ck0000898745-20200831
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PRINCIPAL
FUNDS, INC. (“PFI” or the "Fund") |
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Statement
of Additional Information |
This
Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Fund's prospectus. The
prospectus, which we may amend from time to time, contains the basic information
you should know before investing in the Fund. You
should read this SAI together with the Fund's prospectus dated December 31,
2020.
Incorporation
by Reference: The
audited financial statements, schedules of investments and auditor's report
included in the Fund's Annual
Report to Shareholders,
for the fiscal year ended August 31, 2020, are hereby incorporated by reference
into and are legally a part of this SAI.
For
a free copy of the current prospectus, semiannual or annual report, call
1-800-222-5852 or write:
Principal
Funds
P.O.
Box 219971
Kansas
City, MO 64121-9971
The
prospectus may be viewed at www.principalfunds.com/prospectuses.
Following
the close of business on March 1, 2021, Class R-2 shares will automatically
convert into Class R-3 shares of the same Fund. At such time, delete references
to Class R-2 shares from this Statement of Additional Information.
Following
the close of business on February 23, 2021, the Class C shares of the
Diversified Real Asset and Global Multi-Strategy Funds will automatically
convert into Class A shares of the same fund. At such time, delete
references to Class C shares from the Statement of Additional Information for
Diversified Real Asset and Global Multi-Strategy Funds.
Following
the close of business of February 23, 2021, the Class A shares of the
International Small Company Fund will liquidate. At such time, delete references
to Class A shares from the Statement of Additional Information for the
International Small Company Fund.
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Ticker
Symbols by Share Class |
Fund |
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
S |
Blue
Chip |
PBLAX |
PBLCX |
PBCJX |
PBCKX |
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PGBEX
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PGBFX |
PGBGX |
PGBHX |
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Bond
Market Index |
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PBIJX |
PNIIX |
PBIMX |
PBINX |
PBOIX |
PBIPX |
PBIQX |
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Capital
Securities |
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PCSFX |
Diversified
Real Asset |
PRDAX |
PRDCX |
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PDRDX |
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PGDRX |
PGDSX |
PGDTX |
PDARX |
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Edge
MidCap |
PEMCX |
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PEDGX |
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PEDMX |
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Global
Multi-Strategy |
PMSAX |
PMSCX |
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PSMIX |
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PGLSX |
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International
Equity Index |
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PIDIX |
PILIX |
PINEX |
PIIOX |
PIIPX |
PIIQX |
PFIEX |
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International
Small Company |
PICAX |
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PISMX |
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PFISX |
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Opportunistic
Municipal |
PMOAX |
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POMFX |
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Origin
Emerging Markets |
POEYX |
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POEIX |
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POEFX |
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Small-MidCap
Dividend Income |
PMDAX |
PMDDX |
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PMDIX |
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PMDHX |
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Small-MidCap
Growth |
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PSMHX |
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Spectrum
Preferred and Capital Securities Income |
PPSAX |
PRFCX |
PPSJX |
PPSIX |
PUSAX |
PPRSX |
PNARX |
PQARX |
PPARX |
PPREX |
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TABLE
OF CONTENTS |
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APPENDIX
A – DESCRIPTION OF BOND RATINGS |
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APPENDIX
B – PRICE MAKE UP SHEET |
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APPENDIX
C – PROXY VOTING POLICIES |
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FUND
HISTORY
Principal
Funds, Inc. (“PFI” or the "Fund") was organized as Principal Special Markets
Fund, Inc. on January 28, 1993 as a Maryland corporation. The Fund changed
its name to Principal Investors Fund, Inc. effective September 14, 2000.
The Fund changed its name to Principal Funds, Inc. effective June 13,
2008.
On
January 12, 2007, the Fund acquired WM Trust I, WM Trust II, and WM Strategic
Asset Management Portfolios, LLC.
Classes
offered by each Fund are shown in the following table.
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Share
Class |
Fund |
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
S |
Blue
Chip |
X |
X |
X |
X |
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X |
X |
X |
X |
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Bond
Market Index |
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X |
X |
X |
X |
X |
X |
X |
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Capital
Securities |
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X |
Diversified
Real Asset |
X |
X |
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X |
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X |
X |
X |
X |
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Edge
MidCap |
X |
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X |
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X |
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Global
Multi-Strategy |
X |
X |
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X |
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X |
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International
Equity Index |
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X |
X |
X |
X |
X |
X |
X |
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International
Small Company |
X |
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X |
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X |
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Opportunistic
Municipal |
X |
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X |
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Origin
Emerging Markets |
X |
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X |
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X |
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Small-MidCap
Dividend Income |
X |
X |
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X |
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X |
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Small-MidCap
Growth |
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X |
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Spectrum
Preferred and Capital Securities Income |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
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Each
class has different expenses. Because of these different expenses, the
investment performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, call Principal Funds at
1-800-222-5852.
Principal
Global Investors, LLC ("PGI" or the "Manager") may recommend to the Board of
Directors (the "Board"), and the Board may elect, to close certain funds to new
investors or close certain funds to new and existing investors. PGI may make
such a recommendation when a fund approaches a size where additional investments
in the fund have the potential to adversely impact fund performance and make it
increasingly difficult to keep the fund fully invested in a manner consistent
with its investment objective. PGI may also recommend to the Board, and the
Board may elect, to close certain share classes to new or new and existing
investors.
MULTIPLE
CLASS STRUCTURE
The
Board has adopted a multiple class plan (the Multiple Class Plan) pursuant to
SEC Rule 18f-3. The share classes that are offered by each Fund are identified
in the chart included under the heading "Fund History." The share classes
offered under the plan include: Classes A, C, J, Institutional, R-1, R-2, R-3,
R-4, R-5, R-6, and S.
Class
A shares are generally sold with a sales charge that is a variable percentage
based on the amount of the purchase, as described in the prospectus. Certain
redemptions of Class A shares within 12 months of purchase may be subject to a
contingent deferred sales charge ("CDSC"), as described in the
prospectus.
Class
C shares are not subject to a sales charge at the time of purchase but are
subject to a 1% CDSC on shares redeemed within 12 months of purchase, as
described in the prospectus.
Class
J shares are sold without any front-end sales charge. A CDSC of 1% is imposed if
Class J shares are redeemed within 18 months of purchase, as described in the
prospectus.
Sales
charge waivers and reductions may be available depending on whether shares are
purchased directly from the Fund or through a financial intermediary, as
described in the prospectus and Appendix C to the prospectus, titled
"Intermediary-Specific Sales Charge Waivers and Reductions."
For
Classes A, C, and J shares purchased from the Fund or through an intermediary
not identified on Appendix C to the prospectus, the CDSC is waived on
shares:
•redeemed
within 90 days after an account is re-registered due to a shareholder's
death;
•redeemed
to pay surrender fees;
•redeemed
to pay retirement plan fees;
•redeemed
involuntarily from accounts with small balances;
•redeemed
due to the shareholder's disability (as defined by the Internal Revenue Code)
provided the shares were purchased prior to the disability;
•redeemed
from retirement plans to satisfy minimum distribution rules under the Internal
Revenue Code;
•redeemed
from a retirement plan to assure the plan complies with the Internal Revenue
Code;
•redeemed
from retirement plans qualified under Section 401(a) of the Internal Revenue
Code due to the plan participant's death, disability, retirement, or separation
from service after attaining age 55;
•redeemed
from retirement plans to satisfy excess contribution rules under the Internal
Revenue Code; or
•redeemed
using a systematic withdrawal plan (up to 1% per month (measured cumulatively
with respect to non-monthly plans) of the value of the fund account at the time,
and beginning on the date, the systematic withdrawal plan begins). (The free
withdrawal privilege not used in a calendar year is not added to the free
withdrawal privileges for any following year.)
For
Class J shares purchased from the Fund or through an intermediary not identified
on Appendix C to the prospectus, the CDSC also is waived on shares:
•redeemed
that were purchased pursuant to the Small Amount Force Out program (SAFO);
or
•of
the Money Market Fund redeemed within 30 days of the initial purchase if the
redemption proceeds are transferred to another Principal IRA, defined as either
a fixed or variable annuity issued by Principal Life Insurance Company to fund
an IRA, a Principal Bank IRA product, or a WRAP account IRA sponsored by
Principal Securities, Inc. (PSI)
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 shares are available without
any front-end sales charge or contingent deferred sales charge. Classes R-1,
R-2, R-3, R-4, and R-5 shares are available through employer-sponsored
retirement plans. Such plans may impose fees in addition to those charged by the
Funds. Classes R-1, R-2, R-3, R-4, and R-5 shares are subject to asset based
charges (described below). Class R-6 shares are generally available through the
defined contribution investment only channel.
PGI
receives a fee for providing investment advisory and certain corporate
administrative services under the terms of the Management Agreement. In addition
to the management fee, the Fund's Classes R-1, R-2, R-3, R-4, and R-5 shares pay
PGI a service fee and an administrative services fee under the terms of a
Service Agreement and an Administrative Services Agreement.
Service
Agreement (Classes R-1, R-2, R-3, R-4, and R-5 Shares)
The
Service Agreement provides for PGI to provide certain personal services to
shareholders (plan sponsors) and beneficial owners (plan members) of those
classes. These personal services include:
• responding
to plan sponsor and plan member inquiries;
• providing
information regarding plan sponsor and plan member investments; and
• providing
other similar personal services or services related to the maintenance of
shareholder accounts as contemplated by National Association of Securities
Dealers (NASD) Rule 2830 (or any successor thereto).
As
compensation for these services, the Fund will pay PGI service fees equal to
0.25% of the average daily net assets attributable to each of the R-1, R-2, R-3,
R-4, and R-5 Classes. The service fees are calculated and accrued daily and paid
monthly to PGI (or at such other intervals as the Fund and PGI may
agree).
Administrative
Service Agreement (Classes R-1, R-2, R-3, R-4, and R-5 Shares)
The
Administrative Service Agreement provides for PGI to provide services to
beneficial owners of Fund shares. Such services include:
• receiving,
aggregating, and processing purchase, exchange, and redemption requests from
plan shareholders;
• providing
plan shareholders with a service that invests the assets of their accounts in
shares pursuant to pre-authorized instructions submitted by plan
members;
• processing
dividend payments from the Funds on behalf of plan shareholders and changing
shareholder account designations;
• acting
as shareholder of record and nominee for plans;
• maintaining
account records for shareholders and/or other beneficial owners;
• providing
notification to plan shareholders of transactions affecting their
accounts;
• forwarding
prospectuses, financial reports, tax information and other communications from
the Fund to beneficial owners;
• distributing,
receiving, tabulating and transmitting proxy ballots of plan shareholders;
and
• other
similar administrative services.
As
compensation for these services, the Fund will pay PGI service fees equal to
0.28% of the average daily net assets attributable to the R-1 Class, 0.20% of
the average daily net assets of the R-2 Class, 0.07% of the average daily net
assets of the R-3 Class, 0.03% of the average daily net assets of the R-4 Class
and 0.01% of the average daily net assets of the R-5 Class. The service fees are
calculated and accrued daily and paid monthly to PGI (or at such other intervals
as the Fund and PGI may agree).
PGI
will generally, at its discretion appoint (and may at any time remove), other
parties, including companies affiliated with PGI, as its agent to carry out the
provisions of the Service Agreement and/or the Administrative Service Agreement.
However, the appointment of an agent shall not relieve PGI of any of its
responsibilities or liabilities under those Agreements. Any fees paid to agents
under these Agreements shall be the sole responsibility of PGI.
Class
S:
Class S shares are available without any front-end sales charge or contingent
deferred sales charge. Eligibility to invest in the Capital Securities Fund is
limited to certain wrap-fee program accounts. Only wrap-fee program accounts as
to which Spectrum and/or PGI have an agreement with the wrap-fee program's
sponsor ("Sponsor") or the wrap account owner to provide investment advisory or
sub-advisory services (either directly or by providing a model investment
portfolio created and maintained by Spectrum and/or PGI to the Sponsor or one or
more Sponsor-designated investment managers) (Eligible Wrap Accounts) are
eligible to purchase shares of the Fund. References
to Wrap Fee Advisor shall mean Spectrum and/or PGI in their role providing such
services to Eligible Wrap Accounts.
A
client agreement with the Sponsor to open an account in the Sponsor's wrap-fee
program typically may be obtained by contacting the Sponsor or your financial
advisor. Purchase and sale decisions regarding Fund shares for your wrap account
ordinarily will be made by the Wrap Fee Advisor, the Sponsor or a
Sponsor-designated investment manager, depending on the particular wrap-fee
program in which your wrap account participates. If your wrap-fee account's use
of the Wrap Fee Advisor's investment style is terminated by you, the Sponsor or
the Wrap Fee Advisor, your wrap account will cease to be an Eligible Wrap
Account and you will be required to redeem all your shares of the Capital
Securities Fund. Each Eligible Wrap Account, by purchasing shares, agrees to any
such redemption.
Rule
12b-1 Fees / Distribution Plans and Agreements
The
Distributor for the Funds is Principal Funds Distributor, Inc. ("PFD"). The
address for PFD is as follows: 620 Coolidge Drive, Suite 300, Folsom, CA
95630.
In
addition to the management and service fees, certain of the Fund's share classes
are subject to a Rule 12b-1 Distribution Plan and Agreement (a “Plan”). The
Board and initial shareholders of Classes A, C, J, R-1, R-2, R-3, and R-4 shares
have approved and entered into a Plan. In adopting the Plans, the Board
(including a majority of directors who are not interested persons of the Fund
(as defined in the 1940 Act)) determined that there was a reasonable likelihood
that the Plans would benefit the Funds and the shareholders of the affected
classes. Among the possible benefits of the Plans include the potential for
building and retaining Fund assets as well as the ability to offer an incentive
for registered representatives to provide ongoing servicing to
shareholders.
The
Plans provide that each Fund makes payments to the Fund's Distributor from
assets of each share class that has a Plan to compensate the Distributor and
other selling dealers, various banks, broker-dealers and other financial
intermediaries, for providing certain services to the Fund. Such services may
include, but are not limited to:
• formulation
and implementation of marketing and promotional activities;
• preparation,
printing, and distribution of sales literature;
• preparation,
printing, and distribution of prospectuses and the Fund reports to other than
existing shareholders;
• obtaining
such information with respect to marketing and promotional activities as the
Distributor deems advisable;
• making
payments to dealers and others engaged in the sale of shares or who engage in
shareholder support services; and
• providing
training, marketing, and support with respect to the sale of
shares.
The
Fund pays the Distributor a fee after the end of each month at an annual rate as
a percentage of the daily net asset value of the assets attributable to each
share class as follows:
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Share
Class |
Maximum
Annualized
12b-1
Fee |
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A
(1)
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0.25% |
C
(1)
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1.00% |
J
(1)
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0.15% |
R-1 |
0.35% |
R-2 |
0.30% |
R-3 |
0.25% |
R-4 |
0.10% |
(1)
The Distributor also receives the proceeds of any CDSC imposed.
Effective
January 1, 2021, the Distributor has voluntarily agreed to limit the
Distribution Fees attributable to Class J, reducing the Fund’s Distribution Fees
for Class J Shares by 0.020%.* This voluntary waiver may be revised or
terminated at any time without notice to shareholders.
*For
the period from December 31, 2016 to December 31, 2020, the voluntary waiver was
0.030%.
The
Distributor may remit on a continuous basis all of these sums to its investment
representatives and other financial intermediaries as a trail fee in recognition
of their services and assistance.
Currently,
the Distributor makes payments to dealers on accounts for which such dealer is
designated dealer of record. Payments are based on the average net asset value
of the accounts invested in Classes A, C, J, R-1, R-2, R-3, or R-4
shares.
Under
the Plans, the Funds have no legal obligation to pay any amount that exceeds the
compensation limit. The Funds do not pay, directly or indirectly, interest,
carrying charges, or other financing costs in association with these Plans. All
fees paid under a Fund's Rule 12b-1 Plan are paid to the Distributor, which is
entitled to retain such fees paid by the Fund without regard to the expenses
which it incurs.
The
Funds made the following Distribution/12b-1 payments for the year ended August
31, 2020:
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Fund |
Distribution/12b-1
Payments (amounts in thousands) |
Blue
Chip |
$3,379 |
Bond
Market Index |
109 |
Capital
Securities |
— |
Diversified
Real Asset |
254 |
Edge
MidCap |
24 |
Global
Multi-Strategy |
298 |
International
Equity Index |
52 |
International
Small Company |
11 |
Opportunistic
Municipal |
130 |
Origin
Emerging Markets |
7 |
Small-MidCap
Dividend Income |
1,306 |
Small-MidCap
Growth |
— |
Spectrum
Preferred and Capital Securities Income |
6,382 |
Transfer
Agency Agreement (Classes A, C, J, Institutional, R-1, R-2, R-3, R-4, R-5, R-6,
and S shares)
The
Transfer Agency Agreement provides for Principal Shareholder Services, Inc.
(“PSS”) (620 Coolidge Drive, Suite 300, Folsom, CA 95630), an affiliate of PGI,
to act as transfer and shareholder servicing agent for the Classes A, C, J,
Institutional, R-1, R-2, R-3, R-4, R-5, R-6, and S shares.
•For
Classes A and C, and Institutional Class shares, the Fund pays PSS a fee for the
services provided pursuant to the Transfer Agency Agreement in an amount equal
to the costs incurred by PSS for providing such services.
•For
Class J shares, the Fund pays PSS a fee for the services provided pursuant to
the Transfer Agency Agreement in an amount that includes profit.
The
Fund pays PSS for the following services for Classes A, C and J, and
Institutional Class shares:
• issuance,
transfer, conversion, cancellation, and registry of ownership of Fund shares,
and maintenance of open account system;
• preparation
and distribution of dividend and capital gain payments to
shareholders;
• delivery,
redemption and repurchase of shares, and remittances to
shareholders;
• the
tabulation of proxy ballots and the preparation and distribution to shareholders
of notices, proxy statements and proxies, reports, confirmation of transactions,
prospectuses and tax information;
• communication
with shareholders concerning the above items; and
• use
of its best efforts to qualify the Capital Stock of the Fund for sale in states
and jurisdictions as directed by the Fund.
The
Fund does not pay for these services for Classes R-1, R-2, R-3, R-4, R-5, and
R-6 shares. PSS will pay operating expenses attributable to Classes R-1, R-2,
R-3, R-4, and R-5 shares related to (a) the cost of meetings of shareholders and
(b) the costs of initial and ongoing qualification of the capital stock of the
Fund for sale in states and jurisdictions.
DESCRIPTION
OF THE FUNDS’ INVESTMENTS AND RISKS
The
Fund is a registered, open-end management investment company, commonly called a
mutual fund. The Fund consists of multiple investment portfolios which are
referred to as “Funds.” Each portfolio operates for many purposes as if it were
an independent mutual fund. Each portfolio has its own investment objective,
strategy, and management team. Each of the Funds is diversified, as that term is
used in the Investment Company Act of 1940, as amended (the "1940 Act"), and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
Fund
Policies
The
investment objective, principal investment strategies and principal risks of
each Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those strategies and risks
and the types of securities that those managing the investments of each Fund can
select. Additional information is also provided about the strategies that each
Fund may use to try to achieve its objective.
The
composition of each Fund and the techniques and strategies that those managing
the fund's investments may use in selecting securities will vary over time. A
Fund is not required to use all of the investment techniques and strategies
available to it in seeking its goals.
Unless
otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions apply at the time transactions are entered into.
Accordingly, any later increase or decrease beyond the specified limitation,
resulting from market fluctuations or in a rating by a rating service, does not
require elimination of any security from the portfolio.
The
investment objective of each Fund and, except as described below as "Fundamental
Restrictions," the investment strategies described in this Statement of
Additional Information and the prospectus are not fundamental and may be changed
by the Board without shareholder approval.
With
the exception of the diversification test required by the Internal Revenue Code,
the Funds will not consider collateral held in connection with securities
lending activities when applying any of the following fundamental restrictions
or any other investment restriction set forth in each Fund's prospectus or
Statement of Additional Information.
Fundamental
Restrictions
Except
as specifically noted, each Fund has adopted the following fundamental
restrictions. Each fundamental restriction is a matter of fundamental policy and
may not be changed without a vote of a majority of the outstanding voting
securities of the affected Fund. The 1940 Act provides that "a vote of a
majority of the outstanding voting securities" of a Fund means the affirmative
vote of the lesser of 1) more than 50% of the outstanding shares or 2) 67% or
more of the shares present at a meeting if more than 50% of the outstanding Fund
shares are represented at the meeting in person or by proxy. Each share has one
vote, with fractional shares voting proportionately. Shares of all classes of a
Fund will vote together as a single class except when otherwise required by law
or as determined by the Board.
Each
Fund:
1) may
not issue senior securities, except as permitted under the 1940 Act, as amended,
and as interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time.
2) has
adopted a commodities policy, as follows:
(a)The
Opportunistic Municipal Fund may not purchase or sell commodities, except as
permitted under the 1940 Act, as amended, and as interpreted, modified or
otherwise permitted by regulatory authority having jurisdiction, from time to
time.
(b)The
remaining Funds may not purchase or sell commodities, except as permitted by
applicable law, regulation or regulatory authority having
jurisdiction.
3) may
not purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by real
estate or interests therein, except that each Fund reserves freedom of action to
hold and to sell real estate acquired as a result of the Fund’s ownership of
securities.
4) may
not borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
5) may
not make loans except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
6) has
elected to be treated as a “diversified” investment company, as that term is
used in the 1940 Act, as amended, and as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time.
7) has
adopted a concentration policy, as follows:
(a)The
Capital Securities, Diversified Real Asset, and Spectrum Preferred and Capital
Securities Income Funds will concentrate their investments in a particular
industry or group of industries as described in the prospectus.
(b)The
Bond Market Index and International Equity Index Funds will not concentrate
their investments in a particular industry except to the extent that their
related Index is also so concentrated.
(c)The
Opportunistic Municipal Fund may not concentrate, as that term is used in the
1940 Act, its investments in a particular industry, except as permitted under
the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by
regulatory authority having jurisdiction, from time to time.
(d)The
remaining Funds may not concentrate, as that term is used in the 1940 Act, as
amended, and as interpreted, modified or otherwise permitted by regulatory
authority having jurisdiction, from time to time, its investments in a
particular industry or group of industries.
8) may
not act as an underwriter of securities, except to the extent that the Fund may
be deemed to be an underwriter in connection with the sale of securities held in
its portfolio.
Non-Fundamental
Restrictions
Except
as specifically noted, each Fund has also adopted the following non-fundamental
restrictions. Non‑fundamental restrictions are not fundamental policies and may
be changed without shareholder approval. It is contrary to each Fund's present
policy to:
1)Invest
more than 15% of its net assets in illiquid securities and in repurchase
agreements maturing in more than seven days except to the extent permitted by
applicable law or regulatory authority having jurisdiction, from time to
time.
2) Pledge,
mortgage, or hypothecate its assets, except to secure permitted borrowings. The
deposit of underlying securities and other assets in escrow and other collateral
arrangements in connection with transactions that involve any future payment
obligation, as permitted under the 1940 Act, as amended, and as interpreted,
modified or otherwise permitted by any regulatory authority having jurisdiction,
from time to time, are not deemed to be pledges, mortgages, hypothecations, or
other encumbrances.
3) Invest
in companies for the purpose of exercising control or management.
4) Invest
more than 25% of its assets in foreign securities; however:
(a)the
Spectrum Preferred and Capital Securities Income Fund may not invest more than
60% of its assets in foreign securities;
(b)the
Capital Securities, Diversified Real Asset, Global Multi-Strategy, International
Equity Index, International Small Company, and Origin Emerging Markets Funds may
each invest up to 100% of its assets in foreign securities;
(c)the
Bond Market Index Fund may invest in foreign securities to the extent that the
relevant index is so invested; and
(d)the
Opportunistic Municipal Fund may not invest in foreign securities.
5) Invest
more than 5% of its total assets in real estate limited partnership
interests.
The
Diversified Real Asset and Global Multi-Strategy Funds have not adopted this
non-fundamental restriction.
6) Acquire
securities of other investment companies in reliance on Section 12(d)(1)(F) or
(G) of the 1940 Act, invest more than 10% of its total assets in securities of
other investment companies, invest more than 5% of its total assets in the
securities of any one investment company, or acquire more than 3% of the
outstanding voting securities of any one investment company except in connection
with a merger, consolidation, or plan of reorganization and except as permitted
by the 1940 Act, SEC rules adopted under the 1940 Act or exemptions granted by
the SEC. The Fund may purchase securities of closed-end investment companies in
the open market where no underwriter or dealer’s commission or profit, other
than a customary broker’s commission, is involved.
Non-Fundamental
Policy - Rule 35d-1 under the 1940 Act - Investment Company Names
Except
as specifically noted, each Fund has also adopted the non-fundamental policy
pursuant to SEC Rule 35d-1, which requires it, under normal circumstances, to
invest at least 80% of its net assets, plus any borrowings for investment
purposes, in the type of investments, industry or geographic region (as
described in the prospectus) as suggested by the name of the Fund. This policy
applies at the time of purchase. The Fund will provide 60 days’ notice to
shareholders prior to implementing a change in this policy for the Fund. For
purposes of this non-fundamental restriction, the Fund tests market
capitalization ranges monthly.
For
purposes of testing this requirement with respect to:
•foreign
currency investments, each Fund will count forward foreign currency contracts
and other investments that have economic characteristics similar to foreign
currency; the value of such contracts and investments will include the Fund’s
investments in cash and/or cash equivalents to the extent such instruments are
used to cover the Fund’s exposure under its forward foreign currency contracts
and similar investments.
•derivatives
instruments, each Fund will typically count the mark-to-market value of such
derivatives. However, the Fund may use a derivative contract’s notional value
when it determines that notional value is an appropriate measure of the Fund’s
exposure to investments. For example, with respect to single name equity swaps
which are “fully paid” (equity swaps in which cash and/or cash equivalents are
specifically segregated on the Fund’s books for the purpose of covering the full
notional value of the swap), each Fund will count the value of such cash and/or
cash equivalents.
•investments
in underlying funds (including ETFs), each Fund will count all investments in an
underlying fund toward the requirement as long as 80% of the value of such
underlying fund's holdings focus on the particular type of investment suggested
by the Fund name.
The
Opportunistic Municipal Fund has adopted this policy as a fundamental
policy.
The
Global Multi-Strategy Fund has not adopted this non‑fundamental
policy.
Investment
Strategies and Risks Related to Borrowing and Senior Securities,
Commodity-Related Investments, Industry Concentration and Loans
Borrowing
and Senior Securities
Under
the 1940 Act, a fund that borrows money is required to maintain continuous
asset coverage (that is, total assets including borrowings, less liabilities
exclusive of borrowings) of 300% of the amount borrowed, with an exception for
borrowings not in excess of 5% of the fund’s total assets made for temporary or
emergency purposes. If a Fund invests the proceeds of borrowing, borrowing will
tend to exaggerate the effect on net asset value of any increase or decrease in
the market value of a fund’s portfolio. If a Fund invests the proceeds of
borrowing, money borrowed will be subject to interest costs that may or may not
be recovered by earnings on the securities purchased. A fund also may be
required to maintain minimum average balances in connection with a borrowing or
to pay a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Pursuant
to SEC staff interpretations of the 1940 Act, a fund that purchases securities
or makes other investments that have a leveraging effect on the fund (for
example, reverse repurchase agreements) must segregate assets to render
them not available for sale or other disposition in an amount equal to the
amount the fund owes pursuant to the terms of the security or other
investment.
Commodity-Related
Investments
All
Funds Except the Diversified Real Asset Fund and the Global Multi-Strategy
Fund
Pursuant
to a claim for exclusion filed with the Commodity Futures Trading Commission
(“CFTC”) on behalf of the Funds under Rule 4.5, the Funds are not deemed to be
“commodity pools” or “commodity pool operators” under the Commodity Exchange Act
(“CEA”). The Funds are therefore not subject to registration under the CEA.
The CFTC recently amended Rule 4.5 “Exclusion for certain otherwise regulated
persons from the definition of the term ‘commodity pool operator.’” Rule 4.5
provides that an investment company does not meet the definition of “commodity
pool” or “commodity pool operator” if its use of futures contracts, options on
futures contracts and swaps is sufficiently limited that the fund can fall
within one of two exclusions set out in Rule 4.5. The Funds intend to limit
their use of futures contracts, options on futures contracts and swaps to the
degree necessary to fall within one of the two exclusions. If any of the Funds
is unable to do so, it may incur expenses to comply with the CEA and rules the
CFTC has adopted under it.
Diversified
Real Asset Fund and Global Multi-Strategy Fund
The
Diversified Real Asset Fund and the Global Multi-Strategy Fund are each deemed
to be a “commodity pool” under the CEA, and PGI is considered a “commodity pool
operator” with respect to each such Fund. PGI is therefore subject to dual
regulation by the SEC and the CFTC. The CFTC or the SEC could alter the
regulatory requirements governing the use of commodity futures (which include
futures on broad-based securities indexes and interest rate futures and currency
futures) or options on commodity futures or swaps transactions by investment
companies, including these Funds.
To
gain exposure to the commodity markets within the limitations of the federal tax
law requirements applicable to regulated investment companies (“RICs”) under the
Internal Revenue Code (the “Code”), the Diversified Real Asset Fund and the
Global Multi-Strategy Fund may each invest up to 25% of its total assets in its
respective wholly-owned subsidiary organized under the laws of the Cayman
Islands (a “Cayman Subsidiary”). The Diversified Real Asset Fund and the Global
Multi-Strategy Fund may test for compliance with certain investment restrictions
on a consolidated basis with its Cayman Subsidiary. With respect to investments
that involve leverage each Cayman Subsidiary will comply with applicable asset
segregation requirements to the same extent as required by the parent
fund.
Industry
Concentration
“Concentration”
means a fund invests more than 25% of its net assets in a particular industry or
group of industries. To monitor compliance with the policy regarding industry
concentration, the Funds may use the industry classifications provided by
Bloomberg, L.P., the MSCI/Standard & Poor's Global Industry Classification
Standards (GICS), the Directory of Companies Filing Annual Reports with the
Securities and Exchange Commission or any other reasonable industry
classification system. With respect to monitoring industry concentration, a Fund
concentrating in the “financial services industry” concentrates its investments
in one or more industries classified within the broader financial services
sector.
•For
purposes of this restriction, government securities such as treasury securities
or mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities are not subject to the Funds'
industry concentration restrictions.
•The
Funds view their investments in tax-exempt municipal securities as not
representing interests in any particular industry or group of industries. For
information about municipal securities, see the Municipal Obligations
section.
•The
Funds interpret their policy with respect to concentration in a particular
industry to apply only to direct investments in the securities of issuers in a
particular industry.
Loans
A
Fund may not make loans to other persons except as permitted by (i) the 1940 Act
and the rules and regulations thereunder, or other successor law governing the
regulation of registered investment companies, or interpretations or
modifications thereof by the U.S. Securities and Exchange Commission (“SEC”),
SEC staff or other authority of competent jurisdiction, or (ii) pursuant to
exemptive or other relief or permission from the SEC, SEC staff or other
authority of competent jurisdiction. Generally, this means the Funds are
typically permitted to make loans, but must take into account potential issues
such as liquidity, valuation, and avoidance of impermissible transactions.
Examples of permissible loans include (a) the lending of its portfolio
securities, (b) the purchase of debt securities, loan participations and/or
engaging in direct corporate loans in accordance with its investment objectives
and policies, (c) the entry into a repurchase agreement (to the extent such
entry is deemed to be a loan), and (d) loans to affiliated investment companies
to the extent permitted by the 1940 Act or any exemptions therefrom that may be
granted by the SEC.
Other
Investment Strategies and Risks
Commodity
Index-Linked Notes
A
commodity index-linked note is a type of structured note that is a derivative
instrument. Over the long term, the returns on a fund's investments in commodity
index-linked notes are expected to exhibit low or negative correlation with
stocks and bonds, which means the prices of commodity-linked notes may move in a
different direction than investments in traditional equity and debt securities.
As an example, during periods of rising inflation, debt securities have
historically tended to decrease in value and the prices of certain commodities,
such as oil and metals, have historically tended to increase. The reverse may be
true during "bull markets," when the value of traditional securities such as
stocks and bonds is increasing. Under such economic conditions, a fund's
investments in commodity index-linked notes may be expected not to perform as
well as investments in traditional securities. There can be no assurance,
however, that derivative instruments will perform in that manner in the future
and, at certain times in the past, the price movements of commodity-linked
investments have been parallel to debt and equity securities. If commodities
prices move in tandem with the prices of financial assets, they may not provide
overall portfolio diversification benefits.
Convertible
Securities
A
convertible security is a bond, debenture, note, preferred stock, or other
security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to non-convertible debt or
preferred securities, as applicable. Convertible securities rank senior to
common stock in a corporation’s capital structure and, therefore, generally
entail less risk than the corporation’s common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities are subordinate in rank to any senior debt obligations of
the issuer, and, therefore, an issuer’s convertible securities entail more risk
than its debt obligations. Convertible securities generally offer lower interest
or dividend yields than non-convertible debt securities of similar credit
quality because of the potential for capital appreciation. In addition,
convertible securities are often lower-rated securities.
Because
of the conversion feature, the price of the convertible security will normally
fluctuate in some proportion to changes in the price of the underlying asset,
and as such is subject to risks relating to the activities of the issuer and/or
general market and economic conditions. The income component of a convertible
security may tend to cushion the security against declines in the price of the
underlying asset. However, the income component of convertible securities causes
fluctuations based upon changes in interest rates and the credit quality of the
issuer.
If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding an
income-producing security.
A
convertible security may be subject to redemption at the option of the issuer at
a predetermined price. If a convertible security held by a fund is called for
redemption, the fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock, or would sell the
convertible security to a third party, which may have an adverse effect on the
fund’s ability to achieve its investment objective.
Synthetic
Convertibles
A
“synthetic” convertible security may be created by combining separate securities
that possess the two principal characteristics of a traditional convertible
security, i.e., an income-producing security (“income-producing component”) and
the right to acquire an equity security (“convertible component”). The
income-producing component is achieved by investing in non-convertible,
income-producing securities such as bonds, preferred stocks and money market
instruments, which may be represented by derivative instruments. The convertible
component is achieved by investing in securities or instruments such as warrants
or options to buy common stock at a certain exercise price, or options on a
stock index. Unlike a traditional convertible security, which is a single
security having a single market value, a synthetic convertible comprises two or
more separate securities, each with its own market value. Therefore, the “market
value” of a synthetic convertible security is the sum of the values of its
income-producing component and its convertible component. For this reason, the
values of a synthetic convertible security and a traditional convertible
security may respond differently to market fluctuations.
More
flexibility is possible in the assembly of a synthetic convertible security than
in the purchase of a convertible security. Although synthetic convertible
securities may be selected where the two components are issued by a single
issuer, thus making the synthetic convertible security similar to the
traditional convertible security, the character of a synthetic convertible
security allows the combination of components representing distinct issuers,
when such a combination may better achieve a fund’s investment objective. A
synthetic convertible security also is a more flexible investment in that its
two components may be purchased separately. For example, a fund may purchase a
warrant for inclusion in a synthetic convertible security but temporarily hold
short-term investments while postponing the purchase of a corresponding bond
pending development of more favorable market conditions.
A
holder of a synthetic convertible security faces the risk of a decline in the
price of the security or the level of the index involved in the convertible
component, causing a decline in the value of the security or instrument, such as
a call option or warrant, purchased to create the synthetic convertible
security. Should the price of the stock fall below the exercise price and remain
there throughout the exercise period, the entire amount paid for the call option
or warrant would be lost. Because a synthetic convertible security includes the
income-producing component as well, the holder of a synthetic convertible
security also faces the risk that interest rates will rise, causing a decline in
the value of the income-producing instrument.
A
fund also may purchase synthetic convertible securities created by other
parties, including convertible structured notes. Convertible structured notes
are income-producing debentures linked to equity, and are typically issued by
investment banks. Convertible structured notes have the attributes of a
convertible security; however, the investment bank that issues the convertible
note, rather than the issuer of the underlying common stock into which the note
is convertible, assumes credit risk associated with the underlying investment,
and the fund in turn assumes credit risk associated with the convertible
note.
Corporate
Reorganizations
Funds
may invest in securities for which a tender or exchange offer has been made or
announced and in securities of companies for which a merger, consolidation,
liquidation or reorganization proposal has been announced if, in the judgment of
those managing the fund's investments, there is a reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved. The primary risk of such investments is that if the
contemplated transaction is abandoned, revised, delayed or becomes subject to
unanticipated uncertainties, the market price of the securities may decline
below the purchase price paid by a fund.
In
general, securities which are the subject of such an offer or proposal sell at a
premium to their historic market price immediately prior to the announcement of
the offer or proposal. However, the increased market price of such securities
may discount what the stated or appraised value of the security would be if the
contemplated transaction were approved or consummated. Such investments may be
advantageous when the discount: significantly overstates the risk of the
contingencies involved; significantly undervalues the securities, assets or cash
to be received by shareholders of the prospective company as a result of the
contemplated transaction; or fails adequately to recognize the possibility that
the offer or proposal may be replaced or superseded by an offer or proposal of
greater value. The evaluation of such contingencies requires unusually broad
knowledge and experience on the part of those managing the fund's investments,
which must appraise not only the value of the issuer and its component
businesses, but also the financial resources and business motivation of the
offer or proposal as well as the dynamics of the business climate when the offer
or proposal is in process.
Cyber
Security Issues
The
Fund and its service providers may be subject to cyber security
risks. Those risks include, among others, theft, misuse or corruption of
data maintained online or digitally; denial of service attacks on websites; the
loss or unauthorized release of confidential and proprietary information;
operational disruption; or various other forms of cyber security breaches.
Cyber-attacks against or security breakdowns of a Fund or its service providers
may harm the Fund and its shareholders, potentially resulting in, among other
things, financial losses, the inability of Fund shareholders to transact
business, 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 and remediation costs.
Cyber security risks may also affect issuers of securities in which a fund
invests, potentially causing the fund’s investment in such issuers to lose
value. Despite risk management processes, there can be no guarantee that a fund
will avoid losses relating to cyber security risks or other information security
breaches.
Derivatives
Options
on Securities and Securities Indices
The
Funds may each write (sell) and purchase call and put options on securities in
which it invests and on securities indices based on securities in which the Fund
invests. The Funds may engage in these transactions to hedge against a decline
in the value of securities owned or an increase in the price of securities which
the Fund plans to purchase, or to generate additional revenue.
•Exchange-Traded
Options. An exchange-traded option may be closed out only on an exchange that
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that a Fund would have to exercise the option
in order to consummate the transaction.
•Over
the Counter ("OTC") Options. OTC options differ from exchange-traded options in
that they are two-party contracts, with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options. An OTC option (an option not traded on an established
exchange) may be closed out only by agreement with the other party to the
original option transaction. With OTC options, a Fund is at risk that the other
party to the transaction will default on its obligations or will not permit the
Fund to terminate the transaction before its scheduled maturity. While a Fund
will seek to enter into OTC options only with dealers who agree to or are
expected to be capable of entering into closing transactions with a Fund, there
can be no assurance that a Fund will be able to liquidate an OTC option at a
favorable price at any time prior to its expiration. OTC options are not subject
to the protections afforded purchasers of listed options by the Options Clearing
Corporation or other clearing organizations.
Writing
Call and Put Options.
When a Fund writes a call option, it gives the purchaser of the option the right
to buy a specific security at a specified price at any time before the option
expires. When a Fund writes a put option, it gives the purchaser of the option
the right to sell to the Fund a specific security at a specified price at any
time before the option expires. In both situations, the Fund receives a premium
from the purchaser of the option.
The
premium received by a Fund reflects, among other factors, the current market
price of the underlying security, the relationship of the exercise price to the
market price, the period until the expiration of the option and interest rates.
The premium generates additional income for the Fund if the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option, but it retains the risk of loss
if the price of the security should decline. By writing a put, a Fund assumes
the risk that it may have to purchase the underlying security at a price that
may be higher than its market value at time of exercise.
The
Funds usually own the underlying security covered by any outstanding call
option. With respect to an outstanding put option, each Fund deposits and
maintains with its custodian or segregates on the Fund's records, cash, or other
liquid assets with a value at least equal to the market value of the option that
was written.
Once
a Fund has written an option, it may terminate its obligation before the option
is exercised. The Fund executes a closing transaction by purchasing an option of
the same series as the option previously written. The Fund has a gain or loss
depending on whether the premium received when the option was written exceeds
the closing purchase price plus related transaction costs.
Purchasing
Call and Put Options.
When a Fund purchases a call option, it receives, in return for the premium it
pays, the right to buy from the writer of the option the underlying security at
a specified price at any time before the option expires. A Fund purchases call
options in anticipation of an increase in the market value of securities that it
intends ultimately to buy. During the life of the call option, the Fund is able
to buy the underlying security at the exercise price regardless of any increase
in the market price of the underlying security. For a call option to result in a
gain, the market price of the underlying security must exceed the sum of the
exercise price, the premium paid, and transaction costs.
When
a Fund purchases a put option, it receives, in return for the premium it pays,
the right to sell to the writer of the option the underlying security at a
specified price at any time before the option expires. A Fund purchases put
options in anticipation of a decline in the market value of the underlying
security. During the life of the put option, the Fund is able to sell the
underlying security at the exercise price regardless of any decline in the
market price of the underlying security. In order for a put option to result in
a gain, the market price of the underlying security must decline, during the
option period, below the exercise price enough to cover the premium and
transaction costs.
Once
a Fund purchases an option, it may close out its position by selling an option
of the same series as the option previously purchased. The Fund has a gain or
loss depending on whether the closing sale price exceeds the initial purchase
price plus related transaction costs.
Options
on Securities Indices. Each
Fund may purchase and sell put and call options on any securities index based on
securities in which the Fund may invest. Securities index options are designed
to reflect price fluctuations in a group of securities or segment of the
securities market rather than price fluctuations in a single security. Options
on securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. The Funds engage in transactions in
put and call options on securities indices for the same purposes as they engage
in transactions in options on securities. When a Fund writes call options on
securities indices, it holds in its portfolio underlying securities which, in
the judgment of those managing the fund's investments, correlate closely with
the securities index and which have a value at least equal to the aggregate
amount of the securities index options.
Index
Warrants. Funds
may purchase put warrants and call warrants whose values vary depending on the
change in the value of one or more specified securities indices (“index
warrants”). Index warrants are generally issued by banks or other financial
institutions and give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment from the issuer
based on the value of the underlying index at the time of exercise. In general,
if the value of the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash payment
from the issuer upon exercise based on the difference between the value of the
index and the exercise price of the warrant; if the value of the underlying
index falls, the holder of a put warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at a time when, in
the case of a call warrant, the exercise price is more than the value of the
underlying index, or in the case of a put warrant, the exercise price is less
than the value of the
underlying
index. If a Fund were not to exercise an index warrant prior to its expiration,
then a Fund would lose the amount of the purchase price paid by it for the
warrant. A Fund will normally use index warrants in a manner similar to its use
of options on securities indices.
Risks
Associated with Option Transactions.
An option position may be closed out only on an exchange that provides a
secondary market for an option of the same series. The Funds generally purchase
or write only those options for which there appears to be an active secondary
market. However, there is no assurance that a liquid secondary market on an
exchange exists for any particular option, or at any particular time. If a Fund
is unable to effect closing sale transactions in options it has purchased, it
has to exercise its options in order to realize any profit and may incur
transaction costs upon the purchase or sale of underlying securities. If a Fund
is unable to effect a closing purchase transaction for a covered option that it
has written, it is not able to sell the underlying securities, or dispose of the
assets held in a segregated account, until the option expires or is exercised. A
Fund's ability to terminate option positions established in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that broker-dealers participating in such transactions might fail to
meet their obligations.
Futures
Contracts and Options on Futures Contracts
The
Funds may each purchase and sell futures contracts of many types, including for
example, futures contracts covering indexes, financial instruments, and foreign
currencies. Each Fund may purchase and sell financial futures contracts and
options on those contracts. Financial futures contracts are commodities
contracts based on financial instruments such as U.S. Treasury bonds or bills or
on securities indices such as the S&P 500 Index. The Commodity Futures
Trading Commission regulates futures contracts, options on futures contracts,
and the commodity exchanges on which they are traded. Through the purchase and
sale of futures contracts and related options, a Fund may seek to hedge against
a decline in the value of securities owned by the Fund or an increase in the
price of securities that the Fund plans to purchase. Each Fund may also purchase
and sell futures contracts and related options to maintain cash reserves while
simulating full investment in securities and to keep substantially all of its
assets exposed to the market. Each Fund may enter into futures contracts and
related options transactions both for hedging and non-hedging
purposes.
Futures
Contracts.
A Fund may purchase or sell a futures contract to gain exposure to a particular
market asset without directly purchasing that asset. When a Fund sells a futures
contract based on a financial instrument, the Fund is obligated to deliver that
kind of instrument at a specified future time for a specified price. When a Fund
purchases that kind of contract, it is obligated to take delivery of the
instrument at a specified time and to pay the specified price. In most
instances, these contracts are closed out by entering into an offsetting
transaction before the settlement date. The Fund realizes a gain or loss
depending on whether the price of an offsetting purchase plus transaction costs
are less or more than the price of the initial sale or on whether the price of
an offsetting sale is more or less than the price of the initial purchase plus
transaction costs. Although the Funds usually liquidate futures contracts on
financial instruments, by entering into an offsetting transaction before the
settlement date, they may make or take delivery of the underlying securities
when it appears economically advantageous to do so.
A
futures contract based on a securities index provides for the purchase or sale
of a group of securities at a specified future time for a specified price. These
contracts do not require actual delivery of securities but result in a cash
settlement. The amount of the settlement is based on the difference in value of
the index between the time the contract was entered into and the time it is
liquidated (at its expiration or earlier if it is closed out by entering into an
offsetting transaction).
When
a Fund purchases or sells a futures contract, it pays a commission to the
futures commission merchant through which the Fund executes the transaction.
When entering into a futures transaction, the Fund does not pay the execution
price, as it does when it purchases a security, or a premium, as it does when it
purchases an option. Instead, the Fund deposits an amount of cash or other
liquid assets (generally about 5% of the futures contract amount) with its
futures commission merchant. This amount is known as "initial margin." In
contrast to the use of margin account to purchase securities, the Fund's deposit
of initial margin does not constitute the borrowing of money to finance the
transaction in the futures contract. The initial margin represents a good faith
deposit that helps assure the Fund's performance of the transaction. The futures
commission merchant returns the initial margin to the Fund upon termination of
the futures contract if the Fund has satisfied all its contractual
obligations.
Subsequent
payments to and from the futures commission merchant, known as "variation
margin," are required to be made on a daily basis as the price of the futures
contract fluctuates, a process known as "marking to market." The fluctuations
make the long or short positions in the futures contract more or less valuable.
If the position is closed out by taking an opposite position prior to the
settlement date of the futures contract, a final determination of variation
margin is made. Any additional cash is required to be paid to or released by the
broker and the Fund realizes a loss or gain.
In
using futures contracts, the Fund may seek to establish with more certainty than
would otherwise be possible the effective price of or rate of return on
portfolio securities or securities that the Fund proposes to acquire. A Fund,
for example, sells futures contracts in anticipation of a rise in interest rates
that would cause a decline in the value of its debt investments. When this kind
of hedging is successful, the futures contract increases in value when the
Fund's debt securities decline in value and thereby keeps the Fund's net asset
value from declining as much as it otherwise would. A Fund may also sell futures
contracts on securities indices in anticipation of or during a stock market
decline in an endeavor to offset a decrease in the market value of its equity
investments. When a Fund is not fully invested and anticipates an increase in
the cost of securities it intends to purchase, it may purchase financial futures
contracts.
When
increases in the prices of equities are expected, a Fund may purchase futures
contracts on securities indices in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of the equity securities it
intends to purchase.
With
respect to futures contracts that settle in cash, a Fund will cover (and
mark-to-market on a daily basis) liquid assets that, when added to the amounts
deposited with a futures commission merchant as margin, are equal to the market
value of the futures contract. When entering into futures contracts that do not
settle in cash (physically-settled futures contracts), a Fund will maintain with
its custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin, are
equal to the full notional value of the contract. Physically-settled derivatives
contracts (and written options on such contracts) will be treated like
cash-settled contracts when a Fund has entered into a contractual arrangement
with a third party futures commission merchant or other counterparty to offset
the Fund’s exposure under the contract and, failing that, to assign its delivery
obligation under the contract to the counterparty.
Options
on Futures Contracts.
The Funds may also purchase and write call and put options on futures contracts.
A call option on a futures contract gives the purchaser the right, in return for
the premium paid, to purchase a futures contract (assume a long position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a short position), for a specified exercise price, at any time
before the option expires.
Upon
the exercise of a call, the writer of the option is obligated to sell the
futures contract (to deliver a long position to the option holder) at the option
exercise price, which will presumably be lower than the current market price of
the contract in the futures market. Upon exercise of a put, the writer of the
option is obligated to purchase the futures contract (deliver a short position
to the option holder) at the option exercise price, which will presumably be
higher than the current market price of the contract in the futures market.
However, as with the trading of futures, most options are closed out prior to
their expiration by the purchase or sale of an offsetting option at a market
price that reflects an increase or a decrease from the premium originally paid.
Options on futures can be used to hedge substantially the same risks addressed
by the direct purchase or sale of the underlying futures contracts. For example,
if a Fund anticipates a rise in interest rates and a decline in the market value
of the debt securities in its portfolio, it might purchase put options or write
call options on futures contracts instead of selling futures
contracts.
If
a Fund purchases an option on a futures contract, it may obtain benefits similar
to those that would result if it held the futures position itself. But in
contrast to a futures transaction, the purchase of an option involves the
payment of a premium in addition to transaction costs. In the event of an
adverse market movement, however, the Fund is not subject to a risk of loss on
the option transaction beyond the price of the premium it paid plus its
transaction costs.
When
a Fund writes an option on a futures contract, the premium paid by the purchaser
is deposited with the Fund's custodian. The Fund must maintain with its futures
commission merchant all or a portion of the initial margin requirement on the
underlying futures contract. It assumes a risk of adverse movement in the price
of the underlying futures contract comparable to that involved in holding a
futures position. Subsequent payments to and from the futures commission
merchant, similar to variation margin payments, are made as the premium and the
initial margin requirements are marked to market daily. The premium may
partially offset an unfavorable change in the value of portfolio securities, if
the option is not exercised, or it may reduce the amount of any loss incurred by
the Fund if the option is exercised.
Risks
Associated with Futures Transactions.
There are many risks associated with transactions in futures contracts and
related options. The value of the assets that are the subject of the futures
contract may not move in the anticipated direction. A Fund's successful use of
futures contracts is subject to the ability of those managing the fund's
investments to predict correctly the factors affecting the market values of the
Fund's portfolio securities. For example, if a Fund is hedged against the
possibility of an increase in interest rates which would adversely affect debt
securities held by the Fund and the prices of those debt securities instead
increases, the Fund loses part or all of the benefit of the increased value of
its securities it hedged because it has offsetting losses in its futures
positions. Other risks include imperfect correlation between price movements in
the financial instrument or securities index underlying the futures contract, on
the one hand, and the price movements of either the futures contract itself or
the securities held by the Fund, on the other hand. If the prices do not move in
the same direction or to the same extent, the transaction may result in trading
losses.
Prior
to exercise or expiration, a position in futures may be terminated only by
entering into a closing purchase or sale transaction. This requires a secondary
market on the relevant contract market. The Fund enters into a futures contract
or related option only if there appears to be a liquid secondary market. There
can be no assurance, however, that such a liquid secondary market exists for any
particular futures contract or related option at any specific time. Thus, it may
not be possible to close out a futures position once it has been established.
Under such circumstances, the Fund continues to be required to make daily cash
payments of variation margin in the event of adverse price movements. In such
situations, if the Fund has insufficient cash, it may be required to sell
portfolio securities to meet daily variation margin requirements at a time when
it may be disadvantageous to do so. In addition, the Fund may be required to
perform under the terms of the futures contracts it holds. The inability to
close out futures positions also could have an adverse impact on the Fund's
ability effectively to hedge its portfolio.
Most
United States futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. This daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
Debt-Linked
and Equity-Linked Securities
The
Funds may invest in debt-linked and equity-linked securities. The investment
results of such instruments are intended to correspond generally to the
performance of one or more specified equity or debt securities, or of a specific
index or analogous “basket” of equity or debt securities. Therefore, investing
in these instruments involves risks similar to the risks of investing in the
underlying stocks or bonds directly. In addition, a Fund bears the risk that the
issuer of an equity- or debt-linked security may default on its obligations
under the instrument. Equity- and debt-linked securities are often used for many
of the same purposes as, and share many of the same risks with, other derivative
instruments as well as structured notes. Like many derivatives and structured
notes, equity- and debt-linked securities may be considered illiquid,
potentially limiting a Fund’s ability to dispose of them.
Hybrid
Instruments
A
hybrid instrument is a type of derivative that combines a traditional stock or
bond with an option or forward contract. Generally, the principal amount, amount
payable upon maturity or redemption, or interest rate of a hybrid is tied
(positively or negatively) to the price of some currency or securities index or
another interest rate or some other economic factor (each a “benchmark”). The
interest rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark. An example of a hybrid could
be a bond issued by an oil company that pays a small base level of interest with
additional interest that accrues in correlation to the extent to which oil
prices exceed a certain predetermined level. Such a hybrid instrument would be
economically similar to a combination of a bond and a call option on
oil.
Hybrids
can be used as an efficient means of pursuing a variety of investment goals,
including currency hedging, duration management and increased total return.
Hybrids may not bear interest or pay dividends. The value of a hybrid or its
interest rate may be a multiple of a benchmark and, as a result, may be
leveraged and move (up or down) more steeply and rapidly than the benchmark.
These benchmarks may be sensitive to economic and political events, such as
currency devaluations, which cannot be readily foreseen by the purchaser of a
hybrid. Under certain conditions, the redemption value of a hybrid could be
zero. Thus, an investment in a hybrid may entail significant market risks that
are not associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed rate
or floating rate of interest. The purchase of hybrids also exposes the Fund to
the credit risk of the issuer of the hybrids. These risks may cause significant
fluctuations in the NAV of a Fund.
Certain
hybrid instruments may provide exposure to the commodities markets. These are
derivative securities with one or more commodity-linked components that have
payment features similar to commodity futures contracts, commodity options or
similar instruments. Commodity-linked hybrid instruments may be either equity or
debt securities, leveraged or unleveraged, and are considered hybrid instruments
because they have both security and commodity-like characteristics. A portion of
the value of these instruments may be derived from the value of a commodity,
futures contract, index or other economic variable and therefore are subject to
many of the same risks as investments in those underlying securities,
instruments or commodities.
Certain
issuers of structured products such as hybrid instruments may be deemed to be
investment companies as defined in the 1940 Act. As a result, a Fund’s
investments in these products may be subject to limits applicable to investments
in investment companies and may be subject to restrictions contained in the 1940
Act.
