
independence between the board and management;
or if we believe the board has not been sufficiently forthcoming with
information on key governance or other material
matters. |
b |
We
consider withholding support from or voting against interested directors
if the company’s board does not meet market |
|
standards
for director independence, or if otherwise we believe board independence
is insufficient. We refer to prevalent market
standards as promulgated by a stock exchange or other authority within a
given market (e.g., New York Stock Exchange
or Nasdaq rules for most U.S. companies, and The Combined Code on
Corporate Governance in the United Kingdom).
Thus, for an NYSE company with no controlling shareholder, we would expect
that at a minimum a majority of
directors should be independent as defined by NYSE. Where we view market
standards as inadequate, we may withhold votes
based on stronger independence standards. Market standards
notwithstanding, we generally do not view long board tenure
alone as a basis to classify a director as
non-independent. |
i |
At a
company with a shareholder or group that controls the company by virtue of
a majority economic interest in the company,
we have a reduced expectation for board independence, although we believe
the presence of independent directors
can be helpful, particularly in staffing the audit committee, and at times
we may withhold support from or vote
against a nominee on the view the board or its committees are not
sufficiently independent. In markets where board
independence is not the norm (e.g. Japan), however, we consider factors
including whether a board of a controlled
company includes independent members who can be expected to look out for
interests of minority holders. |
ii |
We
consider withholding support from or voting against a nominee if he or she
is affiliated with a major shareholder that
has representation on a board disproportionate to its economic
interest. |
c |
Depending
on market standards, we consider withholding support from or voting
against a nominee who is interested and who
is standing for election as a member of the company’s
compensation/remuneration, nominating/governance or audit committee. |
d |
We
consider withholding support from or voting against nominees if the term
for which they are nominated is excessive. We
consider this issue on a market-specific basis. |
e |
We
consider withholding support from or voting against nominees if in our
view there has been insufficient board renewal (turnover),
particularly in the context of extended poor company performance. Also, if
the board has failed to consider diversity,
including but not limited to, gender and ethnicity, in its board
composition. |
f |
We
consider withholding support from or voting against a nominee standing for
election if the board has not taken action to
implement generally accepted governance practices for which there is a
“bright line” test. For example, in the context of the
U.S. market, failure to eliminate a dead hand or slow hand poison pill
would be seen as a basis for opposing one or more
incumbent nominees. |
g |
In
markets that encourage designated audit committee financial experts, we
consider voting against members of an audit committee
if no members are designated as such. We also consider voting against the
audit committee members if the company
has faced financial reporting issues and/or does not put the auditor up
for ratification by shareholders. |
h |
We
believe investors should have the ability to vote on individual nominees,
and may abstain or vote against a slate of nominees
where we are not given the opportunity to vote on individual
nominees. |
i |
We
consider withholding support from or voting against a nominee who has
failed to attend at least 75% of the nominee’s board
and board committee meetings within a given year without a reasonable
excuse. We also consider opposing nominees
if the company does not meet market standards for disclosure on
attendance. |
j |
We
consider withholding support from or voting against a nominee who appears
overcommitted, particularly through service
on an excessive number of boards. Market expectations are incorporated
into this analysis; for U.S. boards, we generally
oppose election of a nominee who serves on more than five public company
boards (excluding investment companies),
or public company CEOs that serve on more than two outside boards given
the level of time commitment required
in their primary job. |
k |
We
consider withholding support from or voting against a nominee where we
believe executive remuneration practices are poor,
particularly if the company does not offer shareholders a separate
“say-on-pay” advisory vote on pay. |
2 |
Discharge
of directors’ duties: In markets where an annual discharge of directors’
responsibility is a routine agenda item, we generally
support such discharge. However, we may vote against discharge or abstain
from voting where there are serious findings
of fraud or other unethical behavior for which the individual bears
responsibility. The annual discharge of responsibility represents
shareholder approval of disclosed actions taken by the board during the
year and may make future shareholder action against
the board difficult to pursue. |
3 |
Board
independence: We generally support U.S. shareholder proposals requiring
that a certain percentage (up to 66⅔%) of the company’s
board members be independent directors, and promoting all-independent
audit, compensation and nominating/governance
committees. |
4 |
Board
diversity: We generally support shareholder proposals urging diversity of
board membership with respect to gender, race or
other factors where we believe the board has failed to take these factors
into account. |
5 |
Majority
voting: We generally support proposals requesting or requiring majority