Spread
Transactions
The
Funds may each engage in spread trades, which typically represent a simultaneous
purchase and sale of two different contracts designed to capture the change in
the relationship in price between the two contracts. Spread transactions are
typically accompanied by lower margin requirements and lower volatility than an
outright purchase. Each Fund may purchase spread options. The purchase of a
covered spread option gives the Fund the right to put, or sell, a security that
it owns at a fixed dollar spread or fixed yield spread in relationship to
another security that the Fund does not own, but which is used as a benchmark.
The risk to the Fund in purchasing covered spread options is the cost of the
premium paid for the spread option and any transaction costs. In addition, there
is no assurance that closing transactions will be available. The security
covering the spread option is maintained in segregated accounts either with the
Fund's custodian or on the Fund's records. The Funds do not consider a security
covered by a spread option to be "pledged" as that term is used in the Fund's
policy limiting the pledging or mortgaging of assets. The purchase of spread
options can be used to protect each Fund against adverse changes in prevailing
credit quality spreads, i.e., the yield spread between high quality and lower
quality securities.
Swap
Agreements and Options on Swap Agreements
Each
Fund may engage in swap transactions, including, but not limited to, swap
agreements on interest rates, security or commodity indexes, specific securities
and commodities, and credit and event-linked swaps, to the extent permitted by
its investment restrictions. To the extent a Fund may invest in foreign
currency-denominated securities, it may also invest in currency swap agreements
and currency exchange rate swap agreements. A Fund may also enter into options
on swap agreements (“swap options”).
A
Fund may enter into swap transactions for any legal purpose consistent with its
investment objectives and policies, such as for the purpose of attempting to
obtain or preserve a particular return or spread at a lower cost than obtaining
a return or spread through purchases and/or sales of instruments in other
markets; to protect against currency fluctuations; as a duration management
technique; to protect against any increase in the price of securities a Fund
anticipates purchasing at a later date; to gain exposure to one or more
securities, currencies, or interest rates; to take advantage of perceived
mispricing in the securities markets; or to gain exposure to certain markets in
the most economical way possible.
Swap
agreements are two party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a "basket" of securities or commodities
representing a particular index.
•Interest
rate swaps. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal).
Forms
of swap agreements also include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified rate, or "floor"; and
interest rate collars, under which a party sells a cap and purchases a floor or
vice versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
•Currency
swaps. A currency swap is an agreement to exchange cash flows on a notional
amount based on changes in the relative values of the specified
currencies.
•Index
swaps. An index swap is an agreement to make or receive payments based on the
different returns that would be achieved if a notional amount were invested in a
specified basket of securities (such as the S&P 500 Index) or in some other
investment (such as U.S. Treasury Securities).
•Total
return swaps. A total return swap is an agreement to make payments of the total
return from a specified asset or instrument (or a basket of such instruments)
during the specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another specified asset or instrument.
Alternatively, a total return swap can be structured so that one party will make
payments to the other party if the value of the relevant asset or instrument
increases, but receive payments from the other party if the value of that asset
or instrument decreases.
•Commodity
swap agreements. Consistent with a Fund's investment objectives and general
investment policies, certain of the Funds may invest in commodity swap
agreements. For example, an investment in a commodity swap agreement may involve
the exchange of floating-rate interest payments for the total return on a
commodity index. In a total return commodity swap, a Fund will receive the price
appreciation of a commodity index, a portion of the index, or a single commodity
in exchange for paying an agreed-upon fee. If the commodity swap is for one
period, a Fund may pay a fixed fee, established at the outset of the swap.
However, if the term of the commodity swap is for more than one period, with
interim swap payments, a Fund may pay an adjustable or floating fee. With a
"floating" rate, the fee may be pegged to a base rate, such as the London
Interbank Offered Rate, and is adjusted each period. Therefore, if interest
rates increase over the term of the swap contract, a Fund may be required to pay
a higher fee at each swap reset date.
•Credit
default swap agreements. The "buyer" in a credit default contract is obligated
to pay the "seller" a periodic stream of payments over the term of the contract
provided that no event of default on an underlying reference obligation has
occurred. If an event of default occurs, the seller must pay the buyer the full
notional value, or "par value," of the reference obligation in exchange for the
reference obligation. A Fund may be either the buyer or seller in a credit
default swap transaction. If a Fund is a buyer and no event of default occurs,
the Fund will lose its investment and recover nothing. However, if an event of
default occurs, the Fund (if the buyer) will receive the full notional value of
the reference obligation that may have little or no value. As a seller, a Fund
receives a fixed rate of income throughout the term of the contract, which
typically is between six months and five years, provided that there is no
default event. If an event of default occurs, the seller must pay the buyer the
full notional value of the reference obligation. In addition, collateral posting
requirements are individually negotiated and there is no regulatory requirement
that a counterparty post collateral to secure its obligations or a specified
amount of cash, depending upon the terms of the swap, under a credit default
swap. Furthermore, there is no requirement that a party be informed in advance
when a credit default swap agreement is sold. Accordingly, a Fund may have
difficulty identifying the party responsible for payment of its claims. The
notional value of credit default swaps with respect to a particular investment
is often larger than the total par value of such investment outstanding and, in
event of a default, there may be difficulties in making the required deliveries
of the reference investments, possibly delaying payments.
The
Funds may invest in derivative instruments that provide exposure to one or more
credit default swaps. For example, a Fund may invest in a derivative instrument
known as the Loan-Only Credit Default Swap Index (“LCDX”), a tradable index with
100 equally-weighted underlying single-name loan-only credit default swaps
(“LCDS”). Each underlying LCDS references an issuer whose loans trade in the
secondary leveraged loan market. A Fund can either buy the index (take on credit
exposure) or sell the index (pass credit exposure to a counterparty). While
investing in these types of derivatives will increase the universe of debt
securities to which a Fund is exposed, such investments entail additional risks
that are not typically associated with investments in other debt securities.
Credit default swaps and other derivative instruments related to loans are
subject to the risks associated with loans generally, as well as the risks of
derivative transactions.
•Investment
Pools. The Funds may invest in publicly or privately issued interests in
investment pools whose underlying assets are credit default, credit-linked,
interest rate, currency exchange, equity-linked or other types of swap contracts
and related underlying securities or securities loan agreements. The pools’
investment results may be designed to correspond generally to the performance of
a specified securities index or “basket” of securities, or sometimes a single
security. These types of pools are often used to gain exposure to multiple
securities with a smaller investment than would be required to invest directly
in the individual securities. They also may be used to gain exposure to foreign
securities markets without investing in the foreign securities themselves and/or
the relevant foreign market. To the extent that a Fund invests in pools of swaps
and related underlying securities or securities loan agreements whose return
corresponds to the performance of a foreign securities index or one or more
foreign securities, investing in such pools will involve risks similar to the
risks of investing in foreign securities. In addition to the risks associated
with investing in swaps generally, a Fund bears the risks and costs generally
associated with investing in pooled investment vehicles, such as paying the fees
and expenses of the pool and the risk that the pool or the operator of the pool
may default on its obligations to the holder of interests in the pool, such as a
Fund. Interests in privately offered investment pools of swaps may be considered
illiquid.
•Contracts
for differences. “Contracts for differences” are swap arrangements in which a
Fund may agree with a counterparty that its return (or loss) will be based on
the relative performance of two different groups or “baskets” of securities. For
example, as to one of the baskets, a Fund’s return is based on theoretical long
futures positions in the securities comprising that basket, and as to the other
basket, a Fund’s return is based on theoretical short futures positions in the
securities comprising that other basket. The notional sizes of the baskets will
not necessarily be the same, which can give rise to investment leverage. A Fund
may also use actual long and short futures positions to achieve the market
exposure(s) as contracts for differences. A Fund may enter into swaps and
contracts for differences for investment return, hedging, risk management and
for investment leverage.
•Swaptions.
A swap option (also known as “swaptions”) is a contract that gives a
counterparty the right (but not the obligation) in return for payment of a
premium, to enter into a new swap agreement or to shorten, extend, cancel, or
otherwise modify an existing swap agreement, at some designated future time on
specified terms. The buyer and seller of the swap option agree on the strike
price, length of the option period, the term of the swap, notional amount,
amortization and frequency of settlement. A Fund may engage in swap options for
hedging purposes or in an attempt to manage and mitigate credit and interest
rate risk. Each Fund may write (sell) and purchase put and call swap options.
The use of swap options involves risks, including, among others, imperfect
correlation between movements of the price of the swap options and the price of
the securities, indices or other assets serving as reference instruments for the
swap option, reducing the effectiveness of the instrument for hedging or
investment purposes.
Obligations
under Swap Agreements. The
swap agreements the Funds enter into settle in cash and, therefore, provide for
calculation of the obligations of the parties to the agreement on a “net basis.”
Consequently, a Fund's current obligations (or rights) under such a swap
agreement 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
party to the agreement (the “net amount”). A Fund's current obligations under
such a swap agreement will be accrued daily (offset against any amounts owed to
the Fund) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the segregation of assets determined to be liquid by those
managing the fund's investments in accordance with procedures established by the
Board, to avoid any potential leveraging of the Fund's portfolio. In cases where
a Fund is a seller of a credit default swap contract, the Fund will segregate
liquid assets equal to the notional amount of the contract. Obligations under
swap agreements for which the Fund segregates assets will not be construed to be
“senior securities” for purposes of the Fund's investment restriction concerning
senior securities.
Risks
associated with Swap Agreements. Swaps
can be highly volatile and may have a considerable impact on a Fund’s
performance, as the potential gain or loss on any swap transaction is not
subject to any fixed limit.
Whether
a Fund's use of swap agreements or swap options will be successful in furthering
its investment objective of total return will depend on the ability of those
managing the fund's investments to predict correctly whether certain types of
investments are likely to produce greater returns than other investments.
Because they are two party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
Fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The Funds will enter into swap agreements only with counterparties
that present minimal credit risks, as determined by those managing the fund's
investments. Certain restrictions imposed on the Funds by the Internal Revenue
Code may limit the Funds' ability to use swap agreements.
Depending
on the terms of the particular option agreement, a Fund will generally incur a
greater degree of risk when it writes a swap option than it will incur when it
purchases a swap option. When a Fund purchases a swap option, it risks losing
only the amount of the premium it has paid should it decide to let the option
expire unexercised. However, when a Fund writes a swap option, upon exercise of
the option the Fund will become obligated according to the terms of the
underlying agreement.
Liquidity
of Swap Agreements.
Some swap markets have grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, these swap markets have
become relatively liquid. The liquidity of swap agreements will be determined by
those managing the fund's investments based on various factors,
including:
• the
frequency of trades and quotations,
• the
number of dealers and prospective purchasers in the marketplace,
• dealer
undertakings to make a market,
• the
nature of the security (including any demand or tender features),
and
• the
nature of the marketplace for trades (including the ability to assign or offset
a portfolio's rights and obligations relating to the investment).
Such
determination will govern whether a swap will be deemed to be within each Fund's
restriction on investments in illiquid securities.
Valuing
Swap Agreements. For
purposes of applying the funds’ investment policies and restrictions (as stated
in the Prospectuses and this Statement of Additional Information) swap
agreements are generally valued by the funds at market value. In the case of a
credit default swap, however, in applying certain of the funds’ investment
policies and restrictions the fund will value the credit default swap at its
notional value or its full exposure value (i.e., the sum of the notional amount
for the contract plus the market value), but may value the credit default swap
at market value for purposes of applying certain of the funds’ other investment
policies and restrictions. For example, a fund may value credit default swaps at
full exposure value for purposes of the fund’s credit quality guidelines because
such value reflects the fund’s actual economic exposure during the term of the
credit default swap agreement. In this context, both the notional amount and the
market value may be positive or negative depending on whether the fund is
selling or buying protection through the credit default swap. The manner in
which certain securities or other instruments are valued by the funds for
purposes of applying investment policies and restrictions may differ from the
manner in which those investments are valued by other types of
investors.
Permissible
Uses of Futures and Options on Futures Contracts
Each
Fund may enter into futures contracts and related options transactions, for
hedging purposes and for other appropriate risk management purposes, and to
modify the Fund's exposure to various currency, commodity, equity, or
fixed-income markets. Each Fund may engage in futures trading in an effort to
generate returns. When using futures contracts and options on futures contracts
for hedging or risk management purposes, each Fund determines that the price
fluctuations in the contracts and options are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase. In
pursuing traditional hedging activities, each Fund may sell futures contracts or
acquire puts to protect against a decline in the price of securities that the
Fund owns. Each Fund may purchase futures contracts or calls on futures
contracts to protect the Fund against an increase in the price of securities the
Fund intends to purchase before it is in a position to do so. When a Fund
purchases a futures contract, or writes a call option on a futures contract, it
segregates liquid assets that, when added to the value of assets deposited with
the futures commission merchant as margin, are equal to the market value of the
contract.
Limitations
on the Use of Futures, Options on Futures Contracts, and Swaps
All
Funds except the Diversified Real Asset Fund and the Global Multi-Strategy
Fund.
Pursuant to a claim for exclusion filed with the Commodity Futures Trading
Commission (“CFTC”) on behalf of the Funds under Rule 4.5, the Funds are not
deemed to be “commodity pools” or “commodity pool operators” under the Commodity
Exchange Act (“CEA”). The Funds are therefore not subject to registration
under the CEA. Rule 4.5 provides that an investment company does not meet the
definition of “commodity pool” or “commodity pool operator” if its use of
futures contracts, options on futures contracts and swaps is sufficiently
limited that the fund can fall within one of two exclusions set out in Rule 4.5.
The Funds intend to limit their use of futures contracts, options on futures
contracts and swaps to the degree necessary to fall within one of the two
exclusions.
Diversified
Real Asset Fund and Global Multi-Strategy Fund.
The Diversified Real Asset Fund and the Global Multi-Strategy Fund are each
deemed to be regulated “commodity pools” under the CEA and as a result may
invest in futures contracts, options on futures contracts and swaps in excess of
the limitations imposed by the CFTC under Rule 4.5.
Risk
of Potential Government Regulation of Derivatives
It
is possible that additional government regulation of various types of derivative
instruments, including futures, options and swap agreements, may limit or
prevent a fund from using such instruments as a part of its investment strategy,
and could ultimately prevent a fund from being able to achieve its investment
objective. It is difficult to predict the effects future legislation and
regulation in this area, but the effects could be substantial and adverse. It is
possible that legislative and regulatory activity could limit or restrict the
ability of a fund to use certain instruments as a part of its investment
strategy. For instance, in December 2015, the SEC proposed new regulations
applicable to a mutual fund’s use of derivatives and related
instruments.
If
adopted as proposed, these regulations could significantly limit or impact a
fund's ability to invest in derivatives and related instruments, limit a fund's
ability to employ certain strategies that use derivatives and/or adversely
affect the fund's performance, efficiency in implementing strategies, and
ability to pursue their investment objectives. Limits or restrictions applicable
to the counterparties with which the funds engage in derivative transactions
could also prevent the funds from using certain instruments.
Fixed-Income
Securities
ETNs
Certain
funds may invest in, or sell short, exchange-traded notes (“ETNs”). ETNs are
typically senior, unsecured, unsubordinated debt securities whose returns are
linked to the performance of a particular market index less applicable fees and
expenses. ETNs are listed on an exchange and traded in the secondary market. The
fund may hold the ETN until maturity, at which time the issuer is obligated to
pay a return linked to the performance of the relevant market index. ETNs do not
make periodic interest payments and principal is not protected.
ETNs
are subject to credit risk and the value of the ETN may drop due to a downgrade
in the issuer’s credit rating, despite the underlying market benchmark or
strategy remaining unchanged. The value of an ETN may also be influenced by time
to maturity, level of supply and demand for the ETN, volatility and lack of
liquidity in underlying assets, changes in the applicable interest rates,
changes in the issuer’s credit rating, and economic, legal, political, or
geographic events that affect the referenced underlying asset. When a Fund
invests in ETNs, it will bear their proportionate share of any fees and expenses
borne by the ETN. The Fund’s decision to sell its ETN holdings may be limited by
the availability of a secondary market. ETNs are also subject to tax risk. The
Internal Revenue Service ("IRS") and Congress are considering proposals that
would change the timing and character of income and gains from ETNs. There may
also be times when an ETN share trades at a premium or discount to its market
benchmark or strategy.
Funding
Agreements
Funds
may invest in Guaranteed Investment Contracts (“GICs”) and similar funding
agreements. In connection with these investments, a Fund makes cash
contributions to a deposit fund of an insurance company’s general account. The
insurance company then credits to a Fund on a monthly basis guaranteed interest,
which is based on an index (such as LIBOR). The funding agreements provide that
this guaranteed interest will not be less than a certain minimum rate. The
purchase price paid for a funding agreement becomes part of the general assets
of the insurance company. GICs are considered illiquid securities and will be
subject to any limitations on such investments, unless there is an active and
substantial secondary market for the particular instrument and market quotations
are readily available. Generally, funding agreements are not assignable or
transferable without the permission of the issuing company, and an active
secondary market in some funding agreements does not currently exist.
Investments in GICs are subject to the risks associated with fixed-income
instruments generally, and are specifically subject to the credit risk
associated with an investment in the issuing insurance company.
Inflation-Indexed
Bonds
The
Funds may invest in inflation-indexed bonds or inflation protected debt
securities, which are fixed income securities whose value is periodically
adjusted according to the rate of inflation. Two structures are common. The U.S.
Treasury and some other issuers utilize a structure that accrues inflation into
the principal value of the bond. Most other issuers pay out the Consumer Price
Index accruals as part of a semi-annual coupon. Inflation-indexed securities
issued by the U.S. Treasury (Treasury Inflation Protected Securities or TIPS)
have maturities of approximately five, ten or thirty years, although it is
possible that securities with other maturities will be issued in the future. The
U.S. Treasury securities pay interest on a semi-annual basis equal to a fixed
percentage of the inflation-adjusted principal amount. If the periodic
adjustment rate measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest
payable on these securities (calculated with respect to a smaller principal
amount) will be reduced. The value of inflation-indexed bonds is expected to
change in response to changes in real interest rates. Real interest rates in
turn are tied to the relationship between nominal interest rates and the rate of
inflation. Therefore, if the rate of inflation rises at a faster rate than
nominal interest rates, real interest rates might decline, leading to an
increase in value of inflation-indexed bonds. In contrast, if nominal interest
rates increase at a faster rate than inflation, real interest rates might rise,
leading to a decrease in value of inflation-indexed bonds. While these
securities are expected to be protected from long-term inflationary trends,
short-term increases in inflation may lead to a decline in value. If interest
rates rise due to reasons other than inflation (for example, due to changes in
currency exchange rates), investors in these securities may not be protected to
the extent that the increase is not reflected in the bond's inflation
measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer
Price Index for Urban Consumers (CPI-U), which is calculated monthly by the U.S.
Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of
living, made up of components such as housing, food, transportation and energy.
Inflation-indexed bonds issued by a foreign government are generally adjusted to
reflect a comparable inflation index calculated by that government. Any increase
in the principal amount of an inflation-indexed bond will be considered taxable
ordinary income, even though investors do not receive their principal until
maturity.
Step-Coupon
Securities
The
Funds may invest in step-coupon securities. Step-coupon securities trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter.
Market values of these types of securities generally fluctuate in response to
changes in interest rates to a greater degree than conventional interest-paying
securities of comparable term and quality. Under many market conditions,
investments in such securities may be illiquid, making it difficult for a Fund
to dispose of them or determine their current value.
"Stripped"
Securities
The
Funds may invest in stripped securities, which are usually structured with two
or more classes that receive different proportions of the interest and principal
distribution on a pool of U.S. government or foreign government securities or
mortgage assets. In some cases, 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). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, a Fund may fail to
recoup fully its investments in IOs. Stripped securities may be illiquid.
Stripped securities may be considered derivative securities.
Structured
Notes
Funds
may invest in a broad category of instruments known as “structured notes.” These
instruments are debt obligations issued by industrial corporations, financial
institutions or governmental or international agencies. Traditional debt
obligations typically obligate the issuer to repay the principal plus a
specified rate of interest. Structured notes, by contrast, obligate the issuer
to pay amounts of principal or interest that are determined by reference to
changes in some external factor or factors, or the principal and interest rate
may vary from the stated rate because of changes in these factors. For example,
the issuer’s obligations could be determined by reference to changes in the
value of a foreign currency, an index of securities (such as the S&P 500
Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases,
the issuer’s obligations are determined by reference to changes over time in the
difference (or “spread”) between two or more external factors (such as the U.S.
prime lending rate and the total return of the stock market in a particular
country, as measured by a stock index). In some cases, the issuer’s obligations
may fluctuate inversely with changes in an external factor or factors (for
example, if the U.S. prime lending rate goes up, the issuer’s interest payment
obligations are reduced). In some cases, the issuer’s obligations may be
determined by some multiple of the change in an external factor or factors (for
example, three times the change in the U.S. Treasury bill rate). In some cases,
the issuer’s obligations remain fixed (as with a traditional debt instrument) so
long
as an external factor or factors do not change by more than the specified amount
(for example, if the value of a stock index does not exceed some specified
maximum), but if the external factor or factors change by more than the
specified amount, the issuer’s obligations may be sharply reduced.
Structured
notes can serve many different purposes in the management of a fund. For
example, they can be used to increase a fund’s exposure to changes in the value
of assets that a fund would not ordinarily purchase directly (such as stocks
traded in a market that is not open to U.S. investors). They also can be used to
hedge the risks associated with other investments a fund holds. For example, if
a structured note has an interest rate that fluctuates inversely with general
changes in a country’s stock market index, the value of the structured note
would generally move in the opposite direction to the value of holdings of
stocks in that market, thus moderating the effect of stock market movements on
the value of a fund’s portfolio as a whole. The cash flow on the underlying
instruments may be apportioned among the newly issued structured notes to create
securities with different investment characteristics such as varying maturities,
payment priorities or interest rate provisions; the extent of the payments made
with respect to structured notes is dependent on the extent of the cash flow on
the underlying instruments.
Structured
notes involve special risks. As with any debt obligation, structured notes
involve the risk that the issuer will become insolvent or otherwise default on
its payment obligations. This risk is in addition to the risk that the issuer’s
obligations (and thus the value of a fund’s investment) will be reduced because
of adverse changes in the external factor or factors to which the obligations
are linked. The value of structured notes will in many cases be more volatile
(that is, will change more rapidly or severely) than the value of traditional
debt instruments. Volatility will be especially high if the issuer’s obligations
are determined by reference to some multiple of the change in the external
factor or factors. Structured notes also may be more difficult to accurately
price than less complex securities and instruments or more traditional debt
securities. Many structured notes have limited or no liquidity, so that a fund
would be unable to dispose of the investment prior to maturity. As with all
investments, successful use of structured notes depends in significant part on
the accuracy of the analysis of those managing the fund's investments of the
issuer’s creditworthiness and financial prospects, and of their forecast as to
changes in relevant economic and financial market conditions and factors. In
instances where the issuer of a structured note is a foreign entity, the usual
risks associated with investments in foreign securities apply. Structured notes
may be considered derivative securities.
Zero-Coupon
Securities
The
Funds may invest in zero-coupon securities. Zero-coupon securities have no
stated interest rate and pay only the principal portion at a stated date in the
future. They usually trade at a substantial discount from their face (par)
value. Zero-coupon securities are subject to greater market value fluctuations
in response to changing interest rates than debt obligations of comparable
maturities that make distributions of interest in cash.
Foreign
Currency Transactions
Options
on Foreign Currencies
A
Fund may buy and write options on foreign currencies in a manner similar to that
in which futures or forward contracts on foreign currencies will be utilized. A
Fund may use options on foreign currencies to hedge against adverse changes in
foreign currency conversion rates. For example, a decline in the U.S. dollar
value of a foreign currency in which portfolio securities are denominated will
reduce the U.S. dollar value of such securities, even if their value in the
foreign currency remains constant. In order to protect against such diminutions
in the value of the portfolio securities, a Fund may buy put options on the
foreign currency. If the value of the currency declines, a Fund will have the
right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to a Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, a Fund could sustain losses or lesser gains on
transactions in foreign currency options that would require a Fund to forgo a
portion or all of the benefits of advantageous changes in those
rates.
A
Fund also may write options on foreign currencies. For example, to hedge against
a potential decline in the U.S. dollar due to adverse fluctuations in exchange
rates, a Fund could, instead of purchasing a put option, write a call option on
the relevant currency. If the decline expected by a Fund occurs, the option will
most likely not be exercised and the diminution in value of portfolio securities
will be offset at least in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Fund could
write a put option on the relevant currency which, if rates move in the manner
projected by a Fund, will expire unexercised and allow a Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and a Fund would be required
to buy or sell the underlying currency at a loss, which may not be fully offset
by the amount of the premium. Through the writing of options on foreign
currencies, a Fund also may lose all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange
rates.
Futures
on Currency
A
foreign currency future provides for the future sale by one party and purchase
by another party of a specified quantity of foreign currency at a specified
price and time. A public market exists in futures contracts covering a number of
foreign currencies. Currency futures contracts are exchange-traded and change in
value to reflect movements of a currency or a basket of currencies. Settlement
must be made in a designated currency.
Forward
Foreign Currency Exchange Contracts
The
Funds may, but are not obligated to, enter into forward foreign currency
exchange contracts. Currency transactions include forward currency contracts and
exchange listed or over-the-counter options on currencies. A forward currency
contract involves a privately negotiated obligation to purchase or sell a
specific currency at a specified future date at a price set at the time of the
contract.
The
typical use of a forward 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 forward 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 in or exposed to during the period between the date on which the
security is purchased or sold and the date on which payment is made or
received.
Those
managing the fund's investments also may from time to time utilize forward
contracts for other purposes. For example, they may be used to hedge a foreign
security held in the portfolio or a security which pays out principal tied to an
exchange rate between the U.S. dollar and a foreign currency, 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 in or exposed to. 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 segregates liquid assets in an amount equal to (1) at least its daily
marked-to-market (net) obligation (i.e., its daily net liability, if any) with
respect to forward currency contracts that are cash settled and (2) the net
notional value with respect to forward currency contracts that are not cash
settled. It should be noted that the use of forward foreign currency exchange
contracts does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange between the currencies that
can be achieved at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain that might result if
the value of the currency increases.
Foreign
Securities
Investing
in foreign securities carries political and economic risks distinct from those
associated with investing in the United States. Investments in foreign
securities also involve the risk of possible adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation, limitation
on or delays in the removal of funds or other assets of a fund, political or
financial instability or diplomatic and other developments that could affect
such investments. Foreign investments may be affected by actions of foreign
governments adverse to the interests of U.S. investors, including the
possibility of expropriation or nationalization of assets, confiscatory
taxation, restrictions on U.S. investment or on the ability to repatriate assets
or to convert currency into U.S. Dollars. There may be a greater possibility of
default by foreign governments or foreign-government sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments.
Asia-Pacific
Countries
In
addition to the risks of foreign investing and the risks of investing in
emerging markets, the developing market Asia-Pacific countries in which a Fund
may invest are subject to certain additional or specific risks. In the
Asia-Pacific markets, there is a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries. Many of these markets also may be affected by developments with
respect to more established markets in the region, such as Japan and Hong Kong.
Brokers in developing market Asia-Pacific countries typically are fewer in
number and less well capitalized than brokers in the United States.
Many
of the developing market Asia-Pacific countries may be subject to a greater
degree of economic, political and social instability than is the case in the
United States and Western European countries. Such instability may result from,
among other things: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and/or (v) ethnic, religious
and racial disaffection. In addition, the governments of many of such countries,
such as Indonesia, have a heavy role in regulating and supervising the
economy.
An
additional risk common to most such countries is that the economy is heavily
export-oriented and, accordingly, is dependent upon international trade. The
existence of overburdened infrastructure and obsolete financial systems also
present risks in certain countries, as do environmental problems. Certain
economies also depend to a significant degree upon exports of primary
commodities and, therefore, are vulnerable to changes in commodity prices that,
in turn, may be affected by a variety of factors. The legal systems in certain
developing market Asia-Pacific countries also may have an adverse impact on a
Fund. The rights of investors in developing market Asia-Pacific companies may be
more limited than those of shareholders of U.S. corporations. It may be
difficult or impossible to obtain and/or enforce a judgment in a developing
market Asia-Pacific country.
China
Investing
in China involves special considerations, including: the risk of nationalization
or expropriation of assets or confiscatory taxation; greater governmental
involvement in and control over the economy, interest rates and currency
exchange rates; controls on foreign investment and limitations on repatriation
of invested capital; greater social, economic and political uncertainty;
dependency on exports and the corresponding importance of international trade;
and currency exchange rate fluctuations. The government of China maintains
strict currency controls in support of economic, trade and political objectives
and regularly intervenes in the currency market. The government's actions in
this respect may not be transparent or predictable. Furthermore, it is difficult
for foreign investors to directly access money market securities in China
because of investment and trading restrictions. These and other factors may
decrease the value and liquidity of a fund's investments.
Investments
in Stock Connect and Bond Connect
Funds
may invest in China A shares, which are shares of
certain Chinese companies listed and traded through the Shanghai-Hong
Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs (“Stock
Connect”). Stock Connect is a securities trading and clearing program
established by Hong Kong Exchanges and Clearing Limited, the Shanghai Stock
Exchange ("SSE"), the Shenzhen Stock Exchange ("SZSE") and China Securities
Depository and Clearing Corporation Limited, which seeks to provide mutual stock
market access between Mainland China and Hong Kong. Trading through Stock
Connect is subject to numerous restrictions and risks that could impair the
Fund’s ability to invest in or sell China A shares and adversely
affect the Fund’s performance, such as the following:
•China
A shares generally may not be sold, purchased or otherwise transferred other
than through Stock Connect in accordance with applicable rules, regulations, and
restrictions. Such securities may lose their eligibility, in which case they
presumably could be sold but could no longer be purchased through Stock Connect.
Market volatility and settlement difficulties in the China A
share markets may result in significant fluctuations in the prices and
liquidity of the securities traded on such markets. Further regulations or
restrictions, such as limitations on redemptions or suspension of trading, may
adversely impact the Fund.
•Stock
Connect is generally only available on business days when both the
China and Hong Kong markets are open and when banking services are
available in both markets on the corresponding settlement days. As a result, a
Fund may not be able trade when it would be otherwise attractive to do so, and
the Fund may not be able to dispose of its China A shares in a timely
manner.
•Investing
in China A shares is subject to Stock Connect’s clearance and
settlement procedures, which could pose risks to the Fund. Certain requirements
must be completed before the market opening, or a Fund cannot sell the shares on
that trading day. Stock Connect also imposes quotas that limit aggregate
net purchases on an exchange on a particular day, and an investor cannot
purchase and sell the same security through Stock Connect on the same trading
day. Once the daily quota is reached, orders to purchase
additional China A shares through Stock Connect will be
rejected. Such restrictions could limit a Fund’s ability to sell
its China A shares in a timely manner, or to sell them at
all.
•If
a Fund holds 5% or more of a China A share issuer’s total shares through Stock
Connect investments, the Fund must return any profits obtained from the purchase
and sale of those shares if both transactions occur within
a six-month period. All accounts managed by the Funds’ Advisor and/or
its affiliates will be aggregated for purposes of this 5% limitation, which
makes it more likely that a Fund’s profits may be subject to these
limitations.
•Stock
Connect uses an omnibus clearing structure, and the Fund’s shares will be
registered in its custodian’s name on the Central Clearing and Settlement
System. This may limit the ability of the Fund’s advisor to effectively manage a
Fund, and may expose the Fund to the credit risk of its custodian or to greater
risk of expropriation. Investment in China A shares through Stock
Connect may be available only through a single broker that is an affiliate
of the Fund’s custodian, which may affect the quality of execution provided by
such broker.
•China
A shares purchased through Stock Connect will be held via a book entry omnibus
account in the name of Hong Kong Securities Clearing Company Limited (“HKSCC”),
Hong Kong’s clearing entity, and not the Fund’s name as the beneficial
owner. Therefore, a Fund’s ability to exercise its rights as a shareholder
and to pursue claims against the issuer of China A shares may be
limited. While Chinese regulations and the Hong Kong Stock Exchange
have issued clarifications and guidance supporting the concept of beneficial
ownership through Stock Connect, the interpretation of beneficial ownership
in China by regulators and courts may continue to evolve.
•The
Fund’s investments in China A shares through Stock Connect are generally
subject to Chinese securities regulations and listing rules, among
other restrictions. The Fund will not benefit from access to Hong Kong investor
compensation funds, which are set up to protect against defaults of trades, when
investing through Stock Connect. Investments in China A shares may not
be covered by the securities investor protection programs of the exchanges and,
without the protection of such programs, will be subject to the risk of default
by the broker. If the depository of the SSE and the SZSE defaulted, a Fund may
not be able to recover fully its losses from the depository or may be delayed in
receiving proceeds as part of any recovery process.
•Fees,
costs and taxes imposed on foreign investors (such as the Fund) may be higher
than comparable fees, costs and taxes imposed on owners of other securities that
provide similar investment exposure. Trades using Stock Connect may
also be subject to various fees, taxes and market charges imposed by Chinese
market participants and regulatory authorities. Uncertainties in China’s tax
rules related to the taxation of income and gains from investments in China A
shares could result in unexpected tax liabilities for the Fund, and the
withholding tax treatment of dividends and capital gains payable to overseas
investors currently is unsettled.
•Because
trades of eligible China A shares on Stock Connect must be settled in
Renminbi (RMB), the Chinese currency, Funds investing through Stock
Connect will be exposed to RMB currency risks. The ability to hedge RMB currency
risks may be limited. The RMB is subject to exchange control restrictions, and
the Fund could be adversely affected by delays in converting currencies into RMB
and vice versa.
•Because
Stock Connect is in its early stages, the effect on the market for trading
China A shares with the introduction of numerous foreign investors is
currently unknown. Stock Connect is relatively new and may be subject to further
interpretation and guidance. There can be no assurance as to Stock Connect’s
continued existence or whether future developments regarding the program may
restrict or adversely affect the Fund’s investments or returns.
Funds
may also invest in China Interbank bonds traded on the China Interbank Bond
Market (“CIBM”) through the China - Hong Kong Bond Connect program (“Bond
Connect”). In China, the Hong Kong Monetary Authority Central Money Markets Unit
holds Bond Connect securities on behalf of investors (such as the Fund) in
accounts maintained with maintained with a China-based custodian (either the
China Central Depository & Clearing Co. or the Shanghai Clearing House).
Investments using Bond Connect are subject to risks similar to those described
above with respect to Stock Connect.
Europe
The
economies and markets of European countries are often closely connected and
interdependent, and events in one European country can have an adverse impact on
other European countries. Certain funds may invest in securities of issuers that
are domiciled in, or have significant operations in, member countries of the
Economic and Monetary Union of the European Union (the “EU”), which requires
member countries to comply with restrictions on inflation rates, deficits,
interest rates, debt levels and fiscal and monetary controls. Decreasing imports
or exports, changes in governmental or EU regulations on trade, changes in the
exchange rate of the euro (the common currency of certain EU countries), the
default or threat of default by an EU member country on its sovereign debt,
and/or an economic recession in an EU member country may have a significant
adverse effect on the economies of EU member countries and their trading
partners, including some or all of the emerging markets countries. Although
certain European countries do not use the euro, many of these countries are
obliged to meet the criteria for joining the euro zone. Consequently, these
countries must comply with many of the restrictions noted above. The European
financial markets have experienced volatility and adverse trends in recent years
due to concerns about economic downturns, rising government debt levels and the
possible default of government debt in several European countries. Further
defaults or restructurings by governments and other entities of their debt could
have additional adverse effects on economies, financial markets and asset
valuations around the world. In addition, one or more countries may abandon the
euro and/or withdraw from the EU, including, with respect to the latter, the
United Kingdom (the "UK"), which is a significant market in the global economy.
The impact of these actions, especially if they occur in a disorderly fashion,
is not clear but could be significant and far-reaching and could adversely
impact the value of investments in the region.
The
UK’s referendum vote to leave the EU (referred to as "Brexit") could cause
business disruptions and uncertainty and thus adversely impact the financial
results and operations of various European companies and economies. Although the
precise time frame for Brexit is uncertain, it is currently expected that the UK
will seek to withdraw from the EU with an anticipated completion date within two
years after notifying the European Council of the UK’s intention to withdraw.
The effects of Brexit will largely depend on any agreements the UK makes to
retain access to EU markets either during a transitional period or more
permanently. Brexit could lead to legal and tax uncertainty and potentially
divergent national laws and regulations as the UK determines which EU laws to
replace or replicate. Additionally, Brexit could lead to global economic
uncertainty and result in significant volatility in the global stock markets and
currency exchange rate fluctuations.
Japan
Japanese
investments may be significantly affected by events influencing Japan’s economy
and the exchange rate between the Japanese yen and the U.S. Dollar. Japan’s
economy fell into a long recession in the 1990s. After a few years of mild
recovery in the mid-2000s, Japan’s economy fell into another recession as a
result of the recent global economic crisis. Japan is heavily dependent on
exports and foreign oil. Japan is located in a seismically active area, and in
2011 experienced an earthquake of a sizable magnitude and a tsunami that
significantly affected important elements of its infrastructure and resulted in
a nuclear crisis. Since these events, Japan’s financial markets have fluctuated
dramatically. The full extent of the impact of these events on Japan’s economy
and on foreign investment in Japan is difficult to estimate. Japan’s economic
prospects may be affected by the political and military situations of its near
neighbors, notably North and South Korea, China, and Russia.
Latin
America
Most
Latin American countries have experienced, at one time or another, severe and
persistent levels of inflation, including, in some cases, hyperinflation. This
has, in turn, led to high interest rates, extreme measures by governments to
keep inflation in check, and a generally debilitating effect on economic growth.
Although inflation in many countries has lessened, there is no guarantee it will
remain at lower levels. In addition, the political history of certain Latin
American countries has been characterized by political uncertainty, intervention
by the military in civilian and economic spheres, and political corruption. Such
developments, if they were to reoccur, could reverse favorable trends toward
market and economic reform, privatization, and removal of trade barriers, and
result in significant disruption in securities markets. Certain Latin American
countries may also have managed currencies which are maintained at artificial
levels to the U.S. Dollar rather than at levels determined by the market. This
type of system can lead to sudden and large adjustments in the currency which,
in turn, can have a disruptive and negative effect on foreign investors. There
is no significant foreign exchange market for many currencies and it would, as a
result, be difficult for the Fund to engage in foreign currency transactions
designed to protect the value of the Fund’s interests in securities denominated
in such currencies. Finally, a number of Latin American countries are among the
largest debtors of developing countries. There have been moratoria on, and
reschedulings of, repayment with respect to these debts. Such events can
restrict the flexibility of these debtor nations in the international markets
and result in the imposition of onerous conditions on their
economies.
High
Yield Securities
Some
funds invest a portion of their assets in bonds that are rated below investment
grade (sometimes called “high yield bonds” or "junk bonds") which are rated at
the time of purchase Ba1 or lower by Moody's and BB+ or lower by S&P Global
(if the bond has been rated by only one of those agencies, that rating will
determine whether the bond is below investment grade; if the bond has not been
rated by either of those agencies, those managing the fund's investments will
determine whether the bond is of a quality comparable to those rated below
investment grade). Lower rated bonds involve a higher degree of credit risk,
which is the risk that the issuer will not make interest or principal payments
when due. In the event of an unanticipated default, a fund would experience a
reduction in its income and could expect a decline in the market value of the
bonds so affected. Issuers of high yield securities may be involved in
restructurings or bankruptcy proceedings that may not be successful. If an
issuer defaults, it may not be able to pay all or a portion of interest and
principal owed to the fund, it may exchange the high yield securities owned by
the fund for other securities, including equities, and/or the fund may incur
additional expenses while seeking recovery of its investment. Some funds may
also invest in unrated bonds of foreign and domestic issuers. Unrated bonds,
while not necessarily of lower quality than rated bonds, may not have as broad a
market. Because of the size and perceived demand of the issue, among other
factors, certain municipalities may not incur the expense of obtaining a rating.
Those managing the fund's investments will analyze the creditworthiness of the
issuer, as well as any financial institution or other party responsible for
payments on the bond, in determining whether to purchase unrated bonds. Unrated
bonds will be included in the limitation each fund has with regard to high yield
bonds unless those managing the fund's investments deem such securities to be
the equivalent of investment grade bonds. Some of the high yield securities
consist of Rule 144A securities. High yield securities may contain any type of
interest rate payment or reset terms, including fixed rate, adjustable rate,
zero coupon, contingent, deferred, payment-in-kind and those with auction rate
features.
Initial
Public Offerings ("IPOs")
An
IPO is a company's first offering of stock to the public. IPO risk is that the
market value of IPO shares will fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of
shares available for trading, and limited information about the issuer. The
purchase of IPO shares may involve high transaction costs. IPO shares are
subject to market risk and liquidity risk. In addition, the market for IPO
shares can be speculative and/or inactive for extended periods. The limited
number of shares available for trading in some IPOs may make it more difficult
for a fund to buy or sell significant amounts of shares without an unfavorable
impact on prevailing prices. Investors in IPO shares can be affected by
substantial dilution in the value of their shares by sales of additional shares
and by concentration of control in existing management and principal
shareholders.
When
a fund's asset base is small, a significant portion of the fund's performance
could be attributable to investments in IPOs because such investments would have
a magnified impact on the fund. As the fund's assets grow, the effect of the
fund's investments in IPOs on the fund's performance probably will decline,
which could reduce the fund's performance. Because of the price volatility of
IPO shares, a fund may choose to hold IPO shares for a very short period. This
may increase the turnover of the fund's portfolio and lead to increased expenses
to the fund, such as commissions and transaction costs. By selling IPO shares,
the fund may realize taxable gains it will subsequently distribute to
shareholders.
Interfund
Lending and Borrowing
The
SEC has granted an exemption permitting Principal Funds to borrow money from and
lend money to each other for temporary or emergency purposes. The loans are
subject to a number of conditions designed to ensure fair and equitable
treatment of all participating funds, including the following: (1) no fund may
borrow money through the program unless it receives a more favorable interest
rate than a rate approximating the lowest interest rate at which bank loans
would be available to any of the participating funds under a loan agreement; and
(2) no fund may lend money through the program unless it receives a more
favorable return than that available from an investment in overnight repurchase
agreements. In addition, a fund may participate in the program only if and to
the extent that such participation is consistent with a fund's investment
objectives and policies. Interfund loans and borrowings have a maximum duration
of seven days. Loans may be called on one day's notice. A fund may have to
borrow from a bank at a higher interest rate if an interfund loan is called or
not renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional costs. The Board is responsible for
overseeing and periodically reviewing the interfund lending
program.
Inverse
Floating Rate and Other Variable and Floating Rate Instruments
The
Funds may purchase variable and floating rate instruments. These instruments may
include variable amount master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. These instruments may also include leveraged inverse floating
rate debt instruments, or “inverse floaters”. The interest rate of an inverse
floater resets in the opposite direction from the market rate of interest on a
security or interest to which it is related. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest, and is subject to many of the same risks as derivatives. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Certain of these investments may be illiquid.
The absence of an active secondary market with respect to these investments
could make it difficult for a Fund to dispose of a variable or floating rate
note if the issuer defaulted on its payment obligation or during periods that a
Fund is not entitled to exercise its demand rights, and a Fund could, for these
or other reasons, suffer a loss with respect to such instruments.
Master
Limited Partnerships (“MLPs”)
An
MLP is an entity that is generally taxed as a partnership for federal income tax
purposes and that derives each year at least 90% of its gross income from
"Qualifying Income". Qualifying Income includes interest, dividends, real estate
rents, gain from the sale or disposition of real property, income and gain from
commodities or commodity futures, and income and gain from mineral or natural
resources activities that generate Qualifying Income. MLP interests (known as
units) are traded on securities exchanges or over-the-counter. An MLP's
organization as a partnership and compliance with the Qualifying Income rules
generally eliminates federal tax at the entity level. An MLP has one or more
general partners (who may be individuals, corporations, or other partnerships)
which manage the partnership, and limited partners, which provide capital to the
partnership but have no role in its management. Typically, the general partner
is owned by company management or another publicly traded sponsoring
corporation. When an investor buys units in an MLP, the investor becomes a
limited partner. Holders of MLP units have limited control and voting rights on
matters affecting the partnership and are exposed to a remote possibility of
liability for all of the obligations of that MLP in the event that a court
determines that the rights of the holders of MLP units to vote to remove or
replace the general partner of that MLP, to approve amendments to that MLP’s
partnership agreement, or to take other action under the partnership agreement
of that MLP would constitute “control” of the business of that MLP, or a court
or governmental agency determines that the MLP is conducting business in a state
without complying with the partnership statute of that state. Holders of MLP
units are also exposed to the risk that they will be required to repay amounts
to the MLP that are wrongfully distributed to them.
The
business of certain MLPs is affected by supply and demand for energy commodities
because such MLPs derive revenue and income based upon the volume of the
underlying commodity produced, transported, processed, distributed, and/ or
marketed. Pipeline MLPs have indirect commodity exposure to oil and gas price
volatility because, although they do not own the underlying energy commodity,
the general level of commodity prices may affect the volume of the commodity the
MLP delivers to its customers and the cost of providing services such as
distributing natural gas liquids. The costs of natural gas pipeline MLPs to
perform services may exceed the negotiated rates under “negotiated rate”
contracts. Processing MLPs may be directly affected by energy commodity prices.
Propane MLPs own the underlying energy commodity, and therefore have direct
exposure to energy commodity prices. The MLP industry in general could be hurt
by market perception that MLP's performance and valuation are directly tied to
commodity prices.
Pipeline
MLPs are common carrier transporters of natural gas, natural gas liquids
(primarily propane, ethane, butane and natural gasoline), crude oil or refined
petroleum products (gasoline, diesel fuel and jet fuel). Pipeline MLPs also may
operate ancillary businesses such as storage and marketing of such products.
Pipeline MLPs derive revenue from capacity and transportation fees.
Historically, pipeline output has been less exposed to cyclical economic forces
due to its low cost structure and government-regulated nature. In addition, most
pipeline MLPs have limited direct commodity price exposure because they do not
own the product being shipped.
Processing
MLPs are gatherers and processors of natural gas as well as providers of
transportation, fractionation and storage of natural gas liquids ("NGLs").
Processing MLPs derive revenue from providing services to natural gas producers,
which require treatment or processing before their natural gas commodity can be
marketed to utilities and other end user markets. Revenue for the processor is
fee based, although it is not uncommon to have some participation in the prices
of the natural gas and NGL commodities for a portion of revenue.
Propane
MLPs are distributors of propane to homeowners for space and water heating.
Propane MLPs derive revenue from the resale of the commodity on a margin over
wholesale cost. The ability to maintain margin is a key to profitability.
Propane serves approximately 3% of the household energy needs in the United
States, largely for homes beyond the geographic reach of natural gas
distribution pipelines. Approximately 70% of annual cash flow is earned during
the winter heating season (October through March). Accordingly, volumes are
weather dependent, but have utility type functions similar to electricity and
natural gas.
MLPs
operating interstate pipelines and storage facilities are subject to substantial
regulation by the Federal Energy Regulatory Commission ("FERC"), which regulates
interstate transportation rates, services and other matters regarding natural
gas pipelines including: the establishment of rates for service; regulation of
pipeline storage and liquified natural gas facility construction; issuing
certificates of need for companies intending to provide energy services or
constructing and operating interstate pipeline and storage facilities; and
certain other matters. FERC also regulates the interstate transportation of
crude oil, including: regulation of rates and practices of oil pipeline
companies; establishing equal service conditions to provide shippers with equal
access to pipeline transportation; and establishment of reasonable rates for
transporting petroleum and petroleum products by pipeline. Certain MLPs
regulated by the FERC have the right, but are not obligated, to redeem common
units held by an investor who is not subject to U.S. federal income taxation.
The financial condition and results of operations of an MLP that redeems its
common units could be adversely impacted.
MLPs
are subject to various federal, state and local environmental laws and health
and safety laws as well as laws and regulations specific to their particular
activities. These laws and regulations address: health and safety standards for
the operation of facilities, transportation systems and the handling of
materials; air and water pollution requirements and standards; solid waste
disposal requirements; land reclamation requirements; and requirements relating
to the handling and disposition of hazardous materials. MLPs are subject to the
costs of compliance with such laws applicable to them, and changes in such laws
and regulations may adversely affect their results of operations.
MLPs
may be subject to liability relating to the release of substances into the
environment, including liability under federal “Superfund” and similar state
laws for investigation and remediation of releases and threatened releases of
hazardous materials, as well as liability for injury and property damage for
accidental events, such as explosions or discharges of materials causing
personal injury and damage to property. Such potential liabilities could have a
material adverse effect upon the financial condition and results of operations
of MLPs.
MLPs
are subject to numerous business related risks, including: deterioration of
business fundamentals reducing profitability due to development of alternative
energy sources, consumer sentiment with respect to global warming, changing
demographics in the markets served, unexpectedly prolonged and precipitous
changes in commodity prices and increased competition that reduces the MLP’s
market share; the lack of growth of markets requiring growth through
acquisitions; disruptions in transportation systems; the dependence of certain
MLPs upon the energy exploration and development activities of unrelated third
parties; availability of capital for expansion and construction of needed
facilities; a significant decrease in natural gas production due to depressed
commodity prices or otherwise; the inability of MLPs to successfully integrate
recent or future acquisitions; and the general level of the
economy.
Municipal
Obligations and AMT-Subject Bonds
Municipal
Obligations are obligations issued by or on behalf of states, territories, and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, including municipal
utilities, or multi-state agencies or authorities. The interest on Municipal
Obligations is exempt from federal income tax in the opinion of bond counsel to
the issuer. Three major classifications of Municipal Obligations are: Municipal
Bonds, that generally have a maturity at the time of issue of one year or more;
Municipal Notes, that generally have a maturity at the time of issue of six
months to three years; and Municipal Commercial Paper, that generally has a
maturity at the time of issue of 30 to 270 days.
The
term "Municipal Obligations" includes debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works, and electric utilities.
Other public purposes for which Municipal Obligations are issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and lending such funds to other public institutions and facilities. To
the extent that a fund invests a significant portion of its assets in municipal
obligations issued in connection with a single project, the fund likely will be
affected by the economic, business or political environment of the
project.
AMT-Subject
Bonds are industrial development bonds issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair
or improvement of privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, air or water pollution control facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. They are considered to be Municipal Obligations if the interest paid
thereon qualifies as exempt from federal income tax in the opinion of bond
counsel to the issuer, even though the interest may be subject to the federal
individual alternative minimum tax.
Municipal
Bonds
Municipal
Bonds may be either "general obligation" or "revenue" issues. General obligation
bonds are secured by the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source (e.g., the user of the facilities being financed), but not from the
general taxing power. Industrial development bonds and pollution control bonds
in most cases are revenue bonds and generally do not carry the pledge of the
credit of the issuing municipality. The payment of the principal and interest on
industrial revenue bonds depends 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. Funds may also invest in "moral obligation" bonds that are normally
issued by special purpose public authorities. If an issuer of moral obligation
bonds is unable to meet its obligations, the repayment of the bonds becomes a
moral commitment but not a legal obligation of the state or municipality in
question.
Municipal
Commercial Paper
Municipal
Commercial Paper refers to short-term obligations of municipalities that may be
issued at a discount and may be referred to as Short-Term Discount Notes.
Municipal Commercial Paper is likely to be used to meet seasonal working capital
needs of a municipality or interim construction financing. Generally they are
repaid from general revenues of the municipality or refinanced with long-term
debt. In most cases Municipal Commercial Paper is backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
Municipal
Notes
Municipal
Notes usually are general obligations of the issuer and are sold in anticipation
of a bond sale, collection of taxes, or receipt of other revenues. Payment of
these notes is primarily dependent upon the issuer's receipt of the anticipated
revenues. Other notes include "Construction Loan Notes" issued to provide
construction financing for specific projects, and "Bank Notes" issued by local
governmental bodies and agencies to commercial banks as evidence of borrowings.
Some notes ("Project Notes") are issued by local agencies under a program
administered by the U.S. Department of Housing and Urban Development. Project
Notes are secured by the full faith and credit of the United
States.
• Bank
Notes are notes issued by local governmental bodies and agencies such as those
described above to commercial banks as evidence of borrowings. The purposes for
which the notes are issued are varied but they are frequently issued to meet
short-term working-capital or capital-project needs. These notes may have risks
similar to the risks associated with TANs and RANs.
•Bond
Anticipation Notes ("BANs") are usually general obligations of state and local
governmental issuers which are sold to obtain interim financing for projects
that will eventually be funded through the sale of long-term debt obligations or
bonds. The ability of an issuer to meet its obligations on its BANs is primarily
dependent on the issuer's access to the long-term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal and interest on the BANs.
• Construction
Loan Notes are issued to provide construction financing for specific projects.
Permanent financing, the proceeds of which are applied to the payment of
construction loan notes, is sometimes provided by a commitment by the Government
National Mortgage Association ("GNMA") to purchase the loan, accompanied by a
commitment by the Federal Housing Administration to insure mortgage advances
thereunder. In other instances, permanent financing is provided by commitments
of banks to purchase the loan. The Opportunistic Municipal Fund will only
purchase construction loan notes that are subject to GNMA or bank purchase
commitments.
•Revenue
Anticipation Notes ("RANs") are issued by governments or governmental bodies
with the expectation that future revenues from a designated source will be used
to repay the notes. In general they also constitute general obligations of the
issuer. A decline in the receipt of projected revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
• Tax
Anticipation Notes ("TANs") are issued by state and local governments to finance
the current operations of such governments. Repayment is generally to be derived
from specific future tax revenues. TANs are usually general obligations of the
issuer. A weakness in an issuer's capacity to raise taxes due to, among other
things, a decline in its tax base or a rise in delinquencies, could adversely
affect the issuer's ability to meet its obligations on outstanding
TANs.
Other
Municipal Obligations
Other
kinds of Municipal Obligations are occasionally available in the marketplace,
and the fund may invest in such other kinds of obligations to the extent
consistent with its investment objective and limitations. Such obligations may
be issued for different purposes and with different security than those
mentioned.
Stand-By
Commitments
Funds
may acquire stand-by commitments with respect to municipal obligations held in
their respective portfolios. Under a stand-by commitment, a broker-dealer,
dealer, or bank would agree to purchase, at the relevant funds' option, a
specified municipal security at a specified price. Thus, a stand-by commitment
may be viewed as the equivalent of a put option acquired by a fund with respect
to a particular municipal security held in the fund's portfolio.
The
amount payable to a fund upon its exercise of a stand-by commitment normally
would be 1) the acquisition cost of the municipal security (excluding any
accrued interest that the fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the fund owned the security, plus, 2) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the fund. Absent unusual circumstances, the fund would value the
underlying municipal security at amortized cost. As a result, the amount payable
by the broker-dealer, dealer or bank during the time a stand-by commitment is
exercisable would be substantially the same as the value of the underlying
municipal obligation.
A
fund's right to exercise a stand-by commitment would be unconditional and
unqualified. Although a fund could not transfer a stand-by commitment, it could
sell the underlying municipal security to a third party at any time. It is
expected that stand-by commitments generally will be available to the funds
without the payment of any direct or indirect consideration. The funds may,
however, pay for stand-by commitments if such action is deemed necessary. In any
event, the total amount paid for outstanding stand-by commitments held in a
fund's portfolio would not exceed 0.50% of the value of a fund's total assets
calculated immediately after each stand-by commitment is acquired.
The
funds intend to enter into stand-by commitments only with broker-dealers,
dealers, or banks that those managing the fund's investments believe present
minimum credit risks. A fund's ability to exercise a stand-by commitment will
depend upon the ability of the issuing institution to pay for the underlying
securities at the time the stand-by commitment is exercised. The credit of each
institution issuing a stand-by commitment to a fund will be evaluated on an
ongoing basis by those managing the fund's investments.
A
fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its right thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying municipal security. Each stand-by commitment will be
valued at zero in determining net asset value. Should a fund pay directly or
indirectly for a stand-by commitment, its costs will be reflected in realized
gain or loss when the commitment is exercised or expires. The maturity of a
municipal security purchased by a fund will not be considered shortened by any
stand-by commitment to which the obligation is subject. Thus, stand-by
commitments will not affect the dollar-weighted average maturity of a fund's
portfolio.
Variable
and Floating Rate Obligations
Certain
Municipal Obligations, obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and debt instruments issued by domestic
banks or corporations may carry variable or floating rates of interest. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a bank prime rate or
tax-exempt money market index. Variable rate notes are adjusted to current
interest rate levels at certain specified times, such as every 30 days. A
floating rate note adjusts automatically whenever there is a change in its base
interest rate adjustor, e.g., a change in the prime lending rate or specified
interest rate indices. Typically such instruments carry demand features
permitting the fund to redeem at par.
The
fund's right to obtain payment at par on a demand instrument upon demand could
be affected by events occurring between the date the fund elects to redeem the
instrument and the date redemption proceeds are due which affects the ability of
the issuer to pay the instrument at par value. Those managing the fund's
investments monitor on an ongoing basis the pricing, quality, and liquidity of
such instruments and similarly monitor the ability of an issuer of a demand
instrument, including those supported by bank letters of credit or guarantees,
to pay principal and interest on demand. Although the ultimate maturity of such
variable rate obligations may exceed one year, the fund treats the maturity of
each variable rate demand obligation as the longer of a) the notice period
required before the fund is entitled to payment of the principal amount through
demand or b) the period remaining until the next interest rate adjustment.
Floating rate instruments with demand features are deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand.
Funds
may purchase participation interests in variable rate Municipal Obligations
(such as industrial development bonds). A participation interest gives the
purchaser an undivided interest in the Municipal Obligation in the proportion
that its participation interest bears to the total principal amount of the
Municipal Obligation. A fund has the right to demand payment on seven days'
notice, for all or any part of the fund's participation interest in the
Municipal Obligation, plus accrued interest. Each participation interest is
backed by an irrevocable letter of credit or guarantee of a bank. Banks will
retain a service and letter of credit fee and a fee for issuing repurchase
commitments in an amount equal to the excess of the interest paid on the
Municipal Obligations over the negotiated yield at which the instruments were
purchased by the fund.
Risks
of Municipal Obligations
The
yields on Municipal Obligations are dependent on a variety of factors, including
general economic and monetary conditions, money market factors, conditions in
the Municipal Obligations market, size of a particular offering, maturity of the
obligation, and rating of the issue. The fund's ability to achieve its
investment objective also depends on the continuing ability of the issuers of
the Municipal Obligations in which it invests to meet their obligation for the
payment of interest and principal when due.
Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act. They are also subject to federal or state laws, if any, which
extend the time for payment of principal or interest, or both, or impose other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. The power or ability of issuers to pay, when due, principal of and
interest on Municipal Obligations may also be materially affected by the results
of litigation or other conditions.
From
time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
Municipal Obligations. It may be expected that similar proposals will be
introduced in the future. If such a proposal was enacted, the ability of the
fund to pay "exempt interest" dividends may be adversely affected. The fund
would reevaluate its investment objective and policies and consider changes in
its structure.
Special
Considerations Relating to California Municipal Obligations
The
Opportunistic Municipal Fund invests in California municipal obligations, and
therefore may be significantly impacted by political, economic, or regulatory
developments that affect issuers in California and their ability to pay
principal and interest on their obligations. The ability of issuers to pay
interest on, and repay principal of, California municipal obligations may be
affected by 1) amendments to the California Constitution and related statutes
that limit the taxing and spending authority of California government entities,
2) voter initiatives, 3) a wide variety of California laws and regulations,
including laws related to the operation of health care institutions and laws
related to secured interests in real property, and 4) the general financial
condition of the State of California and the California economy.
Taxable
Investments of the Municipal Funds
The
Opportunistic Municipal Fund may invest a portion of its assets, as described in
the prospectus, in taxable short-term investments consisting of: Obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit and bankers'
acceptances, short-term corporate debt securities such as commercial paper, and
repurchase agreements ("Taxable Investments"). These investments must have a
stated maturity of one year or less at the time of purchase and must meet the
following standards: banks must have assets of at least $1 billion; commercial
paper must be rated at least "A" by S&P Global or "Prime" by Moody's or, if
not rated, must be issued by companies having an outstanding debt issue rated at
least "A" by S&P Global or Moody's; corporate bonds and debentures must be
rated at least "A" by S&P Global or Moody's. Interest earned from Taxable
Investments is taxable to investors. When, in the opinion of the Fund's Manager,
it is advisable to maintain a temporary "defensive" posture, the Opportunistic
Municipal Fund may invest without limitation in Taxable Investments. At other
times, the following investments will not exceed 20% of the Fund’s total
assets: Taxable Investments; Municipal Obligations that do not meet
quality standards required for the 80% portion of the portfolio; and Municipal
Obligations, the interest on which is treated as a tax preference item for
purposes of the federal individual alternative minimum tax.
Insurance
The
insured municipal obligations in which the Opportunistic Municipal Fund may
invest are insured under insurance policies that relate to the specific
municipal obligation in question. This insurance is generally non-cancelable and
will continue in force so long as the municipal obligations are outstanding and
the insurer remains in business.
The
insured municipal obligations are generally insured as to the scheduled payment
of all installments of principal and interest as they fall due. The insurance
covers only credit risk and therefore does not guarantee the market value of the
obligations in a Fund's investment portfolio or a Fund's NAV. The Fund's NAV
will continue to fluctuate in response to fluctuations in interest rates. A
Fund's investment policy requiring investment in insured municipal obligations
will not affect the Fund's ability to hold its assets in cash or to invest in
escrow-secured and defeased bonds or in certain short-term tax-exempt
obligations, or affect its ability to invest in uninsured taxable obligations
for temporary or liquidity purposes or on a defensive basis.
Pay-in-Kind
Securities
The
Funds may invest in pay-in-kind securities. Pay-in-kind securities pay dividends
or interest in the form of additional securities of the issuer, rather than in
cash. These securities are usually issued and traded at a discount from their
face amounts. The amount of the discount varies depending on various factors,
such as the time remaining until maturity of the securities, prevailing interest
rates, the liquidity of the security and the perceived credit quality of the
issuer. The market prices of pay-in-kind securities generally are more volatile
than the market prices of securities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than are
other types of securities having similar maturities and credit
quality.
Portfolio
Turnover (Active Trading)
Portfolio
turnover is a measure of how frequently a portfolio's securities are bought and
sold. The portfolio turnover rate is generally calculated as the dollar value of
the lesser of a portfolio's purchases or sales of shares of securities during a
given year, divided by the monthly average value of the portfolio securities
during that year (excluding securities whose maturity or expiration at the time
of acquisition were less than one year). For example, a portfolio reporting a
100% portfolio turnover rate would have purchased and sold securities worth as
much as the monthly average value of its portfolio securities during the
year.
It
is not possible to predict future turnover rates with accuracy. Many variable
factors are outside the control of a portfolio manager. The investment outlook
for the securities in which a portfolio may invest may change as a result of
unexpected developments in securities markets, economic or monetary policies, or
political relationships. High market volatility may result in a portfolio
manager using a more active trading strategy than might otherwise be employed.
Each portfolio manager considers the economic effects of portfolio turnover but
generally does not treat the portfolio turnover rate as a limiting factor in
making investment decisions.
Sale
of shares by investors may require the liquidation of portfolio securities to
meet cash flow needs. In addition, changes in a particular portfolio's holdings
may be made whenever the portfolio manager considers that a security is no
longer appropriate for the portfolio or that another security represents a
relatively greater opportunity. Such changes may be made without regard to the
length of time that a security has been held.
Higher
portfolio turnover rates generally increase transaction costs that are expenses
of the Fund. Active trading may generate short-term gains (losses) for taxable
shareholders.
No
Fund had a significant variation in portfolio turnover rates over the two most
recently completed years.
Preferred
Securities
Preferred
securities can include: traditional preferred securities, hybrid-preferred
securities, $25 par hybrid preferred securities, baby bonds, U.S. dividend
received deduction (“DRD”) preferred stock, fixed rate and floating rate
adjustable preferred securities, step-up preferred securities, public and 144A
$1000 par capital securities including U.S. agency subordinated debt issues,
trust originated preferred securities, monthly income preferred securities,
quarterly income bond securities, quarterly income debt securities, quarterly
income preferred securities, corporate trust securities, public income notes,
and other trust preferred securities.
•Traditional
Preferred Securities. Traditional preferred securities may be issued by an
entity taxable as a corporation and pay fixed or floating rate dividends.
However, these claims are subordinated to more senior creditors, including
senior debt holders. “Preference” means that a company must pay dividends on its
preferred securities before paying any dividends on its common stock, and the
claims of preferred securities holders are ahead of common stockholders’ claims
on assets in a corporate liquidation. Holders of preferred securities usually
have no right to vote for corporate directors or on other matters. Preferred
securities share many investment characteristics with both common stock and
bonds.
•Hybrid
or Trust Preferred Securities. Hybrid-preferred securities are debt instruments
that have characteristics similar to those of traditional preferred securities
(characteristics of both subordinated debt and preferred stock). Hybrid
preferred securities may be issued by corporations, generally in the form of
interest-bearing instruments with preferred securities characteristics, or by an
affiliated trust or partnership of the corporation, generally in the form of
preferred interests in subordinated business trusts or similarly structured
securities. The hybrid-preferred securities market consists of both fixed and
adjustable coupon rate securities that are either perpetual in nature or have
stated maturity dates. Hybrid preferred holders generally have claims to assets
in a corporate liquidation that are senior to those of traditional preferred
securities but subordinate to those of senior debt holders. Certain subordinated
debt and senior debt issues that have preferred characteristics are also
considered to be part of the broader preferred securities market.
Preferred
securities may be issued by trusts (likely one that is wholly-owned by a
financial institution or other corporate entity, typically a bank holding
company) or other special purpose entities established by operating companies,
and are therefore not direct obligations of operating companies. The financial
institution creates the trust and owns the trust’s common securities. The trust
uses the sale proceeds of its preferred securities to purchase, for example,
subordinated debt issued by the financial institution. The financial institution
uses the proceeds from the subordinated debt sale to increase its capital while
the trust receives periodic interest payments from the financial institution for
holding the subordinated debt. The trust uses the funds received to make
dividend payments to the holders of the trust preferred securities. The primary
advantage of this structure may be that the trust preferred securities are
treated by the financial institution as debt securities for tax purposes and as
equity for the calculation of capital requirements.
Trust
preferred securities typically bear a market rate coupon comparable to interest
rates available on debt of a similarly rated issuer. Typical characteristics
include long-term maturities, early redemption by the issuer, periodic fixed or
variable interest payments, and maturities at face value. Holders of trust
preferred securities have limited voting rights to control the activities of the
trust and no voting rights with respect to the financial institution. The market
value of trust preferred securities may be more volatile than those of
conventional debt securities. Trust preferred securities may be issued in
reliance on Rule 144A under the 1933 Act and subject to restrictions on resale.
There can be no assurance as to the liquidity of trust preferred securities and
the ability of holders, such as a fund, to sell their holdings. The condition of
the financial institution can be looked to identify the risks of trust preferred
securities as the trust typically has no business operations other than to issue
the trust preferred securities. If the financial institution defaults on
interest payments to the trust, the trust will not be able to make dividend
payments to holders of its securities, such as a fund.
•Floating
rate preferred securities. Floating rate preferred securities provide for a
periodic adjustment in the interest rate paid on the securities. The terms of
such securities provide that interest rates are adjusted periodically based upon
an interest rate adjustment index. The adjustment intervals may be regular, and
range from daily up to annually, or may be event-based, such as a change in the
short-term interest rate. Because of the interest rate reset feature, floating
rate securities provide the Fund with a certain degree of protection against
rising interest rates, although the interest rates of floating rate securities
will participate in any declines in interest rates as well.
If
a portion of a fund’s income consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the fund may be eligible for the corporate
dividends-received deduction for corporate shareholders. In addition,
distributions reported by a fund as derived from qualified dividend income
(“QDI”) will be taxed in the hands of individuals at the reduced rates
applicable to net capital gains, provided certain holding period and other
requirements are met by both the shareholder and the fund. Dividend income that
a fund receives from REITs, if any, will generally not be treated as QDI and
will not qualify for the corporate dividends-received deduction. It is unclear
the extent to which distributions a fund receives from investments in certain
preferred securities will be eligible for treatment as QDI or for the corporate
dividends-received deduction. A fund cannot predict at this time what portion,
if any, of its dividends will qualify for the corporate dividends-received
deduction or be eligible for the reduced rates of taxation applicable to
QDI.
Real
Estate Investment Trusts (“REITs”)
REITs
are pooled investment vehicles that invest in income producing real estate, real
estate related loans, or other types of real estate interests. U.S. REITs are
allowed to eliminate corporate level federal tax so long as they meet certain
requirements of the Internal Revenue Code. Foreign REITs ("REIT-like") entities
may have similar tax treatment in their respective countries. Equity real estate
investment trusts own real estate properties, while mortgage real estate
investment trusts make and/or invests in construction, development, and
long-term mortgage loans. Their value may be affected by changes in the
underlying property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as those
relating to the environment. Both types of trusts are not diversified, are
dependent upon management skill, are subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for tax-free status of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act. In addition, foreign REIT-like
entities will be subject to foreign securities risks. (See "Foreign
Securities").
Repurchase
and Reverse Repurchase Agreements, Mortgage Dollar Rolls and
Sale-Buybacks
The
Funds may invest in repurchase and reverse repurchase agreements. Repurchase
agreements typically involve the purchase of debt securities from a financial
institution such as a bank, savings and loan association, or broker-dealer. A
repurchase agreement provides that the fund sells back to the seller and that
the seller repurchases the underlying securities at a specified price on a
specific date. Repurchase agreements may be viewed as loans by a fund
collateralized by the underlying securities. This arrangement results in a fixed
rate of return that is not subject to market fluctuation while the fund holds
the security. In the event of a default or bankruptcy by a selling financial
institution, the affected fund bears a risk of loss. To minimize such risks, the
fund enters into repurchase agreements only with parties those managing the
fund's investments deem creditworthy (those that are large, well-capitalized,
and well-established financial institutions). In addition, the value of the
securities collateralizing the repurchase agreement is, and during the entire
term of the repurchase agreement remains, at least equal to the acquisition
price the Funds pay to the seller of the securities.
In
a repurchase agreement, a Fund purchases a security and simultaneously commits
to resell that security to the seller at an agreed upon price on an agreed upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price consists of the purchase price plus an amount that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value (at least equal to the amount
of the agreed upon resale price and marked-to-market daily) of the underlying
security or "collateral." A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed, which may cause a
Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that mature in more
than seven days are subject to each Fund's limit on illiquid investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Fund to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by those managing the
fund's investments.
A
Fund may use reverse repurchase agreements, mortgage dollar rolls, and
economically similar transactions to obtain cash to satisfy unusually heavy
redemption requests or for other temporary or emergency purposes without the
necessity of selling portfolio securities, or to earn additional income on
portfolio securities, such as Treasury bills or notes. In a reverse repurchase
agreement, a Fund sells a portfolio security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
a Fund will maintain cash or appropriate liquid assets to cover its obligation
under the agreement. The Fund will enter into reverse repurchase agreements only
with parties that those managing the fund's investments deem creditworthy. Using
reverse repurchase agreements to earn additional income involves the risk that
the interest earned on the invested proceeds is less than the expense of the
reverse repurchase agreement transaction. This technique may also have a
leveraging effect on the Fund, although the Fund's intent to segregate assets in
the amount of the reverse repurchase obligation minimizes this
effect.
A
“mortgage dollar roll” is similar to a reverse repurchase agreement in certain
respects. In a “dollar roll” transaction a Fund sells a mortgage-related
security, such as a security issued by the Government National Mortgage
Association, to a dealer and simultaneously agrees to repurchase a similar
security (but not the same security) in the future at a pre-determined price. A
dollar roll can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. Unlike in the case of reverse repurchase agreements,
the dealer with which a Fund enters into a dollar roll transaction is not
obligated to return the same securities as those originally sold by the Fund,
but only securities which are “substantially identical.” To be considered
“substantially identical,” the securities returned to a Fund generally must: 1)
be collateralized by the same types of underlying mortgages; 2) be issued by the
same agency and be part of the same program; 3) have a similar original stated
maturity; 4) have identical net coupon rates; 5) have similar market yields (and
therefore price); and 6) satisfy “good delivery” requirements, meaning that the
aggregate principal amounts of the securities delivered and received back must
be within 0.01% of the initial amount delivered.
A
Fund's obligations under a dollar roll agreement must be covered by segregated
liquid assets equal in value to the securities subject to repurchase by the
Fund.
A
Fund also may effect simultaneous purchase and sale transactions that are known
as “sale-buybacks.” A sale-buyback is similar to a reverse repurchase agreement,
except that in a sale-buyback, the counterparty who purchases the security is
entitled to receive any principal or interest payments made on the underlying
security pending settlement of the Fund's repurchase of the underlying security.
A Fund's obligations under a sale-buyback typically would be segregated by
liquid assets equal in value to the amount of the Fund's forward commitment to
repurchase the subject security.
Restricted
and Illiquid Securities
A
Fund may experience difficulty in valuing and selling illiquid securities and,
in some cases, may be unable to value or sell certain illiquid securities for an
indefinite period of time. Illiquid securities may include a wide variety of
investments, such as (1) repurchase agreements maturing in more than seven days
(unless the agreements have demand/redemption features), (2) OTC options
contracts and certain other derivatives (including certain swap agreements), (3)
fixed time deposits that are not subject to prepayment or do not provide for
withdrawal penalties upon prepayment (other than overnight deposits), (4) loan
interests and other direct debt instruments, (5) certain municipal lease
obligations, (6) commercial paper issued pursuant to Section 4(2) of the 1933
Act, (7) thinly-traded securities, and (8) securities whose resale is restricted
under the federal securities laws or contractual provisions (including
restricted, privately placed securities that, under the federal securities laws,
generally may be resold only to qualified institutional buyers). Generally,
restricted securities may be sold only in a public offering for which a
registration statement has been filed and declared effective or in a transaction
that is exempt from the registration requirements of the Securities Act of 1933.
When registration is required, a Fund that owns restricted securities may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a restricted security. If adverse market conditions
were to develop during such a period, the Fund might obtain a less favorable
price than existed when it decided to sell.
Illiquid
and restricted securities are priced at fair value as determined in good faith
by or under the direction of the Directors. As described above, some of the
Funds have adopted investment restrictions that limit investments in illiquid
securities. The Directors have adopted procedures to determine the liquidity of
Rule 4(2) short-term paper and of restricted securities that may be resold under
Rule 144A. Securities determined to be liquid under these procedures are
excluded from the preceding investment restriction.
Royalty
Trusts
A
royalty trust generally acquires an interest in natural resource or chemical
companies and distributes the income it receives to its investors. A sustained
decline in demand for natural resource and related products could adversely
affect royalty trust revenues and cash flows. Such a decline could result from a
recession or other adverse economic conditions, an increase in the market price
of the underlying commodity, higher taxes or other regulatory actions that
increase costs, or a shift in consumer demand. Rising interest rates could harm
the performance and limit the capital appreciation of royalty trusts because of
the increased availability of alternative investments at more competitive
yields. Fund shareholders will indirectly bear their proportionate share of the
royalty trusts' expenses.
Securitized
Products - Mortgage- and Asset-Backed Securities
The
yield characteristics of the mortgage- and asset-backed securities in which the
Funds may invest differ from those of traditional debt securities. Among the
major differences are that the interest and principal payments are made more
frequently on mortgage- and asset-backed securities (usually monthly) and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result, if the Fund
purchases those securities at a premium, a prepayment rate that is faster than
expected will reduce their yield, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield. If the Fund
purchases these securities at a discount, faster than expected prepayments will
increase their yield, while slower than expected prepayments will reduce their
yield. Amounts available for reinvestment by the Fund are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates.
In
general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the volatility of these securities by
effectively changing a security that was considered a short-term security at the
time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short- or
medium-term securities.
The
market for privately issued mortgage- and asset-backed securities is smaller and
less liquid than the market for U.S. government mortgage-backed securities. A
collateralized mortgage obligation (“CMO”) may be structured in a manner that
provides a wide variety of investment characteristics (yield, effective
maturity, and interest rate sensitivity). As market conditions change, and
especially during periods of rapid market interest rate changes, the ability of
a CMO to provide the anticipated investment characteristics may be greatly
diminished. Increased market volatility and/or reduced liquidity may
result.
The
Funds may invest in each of collateralized bond obligations (“CBOs”),
collateralized loan obligations (“CLOs”), other collateralized debt obligations
(“CDOs”) and other similarly structured securities. CBOs, CLOs and other CDOs
are types of asset-backed securities. A CBO is a trust which is often backed by
a diversified pool of high risk, below investment grade fixed income securities.
The collateral can be from many different types of fixed income securities such
as high yield debt, residential privately issued mortgage-related securities,
commercial privately issued mortgage-related securities, trust preferred
securities and emerging market debt. A CLO is a trust typically collateralized
by a pool of loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent unrated
loans. Other CDOs are trusts backed by other types of assets representing
obligations of various parties. CBOs, CLOs and other CDOs may charge management
fees and administrative expenses.
Short
Sales
A
short sale involves the sale by the fund of a security that it does not own with
the expectation of covering settlement by purchasing the same security at a
later date at a lower price. The fund may also enter into a short position by
using a derivative instrument, such as a future, forward, or swap agreement. If
the price of the security or derivative increases prior to the time the fund is
required to replace the borrowed security, then the fund will incur a loss equal
to the increase in price from the time that the short sale was entered into plus
any premiums and interest paid to the broker. Therefore, short sales involve the
risk that losses may be exaggerated, potentially losing more money than the
value of the investment.
A
“short sale against the box” is a technique that involves selling either a
security owned by the fund, or a security equivalent in kind and amount to the
security sold short that the fund has the right to obtain, at no additional
cost, for delivery at a specified date in the future. A fund may enter into a
short sale against the box to hedge against anticipated declines in the market
price of portfolio securities. If the value of the securities sold short against
the box increases prior to the scheduled delivery date, a fund will lose
money.
Supranational
Entities
The
Funds may invest in obligations of supranational entities. A supranational
entity is an entity designated or supported by national governments to promote
economic reconstruction, development or trade amongst nations. Examples of
supranational entities include the International Bank for Reconstruction and
Development (also known as the World Bank) and the European Investment Bank.
Obligations of supranational entities are subject to the risk that the
governments on whose support the entity depends for its financial backing or
repayment may be unable or unwilling to provide that support. Obligations of a
supranational entity that are denominated in foreign currencies will also be
subject to the risks associated with investments in foreign
currencies.
Synthetic
Securities
Incidental
to other transactions in fixed income securities and/or for investment purposes,
a Fund also may combine options on securities with cash, cash equivalent
investments or other fixed income securities in order to create “synthetic”
securities which approximate desired risk and return profiles. This may be done
where a “non-synthetic” security having the desired risk/return profile either
is unavailable (e.g., short-term securities of certain non-U.S. governments) or
possesses undesirable characteristics (e.g., interest payments on the security
would be subject to non-U.S. withholding taxes). A Fund also may purchase
forward non-U.S. exchange contracts in conjunction with U.S. dollar-denominated
securities in order to create a synthetic non-U.S. currency denominated security
which approximates desired risk and return characteristics where the
non-synthetic securities either are not available in non-U.S. markets or possess
undesirable characteristics. The use of synthetic bonds and other synthetic
securities may involve risks different from, or potentially greater than, risks
associated with direct investments in securities and other assets. Synthetic
securities may increase other Fund risks, including market risk, liquidity risk,
and credit risk, and their value may or may not correlate with the value of the
relevant underlying asset.
Temporary
Defensive Measures/Money Market Instruments
All
of the Funds may make money market investments (cash equivalents), without
limit, pending other investment or settlement, for liquidity, or in adverse
market conditions. Following are descriptions of the types of money market
instruments that the Funds may purchase:
• U.S.
Government Securities - Securities issued or guaranteed by the U.S. government,
including treasury bills, notes, and bonds.
• U.S.
Government Agency Securities - Obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government.
• U.S.
agency obligations include, but are not limited to, the Bank for Cooperatives,
Federal Home Loan Banks, and Federal Intermediate Credit Banks.
• U.S.
instrumentality obligations include, but are not limited to, the Export-Import
Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage
Association.
Some
obligations issued or guaranteed by U.S. government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury. Others, such as those issued by the Federal National Mortgage
Association, are supported by discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality. Still others,
such as those issued by the Student Loan Marketing Association, are supported
only by the credit of the agency or instrumentality.
• Bank
Obligations - Certificates of deposit, time deposits and bankers' acceptances of
U.S. commercial banks having total assets of at least one billion dollars and
overseas branches of U.S. commercial banks and foreign banks, which in the
opinion of those managing the fund's investments, are of comparable quality. The
Fund may acquire obligations of U.S. banks that are not members of the Federal
Reserve System or of the Federal Deposit Insurance Corporation.
Certificates
of deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are “accepted”
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits.
Obligations
of foreign banks and obligations of overseas branches of U.S. banks are subject
to somewhat different regulations and risks than those of U.S. domestic banks.
For example, an issuing bank may be able to maintain that the liability for an
investment is solely that of the overseas branch which could expose a Fund to a
greater risk of loss. In addition, obligations of foreign banks or of overseas
branches of U.S. banks may be affected by governmental action in the country of
domicile of the branch or parent bank. Examples of adverse foreign governmental
actions include the imposition of currency controls, the imposition of
withholding taxes on interest income payable on such obligations, interest
limitations, seizure or nationalization of assets, or the declaration of a
moratorium. Deposits in foreign banks or foreign branches of U.S. banks are not
covered by the Federal Deposit Insurance Corporation and that the selection of
those obligations may be more difficult because there may be less publicly
available information concerning foreign banks or the accounting, auditing and
financial reporting standards, practices and requirements applicable to foreign
banks may differ from those applicable to United States banks. Foreign banks are
not generally subject to examination by any United States Government agency or
instrumentality. A Fund only buys short-term instruments where the risks of
adverse governmental action are believed by those managing the fund's
investments to be minimal. A Fund considers these factors, along with other
appropriate factors, in making an investment decision to acquire such
obligations. It only acquires those which, in the opinion of management, are of
an investment quality comparable to other debt securities bought by the
Fund.
A
certificate of deposit is issued against funds deposited in a bank or savings
and loan association for a definite period of time, at a specified rate of
return. Normally they are negotiable. However, a Fund occasionally may invest in
certificates of deposit which are not negotiable. Such certificates may provide
for interest penalties in the event of withdrawal prior to their maturity. A
bankers' acceptance is a short-term credit instrument issued by corporations to
finance the import, export, transfer, or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity and reflect the
obligation of both the bank and drawer to pay the face amount of the instrument
at maturity.
• Commercial
Paper - Short-term promissory notes issued by U.S. or foreign
corporations.
• Short-term
Corporate Debt - Corporate notes, bonds, and debentures that at the time of
purchase have 397 days or less remaining to maturity, with certain exceptions
permitted by applicable regulations.
• Repurchase
Agreements - Instruments under which securities are purchased from a bank or
securities dealer with an agreement by the seller to repurchase the securities
at the same price plus interest at a specified rate.
• Taxable
Municipal Obligations - Short-term obligations issued or guaranteed by state and
municipal issuers which generate taxable income.
Warrants
and Rights
The
Funds may invest in warrants and rights. A warrant is an instrument that gives
the holder a right to purchase a given number of shares of a particular security
at a specified price until a stated expiration date. Buying a warrant generally
can provide a greater potential for profit or loss than an investment of
equivalent amounts in the underlying common stock. The market value of a warrant
does not necessarily move with the value of the underlying securities. If a
holder does not sell the warrant, it risks the loss of its entire investment if
the market price of the underlying security does not, before the expiration
date, exceed the exercise price of the warrant. Investment in warrants is a
speculative activity. Warrants pay no dividends and confer no rights (other than
the right to purchase the underlying securities) with respect to the assets of
the issuer. A right is a privilege granted to existing shareholders of a
corporation to subscribe for shares of a new issue of common stock before it is
issued. Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower price
than the public offering price.
When-Issued,
Delayed Delivery, and Forward Commitment Transactions
Each
of the Funds may purchase or sell securities on a when-issued, delayed delivery,
or forward commitment basis. When such purchases are outstanding, the Fund will
segregate until the settlement date assets determined to be liquid by those
managing the fund's investments in accordance with procedures established by the
Board, in an amount sufficient to meet the purchase price. Typically, no income
accrues on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn income on
securities it has segregated.
When
purchasing a security on a when-issued, delayed delivery, or forward commitment
basis, the Fund assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Fund's other investments. If the Fund
remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.
When
the Fund has sold a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund does not participate in future gains or losses with
respect to the security. If the other party to a transaction fails to deliver or
pay for the securities, the Fund could miss a favorable price or yield
opportunity or could suffer a loss. A Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued, delayed
delivery, or forward commitment securities before they are delivered, which may
result in a capital gain or loss. There is no percentage limitation on the
extent to which the Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
LEADERSHIP
STRUCTURE AND BOARD
PFI's
Board has overall responsibility for overseeing PFI's operations in accordance
with the 1940 Act, other applicable laws, and PFI's charter. Each Board
Member serves on the Boards of the following investment companies sponsored by
Principal Life Insurance Company: Principal Funds, Inc. ("PFI"), Principal
Variable Contracts Funds, Inc. (“PVC”), Principal Exchange-Traded Funds
("PETF"), and Principal Diversified Select Real Asset Fund ("PDSRA"), which are
collectively referred to in this SAI as the "Fund Complex." Each Board Member
generally holds office for an indefinite term until the Board Member reaches age
72 (unless such mandatory retirement age is waived by the Board). The Board
elects officers to supervise the day-to-day operations of the Fund Complex.
Officers serve at the pleasure of the Board, and each officer has the same
position with each investment company in the Fund Complex.
Board
Members that are affiliated persons of any investment advisor, the principal
distributor, or the principal underwriter of the Fund Complex are considered
“interested persons” of the Fund (as defined in the 1940 Act) and are referred
to in this SAI as "Interested Board Members." Board Members who are not
Interested Board Members are referred to as "Independent Board Members."
The
Board meets in regularly scheduled meetings eight times throughout the
year. Board meetings may occur in-person or by telephone. In addition,
the Board holds special in-person or telephonic meetings or informal conference
calls to discuss specific matters that may arise or require action between
regular meetings. Independent Board Members also meet annually to consider
renewal of advisory contracts.
The
Chairman of the Board is an interested person of the Fund Complex. The
Independent Board Members have appointed a lead Independent Board Member whose
role is to review and approve, with the Chairman, each Board meeting's agenda
and to facilitate communication between and among the Independent Board Members,
management, and the full Board. The Board's leadership structure is
appropriate for the Fund Complex given its characteristics and circumstances,
including the number of portfolios, variety of asset classes, net assets, and
distribution arrangements. The appropriateness of this structure is enhanced by
the establishment and allocation of responsibilities among the following
Committees, which report their activities to the Board on a regular basis.
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Committee
and Independent Board Members |
Primary
Purpose and Responsibilities |
Meetings
Held During the Last Fiscal Year |
15(c)
Committee
Fritz
Hirsch, Chair
John
Kenney
Padel
Lattimer
Meg
VanDeWeghe |
The
Committee’s primary purpose is to assist the Board in performing the
annual review of the Fund’s advisory and sub-advisory agreements pursuant
to Section 15(c) of the 1940 Act. The Committee is responsible for
requesting and reviewing related materials. |
6 |
Audit
Committee
Elizabeth
Nickels, Chair
Leroy
Barnes
Victor
Hymes
Meg
VanDeWeghe |
The
Committee's primary purpose is to assist the Board by serving as an
independent and objective party to monitor the Fund Complex's accounting
policies, financial reporting and internal control system, as well as the
work of the independent registered public accountants. The Audit Committee
assists Board oversight of 1) the integrity of the Fund Complex's
financial statements; 2) the Fund Complex's compliance with certain legal
and regulatory requirements; 3) the independent registered public
accountants' qualifications and independence; and 4) the performance of
the Fund Complex's independent registered public accountants. The Audit
Committee also provides an open avenue of communication among the
independent registered public accountants, PGI's internal auditors, Fund
Complex management, and the Board. |
9 |
Executive
Committee
Timothy
M. Dunbar, Chair
Craig
Damos
Patrick
G. Halter |
The
Committee's primary purpose is to exercise certain powers of the Board
when the Board is not in session. When the Board is not in session, the
Committee may exercise all powers of the Board in the management of the
Fund Complex's business except the power to 1) issue stock, except as
permitted by law; 2) recommend to the stockholders any action which
requires stockholder approval; 3) amend the bylaws; or 4) approve any
merger or share exchange which does not require stockholder
approval. |
1 |
Nominating
and Governance Committee
Elizabeth
Ballantine, Chair
Leroy
Barnes
Craig
Damos
Elizabeth
Nickels |
The
Committee's primary purpose is to oversee the structure and efficiency of
the Board and the committees. The Committee is responsible for
evaluating Board membership and functions, committee membership and
functions, insurance coverage, and legal matters. The Committee's
nominating functions include selecting and nominating Independent Board
Member candidates for election to the Board. Generally, the Committee
requests nominee suggestions from Committee members and management. In
addition, the Committee considers candidates recommended by shareholders
of the Fund Complex. Recommendations should be submitted in writing to
Principal Funds, Inc., 711 High Street, Des Moines, IA 50392. When
evaluating a potential nominee for Independent Board Member, the Committee
generally considers, among other factors: age; education; relevant
business experience; geographical factors; whether the person is
"independent" and otherwise qualified under applicable laws and
regulations to serve as an Independent Board Member; and whether the
person is willing to serve, and willing and able to commit the time
necessary to attend meetings and perform the duties of an Independent
Board Member. The Committee meets personally with nominees and
conducts a reference check. The final decision is based on a combination
of factors, including the strengths and the experience an individual may
bring to the Board. The Committee believes the Board generally
benefits from diversity of background, experience and views among its
members, and considers these factors in evaluating the Board's
composition. The Board does not regularly use the services of
professional search firms to identify or evaluate potential candidates or
nominees. |
5 |
Operations
Committee
Karrie
McMillan, Chair
Fritz
Hirsch
John
D. Kenney
Padel
Lattimer |
The
Committee's primary purpose is to review and oversee the provision of
administrative and distribution services to the Fund Complex,
communications with the Fund Complex's shareholders, and the Fund
Complex's operations. |
4 |
Risk
oversight forms part of the Board's general oversight of the Fund Complex. The
Board has appointed a Chief Compliance Officer who oversees the implementation
and testing of the Fund's compliance program and reports to the Board regarding
compliance matters for the Fund and its principal service providers. As part of
its regular risk oversight functions, the Board, directly or through a
Committee, interacts with and reviews reports from, among others: Fund Complex
management, sub-advisors, the Chief Compliance Officer, independent registered
public accounting firm, and internal auditors for PGI or its affiliates, as
appropriate. The Board, with the assistance of Fund management and PGI, reviews
investment policies and risks in connection with its review of Fund Complex
performance. In addition, as part of the Board's periodic review of advisory,
sub-advisory and other service provider agreements, the Board may consider risk
management aspects of their operations and the functions for which they are
responsible. With respect to valuation, the Board oversees a PGI valuation
committee and has approved and periodically reviews valuation policies
applicable to valuing Fund shares.
Each
Board Member has significant prior senior management and/or board experience.
Board Members are selected and retained based upon their skills, experience,
judgment, analytical ability, diligence and ability to work effectively with
other Board members, a commitment to the interests of shareholders and, for each
Independent Board Member, a demonstrated willingness to take an independent and
questioning view of management. In addition to these general qualifications, the
Board seeks members who build upon the Board's diversity. Below is a brief
discussion of the specific education, experience, qualifications, or skills that
led to the conclusion that each person identified below should serve as a Board
Member. As required by rules adopted under the 1940 Act, the Independent Board
Members select and nominate all candidates for Independent Board Member
positions.
Independent
Board Members
Elizabeth
Ballantine.
Ms. Ballantine has served as an Independent Board Member of the Fund Complex
since 2004. Through her professional training, experience as an attorney, and
experience as a board member and investment consultant, Ms. Ballantine is
experienced in financial, investment and regulatory matters.
Leroy
T. Barnes, Jr.
Mr. Barnes has served as an Independent Board Member of the Fund Complex since
2012. From 2001-2005, Mr. Barnes served as Vice President and Treasurer of
PG&E Corporation. From 1997-2001, Mr. Barnes served as Vice President and
Treasurer of Gap, Inc. Through his education, employment experience, and
experience as a board member, Mr. Barnes is experienced with financial,
accounting, regulatory and investment matters.
Craig
Damos.
Mr. Damos has served as an Independent Board Member of the Fund Complex since
2008. Since 2011, Mr. Damos has served as the President of The Damos Company
(consulting services). Mr. Damos served as President and Chief Executive Officer
of Weitz Company from 2006-2010; Vertical Growth Officer of Weitz Company from
2004-2006; and Chief Financial Officer of Weitz Company from 2000-2004. From
2005-2008, Mr. Damos served as a director of West Bank. Through his education,
employment experience, and experience as a board member, Mr. Damos is
experienced with financial, accounting, regulatory and investment
matters.
Fritz
S. Hirsch.
Mr. Hirsch has served as an Independent Board Member of the Fund Complex since
2005. From 2011-2015, Mr. Hirsch served as CEO of MAM USA. He served as
President and Chief Executive Officer of Sassy, Inc. from 1986-2009, and Chief
Financial Officer of Sassy, Inc. from 1983-1985. Through his education,
employment experience, and experience as a board member, Mr. Hirsch is
experienced with financial, accounting, regulatory and investment
matters.
Victor
Hymes.
Mr. Hymes has served as an Independent Board Member of the Fund Complex since
2020. He currently serves as Founder and Managing Member of Legato Capital
Management, LLC, an investment management company. Over the past thirty years,
Mr. Hymes has served in the roles of CEO, CIO, portfolio manager and other
senior management positions with investment management firms. At Zurich Scudder
Investments, Inc., Mr. Hymes was responsible for leading their $80 billion
institutional business. Prior to this, he held positions with Goldman, Sachs
& Co., and Kidder, Peabody & Co. Mr. Hymes has served on numerous
boards, and has chaired four investment committees over the past two
decades.
Through
his education, employment experience and experience as a board member, Mr. Hymes
is experienced with financial, regulatory and investment matters.
John
D. Kenney.
Mr. Kenney has served as an Independent Board Member of the Fund Complex since
2020. From 2011 to January, 2020, Mr. Kenney served in various capacities at
Legg Mason Global Asset Management, including most recently as Executive Vice
President, Global Head of Affiliate Strategic Initiatives. Prior to that, from
2002 to 2011, he served in various roles in the fixed income and capital markets
business of Legg Mason and its related entities. Through his employment
experience and experience as a board member, Mr. Kenney is experienced with
financial, accounting, regulatory and investment matters.
Padelford
("Padel") L. Lattimer.
Mr. Lattimer has served as an Independent Board Member of the Fund Complex since
2020. He currently serves as Managing Partner for TBA Management Consulting LLC,
a financial services-focused management consulting and staffing company. For
more than twenty years, Mr. Lattimer served in various capacities at financial
services companies, including as a senior managing director for TIAA Cref Asset
Management (2004-2010), First Vice Present at Mellon Financial Corporation
(2002-2004), and in product management roles at Citibank (2000-2002). Through
his education, employment experience and experience as a board member, Mr.
Lattimer is experienced with financial, regulatory and investment
matters.
Karen
(“Karrie”) McMillan.
Ms. McMillan has served as an Independent Board Member of the Fund Complex since
2014. From 2007-2014, Ms. McMillan served as general counsel to the Investment
Company Institute. Prior to that (from 1999-2007), she worked as an attorney in
private practice, specializing in the mutual fund industry. From 1991-1999, she
served in various roles as counsel at the Securities and Exchange Commission,
Division of Investment Management, including as Assistant Chief Counsel. Through
her professional education, experience as an attorney, and experience as a board
member, Ms. McMillan is experienced in financial, investment and regulatory
matters.
Elizabeth
A. Nickels. Ms.
Nickels has served as an Independent Board Member of the Fund Complex since
2015. Ms. Nickels currently serves as a director of SpartanNash. From 2008 to
2017, she served as a director of the not-for-profit Spectrum Health System;
from 2014 to 2016, she served as a director of Charlotte Russe; from 2014 to
2015, she served as a director of Follet Corporation; and from 2013 to 2015, she
served as a director of PetSmart. Ms. Nickels was formerly employed by Herman
Miller, Inc. in several capacities: from 2012 to 2014, as the Executive Director
of the Herman Miller Foundation; from 2007 to 2012, as President of Herman
Miller Healthcare; and from 2000 to 2007, as Chief Financial Officer. Through
her education, employment experience, and experience as a board member, Ms.
Nickels is experienced with financial, accounting and regulatory
matters.
Mary
M. (“Meg”) VanDeWeghe. Ms.
VanDeWeghe has served as an Independent Board Member of the Fund Complex since
2018. She is CEO and President of Forte Consulting, Inc., a management and
financial consulting firm, and was previously employed as a Finance Professor at
Georgetown University from 2009-2016, Senior Vice President - Finance at
Lockheed Martin Corporation from 2006-2009, a Finance Professor at the
University of Maryland from 1996-2006, and in various positions at J.P. Morgan
from 1983-1996. Ms. VanDeWeghe served as a director of Brown Advisory from
2003-2018, B/E Aerospace from 2014-2017, WP Carey from 2014-2017, and Nalco (and
its successor Ecolab) from 2009-2014. Through her education, employment
experience, and experience as a board member, Ms. VanDeWeghe is experienced with
financial, investment and regulatory matters.
Interested
Board Members
Timothy
M. Dunbar. Mr.
Dunbar has served as Chair of the Fund Complex since 2019. From 2018 through
November 2020, Mr. Dunbar served as President of Global Asset Management for
Principal®,
overseeing all of Principal’s asset management capabilities, including with
respect to PGI, PLIC, and PFSI, among others. He also has served on numerous
boards of directors of Principal®
affiliates, including PGI and Post, and in various other positions since joining
Principal®
in 1986 through his retirement in January 2021. Through his education and
employment experience, Mr. Dunbar is experienced with financial, accounting,
regulatory and investment matters.
Patrick
G. Halter. Mr.
Halter has served as a Board Member of the Fund Complex since 2017. Mr. Halter
also serves as President for Global Asset Management for Principal®
and as Chief Executive Officer, President and Chair of PGI, and Chief Executive
Officer, President and Chair of Principal Real Estate Investors ("Principal -
REI"). He serves on numerous boards of directors of Principal®
affiliates and has served in various other positions since joining
Principal®
in 1984. Through his education and employment experience, Mr. Halter is
experienced with financial, accounting, regulatory and investment
matters.
Additional
Information Regarding Board Members and Officers
The
following tables present additional information regarding the Board Members and
Fund Complex officers, including their principal occupations which, unless
specific dates are shown, are of more than five years duration. For each Board
Member, the tables also include information concerning other directorships held
in reporting companies under the Securities Exchange Act of 1934 or registered
investment companies under the 1940 Act.
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INDEPENDENT
BOARD MEMBERS |
Name,
Address, and Year of Birth |
Board
Positions Held with Fund Complex |
Principal
Occupation(s) During Past 5 Years |
Number
of Portfolios Overseen in Fund Complex |
Other
Directorships Held During Past 5 Years |
|
|
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|
|
Elizabeth
Ballantine
711
High Street
Des
Moines, IA 50392
1948 |
Director,
PFI and PVC (since 2004) Trustee, PETF (since 2014) Trustee, PDSRA
(since 2019) |
Principal,
EBA Associates
(consulting
and investments) |
124 |
Durango
Herald, Inc.;
McClatchy
Newspapers, Inc. |
|
|
|
|
|
Leroy
T. Barnes, Jr.
711
High Street
Des
Moines, IA 50392
1951 |
Director,
PFI and PVC (since 2012) Trustee, PETF (since 2014) Trustee, PDSRA
(since 2019) |
Retired
|
124 |
McClatchy
Newspapers, Inc.; Frontier Communications, Inc.; formerly, Herbalife
Ltd. |
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Craig
Damos
711
High Street
Des
Moines, IA 50392
1954 |
Lead
Independent Board Member
(since
2020)
Director,
PFI and PVC (since 2008) Trustee, PETF (since 2014)
Trustee,
PDSRA (since 2019) |
President,
C.P. Damos Consulting LLC |
124 |
None |
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|
|
|
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Fritz
S. Hirsch
711
High Street
Des
Moines, IA 50392
1951 |
Director,
PFI and PVC (since 2005) Trustee, PETF (since 2014)
Trustee,
PDSRA (since 2019)
|
Formerly,
CEO, MAM USA (manufacturer of infant and juvenile products) |
124 |
MAM
USA |
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|
Victor
Hymes 711 High Street Des Moines, IA 50392 1957 |
Director,
PFI and PVC (since 2020) Trustee, PETF (since 2020) Trustee, PDSRA
(since 2020) |
Founder
and Managing Member of Legato Capital Management, LLC |
124 |
Formerly
Montgomery Street Income Securities Inc. |
|
|
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|
|
John
D. Kenney 711 High Street Des Moines, IA 50392 1965 |
Director,
PFI and PVC (since 2020) Trustee, PETF (since 2020) Trustee, PDSRA
(since 2020) |
Formerly,
Legg Mason Global Asset Management |
124 |
Formerly:
Legg Mason Investment Management Affiliates: Brandywine Global; Clarion
Partners; ClearBridge Investments; Entrust Global; Legg Mason Poland;
Martin Currie Investment Management; Permal Group (merged into Entrust);
QS Investors; RARE Infrastructure; Royce and Associates; and Western Asset
Management |
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Padelford
("Padel") L. Lattimer 711 High Street Des Moines, IA
50392 1961 |
Director,
PFI and PVC (since 2020) Trustee, PETF (since 2020) Trustee, PDSRA
(since 2020) |
TBA
Management Consulting LLC |
124 |
None |
|
|
|
|
|
Karen
(“Karrie”) McMillan 711 High Street Des Moines, IA
50392 1961 |
Director,
PFI and PVC (since 2014) Trustee, PETF (since 2014) Trustee, PDSRA
(since 2019) |
Managing
Director, Patomak Global Partners, LLC (financial services
consulting) |
124 |
None |
|
|
|
|
|
Elizabeth
A. Nickels 711 High Street Des Moines, IA 50392 1962 |
Director,
PFI and PVC (since 2015) Trustee, PETF (since 2015) Trustee, PDSRA
(since 2019) |
Retired |
124 |
SpartanNash;
Formerly: Charlotte Russe; Follet Corporation; PetSmart; Spectrum Health
System |
|
|
|
|
|
Mary
M. (“Meg”) VanDeWeghe 711 High Street Des Moines, IA
50392 1959 |
Director,
PFI and PVC (since 2018) Trustee, PETF (since 2018) Trustee, PDSRA
(since 2019) |
CEO
and President, Forte Consulting, Inc. (financial and management
consulting) |
124 |
Helmerich
& Payne; Formerly: B/E Aerospace; Brown Advisory; Denbury
Resources Inc.; Nalco (and its successor Ecolab); and WP
Carey |
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INTERESTED
BOARD MEMBERS |
Name,
Address, and Year of Birth |
Board
Positions Held
with
Fund Complex |
Positions
with PGI
and
its affiliates;
Principal
Occupation(s)
During
Past 5 Years**
(unless
noted otherwise) |
Number
of Portfolios Overseen in Fund Complex |
Other
Directorships Held During Past 5 Years |
Timothy
M. Dunbar 711 High Street Des Moines, IA 50392 1957 |
Chair
(since 2019) Director, PFI and PVC (since 2019) Trustee, PETF
(since 2019) Trustee, PDSRA (since 2019) |
President-PGAM,
PGI (since 2018) Director, PGI (2018-2020) Division President,
PFSI and PLIC (2020-2021) Executive Vice President and Chief
Investment Officer, PFSI and PLIC (2014-2018) President-PGAM, PFSI
and PLIC (2018-2020) Director, Post (2018-2020) Chair and
Executive Vice President, RobustWealth, Inc. (2018-2020) |
124 |
None |
|
|
|
|
|
Patrick
G. Halter 711 High Street Des Moines, IA 50392 1959 |
Director,
PFI and PVC (since 2017) Trustee, PETF (since 2017) Trustee, PDSRA
(since 2019) |
Chair,
PGI (since 2018)
Chief
Executive Officer and
President,
PGI (since 2018)
Chief
Operating Officer,
PGI
(2017-2018)
Senior
Executive Director-Real
Estate,
PGI and PFSI
(2014-2016)
Director,
PGI (2003-2018)
Chair,
CCIP (since 2017)
Director,
Origin (2018-2019)
President–PGAM,
PFSI and
PLIC
(since 2020)
Director,
Post (since 2017)
Chair,
Principal–REI (since 2004)
President
and Chief Executive Officer - PGI, Principal-REI
(since
2018)
Chief
Executive Officer,
Principal–REI
(2005-2018)
Chair,
Spectrum (since 2017) |
124 |
None |
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FUND
COMPLEX OFFICERS |
Name,
Address
and
Year of Birth |
Position(s)
Held
with
Fund Complex |
Positions
with PGI and its Affiliates;
Principal
Occupations During Past 5 Years** |
|
|
|
Kamal
Bhatia 711 High Street Des Moines, IA 50392 1972 |
President
and Chief Executive Officer (since 2019) |
Director,
PGI (since 2019) President-Principal Funds, PGI (since
2019) Principal Executive Officer, OPC Private Capital
(2017-2019) Senior Vice President, Oppenheimer Funds
(2011-2019) Director, PFA (since 2020) Director, PFD (since
2019) Senior Executive Director and Chief Operating Officer, PFSI and
PLIC (since 2020) President, PFSI and PLIC (2019-2020) Director,
Post (since 2020) Director, Principal–REI (since 2020) Chair and
Executive Vice President, PSS (since 2019) |
|
|
|
Randy
D. Bolin 711 High Street Des Moines, IA 50392 1961 |
Assistant
Tax Counsel (since 2020) |
Vice
President and Associate General Counsel, PGI (since 2016)
Assistant
General Counsel, PGI (2007-2016)
Vice
President and Associate General Counsel, PFSI (since 2013)
Vice
President and Associate General Counsel, PLIC (since
2013) |
|
|
|
Tracy
W. Bollin 711 High Street Des Moines, IA 50392 1970 |
Chief
Financial Officer (since 2014)
|
Managing
Director, PGI (since 2016) Senior Vice President, PFD (since
2016) Senior Vice President and Chief Financial Officer, PFD
(2015-2016) Chief Operating Officer and Senior Vice President, PMC
(2015-2017) Director, PMC (2014-2017) Director, PSS (since 2014)
President, PSS (since 2015) |
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FUND
COMPLEX OFFICERS |
Name,
Address
and
Year of Birth |
Position(s)
Held
with
Fund Complex |
Positions
with PGI and its Affiliates;
Principal
Occupations During Past 5 Years** |
Gina
L. Graham 711 High Street Des Moines, IA 50392 1965 |
Treasurer
(since 2016) |
Vice
President and Treasurer, PGI (since 2016) Vice President and Treasurer,
CCIP (since 2020) Vice President and Treasurer, PFA (since
2016) Vice President and Treasurer, PFD (since 2016) Vice President
and Treasurer, PFSI (since 2016) Vice President and Chief Financial
Officer-Principal International, PFSI (2010-2016) Vice President and
Treasurer, PLIC (since 2016) Vice President and Chief Financial
Officer-Principal International, PLIC (2010-2016) Vice President
and Treasurer, PMC (2016-2017) Vice President and Treasurer, Principal
- REI (since 2017) Vice President and Treasurer, PSI (since
2016) Vice President and Treasurer, PSS (since 2016) Vice President
and Treasurer, RobustWealth, Inc. (since 2018) |
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|
|
Laura
B. Latham 711 High Street Des Moines, IA 50392 1986 |
Assistant
Counsel and Assistant Secretary (since 2018) |
Counsel,
PGI (since 2018) Counsel, PLIC (since 2018) Prior thereto, Attorney
in Private Practice |
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|
|
Diane
K. Nelson 711 High Street Des Moines, IA 50392 1965 |
AML
Officer (since 2016) |
Chief
Compliance Officer/AML Officer, PSS (since 2015)
|
|
|
|
Sara
L. Reece 711 High Street Des Moines, IA 50392 1975 |
Vice
President and Controller (since 2016) |
Director
- Accounting, PLIC (since 2015)
|
|
|
|
Teri
R. Root 711 High Street Des Moines, IA 50392 1979 |
Chief
Compliance Officer (since 2018) Interim Chief Compliance Officer
(2018) Deputy Chief Compliance Officer (2015-2018) |
Chief
Compliance Officer - Funds, PGI (since 2018) Deputy Chief Compliance
Officer, PGI (2017-2018) Vice President and Chief Compliance Officer,
PMC (2015-2017) Vice President, PSS (since 2015) |
|
|
|
Britney
L. Schnathorst 711 High Street Des Moines, IA
50392 1981 |
Assistant
Secretary (since 2017) Assistant Counsel (since 2014) |
Counsel,
PGI (since 2018) Counsel, PLIC (since 2013)
|
|
|
|
Adam
U. Shaikh 711 High Street Des Moines, IA 50392 1972 |
Assistant
Counsel (since 2006) |
Assistant
General Counsel, PGI (since 2018) Counsel, PGI (2017-2018) Counsel,
PLIC (since 2006) Counsel, PMC (2007-2017) |
|
|
|
John
L. Sullivan 711 High Street Des Moines, IA 50392 1970 |
Assistant
Counsel and Assistant Secretary (since 2019) |
Counsel,
PGI (since 2020) Counsel, PLIC (since 2019) Prior thereto, Attorney
in Private Practice |
|
|
|
Dan
L. Westholm 711 High Street Des Moines, IA 50392 1966 |
Assistant
Treasurer (since 2006) |
Assistant
Vice President and Treasurer, PGI (since 2017) Assistant Vice
President-Treasury, PFA (since 2013) Assistant Vice President-Treasury,
PFD (since 2013) Assistant Vice President-Treasury, PLIC (since
2014) Assistant Vice President-Treasury, PMC (2013-2017) Assistant
Vice President-Treasury, PSI (since 2013) Assistant Vice
President-Treasury, PSS (since 2013) |
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|
Beth
C. Wilson 711 High Street Des Moines, IA 50392 1956 |
Vice
President and Secretary (since 2007) |
Director
and Secretary-Funds, PLIC (since 2007) |
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FUND
COMPLEX OFFICERS |
Name,
Address
and
Year of Birth |
Position(s)
Held
with
Fund Complex |
Positions
with PGI and its Affiliates;
Principal
Occupations During Past 5 Years** |
Clint
L. Woods 711 High Street Des Moines, IA 50392 1961 |
Vice
President, Counsel and Assistant Secretary (since 2018) Of Counsel
(2017-2018) Vice President (2016-2017) Counsel (2015-2017) |
Vice
President, Associate General Counsel and Secretary
PGI
(since 2020)
Vice
President, Associate General Counsel, Governance Officer and
Assistant
Corporate Secretary, PGI (2018-2020)
Vice
President, Associate General Counsel and Secretary,
CCIP
(since 2020)
Vice
President, Associate General Counsel and
Assistant
Corporate Secretary, PFA (since 2019)
Vice
President, Associate General Counsel and
Assistant
Corporate Secretary, PFD (since 2019)
Vice
President, Associate General Counsel, Governance Officer and
Assistant
Corporate Secretary, PFSI (since 2015)
Vice
President, Associate General Counsel, Governance Officer and
Assistant
Corporate Secretary, PLIC (since 2015)
Secretary,
Post (since 2020)
Vice
President, Associate General Counsel, Governance Officer and
Secretary,
Principal-REI (since 2020)
Vice
President, Associate General Counsel, Governance Officer and
Assistant
Corporate Secretary, Principal-REI (2020)
Vice
President, Associate General Counsel and
Assistant
Corporate Secretary, PSI (since 2019)
Vice
President, Associate General Counsel and
Assistant
Corporate Secretary, PSS (since 2019)
Vice
President, Associate General Counsel and
Assistant
Secretary, RobustWealth, Inc. (since 2019)
Secretary,
Spectrum (since 2020) |
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|
Jared
A. Yepsen 711 High Street Des Moines, IA 50392 1981 |
Assistant
Tax Counsel (since 2017) |
Counsel,
PGI (2017-2019) Counsel, PLIC (since
2015)
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|
**Abbreviations
used: |
|
CCIP,
LLC (CCIP) |
Principal
Global Investors, LLC (PGI) |
Origin
Asset Management LLP (Origin) |
Principal
Life Insurance Company (PLIC) |
Post
Advisory Group, LLC (Post) |
Principal
Management Corporation (PMC), now PGI |
Principal
Financial Advisors, Inc. (PFA) |
Principal
Real Estate Investors, LLC (Principal-REI) |
Principal
Financial Services, Inc. (PFSI) |
Principal
Securities, Inc. (PSI) |
Principal
Funds Distributor, Inc. (PFD) |
Principal
Shareholder Services, Inc. (PSS) |
Principal
Global Asset Management (PGAM) |
Spectrum
Asset Management, Inc. (Spectrum) |
Board
Member Ownership of Securities
The
following tables set forth the dollar range of the equity securities of the
Funds included in this SAI, and the aggregate dollar range of equity securities
in the Fund Complex, which were beneficially owned by the Board Members as of
December 31, 2019. As of that date, Board Members did not own shares of
Funds included in this SAI that are not listed.