voting policies in election of directors, so long as
there is a carve-out for plurality voting in the case of contested
elections. |
6 |
Proxy
access: We consider proposals on procedures for inclusion of shareholder
nominees and to have those nominees included in
the company’s proxy statement and on the company’s proxy ballot on a
case-by-case basis. Considerations include ownership thresholds,
holding periods, the number of directors that shareholders may nominate
and any restrictions on forming a group |
7 |
Reimbursement
for dissident nominees: We generally support well-crafted U.S. shareholder
proposals that would provide for reimbursement
of dissident nominees elected to a board, as the cost to shareholders in
electing such nominees can be factored into
the voting decision on those nominees. |
8 |
Proposals
to elect directors more frequently: In the U.S. public company context, we
usually support shareholder and management
proposals to elect all directors annually (to “declassify” the board),
although we make an exception to this policy where
we believe that long-term shareholder value may be harmed by this change
given particular circumstances at the company at
the time of the vote on such proposal. As indicated above, outside the
United States, we generally support greater accountability
to shareholders that comes through more frequent director elections, but
recognize that many markets embrace longer
term lengths, sometimes for valid reasons given other aspects of the legal
context in electing boards. |
9 |
Cumulative
voting: We generally support proposals to eliminate cumulative voting in
the U.S. market context. (Cumulative voting
provides that shareholders may concentrate their votes for one or a
handful of candidates, a system that can enable a minority
bloc to place representation on a board.) U.S. proposals to establish
cumulative voting in the election of directors generally
will not be supported. |
10 |
Separation
of Chairman and CEO positions: We vote on shareholder proposals to
separate the Chairman and CEO positions and/or
to appoint an independent Chairman based in part on prevailing practice in
particular markets, since the context for such
a practice varies. In many non-U.S. markets, we view separation of the
roles as a market standard practice, and support division
of the roles in that context. In the United States, we consider such
proposals on a case-by-case basis, considering, among
other things, the existing board leadership structure, company
performance, and any evidence of entrenchment or perceived
risk that power is overly concentrated in a single
individual. |
11 |
Director
retirement age and term limits: Proposals setting or recommending director
retirement ages or director term limits are voted
on a case-by-case basis that includes consideration of company
performance, the rate of board renewal, evidence of effective
individual director evaluation processes, and any indications of
entrenchment. |
12 |
Proposals
to limit directors’ liability and/or broaden indemnification of officers
and directors: Generally, we will support such proposals
provided that an individual is eligible only if he or she has not acted in
bad faith, with gross negligence or with reckless
disregard of their duties. |
C.
Statutory Auditor Boards
The
statutory auditor board, which is separate from the main board of directors,
plays a role in corporate governance in several markets.
These boards are elected by shareholders to provide assurance on compliance with
legal and accounting standards and the company’s
articles of association. We generally vote for statutory auditor nominees if
they meet independence standards. In markets that
require disclosure on attendance by internal statutory auditors, however, we
consider voting against nominees for these positions who failed
to attend at least 75% of meetings in the previous year. We also consider
opposing nominees if the company does not meet
market standards for disclosure on attendance.
D.
Corporate Transactions and Proxy Fights.
We examine
proposals relating to mergers, acquisitions and other special corporate
transactions (i.e., takeovers, spin-offs, sales of assets,
reorganizations, restructurings and recapitalizations) on a case-by-case basis
in the interests of each fund or other account. Proposals
for mergers or other significant transactions that are friendly and approved by
the Research Providers usually are supported if there
is no portfolio manager objection. We also analyze proxy contests on a
case-by-case basis.
E.
Changes in Capital Structure.
1 |
We
generally support the following: |
■ |
Management
and shareholder proposals aimed at eliminating unequal voting rights,
assuming fair economic treatment of classes
of shares we hold. |
■ |
U.S.
management proposals to increase the authorization of existing classes of
common stock (or securities convertible into common
stock) if: (i) a clear business purpose is stated that we can support and
the number of shares requested is reasonable
in relation to the purpose for which authorization is requested; and/or
(ii) the authorization does not exceed 100%
of shares currently authorized and at least 30% of the total new
authorization will be outstanding. (We consider proposals
that do not meet these criteria on a case-by-case
basis.) |
■ |
U.S.
management proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital,
unless we have concerns about use of the authority for anti-takeover
purposes. |
■ |
Proposals
in non-U.S. markets that in our view appropriately limit potential
dilution of existing shareholders. A major consideration
is whether existing shareholders would have preemptive rights for any
issuance under a proposal for standing |
|
share
issuance authority. We generally consider market-specific guidance in
making these decisions; for example, in the U.K.