For
the purpose of these tables, beneficial ownership means a direct or indirect
pecuniary interest. Only Interested Board Members are eligible to participate in
an employee benefit program which invests in the Fund Complex. Board Members who
beneficially owned shares of series of PVC did so through variable life
insurance and variable annuity contracts. Please note that exact dollar amounts
of securities held are not listed. Rather, ownership is listed based on the
following dollar ranges:
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A |
$0 |
B |
$1
up to and including $10,000 |
C |
$10,001
up to and including $50,000 |
D |
$50,001
up to and including $100,000 |
E |
$100,001
or more |
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|
|
|
|
|
|
|
|
Independent
Board Members |
Fund
|
Ballantine |
Barnes |
Damos |
Hirsch |
Hymes(2) |
Kenney(1) |
Lattimer(2) |
McMillan |
Nickels |
VanDeWeghe |
Blue
Chip |
A |
A |
E |
A |
A |
A |
A |
E |
E |
E |
Diversified
Real Asset |
A |
A |
A |
C |
A |
A |
A |
A |
A |
A |
Spectrum
Preferred and Capital Securities Income |
A |
A |
E |
A |
A |
A |
A |
A |
A |
A |
Total
Fund Complex |
E |
E |
E |
E |
A |
A |
A |
E |
E |
E |
(1)
Director’s appointment effective September 15, 2020
(2)
Director's appointment effective December 15, 2020
|
|
|
|
|
|
|
|
|
Interested
Board Members |
|
Dunbar |
Halter |
Funds
in this SAI |
A |
A |
Total
Fund Complex |
E |
E |
Mr.
Kenney was a member of the Executive Committee at Legg Mason, Inc. (“Legg
Mason”) until January 1, 2020, and served on the board of each Legg Mason
affiliate, including ClearBridge RARE Infrastructure (North America) Pty
Limited, a sub-advisor to the Principal Fund Complex. Mr. Kenney’s compensation
from Legg Mason, including securities liquidated following his employment there,
exceeded $120,000. Mr. Kenney remains subject to Legg Mason (now Franklin
Resources, Inc.) deferred compensation plans that are invested in mutual funds
sponsored and/or advised by Legg Mason and/or Franklin Templeton.
Board
Member and Officer Compensation
The
Fund Complex does not pay any remuneration to its Board Members or officers who
are employed by PGI or its affiliates. The Board annually considers a proposal
to reimburse PGI for certain expenses, including a portion of the Chief
Compliance Officer's compensation. If the proposal is adopted, these amounts are
allocated across all Funds based on relative net assets of each
portfolio.
Each
Independent Board Member received compensation for service as a member of the
Boards of all investment companies in the Fund Complex based on a schedule that
takes into account an annual retainer amount, the number of meetings attended,
and expenses incurred. Board Member compensation and related expenses are
allocated to each of the Funds based on the net assets of each relative to
combined net assets of the Fund Complex.
The
following table provides information regarding the compensation received by the
Independent Board Members from the Funds included in this SAI and from the Fund
Complex during the fiscal year ended August 31, 2020. On that date, there were 4
investment companies in the Fund Complex. The Fund does not provide retirement
benefits or pensions to any of the Board Members.
|
|
|
|
|
|
|
|
|
Board
Member |
Funds
in this SAI |
Fund
Complex |
Elizabeth
Ballantine |
$37,584 |
$288,000 |
Leroy
T. Barnes, Jr. |
$39,210 |
$300,500 |
Craig
Damos |
$44,764 |
$342,750 |
Fritz
S. Hirsch |
$40,048 |
$307,000 |
Victor
Hymes (2) |
$0 |
$0 |
John
D. Kenney (1) |
$0 |
$0 |
Padelford
("Padel") L. Lattimer (2) |
$0 |
$0 |
Karen
("Karrie") McMillan |
$39,133 |
$299,750 |
Elizabeth
A. Nickels |
$39,327 |
$301,250 |
Mary
M. (“Meg”) VanDeWeghe |
$37,519 |
$287,500 |
(1)
Director’s appointment effective September 15, 2020
(2)
Director’s appointment effective December 15, 2020
INVESTMENT
ADVISORY AND OTHER SERVICES
Investment
Advisors
Principal
Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial
Group, Inc. ("Principal®"), serves as the manager for the Fund. Principal
Management Corporation, previously an affiliate of PGI, served as manager to the
Fund prior to its merger with and into PGI on May 1, 2017.
PGI
directly makes decisions to purchase or sell securities for each Fund, except
for those Funds or portions of Funds for which PGI has retained a sub-advisor to
provide such services, as described below.
PGI
has executed agreements with various Sub-Advisors. Under those Sub-Advisory
agreements, the Sub-Advisor agrees to assume the obligations of PGI to provide
investment advisory services for a specific Fund. For these services, PGI pays
each Sub-Advisor a fee (except on the Capital Securities Fund).
Sub-Advisor: BlackRock
Financial Management, Inc. (“BlackRock”)
is an indirect wholly-owned subsidiary of BlackRock, Inc. BlackRock and its
affiliates manage investment company and other portfolio assets.
Sub-Sub-Advisor:
BlackRock International Limited is
an indirect wholly-owned subsidiary of BlackRock, Inc.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: ClearBridge
RARE Infrastructure (North America) Pty Limited (“ClearBridge”),
is an indirect wholly owned subsidiary of Franklin Resources, Inc.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Credit
Suisse Asset Management, LLC ("Credit Suisse")
is the New York-based Registered Investment Adviser of Credit Suisse Asset
Management (CSAM). CSAM, which is part of the International Wealth Management
Division of Credit Suisse Group AG, is a global asset manager with a focus on
Alternative Investments and select Traditional Investments.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Delaware
Investments Fund Advisers (“DIFA”) is
an indirect wholly-owned subsidiary of Macquarie Group Limited and operates as
part of Macquarie Asset Management, the asset management division of Macquarie
Group Limited.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Gotham
Asset Management, LLC ("Gotham") is
wholly-owned by Gotham Asset Management Holdings, LP (“GAMH”). Joel Greenblatt
and Robert Goldstein control the Sub-Advisor through their control of GAMH and
as Managing Principals of Gotham.
Fund(s): a
portion of the assets of Global Multi-Strategy
Sub-Advisor:
Graham Capital Management, L.P. ("Graham") is
majority-owned by KGT Investment Partners, L.P., which is principally owned by
Graham’s founder, Kenneth Tropin, and members of Mr. Tropin’s
family.
Fund(s):
a
portion of the assets of Global Multi-Strategy
Sub-Advisor:
KLS Diversified Asset Management LP (“KLS”),
principally
owned by KLS Partners LLC, provides discretionary investment advisory services
for private investment funds and separately managed accounts.
Fund(s):
a
portion of the assets of Global Multi-Strategy
Sub-Advisor: Loomis,
Sayles & Company, L.P. (“Loomis Sayles”)
is a subsidiary of Natixis Investment Managers, LLC, which is part of Natixis
Investment Managers, an international asset management group based in Paris,
France.
Fund(s): a
portion of the assets of Global Multi-Strategy
Sub-Advisor: Los
Angeles Capital Management and Equity Research, Inc. ("Los Angeles
Capital")
is a California corporation wholly-owned by its working principals. Thomas D.
Stevens, Chairman and CEO, and Hal W. Reynolds, Chief Investment Officer, hold
the controlling equity interest in the firm.
Fund(s): a
portion of the assets of Global Multi-Strategy
Sub-Advisor: Mellon
Investments Corporation (“Mellon”),
is an independently operated indirect subsidiary of The Bank of New York Mellon
Corporation, a banking and financial services company. Employees of Mellon own a
small minority interest of the company. Mellon is a registered investment
advisor and organized as a corporation in the state of Delaware.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Nuveen
Asset Management LLC (“Nuveen Asset Management”),
is an investment adviser registered with the SEC, is organized as a
member-managed limited liability company, and its sole managing member is Nuveen
Funds Advisors, LLC. On October 1, 2014, the parent company of Nuveen Fund
Advisors, LLC, was acquired by TIAA-CREF, a national financial services
organization.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Origin
Asset Management LLP (“Origin”) is
an indirect majority-owned subsidiary of Principal Financial Services, Inc., an
affiliate of PGI, and a member of Principal®.
Fund(s): Origin
Emerging Markets
Sub-Advisor: Pictet
Asset Management SA
(“Pictet”)
is
the asset management arm of the Pictet Group which is owned by seven managing
partners.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor: Principal
Real Estate Investors, LLC ("Principal - REI") is
an
indirect subsidiary of Principal Financial Group, Inc.
Fund(s): a
portion of the assets of Diversified Real Asset
Sub-Advisor:
Sound Point Capital Management, LP ("Sound
Point"),
Stephen
Ketchum, five principals of Stone Point Capital LLC and Dyal Capital Partners
together own 100% of the equity of the General Partner and the Sub-Advisor with
Dyal and the Stone Point principals owning minority stakes.
Fund(s): a
portion of the assets of Global Multi-Strategy
Sub-Advisor: Spectrum
Asset Management, Inc. ("Spectrum")
is an indirect subsidiary of Principal Financial Group, Inc.
Fund(s): Capital
Securities and Spectrum Preferred and Capital Securities Income
Sub-Advisor: Wellington
Management Company LLP (“Wellington”)
is owned by the partners of Wellington Management Group LLP, a Massachusetts
limited liability partnership.
Fund(s): a
portion of the assets of Global Multi-Strategy
Sub-Advisor: York
Registered Holdings, L.P. (“York”)
is controlled by its sole general partner, York Capital Management Global
Advisors, LLC (“YGA”). James G. Dinan, founder, is the Chairman, CEO and
controlling person of YGA. Mr. Dinan and various other individual partners of
the firm collectively own the majority equity interest in YGA and its
affiliates.
Fund(s): a
portion of the assets of Global Multi-Strategy
Affiliated
Persons of the Fund Who are Affiliated Persons of the Advisor
For
information about affiliated persons of the Fund who are also affiliated persons
of PGI or affiliated advisors, see the Interested Board Members and Fund Complex
Officers tables in the “Leadership Structure and Board” section.
Codes
of Ethics
The
Fund, PGI, each of the Sub-Advisors, and PFD have adopted Codes of Ethics
(“Codes”) under Rule 17j-1 of the 1940 Act. PGI and the Sub-Advisors have each
also adopted such a Code under Rule 204A-1 of the Investment Advisers Act of
1940. These Codes are designed to prevent, among other things, persons with
access to information regarding the portfolio trading activity of a Fund from
using that information for their personal benefit. Except in limited
circumstances, the Code for PGI and the Fund prohibits portfolio managers from
personally trading securities that are held or traded in the actively managed
portfolios for which they are responsible. Certain Sub-Advisors have adopted
Codes that do not permit personnel subject to such Code to invest in securities
that may be purchased or held by the Fund. However, other Sub-Advisors’ Codes do
permit, subject to conditions, personnel subject to the Code to invest in
securities that may be purchased or held by the Fund. The Fund’s Board reviews
reports at least annually regarding the operation of the Code of Ethics of the
Fund, PGI, PFD, and each Sub-Advisor. A
copy of the Fund’s Code will be provided upon request, which may be made by
contacting the Fund.
Management
Agreement
Under
the terms of the Management Agreement for the Fund, Principal Global Investors,
LLC ("PGI"), the investment advisor, is entitled to receive a fee computed and
accrued daily and payable monthly, at the following annual rates, for providing
the investment advisory services and specified other services. The management
fee schedules for the Funds are as follows (expressed as a percentage of average
net assets):
|
|
|
|
|
|
|
|
|
Net
Asset Value of Fund |
Fund |
All
Assets |
Bond
Market Index |
0.14 |
% |
|
Capital
Securities |
0.00 |
% |
(1) |
International
Equity Index |
0.25 |
% |
|
(1)
The
table reflects that PGI is absorbing all expenses of the Fund. You should be
aware, however, that the Fund is an integral part of "wrap-fee" programs,
including those sponsored by registered investment advisors and broker-dealers
unaffiliated with the Fund. Participants in these programs pay a “wrap” fee to
the wrap-free program's sponsor ("Sponsor"). You should read carefully the
wrap-fee brochure provided to you by your Sponsor or your registered investment
advisor. The brochure is required to include information about the fees charged
to you by the Sponsor and the fees the Sponsor paid to your registered
investment advisor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value of Fund |
Fund |
First
$500
Million |
Next
$500
Million |
Next
$500
Million |
Assets
Over
$1.5
Billion |
Edge
MidCap |
0.70% |
0.68% |
0.66% |
0.65% |
International
Small Company |
1.05% |
1.03% |
1.01% |
1.00% |
Opportunistic
Municipal |
0.50% |
0.48% |
0.46% |
0.45% |
Origin
Emerging Markets |
1.05% |
1.03% |
1.01% |
1.00% |
Small-MidCap
Growth |
0.70% |
0.68% |
0.66% |
0.65% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value of Fund |
Fund |
First $500
Million |
Next $500
Million |
Next $500
Million |
Next $500
Million |
Next
$1 Billion |
Over
$3 Billion |
Blue
Chip |
0.65% |
0.63% |
0.61% |
0.60% |
0.59% |
0.58% |
Diversified
Real Asset |
0.85% |
0.83% |
0.81% |
0.80% |
0.79% |
0.78% |
Global
Multi-Strategy |
1.60% |
1.58% |
1.56% |
1.55% |
1.54% |
1.53% |
Small-MidCap
Dividend Income |
0.79% |
0.77% |
0.75% |
0.74% |
0.73% |
0.72% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value of Fund |
Fund |
First $500
Million |
Next $500
Million |
Next $500
Million |
Next $500
Million |
Next
$1 Billion |
Over
$2 Billion |
Over
$5 Billion |
Spectrum
Preferred and Capital Securities Income |
0.75% |
0.73% |
0.71% |
0.70% |
0.69% |
0.68% |
0.67% |
Fund
Operating Expenses
Each
Fund pays all of its operating expenses. Under the terms of the Management
Agreement, PGI is responsible for paying the expenses associated with the
organization of each Fund, including the expenses incurred in the initial
registration of the Funds with the SEC, compensation of personnel, officers and
directors who are also affiliated with PGI, and expenses and compensation
associated with furnishing office space and all necessary office facilities and
equipment and personnel necessary to perform the general corporate functions of
the Fund. Accounting services customarily required by investment companies are
provided to each Fund by PGI, under the terms of the Management Agreement.
Principal Shareholder Services, Inc., an affiliate of PGI, provides transfer
agent services for Classes A, C, J, Institutional, R-1, R-2, R-3, R-4, R-5, R-6,
and S shares, including qualifying shares of the Fund for sale in states and
other jurisdictions. PGI is also responsible for providing certain shareholder
and administrative services to Classes R-1, R-2, R-3, R-4 and R-5 shares
pursuant to a Service Agreement and an Administrative Services
Agreement.
Contractual
Limits on Total Annual Fund Operating Expenses
PGI
has contractually agreed to limit the Fund's expenses (excluding interest
expense, expenses related to fund investments, acquired fund fees and expenses,
and other extraordinary expenses) on certain share classes of certain of the
Funds. The reductions and reimbursements are in amounts that maintain total
operating expenses at or below certain limits. The limits are expressed as a
percentage of average daily net assets attributable to each respective class on
an annualized basis. Subject to applicable expense limits, the Funds may
reimburse PGI for expenses incurred during the current fiscal year.
The
operating expense limits and the agreement terms are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Limits on Total Annual Fund Operating Expenses |
Fund |
A |
C |
J |
Inst. |
Expiration |
Blue
Chip |
N/A |
N/A |
N/A |
0.66 |
% |
12/30/2021 |
Diversified
Real Asset |
1.20 |
% |
1.95 |
% |
N/A |
0.83 |
% |
12/30/2021 |
Edge
MidCap |
1.10 |
% |
N/A |
N/A |
0.77 |
% |
12/30/2021 |
Global
Multi-Strategy |
N/A |
2.75 |
% |
N/A |
1.63 |
% |
12/30/2021 |
International
Equity Index |
N/A |
N/A |
N/A |
0.31 |
% |
12/30/2021 |
International
Small Company |
1.60 |
% |
N/A |
N/A |
1.20 |
% |
12/30/2021 |
Opportunistic
Municipal |
0.84 |
% |
N/A |
N/A |
0.56 |
% |
12/30/2021 |
Origin
Emerging Markets |
1.60 |
% |
N/A |
N/A |
1.20 |
% |
12/30/2021 |
Small-MidCap
Dividend Income |
1.12 |
% |
1.87 |
% |
N/A |
0.85 |
% |
12/30/2021 |
Small-MidCap
Growth |
N/A |
N/A |
N/A |
0.83 |
% |
12/30/2021 |
Spectrum
Preferred and Capital Securities Income |
N/A |
N/A |
N/A |
0.81 |
% |
12/30/2021 |
For
Capital Securities Fund, PGI has agreed contractually to limit the Fund's
expenses attributable to Class S shares by paying expenses normally payable by
the Fund (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses), to maintain
a total level of operating expenses (expressed as a percent of average net
assets on an annualized basis) not to exceed 0.00%. It
is expected that the expense limit will continue permanently (and in any event,
at least through December 30, 2021); however, Principal Funds, Inc. and PGI, the
parties to the agreement, may mutually agree to terminate the
expense
limit.
Contractual
Limits on Other Expenses
PGI
has contractually agreed to limit the expenses identified as “Other Expenses”
related to certain share classes of certain of the Funds by paying, if
necessary, expenses normally payable by the Fund, (excluding interest expense,
expenses related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of
average net assets on an annualized basis) at or below certain
limits.
The
Other Expenses limits and the agreement terms are as follows:
|
|
|
|
|
|
|
|
|
Contractual
Limits on Other Expenses |
Fund |
Class
R-6 |
Expiration |
Blue
Chip |
0.01% |
12/30/2021 |
Diversified
Real Asset |
0.02% |
12/30/2021 |
Global
Multi-Strategy |
0.02% |
12/30/2021 |
International
Equity Index |
0.04% |
12/30/2021 |
International
Small Company |
0.04% |
12/30/2021 |
Origin
Emerging Markets |
0.04% |
12/30/2021 |
Small-MidCap
Dividend Income |
0.02% |
12/30/2021 |
Contractual
Management Fee Waivers
PGI
has contractually agreed to limit certain of the Funds' management fees. The
expense limit will reduce the Fund's Management Fees by the amounts listed
below:
|
|
|
|
|
|
|
|
|
Contractual
Fee Waivers |
Fund |
Waiver |
Expiration |
Blue
Chip |
0.040% |
12/30/2021 |
Bond
Market Index |
0.015% |
12/30/2021 |
Diversified
Real Asset |
0.050% |
12/30/2021 |
Edge
MidCap |
0.050% |
12/30/2021 |
Global
Multi-Strategy |
0.040% |
12/30/2021 |
Opportunistic
Municipal |
0.060% |
12/30/2021 |
Management
Fees Paid
Fees
paid for investment management services (before any waivers/reimbursements from
PGI) during the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees for Periods Ended August 31 (amounts in thousands) |
Fund |
2020 |
|
2019 |
2018 |
Blue
Chip |
$ |
33,554 |
|
|
$ |
23,519 |
|
|
$ |
17,607 |
|
|
Bond
Market Index |
3,401 |
|
|
4,353 |
|
|
4,324 |
|
|
Capital
Securities |
— |
|
|
— |
|
|
— |
|
|
Diversified
Real Asset |
28,838 |
|
(1) |
31,859 |
|
|
33,383 |
|
|
Edge
MidCap |
5,017 |
|
|
4,800 |
|
|
4,116 |
|
|
Global
Multi-Strategy |
14,279 |
|
(1) |
32,261 |
|
|
42,942 |
|
|
International
Equity Index |
2,710 |
|
|
2,663 |
|
|
2,700 |
|
|
International
Small Company |
9,399 |
|
|
9,147 |
|
|
10,686 |
|
|
Opportunistic
Municipal |
681 |
|
|
575 |
|
|
588 |
|
|
Origin
Emerging Markets |
14,183 |
|
|
8,229 |
|
|
8,572 |
|
|
Small-MidCap
Dividend Income |
14,816 |
|
|
18,048 |
|
|
22,985 |
|
|
Small-MidCap
Growth |
38 |
|
|
8 |
|
(2) |
— |
|
|
Spectrum
Preferred and Capital Securities Income |
44,021 |
|
|
37,238 |
|
(3) |
40,871 |
|
|
|
|
|
|
|
|
|
|
(1) |
Consolidated
financial statement; see "Basis for Consolidation" in Notes to Financial
Statements |
(2) |
Period
from June 12, 2019, date operations commenced, through August 31,
2019 |
(3) |
Effective
July 1, 2019, Preferred Securities changed its name to Spectrum Preferred
and Capital Securities Income |
Management
Fees Waived
For
the following Funds, PGI waived a portion of the management fee during the
periods indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fees Waived for Periods Ended August 31 (amounts in
thousands) |
Fund |
2020 |
2019 |
2018 |
Blue
Chip |
$ |
3,492 |
|
|
3,036 |
|
|
$ |
— |
|
|
Bond
Market Index |
247 |
|
|
1,540 |
|
|
1,621 |
|
|
Diversified
Real Asset |
1,337 |
|
|
1,189 |
|
|
1,141 |
|
|
Edge
MidCap |
473 |
|
|
334 |
|
|
— |
|
|
Global
Multi-Strategy |
359 |
|
|
821 |
|
|
1,098 |
|
|
Opportunistic
Municipal |
82 |
|
|
47 |
|
|
— |
|
|
Origin
Emerging Markets |
569 |
|
|
764 |
|
|
— |
|
|
Expense
Reimbursed
For
the following Funds, PGI reimbursed certain expenses during the periods
indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
Reimbursed for Periods Ended August 31 (amounts in
thousands) |
Fund |
2020 |
2019 |
2018 |
Blue
Chip |
$ |
30 |
|
|
$ |
63 |
|
|
$ |
26 |
|
|
Bond
Market Index |
— |
|
|
23 |
|
|
5 |
|
|
Capital
Securities |
394 |
|
|
303 |
|
|
260 |
|
|
Diversified
Real Asset |
1,149 |
|
|
1,871 |
|
|
1,884 |
|
|
Edge
MidCap |
57 |
|
|
52 |
|
|
12 |
|
|
Global
Multi-Strategy |
825 |
|
|
597 |
|
|
169 |
|
|
International
Equity Index |
303 |
|
|
473 |
|
|
482 |
|
|
International
Small Company |
31 |
|
|
95 |
|
|
140 |
|
|
Opportunistic
Municipal |
46 |
|
|
79 |
|
|
39 |
|
|
Origin
Emerging Markets |
44 |
|
|
93 |
|
|
189 |
|
|
Small-MidCap
Dividend Income |
979 |
|
|
923 |
|
|
71 |
|
|
Small-MidCap
Growth |
46 |
|
|
51 |
|
(1) |
— |
|
|
Spectrum
Preferred and Capital Securities Income |
— |
|
|
165 |
|
(2) |
25 |
|
|
|
|
|
|
|
|
|
|
(1) |
Period
from June 12, 2019, date operations commenced, through August 31,
2019 |
(2) |
Effective
July 1, 2019, Preferred Securities changed its name to Spectrum Preferred
and Capital Securities Income |
Sub-Advisory
Agreements for the Funds
PGI
(and not the Fund) pays the sub-advisors fees determined pursuant to a
sub-advisory agreement with each sub-advisor, including those sub-advisors that
are at least 95% owned, directly or indirectly, by PGI or its affiliates
("Wholly-Owned Sub-Advisors") and the other sub-advisors listed in the tables
below. Fees paid to sub-advisors are individually negotiated between
PGI and each sub-advisor and may vary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Fees Paid to Sub-Advisors (other than Wholly-Owned Sub-Advisors and
Origin) for Fiscal Years Ended August 31 (dollar amounts in
thousands) |
Fund |
2020 |
2019 |
2018 |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Diversified
Real Asset |
$7,893 |
0.29% |
$9,431 |
0.31% |
$10,275 |
0.33% |
Global
Multi-Strategy |
6,444 |
0.86 |
15,620 |
0.88 |
21,150 |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
Paid to Origin for Fiscal Years Ended August 31 (dollar amounts in
thousands) |
Fund |
2020 |
2019 |
2018 |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Dollar
Amount |
Percent of
Average Daily Net Assets |
Origin
Emerging Markets |
5,140 |
0.39 |
2,913 |
0.42 |
3,260 |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
Fees for Periods Ended August 31 (amounts in thousands) |
|
Fund |
2020 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Blue
Chip |
$990 |
|
$584 |
|
$227 |
|
|
Bond
Market Index |
1 |
|
N/A |
|
7 |
|
|
Capital
Securities |
— |
|
— |
|
— |
|
|
Diversified
Real Asset |
7 |
|
12 |
|
20 |
|
|
Edge
MidCap |
35 |
|
23 |
|
— |
|
|
Global
Multi-Strategy |
2 |
|
8 |
|
17 |
|
|
International
Equity Index |
— |
|
— |
|
— |
|
|
International
Small Company |
5 |
|
6 |
|
8 |
|
|
Opportunistic
Municipal |
13 |
|
15 |
|
24 |
|
|
Origin
Emerging Markets |
6 |
|
4 |
|
3 |
|
|
Small-MidCap
Dividend Income |
46 |
|
51 |
|
265 |
|
|
Small-MidCap
Growth |
— |
|
— |
(1) |
— |
|
|
Spectrum
Preferred and Capital Securities Income |
284 |
|
189 |
(2) |
342 |
|
|
|
|
|
|
|
|
|
(1) |
Period
from June 12, 2019, date operations commenced, through August 31,
2019 |
(2) |
Effective
July 1, 2019, Preferred Securities changed its name to Spectrum Preferred
and Capital Securities Income |
Custodian
The
custodian of the portfolio securities and cash assets of the Funds and the
Cayman Subsidiaries is The Bank of New York Mellon, One Wall Street, New York,
NY 10286. The custodian performs no managerial or policy-making functions for
the Funds.
Securities
Lending Agent
The
Bank of New York Mellon serves as the securities lending agent for the Funds.
Information regarding securities lending during the Funds' most recently ended
fiscal year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Gross
income (including from cash collateral reinvestment) |
Fees
paid to securities lending agent from a revenue split |
Fees
paid for any cash collateral management service that are not included in
revenue split |
Administrative
fees not included in revenue split |
Indemnification
fees not included in revenue split |
Net
rebate paid to borrower |
Other
fees not included in revenue split |
Aggregate
fees/ compensation |
Net
income from securities lending |
|
|
|
|
|
|
|
|
|
|
Blue
Chip |
$ |
69,703 |
|
$ |
9,505 |
|
$— |
$— |
$— |
$ |
(25,358) |
|
$— |
$ |
(15,852) |
|
$ |
85,555 |
|
Bond
Market Index |
51,643 |
|
3,581 |
|
— |
— |
— |
15,814 |
|
— |
19,395 |
|
32,249 |
|
Capital
Securities |
46,732 |
|
5,526 |
|
— |
— |
— |
(8,555) |
|
— |
(3,029) |
|
49,761 |
|
Diversified
Real Asset |
27,133 |
|
19,533 |
|
— |
— |
— |
(168,223) |
|
— |
(148,689) |
|
175,822 |
|
Edge
MidCap |
17,036 |
|
40,645 |
|
— |
— |
— |
(389,417) |
|
— |
(348,772) |
|
365,807 |
|
International
Equity Index |
56,537 |
|
17,910 |
|
— |
— |
— |
(122,592) |
|
— |
(104,682) |
|
161,219 |
|
International
Small Company |
161,374 |
|
36,982 |
|
— |
— |
— |
(208,469) |
|
— |
(171,486) |
|
332,860 |
|
Origin
Emerging Markets |
16,836 |
|
1,794 |
|
— |
— |
— |
(1,106) |
|
— |
688 |
|
16,148 |
|
Small-MidCap
Dividend Income |
285,464 |
|
9,968 |
|
— |
— |
— |
185,782 |
|
— |
195,749 |
|
89,715 |
|
Small-MidCap
Growth |
192 |
|
28 |
|
— |
— |
— |
(95) |
|
— |
(66) |
|
258 |
|
Spectrum
Preferred and Capital Securities Income |
278,333 |
|
61,519 |
|
— |
— |
— |
(337,092) |
|
— |
(275,573) |
|
553,906 |
|
The
services provided by The Bank of New York Mellon, as securities lending agent
for the Funds, include: coordinating, with the Funds, the selection of
securities to be loaned; negotiating loan terms; monitoring the value of
securities loaned and corresponding collateral, marking to market daily;
coordinating collateral movements; monitoring dividends; and transferring,
recalling, and arranging the return of loaned securities to the Funds upon loan
termination.
INTERMEDIARY
COMPENSATION
Additional
Payments to Intermediaries.
Shares
of the Fund are sold primarily through intermediaries, such as brokers, dealers,
investment advisors, banks, trust companies, pension plan consultants,
retirement plan administrators and insurance companies.
In
addition to payments pursuant to 12b-1 plans, PGI or its affiliates enter into
agreements with some intermediaries pursuant to which the intermediaries receive
payments for providing services relating to Fund shares. Examples of such
services are administrative, networking, recordkeeping, sub-transfer agency
and/or shareholder services. In some situations the Fund will reimburse PGI or
its affiliates for making such payments; in others the Fund makes such payments
directly to intermediaries.
For
Classes R-1, R-2, R-3, R-4 and R-5 shares, such compensation is generally paid
out of the Service Fees and Administrative Service Fees that are disclosed in
the prospectus as Other Expenses. Such compensation is generally based on the
average asset value of fund shares for the relevant share class held by clients
of the intermediary.
In
addition, PGI or its affiliates pay, without reimbursement from the Fund,
compensation from their own
resources,
to certain intermediaries that support the distribution of shares of the Fund or
provide services to Fund shareholders. In addition, PGI or its affiliates pay,
without reimbursement from the Fund, compensation from their own resources to
certain large plan sponsors to help cover the cost of providing educational
materials to plan participants.
The
amounts paid to intermediaries vary by share class and by fund.
Principal
Life Insurance Company is one such intermediary that provides services relating
to Fund shares held in employee benefit plans, and it is typically paid all of
the Service Fees and Administrative Service Fees pertaining to such
plans.
Plan
recordkeepers, who may have affiliated financial intermediaries that sell shares
of the funds, may be paid
additional
amounts. In addition, some financial intermediaries or their affiliates receive
compensation from PGI or its affiliates for maintaining retirement plan
platforms that facilitate trading by affiliated and non-affiliated financial
intermediaries and recordkeeping for retirement plans.
A
number of factors may be considered in determining the amount of these
additional payments, including each
financial
intermediary's Fund sales and assets, as well as the willingness and ability of
the financial intermediary to give the Distributor access to its Financial
Professionals for educational and marketing purposes. In some cases,
intermediaries will include the Funds on a preferred list. The Distributor's
goals include making the Financial Professionals who interact with current and
prospective investors and shareholders more knowledgeable about the Funds so
that they can provide suitable information and advice about the Funds and
related investor services. The amounts paid to intermediaries vary by fund and
by share class.
Additionally,
in some cases the Distributor and its affiliates will provide payments or
reimbursements in connection with the costs of conferences, educational
seminars, training and marketing efforts related to the Funds. Such activities
may be sponsored by intermediaries or the Distributor. The costs associated with
such activities may include travel, lodging, entertainment, and meals. In some
cases the Distributor will also provide payment or reimbursement for expenses
associated with transactions ("ticket") charges and general marketing expenses.
Other compensation may be paid to the extent not prohibited by applicable laws,
regulations or the rules of any self-regulatory agency, such as
FINRA.
The
payments described in this SAI may create a conflict of interest by influencing
your Financial Professional or your intermediary to recommend the Fund over
another investment, or to recommend one share class of the Fund over another
share class. Ask your Financial Professional or visit your intermediary's
website for more information about the total amounts paid to them by PGI and its
affiliates, and by sponsors of other investment companies your Financial
Professional may recommend to you.
Your
intermediary may charge you additional fees other than those disclosed in the
prospectus. Ask your Financial Professional about any fees and commissions they
charge.
Although
a Fund may use brokers who sell shares of the Funds to effect portfolio
transactions, the sale of shares is not considered as a factor by the Fund's
Sub-Advisors when selecting brokers to effect portfolio
transactions.
As
of December 1, 2020, the Distributor anticipates that the firms that will
receive additional payments as described in the Additional Payments to
Intermediaries section above (other than sales charges, Rule 12b-1 fees and
Expense Reimbursement) include, but are not necessarily limited to, the
following:
|
|
|
|
|
|
|
|
|
Advisor
Group |
FSC
Securities Corporation |
Raymond
James & Associates, Inc. |
Advisory
Services Network, LLC |
Goldman
Sachs & Co. |
Raymond
James Financial Services, Inc. |
Alight
Financial Solutions LLC |
Great
West Life & Annuity |
RBC
Capital Markets Corp. |
American
Century Investments |
GWFS
Equities, Inc. |
RBC
Correspondent Services |
American
Enterprise Investment Services Inc. |
H.
Beck, Inc. |
Reliance
Trust Company |
American
General Life Insurance Co. |
HighTower
Securities, LLC |
Retirement
Clearinghouse |
American
United Life Insurance Co. |
ICMA-Retirement
Corp. |
Robert
W. Baird & Co. |
Ameriprise
Financial Services |
Investacorp
Inc. |
Rowling
& Associates Accountancy |
Ameritas
Investments Corp |
Janney
Montgomery Scott |
Corporation |
Ascensus |
John
Hancock Trust Co. |
Royal
Alliance Associates, Inc. |
Ascensus
College Savings Record Keeping |
Kestra
Investment Services, LLC |
SagePoint
Financial, Inc. |
Services,
LLC |
KMS
Financial Services, Inc. |
SBC
Wealth Management |
AXA
Advisors, LLC |
Lara
May & Associates LLC |
Securities
America, Inc. |
AXA
Equitable Life Insurance Co. |
Legacy
Consulting Group |
Securities
Service Network, Inc. |
Baird |
Lincoln
Retirement Services Co. |
Sierra
Asset Management |
Benefit
Plan Administrators |
LLBH
Private Wealth Management LLC |
Standard
Insurance Company |
Benefit
Solutions |
LPL
Financial Corporation |
Standard
Retirement Services |
Benefit
Trust Company |
Massachusetts
Mutual Life Insurance Company |
Stifel
Nicolaus & Company, Inc. |
BNY
Mellon NA |
McDonald
Partners, LLC |
Suntrust
Investment Services, Inc. |
Broadridge
Business Process Outsourcing, LLC |
Mercer
HR Services |
T.
Rowe Price Retirement Plan Services |
Cadaret,
Grant & Company, Inc. |
Merrill
Lynch |
TD
Ameritrade Inc. |
Caitlin
John LLC |
MidAtlantic
Capital Corporation |
TD
Ameritrade Trust Company |
Cambridge
Investment Research Inc. |
Minnesota
Life Insurance Company |
The
Prudential Insurance Company |
Cetera
Advisor Networks LLC |
MML
Investors Services Inc. |
of
America |
Charles
Schwab Trust Company |
Morgan
Stanley Smith Barney LLC |
Thrivent
Financial for Lutherans |
Citi
International Financial Services LLC |
National
Financial Services LLC |
TIAA-CREF |
Citibank
N.A. Sucursal Uruguay |
Newport
Group Retirement Plan Services |
Total
Administrative Services Corporation |
Citigroup
Global Markets Inc. |
Next
Financial Group |
Triad
Advisors, Inc. |
Columbia
Management Investment Advisers, LLC |
Northwestern
Mutual Investment Services |
UBS
Financial Services, Inc. |
Commonwealth
Financial Network |
NYLIFE
Securities, LLC |
US
Bancorp Investments |
Concentrum
Wealth Management, LLC |
Oppenheimer
& Co. |
VALIC
Retirement Services Company |
Concert
Wealth Management Inc. |
Pensionmark
Securities LLC |
Vanguard
Brokerage Services |
Concord
Wealth Partners |
Pershing
LLC |
Vanguard
Group, The |
Corient
Capital Partners LLC |
Plan
Administrators, Inc. |
Voya
Financial Advisors, Inc. |
CPI
Qualified Consultants |
Platinum
Wealth Partners, Inc. |
Voya
Institutional Plan Services, LLC |
David
A Noyes & Co. |
Plan
Administrators, Inc. |
Voya
Institutional Trust Co. |
Digital
Retirement Solutions |
Principal
Life Insurance Company |
Wave
Wealth Management, LLC |
EFG
Capital International Corp |
Principal
Securities, Inc. |
Wells
Fargo Advisors FINET, LLC |
ePlan
Services, Inc. |
Principal
Wealth Partners LLC |
Wells
Fargo Bank, N.A. |
ETRADE
Savings Bank |
Private
Client Services, LLC |
Wells
Fargo Clearing Services LLC |
Fidelity
Investment Institutional Operations Co. |
Prudential
Retirement Services |
Western
International Securities, Inc. |
Financial
Data Services LLC |
Purshe
Kaplan Sterling Investments |
Woodbury
Financial Services |
First
Republic Securities Co., LLC |
Putnam
Investors Services |
|
The
preceding list is subject to change at any time without notice. Any additions,
modifications, or deletions to the financial intermediaries identified in this
list that have occurred since the date noted above are not reflected. To obtain
a current list, call 1-800-222-5852.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Brokerage
on Purchases and Sales of Securities
All
orders for the purchase or sale of portfolio securities are placed on behalf of
a Fund by PGI, or by the Fund's Sub-Advisor pursuant to the terms of the
applicable sub-advisory agreement. In distributing brokerage business arising
out of the placement of orders for the purchase and sale of securities for any
Fund, the objective of PGI and of each Fund's Sub-Advisor is to obtain the best
overall terms. In pursuing this objective, PGI or the Sub-Advisor considers all
matters it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and executing capability of
the broker or dealer, confidentiality, including trade anonymity, and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). This may mean in some instances that PGI or a Sub-Advisor
will pay a broker commissions that are in excess of the amount of commissions
another broker might have charged for executing the same transaction when PGI or
the Sub-Advisor believes that such commissions are reasonable in light of a) the
size and difficulty of the transaction, b) the quality of the execution
provided, and c) the level of commissions paid relative to commissions paid by
other institutional investors. Such factors are viewed both in terms of that
particular transaction and in terms of all transactions that broker executes for
accounts over which PGI or the Sub-Advisor exercises investment discretion. The
Board has also adopted a policy and procedure designed to prevent the Funds from
compensating a broker/dealer for promoting or selling Fund shares by directing
brokerage transactions to that broker/dealer for the purpose of compensating the
broker/dealer for promoting or selling Fund shares. Therefore, PGI or the
Sub-Advisor may not compensate a broker/dealer for promoting or selling Fund
shares by directing brokerage transactions to that broker/dealer for the purpose
of compensating the broker/dealer for promoting or selling Fund shares. PGI or a
Sub-Advisor may purchase securities in the over-the-counter market, utilizing
the services of principal market makers unless better terms can be obtained by
purchases through brokers or dealers, and may purchase securities listed on the
NYSE from non-Exchange members in transactions off the Exchange.
PGI
or a Sub-Advisor may give consideration in the allocation of business to
services performed by a broker (e.g., the furnishing of statistical data and
research generally consisting of, but not limited to, information of the
following types: analyses and reports concerning issuers, industries, economic
factors and trends, portfolio strategy, performance of client accounts, and
access to research analysts, corporate management personnel, and industry
experts). If any such allocation is made, the primary criteria used will be to
obtain the best overall terms for such transactions or terms that are reasonable
in relation to the research or brokerage services provided by the broker or
dealer when viewed in terms of either a particular transaction or the
sub-advisor’s overall responsibilities to the accounts under its management. PGI
or a Sub-Advisor generally pays additional commission amounts for such research
services. Statistical data and research information received from brokers or
dealers as described above may be useful in varying degrees and PGI or a
Sub-Advisor may use it in servicing some or all of the accounts it manages.
PGI
and the Sub-Advisors allocated portfolio transactions for the Funds indicated in
the following table to certain brokers for the year ended August 31, 2020 due to
research services provided by such brokers. The
table also indicates the commissions paid to such brokers as a result of these
portfolio transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
Amount
of Transactions because of Research Services Provided |
|
Related Commissions
Paid |
|
|
|
|
|
Blue
Chip |
$ |
2,821,956,792 |
$ |
613,331 |
Diversified
Real Asset |
|
392,137,148 |
|
249,984 |
Edge
MidCap |
|
257,398,007 |
|
119,251 |
Global
Multi Strategy |
|
476,462,305 |
|
145,700 |
International
Equity Index |
|
29,326,975 |
|
14,953 |
International
Small Company |
|
201,363,846 |
|
178,923 |
Origin
Emerging Markets |
|
2,364,508,246 |
|
680,471 |
Small-MidCap
Dividend Income |
|
238,368,401 |
|
186,470 |
Small-MidCap
Growth |
|
2,408,157 |
|
3,181 |
Subject
to the rules promulgated by the SEC, as well as other regulatory requirements,
the Board has approved procedures whereby a Fund may purchase securities that
are offered in underwritings in which an affiliate of a Sub-Advisor, or PGI,
participates. These procedures prohibit a Fund from directly or indirectly
benefiting a Sub-Advisor affiliate or a Manager affiliate in connection with
such underwritings. In addition, for underwritings where a Sub-Advisor affiliate
or a Manager participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities that the
Fund could purchase in the underwritings. The Sub-Advisor shall determine the
amounts and proportions of orders allocated to the Sub-Advisor or affiliate.
The
Board receives quarterly reports on these transactions.
The
Board has approved procedures that permit a Fund to effect a purchase or sale
transaction between the Fund and any other affiliated investment company or
between the Fund and affiliated persons of the Fund under limited circumstances
prescribed by SEC rules. Any
such transaction must be effected without any payment other than a cash payment
for the securities, for which a market quotation is readily available, at the
current market price; must be consistent with the investment objective,
investment strategy, and risk profile of the Fund; and no brokerage commission
or fee (except for customary transfer fees), or other remuneration may be paid
in connection with the transaction.
The Board receives quarterly reports of all such transactions.
The
Board has also approved procedures that permit a Fund's Sub-Advisor(s) to place
portfolio trades with an affiliated broker under circumstances prescribed by SEC
Rules 17e-1 and 17a-10. The procedures require that total commissions, fees, or
other remuneration received or to be received by an affiliated broker must be
reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable time period. The Board receives quarterly reports of all transactions
completed pursuant to the Fund's procedures.
Purchases
and sales of debt securities and money market instruments usually are principal
transactions; portfolio securities are normally purchased directly from the
issuer or from an underwriter or marketmakers for the securities. Such
transactions are usually conducted on a net basis with the Fund paying no
brokerage commissions. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter, and the purchases from dealers
serving as marketmakers include the spread between the bid and asked prices.
The
following table shows the brokerage commissions paid during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Brokerage Commissions Paid for Periods Ended August 31 |
Fund |
2020 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
Blue
Chip |
$ |
1,090,620 |
|
|
$ |
950,877 |
|
|
$ |
1,284,941 |
|
|
Bond
Market Index |
24,738 |
|
|
742 |
|
|
— |
|
|
Capital
Securities |
— |
|
|
— |
|
|
— |
|
|
Diversified
Real Asset |
2,176,632 |
|
|
2,002,474 |
|
(1) |
2,610,223 |
|
(1) |
Edge
MidCap |
225,263 |
|
|
126,287 |
|
|
198,182 |
|
|
Global
Multi-Strategy |
511,496 |
|
|
1,237,216 |
|
(1) |
1,928,860 |
|
(1) |
International
Equity Index |
172,815 |
|
|
212,381 |
|
|
193,170 |
|
|
International
Small Company |
646,503 |
|
|
660,510 |
|
|
812,023 |
|
|
Opportunistic
Municipal |
369 |
|
|
157 |
|
|
— |
|
|
Origin
Emerging Markets |
680,425 |
|
|
404,036 |
|
|
240,032 |
|
|
Small-MidCap
Dividend Income |
1,823,807 |
|
|
1,023,218 |
|
|
1,708,983 |
|
|
Small-MidCap
Growth |
11,648 |
|
|
5,023 |
|
(2) |
— |
|
|
Spectrum
Preferred and Capital Securities Income |
585,434 |
|
|
1,215,714 |
|
(1)(3) |
902,441 |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Previous
amounts have been restated using the methodology used for reporting
similar data in Form N-CEN, which results in higher amounts than
previously stated. |
|
|
|
|
|
(2) |
Period
from June 12, 2019, date operations commenced, through August 31,
2019 |
|
|
|
|
|
(3) |
Effective
July 1, 2019, Preferred Securities changed its name to Spectrum Preferred
and Capital Securities Income. |
|
|
|
|
|
Primary
reasons for changes in several Funds’ brokerage commissions for the three years
were changes in commission rates; changes in the allocation and payment of
research costs in response to the adoption of the Markets in Financial
Instruments Directive (MiFID II); changes in Fund size; changes in market
conditions; changes in money managers of certain Funds; and implementation of
investment strategies. In some cases, such events required substantial portfolio
restructurings, resulting in increased securities transactions and brokerage
commissions.
Brokerage
commissions from the portfolio transactions effected for the Funds were paid to
brokers affiliated with PGI or such Fund's Sub-Advisors for the fiscal years
ended August 31 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Sub-Advisor
Employed by the Fund Complex |
Affiliated
Broker |
2020 Fund's
Total Commissions Paid |
%
of Fund's Total Commissions |
%
of Dollar Amount of Fund's Commissionable Transactions |
Spectrum
Preferred and Capital Securities Income |
|
Spectrum
Asset Management |
SAMI
Brokerage LLC |
$155,836 |
26.62% |
71.94% |
Total |
$155,836 |
26.62% |
71.94% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Sub-Advisor
Employed by the Fund Complex |
Affiliated
Broker |
2019 Fund's
Total Commissions Paid |
%
of Fund's Total Commissions |
%
of Dollar Amount of Fund's Commissionable Transactions |
Spectrum
Preferred and Capital Securities Income(1)(2) |
|
Spectrum
Asset Management |
SAMI
Brokerage LLC(3) |
$72,434 |
5.96% |
45.41% |
Total |
$72,434 |
5.96% |
45.41% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Sub-Advisor
Employed by the Fund Complex |
Affiliated
Broker |
2018 Fund's
Total Commissions Paid |
%
of Fund's Total Commissions |
%
of Dollar Amount of Fund's Commissionable Transactions |
Spectrum
Preferred and Capital Securities Income(1)(2) |
|
Spectrum
Asset Management |
Spectrum
Asset Management |
$120,951 |
13.40% |
48.60% |
Total |
$120,951 |
13.40% |
48.60% |
(1)
Previous
amounts have been restated using the methodology used for reporting similar data
in Form N-CEN, which results in higher amounts than previously
stated.
(2)
Effective
July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and
Capital Securities Income.
(3)
As
of January 2, 2019, Spectrum Asset Management executed transactions for the Fund
through a new wholly owned broker/dealer called SAMI Brokerage
LLC.
Material
differences, if any, between the percentage of a Fund's brokerage commissions
paid to a broker and the percentage of transactions effected through that broker
reflect the commission rates the Sub-Advisor has negotiated with the broker.
Commission rates a Sub-Advisor pays to brokers may vary and reflect such factors
as the trading volume placed with a broker, the type of security, the market in
which a security is traded and the trading volume of that security, the types of
services provided by the broker (i.e. execution services only or additional
research services) and the quality of a broker's execution. The
following table indicates the value of each Fund’s aggregate holdings, in
thousands, of the securities of its regular brokers or dealers for the fiscal
year ended August 31, 2020.
|
|
|
|
|
|
|
|
|
Holdings
of Securities of Principal Funds, Inc. Regular Brokers and
Dealers |
Bond
Market Index Fund |
Barclays
PLC |
3,416 |
|
|
Citigroup
Inc |
11,042 |
|
|
Credit
Suisse AG |
893 |
|
|
Goldman
Sachs Group Inc/The |
7,185 |
|
|
HSBC
Holdings PLC |
7,776 |
|
|
JPMorgan
Chase & Co |
13,992 |
|
|
Morgan
Stanley |
7,498 |
|
|
Nomura
Holdings Inc |
650 |
|
|
Wells
Fargo & Co |
11,189 |
|
|
|
|
Capital
Securities Fund |
Barclays
PLC |
15,791 |
|
|
Citigroup
Inc |
8,734 |
|
|
Credit
Suisse AG |
24,011 |
|
|
Goldman
Sachs Group Inc/The |
5,180 |
|
|
HSBC
Holdings PLC |
13,319 |
|
|
JPMorgan
Chase & Co |
11,835 |
|
|
|
|
Global
Multi-Strategy Fund |
Citigroup
Inc |
21 |
|
|
Goldman
Sachs Group Inc/The |
443 |
|
|
JPMorgan
Chase & Co |
1,195 |
|
|
Morgan
Stanley |
470 |
|
|
Wells
Fargo & Co |
744 |
|
|
|
|
International
Equity Index Fund |
Barclays
PLC |
1,953 |
|
|
Credit
Suisse AG |
2,055 |
|
|
HSBC
Holdings PLC |
6,710 |
|
|
Nomura
Holdings Inc |
1,243 |
|
|
|
|
Spectrum
Preferred and Capital Securities Income Fund |
Barclays
PLC |
174,953 |
|
|
Citigroup
Inc |
217,586 |
|
|
Credit
Suisse AG |
230,848 |
|
|
Goldman
Sachs Group Inc/The |
70,350 |
|
|
HSBC
Holdings PLC |
119,493 |
|
|
JPMorgan
Chase & Co |
210,368 |
|
|
Morgan
Stanley |
25,234 |
|
|
Wells
Fargo & Co |
171,758 |
|
Allocation
of Trades
By
the Manager ("PGI").
PGI has its own trading platform and personnel that perform trade-related
functions. Where applicable, PGI trades on behalf of its own clients. Such
transactions are executed in accordance with PGI's trading policies and
procedures, including, but not limited to trade allocations and order
aggregation, purchase of new issues, and directed brokerage. PGI
acts as discretionary investment advisor for a variety of individual accounts,
ERISA accounts, registered investment companies, insurance company separate
accounts, and public employee retirement plans and places orders to trade
portfolio securities for each of these accounts.
Managing multiple accounts may give rise to potential conflicts of interest
including, for example, conflicts among investment strategies and conflicts in
the allocation of investment opportunities. PGI has adopted and implemented
policies and procedures that it believes address the potential conflicts
associated with managing accounts for multiple clients and are designed to
ensure that all clients are treated fairly and equitably. These procedures
include allocation policies and procedures and internal review processes.
If,
in carrying out the investment objectives of its respective clients, occasions
arise in which PGI deems it advisable to purchase or sell the same equity
securities for two or more client accounts at the same or approximately the same
time, PGI may submit the orders to purchase or sell to a broker/dealer for
execution on an aggregate or "bunched" basis. PGI will not aggregate orders
unless it believes that aggregation is consistent with (1) its duty to seek best
execution and (2) the terms of its investment advisory agreements. In
distributing the securities purchased or the proceeds of sale to the client
accounts participating in a bunched trade, no advisory account will be favored
over any other account and each account that participates in an aggregated order
will participate at the average share price for all transactions of PGI relating
to that aggregated order on a given business day, with all transaction costs
relating to that aggregated order shared on a pro rata basis.
Because
of PGI's role as investment advisor to each of the Funds and as discretionary
advisor for funds of funds as well as some of the underlying funds, conflicts
may arise in connection with the services PGI provides to funds of funds with
respect to asset class and target weights for each asset class and investments
made in underlying funds. PGI
also provides advisory services to funds that have multiple investment advisors
(“Multi-Managed Funds”). These
services include determining the portion of a Multi-Managed Fund's portfolio to
be allocated to an advisor. Conflicts may arise in connection with the services
PGI provides to the funds of funds that it manages, in connection with the
services PGI provides to other funds of funds and Multi-Managed Funds, for the
following reasons:
•PGI
serves as the investment advisor to the underlying funds in which the funds of
funds invest, sometimes as the discretionary advisor, and an affiliated
investment advisor may serve as sub-advisor to the funds in which a fund of
funds may invest. This raises a potential conflict because PGI's or an
affiliated company's profit margin may vary depending upon the underlying fund
in which the funds of funds invest;
•PGI
or an affiliated person may serve as investment advisor to a portion of a
Multi-Managed Fund. In addition, PGI might recommend that an affiliated person
serve as sub-advisor to a portion of a Multi-Managed Fund. This raises a
potential conflict because PGI's or an affiliated investment advisor's profit
margin may vary depending on the extent to which a Multi-Managed Fund's assets
are managed by PGI or allocated to an affiliated advisor.