market we usually follow Association of British Insurers’ (“ABI”)
guidance, although company-specific factors may be considered
and for example, may sometimes lead us to voting against share
authorization proposals even if they meet ABI guidance. |
■ |
Management
proposals to authorize share repurchase plans, except in some cases in
which we believe there are insufficient protections
against use of an authorization for anti-takeover
purposes. |
■ |
Management
proposals to reduce the number of authorized shares of common or preferred
stock, or to eliminate classes of preferred
stock. |
■ |
Management
proposals to effect stock splits. |
■ |
Management
proposals to effect reverse stock splits if management proportionately
reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits that do not adjust
proportionately to the authorized share amount generally
will be approved if the resulting increase in authorized shares coincides
with the proxy guidelines set forth above for
common stock increases. |
■ |
Management
dividend payout proposals, except where we perceive company payouts to
shareholders as inadequate. |
2 |
We
generally oppose the following (notwithstanding management
support): |
■ |
Proposals
to add classes of stock that would substantially dilute the voting
interests of existing shareholders. |
■ |
Proposals
to increase the authorized or issued number of shares of existing classes
of stock that are unreasonably dilutive, particularly
if there are no preemptive rights for existing shareholders. However,
depending on market practices, we consider
voting for proposals giving general authorization for issuance of shares
not subject to preemptive rights if the authority
is limited. |
■ |
Proposals
that authorize share issuance at a discount to market rates, except where
authority for such issuance is de minimis,
or if there is a special situation that we believe justifies such
authorization (as may be the case, for example, at a company
under severe stress and risk of
bankruptcy). |
■ |
Proposals
relating to changes in capitalization by 100% or
more. |
We
consider on a case-by-case basis shareholder proposals to increase dividend
payout ratios, in light of market practice and perceived market
weaknesses, as well as individual company payout history and current
circumstances. For example, currently we perceive low payouts to
shareholders as a concern at some Japanese companies, but may deem a low payout
ratio as appropriate for a growth company
making good use of its cash, notwithstanding the broader market
concern.
F.
Takeover Defenses and Shareholder Rights
1 |
Shareholder
rights plans: We generally support proposals to require shareholder
approval or ratification of shareholder rights plans
(poison pills). In voting on rights plans or similar takeover defenses, we
consider on a case-by-case basis whether the company
has demonstrated a need for the defense in the context of promoting
long-term share value; whether provisions of the defense
are in line with generally accepted governance principles in the market
(and specifically the presence of an adequate qualified
offer provision that would exempt offers meeting certain conditions from
the pill); and the specific context if the proposal
is made in the midst of a takeover bid or contest for
control. |
2 |
Supermajority
voting requirements: We generally oppose requirements for supermajority
votes to amend the charter or bylaws, unless
the provisions protect minority shareholders where there is a large
shareholder. In line with this view, in the absence of a large
shareholder we support reasonable shareholder proposals to limit such
supermajority voting requirements. Also, we oppose provisions
that do not allow shareholders any right to amend the charter or
bylaws. |
3 |
Shareholders
right to call a special meeting: We consider proposals to enhance a
shareholder’s rights to call meetings on a case-by-case
basis. At large-cap U.S. companies, we generally support efforts to
establish the right of holders of 10% or more of shares
to call special meetings, unless the board or state law has set a policy
or law establishing such rights at a threshold that we believe
to be acceptable. |
4 |
Written
consent rights: In the U.S. context, we examine proposals for shareholder
written consent rights on a case-by-case basis. |
5 |
Reincorporation:
We consider management and shareholder proposals to reincorporate to a
different jurisdiction on a case-by-case
basis. We oppose such proposals if we believe the main purpose is to take
advantage of laws or judicial precedents that reduce
shareholder rights. |
6 |
Anti-greenmail
provisions: Proposals relating to the adoption of anti-greenmail
provisions will be supported, provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block
holders (holders of at least 1% of the outstanding shares
and in certain cases, a greater amount) not made to all shareholders or
not approved by disinterested shareholders; and (iii)
contains no anti-takeover measures or other provisions restricting the
rights of shareholders. |
7 |
Bundled
proposals: We may consider opposing or abstaining on proposals if
disparate issues are “bundled” and presented for a single
vote. |
G.
Auditors
We
generally support management proposals for selection or ratification of
independent auditors. However, we may consider opposing
such proposals with reference to incumbent audit firms if the company has
suffered from serious accounting irregularities and we
believe rotation of the audit firm is appropriate, or if fees paid to the
auditor for non-audit-related services are excessive. Generally,
to determine if non-audit fees are excessive, a 50% test will be applied (i.e.,
non-audit-related fees should be less than 50% of the
total fees paid to the auditor). We generally vote against proposals to
indemnify auditors.
H.
Executive and Director Remuneration
1 |
We
generally support the following:
|
■ |
Proposals
for employee equity compensation plans and other employee ownership plans,
provided that our research does not
indicate that approval of the plan would be against shareholder interest.
Such approval may be against shareholder interest
if it authorizes excessive dilution and shareholder cost, particularly in
the context of high usage (“run rate”) of equity
compensation in the recent past; or if there are objectionable plan design
and provisions. |
■ |
Proposals
relating to fees to outside directors, provided the amounts are not
excessive relative to other companies in the country
or industry, and provided that the structure is appropriate within the
market context. While stock-based compensation
to outside directors is positive if moderate and appropriately structured,
we are wary of significant stock option
awards or other performance-based awards for outside directors, as well as
provisions that could result in significant forfeiture
of value on a director’s decision to resign from a board (such forfeiture
can undercut director independence). |
■ |
Proposals
for employee stock purchase plans that permit discounts, but only for
grants that are part of a broad-based employee
plan, including all non-executive employees, and only if the discounts are
limited to a reasonable market standard
or less. |
■ |
Proposals
for the establishment of employee retirement and severance plans, provided
that our research does not indicate that
approval of the plan would be against shareholder
interest. |
2 |
We
generally oppose retirement plans and bonuses for non-executive directors
and independent statutory auditors. |
3 |
In
the U.S. context, we generally vote against shareholder proposals
requiring shareholder approval of all severance agreements, but
we generally support proposals that require shareholder approval for
agreements in excess of three times the annual compensation
(salary and bonus) or proposals that require companies to adopt a
provision requiring an executive to receive accelerated
vesting of equity awards if there is a change of control and the executive
is terminated. We generally oppose shareholder
proposals that would establish arbitrary caps on pay. We consider on a
case-by-case basis shareholder proposals that seek
to limit Supplemental Executive Retirement Plans (SERPs), but support such
shareholder proposals where we consider SERPs
excessive. |
4 |
Shareholder
proposals advocating stronger and/or particular pay-for-performance models
will be evaluated on a case-by-case basis,
with consideration of the merits of the individual proposal within the
context of the particular company and its labor markets,
and the company’s current and past practices. While we generally support
emphasis on long-term components of senior
executive pay and strong linkage of pay to performance, we consider
factors including whether a proposal may be overly prescriptive,
and the impact of the proposal, if implemented as written, on recruitment
and retention. |
5 |
We
generally support proposals advocating reasonable senior executive and
director stock ownership guidelines and holding requirements
for shares gained in executive equity compensation
programs. |
6 |
We
generally support shareholder proposals for reasonable “claw-back”
provisions that provide for company recovery of senior executive
bonuses to the extent they were based on achieving financial benchmarks
that were not actually met in light of subsequent
restatements. |
7 |
Management
proposals effectively to re-price stock options are considered on a
case-by-case basis. Considerations include the company’s
reasons and justifications for a re-pricing, the company’s competitive
position, whether senior executives and outside directors
are excluded, potential cost to shareholders, whether the re-pricing or
share exchange is on a value-for-value basis, and whether
vesting requirements are extended. |
8 |
Say-on-Pay:
We consider proposals relating to an advisory vote on remuneration on a
case-by-case basis. Considerations include a
review of the relationship between executive remuneration and performance
based on operating trends and total shareholder return
over multiple performance periods. In addition, we review remuneration
structures and potential poor pay practices, including
relative magnitude of pay, discretionary bonus awards, tax gross ups,
change-in-control features, internal pay equity and
peer group construction. As long-term investors, we support remuneration
policies that align with long-term shareholder returns. |
I.
Social and Environmental Issues.
Shareholders in the United States and certain other markets submit proposals
encouraging changes in
company disclosure and practices related to particular social and environmental
matters. As MSIM believes that relevant social and
environmental issues can influence risk and return, we consider how to vote on
proposals related to social and environmental
issues on a case-by-case basis by determining the relevance of social and
environmental issues identified in the proposal and their
likely impacts on shareholder value. In reviewing proposals on social and
environmental issues, we consider a company’s current
disclosures and our understanding of the company’s management of material social
and environmental issues in comparison to peers.
We seek to balance concerns on reputational and other risks that lie behind a
proposal against costs of implementation, while
considering appropriate shareholder and management prerogatives. We may abstain
from voting on proposals that do not have a readily
determinable financial impact on shareholder value and we may oppose proposals
that intrude excessively on management prerogatives
and/or board discretion. We generally vote against proposals requesting reports
or actions that we believe are duplicative, related to
matters not material to the business, or that would impose unnecessary or
excessive costs.
Environmental Issues
We
generally support proposals that, if implemented, would enhance useful
disclosure, such as disclosures aligned with SASB (Sustainability
Accounting Standards Board) and the TCFD (Task Force on Climate-related
Financial Disclosures). We also generally
support proposals that aim to meaningfully reduce or mitigate a company’s impact
on the global climate.
Social Issues
We
generally support proposals that, if implemented, would enhance useful
disclosure on employee and board diversity, including gender,
race, and other factors. We consider proposals on other social issues on a
case-by-case basis but generally support proposals that seek
to enhance useful disclosure on material issues such as human rights risks,
supply chain management and human capital management.
J.