•A
sub-advisor may determine that the asset class PFI has hired it to manage (for
example, small capitalization growth stocks) can be managed effectively only by
limiting the amount of money devoted to the purchase of securities in the asset
class. In such a case, a sub-advisor may impose a limit on the amount of money
PFI may place with the sub-advisor for management. When a sub-advisor for two or
more PFI Funds imposes such a limit, PGI and/or the sub-advisor may need to
determine which Fund will be required to limit its investment in the asset class
and the degree to which the Fund will be so limited. PGI and the sub-advisor may
face a conflict of interest in making its determination.
PGI
implements the following in an effort to limit the appearance of conflicts of
interest and the opportunity for events that could trigger an actual conflict of
interest:
•PGI
implements a process for selecting underlying funds that emphasizes the
selection of funds within the Principal Funds complex that are determined to be
consistent with the fund of fund’s objective and principal investment
strategies. However, PGI will select an unaffiliated underlying fund managed by
an unaffiliated sub-advisor when deemed necessary or appropriate based upon a
consideration of the Fund’s objective and investment strategies and available
expertise and resources within the Principal organization.
•PGI
uses a process to select investment advisors that emphasizes the selection of
PGI or Principal-affiliated subadvisors that are determined to be qualified
under the Manager’s due diligence process. However, PGI will select an
unaffiliated subadvisor to manage all or a portion of a Fund’s portfolio when
deemed necessary or appropriate based upon a consideration of the Fund’s
objective and investment strategies and available expertise and resources within
the Principal organization.
•PGI
provides ongoing oversight of the Funds’ investments to monitor adherence to
their investment program.
By
the Sub-Advisors. The
portfolio managers of each Sub-Advisor manage a number of accounts other than
the Fund's portfolios, including in some instances proprietary or personal
accounts. Managing multiple accounts may give rise to potential conflicts of
interest including, for example, conflicts among investment strategies,
allocating time and attention to account management, allocation of investment
opportunities, knowledge of and timing of fund trades, selection of brokers and
dealers, and compensation for the account. Each has adopted and implemented
policies and procedures that it believes address the potential conflicts
associated with managing accounts for multiple clients and personal accounts and
are designed to ensure that all clients and client accounts are treated fairly
and equitably. These procedures include allocation policies and procedures,
personal trading policies and procedures, internal review processes and, in some
cases, review by independent third parties.
Investments
the Sub-Advisor deems appropriate for the Fund's portfolio may also be deemed
appropriate by it for other accounts. Therefore, the same security may be
purchased or sold at or about the same time for both the Fund's portfolio and
other accounts. In such circumstances, the Sub-Advisor may determine that orders
for the purchase or sale of the same security for the Fund's portfolio and one
or more other accounts should be combined. In this event the transactions will
be priced and allocated in a manner deemed by the Sub-Advisor to be equitable
and in the best interests of the Fund’s portfolio and such other accounts. While
in some instances combined orders could adversely affect the price or volume of
a security, the Fund believes that its participation in such transactions on
balance will produce better overall results for the Fund.
PURCHASE
AND REDEMPTION OF SHARES
Purchase
of Shares
Participating
insurance companies and certain other designated organizations are authorized to
receive purchase orders on the Funds' behalf and those organizations are
authorized to designate their agents and affiliates as intermediaries to receive
purchase orders. Purchase orders are deemed received by a Fund when authorized
organizations, their agents or affiliates receive the order. The Funds are not
responsible for the failure of any designated organization or its agents or
affiliates to carry out its obligations to its customers. Class A shares of the
Funds are purchased at their public offering price and other share classes of
the Funds are purchased at the net asset value ("NAV") per share, as determined
at the close of the regular trading session of the NYSE next occurring after a
purchase order is received and accepted by an authorized agent of a Fund. In
order to receive a day's price, an order must be received in good order by the
close of the regular trading session of the NYSE as described below in "Pricing
of Fund Shares."
All
income dividend and capital gains distributions, if any, on a Fund's Class S
shares are paid out in cash. All income dividends and capital gains
distributions, if any, on a Fund's Institutional Class and Classes R-1, R-2,
R-3, R-4, R-5, and R-6 shares are reinvested automatically in additional shares
of the same class of the same Fund. Dividends and capital gains distributions,
if any, on a Fund's Classes A, C, and J shares are reinvested automatically in
additional shares of the same Class of shares of the same Fund unless the
shareholder elects to take dividends in cash. The reinvestment will be made at
the NAV determined on the first business day following the record
date.
The
Fund, at its discretion, may permit the purchase of shares using securities as
consideration (a purchase in-kind).
For
information related to Class S shares, see the section in this SAI entitled
"Multiple Class Structure."
Class
R-1 and Class R-2 Shares
For
retirement plan investors, effective as of the close of the New York Stock
Exchange on January 31, 2017, Class R-1 and Class R-2 shares are no longer
available for purchase from new retirement plans except in limited
circumstances. However, if a retirement plan currently offers Class R-1 or Class
R-2, such plans will be allowed to continue to invest in these share classes
through Funds they currently offer in their plans or Funds they add to their
plans.
Abandoned
or Orphaned Accounts
In
order to invest in shares of Principal Funds, a shareholder’s account must have
a registered broker-dealer on file with us when the account is established. If
an active account does not have a registered broker-dealer on file, we consider
the account to be an “abandoned or orphaned account”. If we determine in
our discretion that an account is abandoned or orphaned, we will take the
following actions:
•Notify
the shareholder in writing as to the account’s status and request that the
account(s) be moved to another registered broker-dealer;
•Remove
the broker/dealer from the account. If the shareholder does not request
another registered broker/dealer to be added to the account, Principal
Shareholder Services, Inc. (“PSS”), the Funds’ Transfer Agent, will hold the
accounts until another registered broker/dealer is added to the account.
PSS is not a broker-dealer and does not offer investment advice;
and
•No
initial sales charge will apply to purchases of Fund shares while PSS is holding
the account.
Sales
of Shares
Payment
for shares tendered for redemption is ordinarily made in cash. The Fund may
determine, however, that it would be detrimental to the remaining shareholders
to make payment of a redemption order wholly or partly in cash. The Fund may,
therefore, pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the Fund's portfolio in lieu of cash. If the Fund pays
the redemption proceeds in kind, the redeeming shareholder might incur brokerage
or other costs in selling the securities for cash. The Fund will value
securities used to pay redemptions in kind using the same method the Fund uses
to value its portfolio securities as described below in "Pricing of Fund
Shares."
The
right to require the Funds to redeem their shares may be suspended, or the date
of payment may be postponed, whenever: 1) trading on the NYSE is restricted, as
determined by the SEC, or the NYSE is closed except for holidays and weekends;
2) the SEC permits such suspension and so orders; or 3) an emergency exists as
determined by the SEC so that disposal of securities or determination of NAV is
not reasonably practicable.
Certain
designated organizations are authorized to receive sell orders on the Fund's
behalf and those organizations are authorized to designate their agents and
affiliates as intermediaries to receive redemption orders. Redemption orders are
deemed received by the Fund when authorized organizations, their agents or
affiliates receive the order. The Fund is not responsible for the failure of any
designated organization or its agents or affiliates to carry out its obligations
to its customers.
For
information related to Class S shares, see the section in this SAI entitled
"Multiple Class Structure."
Exchanges
Between Classes of Shares
Class
S shares of the Capital Securities Fund are not subject to
exchange.
Through
your financial intermediary, in certain limited circumstances, you may become
eligible to exchange shares of a Fund you own for shares of a different class of
the same Fund, if you become eligible to purchase shares of such different class
of the same Fund through your account with your financial intermediary. The
following shows the permitted exchanges, subject to the conditions described
herein:
|
|
|
|
|
|
Exchange
From Class |
Exchange
To Class |
A |
Institutional |
C |
A,
Institutional |
Institutional |
A,
C, R-6 |
Such
same Fund exchanges between share classes are permitted subject to conditions
including, but not limited to, the following:
•You
or your retirement plan sponsor must be eligible to purchase shares of the class
into which the exchange is to occur;
•Your
financial intermediary or the retirement plan sponsor's financial intermediary
must have an agreement with the underwriter or transfer agent of Principal Funds
allowing the purchase of such share class for you;
•The
Fund must offer shares of such class of such Fund in your state or the state of
the retirement plan sponsor;
•In
order to exchange into Class A shares, you must be eligible to: (i) purchase
Class A shares with no initial sales charge; or (ii) exchange into Class A
shares through your financial intermediary with no initial sales
charge.
•Depending
on the circumstances, for exchanges from Classes A and C shares there may be a
contingent deferred sales charge in connection with the exchange;
and
•Any
such exchange must be requested by your financial intermediary or retirement
plan sponsor (with approval by the Distributor) and, except as otherwise
approved by the Distributor, must result from either (i) the financial
intermediary seeking to have shares of the Funds on their platform held in a
particular share class, (ii) the share class becoming available to your
financial intermediary or financial professional through a new relationship, or
(iii) your retirement plan sponsor electing to have shares of the Funds offered
as part of the plan investment options held in a particular share
class.
If
after purchasing Institutional Class shares you become ineligible to invest in
Institutional Class shares, you may be permitted to exchange from Institutional
Class shares into other share classes issued by the same Fund if your financial
intermediary determines you qualify for such an exchange.
You
should check with your financial intermediary to see if the exchange you wish to
complete will satisfy the conditions. Your ability to exchange between share
classes of the same Fund may be limited by the operational limitations of your
financial intermediary. Please consult your financial professional for more
information.
While
such an exchange may not be considered a taxable event for income tax purposes,
you should consult with your tax advisor regarding possible federal, state,
local and foreign tax consequences.
PRICING
OF FUND SHARES
Each
Fund's shares are bought and sold at the current net asset value ("NAV") per
share. Each Fund's NAV for each class is calculated each day the New York Stock
Exchange ("NYSE") is open, as of the close of business of the Exchange (normally
3:00 p.m. Central Time). The NAV of Fund shares is not determined on days the
NYSE is closed (generally, New Year's Day; Martin Luther King, Jr. Day;
Washington's Birthday/Presidents' Day; Good Friday; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day; and Christmas). When an order to buy or sell
shares is received, the share price used to fill the order is the next price
calculated after the order is received in proper form. The Funds will not treat
an intraday unscheduled disruption in NYSE trading as a closure of the NYSE and
will price its shares as of 3:00 p.m. Central Time, if the particular disruption
directly affects only the NYSE.
For
these Funds, the share price is calculated by:
• taking
the current market value of the total assets of the Fund
• subtracting
liabilities of the Fund
• dividing
the remainder proportionately into the classes of the Fund
• subtracting
the liability of each class
• dividing
the remainder by the total number of shares owned in that class.
In
determining NAV, securities listed on an Exchange, the Nasdaq National Market
and any foreign markets within the Western Hemisphere are valued at the closing
prices on such markets, or if such price is lacking for the trading period
immediately preceding the time of determination, such securities are valued at
their current bid price.
Municipal
securities held by the Funds are traded primarily in the over-the-counter
market. Valuations of such securities are furnished by one or more pricing
services employed by the Funds and are based upon appraisals obtained by a
pricing service, in reliance upon information concerning market transactions and
quotations from recognized municipal securities dealers.
Other
securities that are traded on the over-the-counter market are valued at their
closing bid prices. Each Fund will determine the market value of individual
securities held by it, by using prices provided by one or more professional
pricing services which may provide market prices to other funds, or, as needed,
by obtaining market quotations from independent broker-dealers. Debt securities
with remaining maturities of sixty days or less for which market quotations and
information furnished by a third party pricing service are not readily available
will be valued at amortized cost, which approximates current value. Securities
for which quotations are not readily available, and other assets, are valued at
fair value determined in good faith under procedures established by and under
the supervision of the Board.
A
Fund’s securities may be traded on foreign securities markets that close each
day prior to the time the NYSE closes. In addition, foreign securities trading
generally or in a particular country or countries may not take place on all
business days in New York. The Fund has adopted policies and procedures to “fair
value” some or all securities held by a Fund. These fair valuation procedures
are intended to discourage shareholders from investing in the Fund for the
purpose of engaging in market timing or arbitrage transactions. The values of
foreign securities used in computing share price are determined at the time the
foreign market closes. Foreign securities and currencies are converted to U.S.
dollars using the exchange rate in effect at the close of the NYSE.
Occasionally, events affecting the value of foreign securities occur when the
foreign market is closed and the NYSE is open. The NAV of a Fund investing in
foreign securities may change on days when shareholders are unable to purchase
or redeem shares. If the Advisor believes that the market value is materially
affected, the share price will be calculated using the policy adopted by the
Fund.
Certain
securities issued by companies in emerging markets may have more than one quoted
valuation at any point in time, sometimes referred to as a "local" price and a
"premium" price. The premium price is often a negotiated price which may not
consistently represent a price at which a specific transaction can be effected.
It is the policy of the Funds to value such securities at prices at which it is
expected those shares may be sold, and the Advisor is authorized to make such
determinations subject to the oversight of the Board as may from time to time be
necessary.
Appendix
B provides a specimen price-make-up sheet showing how the Fund calculates the
total offering price per share.
TAX
CONSIDERATIONS
Qualification
as a Regulated Investment Company
The
Funds intend to qualify annually to be treated as regulated investment companies
(RICs) under the Internal Revenue Code of 1986, as amended, (the IRC) by
satisfying certain requirements prescribed by Subchapter M of the IRC. To
qualify as RICs, the Funds must invest in assets which produce types of income
specified in the IRC (Qualifying Income). Whether the income from derivatives,
swaps, commodity-linked derivatives and other commodity/natural resource-related
securities is Qualifying Income is unclear under current law. Accordingly, the
Funds’ ability to invest in certain derivatives, swaps, commodity-linked
derivatives and other commodity/natural resource-related securities may be
restricted. Further, if the Funds invest in these types of securities and the
income is not determined to be Qualifying Income, it may cause such Fund to fail
to qualify as a RIC under the IRC for a given year. If a Fund fails to qualify
as a regulated investment company for a particular year, it will be liable for
taxes, significantly reducing its distributions to shareholders and eliminating
shareholders' ability to treat distributions (as long or short-term capital
gains or qualifying dividends) of the Fund in the manner they were received by
the Fund.
Futures
Contracts and Options
As
previously discussed, some of the Funds invest in futures contracts or options
thereon, index options, or options traded on qualified exchanges. For federal
income tax purposes, capital gains and losses on futures contracts or options
thereon, index options or options traded on qualified exchanges are generally
treated as 60% long-term and 40% short-term. In addition, the Funds must
recognize any unrealized gains and losses on such positions held at the end of
the fiscal year. A Fund may elect out of such tax treatment, however, for a
futures or options position that is part of an "identified mixed straddle" such
as a put option purchased with respect to a portfolio security. Gains and losses
on futures and options included in an identified mixed straddle are considered
100% short-term and unrealized gains or losses on such positions are not
realized at year-end. The straddle provisions of the Code may require the
deferral of realized losses to the extent that a Fund has unrealized gains in
certain offsetting positions at the end of the fiscal year. The Code may also
require recharacterization of all or a part of losses on certain offsetting
positions from short-term to long-term, as well as adjustment of the holding
periods of straddle positions.
International
Funds
Some
foreign securities purchased by the Funds may be subject to foreign withholding
taxes that could reduce the yield on such securities. The amount of such foreign
taxes is expected to be insignificant. Shareholders of the Funds that invest in
foreign securities may be entitled to claim a credit or deduction with respect
to foreign taxes. The Funds may from year to year make an election to pass
through such taxes to shareholders. If such election is not made, any foreign
taxes paid or accrued will represent an expense to each affected Fund that will
reduce its investment company taxable income. Certain Funds may purchase
securities of certain foreign corporations considered to be passive foreign
investment companies by the Internal Revenue Service. In order to avoid taxes
and interest that must be paid by the Funds if these instruments appreciate in
value, the Funds may make various elections permitted by the tax laws. However,
these elections could require that the Funds recognize additional taxable
income, which in turn must be distributed. In addition, the Fund’s investments
in foreign securities or foreign currencies may increase or accelerate the
Fund’s recognition of ordinary income and may affect the timing or amount of the
Fund’s distributions.
Under
the Foreign Account Tax Compliance Act (FATCA), a Fund may be required to
withhold a 30% tax on (a) dividends paid by the Fund, and (b) certain capital
gain distributions and/or the proceeds arising from the sale of Fund shares paid
by the Fund after December 31, 2018, to certain foreign entities, referred to as
foreign financial institutions or non-financial foreign 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. The IRS recently issued proposed
regulations indicating its intent to eliminate the 30% withholding tax on gross
proceeds. A Fund may disclose the information that it receives from its
shareholders to the IRS, non-U.S. taxing authorities or other parties as
necessary to comply with FATCA. Withholding also may be required if a foreign
entity that is a shareholder of a Fund fails to provide the Fund with
appropriate certifications or other documentation concerning its status under
FATCA.
Special
Tax Considerations for the Opportunistic Municipal Fund (the “Municipal
Fund”)
The
Municipal Fund also intends to qualify to pay "exempt-interest dividends" to its
shareholders. An exempt-interest dividend is that part of dividend distributions
made by the Fund which consist of interest received by that Fund on tax-exempt
municipal obligations. Shareholders incur no federal income taxes on
exempt-interest dividends. However, these exempt-interest dividends may be
taxable under state or local law. Exempt-interest dividends that derive from
certain private activity bonds must be included by individuals as a preference
item in determining whether they are subject to the alternative minimum tax. The
Fund may also pay ordinary income dividends and distribute capital gains from
time to time. Ordinary income dividends and distributions of capital gains, if
any, are taxable for federal purposes.
If
a shareholder receives an exempt-interest dividend with respect to shares of the
Fund held for six months or less, then any loss on the sale or exchange of such
shares, to the extent of the amount of such dividend, is disallowed. If a
shareholder receives a capital gain dividend with respect to shares held for six
months or less, then any loss on the sale or exchange of such shares is treated
as a long term capital loss to the extent the loss exceeds any exempt-interest
dividend received with respect to such shares, and is disallowed to the extent
of such exempt-interest dividend.
Interest
on indebtedness incurred or continued by a shareholder to purchase or carry
shares of this Fund is not deductible. Furthermore, entities or persons who are
"substantial users" (or related persons) under Section 147(a) of the Internal
Revenue Code of facilities financed by private activity bonds should consult
their tax advisors before purchasing shares of the Fund.
From
time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on
municipal obligations. If legislation is enacted that eliminates or
significantly reduces the availability of municipal obligations, it could
adversely affect the ability of the Fund to continue to pursue its investment
objectives and policies. In such event, the Fund would reevaluate its investment
objectives and policies.
PORTFOLIO
HOLDINGS DISCLOSURE
The
Fund may publish month-end portfolio holdings information for each Fund’s
portfolio on the www.principal.com website and on the www.principalfunds.com
website on the thirteenth business day of the following month. The Funds may
also occasionally publish information on the websites relating to specific
events, such as the impact of a natural disaster, corporate debt default or
similar events on portfolio holdings. The Funds may also occasionally publish
information on the websites concerning the removal, addition or change in
weightings of underlying funds in which funds of funds invest. It is the Fund's
policy to disclose only public information regarding portfolio holdings (i.e.
information published on the websites or filed with the SEC), except as
described below.
Non-Specific
Information. Under
the Portfolio Holdings Disclosure Policy, the Funds may distribute non-specific
information about the Funds and/or summary information about the Funds as
requested. Such information will not identify any specific portfolio holding,
but may reflect, among other things, the quality, character, or sector
distribution of a Fund's holdings. This information may be made available at any
time (or without delay).
Policy.
The
Fund and PGI have adopted a policy of disclosing non-public portfolio holdings
information to third parties only to the extent required by federal law, and to
the following third parties, so long as such third party has agreed, or is
legally obligated, to maintain the confidentiality of the information and to
refrain from using such information to engage in securities
transactions:
1) Daily
to the Fund's portfolio pricing services, Bloomberg LP, ICE Data Services, J.P.
Morgan PricingDirect, Inc., and IHS Markit Partners to obtain prices for
portfolio securities;
2) Upon
proper request to government regulatory agencies or to self-regulatory
organizations;
3) As
needed to Ernst & Young LLP, the independent registered public accounting
firm, in connection with the performance of the services provided by Ernst &
Young LLP to the Fund;
4) To
the sub-advisors' proxy service providers (Broadridge Financial Solutions, Inc.,
Glass Lewis & Co., and Institutional Shareholder Services (ISS)) to
facilitate voting of proxies;
5) To
the Fund's custodian, The Bank of New York Mellon, in connection with the
custodial services it provides to the Fund; and
6) Kessler,
Topaz, Meltzer & Check, LLP, in connection with legal services it provides
to the Fund.
The
Fund is also permitted to enter into arrangements to disclose portfolio holdings
to other third parties in connection with the performance of a legitimate
business purpose if such third party agrees in writing to maintain the
confidentiality of the information prior to the information being disclosed. Any
such written agreement must be approved by an officer of the Fund, PGI or the
Fund's sub-advisor. Approval must be based on a reasonable belief that
disclosure to such other third party is in the best interests of the Fund's
shareholders. If a conflict of interest is identified in connection with
disclosure to any such third party, the Fund's or PGI's Chief Compliance Officer
("CCO") must approve such disclosure, in writing before it occurs. The Fund
currently has disclosure agreements with the following:
|
|
|
|
|
|
|
|
|
Abacus
Group LLC |
DTCC
OASYS |
Moody's
Analytics |
Abel
Noser |
DTI
Global |
Morgan
Stanley |
Accenture |
Eagle
Investment Systems Corp. |
Morningstar,
Inc. |
Adobe |
Electra
Information Systems |
MSCI
Inc. |
Advent |
Electra-Reconciliation |
Nomura
International |
Advent
Custodial Data (ACD) |
ESG
Manager (MSCI) |
Northern
Trust |
Advent
Portfolio Exchange |
eVestment
Alliance |
Omgeo
LLC |
Algorithmics |
Eze
(Castle) Software Group |
Portware,
LLC |
Ascendant
Compliance Manager |
FactSet |
PricewaterhouseCoopers,
LLP |
Ashland
Partners |
FactSet
Research Systems Inc. |
Refinitiv |
Axioma |
Financial
Recovery Technologies (FRT) |
RR
Donnelley and Sons |
Barclays
|
Financial
Tracking Technologies LLC |
Russell
Investments Implementation Services, LLC |
Barra |
FIS
Global Asset Management |
SAP |
Black
Mountain Systems |
FIS
PTA |
SDL |
Bloomberg
AIM |
FTSE
Fixed Income LLC |
SEI
Global Services, Inc. |
Bloomberg
LP |
FX
Transparency |
SEI
Manager Dashboard |
Bloomberg
Port |
Global
Trading Analytics |
Serena |
Bloomberg
Professional Services |
Goldman
Sachs |
SmartStream
Technologies |
BNY
Mellon |
IHS
Markit LTD |
Solvency
Analytics AG |
Broadridge |
INDATA |
SS&C
(Evare) |
Broadridge
Business Process Outsourcing |
Indus
Valley Partners (IVP) |
SS&C
Hedge Fund Services, North America, Inc. |
Solutions,
LLC |
Intercontinental
Exchange, Inc. |
SS&C
Technologies |
Broadridge
Financial Solutions, Inc. |
InvestCloud
Inc |
SS&C
Technologies Holdings |
Broadridge
Systems |
Investment
Company Institute (ICI) |
SS&C
Vision FI |
Brown
Brothers Harriman |
Investor
Tools, Inc. |
State
Street Bank & Trust |
Capital
Confirmation, Inc. |
Iron
Mountain |
State
Street Corporation |
Charles
River |
ITG |
Style
Research |
Charles
River Systems, Inc. |
JPMorgan
Chase |
SWIFT |
Charles
River Trading System |
JW
Boarman |
Sybase
Inc. |
Clearpar
(Markit) |
KPMG |
Tegra118 |
Confluence
Technologies |
Lend
Amend |
Trade
Informatics |
COR-FS
Ltd. |
LexisNexis |
TriOptima |
Corporate
Communication Group |
Linedata |
TSI
(Virtus) |
Credit
Suisse |
Lionbridge |
Veritas |
Deutsche
Bank |
LiquidNet |
Veritext
Global |
DG3 |
London
Stock Exchange Group |
UBS |
Donnelley
Financial Solutions |
Markit
WSO Services |
WCI
Consulting |
DST
Systems |
MBI
Solutions, LLC |
|
DTCC
Derivatives Repository Ltd. |
Merrill
Corporation |
|
Any
agreement by which any Fund or any party acting on behalf of the Fund agrees to
provide Fund portfolio information to a third party, other than a third party
identified in the policy described above, must be approved prior to information
being provided to the third party, unless the third party is a regulator or has
a duty to maintain the confidentiality of such information and to refrain from
using such information to engage in securities transactions. A written record of
approval will be made by the person granting approval.
The
Fund's non-public portfolio holdings information policy applies without
variation to individual investors, institutional investors, intermediaries that
distribute the Fund's shares, third party service providers, rating and ranking
organizations, and affiliated persons of the Fund. Neither the Fund nor PGI nor
any other party receives compensation in connection with the disclosure of Fund
portfolio information. The Fund's CCO will periodically, but no less frequently
than annually, review the Fund's portfolio holdings disclosure policy and
recommend changes the CCO believes are appropriate, if any, to the Fund's Board.
In addition, the Fund's Board must approve any change in the Fund's portfolio
holdings disclosure policy that would expand the distribution of such
information.
PROXY
VOTING POLICIES AND PROCEDURES
The
Board has delegated responsibility for decisions regarding proxy voting for
securities held by each Fund to PGI or to that Fund's Sub-Advisor, as
appropriate. PGI and each Sub-Advisor will vote such proxies in accordance with
its proxy policies and procedures, which have been reviewed by the Board, and
which are found in Appendix C. Any material changes to the proxy policies and
procedures will be submitted to the Board for approval.
For
Funds that participate in a securities lending program, the voting
rights for securities that are loaned are transferred to the borrower.
Therefore, the lender (i.e., a Fund) is not entitled to vote the loaned
securities, unless it recalls those securities. Those managing the Fund’s
investments may recall securities for voting purposes when they reasonably
believe the ability to vote such securities outweighs the additional revenue
received if such securities were not recalled.
Information
regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30, 2020, is available, without charge,
upon request, by calling 1-800-222-5852 or on the SEC website at
www.sec.gov.
FINANCIAL
STATEMENTS
The
financial statements of the Fund at August 31, 2020 are incorporated herein by
reference to the Fund’s most recent Annual
Report to Shareholders
filed with the SEC on Form N-CSR.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst
& Young LLP (220 South Sixth Street, Suite 1400, Minneapolis, MN 55402) is
the independent registered public accounting firm for the Fund
Complex.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The
following list identifies shareholders who own more than 25% of the voting
securities of the Fund as of December 4, 2020. It is presumed that a person
who owns more than 25% of the voting securities of a fund controls the fund. A
control person could control the outcome of proposals presented to shareholders
for approval. The information is listed in alphabetical order by
fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
Percent
of
Ownership |
Shareholder
Name and Address |
Jurisdiction
Under
Which
Control
Person
is
Organized
(when
control
person
is a
company) |
Parent
of Control
Person
(when control
person
is a company) |
CAPITAL
SECURITIES |
35.74% |
MORGAN
STANLEY SMITH BARNEY LLC |
DELAWARE |
MORGAN
STANLEY |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUSTOMERS |
|
|
|
|
1
NEW YORK PLZ FL 12 |
|
|
|
|
NEW
YORK NY 10004-1901 |
|
|
|
|
|
|
|
CAPITAL
SECURITIES |
30.14% |
MLPF&S
FOR THE SOLE BENEFIT |
NEW
YORK |
BANK
OF AMERICA |
|
|
OF
ITS CUSTOMERS |
|
CORPORATION |
|
|
ATTN
FUND ADMINISTRATION |
|
|
|
|
4800
DEER LAKE DR E FL 3 |
|
|
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
|
|
|
|
GLOBAL
|
31.63% |
PERSHING
LLC |
NEW
YORK |
THE
BANK OF NEW YORK |
MULTI-STRATEGY |
|
P
O BOX 2052 |
|
MELLON |
|
|
JERSEY
CITY NJ 07303-2052 |
|
|
|
|
|
|
|
GLOBAL |
27.38% |
WELLS
FARGO CLEARING SERVICES LLC |
CALIFORNIA |
WELLS
FARGO & |
MULTI-STRATEGY |
|
SPECIAL
CUSTODY ACCT FOR THE |
|
COMPANY |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
|
|
2801
MARKET ST |
|
|
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
|
|
|
|
INTERNATIONAL
|
37.10% |
PRINCIPAL
LIFE INSURANCE CO CUST |
IOWA |
PRINCIPAL
FINANCIAL |
EQUITY
INDEX |
|
FBO
PRINCIPAL FINANCIAL GROUP |
|
SERVICES,
INC.(1) |
|
|
OMNIBUS
WRAPPED |
|
|
|
|
ATTN
PLIC PROXY COORDINATOR |
|
|
|
|
711
HIGH ST |
|
|
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
INTERNATIONAL
|
33.09% |
DIVERSIFIED
GROWTH ACCOUNT |
MARYLAND |
PRINCIPAL
FUNDS, INC. |
EQUITY
INDEX |
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
|
|
711
HIGH ST |
|
|
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
OPPORTUNISTIC
|
28.88% |
NATIONAL
FINANCIAL SERVICES LLC |
DELAWARE |
FIDELITY
GLOBAL |
MUNICIPAL |
|
FOR
THE EXCL BENEFIT OF OUR CUSTOMERS |
|
BROKERAGE
GROUP, INC. |
|
|
499
WASHINGTON BLVD |
|
a
wholly owned subsidiary |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
of
FMR, LLC |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
|
|
|
SMALL-MIDCAP
|
50.94% |
WELLS
FARGO CLEARING SERVICES LLC |
CALIFORNIA |
WELLS
FARGO & |
DIVIDEND
INCOME |
|
SPECIAL
CUSTODY ACCT FOR THE |
|
COMPANY |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
|
|
2801
MARKET ST |
|
|
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
|
|
|
|
SMALL-MIDCAP |
51.03% |
PRINCIPAL
GLOBAL INVESTORS LLC |
DELAWARE |
PRINCIPAL
HOLDING |
GROWTH |
|
711
HIGH ST |
|
COMPANY,
LLC(1) |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
(1)
Principal Financial Group, Inc. is the parent of Principal Financial
Services, Inc.; Principal Financial Services, Inc. is the parent both of
Principal Life Insurance Company and of Principal Global Holding Company
(US), LLC; Principal Life Insurance Company is the parent of Principal
Holding Company, LLC.; Principal Global Holding Company (US), LLC is the
parent of Principal Global Investors,
LLC. |
The
Directors and Officers of the Fund, member companies of Principal®,
and certain other persons may purchase shares of the Funds without the payment
of any sales charge. The sales charge is waived on these transactions because
there are either no distribution costs or only minimal distribution costs
associated with the transactions. For a description of the persons entitled to a
waiver of sales charge in connection with their purchase of shares of the Funds,
see the discussion of the waiver of sales charges under the caption "Choosing a
Share Class and the Costs of Investing."
Funds
that operate as funds of funds and Principal Life Insurance Company will vote in
the same proportion as shares of the Funds owned by other shareholders.
Therefore, neither the funds of funds nor Principal Life Insurance Company
exercise voting discretion.
The
By-laws of PFI set the quorum requirement (a quorum must be present at a meeting
of shareholders for business to be transacted). The By-laws of PFI state that a
quorum is the presence in person or by proxy of the holders of one-third of the
shares of capital stock of PFI or, when the meeting relates to a certain Fund,
that Fund, issued and outstanding and entitled to vote on the record date.
Certain
proposals presented to shareholders for approval require the vote of a "majority
of the outstanding voting securities," which is a term defined in the 1940 Act
to mean, with respect to a Fund, the affirmative vote of the lesser of 1) 67% or
more of the voting securities of the Fund present at the meeting of that Fund,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present in person or by proxy, or 2) more than 50% of the outstanding voting
securities of the Fund (a "Majority of the Outstanding Voting
Securities").
Principal
Holders of Securities
The
Fund is unaware of any persons who own beneficially (but are not shareholders of
record) more than 5% of the Fund's outstanding shares. The following list
identifies the shareholders of record who own 5% or more of any class of the
Fund's outstanding shares as of December 4, 2020. The list is presented in
alphabetical order by fund.
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BLUE
CHIP (A) |
34.43% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
BLUE
CHIP (A) |
5.96% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN STREET |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
BLUE
CHIP (A) |
5.68% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
BLUE
CHIP (A) |
5.65% |
AMERICAN
ENTERPRISE INVESTMENT SVC |
|
|
FBO
#41999970 |
|
|
707
2ND AVE S |
|
|
MINNEAPOLIS
MN 55402-2405 |
|
|
|
BLUE
CHIP (C) |
18.47% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
BLUE
CHIP (C) |
14.04% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
BLUE
CHIP (C) |
9.58% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
BLUE
CHIP (C) |
8.29% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
BLUE
CHIP (C) |
8.03% |
STIFEL
NICOLAUS & CO INC |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMERS |
|
|
501
N BROADWAY |
|
|
SAINT
LOUIS MO 63102-2188 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BLUE
CHIP (C) |
6.75% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN STREET |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
BLUE
CHIP (C) |
5.58% |
AMERICAN
ENTERPRISE INVESTMENT SVC |
|
|
FBO
#41999970 |
|
|
707
2ND AVE S |
|
|
MINNEAPOLIS
MN 55402-2405 |
|
|
|
BLUE
CHIP (I) |
27.78% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
BLUE
CHIP (I) |
14.75% |
AMERICAN
ENTERPRISE INVESTMENT SVC |
|
|
FBO
#41999970 |
|
|
707
2ND AVE S |
|
|
MINNEAPOLIS
MN 55402-2405 |
|
|
|
BLUE
CHIP (I) |
9.13% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
BLUE
CHIP (I) |
9.02% |
LPL
FINANCIAL |
|
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
BLUE
CHIP (I) |
7.77% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
BLUE
CHIP (I) |
7.03% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
BLUE
CHIP (R3) |
58.57% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R3) |
10.35% |
PRINCIPAL
TRUST COMPANY |
|
|
FBO
SSP AMERICAN DEF COMP PLAN |
|
|
ATTN
SUSAN SAGGIONE |
|
|
1013
CENTRE RD |
|
|
WILMINGTON
DE 19805-1265 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BLUE
CHIP (R3) |
7.27% |
STATE
STREET BANK CUST |
|
|
FBO
ADP ACCESS PRODUCT 401(K) PLAN |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2900 |
|
|
|
BLUE
CHIP (R3) |
6.44% |
FIIOC |
|
|
FBO
CREATIVE ASSET MANAGEMENT INC |
|
|
RETIREMENT
PLAN |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
BLUE
CHIP (R3) |
5.42% |
FIIOC
FBO |
|
|
LAW
OFFICE OF JAMES SCOTT FARRIN PC |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
BLUE
CHIP (R4) |
53.23% |
STATE
STREET BANK AND TRUST COMPANY |
|
|
TRUSTEE
AND/OR CUSTODIAN |
|
|
FBO
ADP ACCESS PRODUCT |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2901 |
|
|
|
BLUE
CHIP (R4) |
39.56% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R5) |
95.41% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R6) |
28.12% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR |
|
|
FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R6) |
11.00% |
SAM
BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R6) |
9.59% |
SAM
CONS GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BLUE
CHIP (R6) |
6.70% |
SAM
STRATEGIC GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BLUE
CHIP (R6) |
5.77% |
LIFETIME
2030 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING- H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
16.23% |
LIFETIME
HYBRID 2020 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
13.54% |
LIFETIME
HYBRID 2025 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
13.18% |
LIFETIME
HYBRID 2030 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
11.07% |
THE
PRINCIPAL TRST FOR PST-RTRMENT |
|
|
FOR
MEDICAL BENEFITS FOR EMPLOYEES |
|
|
61021 |
|
|
ATTN
STEPHANIE WATTS 711-4D79 |
|
|
PRINCIPAL
FINANCIAL GROUP |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
7.75% |
LIFETIME
HYBRID 2035 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
5.45% |
LIFETIME
HYBRID 2040 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
5.24% |
LIFETIME
HYBRID 2015 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (I) |
5.02% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (R1) |
78.23% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BOND
MARKET INDEX (R1) |
9.82% |
FIIOC |
|
|
FBO
AVAILABLE PLASTICS INC 401K PLAN |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
BOND
MARKET INDEX (R1) |
5.10% |
FIDELITY
INVESTMENTS INST OPER CO |
|
|
INC
FBO |
|
|
STRAUS
MASONRY INC 401K PLAN |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1999 |
|
|
|
BOND
MARKET INDEX (R2) |
88.07% |
STATE
STREET BANK AND TRUST COMPANY |
|
|
TRUSTEE
AND/OR CUSTODIAN |
|
|
FBO
ADP ACCESS PRODUCT |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2901 |
|
|
|
BOND
MARKET INDEX (R2) |
10.51% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (R3) |
71.87% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (R3) |
11.65% |
PRINCIPAL
TRUST COMPANY |
|
|
FBO
EXEC NQ EXCESS OF MAGNECOMP CORP |
|
|
ATTN
SUSAN SAGGIONE |
|
|
1013
CENTRE RD |
|
|
WILMINGTON
DE 19805-1265 |
|
|
|
BOND
MARKET INDEX (R4) |
79.36% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (R5) |
54.25% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
BOND
MARKET INDEX (R5) |
14.67% |
FEDERAL
REALTY INVESTMENT TRUST |
|
|
FBO
FEDERAL REALTY INVESTMENT TRUST |
|
|
ATTN
VICKIE RALLS |
|
|
1626
E JEFFERSON ST |
|
|
ROCKVILLE
MD 20852-4041 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
BOND
MARKET INDEX (R5) |
5.59% |
NORTHWEST
ADMINISTRATORS |
|
|
FBO
NQ EXCESS OF NW ADMINISTRATORS |
|
|
ATTN
GAYLE BUSHNELL |
|
|
2323
EASTLAKE AVE E |
|
|
SEATTLE
WA 98102-3963 |
|
|
|
CAPITAL
SECURITIES (S) |
35.74% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
CAPITAL
SECURITIES (S) |
30.14% |
MLPF&S
FOR THE SOLE |
|
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
CAPITAL
SECURITIES (S) |
17.27% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
DIVERSIFIED
REAL ASSET (A) |
32.17% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
101
MONTGOMERY ST |
|
|
SAN
FRANCISCO CA 94104-4151 |
|
|
|
DIVERSIFIED
REAL ASSET (A) |
18.84% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
DIVERSIFIED
REAL ASSET (C) |
14.59% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
DIVERSIFIED
REAL ASSET (C) |
11.90% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
DIVERSIFIED
REAL ASSET (C) |
8.02% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
DIVERSIFIED
REAL ASSET (C) |
7.37% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
DIVERSIFIED
REAL ASSET (C) |
6.81% |
LPL
FINANCIAL |
|
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
DIVERSIFIED
REAL ASSET (C) |
5.99% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
DIVERSIFIED
REAL ASSET (I) |
20.85% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN STREET |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
DIVERSIFIED
REAL ASSET (I) |
19.64% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR |
|
|
CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
DIVERSIFIED
REAL ASSET (I) |
14.03% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FOR THE |
|
|
BENEFIT
OF CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
101
MONTGOMERY ST |
|
|
SAN
FRANCISCO CA 94104-4151 |
|
|
|
DIVERSIFIED
REAL ASSET (I) |
9.21% |
CAPINCO
C/O US BANK NA |
|
|
1555
N RIVERCENTER DR STE 302 |
|
|
MILWAUKEE
WI 53212-3958 |
|
|
|
DIVERSIFIED
REAL ASSET (R3) |
98.31% |
PRINCIPAL
TRUST COMPANY |
|
|
FBO
BLUE ROCK REFINISHING SOLUTIONS |
|
|
LLC
CASH BALANCE PLAN |
|
|
2974
CLEVELAND AVE N |
|
|
SAINT
PAUL MN 55113-1101 |
|
|
|
DIVERSIFIED
REAL ASSET (R4) |
100.00% |
PRINCIPAL
GLOBAL INVESTORS LLC |
|
|
ATTN
SEAN CLINES 801-9A08 |
|
|
801
GRAND AVE |
|
|
DES
MOINES IA 50309-8000 |
|
|
|
DIVERSIFIED
REAL ASSET (R5) |
62.74% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
ATTN
NPIO TRADE DESK |
|
|
OMNIBUS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
DIVERSIFIED
REAL ASSET (R5) |
37.25% |
PRINCIPAL
GLOBAL INVESTORS LLC |
|
|
ATTN
SEAN CLINES 801-9A08 |
|
|
801
GRAND AVE |
|
|
DES
MOINES IA 50309-8000 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
DIVERSIFIED
REAL ASSET (R6) |
11.78% |
MAC
& CO A/C 193733 |
|
|
ATTN
MUTUAL FUND OPS |
|
|
500
GRANT STREET |
|
|
ROOM
151-1010 |
|
|
PITTSBURGH
PA 15219-2502 |
|
|
|
DIVERSIFIED
REAL ASSET (R6) |
8.00% |
LIFETIME
2030 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING- H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
DIVERSIFIED
REAL ASSET (R6) |
7.86% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR |
|
|
FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
DIVERSIFIED
REAL ASSET (R6) |
6.29% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
499
WASHINGTON BLVD |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
DIVERSIFIED
REAL ASSET (R6) |
5.85% |
SAM
BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
DIVERSIFIED
REAL ASSET (R6) |
5.14% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
499
WASHINGTON BLVD |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
EDGE
MIDCAP (A) |
25.18% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
EDGE
MIDCAP (A) |
18.36% |
AMERICAN
ENTERPRISE INVESTMENT SVC |
|
|
FBO
#41999970 |
|
|
707
2ND AVE S |
|
|
MINNEAPOLIS
MN 55402-2405 |
|
|
|
EDGE
MIDCAP (A) |
16.50% |
MINNESOTA
LIFE INSURANCE COMPANY |
|
|
400
ROBERT ST N STE A |
|
|
SAINT
PAUL MN 55101-2099 |
|
|
|
EDGE
MIDCAP (I) |
61.58% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
EDGE
MIDCAP (I) |
9.69% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN STREET |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
EDGE
MIDCAP (I) |
8.25% |
AMERICAN
ENTERPRISE INVESTMENT SVC |
|
|
FBO
#41999970 |
|
|
707
2ND AVE S |
|
|
MINNEAPOLIS
MN 55402-2405 |
|
|
|
EDGE
MIDCAP (I) |
6.00% |
LPL
FINANCIAL |
|
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
EDGE
MIDCAP (R6) |
27.44% |
SAM
BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
EDGE
MIDCAP (R6) |
25.87% |
SAM
CONS GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
EDGE
MIDCAP (R6) |
19.34% |
SAM
STRATEGIC GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
EDGE
MIDCAP (R6) |
6.80% |
SAM
CONS BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
GLOBAL
MULTI-STRATEGY (A) |
20.26% |
MLPF&S
FOR THE SOLE |
|
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
GLOBAL
MULTI-STRATEGY (A) |
16.10% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
GLOBAL
MULTI-STRATEGY (A) |
13.58% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
GLOBAL
MULTI-STRATEGY (A) |
9.45% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
27.38% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
11.45% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
7.54% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
7.16% |
STIFEL
NICOLAUS & CO INC |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMERS |
|
|
501
N BROADWAY |
|
|
SAINT
LOUIS MO 63102-2188 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
7.14% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
GLOBAL
MULTI-STRATEGY (C) |
5.22% |
MLPF&S
FOR THE SOLE |
|
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
GLOBAL
MULTI-STRATEGY (I) |
42.17% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
GLOBAL
MULTI-STRATEGY (I) |
16.76% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUST |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
GLOBAL
MULTI-STRATEGY (I) |
10.83% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
GLOBAL
MULTI-STRATEGY (I) |
7.96% |
MLPF&S
FOR THE SOLE |
|
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
GLOBAL
MULTI-STRATEGY (R6) |
46.85% |
MORI
& CO |
|
|
922
WALNUT ST |
|
|
MAILSTOP
TBTS 2 |
|
|
KANSAS
CITY MO 64106-1802 |
|
|
|
GLOBAL
MULTI-STRATEGY (R6) |
41.84% |
WELLS
FARGO BANK NA |
|
|
PO
BOX 1533 |
|
|
MINNEAPOLIS
MN 55480-1533 |
|
|
|
GLOBAL
MULTI-STRATEGY (R6) |
8.69% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR - FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (I) |
28.40% |
LPL
FINANCIAL |
|
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
INTERNATIONAL
EQUITY INDEX (I) |
26.46% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (I) |
14.52% |
PIMS/PRUDENTIAL
RETIREMENT |
|
|
AS
NOMINEE FOR THE TTEE/CUST PL 008 |
|
|
EMPIRE
TODAY, LLC 401(K) |
|
|
333
NORTHWEST AVE |
|
|
NORTHLAKE
IL 60164-1604 |
|
|
|
INTERNATIONAL
EQUITY INDEX (I) |
6.68% |
CHARLES
SCHWAB & CO INC |
|
|
FBO
SPECIAL CUSTODY ACCOUNTS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN ST |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
INTERNATIONAL
EQUITY INDEX (I) |
6.34% |
PIMS/PRUDENTIAL
RETIREMENT |
|
|
AS
NOMINEE FOR THE TTEE/CUST PL 720 |
|
|
AMN
HEALTHCARE |
|
|
12400
HIGH BLUFF DRIVE |
|
|
SAN
DIEGO CA 92130-3077 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
INTERNATIONAL
EQUITY INDEX (R1) |
61.39% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R1) |
9.04% |
FIIOC
FBO |
|
|
CENTRAL
PARK INSURANCE AGENCY INC |
|
|
EMPLOYEES
PROFIT SHARING PLAN |
|
|
100
MAGELLAN WAY |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R1) |
8.95% |
MATRIX
TRUST COMPANY TRUSTEE |
|
|
WELLS
GASTROENTEROLOGY, PLLC |
|
|
717
17TH STREET |
|
|
SUITE
1300 |
|
|
DENVER
CO 80202-3304 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R1) |
6.70% |
FIIOC |
|
|
FBO
GPS INSIGHT 401K PLAN |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R1) |
6.14% |
MID
ATLANTIC TRUST COMPANY FBO |
|
|
BORIK
HOSPITALIST GROUP, INC 401(K |
|
|
1251
WATERFRONT PLACE SUITE 525 |
|
|
PITTSBURGH
PA 15222-4228 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R1) |
5.67% |
FIIOC |
|
|
FBO |
|
|
KEITH
PORTER INSULATION & FIREPLACE |
|
|
401K
PLAN |
|
|
100
MAGELLAN WAY (KW1C) |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R2) |
48.14% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R2) |
21.33% |
TIAA,
FSB CUST/TTEE FBO: |
|
|
RETIREMENT
PLANS FOR WHICH |
|
|
TIAA
ACTS AS RECORDKEEPER |
|
|
ATTN:
TRUST OPERATIONS |
|
|
211
N BROADWAY STE 1000 |
|
|
SAINT
LOUIS MO 63102-2748 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R2) |
14.06% |
STATE
STREET BANK AND TRUST COMPANY |
|
|
TRUSTEE
AND/OR CUSTODIAN |
|
|
FBO
ADP ACCESS PRODUCT |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2901 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R2) |
9.70% |
PAUL
O'BRIEN FBO |
|
|
CARDIOLOGY
SPECIALISTS OF 401(K) PR |
|
|
4660
KENMORE AVE |
|
|
ALEXANDRIA
VA 22304-1313 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
INTERNATIONAL
EQUITY INDEX (R3) |
60.36% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R3) |
9.95% |
STATE
STREET BANK AND TRUST COMPANY |
|
|
TRUSTEE
AND/OR CUSTODIAN |
|
|
FBO
ADP ACCESS PRODUCT |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2901 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R3) |
6.21% |
RELIANCE
TRUST COMPANY FBO |
|
|
MASSMUTUAL
REGISTERED PRODUCT |
|
|
PO
BOX 28004 |
|
|
ATLANTA
GA 30358-0004 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R4) |
63.13% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R4) |
11.83% |
STATE
STREET BANK AND TRUST COMPANY |
|
|
TRUSTEE
AND/OR CUSTODIAN |
|
|
FBO
ADP ACCESS PRODUCT |
|
|
1
LINCOLN ST |
|
|
BOSTON
MA 02111-2901 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R5) |
67.32% |
DCGT
AS TTEE AND/OR CUST |
|
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R5) |
14.29% |
WACHOVIA
BANK NATIONAL ASSOCIATION |
|
|
FBO
DEF COMP PLAN OF CED INC (PS |
|
|
ATTN
SHELLEY ANDERSON |
|
|
DEF |
|
|
ONE
WEST FOURTH STREET |
|
|
WINSTON-SALEM
NC 27101-3818 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R6) |
40.06% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR - FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R6) |
35.72% |
DIVERSIFIED
GROWTH ACCOUNT |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
EQUITY INDEX (R6) |
9.18% |
DIVERSIFIED
GROWTH VOLATILITY |
|
|
CONTROL
ACCOUNT |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
INTERNATIONAL
EQUITY INDEX (R6) |
6.66% |
DIVERSIFIED
BALANCED ACCOUNT |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (A) |
36.47% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
INTERNATIONAL
SMALL COMPANY (A) |
10.75% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (I) |
63.16% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (I) |
24.98% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUST |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
INTERNATIONAL
SMALL COMPANY (I) |
5.55% |
THE
GRABLE FOUNDATION |
|
|
701
MARKET ST STE 1100 |
|
|
SAINT
LOUIS MO 63101-1867 |
|
|
|
INTERNATIONAL
SMALL COMPANY (R6) |
16.98% |
LIFETIME
2030 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING- H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (R6) |
13.69% |
LIFETIME
2040 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (R6) |
8.93% |
LIFETIME
2050 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (R6) |
8.00% |
LIFETIME
2020 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
INTERNATIONAL
SMALL COMPANY (R6) |
5.48% |
SAM
BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
OPPORTUNISTIC
MUNICIPAL (A) |
25.45% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (A) |
18.96% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (A) |
12.49% |
STIFEL
NICOLAUS & CO INC |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMERS |
|
|
501
N BROADWAY |
|
|
SAINT
LOUIS MO 63102-2188 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (A) |
9.96% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (A) |
8.33% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
34.71% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
17.83% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
10.34% |
PERSHING
LLC |
|
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
8.33% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
7.09% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
OPPORTUNISTIC
MUNICIPAL (I) |
6.71% |
LPL
FINANCIAL |
|
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
OPPORTUNISTIC
MUNICIPAL (I) |
6.06% |
TD
AMERITRADE INC FOR THE |
|
|
EXCLUSIVE
BENEFIT OF OUR CLIENTS |
|
|
PO
BOX 2226 |
|
|
OMAHA
NE 68103-2226 |
|
|
|
ORIGIN
EMERGING MARKETS (A) |
33.56% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
ORIGIN
EMERGING MARKETS (A) |
15.40% |
GLEN
A MEYERS |
|
|
JANAN
S MEYERS JTWROS TOD |
|
|
SUBJECT
TO STA TOD RULES |
|
|
917
N 11TH ST |
|
|
KEOKUK
IA 52632-4107 |
|
|
|
ORIGIN
EMERGING MARKETS (I) |
50.56% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
EXCLUSIVE BENEFIT OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
ORIGIN
EMERGING MARKETS (I) |
24.47% |
TD
AMERITRADE INC FOR THE |
|
|
EXCLUSIVE
BENEFIT OF OUR CLIENTS |
|
|
PO
BOX 2226 |
|
|
OMAHA
NE 68103-2226 |
|
|
|
ORIGIN
EMERGING MARKETS (I) |
7.06% |
BANKERS
TRUST COMPANY |
|
|
FBO
PRIN SELECT SVNG EXCESS PLAN |
|
|
ATTN
PLAN TRUSTEE - FOR EES |
|
|
453
7TH ST |
|
|
DES
MOINES IA 50309-4110 |
|
|
|
ORIGIN
EMERGING MARKETS (I) |
5.74% |
CHARLES
SCHWAB & CO INC |
|
|
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|
|
ATTN
MUTUAL FUNDS |
|
|
211
MAIN ST |
|
|
SAN
FRANCISCO CA 94105-1905 |
|
|
|
ORIGIN
EMERGING MARKETS (I) |
5.45% |
BANKERS
TRUST COMPANY |
|
|
FBO
PRIN SELECT SVNG EXCPLAN INDV |
|
|
ATTN
PLAN TRUSTEE - FIELD |
|
|
453
7TH ST |
|
|
DES
MOINES IA 50309-4110 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
24.62% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR - FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
ORIGIN
EMERGING MARKETS (R6) |
24.56% |
PRINCIPAL
GLOBAL INVESTORS TRUST CO |
|
|
PRINCIPAL
LIFETIME HYBRID |
|
|
COLLECTIVE
INVESTMENT FUNDS |
|
|
1300
SW 5TH AVE STE 3300 |
|
|
PORTLAND
OR 97201-5640 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
9.36% |
SAM
BALANCED PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
7.89% |
SAM
CONS GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
7.44% |
LIFETIME
2040 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
5.88% |
SAM
STRATEGIC GROWTH PORTFOLIO PIF |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
ORIGIN
EMERGING MARKETS (R6) |
5.08% |
LIFETIME
2050 FUND |
|
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (A) |
20.60% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (A) |
10.60% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (A) |
8.24% |
MLPF&S
FOR THE SOLE |
|
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (A) |
6.60% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (A) |
6.09% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SMALL-MIDCAP
DIVIDEND INCOME (C) |
25.97% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (C) |
13.89% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (C) |
12.72% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (C) |
9.77% |
NATIONAL
FINANCIAL SERVICES LLC |
|
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (C) |
5.20% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (I) |
55.81% |
WELLS
FARGO CLEARING SERVICES LLC |
|
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (I) |
12.76% |
UBS
WM USA |
|
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (I) |
7.37% |
RAYMOND
JAMES |
|
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (I) |
6.36% |
MORGAN
STANLEY SMITH BARNEY LLC |
|
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SMALL-MIDCAP
DIVIDEND INCOME (R6) |
68.15% |
PRINCIPAL
LIFE INS COMPANY CUST |
|
|
FBO
PFG OMNIBUS WRAPPED AND CUSTOM |
|
|
ATTN
PLIC PROXY COORDINATOR |
|
|
FUNDS |
|
|
711
HIGH STREET |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (R6) |
18.31% |
MATRIX
TRUST COMPANY TRUSTEE FBO |
|
|
FELHABER
LARSON FENLON & VOGT EMP |
|
|
PO
BOX 52129 |
|
|
PHOENIX
AZ 85072-2129 |
|
|
|
SMALL-MIDCAP
DIVIDEND INCOME (R6) |
5.86% |
MATRIX
TRUST COMPANY CUST FBO |
|
|
ROMAN
CATHOLIC ARCHDIOCESE OF INDPL |
|
|
PO
BOX 52129 |
|
|
PHOENIX
AZ 85072-2129 |
|
|
|
SMALL-MIDCAP
GROWTH (I) |
51.03% |
PRINCIPAL
GLOBAL INVESTORS LLC |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SMALL-MIDCAP
GROWTH (I) |
19.44% |
MICHAEL
IACONO |
|
|
63
INTERLAKEN RD |
|
|
STAMFORD
CT 06903-5027 |
|
|
|
SMALL-MIDCAP
GROWTH (I) |
18.50% |
PRINCIPAL
LIFE INSURANCE CO CUST |
|
|
IRA
CHRISTOPHER T CORBETT |
|
|
9
ARROWCREST DR |
|
|
CROTON
HDSN NY 10520-1545 |
|
|
|
SMALL-MIDCAP
GROWTH (I) |
10.14% |
MARC
R SHAPIRO |
|
|
1
INDEPENDENCE CT APT TH4 |
|
|
HOBOKEN
NJ 07030-6761 |
|
|
|
SPECTRUM
PREFERRED AND |
20.12% |
MLPF&S
FOR THE SOLE |
CAPITAL
SECURITIES INCOME (A) |
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR EAST 3RD FL |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
SPECTRUM
PREFERRED AND |
14.04% |
MORGAN
STANLEY SMITH BARNEY LLC |
CAPITAL
SECURITIES INCOME (A) |
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
SPECTRUM
PREFERRED AND |
12.55% |
WELLS
FARGO CLEARING SERVICES LLC |
CAPITAL
SECURITIES INCOME (A) |
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SPECTRUM
PREFERRED AND |
8.69% |
NATIONAL
FINANCIAL SERVICES LLC |
CAPITAL
SECURITIES INCOME (A) |
|
FOR
THE EXCL BENE OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SPECTRUM
PREFERRED AND |
5.99% |
UBS
WM USA |
CAPITAL
SECURITIES INCOME (A) |
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
SPECTRUM
PREFERRED AND |
5.54% |
RAYMOND
JAMES |
CAPITAL
SECURITIES INCOME (A) |
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
SPECTRUM
PREFERRED AND |
5.07% |
PERSHING
LLC |
CAPITAL
SECURITIES INCOME (A) |
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
25.20% |
WELLS
FARGO CLEARING SERVICES LLC |
CAPITAL
SECURITIES INCOME (C) |
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SPECTRUM
PREFERRED AND |
12.09% |
MORGAN
STANLEY SMITH BARNEY LLC |
CAPITAL
SECURITIES INCOME (C) |
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
SPECTRUM
PREFERRED AND |
9.94% |
MLPF&S
FOR THE SOLE |
CAPITAL
SECURITIES INCOME (C) |
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR EAST 3RD FL |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
SPECTRUM
PREFERRED AND |
9.87% |
UBS
WM USA |
CAPITAL
SECURITIES INCOME (C) |
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
SPECTRUM
PREFERRED AND |
6.68% |
PERSHING
LLC |
CAPITAL
SECURITIES INCOME (C) |
|
1
PERSHING PLZ |
|
|
JERSEY
CITY NJ 07399-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
5.70% |
LPL
FINANCIAL |
CAPITAL
SECURITIES INCOME (C) |
|
OMNIBUS
CUSTOMER ACCOUNT |
|
|
ATTN
MUTUAL FUND TRADING |
|
|
4707
EXECUTIVE DR |
|
|
SAN
DIEGO CA 92121-3091 |
|
|
|
SPECTRUM
PREFERRED AND |
5.68% |
RAYMOND
JAMES |
CAPITAL
SECURITIES INCOME (C) |
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SPECTRUM
PREFERRED AND |
18.22% |
MLPF&S
FOR THE SOLE |
CAPITAL
SECURITIES INCOME (I) |
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
SPECTRUM
PREFERRED AND |
12.20% |
WELLS
FARGO CLEARING SERVICES LLC |
CAPITAL
SECURITIES INCOME (I) |
|
SPECIAL
CUSTODY ACCT FOR THE |
|
|
EXCLUSIVE
BENEFIT OF CUSTOMER |
|
|
2801
MARKET ST |
|
|
SAINT
LOUIS MO 63103-2523 |
|
|
|
SPECTRUM
PREFERRED AND |
10.41% |
MORGAN
STANLEY SMITH BARNEY LLC |
CAPITAL
SECURITIES INCOME (I) |
|
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|
|
1
NEW YORK PLZ FL 12 |
|
|
NEW
YORK NY 10004-1932 |
|
|
|
SPECTRUM
PREFERRED AND |
9.08% |
NATIONAL
FINANCIAL SERVICES LLC |
CAPITAL
SECURITIES INCOME (I) |
|
FOR
EXCLUSIVE BENEFIT OF OUR CUSTOMERS |
|
|
499
WASHINGTON BLVD |
|
|
ATTN
MUTUAL FUNDS DEPT 4TH FL |
|
|
JERSEY
CITY NJ 07310-1995 |
|
|
|
SPECTRUM
PREFERRED AND |
8.42% |
RAYMOND
JAMES |
CAPITAL
SECURITIES INCOME (I) |
|
OMNIBUS
FOR MUTUAL FUNDS |
|
|
HOUSE
ACCT FIRM 92500015 |
|
|
ATTN:
COURTNEY WALLER |
|
|
880
CARILLON PKWY |
|
|
ST
PETERSBURG FL 33716-1102 |
|
|
|
SPECTRUM
PREFERRED AND |
5.29% |
TD
AMERITRADE INC FOR THE |
CAPITAL
SECURITIES INCOME (I) |
|
EXCLUSIVE
BENEFIT OF OUR CLIENTS |
|
|
PO
BOX 2226 |
|
|
OMAHA
NE 68103-2226 |
|
|
|
SPECTRUM
PREFERRED AND |
50.18% |
DCGT
AS TTEE AND/OR CUST |
CAPITAL
SECURITIES INCOME (R1) |
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
30.11% |
PRINCIPAL
TRUST COMPANY |
CAPITAL
SECURITIES INCOME (R1) |
|
FBO
CONCORP CONCRETE INC DEFINED |
|
|
BENEFIT
PENSION PLAN |
|
|
2485
ASHCROFT AVE |
|
|
CLOVIS
CA 93611-6001 |
|
|
|
SPECTRUM
PREFERRED AND |
8.20% |
MATRIX
TRUST COMPANY CUST FBO |
CAPITAL
SECURITIES INCOME (R1) |
|
DUNSTAN
DENTAL CENTER, LLC 401(K) R |
|
|
717
17TH ST STE 1300 |
|
|
DENVER
CO 80202-3304 |
|
|
|
SPECTRUM
PREFERRED AND |
8.10% |
FIIOC
FBO |
CAPITAL
SECURITIES INCOME (R1) |
|
SUTTON
ORTHOPAEDICS & SPORTS |
|
|
MEDICINE
PC 401K PROFIT SHARING |
|
|
100
MAGELLAN WAY |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SPECTRUM
PREFERRED AND |
55.73% |
MLPF&S
FOR THE SOLE |
CAPITAL
SECURITIES INCOME (R2) |
|
BENEFIT
OF ITS CUSTOMERS |
|
|
ATTN
FUND ADMINISTRATION |
|
|
4800
DEER LAKE DR E FL 3 |
|
|
JACKSONVILLE
FL 32246-6484 |
|
|
|
SPECTRUM
PREFERRED AND |
27.57% |
DCGT
AS TTEE AND/OR CUST |
CAPITAL
SECURITIES INCOME (R2) |
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
9.13% |
MID
ATLANTIC TRUST COMPANY FBO |
CAPITAL
SECURITIES INCOME (R2) |
|
TULLY
RINCKEY PLLC 401(K) PROFIT SH |
|
|
1251
WATERFRONT PLACE SUITE 525 |
|
|
PITTSBURGH
PA 15222-4228 |
|
|
|
SPECTRUM
PREFERRED AND |
6.60% |
GREAT-WEST
TRUST COMPANY LLC TTEE F |
CAPITAL
SECURITIES INCOME (R2) |
|
EMPLOYEE
BENEFITS CLIENTS 401K - FG |
|
|
8515
E ORCHARD RD 2T2 |
|
|
GREENWOOD
VILLAGE CO 80111-5002 |
|
|
|
SPECTRUM
PREFERRED AND |
31.75% |
DCGT
AS TTEE AND/OR CUST |
CAPITAL
SECURITIES INCOME (R3) |
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
13.29% |
PRINCIPAL
TRUST COMPANY |
CAPITAL
SECURITIES INCOME (R3) |
|
FBO
BLUE ROCK REFINISHING SOLUTIONS |
|
|
LLC
CASH BALANCE PLAN |
|
|
2974
CLEVELAND AVE N |
|
|
SAINT
PAUL MN 55113-1101 |
|
|
|
SPECTRUM
PREFERRED AND |
12.81% |
PIMS/PRUDENTIAL
RETIREMENT |
CAPITAL
SECURITIES INCOME (R3) |
|
AS
NOMINEE FOR THE TTEE/CUST PL 765 |
|
|
ACME
MONACO CORPORATION 401(K) |
|
|
75
WINCHELL RD |
|
|
NEW
BRITAIN CT 06052-1017 |
|
|
|
SPECTRUM
PREFERRED AND |
10.56% |
UBS
WM USA |
CAPITAL
SECURITIES INCOME (R3) |
|
0O0
11011 6100 |
|
|
OMNI
ACCOUNT M/F |
|
|
SPEC
CDY A/C EBOC UBSFSI |
|
|
1000
HARBOR BLVD |
|
|
WEEHAWKEN
NJ 07086-6761 |
|
|
|
SPECTRUM
PREFERRED AND |
9.55% |
FIIOC |
CAPITAL
SECURITIES INCOME (R3) |
|
FBO
FLETCHER TILTON PC PROFIT |
|
|
SHARING
PLAN AND TRUST |
|
|
100
MAGELLAN WAY |
|
|
COVINGTON
KY 41015-1987 |
|
|
|
SPECTRUM
PREFERRED AND |
6.45% |
PRINCIPAL
TRUST COMPANY |
CAPITAL
SECURITIES INCOME (R3) |
|
FBO
EXEC NQ EXCESS OF THERMOS |
|
|
ATTN
SUSAN SAGGIONE |
|
|
1013
CENTRE RD |
|
|
WILMINGTON
DE 19805-1265 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SPECTRUM
PREFERRED AND |
76.39% |
DCGT
AS TTEE AND/OR CUST |
CAPITAL
SECURITIES INCOME (R4) |
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
8.28% |
PRINCIPAL
TRUST COMPANY |
CAPITAL
SECURITIES INCOME (R4) |
|
FBO
BRAILSFORD & DUNLAVEY CASH |
|
|
BALANCE
PLAN |
|
|
1140
CONNECTICUT AVE NW STE 400 |
|
|
WASHINGTON
DC 20036-4014 |
|
|
|
SPECTRUM
PREFERRED AND |
8.16% |
WOODMONT
COUNTRY CLUB |
CAPITAL
SECURITIES INCOME (R4) |
|
FBO
EXEC 457(B) REITREMENT PLAN OF |
|
|
WOODMONT
CC |
|
|
ATTN
GAIL TRISTANO |
|
|
1201
ROCKVILLE PIKE |
|
|
ROCKVILLE
MD 20852-1488 |
|
|
|
SPECTRUM
PREFERRED AND |
47.84% |
DCGT
AS TTEE AND/OR CUST |
CAPITAL
SECURITIES INCOME (R5) |
|
FBO
PLIC VARIOUS RETIREMENT PLANS |
|
|
OMNIBUS |
|
|
ATTN
NPIO TRADE DESK |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
28.59% |
VANGUARD
FIDUCIARY TRUST CO |
CAPITAL
SECURITIES INCOME (R5) |
|
FBO
401K CLIENTS |
|
|
ATTN
INVESTMENT SERVICES |
|
|
PO
BOX 2600 |
|
|
VALLEY
FORGE PA 19482-2600 |
|
|
|
SPECTRUM
PREFERRED AND |
8.66% |
JOHN
HANCOCK TRUST COMPANY LLC |
CAPITAL
SECURITIES INCOME (R5) |
|
690
CANTON ST STE 100 |
|
|
WESTWOOD
MA 02090-2324 |
|
|
|
SPECTRUM
PREFERRED AND |
6.68% |
PRINCIPAL
TRUST COMPANY |
CAPITAL
SECURITIES INCOME (R5) |
|
FBO
NQ DB OF AAA ARIZONA |
|
|
ATTN
SUSAN SAGGIONE |
|
|
1013
CENTRE RD |
|
|
WILMINGTON
DE 19805-1265 |
|
|
|
SPECTRUM
PREFERRED AND |
39.48% |
WELLS
FARGO BANK NA FBO |
CAPITAL
SECURITIES INCOME (R6) |
|
OMNIBUS
CASH CASH XXXX0 |
|
|
PO
BOX 1533 |
|
|
MINNEAPOLIS
MN 55480-1533 |
|
|
|
SPECTRUM
PREFERRED AND |
15.29% |
SAM
BALANCED PORTFOLIO PIF |
CAPITAL
SECURITIES INCOME (R6) |
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Class |
Percentage
of Ownership |
Name
and Address of Owner |
SPECTRUM
PREFERRED AND |
14.19% |
SAM
FLEXIBLE INCOME PORTFOLIO PIF |
CAPITAL
SECURITIES INCOME (R6) |
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
|
|
|
SPECTRUM
PREFERRED AND |
8.92% |
SAM
CONS BALANCED PORTFOLIO PIF |
CAPITAL
SECURITIES INCOME (R6) |
|
ATTN
MUTUAL FUND ACCOUNTING H221 |
|
|
711
HIGH ST |
|
|
DES
MOINES IA 50392-0001 |
Management
Ownership
As
of December 4, 2020, the Officers and Directors of the Fund as a group owned
less than 1% of the outstanding shares of any Class of any of the
Funds.