Funds of Funds. Certain
MS Funds advised by an MSIM Affiliate invest only in other MS Funds. If an
underlying fund has a shareholder
meeting, in order to avoid any potential conflict of interest, such proposals
will be voted in the same proportion as the votes of
the other shareholders of the underlying fund, unless otherwise determined by
the Proxy Review Committee. In markets where
proportional voting is not available we will not vote at the meeting, unless
otherwise determined by the Proxy Review Committee.
Other MS Funds invest in unaffiliated funds. If an unaffiliated underlying fund
has a shareholder meeting and the MS Fund owns
more than 25% of the voting shares of the underlying fund, the MS Fund will vote
its shares in the unaffiliated underlying
fund in the same proportion as the votes of the other shareholders of the
underlying fund to the extent possible.
III.
ADMINISTRATION OF THE POLICY
The MSIM
Proxy Review Committee (the “Committee”) has overall responsibility for the
Policy. The Committee consists of investment
professionals who represent the different investment disciplines and geographic
locations of MSIM, and is chaired by the director
of the Global Stewardship Team (“GST”). Because proxy voting is an investment
responsibility and may affect shareholder value, and
because of their knowledge of companies and markets, portfolio managers and
other members of investment staff play a key role
in proxy voting, although the Committee has final authority over proxy votes.
The GST administers and implements the Policy, as
well as monitoring services provided by the proxy advisory firms and other
research providers used in the proxy voting process.
The GST
Director is responsible for identifying issues that require Committee
deliberation or ratification. The GST, working with advice of
investment teams and the Committee, is responsible for voting on routine items
and on matters that can be addressed in line with
these Policy guidelines. The GST has responsibility for voting case-by-case
where guidelines and precedent provide adequate guidance.
The
Committee may periodically review and has the authority to amend, as necessary,
the Policy and establish and direct voting positions
consistent with the Client Proxy Standard.
GST and
members of the Committee may take into account Research Providers’
recommendations and research as well as any other relevant
information they may request or receive, including portfolio manager and/or
analyst comments and research, as applicable. Generally,
proxies related to securities held in client accounts that are managed pursuant
to quantitative, index or index-like strategies (“Index
Strategies”) will be voted in the same manner as those held in actively managed
accounts, unless economic interests of the accounts
differ. Because accounts managed using Index Strategies are passively managed
accounts, research from portfolio managers and/or
analysts related to securities held in these accounts may not be available. If
the affected securities are held only in accounts that are
managed pursuant to Index Strategies, and the proxy relates to a matter that is
not described in this Policy, the GST will consider all
available information from the Research Providers, and to the extent that the
holdings are significant, from the portfolio managers and/or
analysts.
A.
Committee Procedures
The
Committee meets at least quarterly, and reviews and considers changes to the
Policy at least annually. Through meetings and/or written
communications, the Committee is responsible for monitoring and ratifying “split
votes” (i.e., allowing certain shares of the same
issuer that are the subject of the same proxy solicitation and held by one or
more MSIM portfolios to be voted differently than other
shares) and/or “override voting” (i.e., voting all MSIM portfolio shares in a
manner contrary to the Policy). The Committee will
review developing issues and approve upcoming votes, as appropriate, for matters
as requested by GST.
The
Committee reserves the right to review voting decisions at any time and to make
voting decisions as necessary to ensure the independence
and integrity of the votes.
B.
Material Conflicts of Interest
In
addition to the procedures discussed above, if the GST Director determines that
an issue raises a material conflict of interest, the GST
Director may request a special committee (“Special Committee”) to review, and
recommend a course of action with respect to, the
conflict(s) in question.
A
potential material conflict of interest could exist in the following situations,
among others:
1 |
The
issuer soliciting the vote is a client of MSIM or an affiliate of MSIM and
the vote is on a matter that materially affects the issuer. |
2 |
The
proxy relates to Morgan Stanley common stock or any other security issued
by Morgan Stanley or its affiliates except if echo voting
is used, as with MS Funds, as described herein. |
3 |
Morgan
Stanley has a material pecuniary interest in the matter submitted for a
vote (e.g., acting as a financial advisor to a party to a
merger or acquisition for which Morgan Stanley will be paid a success fee
if completed). |
4 |
One
of Morgan Stanley’s independent directors or one of MS Funds’ directors
also serves on the board of directors or is a nominee
for election to the board of directors of a company held by an MS Fund or
affiliate. |
If the GST
Director determines that an issue raises a potential material conflict of
interest, depending on the facts and circumstances, the issue
will be addressed as follows:
1 |
If
the matter relates to a topic that is discussed in this Policy, the
proposal will be voted as per the Policy. |
2 |
If
the matter is not discussed in this Policy or the Policy indicates that
the issue is to be decided case-by-case, the proposal will be
voted in a manner consistent with the Research Providers, provided that
all the Research Providers consulted have the same recommendation,
no portfolio manager objects to that vote, and the vote is consistent with
MSIM’s Client Proxy Standard. |
3 |
If
the Research Providers’ recommendations differ, the GST Director will
refer the matter to a Special Committee to vote on the
proposal, as appropriate. |
Any
Special Committee shall be comprised of the GST Director, and at least two
portfolio managers (preferably members of the Committee),
as approved by the Committee. The GST Director may request non-voting
participation by MSIM’s General Counsel or his/her
designee and the Chief Compliance Officer or his/her designee. In addition to
the research provided by Research Providers, the
Special Committee may request analysis from MSIM Affiliate investment
professionals and outside sources to the extent it deems appropriate.