PORTFOLIO
MANAGER DISCLOSURE
(as
provided by the Investment Advisors)
This
section contains information about portfolio managers and the other accounts
they manage, their compensation, and their ownership of securities. The
“Ownership of Securities” tables reflect the portfolio managers’ beneficial
ownership, which means a direct or indirect pecuniary interest. For some
portfolio managers, this includes beneficial ownership of fund shares through
participation in an employee benefit program which invests in Principal Funds,
Inc. For information about potential material conflicts of interest, see
Brokerage Allocation and Other Practices - Allocation of Trades.
This
section lists information about Principal Global Investors, LLC’s portfolio
managers first. Next, the section includes information about the sub-advisors’
portfolio managers alphabetically by sub-advisor.
Information
in this section is as of August 31, 2020, unless otherwise noted.
Advisor:
Principal Global Investors, LLC (Columbus Circle Portfolio
Managers)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base
the
Advisory
Fee
on
Performance |
Total
Assets
of
the
Accounts
that
base the
Advisory
Fee
on
Performance |
Christopher
T. Corbett:
Small-MidCap Growth Fund |
|
|
|
|
Registered
investment companies |
3 |
$805.0
million |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$26.0
million |
0 |
$0 |
Other
accounts |
27 |
$1.4
billion |
0 |
$0 |
Michael
Iacono:
Small-MidCap Growth Fund |
|
|
|
|
Registered
investment companies |
3 |
$805.0
million |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$26.0
million |
0 |
$0 |
Other
accounts |
27 |
$1.4
billion |
0 |
$0 |
Marc
R. Shapiro: Small-MidCap
Growth Fund |
|
|
|
|
Registered
investment companies |
3 |
$805.0
million |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$26.0
million |
0 |
$0 |
Other
accounts |
27 |
$1.4
billion |
0 |
$0 |
Compensation
Compensation
for equity investment professionals at all levels and across all strategies is
comprised of base salary and variable incentive components. As team members
advance in their careers, the variable component increases in its proportion
commensurate with responsibility levels. Variable compensation takes the form of
a profit share plan with funding based on operating earnings of CCI. The plan is
designed to provide line-of-sight to investment professionals, enabling them to
share in current and future business growth while reinforcing delivery of
investment performance, collaboration, regulatory compliance, client retention
and client satisfaction.
The
variable component is well aligned with client goals and objectives, with the
largest determinant being investment performance relative to appropriate client
benchmarks and peer groups. Relative performance metrics are measured over
rolling one-year, three-year and five-year periods, calculated quarterly.
Weightings intentionally place a greater emphasis on three and five year
results, reinforcing a longer term orientation. In addition to investment
performance, other discretionary factors such as team and individual results
also contribute to the quantum of incentive compensation. The structure is
uniformly applied among all investment professionals, including portfolio
managers, research analysts, traders and team leaders.
Payments
under the variable incentive plan may be in the form of cash or a combination of
cash and deferred compensation. The amount of variable compensation delivered in
the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Sixty percent of total
deferred compensation is required to be invested into equity funds managed by
the team, via a co-investment program, with the remaining forty percent in the
form of restricted stock of Principal Financial Group. All deferred compensation
agreements are subject to a three year vesting schedule.
The
benefits of this incentive structure are threefold. First, the emphasis on
investment performance as the largest driver of variable compensation allocation
provides strong alignment of interests with client objectives. Second, the
discretionary element is intended to balance the allocation of the funded profit
pool and rewards individual and team contributions that deliver on longer term
business strategies including asset retention and growth, firm wide
collaboration and team development. Third, the overall measurement framework and
the deferred component are well aligned with our desired focus on clients'
objectives (e.g. co-investment), alignment with PFG stakeholders and talent
retention.
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Christopher
T. Corbett |
Small-MidCap
Growth |
None |
Michael
Iacono |
Small-MidCap
Growth |
None |
Marc
R. Shapiro |
Small-MidCap
Growth |
None |
Advisor: Principal
Global Investors, LLC (Edge Asset Management Portfolio Managers)
Other
Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base the
Advisory
Fee on
Performance |
Total
Assets of the
Accounts
that base the Advisory
Fee
on Performance |
Daniel
R. Coleman: Edge
MidCap and Small-MidCap Dividend Income Funds |
|
|
Registered
investment companies |
12 |
$11.4
billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$120.9
million |
0 |
$0 |
Other
accounts |
39 |
$2.9
billion |
0 |
$0 |
Theodore
Jayne:
Edge MidCap Fund |
|
|
|
|
Registered
investment companies |
4 |
$2.1
billion |
0 |
$0 |
Other
pooled investment vehicles |
0 |
$0 |
0 |
$0 |
Other
accounts |
9 |
$565.7
million |
0 |
$0 |
Sarah
E. Radecki: Small-MidCap
Dividend Income Fund |
|
|
|
|
Registered
investment companies |
2 |
$12.6
million |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$61.6
million |
0 |
$0 |
Other
accounts |
24 |
$2.2
billion |
0 |
$0 |
David
W. Simpson: Small-MidCap
Dividend Income Fund |
|
|
|
|
Registered
investment companies |
6 |
$9.0
billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$120.9
million |
0 |
$0 |
Other
accounts |
30 |
$2.3
billion |
0 |
$0 |
Compensation
Principal
Global Investors, LLC offers investment professionals a competitive compensation
structure that is evaluated annually relative to other global asset management
firms to ensure its continued competitiveness and alignment with industry best
practices. The objective of the structure is to offer market competitive
compensation that aligns individual and team contributions with firm and client
performance objectives in a manner that is consistent with industry standards
and business results.
Compensation
for investment professionals at all levels is comprised of base salary and
variable incentive components. As team members advance in their careers, the
variable component increases in its proportion commensurate with responsibility
levels. The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one year, three-year and five-year periods, calculated
quarterly, reinforcing a longer term orientation.
Payments
under the variable incentive plan are delivered in the form of cash or a
combination of cash and deferred compensation. The amount of incentive delivered
in the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team, via a fund deferral or co-investment
program. Both payment vehicles are subject to a three year vesting schedule. The
overall measurement framework and the deferred component are well aligned with
our desired focus on clients’ objectives(e.g. co-investment), alignment with
Principal stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG’s employee stock purchase plan, retirement plans and direct personal
investments. It should be noted that the Company’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e. “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Daniel
R. Coleman |
Edge
MidCap |
$500,001
- $1,000,000 |
Daniel
R. Coleman |
Small-MidCap
Dividend Income |
$100,001
- $500,000 |
Theodore
Jayne |
Edge
MidCap |
$100,001
- $500,000 |
Sarah
E. Radecki |
Small-MidCap
Dividend Income |
$500,001
- $1,000,000 |
David
W. Simpson |
Small-MidCap
Dividend Income |
Over
$1,000,000 |
Advisor:
Principal Global Investors, LLC (Equity Portfolio Managers)
Other
Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base the
Advisory
Fee on
Performance |
Total
Assets of the
Accounts
that base the Advisory
Fee
on Performance |
|
|
|
|
|
Tiffany
N. Lavastida: International
Small Company Fund |
|
|
|
|
Registered
investment companies |
7 |
$245.9
million |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$2.3
billion |
0 |
$0 |
Other
accounts |
20 |
$2.7
billion |
1 |
$167.8
million |
K.
William Nolin: Blue
Chip Fund |
|
|
|
|
Registered
Investment Companies |
3 |
$21.4
billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$2.8
billion |
0 |
$0 |
Other
accounts |
51 |
$7.9
billion |
0 |
$0 |
Brian
W. Pattinson:
International Small Company Fund |
|
|
|
|
Registered
investment companies |
9 |
$1.1
billion |
0 |
$0 |
Other
pooled investment vehicles |
3 |
$3.0
billion |
0 |
$0 |
Other
accounts |
35 |
$3.2
billion |
1 |
$167.8
million |
Tom
Rozycki: Blue
Chip Fund |
|
|
|
|
Registered
Investment Companies |
3 |
$21.4
billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$2.8
billion |
0 |
$0 |
Other
accounts |
51 |
$7.9
billion |
0 |
$0 |
Jeffrey
A. Schwarte: International
Equity Index Fund |
Registered
investment companies |
32 |
$18.9
billion |
0 |
$0 |
Other
pooled investment vehicles |
7 |
$38.4
billion |
0 |
$0 |
Other
accounts |
9 |
$62.6
million |
0 |
$0 |
Aaron
J. Siebel: International
Equity Index Fund |
|
|
|
|
Registered
investment companies |
29 |
$18.1
billion |
0 |
$0 |
Other
pooled investment vehicles |
6 |
$38.4
billion |
0 |
$0 |
Other
accounts |
6 |
$19.1
million |
0 |
$0 |
Compensation
Principal
Global Investors, LLC offers investment professionals a competitive compensation
structure that is evaluated annually relative to other global asset management
firms to ensure its continued competitiveness and alignment with industry best
practices. The objective of the structure is offer market competitive
compensation that aligns individual and team contributions with firm and client
performance objectives in a manner that is consistent with industry standards
and business results.
Compensation
for investment professionals at all levels is comprised of base salary and
variable incentive components. As team members advance in their careers, the
variable component increases in its proportion commensurate with responsibility
levels. The variable component is designed to reinforce delivery of investment
performance, firm performance, team collaboration, regulatory compliance,
operational excellence, client retention and client satisfaction. Investment
performance is measured on a pre-tax basis against relative client benchmarks
and peer groups over one year, three-year and five-year periods, calculated
quarterly, reinforcing a longer term orientation.
Payments
under the variable incentive plan are delivered in the form of cash or a
combination of cash and deferred compensation. The amount of incentive delivered
in the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team, via a fund deferral or co-investment
program. Both payment vehicles are subject to a three year vesting schedule. The
overall measurement framework and the deferred component are well aligned with
our desired focus on clients’ objectives (e.g. co-investment), alignment with
Principal stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG’s employee stock purchase plan, retirement plans and direct personal
investments. It should be noted that the Company’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e. “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
|
|
|
Tiffany
N. Lavastida |
International
Small Company |
$100,001
- $500,000 |
K.
William Nolin |
Blue
Chip |
Over
$1,000,000 |
Brian
W. Pattinson |
International
Small Company |
Over
$1,000,000 |
Tom
Rozycki |
Blue
Chip |
Over
$1,000,000 |
Jeffrey
A. Schwarte |
International
Equity Index |
None |
Aaron
J. Siebel |
International
Equity Index |
None |
Advisor:
Principal Global Investors, LLC (Fixed-Income Portfolio Managers)
Other
Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
Accounts |
Total
Assets in the Accounts |
Number
of Accounts that base the Advisory Fee
on Performance |
Total
Assets of the Accounts that base the Advisory Fee on
Performance |
|
|
|
|
|
Jeff
Callahan
(1):
Bond Market Index Fund |
|
|
|
|
Registered
Investment Companies |
4 |
$3.2
billion |
0 |
$0 |
Other
pooled investment vehicles |
2 |
$11.1
billion |
0 |
$0 |
Other
accounts |
1 |
$353.7
million |
1 |
$353.7
million |
James
Noble:
Opportunistic Municipal Fund |
|
|
|
|
Registered
Investment Companies |
3 |
$1.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$145.6
million |
0 |
$0 |
Other
accounts |
7 |
$822.0
million |
0 |
$0 |
Darryl
Trunnel: Bond
Market Index Fund |
|
|
|
|
Registered
investment companies |
8 |
$3.2
billion |
0 |
$0 |
Other
pooled investment vehicles |
14 |
$11.5
billion |
0 |
$0 |
Other
accounts |
14 |
$666.0
million |
3 |
$88.1
million |
James
Welch: Opportunistic
Municipal Fund |
|
|
|
|
Registered
Investment Companies |
3 |
$1.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$145.6
million |
0 |
$0 |
Other
accounts |
7 |
$822.0
million |
0 |
$0 |
(1)
Information as of November 30, 2020
Compensation
Principal
Global Investors offers investment professionals a competitive compensation
structure that is evaluated annually relative to other global asset management
firms to ensure its continued competitiveness and alignment with industry best
practices. The objective of the structure is to offer market competitive
compensation that aligns individual and team contributions with firm and client
performance objectives in a manner that is consistent with industry standards
and business results.
Compensation
for investment professionals at all levels is comprised of base salary and
variable incentive components. As team members advance in their careers, the
variable component increases in its proportion commensurate with responsibility
levels.
Variable
compensation takes the form of a profit share plan with funding based on a
percentage of pre-tax, pre‑bonus operating earnings of Principal Global Fixed
Income. The plan is designed to provide line-of-sight to investment
professionals, enabling them to share in current and future business growth
while reinforcing delivery of investment performance, collaboration, regulatory
compliance, operational excellence, client retention and client
satisfaction.
The
variable component is well aligned with client goals and objectives, with the
largest determinant being investment performance relative to appropriate client
benchmarks and peer groups. Relative performance metrics are measured over
rolling one-year, three-year and five-year periods, calculated quarterly,
reinforcing a longer term orientation. In addition to investment performance,
other discretionary factors such as team and individual results also contribute
to the quantum of incentive compensation. Discretionary compensation metrics are
specifically aligned with the results of the Fixed Income group. The structure
is uniformly applied among all investment professionals, including portfolio
managers, research analysts, traders and team leaders.
Payments
under the variable incentive plan are delivered in the form of cash or a
combination of cash and deferred compensation. The amount of incentive delivered
in the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team, via a fund deferral or co-investment
program. Both payment vehicles are subject to a three year vesting schedule. The
overall measurement framework and the deferred component are well aligned with
our desired focus on clients’ objectives (e.g. co-investment), alignment with
Principal stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, all senior team members have substantial investments in funds
managed by the group, including deferred compensation, retirement plans and
direct personal investments. It should be noted that the Company’s retirement
plans and deferred compensation plans generally utilize its non-registered group
separate accounts or commingled vehicles rather than the traditional mutual
funds. However, in each instance these vehicles are managed in lockstep
alignment with the mutual funds (i.e. “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Jeff
Callahan (1) |
Bond
Market Index |
None |
James
Noble |
Opportunistic
Municipal |
$100,001
- $500,000 |
Darryl
Trunnel |
Bond
Market Index |
None |
James
Welch |
Opportunistic
Municipal |
$100,001
- $500,000 |
(1)
Information as of November 30, 2020
Advisor:
Principal Global Investors, LLC (Principal®
Global Asset Allocation Portfolio Managers)
Other
Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base the
Advisory
Fee on
Performance |
Total
Assets of the
Accounts
that base the Advisory
Fee
on Performance |
Jessica
S. Bush:
Diversified Real Asset and Global Multi-Strategy Funds |
Registered
investment companies |
2 |
$10.7
billion |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$2.6
billion |
0 |
$0 |
Other
accounts |
0 |
$0 |
0 |
$0 |
Marcus
W. Dummer: Diversified
Real Asset and Global Multi-Strategy Funds |
Registered
investment companies |
2 |
$10.7
billion |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$2.6
billion |
0 |
$0 |
Other
accounts |
0 |
$0 |
0 |
$0 |
Kelly
A. Grossman:
Diversified Real Asset and Global Multi-Strategy Funds |
Registered
investment companies |
1 |
$10.5
billion |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$2.6
billion |
0 |
$0 |
Other
accounts |
0 |
$0 |
0 |
$0 |
Benjamin
E. Rotenberg: Diversified
Real Asset and Global Multi-Strategy Funds |
Registered
investment companies |
2 |
$10.7
billion |
0 |
$0 |
Other
pooled investment vehicles |
1 |
$2.6
billion |
0 |
$0 |
Other
accounts |
0 |
$0 |
0 |
$0 |
Compensation
Principal
Global Investors, LLC ("PGI") offers investment professionals a competitive
compensation structure that is evaluated annually relative to other global asset
management firms to ensure its continued competitiveness and alignment with
industry best practices. The objective of the structure is to offer market
competitive compensation that aligns individual and team contributions with firm
and client performance objectives in a manner that is consistent with industry
standards and business results.
Compensation
for all team members is comprised of base salary and variable incentive
components. As team members advance in their careers, the variable component
increases in its proportion commensurate with responsibility levels. The
variable component is designed to reinforce investment performance, firm
performance, team collaboration, regulatory compliance, operational excellence,
client retention and client satisfaction. Investment performance is measured on
a pre-tax basis against relative client benchmarks and peer groups over one
year, three-year and five-year periods, calculated quarterly, reinforcing a
longer term orientation.
Payments
under the variable incentive plan are delivered in the form of cash or a
combination of cash and deferred compensation. The amount of incentive delivered
in the form of deferred compensation depends on the size of an individual’s
incentive award as it relates to a tiered deferral scale. Deferred compensation
is required to be invested into Principal Financial Group (“PFG”) restricted
stock units and funds managed by the team, via a fund deferral or co-investment
program. Both payment vehicles are subject to a three year vesting schedule. The
overall measurement framework and the deferred component are well aligned with
our desired focus on clients’ objectives (e.g. co-investment), alignment with
Principal stakeholders, and talent retention.
In
addition to deferred compensation obtained through their compensation
programming, team members have investments acquired through their participation
in the PFG’s employee stock purchase plan, retirement plans and direct personal
investments. It should be noted that the Company’s retirement plans and deferred
compensation plans generally utilize its non-registered group separate accounts
or commingled vehicles rather than the traditional mutual funds. However, in
each instance these vehicles are managed in lockstep alignment with the mutual
funds (i.e. “clones”).
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Jessica
S. Bush |
Diversified
Real Asset |
None |
Jessica
S. Bush |
Global
Multi-Strategy |
$50,001
- $100,000 |
Marcus
W. Dummer |
Diversified
Real Asset |
$100,001
- $500,000 |
Marcus
W. Dummer |
Global
Multi-Strategy |
$100,001
- $500,000 |
Kelly
A. Grossman |
Diversified
Real Asset |
$10,001
- $50,000 |
Kelly
A. Grossman |
Global
Multi-Strategy |
$1
- $10,000 |
Benjamin
E. Rotenberg |
Diversified
Real Asset |
$100,001
- $500,000 |
Benjamin
E. Rotenberg |
Global
Multi-Strategy |
$50,001
- $100,000 |
Sub-Advisor:
Origin Asset Management LLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Accounts Managed |
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base the
Advisory
Fee on
Performance |
Total
Assets of the
Accounts
that
base
the Advisory
Fee
on
Performance |
Chris
Carter:
Origin Emerging Markets Fund |
|
|
|
|
Registered
investment companies |
1 |
$316.0
million |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$227.0
million |
0 |
$0 |
Other
accounts |
8 |
$1.9
billion |
2 |
$409.0
million |
Nigel
Dutson:
Origin Emerging Markets Fund |
|
|
|
|
Registered
investment companies |
1 |
$316.0
million |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$227.0
million |
0 |
$0 |
Other
accounts |
8 |
$1.9
billion |
2 |
$409.0
million |
Tarlock
Randhawa:
Origin Emerging Markets Fund |
|
|
|
|
Registered
investment companies |
1 |
$316.0
million |
0 |
$0 |
Other
pooled investment vehicles |
4 |
$227.0
million |
0 |
$0 |
Other
accounts |
8 |
$1.9
billion |
2 |
$409.0
million |
Compensation
Origin
Asset Management LLP offers investment professionals a competitive compensation
structure that is evaluated relative to other asset management firms to ensure
its continued competitiveness and alignment with industry best practices. The
objective of the structure is to align team contributions in a manner that is
consistent with industry standards and business results. Compensation of
Origin's portfolio managers is formed of a competitive fixed salary and a share
of a bonus pool which is a function of the annual profitability of the firm.
Select members of the investment team further share in the firm’s profits based
on their overall partner ownership.
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Chris
Carter |
Origin
Emerging Markets |
None |
Nigel
Dutson |
Origin
Emerging Markets |
None |
Tarlock
Randhawa |
Origin
Emerging Markets |
None |
Sub-Advisor: Spectrum
Asset Management, Inc.
Other
Accounts Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number
of
Accounts |
Total
Assets
in
the
Accounts |
Number
of
Accounts
that
base the
Advisory
Fee on
Performance |
Total
Assets
of
the
Accounts
that base the Advisory
Fee
on Performance |
Fernando
("Fred") Diaz: Capital
Securities and Spectrum Preferred and Capital Securities Income
Funds |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
Roberto
Giangregorio:
Capital Securities and Spectrum Preferred and Capital Securities Income
Funds |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
L.
Phillip Jacoby, IV:
Capital Securities and Spectrum Preferred and Capital Securities Income
Funds |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
Manu
Krishnan: Capital
Securities and Spectrum Preferred and Capital Securities Income
Funds |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
Mark
A. Lieb: Capital
Securities and Spectrum Preferred and Capital Securities Income
Funds |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
Kevin
Nugent: Spectrum
Preferred and Capital Securities Income Fund |
Registered
investment companies |
7 |
$4.3
billion |
0 |
$0 |
Other
pooled investment vehicles |
9 |
$5.2
billion |
1 |
$11.0
million |
Other
accounts |
57 |
$7.6
billion |
0 |
$0 |
Compensation
Spectrum
Asset Management offers investment professionals a competitive compensation
structure that is evaluated relative to other asset management firms to ensure
its continued competitiveness and alignment with industry best practices. The
objective of the structure is to align individual and team contributions with
client performance objectives in a manner that is consistent with industry
standards and business results.
Compensation
for investment professionals at all levels is comprised of base salary and
variable incentive components. As team members advance in their careers, the
variable component increases in its proportion commensurate with responsibility
levels. The incentive component is aligned with performance and goals of the
firm. Salaries are established based on a benchmark of salary levels of relevant
asset management firms, taking into account each portfolio manager’s position
and responsibilities, experience, contribution to client servicing, compliance
with firm and/or regulatory policies and procedures, work ethic, seniority and
length of service, and contribution to the overall functioning of the
organization.
Spectrum
attempts to award all compensation in a manner that promotes sound risk
management principles.
Base salaries are fixed, but are subject to periodic adjustments, usually on an
annual basis.
The
variable incentive is in the form of a discretionary bonus and may represent a
significant proportion of an individual’s total annual compensation.
Discretionary bonuses are determined quarterly and are based on a methodology
used by senior management that takes into consideration several factors,
including but not necessarily limited to those listed below:
•Changes
in overall firm assets under management, including those assets in the Fund.
(Portfolio managers are not directly incentivized to increase assets (“AUM”),
although they are indirectly compensated as a result of an increase in
AUM)
•Portfolio
performance (on a pre-tax basis) relative to benchmarks measured
annually.
•Contribution
to client servicing
•Compliance
with firm and/or regulatory policies and procedures
•Work
ethic
•Seniority
and length of service
•Contribution
to overall functioning of organization
Ownership
of Securities
|
|
|
|
|
|
|
|
|
Portfolio
Manager |
PFI
Funds Managed by Portfolio Manager |
Dollar
Range of Securities Owned by the Portfolio Manager |
Fernando
("Fred") Diaz |
Capital
Securities |
None |
Fernando
("Fred") Diaz |
Spectrum
Preferred and Capital Securities Income |
None |
Roberto
Giangregorio |
Capital
Securities |
None |
Roberto
Giangregorio |
Spectrum
Preferred and Capital Securities Income |
$10,001
- $50,000 |
L.
Phillip Jacoby, IV |
Capital
Securities |
None |
L.
Phillip Jacoby, IV |
Spectrum
Preferred and Capital Securities Income |
$100,001
- $500,000 |
Manu
Krishnan |
Capital
Securities |
None |
Manu
Krishnan |
Spectrum
Preferred and Capital Securities Income |
None |
Mark
A. Lieb |
Capital
Securities |
None |
Mark
A. Lieb |
Spectrum
Preferred and Capital Securities Income |
$500,001
- $1,000,000 |
Kevin
Nugent |
Spectrum
Preferred and Capital Securities Income |
None |
APPENDIX
A – DESCRIPTION OF BOND RATINGS
Moody's
Investors Service, Inc. Rating Definitions:
Long-Term
Obligation Ratings
Ratings
assigned on Moody's global long-term obligation rating scales are
forward-looking opinions of the relative credit risk 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 or impairment on
contractual financial obligations and the expected financial loss suffered in
the event of default or impairment.1
1
For
certain structured finance, preferred stock and hybrid securities in which
payment default events are either not defined or do not match investor’s
expectations for timely payment,
the ratings reflect the likelihood of impairment and the expected financial loss
in the event of impairment.
|
|
|
|
|
|
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 considered upper-medium grade and are subject to low credit
risk. |
Baa: |
Obligations
rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative
characteristics. |
Ba: |
Obligations
rated Ba are judged to 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 class of bonds 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, issuers, financial companies, and securities
firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment.
Together the hybrid indicator, the long-term obligation rating assigned to a
hybrid security is an expression of the relative credit risk associated with
that security.
SHORT-TERM
NOTES: 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 or
impairment on contractual financial obligations and the expected financial loss
suffered in the event of default. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
Issuers
rated Prime-1 (or related supporting institutions) have a superior ability to
repay short-term debt obligations.
Issuers
rated Prime-2 (or related supporting institutions) have a strong ability to
repay short-term debt obligations.
Issuers
rated Prime-3 (or related supporting institutions) have an acceptable ability to
repay short-term obligations.
Issuers
rated Not Prime do not fall within any of the Prime rating
categories.
US
MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to
rate US municipal bonds of up to five years maturity. MIG ratings are divided
into three levels - MIG 1 through MIG 3 - while speculative grade short-term
obligations are designated SG.
MIG
1 denotes superior credit quality, afforded excellent protection from highly
reliable liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG
2 denotes strong credit quality with ample margins of protection, although not
as large as in the preceding group.
MIG
3 notes are of acceptable credit quality. Liquidity and cash-flow protection may
be narrow and market access for refinancing is likely to be less
well-established.
SG
denotes speculative-grade credit quality and may lack sufficient margins of
protection.
Description
of S&P Global Ratings' Credit Rating Definitions:
S&P
Global's credit rating, both long-term and short-term, is a forward-looking
opinion of the creditworthiness of an obligor with respect to a specific
obligation. This assessment takes into consideration the creditworthiness of
guarantors, insurers, or other forms of credit enhancement on the
obligation.
The
credit rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The
ratings are statements of opinion as of the date they are expressed furnished by
the issuer or obtained by S&P Global Ratings from other sources S&P
Global Ratings considers reliable. S&P Global Ratings does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The
ratings are based, in varying degrees, on the following
considerations:
•Likelihood
of payment - capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
•Nature
of and provisions of the financial obligation;
•Protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditor's rights.
LONG-TERM
CREDIT RATINGS:
|
|
|
|
|
|
AAA: |
Obligations
rated ‘AAA’ have the highest rating assigned by S&P Global Ratings.
The obligor’s capacity to meet its financial commitment on the obligation
is extremely strong. |
AA: |
Obligations
rated ‘AA’ differ from the highest-rated issues only in small degree. The
obligor’s capacity to meet its financial commitment on the obligation is
very strong. |
A:
|
Obligations
rated ‘A’ have a strong capacity to meet financial commitment on the
obligation although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. |
BBB: |
Obligations
rated ‘BBB’ exhibit adequate protection parameters; however, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet financial commitment on the
obligation. |
BB,
B, CCC, CC and C: |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having
significant speculative characteristics. ‘BB’ indicates the lowest degree
of speculation and ‘C’ the highest degree of speculation. While such
obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to
adverse conditions. |
BB: |
Obligations
rated ‘BB’ are less vulnerable to nonpayment than other speculative
issues. However it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
the obligor’s inadequate capacity to meet its financial commitment on the
obligation. |
B: |
Obligations
rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor
currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will
likely impair this capacity. |
CCC: |
Obligations
rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. If adverse business,
financial, or economic conditions occur, the obligor is not likely to have
the capacity to meet its financial commitment on the
obligation. |
CC: |
Obligations
rated ‘CC’ are 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 anticipated time
to default. |
C:
|
The
rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected
to have lower relative seniority or lower ultimate recovery compared to
higher rated obligations. |
D:
|
Obligations
rated ‘D’ are 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 rating will
also be used upon filing for bankruptcy petition or the taking of similar
action and where default is a virtual certainty. If an obligation is
subject to a distressed exchange offer the rating is lowered to
‘D’. |
Plus
(+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
|
|
|
|
|
|
NR: |
Indicates
that no rating has been requested, that there is insufficient information
on which to base a rating or that S&P Global Ratings does not rate a
particular type of obligation as a matter of
policy. |
SHORT-TERM
CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for
the highest quality obligations to ‘D’ for the lowest.
|
|
|
|
|
|
A-1:
|
This
is the highest category. The obligor’s capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations
is extremely strong. |
A-2:
|
Issues
carrying this designation are somewhat more susceptible to the adverse
effects of the changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitment on the obligation is
satisfactory. |
A-3:
|
Issues
carrying this designation exhibit adequate capacity to meet their
financial obligations. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet it financial commitment on the
obligation. |
B:
|
Issues
rated ‘B’ are regarded as vulnerable and have significant speculative
characteristics. The obligor has capacity to meet financial commitments;
however, it faces major ongoing uncertainties which could lead to
obligor’s inadequate capacity to meet its financial
obligations. |
C:
|
This
rating is assigned to short-term debt obligations that are currently
vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions to meet its financial commitment on the
obligation. |
D:
|
This
rating indicates that the issue is either 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
rating will also be used upon filing for bankruptcy petition or the taking
of similar action and where default is a virtual certainty. If an
obligation is subject to a distressed exchange offer the rating is lowered
to ‘D’. |
MUNICIPAL
SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with
a maturity of less than three years as follows:
|
|
|
|
|
|
SP-1:
|
A
strong capacity to pay principal and interest. Issues that possess a very
strong capacity to pay debt service is given a "+"
designation. |
SP-2:
|
A
satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the terms of
the notes. |
SP-3:
|
A
speculative capacity to pay principal and
interest. |
APPENDIX
B – PRICE MAKE UP SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A |
|
|
|
|
|
Maximum
Offering Price Calculation |
|
|
|
|
|
|
NAV |
= |
Maximum
Offering Price |
|
(1-Sales
Charge Percentage) |
|
|
|
|
|
|
Fund |
|
|
|
|
|
Blue
Chip |
$33.85 |
= |
$35.82 |
|
|
|
(1-.0550) |
|
|
|
|
|
|
|
|
Diversified
Real Asset |
$11.13 |
= |
$11.56 |
|
|
|
(1-.0375) |
|
|
|
|
|
|
|
|
Edge
MidCap |
$14.76 |
= |
$15.62 |
|
|
|
(1-.0550) |
|
|
|
|
|
|
|
|
Global
Multi-Strategy |
$10.95 |
= |
$11.38 |
|
|
|
(1-.0375) |
|
|
|
|
|
|
|
|
International
Small Company |
$10.58 |
= |
$11.20 |
|
|
|
(1-.0550) |
|
|
|
|
|
|
|
|
Opportunistic
Municipal |
$10.96 |
= |
$11.39 |
|
|
|
(1-.0375) |
|
|
|
|
|
|
|
|
Origin
Emerging Markets |
$12.36 |
= |
$13.08 |
|
|
|
(1-.0550) |
|
|
|
|
|
|
|
|
Small-MidCap
Dividend Income |
$11.91 |
= |
$12.60 |
|
|
|
(1-.0550) |
|
|
|
|
|
|
|
|
Spectrum
Preferred and Capital Securities Income |
$10.32
|
= |
$10.72 |
|
|
|
(1-.0375) |
|
|
APPENDIX
C – PROXY VOTING POLICIES
The
proxy voting policies applicable to each Fund appear in the following order:
The
Fund's proxy voting policy is first, followed by PGI’s proxy voting policy, and
followed by the Sub-Advisors, alphabetically.
Proxy
Voting Policies and Procedures For
Principal
Funds, Inc.
Principal
Variable Contracts Funds, Inc.
Principal
Exchange-Traded
Funds
Principal
Diversified Select Real Asset Fund (and other Principal interval
funds)
(each
a “Fund” and together “the Funds”)
(March
9, 2015)
Revised
June 11, 2019
It
is each Fund's policy to delegate authority to its advisor or sub-advisor, as
appropriate, to vote proxy ballots relating to the Fund's portfolio securities
in accordance with the adviser's or sub-adviser's voting policies and
procedures.
The
adviser or sub-adviser must provide, on a quarterly basis:
1.Written
affirmation that all proxies voted during the preceding calendar quarter, other
than those specifically identified by the adviser or sub-adviser, were voted in
a manner consistent with the adviser's or sub-adviser's voting policies and
procedures. In order to monitor the potential effect of conflicts of interest of
an adviser or sub-adviser, the adviser or sub-adviser will identify any proxies
the adviser or sub-adviser voted in a manner inconsistent with its policies and
procedures. The adviser or sub-adviser shall list each vote, explain why the
adviser or sub-adviser voted in a manner contrary to its policies and
procedures, state whether the adviser or sub-adviser’s vote was consistent with
the recommendation to the adviser or sub-adviser of a third-party and, if so,
identify the third-party; and
2.Written
notification of any material changes to the adviser's or sub-adviser's proxy
voting policies and procedures made during the preceding calendar
quarter.
The
adviser or sub-adviser must provide, no later than July 31 of each year, the
following information regarding each proxy vote cast during the 12-month period
ended June 30 for each Fund portfolio or portion of Fund portfolio for which it
serves as investment adviser, in a format acceptable to Fund
management:
1.Identification
of the issuer of the security;
2.Exchange
ticker symbol of the security;
3.CUSIP
number of the security;
4.The
date of the shareholder meeting;
5.A
brief description of the subject of the vote;
6.Whether
the proposal was put forward by the issuer or a shareholder;
7.Whether
and how the vote was cast; and
8.Whether
the vote was cast for or against management of the issuer.
Principal
Global Investors - PGI Global Compliance Manual
|
|
|
Proxy
Voting and Class Action Monitoring |
Rule
206(4)-6 |
Background
Rule
206(4)-6 under the Advisers Act requires every investment adviser who exercises
voting authority with respect to client securities to adopt and implement
written policies and procedures, reasonably designed to ensure that the adviser
votes proxies in the best interest of its clients. The procedures must address
material conflicts that may arise in connection with proxy voting. The Rule
further requires the adviser to provide a concise summary of the adviser’s proxy
voting process and offer to provide copies of the complete proxy voting policy
and procedures to clients upon request. Lastly, the Rule requires that the
adviser disclose to clients how they may obtain information on how the adviser
voted their proxies.
Policy
The
Advisers believe that proxy voting and the analysis of corporate governance
issues, in general, are important elements of the portfolio management services
provided to advisory clients. The Advisers’ guiding principles in performing
proxy voting are to make decisions that (i) favor proposals that tend to
maximize a company's shareholder value and (ii) are not influenced by conflicts
of interest. These principles reflect the Advisers’ belief that sound corporate
governance creates a framework within which a company can be managed in the
interests of its shareholders.
In
addition, as a fiduciary, the Advisers also monitor certain Clients’ ability to
participate in class action events through the regular portfolio management
process. Accordingly, the Advisers have adopted the policies and procedures set
out below, which are designed to ensure that the Advisers comply with legal,
fiduciary, and contractual obligations with respect to proxy voting and class
actions.
Proxy
Voting Procedures
The
Advisers have implemented these procedures with the premise that portfolio
management personnel base their determinations of whether to invest in a
particular company on a variety of factors, and while corporate governance is
one such factor, it may not be the primary consideration. As such, the
principles and positions reflected in the procedures are designed to guide in
the voting of proxies, and not necessarily in making investment
decisions.
The
Investment Accounting Department has assigned a Proxy Voting Team to manage the
proxy voting process. The Investment Accounting Department has delegated the
handling of class action activities to a Senior Investment Accounting
Leader.
Institutional
Shareholder Services
Based
on the Advisers’ investment philosophy and approach to portfolio construction,
and given the complexity of the issues that may be raised in connection with
proxy votes, the Advisers have retained the services of Institutional
Shareholder Services (“ISS”). ISS is a leading global provider of investment
decision support tools. ISS offers proxy voting solutions to institutional
clients globally. The services provided to the Advisers include in-depth
research, voting recommendations, vote execution, recordkeeping, and
reporting.
Principal
Global Investors - PGI Global Compliance Manual
The
Advisers have elected to follow the ISS Standard Proxy Voting Guidelines (the
“Guidelines”), which embody the positions and factors that the Advisers’
Portfolio Management Teams (“PM Teams”) generally consider important in casting
proxy votes.1
The
Guidelines address a wide variety of individual topics, including, among other
matters, shareholder voting rights, anti-takeover defenses, board structures,
the election of directors, executive and director compensation, reorganizations,
mergers, and various shareholder proposals. In connection with each proxy vote,
ISS prepares a written analysis and recommendation (“ISS Recommendation”) that
reflects ISS’s application of the Guidelines to the particular proxy issues. ISS
Proxy Voting Guidelines Summaries are accessible to all PM Teams on the ISS
system. They are also available from the Proxy Voting Team.
Voting
Against ISS Recommendations
On
any particular proxy vote, Portfolio Managers may decide to diverge from the
Guidelines. Where the Guidelines do not direct a particular response and instead
list relevant factors, the ISS Recommendation will reflect ISS’s own evaluation
of the factors.
If
the Portfolio Manager’s judgment differs from that of ISS, a written record is
created reflecting the process (See Appendix titled “Report
for Proxy Vote(s) Against the ISS Recommendation(s)”), including:
1. The
requesting PM Team’s reasons for the decision;
2. The
approval of the lead Portfolio Manager for the requesting PM Team;
3. Notification
to the Proxy Voting Team and other appropriate personnel (including other
Advisers Portfolio Managers who may own the particular security);
4. A
determination that the decision is not influenced by any conflict of interest;
and review and
approval
by the Compliance Department.
(In
certain cases, Portfolio Managers may not be allowed to vote against ISS
recommendations due to a perceived conflict of interest. For example, Portfolio
Managers will vote with ISS recommendations in circumstances where PGI is an
adviser to the PGI CITs and those CITs invest in Principal mutual
funds.)
Conflicts
of Interest
The
Advisers have implemented procedures designed to prevent conflicts of interest
from influencing proxy voting decisions. These procedures include our use of the
Guidelines and ISS Recommendations. Proxy votes cast by the Advisers in
accordance with the Guidelines and ISS Recommendations are generally not viewed
as being the product of any conflicts of interest because the Advisers cast such
votes pursuant to a pre-determined policy based upon the recommendations of an
independent third party.
Our
procedures also prohibit the influence of conflicts of interest where a PM Team
decides to vote against an ISS Recommendation, as described above. In
exceptional circumstances, the approval process may also include consultation
with the Advisers’ senior management, the Law Department, Outside Counsel,
and/or the Client whose account may be affected by the conflict. The Advisers
maintain records of the resolution of any proxy voting conflict of
interest.
Proxy
Voting Instructions and New Accounts
Institutional
Accounts
As
part of the new account opening process for discretionary institutional Clients
that require the Adviser to vote proxies, the Advisers’ Investment Accounting
Department is responsible for sending a proxy letter to the Client’s custodian.
This letter instructs the custodian to send the Client’s proxy materials to ISS
for voting. The custodian must complete the letter and provide it to ISS, with a
copy to the Advisers’ Investment Accounting Department. This process is designed
to ensure and document that the custodian is aware of its responsibility to send
proxies to ISS.
The
Investment Accounting Department is responsible for maintaining this proxy
instruction letter in the Client’s file and for scanning it into the Advisers’
OnBase system. These steps are part of the Advisers’ Account Opening
Process.
|
|
|
1.The
Advisers have various Portfolio Manager Teams organized by asset classes
and investment strategies. |
Principal
Global Investors - PGI Global Compliance Manual
SMA
- Wrap Accounts
The
Advisers’ SMA Operations Department is responsible for servicing wrap accounts,
which includes providing instructions to the relevant wrap sponsor for setting
up accounts with ISS.
Fixed
Income and Private Investments
Voting
decisions with respect to Client investments in fixed income securities and the
securities of privately-held issuers will generally be made by the relevant
Portfolio Managers based on their assessment of the particular transactions or
other matters at issue.
Client
Direction
Clients
may choose to vote proxies themselves, in which case they must arrange for their
custodians to send proxy materials directly to them. Clients may provide
specific vote instructions for their own ballots. Upon request, the Advisers may
be able to accommodate individual Clients that have developed their own
guidelines. Clients may also discuss with the Advisers the possibility of
receiving individualized reports or other individualized services regarding
proxy voting conducted on their behalf. Such requests should be centralized
through the Advisers’ Proxy Voting Team.
Securities
Lending
At
times, neither the Advisers nor ISS will be allowed to vote proxies on behalf of
Clients when those Clients have adopted a securities lending program. Typically,
Clients who have adopted securities lending programs have made a general
determination that the lending program provides a greater economic benefit than
retaining the ability to vote proxies. Notwithstanding this fact, in the event
that a proxy voting matter has the potential to materially enhance the economic
value of the Client’s position and that position is lent out, the Advisers will
make reasonable efforts to inform the Client that neither the Advisers nor ISS
is able to vote the proxy until the lent security is recalled.
Abstaining
from Voting Certain Proxies
The
Advisers shall at no time ignore or neglect their proxy voting responsibilities.
However, there may be times when refraining from voting is in the Client’s best
interest, such as when the Advisers’ analysis of a particular proxy issue
reveals that the cost of voting the proxy may exceed the expected benefit to the
Client. Such proxies may be voted on a best-efforts basis. These issues may
include, but are not limited to:
•Restrictions
for share blocking countries;2
•Casting
a vote on a foreign security may require that the adviser engage a
translator;
•Restrictions
on foreigners’ ability to exercise votes;
•Requirements
to vote proxies in person;
•Requirements
to provide local agents with power of attorney to facilitate the voting
instructions;
•Untimely
notice of shareholder meeting;
•Restrictions
on the sale of securities for a period of time in proximity to the shareholder
meeting.
Proxy
Solicitation
Employees
should inform the Advisers’ Proxy Voting Team of the receipt of any solicitation
from any person related to Clients’ proxies. As a matter of practice, the
Advisers do not reveal or disclose to any third party how the Advisers may have
voted (or intend to vote) on a particular proxy until after such proxies have
been counted at a shareholder’s meeting. However, the Proxy Voting Team may
disclose that it is the Advisers’ general policy to follow the ISS Guidelines.
At no time may any Employee accept any remuneration in the solicitation of
proxies.
|
|
|
2.
In certain markets where share blocking occurs, shares must be “frozen”
for trading purposes at the custodian or sub- custodian in order to vote.
During the time that shares are blocked, any pending trades will not
settle. Depending on the market, this period can last from one day to
three weeks. Any sales that must be executed will settle late and
potentially be subject to interest charges or other punitive
fees. |
Principal
Global Investors - PGI Global Compliance Manual
Handling
of Information Requests Regarding Proxies
Employees
may be contacted by various entities that request or provide information related
to particular proxy issues. Specifically, investor relations, proxy
solicitation, and corporate/financial communications firms (e.g., Ipreo, DF
King, Georgeson Shareholder) may contact the Advisers to ask questions regarding
total holdings of a particular stock across advisory Clients, or how the
Advisers intends to vote on a particular proxy. In addition, issuers may call
(or hire third parties to call) with intentions to influence the Advisers’ votes
(i.e., to vote against ISS).
Employees
that receive information requests related to proxy votes should forward such
communications (e.g., calls, e-mails, etc.) to the Advisers’ Proxy Voting Team.
The Proxy Voting Team will take steps to verify the identity of the caller and
his/her firm prior to exchanging any information. In addition, the Proxy Voting
Team may consult with the appropriate Portfolio Manager(s) and/or the CCO with
respect to the type of information that can be disclosed. Certain information
may have to be provided pursuant to foreign legal requirements (e.g., Section
793 of the UK Companies Act).
External
Managers
Where
Client assets are placed with managers outside of the Advisers, whether through
separate accounts, funds-of-funds or other structures, such external managers
are responsible for voting proxies in accordance with the managers’ own
policies. The Advisers may, however, retain such responsibilities where deemed
appropriate.
Proxy
Voting Errors
In
the event that any Employee becomes aware of an error related to proxy voting,
he/she must promptly report that matter to the Advisers’ Proxy Voting Team. The
Proxy Voting Team will take immediate steps to determine whether the impact of
the error is material and to address the matter. The Proxy Voting Team, with the
assistance of the CCO (or designee), will generally prepare a memo describing
the analysis and the resolution of the matter. Supporting documentation (e.g.,
correspondence with ISS, Client, Portfolio Managers/ analysts, etc.) will be
maintained by the Compliance Department. Depending on the severity of the issue,
the Law Department, Outside Counsel, and/or affected Clients may be contacted.
However, the Advisers may opt to refrain from notifying non-material de minimis
errors to Clients.
Recordkeeping
The
Advisers must maintain the documentation described in the following section for
a period of not less than five (5) years, the first two (2) years at the
principal place of business. The Proxy Voting Team, in coordination with ISS, is
responsible for the following procedures and for ensuring that the required
documentation is retained.
Client
request to review proxy votes:
•Any
request, whether written (including e-mail) or oral, received by any Employee of
the Advisers, must be promptly reported to the Proxy Voting Team. All written
requests must be retained in the Client’s permanent file.
•The
Proxy Voting Team records the identity of the Client, the date of the request,
and the disposition (e.g., provided a written or oral response to Client’s
request, referred to third party, not a proxy voting client, other dispositions,
etc.) in a suitable place.
•The
Proxy Voting Team furnishes the information requested to the Client within a
reasonable time period (generally within 10 business days). The Advisers
maintain a copy of the written record provided in response to Client’s written
(including e-mail) or oral request. A copy of the written response should be
attached and maintained with the Client’s written request, if applicable and
maintained in the permanent file.
•Clients
are permitted to request the proxy voting record for the 5 year period prior to
their request.
Principal
Global Investors - PGI Global Compliance Manual
Proxy
statements received regarding client securities:
•Upon
inadvertent receipt of a proxy, the Advisers forward the proxy to ISS for
voting, unless the client has instructed otherwise.
Note:
The
Advisers are permitted to rely on proxy statements filed on the SEC’s EDGAR
system instead of keeping their own copies.
Proxy
voting records:
•The
Advisers’ proxy voting record is maintained by ISS. The Proxy Voting Team, with
the assistance of the Investment Accounting and SMA Operations Departments,
periodically ensures that ISS has complete, accurate, and current records of
Clients who have instructed the Advisers to vote proxies on their
behalf.
•The
Advisers maintain documentation to support the decision to vote against the ISS
recommendation.
•The
Advisers maintain documentation or any communications received from third
parties, other industry analysts, third party service providers, company’s
management discussions, etc. that were material in the basis for any voting
decision.
Procedures
for Class Actions
In
general, it is the Advisers’ policy not to file class action claims on behalf of
Clients. The Advisers specifically do not act on behalf of former Clients who
may have owned the affected security but subsequently terminated their
relationship with the Advisers. The Advisers only file class actions on behalf
of Clients if that responsibility is specifically stated in the advisory
contract, as it is the Advisers’ general policy not to act as lead plaintiff in
class actions.
The
process of filing class action claims is carried out by the Investment
Accounting Department. In the event the Advisers opt out of a class action
settlement, the Advisers will maintain documentation of any cost/benefit
analysis to support that decision.
The
Advisers are mindful that they have a duty to avoid and detect conflicts of
interest that may arise in the class action claim process. Where actual,
potential or apparent conflicts are identified regarding any material matter,
the Advisers manage the conflict by seeking instruction from the Law Department
and/or outside counsel.
Disclosure
The
Advisers ensure that Part 2A of Form ADV is updated as necessary to reflect: (i)
all material changes to this policy; and (ii) regulatory
requirements.
Responsibility
Various
individuals and departments are responsible for carrying out the Advisers’ proxy
voting and class action practices, as mentioned throughout these policies and
procedures. The Investment Accounting Department has assigned a Proxy Voting
Team to manage the proxy voting process. The Investment Accounting Department
has delegated the handling of class action activities to a Senior Investment
Accounting Leader.
In
general, the Advisers’ CCO (or designee) oversees the decisions related to proxy
voting, class actions, conflicts of interest, and applicable record keeping and
disclosures. In addition, the Compliance Department periodically reviews the
voting of proxies to ensure that all such votes - particularly those diverging
from the judgment of ISS - were voted in a manner consistent with the Advisers’
fiduciary duties.
Revised 9/2013 ♦ Supersedes 12/2012
BlackRock
Investment
Stewardship
Global
Corporate Governance &
Engagement
Principles
January
2020
BlackRock
|
|
|
|
|
|
Contents |
|
|
|
Introduction
to BlackRock |
3 |
|
Philosophy
on corporate governance |
3 |
|
Corporate
governance, engagement and voting |
4 |
|
Boards
and directors |
5 |
|
Auditors
and audit-realted issues |
6 |
|
Capital
structure, mergers, asset sales and other special transactions |
6 |
|
Compensation
and benefits |
7 |
|
Environmental
and social issues |
7 |
|
General
corporate governance matters and shareholder protections |
9 |
|
BlackRock’s
oversight of our investment stewardship activities |
9 |
|
Vote
execution |
10 |
|
Conflicts
management policies and procecdures |
10 |
|
Voting
guidelines |
11 |
|
Reporting
and vote transparency |
12 |
|
If
you would like additional information, please contact
Introduction
to BlackRock
BlackRock’s
purpose is to help more and more people experience financial well-being. As a
fiduciary to our clients, we provide the investment and technology solutions
they need when planning for their most important goals. We manage assets on
behalf of institutional and individual clients, across a full spectrum of
investment strategies, asset classes and regions. Our client base includes
pension plans, endowments, foundations, charities, official institutions,
insurers and other financial institutions, as well as individuals around the
world.
Philosophy
on corporate governance
BlackRock
Investment Stewardship (“BIS”) activities are focused on maximizing long-term
value for our clients. BIS does this through engagement with boards and
management of investee companies and, for those clients who have given us
authority, through voting at shareholder meetings.
We
believe that there are certain fundamental rights attached to shareholding.
Companies and their boards should be accountable to shareholders and structured
with appropriate checks and balances to ensure that they operate in
shareholders’ best interests. Effective voting rights are central to the rights
of ownership and there should be one vote for one share. Shareholders should
have the right to elect, remove and nominate directors, approve the appointment
of the auditor and to amend the corporate charter or by-laws. Shareholders
should be able to vote on matters that are material to the protection of their
investment, including but not limited to, changes to the purpose of the
business, dilution levels and pre-emptive rights, and the distribution of income
and capital structure. In order to make informed decisions, we believe that
shareholders have the right to sufficient and timely information.
Our
primary focus is on the performance of the board of directors. As the agent of
shareholders, the board should set the company’s strategic aims within a
framework of prudent and effective controls, which enables risk to be assessed
and managed. The board should provide direction and leadership to management and
oversee management’s performance. Our starting position is to be supportive of
boards in their oversight efforts on shareholders’ behalf and we would generally
expect to support the items of business they put to a vote at shareholder
meetings. Votes cast against or withheld from resolutions proposed by the board
are a signal that we are concerned that the directors or management have either
not acted in the best interests of shareholders or have not responded adequately
to shareholder concerns. We assess voting matters on a case-by-case basis and in
light of each company’s unique circumstances taking into consideration regional
best practices and long-term value creation.
These
principles set out our approach to engaging with companies, provide guidance on
our position on corporate governance and outline how our views might be
reflected in our voting decisions. Corporate governance practices can vary
internationally, so our expectations in relation to individual companies are
based on the legal and regulatory framework of each local market. However, we
believe there are overarching principles of corporate governance that apply
globally and provide a framework for more detailed, market-specific assessments.
We
believe BlackRock has a responsibility in relation to monitoring and providing
feedback to companies, sometimes known as “stewardship.” These ownership
responsibilities include engaging with management or board members on corporate
governance matters, voting proxies in the best long-term economic interests of
our clients, and engaging with regulatory bodies to ensure a sound policy
framework consistent with promoting long-term shareholder value creation. We
also believe in the responsibility to our clients to have appropriate resources
and oversight structures. Our approach is set out in the section below titled
“BlackRock’s oversight of its investment stewardship activities” and is further
detailed in a team
profile on our website.
Corporate
governance, engagement and voting
We
recognize that accepted standards of corporate governance differ between
markets, but we believe there are sufficient common threads globally to identify
an overarching set of principles. The objective of our investment stewardship
activities is the protection and enhancement of the value of our clients’
investments in public corporations. Thus, these principles focus on practices
and structures that we consider to be supportive of long-term value creation. We
discuss below the principles under six key themes. In our regional and
market-specific voting guidelines we explain how these principles inform our
voting decisions in relation to specific resolutions that may appear on the
agenda of a shareholder meeting in the relevant market.
The
six key themes are:
•Boards
and directors
•Auditors
and audit-related issues
•Capital
structure, mergers, asset sales and other special transactions
•Compensation
and benefits
•Environmental
and social issues
•General
corporate governance matters and shareholder protections
At
a minimum, we expect companies to observe the accepted corporate governance
standards in their domestic market or to explain why doing so is not in the
interests of shareholders. Where company reporting and disclosure is inadequate
or the approach taken is inconsistent with our view of what is in the best
interests of shareholders, we will engage with the company and/or use our vote
to encourage a change in practice. In making voting decisions, we perform
independent research and analysis, such as reviewing relevant information
published by the company and apply our voting guidelines to achieve the outcome
we believe best protects our clients’ long-term economic interests. We also work
closely with our active portfolio managers, and may take into account internal
and external research.
BlackRock
views engagement as an important activity; engagement provides us with the
opportunity to improve our understanding of the challenges and opportunities
that investee companies are facing and their governance structures. Engagement
also allows us to share our philosophy and approach to investment and corporate
governance with companies to enhance their understanding of our objectives. Our
engagements often focus on providing our feedback on company disclosures,
particularly where we believe they could be enhanced. There are a range of
approaches we may take in engaging companies depending on the nature of the
issue under consideration, the company and the market.
BlackRock’s
engagements emphasize direct dialogue with corporate leadership on the
governance issues identified in these principles that have a material impact on
financial performance. These engagements enable us to cast informed votes
aligned with clients’ long-term economic interests. We generally prefer to
engage in the first instance where we have concerns and give management time to
address or resolve the issue. As a long-term investor, we are patient and
persistent in working with our portfolio companies to have an open dialogue and
develop mutual understanding of governance matters, to promote the adoption of
best practices and to assess the merits of a company’s approach to its
governance. We monitor the companies in which we invest and engage with them
constructively and privately where we believe doing so helps protect
shareholders’ interests. We do not try to micro-manage companies, or tell
management and boards what to do. We present our views as a long-term
shareholder and listen to companies’ responses. The materiality and immediacy of
a given issue will generally determine the level of our engagement and whom we
seek to engage at the company, which could be management representatives or
board directors.
Boards
and directors
The
performance of the board is critical to the economic success of the company and
to the protection of shareholders’ interests. Board members serve as agents of
shareholders in overseeing the strategic direction and operation of the company.
For this reason, BlackRock focuses on directors in many of our engagements and
sees the election of directors as one of our most important responsibilities in
the proxy voting context.
We
expect the board of directors to promote and protect shareholder interests
by:
•establishing
an appropriate corporate governance structure
•supporting
and overseeing management in setting long-term strategic goals, applicable
measures of value-creation and milestones that will demonstrate progress, and
steps taken if any obstacles are anticipated or incurred
•ensuring
the integrity of financial statements
•making
independent decisions regarding mergers, acquisitions and disposals
•establishing
appropriate executive compensation structures
•addressing
business issues, including environmental and social issues, when they have the
potential to materially impact company reputation and performance
There
should be clear definitions of the role of the board, the committees of the
board and senior management such that the responsibilities of each are well
understood and accepted. Companies should report publicly the approach taken to
governance (including in relation to board structure) and why this approach is
in the best interest of shareholders. We will seek to engage with the
appropriate directors where we have concerns about the performance of the board
or the company, the broad strategy of the company, or the performance of
individual board members. We believe that when a company is not effectively
addressing a material issue, its directors should be held
accountable.
BlackRock
believes that directors should stand for re-election on a regular basis. We
assess directors nominated for election or re-election in the context of the
composition of the board as a whole. There should be detailed disclosure of the
relevant credentials of the individual directors in order for shareholders to
assess the caliber of an individual nominee. We expect there to be a sufficient
number of independent directors on the board to ensure the protection of the
interests of all shareholders. Common impediments to independence may include
but are not limited to:
•current
or former employment at the company or a subsidiary within the past several
years
•being,
or representing, a shareholder with a substantial shareholding in the
company
•interlocking
directorships
•having
any other interest, business or other relationship which could, or could
reasonably be perceived to, materially interfere with the director’s ability to
act in the best interests of the company
BlackRock
believes that the operation of the board is enhanced when there is a clearly
independent, senior non-executive director to chair it or, where the chairman is
also the CEO (or is otherwise not independent), an independent lead director.
The role of this director is to enhance the effectiveness of the independent
members of the board through shaping the agenda, ensuring adequate information
is provided to the board and encouraging independent participation in board
deliberations. The lead independent board director should be available to
shareholders in those situations where a director is best placed to explain and
justify a company’s approach.
To
ensure that the board remains effective, regular reviews of board performance
should be carried out and assessments made of gaps in skills or experience
amongst the members. BlackRock believes it is beneficial for new directors to be
brought onto the board periodically to refresh the group’s thinking and to
ensure both continuity and adequate succession planning. In identifying
potential candidates, boards should take into consideration the multiple
dimensions of diversity, including personal factors such as gender, ethnicity,
and age; as well as professional characteristics, such as a director’s industry,
area of expertise, and geographic location. The board should review these
dimensions of the current directors and how they might be augmented by incoming
directors. We believe that directors are in the best position to assess the
optimal size for the board, but we would be concerned if a board seemed too
small to have an appropriate balance of directors or too large to be
effective.
There
are matters for which the board has responsibility that may involve a conflict
of interest for executives or for affiliated directors. BlackRock believes that
shareholders’ interests are best served when the board forms committees of fully
independent directors to deal with such matters. In many markets, these
committees of the board specialize in audit, director nominations and
compensation matters. An ad hoc committee might also be formed to decide on a
special transaction, particularly one with a related party or to investigate a
significant adverse event.
Auditors
and audit-related issues
Comprehensive
disclosure provides investors with a sense of the company’s long-term
operational risk management practices and, more broadly, the quality of the
board’s oversight. In the absence of robust disclosures, we may reasonably
conclude that companies are not adequately managing risk.
BlackRock
recognizes the critical importance of financial statements, which should provide
a true and fair picture of a company’s financial condition. We will hold the
members of the audit committee or equivalent responsible for overseeing the
management of the audit function. We take particular note of cases involving
significant financial restatements or ad hoc notifications of material financial
weakness.
The
integrity of financial statements depends on the auditor being free of any
impediments to being an effective check on management. To that end, we believe
it is important that auditors are, and are seen to be, independent. Where the
audit firm provides services to the company in addition to the audit, the fees
earned should be disclosed and explained. Audit committees should have in place
a procedure for assessing annually the independence of the
auditor.
Capital
structure, mergers, asset sales and other special transactions
The
capital structure of a company is critical to its owners, the shareholders, as
it impacts the value of their investment and the priority of their interest in
the company relative to that of other equity or debt investors. Pre-emptive
rights are a key protection for shareholders against the dilution of their
interests.
Effective
voting rights are central to the rights of ownership and we believe strongly in
one vote for one share as a guiding principle that supports good corporate
governance. Shareholders, as the residual claimants, have the strongest interest
in protecting company value, and voting power should match economic exposure.
We
are concerned that the creation of a dual share class may result in an
over-concentration of power in the hands of a few shareholders, thus
disenfranchising other shareholders and amplifying the potential conflict of
interest, which the one share, one vote principle is designed to mitigate.
However, we recognize that in certain circumstances, companies may have a valid
argument for dual-class listings, at least for a limited period of time. We
believe that such companies should review these dual-class structures on a
regular basis or as company circumstances change. Additionally, they should
receive shareholder approval of their capital structure on a periodic basis via
a management proposal in the company’s proxy. The proposal should give
unaffiliated shareholders the opportunity to affirm the current structure or
establish mechanisms to end or phase out controlling structures at the
appropriate time, while minimizing costs to shareholders.
In
assessing mergers, asset sales or other special transactions, BlackRock’s
primary consideration is the long-term economic interests of shareholders.
Boards proposing a transaction need to clearly explain the economic and
strategic rationale behind it. We will review a proposed transaction to
determine the degree to which it enhances long-term shareholder value. We would
prefer that proposed transactions have the unanimous support of the board and
have been negotiated at arm’s length. We may seek reassurance from the board
that executives’ and/or board members’ financial interests in a given
transaction have not adversely affected their ability to place shareholders’
interests before their own. Where the transaction involves related parties, we
would expect the recommendation to support it to come from the independent
directors and it is good practice to be approved by a separate vote of the
non-conflicted shareholders.
BlackRock
believes that shareholders have a right to dispose of company shares in the open
market without unnecessary restriction. In our view, corporate mechanisms
designed to limit shareholders’ ability to sell their shares are contrary to
basic property rights. Such mechanisms can serve to protect and entrench
interests other than those of the shareholders. We believe that shareholders are
broadly capable of making decisions in their own best interests. We expect any
so-called ‘shareholder rights plans’ proposed by a board to be subject to
shareholder approval upon introduction and periodically thereafter for
continuation.
Compensation
and benefits
BlackRock
expects a company’s board of directors to put in place a compensation structure
that incentivizes and rewards executives appropriately and is aligned with
shareholder interests, particularly generating sustainable long-term shareholder
returns. We would expect the compensation committee to take into account the
specific circumstances of the company and the key individuals the board is
trying to incentivize. We encourage companies to ensure that their compensation
plans incorporate appropriate and challenging performance conditions consistent
with corporate strategy and market practice. We use third party research, in
addition to our own analysis, to evaluate existing and proposed compensation
structures. We hold members of the compensation committee or equivalent board
members accountable for poor compensation practices or structures.
BlackRock
believes that there should be a clear link between variable pay and company
performance that drives shareholder returns. We are not supportive of one-off or
special bonuses unrelated to company or individual performance. We acknowledge
that the use of peer group evaluation by compensation committees can help ensure
competitive pay; however, we are concerned when increases in total compensation
at a company are justified solely on peer benchmarking rather than
outperformance. We support incentive plans that foster the sustainable
achievement of results relative to competitors. The vesting timeframes
associated with incentive plans should facilitate a focus on long-term value
creation. We believe consideration should be given to building claw back
provisions into incentive plans such that executives would be required to forgo
rewards when they are not justified by actual performance. Compensation
committees should guard against contractual arrangements that would entitle
executives to material compensation for early termination of their contract.
Finally, pension contributions and other deferred compensation arrangements
should be reasonable in light of market practice.
Non-executive
directors should be compensated in a manner that is commensurate with the time
and effort expended in fulfilling their professional responsibilities.
Additionally, these compensation arrangements should not risk compromising their
independence or aligning their interests too closely with those of the
management, whom they are charged with overseeing.
Environmental
and social issues
Our
fiduciary duty to clients is to protect and enhance their economic interest in
the companies in which we invest on their behalf. It is within this context that
we undertake our corporate governance activities. We believe that well-managed
companies will deal effectively with the material environmental and social
(“E&S”) factors relevant to their businesses. Robust disclosure is essential
for investors to effectively gauge companies’ business practices and planning
related to E&S risks and opportunities.
BlackRock
expects companies to issue reports aligned with the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD) and the standards put
forward by the Sustainability Accounting Standards Board (SASB). We view the
SASB and TCFD frameworks as complementary in achieving the goal of disclosing
more financially material information, particularly as it relates to
industry-specific metrics and target setting. TCFD’s recommendations provide an
overarching framework for disclosure on the business implications of climate
change, and potentially other E&S factors. We find SASB’s industry-specific
guidance (as identified in its materiality map) beneficial in helping companies
identify and discuss their governance, risk assessments, and performance against
these key performance indicators (KPIs). Any global standards adopted, peer
group benchmarking undertaken, and verification processes in place should also
be disclosed and discussed in this context.
BlackRock
has been engaging with companies for several years on disclosure of material
E&S factors. Given the increased understanding of sustainability risks and
opportunities, and the need for better information to assess them, we
specifically ask companies to:
1)publish
a disclosure in line with industry-specific SASB guidelines by year-end, if they
have not already done so, or disclose a similar set of data in a way that is
relevant to their particular business; and
2)disclose
climate-related risks in line with the TCFD’s recommendations, if they have not
already done so. This should include the company’s plan for operating under a
scenario where the Paris Agreement’s goal of limiting global warming to less
than two degrees is fully realized, as expressed by the TCFD
guidelines.
See
our commentary on our approach to engagement on TCFD and SASB aligned reporting
for greater detail of our expectations.
We
will use these disclosures and our engagements to ascertain whether companies
are properly managing and overseeing these risks within their business and
adequately planning for the future. In the absence of robust disclosures,
investors, including BlackRock, will increasingly conclude that companies are
not adequately managing risk.
We
believe that when a company is not effectively addressing a material issue, its
directors should be held accountable. We will generally engage directly with the
board or management of a company when we identify issues. We may vote against
the election of directors where we have concerns that a company might not be
dealing with E&S factors appropriately. Sometimes we may reflect such
concerns by supporting a shareholder proposal on the issue, where there seems to
be either a significant potential threat or realized harm to shareholders’
interests caused by poor management of material E&S factors.
In
deciding our course of action, we will assess the company’s disclosures and the
nature of our engagement with the company on the issue over time, including
whether:
•The
company has already taken sufficient steps to address the concern
•The
company is in the process of actively implementing a response
•There
is a clear and material economic disadvantage to the company in the near-term if
the issue is not addressed in the manner requested by the shareholder
proposal
We
do not see it as our role to make social or political judgments on behalf of
clients. Our consideration of these E&S factors is consistent with
protecting the long-term economic interest of our clients’ assets. We expect
investee companies to comply, at a minimum, with the laws and regulations of the
jurisdictions in which they operate. They should explain how they manage
situations where local laws or regulations that significantly impact the
company’s operations are contradictory or ambiguous to global
norms.
Climate
risk
Within
the framework laid out above, as well as our guidance on “How
BlackRock Investment Stewardship engages on climate risk,”
we believe that climate presents significant investment risks and opportunities
that may impact the long-term financial sustainability of companies. We believe
that the reporting frameworks developed by TCFD and SASB provide useful guidance
to companies on identifying, managing, and reporting on climate-related risks
and opportunities.
We
expect companies to help their investors understand how the company may be
impacted by climate risk, in the context of its ability to realize a long-term
strategy and generate value over time. We expect companies to convey their
governance around this issue through their corporate disclosures aligned with
TCFD and SASB. For companies in sectors that are significantly exposed to
climate-related risk, we expect the whole board to have demonstrable fluency in
how climate risk affects the business and how management approaches assessing,
adapting to, and mitigating that risk.
Where
a company receives a shareholder proposal related to climate risk, in addition
to the factors laid out above, our assessment will take into account the
robustness of the company’s existing disclosures as well as our understanding of
its management of the issues as revealed through our engagements with the
company and board members over time. In certain instances, we may disagree with
the details of a climate-related shareholder proposal but agree that the company
in question has not made sufficient progress on climate-related disclosures. In
these instances, we may not support the proposal, but may vote against the
election of relevant directors.
General
corporate governance matters and shareholder protections
BlackRock
believes that shareholders have a right to timely and detailed information on
the financial performance and viability of the companies in which they invest.
In addition, companies should also publish information on the governance
structures in place and the rights of shareholders to influence these. The
reporting and disclosure provided by companies help shareholders assess whether
their economic interests have been protected and the quality of the board’s
oversight of management. We believe shareholders should have the right to vote
on key corporate governance matters, including changes to governance mechanisms,
to submit proposals to the shareholders’ meeting and to call special meetings of
shareholders.
BlackRock’s
oversight of our investment
stewardship
activities
Oversight
We
hold ourselves to a very high standard in our investment stewardship activities,
including proxy voting. This function is executed by a team called BlackRock
Investment Stewardship (“BIS”) which is comprised of BlackRock employees who do
not have other responsibilities other than their roles in BIS. BIS is considered
an investment function. The team does not have sales responsibilities.
BlackRock
maintains three regional advisory committees (“Stewardship Advisory Committees”)
for (a) the Americas; (b) Europe, the Middle East and Africa (“EMEA”); and (c)
Asia-Pacific, generally consisting of senior BlackRock investment
professionals
and/or senior employees with practical boardroom experience. The regional
Stewardship Advisory Committees review and advise on amendments to the proxy
voting guidelines covering markets within each respective region (“Guidelines”).
In
addition to the regional Stewardship Advisory Committees, the Investment
Stewardship Global Oversight Committee (“Global Committee”) is a risk-focused
committee, comprised of senior representatives from various BlackRock investment
teams, BlackRock’s Deputy General Counsel, the Global Head of Investment
Stewardship (“Global Head”), and other senior executives with relevant
experience and team oversight.
The
Global Head has primary oversight of the activities of BIS, including voting in
accordance with the Guidelines, which require the application of professional
judgment and consideration of each company’s unique circumstances. The Global
Committee reviews and approves amendments to these Global Corporate Governance
& Engagement Principles. The Global Committee also reviews and approves
amendments to the regional Guidelines, as proposed by the regional Stewardship
Advisory Committees.
In
addition, the Global Committee receives and reviews periodic reports regarding
the votes cast by BIS, as well as regular updates on material process issues,
procedural changes and other risk oversight considerations. The Global Committee
reviews these reports in an oversight capacity as informed by the BIS corporate
governance engagement program and Guidelines.
BIS
carries out engagement with companies, monitors and executes proxy votes, and
conducts vote operations (including maintaining records of votes cast) in a
manner consistent with the relevant Guidelines. BIS also conducts research on
corporate governance issues and participates in industry discussions to keep
abreast of important developments in the corporate governance field. BIS may
utilize third parties for certain of the foregoing activities and performs
oversight of those third parties. BIS may raise complicated or particularly
controversial matters for internal discussion with the relevant investment teams
and/or refer such matters to the appropriate regional Stewardship Advisory
Committees for review, discussion and guidance prior to making a voting
decision.
Vote
execution
We
carefully consider proxies submitted to funds and other fiduciary account(s)
(“Fund” or “Funds”) for which we have voting authority. BlackRock votes (or
refrains from voting) proxies for each Fund for which we have voting authority
based on our evaluation of the best long-term economic interests of
shareholders, in the exercise of our independent business judgment, and without
regard to the relationship of the issuer of the proxy (or any shareholder
proponent or dissident shareholder) to the Fund, the Fund’s affiliates (if any),
BlackRock or BlackRock’s affiliates, or BlackRock employees (see “Conflicts
management policies and procedures”, below).
When
exercising voting rights, BlackRock will normally vote on specific proxy issues
in accordance with the Guidelines for the relevant market. The Guidelines are
reviewed regularly and are amended consistent with changes in the local market
practice, as developments in corporate governance occur, or as otherwise deemed
advisable by BlackRock’s Stewardship Advisory Committees. BIS may, in the
exercise of their professional judgment, conclude that the Guidelines do not
cover the specific matter upon which a proxy vote is required or that an
exception to the Guidelines would be in the best long-term economic interests of
BlackRock’s clients.
In
the uncommon circumstance of there being a vote with respect to fixed income
securities or the securities of privately held issuers, the decision generally
will be made by a Fund's portfolio managers and/or BIS based on their assessment
of the particular transactions or other matters at issue.
In
certain markets, proxy voting involves logistical issues which can affect
BlackRock’s ability to vote such proxies, as well as the desirability of voting
such proxies. These issues include but are not limited to: (i) untimely notice
of shareholder meetings; (ii) restrictions on a foreigner’s ability to exercise
votes; (iii) requirements to vote proxies in person; (iv) “share-blocking”
(requirements that investors who exercise their voting rights surrender the
right to dispose of their holdings for some specified period in proximity to the
shareholder meeting); (v) potential difficulties in translating the proxy; (vi)
regulatory constraints; and (vii) requirements to provide local agents with
unrestricted powers of attorney to facilitate voting instructions. We are not
supportive of impediments to the exercise of voting rights such as shareblocking
or overly burdensome administrative requirements.
As
a consequence, BlackRock votes proxies on a “best-efforts” basis. In addition,
BIS may determine that it is generally in the best interests of BlackRock’s
clients not to vote proxies if the costs (including but not limited to
opportunity costs associated with shareblocking constraints) associated with
exercising a vote are expected to outweigh the benefit the client would derive
by voting on the proposal.
Portfolio
managers have full discretion to vote the shares in the Funds they manage based
on their analysis of the economic impact of a particular ballot item. Portfolio
managers may from time to time reach differing views on how best to maximize
economic value with respect to a particular investment. Therefore, portfolio
managers may, and sometimes do, vote shares in the Funds under their management
differently from one another. However, because BlackRock’s clients are mostly
long-term investors with long-term economic goals, ballots are frequently cast
in a uniform manner.
Conflicts
management policies and procedures
BIS
maintains the following policies and procedures that seek to prevent undue
influence on BlackRock’s proxy voting activity. Such influence might stem from
any relationship between the investee company (or any shareholder proponent or
dissident shareholder) and BlackRock, BlackRock’s affiliates, a Fund or a Fund’s
affiliates, or BlackRock employees. The following are examples of sources of
perceived or potential conflicts of interest:
•BlackRock
clients who may be issuers of securities or proponents of shareholder
resolutions
•BlackRock
business partners or third parties who may be issuers of securities or
proponents of shareholder resolutions
•BlackRock
employees who may sit on the boards of public companies held in Funds managed by
BlackRock
•Significant
BlackRock, Inc. investors who may be issuers of securities held in Funds managed
by BlackRock
•Securities
of BlackRock, Inc. or BlackRock investment funds held in Funds managed by
BlackRock
•BlackRock,
Inc. board members who serve as senior executives of public companies held in
Funds managed by BlackRock
BlackRock
has taken certain steps to mitigate perceived or potential conflicts including,
but not limited to, the following:
•Adopted
the Guidelines which are designed to protect and enhance the economic value of
the companies in which BlackRock invests on behalf of clients.
•Established
a reporting structure that separates BIS from employees with sales, vendor
management or business partnership roles. In addition, BlackRock seeks to ensure
that all engagements with corporate issuers, dissident shareholders or
shareholder proponents are managed consistently and without regard to
BlackRock’s relationship with such parties. Clients or business partners are not
given special treatment or differentiated access to BIS. BIS prioritizes
engagements based on factors including but not limited to our need for
additional information to make a voting decision or our view on the likelihood
that an engagement could lead to positive outcome(s) over time for the economic
value of the company. Within the normal course of business, BIS may engage
directly with BlackRock clients, business partners and/or third parties, and/or
with employees with sales, vendor management or business partnership roles, in
discussions regarding our approach to stewardship, general corporate governance
matters, client reporting needs, and/or to otherwise ensure that proxy-related
client service levels are met.
•Determined
to engage, in certain instances, an independent fiduciary to vote proxies as a
further safeguard to avoid potential conflicts of interest, to satisfy
regulatory compliance requirements, or as may be otherwise required by
applicable law. In such circumstances, the independent fiduciary provides
BlackRock’s proxy voting agent with instructions, in accordance with the
Guidelines, as to how to vote such proxies, and BlackRock’s proxy voting agent
votes the proxy in accordance with the independent fiduciary’s determination.
BlackRock uses an independent fiduciary to vote proxies of (i) any company that
is affiliated with BlackRock, Inc., (ii) any public company that includes
BlackRock employees on its board of directors, (iii) The PNC Financial Services
Group, Inc., (iv) any public company of which a BlackRock, Inc. board member
serves as a senior executive, and (v) companies when legal or regulatory
requirements compel BlackRock to use an independent fiduciary. In selecting an
independent fiduciary, we assess several characteristics, including but not
limited to: independence, an ability to analyze proxy issues and vote in the
best economic interest of our clients, reputation for reliability and integrity,
and operational capacity to accurately deliver the assigned votes in a timely
manner. We may engage more than one independent fiduciary, in part in order to
mitigate potential or perceived conflicts of interest at an independent
fiduciary. The Global Committee appoints and reviews the performance of the
independent fiduciar(ies), generally on an annual basis.
When
so authorized, BlackRock acts as a securities lending agent on behalf of Funds.
With regard to the relationship between securities lending and proxy voting,
BlackRock’s approach is driven by our clients’ economic interests. The decision
whether to recall securities on loan to vote is based on a formal analysis of
the revenue producing value to clients of loans, against the assessed economic
value of casting votes. Generally, we expect that the likely economic value to
clients of casting votes would be less than the securities lending income,
either because, in our assessment, the resolutions being voted on will not have
significant economic consequences or because the outcome would not be affected
by BlackRock recalling loaned securities in order to vote. BlackRock also may,
in our discretion, determine that the value of voting outweighs the cost of
recalling shares, and thus recall shares to vote in that instance.
Periodically,
BlackRock reviews our process for determining whether to recall securities on
loan in order to vote and may modify it as necessary.
Voting
guidelines
The
issue-specific Guidelines published for each region/country in which we vote are
intended to summarize BlackRock’s general philosophy and approach to issues that
may commonly arise in the proxy voting context in each market where we invest.
These Guidelines are not intended to be exhaustive. BIS applies the Guidelines
on a case-by-case basis, in the context of the individual circumstances of each
company and the specific issue under review. As such, these Guidelines do not
indicate how BIS will vote in every instance. Rather, they share our view about
corporate governance issues generally, and provide insight into how we typically
approach issues that commonly arise on corporate ballots.
Reporting
and vote transparency
We
inform clients about our engagement and voting policies and activities through
direct communication and through disclosure on our website. Each year we publish
an annual report, an annual engagement and voting statistics report, and our
full voting record to our website. On a quarterly basis, we publish regional
reports which provide an overview of our investment stewardship engagement and
voting activities during the quarter, including market developments, speaking
engagements, and engagement and voting statistics. Additionally, we make public
our market-specific voting guidelines for the benefit of clients and companies
with whom we engage.
This
document is provided for information purposes only and must not be relied upon
as a forecast, research, or investment advice. BlackRock is not making any
recommendation or soliciting any action based upon the information contained
herein and nothing in this document should be construed as constituting an offer
to sell, or a solicitation of any offer to buy, securities in any jurisdiction
to any person. This information provided herein does not constitute financial,
tax, legal or accounting advice, you should consult your own advisers on such
matters.
The
information and opinions contained in this document are as of January 2020
unless it is stated otherwise and may change as subsequent conditions vary. The
information and opinions contained in this material are derived from proprietary
and non-proprietary sources deemed by BlackRock to be reliable, are not
necessarily all-inclusive and are not guaranteed as to accuracy. Although such
information is believed to be reliable for the purposes used herein, BlackRock
does not assume any responsibility for the accuracy or completeness of such
information. Reliance upon information in this material is at the sole
discretion of the reader. Certain information contained herein represents or is
based upon forward-looking statements or information. BlackRock and its
affiliates believe that such statements and information are based upon
reasonable estimates and assumptions. However, forward-looking statements are
inherently uncertain, and factors may cause events or results to differ from
those projected. Therefore, undue reliance should not be placed on such
forward-looking statements and information.
Prepared
by BlackRock, Inc.
©2020
BlackRock, Inc. All rights reserved.
BlackRock
RARE
Corporate Governance
and
Proxy Voting Policy
December
2017
RARE
Infrastructure Limited (RIL)
RARE
Infrastructure International Pty Limited (RIIPL)
RARE
Infrastructure (North America) Pty Limited (RINA)
RARE
Infrastructure USA Inc. (RUSA)
RARE
Infrastructure (Europe) Pty Ltd (REUR)
RARE
Holdings Pty Limited (RHIP)
RARE
Infrastructure Finance Pty Limited (RIF)
Legg
Mason Australia Holdings Pty Limited (LMAH)
(Collectively
known as the “RARE Group” for the purposes of this document)
Document
owner: Chief Compliance Officer
All
copyright and other intellectual property in this document is owned by RARE
Infrastructure Limited and its Group entities. This document may not
be
externally distributed without the approval of the RARE Legal or Risk
&
Compliance
teams.
RARE
Corporate Governance and Proxy Voting Policy
Purpose
To
provide guidelines for the RARE Group to pursue an active role in monitoring
corporate governance practices adopted by the companies that the RARE Group’s
clients are invested in.
As
part of investment management process, RARE will take an active role in
monitoring corporate governance practices of the companies that RARE clients and
fund are invested in.
Application
This
policy applies to funds and accounts managed by RARE Infrastructure Limited
(RIL), RARE Infrastructure International Pty Limited (RIIPL), RARE
Infrastructure (North America) Pty Limited (RINA), RARE Infrastructure USA, INC
(RUSA) and RARE Infrastructure (Europe) Pty Ltd (REUR) (collectively known as
the "RARE Group" for the purposes of this policy).
The
policy should be read in conjunction with the RARE suite of policies, including
the RARE Code of Conduct and the RARE Environmental, Social and Governance
Policy.
Corporate
Governance
The
RARE Group believes that corporate governance is an important aspect of share
ownership and that as a professional investment manager, the RARE Group has a
responsibility to act in this regard with the best interests of its clients in
mind.
The
RARE Group is an active participant in corporate governance matters that arise
as a result of investments in securities. The RARE Group also pursues corporate
governance matters with companies outside of formal company meetings, by writing
letters to the board of directors and senior management and meeting with company
representatives on a regular basis.
The
RARE Group may seek to influence company policy by forwarding its views to
senior management and board members in writing or by arranging to speak to those
persons directly.
Proxy
Voting
For
all securities in the RARE Group's portfolios for which the RARE Group is
authorised to vote, upon receipt of notice of a meeting where the RARE Group may
vote, the investment team will review the resolutions to be put to the meeting
and determine the RARE Group's position. The RARE Group view will be reflected
in any proxy record lodged on behalf of a RARE Group client, where voting
discretion is left to the RARE Group.
Copies
of all proxy records will be retained in a voting system register that is
maintained by the RARE Group.
Reporting
to Clients
The
RARE Group will provide its clients annual reports on the RARE Group's voting
activities on request. The annual report may include:
•Material
corporate governance issues the RARE Group decided to correspond with a company
on before an AGM with a view to amending or withdrawing a proposed
resolution.
•Comments
on resolutions where the RARE Group abstained or voted against the board's
recommendations.
Voting
information can be obtained more frequently on request.
Monitoring
and Reporting
RARE
Risk and Compliance will monitor compliance with this policy on an ad hoc
basis.
Record
Keeping
Records
of all voting will be maintained by RARE.
Exceptions
to the Policy
All
exceptions to this policy will be reported to the Board and Senior Management as
required under the Breaches and Incidents policy.
CREDIT
SUISSE ASSET MANAGEMENT, LLC
CREDIT
SUISSE FUNDS
PROXY
VOTING PROCEDURES
Introduction
Credit
Suisse Asset Management, LLC (“Credit Suisse”) is a fiduciary that owes each of
its client’s duties of care and loyalty with respect to proxy voting. The duty
of care requires Credit Suisse to monitor corporate events and to vote proxies.
To satisfy its duty of loyalty, Credit Suisse must cast proxy votes in the best
interests of each of its clients.
The
Credit Suisse Funds (the “Funds”), which have engaged Credit Suisse Asset
Management, LLC as their investment adviser, are of the belief that the proxy
voting process is a means of addressing corporate governance issues and
encouraging corporate actions both of which can enhance shareholder
value.
Procedures
The
Proxy Voting Procedures (the “Procedures”) set forth below are designed to
ensure that proxies are voted in the best interests of Credit Suisse’s clients.
The Procedures addresses particular issues and gives a general indication of how
Credit Suisse will vote proxies. The Procedures are not exhaustive and does not
include all potential issues.
Proxy
Voting Committee
The
Proxy Voting Committee will consist of a disinterested member of the Portfolio
Management Department, a member of the General Counsel Department, a member of
the Compliance and Regulatory Affairs Department, a member of the Operations
Department (or their designees), and a member of Fund Administration. The
purpose of the Proxy Voting Committee is to administer the voting of all
clients’ proxies in accordance with the Procedures. The Proxy Voting Committee
will review the Procedures as necessary to ensure that it is designed to promote
the best interests of Credit Suisse’s clients.
For
the reasons disclosed below under “Conflicts,” the Proxy Voting Committee has
engaged the services of an independent third party (initially, Risk Metrics
Group’s ISS Governance Services Unit (“ISS”)) to assist in issue analysis and
vote recommendation for proxy proposals for all of the Funds except Credit
Suisse Commodity Return Strategy Fund and Credit Suisse Trust – Commodity Return
Strategy Portfolio. Proxy proposals addressed by the Procedures will be voted in
accordance with the Procedures. Proxy proposals addressed by the Procedures that
require a case-by-case analysis will be voted in accordance with the vote
recommendation of ISS. Proxy proposals not addressed by the Procedures will also
be voted in accordance with the vote recommendation of ISS. To the extent that
the Proxy Voting Committee proposes to deviate from the Procedures or the ISS
vote recommendation, the Committee shall obtain client consent as described
below.
Credit
Suisse investment professionals may submit a written recommendation to the Proxy
Voting Committee to vote in a manner inconsistent with the Procedures and/or the
recommendation of ISS. Such recommendation will set forth its basis and
rationale. In addition, the investment professional must confirm in writing that
he/she is not aware of any conflicts of interest concerning the proxy matter or
provide a full and complete description of the conflict.
In
the event a Portfolio Manager (“PM”) desires to deviate from the stated voting
parameters outlined in the Procedures, the PM is required to submit a memo
detailing the request and rationale for the deviation to the Chair of the Proxy
Voting Committee. The Chair of the Proxy Voting Committee (“Committee”) will
convene a meeting where the PM will present their recommendation. In the event
an in person or telephonic meeting cannot be organized, the Chair of the
Committee will circulate the PM’s request for an exception to the Proxy Voting
Committee for consideration.
Should
such Procedures exception be approved by the Proxy Voting Committee, the
Committee will forward the instructions to ISS for processing and will minute
the meeting.
Conflicts
Credit
Suisse is the part of the asset management business of Credit Suisse, one of the
world’s leading banks. As part of a global, full service investment-bank,
broker-dealer, and wealth-management organization, Credit Suisse and its
affiliates and personnel may have multiple advisory, transactional, financial,
and other interests in securities, instruments, and companies that may be
purchased or sold by Credit Suisse for its clients’ accounts. The interests of
Credit Suisse and/or its affiliates and personnel may conflict with the
interests of Credit Suisse’s clients in connection with any proxy issue. In
addition, Credit Suisse may not be able to identify all of the conflicts of
interest relating to any proxy matter.
Consent
In
each and every instance in which the Proxy Voting Committee favors voting in a
manner that is inconsistent with the Procedures or the vote recommendation of
ISS (including proxy proposals addressed and not addressed by the Procedures),
it shall disclose to the client conflicts of interest information and obtain
client consent to vote. Where the client is a Fund, disclosure shall be made to
any one director who is not an “interested person,” as that term is defined
under the Investment Company Act of 1940, as amended, of the Fund.
Recordkeeping
Credit
Suisse is required to maintain in an easily accessible place for six years all
records relating to proxy voting.
These
records include the following:
•a
copy of the Procedures;
•a
copy of each proxy statement received on behalf of Credit Suisse
clients;
•a
record of each vote cast on behalf of Credit Suisse clients;
•a
copy of all documents created by Credit Suisse personnel that were material to
making a decision on a vote or that memorializes the basis for the decision;
and
•a
copy of each written request by a client for information on how Credit Suisse
voted proxies, as well as a copy of any written response.
Credit
Suisse reserves the right to maintain certain required proxy records with ISS in
accordance with all applicable regulations.
Credit
Suisse Asset Management, LLC
Disclosure
Credit
Suisse will describe the Procedures to each client. Upon request, Credit Suisse
will provide any client with a copy of the Procedures. Credit Suisse will also
disclose to its clients how they can obtain information on their proxy
votes.
ISS
will capture data necessary for Funds to file Form N-PX on an annual basis
concerning their proxy voting record in accordance with applicable
law.
A
description of the Procedures is contained in each Fund’s Statement of
Additional Information the telephone number for more information must be
disclosed in each Fund’s Form N-CSR.
Procedures
The
Proxy Voting Committee will administer the voting of all client proxies. Credit
Suisse has engaged ISS as an independent third party proxy voting service to
assist in the voting of client proxies. ISS will coordinate with each client’s
custodian to ensure that proxy materials reviewed by the custodians are
processed in a timely fashion. ISS will provide Credit Suisse with an analysis
of proxy issues and a vote recommendation for proxy proposals. ISS will refer
proxies to the Proxy Voting Committee for instructions when the application of
the Procedures is not clear. The Proxy Voting Committee will notify ISS of any
changes to the Procedures or deviating thereof.
PROXY
VOTING PROCEDURES
Operational
Items
Adjourn
Meeting
Proposals
to provide management with the authority to adjourn an annual or special meeting
will be determined on a case-by-case basis.
Amend
Quorum Requirements
Proposals
to reduce quorum requirements for shareholder meetings below a majority of the
shares outstanding will be determined on a case-by-case basis.
Amend
Minor Bylaws
Generally
vote for bylaw or charter changes that are of a housekeeping
nature.
Change
Date, Time, or Location of Annual Meeting
Generally
vote for management proposals to change the date/time/location of the annual
meeting unless the proposed change is unreasonable. Generally vote against
shareholder proposals to change the date/time/location of the annual meeting
unless the current scheduling or location is unreasonable.
Ratify
Auditors
Generally
vote for proposals to ratify auditors unless: (1) an auditor has a financial
interest in or association with the company, and is therefore not independent;
(2) fees for non-audit services are excessive, or (3) there is reason to believe
that the independent auditor has rendered an opinion, which is neither accurate
nor indicative of the company's financial position. Generally vote on a
case-by-case basis on shareholder proposals asking companies to prohibit their
auditors from engaging in non-audit services (or capping the level of non-audit
services). Generally vote on a case-by-case basis on auditor rotation proposals
taking into consideration: (1) tenure of audit firm; (2) establishment and
disclosure of a renewal process whereby the auditor is regularly evaluated for
both audit quality and competitive price; (3) length of the rotation period
advocated in the proposal, and (4) significant audit related
issues.
Credit
Suisse Asset Management, LLC
Board
of Directors
Voting
on Director Nominees in Uncontested Elections
Generally
votes on director nominees on a case-by-case basis. Votes may be withheld: from
directors who (1) attended less than 75% of the board and committee meetings
without a valid reason for the absences; (2) implemented or renewed a dead-hand
poison pill; (3) ignored a shareholder proposal that was approved by a majority
of the votes cast for two consecutive years; (4) ignored a shareholder proposal
approved by a majority of the shares outstanding; (5) have failed to act on
takeover offers where the majority of the shareholders have tendered their
shares; (6) are inside directors or affiliated outside directors and sit on the
audit, compensation, or nominating committee; (7) are inside directors or
affiliated outside directors and the full board serves as the audit,
compensation, or nominating committee or the company does not have one of these
committees; or (8) are audit committee members and the non-audit fees paid to
the auditor are excessive.
Cumulative
Voting
Proposals
to eliminate cumulative voting will be determined on a case-by-case basis.
Proposals to restore or provide for cumulative voting in the absence of
sufficient good governance provisions and/or poor relative shareholder returns
will be determined on a case-by-case basis.
Director
and Officer Indemnification and Liability Protection
Proposals
on director and officer indemnification and liability protection generally
evaluated on a case-by-case basis. Generally vote against proposals that would:
(1) eliminate entirely directors' and officers' liability for monetary damages
for violating the duty of care; or (2) expand coverage beyond just legal
expenses to acts, such as negligence, that are more serious violations of
fiduciary obligation than mere carelessness. Generally vote for only those
proposals providing such expanded coverage in cases when a director's or
officer's legal defense was unsuccessful if: (1) the director was found to have
acted in good faith and in a manner that he reasonably believed was in the best
interests of the company, and (2) only if the director's legal expenses would be
covered.
Filling
Vacancies/Removal of Directors
Generally
vote against proposals that provide that directors may be removed only for
cause. Generally vote for proposals to restore shareholder ability to remove
directors with or without cause. Proposals that provide that only continuing
directors may elect replacements to fill board vacancies will be determined on a
case-by-case basis. Generally vote for proposals that permit shareholders to
elect directors to fill board vacancies.
Independent
Chairman (Separate Chairman/CEO)
Generally
vote for shareholder proposals requiring the position of chairman be filled by
an independent director unless there are compelling reasons to recommend against
the proposal, including: (1) designated lead director, elected by and from the
independent board members with clearly delineated duties; (2) 2/3 independent
board; (3) all independent key committees; or (4) established governance
guidelines.
Majority
of Independent Directors
Generally
vote for shareholder proposals requiring that the board consist of a majority or
substantial majority (two-thirds) of independent directors unless the board
composition already meets the adequate threshold. Generally vote for shareholder
proposals requiring the board audit, compensation, and/or nominating committees
be composed exclusively of independent directors if they currently do not meet
that standard. Generally withhold votes from insiders and affiliated outsiders
sitting on the audit, compensation, or nominating committees. Generally withhold
votes from insiders and affiliated outsiders on boards that are lacking any of
these three panels. Generally withhold votes from insiders and affiliated
outsiders on boards that are not at least majority independent.
Credit
Suisse Asset Management, LLC
Term
Limits
Generally
vote against shareholder proposals to limit the tenure of outside
directors.
Proxy
Contests
Voting
on Director Nominees in Contested Elections
Votes
in a contested election of directors should be decided on a case-by-case basis,
with shareholders determining which directors are best suited to add value for
shareholders. The major decision factors are: (1) company performance relative
to its peers; (2) strategy of the incumbents versus the dissidents; (3)
independence of directors/nominees; (4) experience and skills of board
candidates; (5) governance profile of the company; (6) evidence of management
entrenchment; (7) responsiveness to shareholders; or (8) whether takeover offer
has been rebuffed.
Amend
Bylaws without Shareholder Consent
Proposals
giving the board exclusive authority to amend the bylaws will be determined on a
case-by-case basis. Proposals giving the board the ability to amend the bylaws
in addition to shareholders will be determined on a case-by-case
basis.
Confidential
Voting
Generally
vote for shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy may remain in place. If the dissidents will not
agree, the confidential voting policy may be waived. Generally vote for
management proposals to adopt confidential voting.
Cumulative
Voting
Proposals
to eliminate cumulative voting will be determined on a case-by-case basis.
Proposals to restore or provide for cumulative voting in the absence of
sufficient good governance provisions and/or poor relative shareholder returns
will be determined on a case-by-case basis.
Antitakeover
Defenses and Voting Related Issues
Advance
Notice Requirements for Shareholder Proposals/Nominations
Votes
on advance notice proposals are determined on a case-by-case basis.
Amend
Bylaws without Shareholder Consent
Proposals
giving the board exclusive authority to amend the bylaws will be determined on a
case-by-case basis. Generally vote for proposals giving the board the ability to
amend the bylaws in addition to shareholders.
Poison
Pills (Shareholder Rights Plans)
Generally
vote for shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it. Votes regarding management proposals to
ratify a poison pill should be determined on a case-by-case basis. Plans should
embody the following attributes: (1) 20% or higher flip-in or flip-over; (2) two
to three year sunset provision; (3) no dead-hand or no-hand features; or (4)
shareholder redemption feature.
Shareholders'
Ability to Act by Written Consent
Generally
vote against proposals to restrict or prohibit shareholders' ability to take
action by written consent. Generally vote for proposals to allow or make easier
shareholder action by written consent.
Credit
Suisse Asset Management, LLC
Shareholders'
Ability to Call Special Meetings
Proposals
to restrict or prohibit shareholders' ability to call special meetings or that
remove restrictions on the right of shareholders to act independently of
management will be determined on a case-by-case basis.
Supermajority
Vote Requirements
Proposals
to require a supermajority shareholder vote will be determined on a case-by-
case basis. Proposals to lower supermajority vote requirements will be
determined on a case-by-case basis.
Merger
and Corporate Restructuring
Appraisal
Rights
Generally
vote for proposals to restore, or provide shareholders with, rights of
appraisal.
Asset
Purchases
Generally
vote case-by-case on asset purchase proposals, taking into account: (1) purchase
price, including earn out and contingent payments; (2) fairness opinion; (3)
financial and strategic benefits; (4) how the deal was negotiated; (5) conflicts
of interest; (6) other alternatives for the business; or (7) noncompletion risk
(company's going concern prospects, possible bankruptcy).