C.
Proxy Voting Reporting
The GST
will document in writing all Committee and Special Committee decisions and
actions, which documentation will be maintained
by the GST for a period of at least six years. To the extent these decisions
relate to a security held by an MS Fund, the GST will
report the decisions to each applicable Board of Trustees/Directors of those MS
Funds (the “Board”) at each Board’s next regularly
scheduled Board meeting. The report will contain information concerning
decisions made during the most recently ended calendar
quarter immediately preceding the Board meeting.
In
addition, to the extent that Committee and Special Committee decisions and
actions relate to a security held by other pooled investment
vehicles, the GST will report the decisions to the relevant governing board of
the pooled investment vehicle.
MSIM will
promptly provide a copy of this Policy to any client requesting it. MSIM will
also, upon client request, promptly provide a report
indicating how each proxy was voted with respect to securities held in that
client’s account.
MSIM’s
Legal Department, in conjunction with GST and GST IT for MS Fund reporting and
with the AIP investment team for AIP
Closed-End 40 Act Fund reporting, is responsible for filing an annual Form N-PX
on behalf of each MS Fund and AIP Closed-End 40 Act
Fund for which such filing is required, indicating how all proxies were voted
with respect to each such fund’s holdings.
Also, MSIM
maintains voting records of individual agenda items at company meetings in a
searchable database on its website on a rolling
12-month basis.
In
addition, ISS provides vote execution, reporting and recordkeeping services to
MSIM.
IV.
RECORDKEEPING
Records
are retained in accordance with Morgan Stanley’s Global Information Management
Policy, which establishes general Firm-wide
standards and procedures regarding the retention, handling, and destruction of
official books and records and other information of legal
or operational significance. The Global Information Management Policy
incorporates Morgan Stanley’s Master Retention Schedule,
which lists various record classes and associated retention periods on a global
basis.
Approved
by the Board September 2015, September 27-28, 2016, September 27-28, 2017,
October 3-4, 2018, September 24-25, 2019 and
September 30-October 1, 2020.
APPENDIX
A
Appendix A
applies to the following accounts managed by Morgan Stanley AIP GP LP (i)
closed-end funds registered under the Investment
Company Act of 1940, as amended; (ii) discretionary separate accounts; (iii)
unregistered funds; and (iv) non-discretionary
accounts offered in connection with AIP’s Custom Advisory Portfolio Solutions
service.
Generally,
AIP will follow the guidelines set forth in Section II of MSIM’s Proxy Voting
Policy and Procedures. To the extent that such
guidelines do not provide specific direction, or AIP determines that consistent
with the Client Proxy Standard, the guidelines should not
be followed, the Proxy Review Committee has delegated the voting authority to
vote securities held by accounts managed by AIP to
the Fund of Hedge Funds investment team, the Private Markets investment team or
the Portfolio Solutions team of AIP. A summary of
decisions made by the applicable investment teams will be made available to the
Proxy Review Committee for its information
at the next scheduled meeting of the Proxy Review Committee.
In certain
cases, AIP may determine to abstain from determining (or recommending) how a
proxy should be voted (and therefore abstain
from voting such proxy or recommending how such proxy should be voted), such as
where the expected cost of giving due consideration
to the proxy does not justify the potential benefits to the affected account(s)
that might result from adopting or rejecting
(as the case may be) the measure in question.
Waiver
of Voting Rights
For
regulatory reasons, AIP may either 1) invest in a class of securities of an
underlying fund (the “Fund”) that does not provide for voting
rights; or 2) waive 100% of its voting rights with respect to the
following:
1 |
Any
rights with respect to the removal or replacement of a director, general
partner, managing member or other person acting in a
similar capacity for or on behalf of the Fund (each individually a
“Designated Person,” and collectively, the “Designated Persons”),
which may include, but are not limited to, voting on the election or
removal of a Designated Person in the event of such
Designated Person’s death, disability, insolvency, bankruptcy, incapacity,
or other event requiring a vote of interest holders of
the Fund to remove or replace a Designated Person;
and |
2 |
Any
rights in connection with a determination to renew, dissolve, liquidate,
or otherwise terminate or continue the Fund, which may
include, but are not limited to, voting on the renewal, dissolution,
liquidation, termination or continuance of the Fund upon
the occurrence of an event described in the Fund’s organizational
documents; provided,
however,
that, if the Fund’s organizational
documents require the consent of the Fund’s general partner or manager, as
the case may be, for any such termination
or continuation of the Fund to be effective, then AIP may exercise its
voting rights with respect to such matter. |
APPENDIX
B — DESCRIPTION OF RATINGS
Standard
& Poor’s Ratings Services
An S&P
Global Ratings issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note
programs and commercial paper programs). It takes into consideration the
creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The
opinion reflects S&P Global Ratings’ view of the obligor’s capacity and
willingness to meet its financial commitments as they come due,
and this opinion may assess terms, such as collateral security and
subordination, which could affect ultimate payment in the event
of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are
generally assigned to those obligations considered short-term
in the relevant market. Short-term ratings are also used to indicate the
creditworthiness of an obligor with respect to put features
on long-term obligations. Medium-term notes are assigned long-term
ratings.
I.
S&P’s Long-Term Issue Credit Ratings
AAA: An
obligation rated ‘AAA’ has the highest rating assigned by S&P Global
Ratings. The obligor’s capacity to meet its financial commitments
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
commitments 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 commitments 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 weaken the obligor’s capacity to meet its financial
commitments on the obligation.
BB; B;
CCC; CC; and C:
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having
significant speculative characteristics.
‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such
obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposure to adverse conditions.
BB: An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that could
lead to the obligor’s inadequate capacity to meet its
financial commitments 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 commitments on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity
or willingness to meet its financial commitments 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 commitments 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 commitments 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 S&P Global Ratings 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 with 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
S&P Global Ratings 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. A rating on an obligation is lowered to
‘D’ if it is subject to a distressed exchange offer.
NR: Indicates
that a rating has not been assigned or is no longer assigned.
Note: Ratings
from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the rating
categories.
II.
S&P’s Short-Term Issue Credit Ratings
A-1: A
short-term obligation rated ‘A-1’ is rated in the highest category by S&P
Global Ratings. The obligor’s capacity to meet its financial
commitments 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 commitments 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 commitments 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 weaken an obligor’s capacity to meet its financial
commitments 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 that 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 commitments 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 S&P Global Ratings 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. A rating on an obligation is lowered to
‘D’ if it is subject to a distressed exchange offer.
NR: Indicates
that a rating has not been assigned or is no longer assigned.
III.
Municipal Short-Term Note Ratings
SP-1: Strong
capacity to pay principal and interest. An issue determined to possess a very
strong capacity to pay debt service is given a plus (+)
designation.
SP-2:
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of
the notes.
SP-3:
Speculative capacity to pay principal and interest.
D: ‘D’ is
assigned upon failure to pay the note when due, completion of a distressed
exchange offer, or the filing of a bankruptcy petition
or the taking of similar action anywhere default on an obligation is a virtual
certainty, for example, due to automatic stay provisions.
Moody’s
Investors, Inc.
Ratings
assigned on Moody’s global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial
obligations issued by non-financial corporates, financial institutions,
structured finance vehicles, project finance vehicles, and public
sector entities. Long-term ratings are assigned to issuers or obligations with
an original maturity of one year or more and reflect
both on the likelihood of a default on contractually promised payments and the
expected financial loss suffered in the event of default.
Short-term ratings are assigned to obligations with an original maturity of
thirteen months or less and reflect both on the likelihood
of a default on contractually promised payments and the expected financial loss
suffered in the event of default.
I.
Moody’s Global Long-Term Rating Scale
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the
lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very
low credit risk.
A:
Obligations rated A are judged to be upper-medium grade and are subject to low
credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative
characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial
credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit
risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are
subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and
interest.
C:
Obligations rated C are the lowest rated and are typically in default, with
little prospect for recovery of principal or interest.
Note: 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.
Additionally, a “(hyb)” indicator is appended to all ratings of
hybrid securities issued by banks, insurers, finance companies, and securities
firms.
II.
Moody’s Global Short-Term Rating Scale
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
Ratings Inc.
Fitch
Ratings’ credit ratings relating to issuers are an opinion on the relative
ability of an entity to meet financial commitments, such as
interest, preferred dividends, repayment of principal, insurance claims or
counterparty obligations. Credit ratings relating to securities
and obligations of an issuer can include a recovery expectation. Credit ratings
are used by investors as indications of the likelihood
of receiving the money owed to them in accordance with the terms on which they
invested. The agency’s credit ratings cover the
global spectrum of corporate, sovereign financial, bank, insurance, and public
finance entities (including supranational and sub-national
entities) and the securities or other obligations they issue, as well as
structured finance securities backed by receivables or other
financial assets.
I.
Fitch’s Long-Term Issuer Credit Rating Scale
AAA: Highest
credit quality. ‘AAA’ ratings denote the lowest expectation of default risk.
They are assigned only in cases of exceptionally
strong capacity for payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable
events.
AA: Very high
credit quality. ‘AA’ ratings denote expectations of very low default risk. They
indicate very strong capacity for payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High
credit quality. ‘A’ ratings denote expectations of low default risk. The
capacity for payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to adverse business
or economic conditions than is the case for higher
ratings.
BBB: Good
credit quality. ‘BBB’ ratings indicate that expectations of default risk are
currently low. The capacity for payment of financial
commitments is considered adequate, but adverse business or economic conditions
are more likely to impair this capacity.
BB:
Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk,
particularly in the event of adverse changes in business or
economic conditions over time; however, business or financial flexibility exists
that supports the servicing of financial commitments.
B: Highly
speculative. ‘B’ ratings indicate that material default risk is present, but a
limited margin of safety remains. Financial commitments
are currently being met; however, capacity for continued payment is vulnerable
to deterioration in the business and economic
environment.
CCC:
Substantial credit risk. Default is a real possibility.
CC: Very high
levels of credit risk. Default of some kind appears probable.
C: Near
default. A default or default-like process has begun, or the issuer is in
standstill, or for a closed funding vehicle, payment capacity
is irrevocably impaired. Conditions that are indicative of a ‘C’ category rating
for an issuer include: a. the issuer has entered into a
grace or cure period following non-payment of a material financial obligation;
b. the issuer has entered into a temporary negotiated
waiver or standstill agreement following a payment default on a material
financial obligation; c. the formal announcement by the
issuer or their agent of a distressed debt exchange; d. a closed financing
vehicle where payment capacity is irrevocably impaired such that
it is not expected to pay interest and/or principal in full during the life of
the transaction, but where no payment default is imminent.
RD:
Restricted default. ‘RD’ ratings indicate an issuer that in Fitch’s opinion
has experienced: a. an uncured payment default or distressed
debt exchange on a bond, loan or other material financial obligation, but b. has
not entered into bankruptcy filings, administration,
receivership, liquidation, or other formal winding-up procedure, and c. has not
otherwise ceased operating. This would
include: i. the selective payment default on a specific class or currency of
debt; ii. the uncured expiry of any applicable grace period,
cure period or default forbearance period following a payment default on a bank
loan, capital markets security or other
material
financial obligation; iii. the extension of multiple waivers or forbearance
periods upon a payment default on one or more material
financial obligations, either in series or in parallel; ordinary execution of a
distressed debt exchange on one or more material financial
obligations.
D: Default.
‘D’ ratings indicate an issuer that in Fitch’s opinion has entered into
bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedure or that has otherwise ceased
business.
Default
ratings are not assigned prospectively to entities or their obligations; within
this context, non-payment on an instrument that contains a
deferral feature or grace period will generally not be considered a default
until after the expiration of the deferral or grace period,
unless a default is otherwise driven by bankruptcy or other similar
circumstance, or by a distressed debt exchange.
Imminent
default, categorized under ‘C’, typically refers to the occasion where a payment
default has been intimated by the issuer and is all
but inevitable. This may, for example, be where an issuer has missed a scheduled
payment but (as is typical) has a grace period
during which it may cure the payment default. Another alternative would be where
an issuer has formally announced a distressed
debt exchange, but the date of the exchange still lies several days or weeks in
the immediate future.
In all
cases, the assignment of a default rating reflects the agency’s opinion as to
the most appropriate rating category consistent with the rest
of its universe of ratings and may differ from the definition of default under
the terms of an issuer’s financial obligations or local
commercial practice.
Note: The
modifiers “+” or “-“ may be appended to a rating to denote relative status
within major rating categories. Such suffixes are not added
to ‘AAA’ ratings and ratings below the ‘CCC’ category.
II.
Fitch’s Short-Term Ratings Assigned to Issuers or Obligations in Corporate,
Public and Structure Finance
F1: Highest
Short-Term Credit Quality. Indicates the strongest intrinsic capacity for timely
payment of financial commitments; may have an
added “+” to denote any exceptionally strong credit feature.
F2: Good
Short-Term Credit Quality. Good intrinsic capacity for timely payment of
financial commitments.
F3: Fair
Short-Term Credit Quality. The intrinsic capacity for timely payment of
financial commitments is adequate.
B:
Speculative Short-Term Credit Quality. Minimal capacity for timely payment of
financial commitments, plus heightened vulnerability
to near term adverse changes in financial and economic conditions.
C: High
Short-Term Default Risk. Default is a real possibility.
RD:
Restricted Default. Indicates an entity that has defaulted on one or more of its
financial commitments, although it continues to meet other
financial obligations. 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.
Note: The
modifiers “+” or “-“ may be appended to a rating to denote relative status
within major rating categories. For the short-term
rating category of ‘F1’, a ‘+’ may be appended.
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