Asset
Sales
Votes
on asset sales should be determined on a case-by-case basis after considering:
(1) impact on the balance sheet/working capital; (2) potential elimination of
diseconomies; (3) anticipated financial and operating benefits; (4) anticipated
use of funds; (5) value received for the asset; fairness opinion (if any); (6)
how the deal was negotiated; or (6) conflicts of interest
Conversion
of Securities
Votes
on proposals regarding conversion of securities are determined on a case-by-case
basis. When evaluating these proposals, should review (1) dilution to existing
shareholders' position; (2) conversion price relative to market value; (3)
financial issues: company's financial situation and degree of need for capital;
effect of the transaction on the company's cost of capital; (4) control issues:
change in management; change in control; standstill provisions and voting
agreements; guaranteed contractual board and committee seats for investor; veto
power over certain corporate actions; (5) termination penalties; (6) conflict of
interest: arm's length transactions, managerial incentives. Generally vote for
the conversion if it is expected that the company will be subject to onerous
penalties or will be forced to file for bankruptcy if the transaction is not
approved.
Corporate
Reorganization
Votes
on proposals to increase common and/or preferred shares and to issue shares as
part of a debt restructuring plan are determined on a case-by-case basis, after
evaluating: (1) dilution to existing shareholders' position; (2) terms of the
offer; (3) financial issues; (4) management's efforts to pursue other
alternatives; (5) control issues; (6) conflict of interest. Generally vote for
the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Reverse
Leveraged Buyouts
Votes
on proposals to increase common and/or preferred shares and to issue shares as
part of a debt restructuring plan are determined on a case-by-case basis, after
evaluating: (1) dilution to existing shareholders' position; (2) terms of the
offer; (3) financial issues; (4) management's efforts to pursue other
alternatives; (5) control issues; (6) conflict of interest. Generally vote for
the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Credit
Suisse Asset Management, LLC
Formation
of Holding Company
Votes
on proposals regarding the formation of a holding company should be determined
on a case-by-case basis taking into consideration: (1) the reasons for the
change; (2) any financial or tax benefits; (3) regulatory benefits; (4)
increases in capital structure; (5) changes to the articles of incorporation or
bylaws of the company. Absent compelling financial reasons to recommend the
transaction, generally vote against the formation of a holding company if the
transaction would include either of the following: (1) increases in common or
preferred stock in excess of the allowable maximum as calculated a model capital
structure; (2) adverse changes in shareholder rights; (3) going private
transactions; (4) votes going private transactions on a case-by-case basis,
taking into account: (a) offer price/premium; (b) fairness opinion; (c) how the
deal was negotiated; (d) conflicts of interest; (e) other alternatives/offers
considered; (f) noncompletion risk.
Joint
Ventures
Vote
on a case-by-case basis on proposals to form joint ventures, taking into
account: (1) percentage of assets/business contributed; (2) percentage
ownership; (3) financial and strategic benefits; (4) governance structure; (5)
conflicts of interest; (6) other alternatives; (7) noncompletion risk; (8)
liquidations. Votes on liquidations should be determined on a case-by-case basis
after reviewing: (1) management's efforts to pursue other alternatives such as
mergers; (2) appraisal value of the assets (including any fairness opinions);
(3) compensation plan for executives managing the liquidation. Generally vote
for the liquidation if the company will file for bankruptcy if the proposal is
not approved.
Mergers
and Acquisitions
Votes
on mergers and acquisitions should be considered on a case-by-case basis,
determining whether the transaction enhances shareholder value by giving
consideration to: (1) prospects of the combined companies; (2) anticipated
financial and operating benefits; (3) offer price; (4) fairness opinion; (5) how
the deal was negotiated; (6) changes in corporate governance and their impact on
shareholder rights; (7) change in the capital structure; (8) conflicts of
interest.
Private
Placements
Votes
on proposals regarding private placements should be determined on a case-by-case
basis. When evaluating these proposals, should review: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues; (4)
management's efforts to pursue alternatives such as mergers; (5) control issues;
(6) conflict of interest. Generally vote for the private placement if it is
expected that the company will file for bankruptcy if the transaction is not
approved.
Prepackaged
Bankruptcy Plans
Votes
on proposals to increase common and/or preferred shares and to issue shares as
part of a debt restructuring plan are determined on a case-by-case basis, after
evaluating: (1) dilution to existing shareholders' position; (2) terms of the
offer; (3) financial issues; management's efforts to pursue other alternatives;
(5) control issues; (6) conflict of interest. Generally vote for the debt
restructuring if it is expected that the company will file for bankruptcy if the
transaction is not approved.
Recapitalization
Votes
case-by-case on recapitalizations (reclassifications of securities), taking into
account: (1) more simplified capital structure; (2) enhanced liquidity; (3)
fairness of conversion terms, including fairness opinion; (4) impact on voting
power and dividends; (5) reasons for the reclassification; (6) conflicts of
interest; (7) other alternatives considered.
Credit
Suisse Asset Management, LLC
Reverse
Stock Splits
Generally
vote for management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced. Generally vote for
management proposals to implement a reverse stock split to avoid delisting.
Votes on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue should be
determined on a case-by-case basis.
Spinoffs
Votes
on spinoffs should be considered on a case-by-case basis depending on: (1) tax
and regulatory advantages; (2) planned use of the sale proceeds; (3) valuation
of spinoff; fairness opinion; (3) benefits that the spinoff may have on the
parent company including improved market focus; (4) conflicts of interest;
managerial incentives; (5) any changes in corporate governance and their impact
on shareholder rights; (6) change in the capital structure.
Value
Maximization Proposals
Vote
case-by-case on shareholder proposals seeking to maximize shareholder
value.
Capital
Structure
Adjustments
to Par Value of Common Stock
Generally
vote for management proposals to reduce the par value of common stock unless the
action is being taken to facilitate an antitakeover device or some other
negative corporate governance action. Generally vote for management proposals to
eliminate par value.
Common
Stock Authorization
Votes
on proposals to increase the number of shares of common stock authorized for
issuance are determined on a case-by-case basis. Generally vote against
proposals at companies with dual-class capital structures to increase the number
of authorized shares of the class of stock that has superior voting rights.
Generally vote for proposals to approve increases beyond the allowable increase
when a company's shares are in danger of being delisted or if a company's
ability to continue to operate as a going concern is uncertain.
Dual-class
Stock
Generally
vote against proposals to create a new class of common stock with superior
voting rights. Generally vote for proposals to create a new class of nonvoting
or subvoting common stock if: (1) it is intended for financing purposes with
minimal or no dilution to current shareholders; (2) it is not designed to
preserve the voting power of an insider or significant shareholder.
Issue
Stock for Use with Rights Plan
Generally
vote against proposals that increase authorized common stock for the explicit
purpose of implementing a shareholder rights plan.
Preemptive
Rights
Votes
regarding shareholder proposals seeking preemptive rights should be determined
on a case-by-case basis after evaluating: (1) the size of the company; (2) the
shareholder base; (3) the liquidity of the stock.
Credit
Suisse Asset Management, LLC
Preferred
Stock
Generally
vote against proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock). Generally vote for proposals to create
"declawed" blank check preferred stock (stock that cannot be used as a takeover
defense). Generally vote for proposals to authorize preferred stock in cases
where the company specifies the voting, dividend, conversion, and other rights
of such stock and the terms of the preferred stock appear reasonable. Generally
vote against proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a
specific purpose. Generally vote case-by-case on proposals to increase the
number of blank check preferred shares after analyzing the number of preferred
shares available for issue given a company's industry and performance in terms
of shareholder returns.
Recapitalization
Vote
case-by-case on recapitalizations (reclassifications of securities), taking into
account: (1) more simplified capital structure; (2) enhanced liquidity; (3)
fairness of conversion terms, including fairness opinion; (4) impact on voting
power and dividends; (5) reasons for the reclassification; (6) conflicts of
interest; (7) other alternatives considered.
Reverse
Stock Splits
Generally
vote for management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced. Generally vote for
management proposals to implement a reverse stock split to avoid delisting.
Votes on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue should be
determined on a case-by-case basis.
Share
Repurchase Programs
Generally
vote for management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
Stock
Distributions: Splits and Dividends
Generally
vote for management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for
issuance.
Tracking
Stock
Votes
on the creation of tracking stock are determined on a case-by-case basis,
weighing the strategic value of the transaction against such factors as: (1)
adverse governance changes; (2) excessive increases in authorized capital stock;
(3) unfair method of distribution; (4) diminution of voting rights; (5) adverse
conversion features; (6) negative impact on stock option plans; (7) other
alternatives such as a spinoff.
Executive
and Director Compensation
Executive
and Director Compensation
Votes
on compensation plans for directors are determined on a case-by-case
basis.
Stock
Plans in Lieu of Cash
Votes
for plans which provide participants with the option of taking all or a portion
of their cash compensation in the form of stock are determined on a case-by-case
basis. Generally vote for plans which provide a dollar-for-dollar cash for stock
exchange. Votes for plans which do not provide a dollar-for-dollar cash for
stock exchange should be determined on a case-by-case basis.
Credit
Suisse Asset Management, LLC
Director
Retirement Plans
Generally
vote against retirement plans for nonemployee directors. Generally vote for
shareholder proposals to eliminate retirement plans for nonemployee
directors.
Management
Proposals Seeking Approval to Reprice Options
Votes
on management proposals seeking approval to reprice options are evaluated on a
case-by-case basis giving consideration to the following: (1) historic trading
patterns; (2) rationale for the repricing; (3) value-for-value exchange; (4)
option vesting; (5) term of the option; (6) exercise price; (7) participants;
(8) employee stock purchase plans. Votes on employee stock purchase plans should
be determined on a case-by-case basis. Generally vote for employee stock
purchase plans where: (1) purchase price is at least 85 percent of fair market
value; (2) offering period is 27 months or less, and (3) potential voting power
dilution (VPD) is ten percent or less. Generally vote against employee stock
purchase plans where either: (1) purchase price is less than 85 percent of fair
market value; (2) Offering period is greater than 27 months, or (3) VPD is
greater than ten percent.
Incentive
Bonus Plans and Tax Deductibility Proposals
Generally
vote for proposals that simply amend shareholder-approved compensation plans to
include administrative features or place a cap on the annual grants any one
participant may receive. Generally vote for proposals to add performance goals
to existing compensation plans. Votes to amend existing plans to increase shares
reserved and to qualify for favorable tax treatment considered on a case-by-case
basis. Generally vote for cash or cash and stock bonus plans that are submitted
to shareholders for the purpose of exempting compensation from taxes if no
increase in shares is requested.
Employee
Stock Ownership Plans (ESOPs)
Generally
vote for proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares.)
401(k)
Employee Benefit Plans
Generally
vote for proposals to implement a 401(k) savings plan for
employees.
Shareholder
Proposals Regarding Executive and Director Pay
Generally
vote for shareholder proposals seeking additional disclosure of executive and
director pay information, provided the information requested is relevant to
shareholders' needs, would not put the company at a competitive disadvantage
relative to its industry, and is not unduly burdensome to the company. Generally
vote against shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation. Generally
vote against shareholder proposals requiring director fees be paid in stock
only. Generally vote for shareholder proposals to put option repricings to a
shareholder vote. Vote for shareholders proposals to exclude pension fund income
in the calculation of earnings used in determining executive
bonuses/compensation. Vote on a case-by-case basis for all other shareholder
proposals regarding executive and director pay, taking into account company
performance, pay level versus peers, pay level versus industry, and long term
corporate outlook.
Performance-Based
Option Proposals
Generally
vote for shareholder proposals advocating the use of performance-based equity
awards (indexed, premium-priced, and performance-vested options), unless: (1)
the proposal is overly restrictive; or (2) the company demonstrates that it is
using a substantial portion of performance-based awards for its top
executives.
Stock
Option Expensing
Generally
vote for shareholder proposals asking the company to expense stock options
unless the company has already publicly committed to start expensing by a
specific date.
Credit
Suisse Asset Management, LLC
Golden
and Tin Parachutes
Generally
vote for shareholder proposals to require golden and tin parachutes to be
submitted for shareholder ratification, unless the proposal requires shareholder
approval prior to entering into employment contracts. Vote on a case-by-case
basis on proposals to ratify or cancel golden or tin parachutes.
May
19, 2020
Open-End
Funds:
Credit
Suisse Commodity Strategy Funds
Credit
Suisse Commodity Return Strategy Fund
Credit
Suisse Gold and Income Strategy Fund
Credit
Suisse Opportunity Funds
Credit
Suisse Floating Rate High Income Fund
Credit
Suisse Managed Futures Strategy Fund
Credit
Suisse Multialternative Strategy Fund
Credit
Suisse Strategic Income Fund
Credit
Suisse Trust
Commodity
Return Strategy Portfolio
Closed-End
Funds:
Credit
Suisse High Yield Bond Fund
Credit
Suisse Asset Management Income Fund
Credit
Suisse Asset Management, LLC
Macquarie
Investment Management Business Trust Proxy Voting Policy
(Extracted
from the Macquarie - Proxy Voting Policies and Procedures Manual – Feb
2018)
Proxy
Voting Policies and Procedures
Introduction
Macquarie
Investment Management Business Trust (“MIMBT”) is a registered investment
adviser with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the
Investment Advisers Act of 1940, as amended, (the “Advisers Act”). MIMBT
consists of the following series of entities: Delaware Management Company,
Macquarie Investment Advisers, Delaware Capital Management, Macquarie Asset
Advisers, Macquarie Alternative Strategies, and MIM Fund Advisers (each, an
“Adviser” and, together with MIMBT, the “Advisers”). The Advisers provide
investment advisory services to various types of clients such as registered and
unregistered commingled funds, defined benefit plans, defined contribution
plans, private and public pension funds, foundations, endowment funds and other
types of institutional investors. Pursuant to the terms of an investment
management agreement between an Adviser and its client or as a result of some
other type of specific delegation by the client, the Advisers are often given
the authority and discretion to vote proxy statements relating to the underlying
securities which are held on behalf of such clients. Also, clients sometimes ask
the Advisers to give voting advice on certain proxies without delegating full
responsibility to the Advisers to vote proxies on behalf of the client. MIMBT
has developed the following Proxy Voting Policies and Procedures (the
“Procedures”) in order to ensure that each Adviser votes proxies or gives proxy
voting advice that is in the best interests of its clients.
Procedures
for Voting Proxies
To
help make sure that the Advisers vote client proxies in accordance with the
Procedures and in the best interests of clients, MIMBT has established a Proxy
Voting Committee (the “Committee”) that is responsible for overseeing each
Adviser’s proxy voting process. The Committee consists of the following persons
in MIMBT: (i) one representative from the legal department; and (ii) six
representatives from the portfolio management department. The person(s)
representing each department on the Committee may change from time to time. The
Committee will meet as necessary to help MIMBT fulfill its duties to vote
proxies for clients, but in any event, will meet at least quarterly to discuss
various proxy voting issues. One of the main responsibilities of the Committee
is to review and approve the Procedures on a yearly basis. The Procedures are
usually reviewed during the first quarter of the calendar year before the
beginning of the “proxy voting season” and may also be reviewed at other times
of the year, as necessary. When reviewing the Procedures, the Committee looks to
see if the Procedures are designed to allow the Advisers to vote proxies in a
manner consistent with the goals of voting in the best interests of clients and
maximizing the value of the underlying shares being voted on by the Advisers.
The Committee will also review the Procedures to make sure that they comply with
any new rules promulgated by the SEC or other relevant regulatory bodies. After
the Procedures are approved by the Committee, MIMBT will vote proxies or give
advice on voting proxies generally in accordance with such Procedures.
In
order to facilitate the actual process of voting proxies, MIMBT has contracted
with Institutional Shareholder Services (“ISS”). Both ISS and the client’s
custodian monitor corporate events for MIMBT. MIMBT gives an authorization and
letter of instruction to the client’s custodian who then forwards proxy
materials it receives to ISS so that ISS may vote the proxies. On approximately
a monthly basis, MIMBT will send ISS an updated list of client accounts and
security holdings in those accounts, so that ISS can update its database and is
aware of which proxies it will need to vote on behalf of MIMBT’s clients. If
needed, the Committee has access to these records.
After
receiving the proxy statements, ISS will review the proxy issues and vote them
in accordance with MIMBT’s Procedures. When the Procedures state that a proxy
issue will be decided on a case-by-case basis, ISS will look at the relevant
facts and circumstances and research the issue to determine how the proxy should
be voted, so that the proxy is voted in the best interests of the client and in
accordance with the parameters described in these Procedures generally and
specifically with the Proxy Voting Guidelines (the “Guidelines”) below. If the
Procedures do not address a particular
proxy
issue, ISS will similarly look at the relevant facts and circumstances and
research the issue to determine how the proxy should be voted, so that the proxy
is voted in the best interests of the client and pursuant to the spirit of the
Procedures. After a proxy has been voted, ISS will create a record of the vote
in order to help the Advisers comply with their duties listed under
“Availability of Proxy Voting Records and Recordkeeping” below. If a client
provides MIMBT with its own recommendation on a given proxy vote, MIMBT will
forward the client’s recommendation to ISS who will vote the client’s proxy
pursuant to the client’s recommendation.
The
Committee is responsible for overseeing ISS’s proxy voting activities for
MIMBT’s clients and will attempt to ensure that ISS is voting proxies pursuant
to the Procedures. As part of the Committee’s oversight of ISS, the Committee
will periodically review ISS’s conflict of interest procedures and any other
pertinent procedures or representations from ISS in an attempt to ensure that
ISS will make recommendations for voting proxies in an impartial manner and in
the best interests of the Advisers’ clients. There may be times when an Adviser
believes that the best interests of the client will be better served if the
Adviser votes a proxy counter to ISS’s recommended vote on that proxy. In those
cases, the Committee will generally review the research provided by ISS on the
particular issue, and it may also conduct its own research or solicit additional
research from another third party on the issue. After gathering this information
and possibly discussing the issue with other relevant parties, the Committee
will use the information gathered to determine how to vote on the issue in a
manner which the Committee believes is consistent with MIMBT’s Procedures and in
the best interests of the client.
The
Advisers will attempt to vote every proxy which they or their agents receive
when a client has given the Adviser the authority and direction to vote such
proxies. However, there are situations in which the Adviser may not be able to
process a proxy. For example, an Adviser may not have sufficient time to process
a vote because the Adviser or its agents received a proxy statement in an
untimely manner, or the Adviser may in certain situations be unable to vote a
proxy in relation to a security that is on loan pursuant to a securities lending
program. Use of a third party service, such as ISS, and relationships with
multiple custodians can help to mitigate a situation where an Adviser is unable
to vote a proxy.
Company
Management Recommendations
When
determining whether to invest in a particular company, one of the factors the
Advisers may consider is the quality and depth of the company’s management. As a
result, MIMBT believes that recommendations of management on any issue
(particularly routine issues) should be given a fair amount of weight in
determining how proxy issues should be voted. Thus, on many issues, MIMBT’s
votes are cast in accordance with the recommendations of the company’s
management. However, MIMBT will normally vote against management’s position when
it runs counter to the Guidelines, and MIMBT will also vote against management’s
recommendation when such position is not in the best interests of MIMBT’s
clients.
Conflicts
of Interest
As
a matter of policy, the Committee and any other officers, directors, employees
and affiliated persons of MIMBT may not be influenced by outside sources who
have interests which conflict with the interests of MIMBT’s clients when voting
proxies for such clients. However, in order to ensure that MIMBT votes proxies
in the best interests of the client, MIMBT has established various systems
described below to properly deal with a material conflict of
interest.
Most
of the proxies which MIMBT receives on behalf of its clients are voted by ISS in
accordance with these pre-determined, pre-approved Procedures. As stated above,
these Procedures are reviewed and approved by the Committee at least annually
normally during the first quarter of the calendar year and at other necessary
times. The Procedures are then utilized by ISS going forward to vote client
proxies. The Committee approves the Procedures only after it has determined that
the Procedures are designed to help MIMBT vote proxies in a manner consistent
with the goal of voting in the best interests of its clients. Because the
majority of client proxies are voted by ISS pursuant to the pre-determined
Procedures, it normally will not be necessary for MIMBT to make a real-time
determination of how to vote a particular proxy, thereby largely eliminating
conflicts of interest for MIMBT from the proxy voting process. In the limited
instances where MIMBT is considering voting a proxy contrary to ISS’s
recommendation, the Committee will first assess the issue to see if there is
any
possible conflict of interest involving MIMBT or affiliated persons of MIMBT. If
there is no perceived conflict of interest, the Committee will then vote the
proxy according to the process described in “Procedures for Voting Proxies”
above. If at least one member of the Committee has actual knowledge of a
conflict of interest, the Committee will normally use another independent third
party to do additional research on the particular issue in order to make a
recommendation to the Committee on how to vote the proxy in the best interests
of the client. The Committee will then review the proxy voting materials and
recommendation provided by ISS and the independent third party to determine how
to vote the issue in a manner which the Committee believes is consistent with
MIMBT’s Procedures and in the best interests of the client. In these instances,
the Committee must come to a unanimous decision regarding how to vote the proxy
or they will be required to vote the proxy in accordance with ISS’s original
recommendation. Documentation of the reasons for voting contrary to ISS’s
recommendation will generally be retained by MIMBT.
Availability
of Proxy Voting Information and Record Keeping
Clients
of MIMBT will be directed to their client service representative to obtain
information from MIMBT on how their securities were voted. At the beginning of a
new relationship with a client, MIMBT will provide clients with a concise
summary of MIMBT’s proxy voting process and will inform clients that they can
obtain a copy of the complete Procedures upon request. The information described
in the preceding two sentences will be included in Part II of MIMBT’s Form ADV
which is delivered to each new client prior to the commencement of investment
management services. Existing clients will also be provided with the above
information.
MIMBT
will also retain extensive records regarding proxy voting on behalf of clients.
MIMBT will keep records of the following items: (i) the Procedures; (ii) proxy
statements received regarding client securities (via hard copies held by ISS or
electronic filings from the SEC’s EDGAR filing system); (iii) records of votes
cast on behalf of MIMBT’s clients (via ISS); (iv) records of a client’s written
request for information on how MIMBT voted proxies for the client, and any MIMBT
written response to an oral or written client request for information on how
MIMBT voted proxies for the client; and (v) any documents prepared by MIMBT that
were material to making a decision as to how to vote or that memorialized the
basis for that decision. These records will be maintained in an easily
accessible place for at least five years from the end of the fiscal year during
which the last entry was made on such record. For the first two years, such
records will be stored at the offices of MIMBT.
Proxy
Voting Guidelines
The
following Guidelines summarize MIMBT’s positions on various issues and give a
general indication as to how the Advisers will vote shares on each issue. The
Proxy Committee has reviewed the Guidelines and determined that voting proxies
pursuant to the Guidelines should be in the best interests of the client and
should facilitate the goal of maximizing the value of the client’s investments.
Although the Advisers will usually vote proxies in accordance with these
Guidelines, the Advisers reserve the right to vote certain issues counter to the
Guidelines if, after a thorough review of the matter, the Adviser determines
that a client’s best interests would be served by such a vote. Moreover, the
list of Guidelines below may not include all potential voting issues. In
particular, the Guidelines for non-U.S. portfolio securities below includes more
general proxy voting policies of broad application as compared to the Guidelines
for U.S. portfolio securities. Certain countries have market-specific proxy
voting policies that are utilized by ISS when it makes recommendations for
voting proxies for securities from that country because of differentiating legal
or listing standards or other market-specific reasons. MIMBT can provide these
market- specific proxy voting guidelines upon request. Lastly, to the extent
that the Guidelines do not cover potential voting issues, the Advisers will vote
on such issues in a manner that is consistent with the spirit of the Guidelines
below and that promotes the best interests of the client. MIMBT’s Guidelines are
listed immediately below and are organized by votes on proxies for underlying
U.S. and non-U.S. portfolio securities, and by the types of issues that could
potentially be brought up in a proxy statement:
U.S.
Portfolio Security Voting Issues
1.
Routine/Miscellaneous
Adjourn
Meeting
Generally
vote AGAINST proposals to provide management with the authority to adjourn an
annual or special meeting absent compelling reasons to support the
proposal.
Generally
vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction if supporting that merger or transaction. Generally vote AGAINST
proposals if the wording is too vague or if the proposal includes "other
business."
Amend
Quorum Requirements
Generally
vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
Amend
Minor Bylaws
Generally
vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
Change
Company Name
Generally
vote FOR proposals to change the corporate name unless there is compelling
evidence that the change would adversely impact shareholder value.
Change
Date, Time, or Location of Annual Meeting
Generally
vote FOR management proposals to change the date, time, or location of the
annual meeting unless the proposed change is unreasonable.
Generally
vote AGAINST shareholder proposals to change the date, time, or location of the
annual meeting unless the current scheduling or location is
unreasonable.
Other
Business
Generally
vote AGAINST proposals to approve other business when it appears as voting
item.
Auditor
Indemnification and Limitation of Liability
Vote
CASE-BY-CASE on the issue of auditor indemnification and limitation of
liability. Factors to be assessed include, but are not limited to:
•The
terms of the auditor agreement - the degree to which these agreements impact
shareholders' rights;
a.Motivation
and rationale for establishing the agreements;
a.Quality
of the company’s disclosure; and
b.The
company’s historical practices in the audit area.
Generally
WITHHOLD or vote AGAINST members of an audit committee in situations where there
is persuasive evidence that the audit committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.
Auditor
Ratification
Generally
vote FOR proposals to ratify auditors, unless any of the following
apply:
•An
auditor has a financial interest in or association with the company, and is
therefore not independent;
•There
is reason to believe that the independent auditor has rendered an opinion that
is neither accurate nor indicative of the company’s financial
position;
•Poor
accounting practices are identified that rise to a serious level of concern,
such as: fraud; misapplication of GAAP; and material weaknesses identified in
Section 404 disclosures; or
•Fees
for non-audit services (“Other” fees) are excessive.
Shareholder
Proposals Limiting Non-Audit Services
Vote
CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Shareholder
Proposals on Audit Firm Rotation
Vote
CASE-BY-CASE on shareholder proposals asking for audit firm rotation, taking
into account:
i.The
tenure of the audit firm;
ii.The
length of rotation specified in the proposal;
iii.Any
significant audit-related issues at the company;
iv.The
number of Audit Committee meetings held each year;
v.The
number of financial experts serving on the committee; and
Whether
the company has a periodic renewal process where the auditor is evaluated for
both audit quality and competitive price.
2.
Board of Directors
Voting
on Director Nominees in Uncontested Elections
Four
fundamental principles apply when determining votes on director
nominees:
1.
Accountability:
Boards should be sufficiently accountable to shareholders, including through
transparency of the company’s governance practices and regular board elections,
by the provision of sufficient information for shareholders to be able to assess
directors and board composition, and through the ability of shareholders to
remove directors.
2.
Responsiveness:
Directors should respond to investor input, such as expressed through
significant opposition to management proposals, significant support for
shareholder proposals (whether binding or non-binding), and tender offers where
a majority of shares are tendered.
3.
Composition:
Companies should ensure that directors add value to the board through their
specific skills and expertise and by having sufficient time and commitment to
serve effectively. Boards should be of a size appropriate to accommodate
diversity, expertise, and independence, while ensuring active and collaborative
participation by all members.
4.
Independence:
Boards should be sufficiently independent from management (and significant
shareholders) so as to ensure that they are able and motivated to effectively
supervise management’s performance for the benefit of all shareholders,
including in setting and monitoring the execution of corporate strategy, with
appropriate use of shareholder capital, and in setting and monitoring executive
compensation programs that support that strategy. The chair of the board should
ideally be an independent director, and all boards should have an independent
leadership position or a similar role in order to help provide appropriate
counterbalance to executive management, as well as having sufficiently
independent committees that focus on key governance concerns such as audit,
compensation, and nomination of directors.
Generally
vote FOR director nominees, except under the following circumstances noted in
section 2.1-2.4.
2.1
Board Accountability
Generally
vote AGAINST or WITHHOLD from the entire board of directors (except new
nominees, who should be considered CASE-BY-CASE) for the following:
Problematic
Takeover Defenses:
•Classified
Board Structure:
The board is classified, and a continuing director responsible for a problematic
governance issue at the board/committee level that would warrant a
withhold/against vote recommendation is not up for election. All appropriate
nominees (except new) may be held accountable;
•Director
Performance Evaluation: The board lacks accountability and oversight, coupled
with sustained poor performance relative to peers. Sustained poor performance is
generally measured by one- and three-year total shareholder returns in the
bottom half of a company’s four-digit GICS industry group (Russell 3000
companies only). Take into consideration the company’s five-year total
shareholder return and operational metrics. Problematic provisions include but
are not limited to:
◦A
classified board structure;
◦A
supermajority vote requirement;
◦Either
a plurality vote standard in uncontested director elections or a majority vote
standard with no plurality carve-out for contested elections;
◦The
inability of shareholders to call special meetings;
◦The
inability of shareholders to act by written consent;
◦A
dual-class capital structure; and/or
◦A
non-shareholder- approved poison pill.
•Poison
Pills:
•The
company’s poison pill has a “dead-hand” or “modified dead-hand” feature.
Generally vote AGAINST or WITHHOLD votes every year until this feature is
removed;
•The
board adopts a poison pill with a term of more than 12 months (“long-term
pill”), or renews any existing pill, including any “short-term” pill (12 months
or less), without shareholder approval. A commitment or policy that puts a newly
adopted pill to a binding shareholder vote may potentially offset an adverse
vote recommendation. Review such companies with classified boards every year,
and such companies with annually elected boards at least once every three years,
and generally vote AGAINST or WITHHOLD votes from all nominees if the company
still maintains a non-shareholder-approved poison pill.
•The
board makes a material adverse change to an existing poison pill without
shareholder approval.
•Vote
CASE-BY-CASE on all nominees if the board adopts a poison pill with a term of 12
months or less (“short-term pill”) without shareholder approval, taking into
account the following factors:
◦The
date of the pill‘s adoption relative to the date of the next meeting of
shareholders- i.e. whether the company had time to put the pill on the ballot
for shareholder ratification given the circumstances;
▪The
issuer‘s rationale;
▪The
issuer's governance structure and practices; and
▪The
issuer's track record of accountability to shareholders.
•Restricting
Binding Shareholder Proposals:
•Generally
vote AGAINST or WITHHOLD from members of the governance committee
if:
•The
company’s charter imposes undue restrictions on shareholder’s ability to amend
the bylaws. Such restrictions include, but are not limited to: outright
prohibition on the submission of binding shareholder proposals, or share
ownership requirements or time holding requirements in excess of SEC Rule 14a-8.
Vote AGAINST on an ongoing basis.
Problematic
Audit-Related Practices
•Generally
vote AGAINST or WITHHOLD from the members of the Audit Committee
if:
◦The
non-audit fees paid to the auditor are excessive;
◦The
company receives an adverse opinion on the company’s financial statements from
its
auditor; or
◦There
is persuasive evidence that the Audit Committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.
◦Vote
CASE-BY-CASE on members of the Audit Committee and potentially the full board
if:
◦Poor
accounting practices are identified that rise to a level of serious concern,
such as: fraud; misapplication of GAAP; and material weaknesses identified in
Section 404 disclosures. Examine the severity, breadth, chronological sequence
and duration, as well as the company’s efforts at remediation or corrective
actions, in determining whether WITHHOLD/AGAINST votes are
warranted.
Problematic
Compensation Practices/Pay for Performance Misalignment
•In
the absence of an Advisory Vote on Executive Compensation ballot item, or, in
egregious situations, generally vote AGAINST or WITHHOLD from the members of the
Compensation Committee and potentially the full board if:
•There
is a significant misalignment between CEO pay and company performance (pay for
performance);
•The
company maintains significant problematic pay practices;
•The
board exhibits a significant level of poor communication and responsiveness to
shareholders;
•The
company fails to submit one-time transfers of stock options to a shareholder
vote; or
•The
company fails to fulfill the terms of a burn rate commitment made to
shareholders.
•Vote
CASE-BY-CASE on Compensation Committee members (or, in exceptional cases, the
full board) and the Management Say-on-Pay proposal if:
•The
company's previous say-on-pay proposal received the support of less than 70
percent of votes cast, taking into account:
•The
company's response, including:
◦Disclosure
of engagement efforts with major institutional investors regarding the issues
that contributed to the low level of support;
◦Specific
actions taken to address the issues that contributed to the low level of
support;
◦Other
recent compensation actions taken by the company;
•Whether
the issues raised are recurring or isolated;
•The
company's ownership structure; and
•Whether
the support level was less than 50 percent, which would warrant the highest
degree of responsiveness.
Unilateral
Bylaw/Charter Amendments and Problematic Capital Structures
•Generally
vote AGAINST or WITHHOLD from directors individually, committee members, or the
entire board (except new nominees, who should be considered CASE-BY-CASE) if the
board amends the company's bylaws or charter without shareholder approval in a
manner that materially diminishes shareholders' rights or that could adversely
impact shareholders, considering the following factors, as
applicable:
•The
board's rationale for adopting the bylaw/charter amendment without shareholder
ratification;
•Disclosure
by the company of any significant engagement with shareholders regarding the
amendment;
•The
level of impairment of shareholders' rights caused by the board's unilateral
amendment to the bylaws/charter;
•The
board's track record with regard to unilateral board action on bylaw/charter
amendments or other entrenchment provisions;
•The
company's ownership structure;
•The
company's existing governance provisions;
•The
timing of the board's amendment to the bylaws/charter in connection with a
significant business development;
•Other
factors, as deemed appropriate, that may be relevant to determine the impact of
the amendment on shareholders.
Unless
the adverse amendment is reversed or submitted to a binding shareholder vote, in
subsequent years vote CASE-BY-CASE on director nominees. Generally vote AGAINST
(except new nominees, who should be considered CASE-BY-CASE) if the
directors:
•Classified
the board;
•Adopted
supermajority vote requirements to amend the bylaws or charter; or
•Eliminated
shareholders’ ability to amend bylaws.
For
newly public companies, generally vote against or withhold from directors
individually, committee members, or the entire board (except new nominees, who
should be considered case-by-case) if, prior to or in connection with the
company's public offering, the company or its board adopted bylaw or charter
provisions materially adverse to shareholder rights or implemented a multi-class
capital structure in which the classes have unequal voting rights considering
the following factors:
•The
level of impairment of shareholders' rights;
•The
disclosed rationale;
•The
ability to change the governance structure (e.g., limitations on shareholders’
right to amend the bylaws or charter, or supermajority vote requirements to
amend the bylaws or charter);
•The
ability of shareholders to hold directors accountable through annual director
elections, or whether the company has a classified board structure;
•Any
reasonable sunset provision; and
•Other
relevant factors.
Unless
the adverse provision and/or problematic capital structure is reversed or
removed, vote CASE-BY-CASE on director nominees in subsequent
years.
Governance
Failures
•Under
extraordinary circumstances, generally vote AGAINST or WITHHOLD from directors
individually, committee members, or the entire board, due to:
•Material
failures of governance, stewardship, risk oversight, or fiduciary
responsibilities at the company;
•Failure
to replace management as appropriate; or
•Egregious
actions related to a director’s service on other boards that raise substantial
doubt about his or her ability to effectively oversee management and serve the
best interests of shareholders at any company.
2.2
Board Responsiveness
Vote
CASE-BY-CASE on individual directors, committee members, or the entire board of
directors as appropriate if:
•The
board failed to act on a shareholder proposal that received the support of a
majority of the shares cast in the previous year. Factors that will be
considered are:
•Disclosed
outreach efforts by the board to shareholders in the wake of the
vote;
•Rationale
provided in the proxy statement for the level of implementation;
•The
subject matter of the proposal;
•The
level of support for and opposition to the resolution in past
meetings;
•Actions
taken by the board in response to the majority vote and its engagement with
shareholders;
•The
continuation of the underlying issue as a voting item on the ballot (as either
shareholder or management proposals); and
•Other
factors as appropriate.
•The
board failed to act on takeover offers where the majority of shares are
tendered;
•At
the previous board election, any director received more than 50 percent
withhold/against votes of the shares cast and the company has failed to address
the issue(s) that caused the high withhold/against vote; or
•The
board implements an advisory vote on executive compensation on a less frequent
basis than the frequency that received the majority of votes cast at the most
recent shareholder meeting at which shareholders voted on the say-on-pay
frequency; or
•The
board implements an advisory vote on executive compensation on a less frequent
basis than the frequency that received a plurality, but not a majority, of the
votes cast at the most recent shareholder meeting at which shareholders voted on
the say-on-pay frequency, taking into account:
•The
board's rationale for selecting a frequency that is different from the frequency
that received a plurality;
•The
company's ownership structure and vote results;
•ISS'
analysis of whether there are compensation concerns or a history of problematic
compensation practices; and
•The
previous year's support level on the company's say-on-pay proposal.
2.3Director
Composition
Attendance
at Board and Committee Meetings:
Generally
vote AGAINST or WITHHOLD from directors (except new nominees, who should be
considered CASE-BY-CASE) who attended less than 75 percent of the aggregate of
their board and committee meetings for the period for which they served, unless
an acceptable reason for absences is disclosed in the proxy or another SEC
filing.
Acceptable
reasons for director absences are generally limited to the
following:
i.Medical
issues/illness;
ii.Family
emergencies; and
iii.Missing
only one meeting (when the total of all meetings is three or
fewer).
If
the proxy disclosure is unclear and insufficient to determine whether a director
attended at least 75 percent of the aggregate of his/her board and committee
meetings during his/her period of service, vote AGAINST or WITHHOLD from the
director(s) in question.
Overboarded
Directors:
Generally
vote AGAINST or WITHHOLD from individual directors who:
•Sit
on more than five public company boards; or
•Are
CEOs of public companies who sit on the boards of more than two public companies
besides their own-withhold only at their outside boards.
2.4
Director Independence
Generally
vote AGAINST or WITHHOLD from inside directors and affiliated outside directors
when:
•The
inside or affiliated outside director serves on any of the three key committees:
audit, compensation, or nominating;
•The
company lacks an audit, compensation, or nominating committee so that the full
board functions as that committee;
•The
company lacks a formal nominating committee, even if the board attests that the
independent directors fulfill the functions of such a committee; or
•Independent
directors make up less than a majority of the directors.
2.5
Other Board-Related Proposals
2.5a
Age/Term Limits
Generally
vote AGAINST management and shareholder proposals to limit the tenure of outside
directors through mandatory retirement ages.
Generally
vote AGAINST management proposals to limit the tenure of outside directors
through term limits. However, scrutinize boards where the average tenure of all
directors exceeds 15 years for independence from management and for sufficient
turnover to ensure that new perspectives are being added to the
board.
2.5b
Board Size
Generally
vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Generally
vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.
2.5c
Classification/Declassification of the Board
Generally
vote AGAINST proposals to classify (stagger) the board.
Generally
vote FOR proposals to repeal classified boards and to elect all directors
annually.
2.5d
CEO Succession Planning
Generally
vote FOR proposals seeking disclosure on a CEO succession planning policy,
considering at a minimum, the following factors:
•The
reasonableness/scope of the request; and
•The
company’s existing disclosure on its current CEO succession planning
process.
2.6e
Cumulative Voting
Generally
vote AGAINST management proposals to eliminate cumulative voting.
Generally
vote FOR shareholder proposals to restore or provide for cumulative voting
unless:
•The
company has proxy access, thereby allowing shareholders to nominate directors to
the company’s ballot; and
•The
company has adopted a majority vote standard, with a carve-out for plurality
voting in situations where there are more nominees than seats, and a director
resignation policy to address failed elections.
Generally
vote FOR proposals for cumulative voting at controlled companies (insider voting
power > 50%).
2.5f
Director and Officer Indemnification and Liability Protection
Vote
CASE-BY-CASE on proposals on director and officer indemnification and liability
protection.
Generally
vote AGAINST proposals that would:
•Eliminate
entirely directors' and officers' liability for monetary damages for violating
the duty of care.
•Expand
coverage beyond just legal expenses to liability for acts that are more serious
violations of fiduciary obligation than mere carelessness.
•Expand
the scope of indemnification to provide for mandatory indemnification of company
officials in connection with acts that previously the company was permitted to
provide indemnification for, at the discretion of the company's board (i.e.,
"permissive indemnification"), but that previously the company was not required
to indemnify.
Generally
vote FOR only those proposals providing such expanded coverage in cases when a
director’s or officer’s legal defense was unsuccessful if both of the following
apply:
•If
the director was found to have acted in good faith and in a manner that he
reasonably believed was in the best interests of the company; and
•If
only the director’s legal expenses would be covered.
2.5g
Establish/Amend Nominee Qualifications
Vote
CASE-BY-CASE on proposals that establish or amend director qualifications. Votes
should be based on the reasonableness of the criteria and to the degree they may
preclude dissident nominees from joining the board.
Vote
CASE-BY-CASE on shareholder resolutions seeking a director nominee candidate who
possesses a particular subject matter expertise, considering:
•The
company’s board committee structure, existing subject matter expertise, and
board nomination provisions relative to that of its peers;
•The
company’s existing board and management oversight mechanisms regarding the issue
for which board oversight is sought;
•The
company’s disclosure and performance relating to the issue for which board
oversight is sought and any significant related controversies; and
•The
scope and structure of the proposal.
2.5h
Establish other Board Committee Proposals
Generally
vote AGAINST shareholder proposals to establish a new board committee, as such
proposals seek a specific oversight mechanism/structure that potentially limits
a company’s flexibility to determine an appropriate oversight mechanism for
itself.
However,
the following factors will be considered:
•Existing
oversight mechanisms (including current committee structure) regarding the issue
for which board oversight is sought;
•Level
of disclosure regarding the issue for which board oversight is
sought;
•Company
performance related to the issue for which board oversight is
sought;
•Board
committee structure compared to that of other companies in its industry
sector;
•The
scope and structure of the proposal.
2.5i
Filling Vacancies/Removal of Directors
Generally
vote AGAINST proposals that provide that directors may be removed only for
cause.
Generally
vote FOR proposals to restore shareholders’ ability to remove directors with or
without cause.
Generally
vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Generally
vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
2.5j
Independent Chair (Separate Chair/CEO)
Generally
vote FOR shareholder proposals requiring that the chairman’s position be filled
by an independent director, taking into consideration the
following:
•The
scope of the proposal;
•The
company's current board leadership structure;
•The
company's governance structure and practices;
•Company
performance; and
•Any
other relevant factors that may be applicable.
Regarding
the scope of the proposal, consider whether the proposal is precatory or binding
and whether the proposal is seeking an immediate change in the chairman role or
the policy can be implemented at the next CEO transition.
Under
the review of the company's board leadership structure, proposals under the
following scenarios absent a compelling rationale may be supported: the presence
of an executive or non-independent chair in addition to the CEO; a recent
recombination of the role of CEO and chair; and/or departure from a structure
with an independent chair. Also consider any recent transitions in board
leadership and the effect such transitions may have on independent board
leadership as well as the designation of a lead director role.
When
considering the governance structure, consider the overall independence of the
board, the independence of key committees, the establishment of governance
guidelines, board tenure and its relationship to CEO tenure, and any other
factors that may be relevant. Any concerns about a company's governance
structure will weigh in favor of support for the proposal.
The
review of the company's governance practices may include, but is not limited to
poor compensation practices, material failures of governance and risk oversight,
related-party transactions or other issues putting director independence at
risk, corporate or management scandals, and actions by management or the board
with potential or realized negative impact on shareholders. Any such practices
may suggest a need for more independent oversight at the company thus warranting
support of the proposal.
Performance
assessment will generally consider one-, three, and five-year TSR compared to
the company's peers and the market as a whole. While poor performance will weigh
in favor of the adoption of an independent chair policy, strong performance over
the long-term will be considered a mitigating factor when determining whether
the proposed leadership change warrants support.
2.5k
Majority of Independent Directors/Establishment of Independent
Committees
Generally
vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
ISS’s definition of independent outsider.
Generally
vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors unless
they currently meet that standard.
2.5l
Majority Vote Standard for the Election of Directors
Generally
vote FOR management proposals to adopt a majority of votes cast standard for
directors in uncontested elections. Vote AGAINST if no carve-out for a plurality
vote standard in contested elections is included.
Generally
vote FOR precatory and binding shareholder resolutions requesting that the board
change the company’s bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state law where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.
Companies
are strongly encouraged to also adopt a post-election policy (also known as a
director resignation policy) that will provide guidelines so that the company
will promptly address the situation of a holdover director.
2.5m
Proxy Access
Generally
vote FOR management and shareholder proposals for proxy access with the
following provisions:
•Ownership
threshold: maximum requirement not more than three percent (3%) of the voting
power;
•Ownership
duration: maximum requirement not longer than three (3) years of continuous
ownership for each member of the nominating group;
•Aggregation:
minimal or no limits on the number of shareholders permitted to form a
nominating group;
•Cap:
cap on nominees of generally twenty-five percent (25%) of the
board.
Review
for reasonableness any other restrictions on the right of proxy access.
Generally vote AGAINST proposals that are more restrictive than this guideline.
2.5n
Require More Nominees than Open Seats
Generally
vote AGAINST shareholder proposals that would require a company to nominate more
candidates than the number of open board seats.
2.5o
Shareholder Engagement Policy (Shareholder Advisory Committee)
Generally
vote FOR shareholder proposals requesting that the board establish an internal
mechanism/process, which may include a committee, in order to improve
communications between directors and shareholders, unless the company has the
following features, as appropriate:
•Established
a communication structure that goes beyond the exchange requirements to
facilitate the exchange of information between shareholders and members of the
board;
•Effectively
disclosed information with respect to this structure to its
shareholders;
•Company
has not ignored majority-supported shareholder proposals or a majority withhold
vote on a director nominee; and
•The
company has an independent chairman or a lead director. This individual must be
made available for periodic consultation and direct communication with major
shareholders.
2.5p
Proxy Contests-Voting
for Director Nominees in Contested Elections
Vote
CASE-BY-CASE on the election of directors in contested elections, considering
the following factors:
•Long-term
financial performance of the target company relative to its
industry;
•Management’s
track record;
•Background
to the proxy contest;
•Nominee
qualifications and any compensation arrangements;
•Qualifications
of director nominees (both slates);
•Strategic
plan of dissident slate and quality of critique against management;
•Likelihood
that the proposed goals and objectives can be achieved (both
slates);
•Stock
ownership positions.
In
the case of candidates nominated pursuant to proxy access, vote CASE-BY-CASE
considering any applicable factors listed above or additional factors which may
be relevant, including those that are specific to the company, to the nominee(s)
and/or to the nature of the election (such as whether or not there are more
candidates than board seats).
2.5q
Vote No Campaigns
In
cases where companies are targeted in connection with public “vote no”
campaigns, evaluate director nominees under the existing governance policies for
voting on director nominees in uncontested elections. Take into consideration
the arguments submitted by shareholders and other publicly available
information.
3.
Shareholder Rights & Defenses
3.1
Advance Notice Requirements for Shareholder Proposals/Nominations
Vote
CASE-BY-CASE on advance notice proposals, giving support to those proposals
which allow shareholders to submit proposals/nominations as close to the meeting
date as reasonably possible and within the broadest window possible, recognizing
the need to allow sufficient notice for company, regulatory and shareholder
review.
To
be reasonable, the company’s deadline for shareholder notice of a proposal/
nominations must not be more than 60 days prior to the meeting, with a submittal
window of at least 30 days prior to the deadline. The submittal window is the
period under which a shareholder must file his proposal/nominations prior to the
deadline.
In
general, support additional efforts by companies to ensure full disclosure in
regard to a proponent’s economic and voting position in the company so long as
the informational requirements are reasonable and aimed at providing
shareholders with the necessary information to review such
proposals.
3.2
Amend Bylaws without Shareholder Consent
Generally
vote AGAINST proposals giving the board exclusive authority to amend the
bylaws.
Generally
vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
3.3
Control Share Acquisition Provisions
Control
share acquisition statutes function by denying shares their voting rights when
they contribute to ownership in excess of certain thresholds. Voting rights for
those shares exceeding ownership limits may only be restored by approval of
either a majority or supermajority of disinterested shares. Thus, control share
acquisition statutes effectively require a hostile bidder to put its offer to a
shareholder vote or risk voting disenfranchisement if the bidder continues
buying up a large block of shares.
Generally
vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.
Generally
vote AGAINST proposals to amend the charter to include control share acquisition
provisions.
Generally
vote FOR proposals to restore voting rights to the control shares.
3.4
Control Share Cash-Out Provisions
Control
share cash-out statutes give dissident shareholders the right to “cash-out” of
their position in a company at the expense of the shareholder who has taken a
control position. In other words, when an investor crosses a preset threshold
level, remaining shareholders are given the right to sell their shares to the
acquirer, who must buy them at the highest acquiring price.
Generally
vote FOR proposals to opt out of control share cash-out statutes.
3.5
Disgorgement Provisions
Disgorgement
provisions require an acquirer or potential acquirer of more than a certain
percentage of a company’s stock to disgorge, or pay back, to the company any
profits realized from the sale of that company’s stock purchase 24 months before
achieving control status. All sales of company stock by the acquirer occurring
within a certain period of time (between 18 months and 24 months) prior to the
investor’s gaining control status are subject to these recapture-of-profits
provisions.
Generally
vote FOR proposals to opt out of state disgorgement provisions.
3.6
Fair Price Provisions
Vote
CASE-BY-CASE on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it
paid to acquire the control shares), evaluating factors such as the vote
required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair
price.
Generally
vote AGAINST fair price provisions with shareholder vote requirements greater
than a majority of disinterested shares.
3.7
Freeze-Out Provisions
Generally
vote FOR proposals to opt out of state freeze-out provisions. Freeze-out
provisions force an investor who surpasses a certain ownership threshold in a
company to wait a specified period of time before gaining control of the
company.
3.8
Greenmail
Greenmail
payments are targeted share repurchases by management of company stock from
individuals or groups seeking control of the company. Since only the hostile
party receives payment, usually at a substantial premium over the market value
of its shares, the practice discriminates against all other
shareholders.
Generally
vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company’s ability to make greenmail payments.
Vote
CASE-BY-CASE on anti-greenmail proposals when they are bundled with other
charter or bylaw amendments.
3.9
Litigation Rights (including Exclusive Venue and Fee-Shifting Bylaw
Provisions)
Bylaw
provisions impacting shareholders' ability to bring suit against the company may
include exclusive venue provisions, which provide that the state of
incorporation shall be the sole venue for certain types of litigation, and
fee-shifting provisions that require a shareholder who sues a company
unsuccessfully to pay all litigation expenses of the defendant
corporation.
Vote
CASE-BY-CASE on bylaws which impact shareholders' litigation rights, taking into
account factors such as:
•The
company's stated rationale for adopting such a provision;
•Disclosure
of past harm from shareholder lawsuits in which plaintiffs were unsuccessful or
shareholder lawsuits outside the jurisdiction of incorporation;
•The
breadth of application of the bylaw, including the types of lawsuits to which it
would apply and the definition of key terms; and
•Governance
features such as shareholders' ability to repeal the provision at a later date
(including the vote standard applied when shareholders attempt to amend the
bylaws) and their ability to hold directors accountable through annual director
elections and a majority vote standard in uncontested elections.
Generally
vote AGAINST bylaws that mandate fee-shifting whenever plaintiffs are not
completely successful on the merits (i.e., in cases where the plaintiffs are
partially successful).
3.10
Net Operating Loss (NOL) Protective Amendments
Generally
vote AGAINST proposals to adopt a protective amendment for the stated purpose of
protecting a company's net operating losses (NOL) if the effective term of the
protective amendment would exceed the shorter of three years and the exhaustion
of the NOL.
Vote
CASE-BY-CASE, considering the following factors, for management proposals to
adopt an NOL protective amendment that would remain in effect for the shorter of
three years (or less) and the exhaustion of the NOL:
•The
ownership threshold (NOL protective amendments generally prohibit stock
ownership transfers that would result in a new 5-percent holder or increase the
stock ownership percentage of an existing 5-percent holder);
•The
value of the NOLs;
•Shareholder
protection mechanisms (sunset provision or commitment to cause expiration of the
protective amendment upon exhaustion or expiration of the NOL);
•The
company's existing governance structure including: board independence, existing
takeover defenses, track record of responsiveness to shareholders, and any other
problematic governance concerns; and
•Any
other factors that may be applicable.
3.11
Poison Pills (Shareholder Rights Plans)
Shareholder
Proposals to Put Pill to a Vote and/or Adopt a Pill Policy
Generally
vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has: (1) A
shareholder approved poison pill in place; or (2) The company has adopted a
policy concerning the adoption of a pill in the future specifying that the board
will only adopt a shareholder rights plan if either:
•Shareholders
have approved the adoption of the plan; or
•The
board, in its exercise of its fiduciary responsibilities, determines that it is
in the best interest of shareholders under the circumstances to adopt a pill
without the delay in adoption that would result from seeking stockholder
approval (i.e., the “fiduciary out” provision). A poison pill adopted under this
fiduciary out will be put to a shareholder ratification vote within 12 months of
adoption or expire. If the pill is not approved by a majority of the votes cast
on this issue, the plan will immediately terminate.
If
the shareholder proposal calls for a time period of less than 12 months for
shareholder ratification after adoption, generally vote FOR the proposal, but
add the caveat that a vote within 12 months would be considered sufficient
implementation.
Management
Proposals to Ratify a Poison Pill
Vote
CASE-BY-CASE on management proposals on poison pill ratification, focusing on
the features of the shareholder rights plan. Rights plans should generally
contain the following attributes:
•No
lower than a 20% trigger, flip-in or flip-over;
•A
term of no more than three years;
•No
dead-hand, slow-hand, no-hand or similar feature that limits the ability of a
future board to redeem the pill;
•Shareholder
redemption feature (qualifying offer clause); if the board refuses to redeem the
pill 90 days after a qualifying offer is announced, 10 percent of the shares may
call a special meeting or seek a written consent to vote on rescinding the
pill.
In
addition, the rationale for adopting the pill should be thoroughly explained by
the company. In examining the request for the pill, take into consideration the
company’s existing governance structure, including: board independence, existing
takeover defenses, and any problematic governance concerns.
Management
Proposals to Ratify a Pill to Preserve Net Operating Losses (NOLs)
Generally
vote AGAINST proposals to adopt a poison pill for the stated purpose of
protecting a company's net operating losses (NOL) if the term of the pill would
exceed the shorter of three years and the exhaustion of the NOL.
Vote
CASE-BY-CASE on management proposals for poison pill ratification, considering
the following factors, if the term of the pill would be the shorter of three
years (or less) and the exhaustion of the NOL:
•The
ownership threshold to transfer (NOL pills generally have a trigger slightly
below five percent);
•The
value of the NOLs;
•Shareholder
protection mechanisms (sunset provision, or commitment to cause expiration of
the pill upon exhaustion or expiration of NOLs);
•The
company's existing governance structure including: board independence, existing
takeover defenses, track record of responsiveness to shareholders, and any other
problematic governance concerns; and
•Any
other factors that may be applicable.
3.12
New Proxy Voting Disclosure, Confidentiality, and Tabulation
Vote
CASE-BY-CASE on proposals regarding proxy voting mechanics, taking into
consideration whether implementation of the proposal is likely to enhance or
protect shareholder rights. Specific issues covered under the policy include,
but are not limited to, confidential voting of individual proxies and ballots,
confidentiality of running vote tallies, and the treatment of abstentions and/or
broker non-votes in the company's vote- counting methodology.
While
a variety of factors may be considered in each analysis, the guiding principles
are: transparency, consistency, and fairness in the proxy voting process. The
factors considered, as applicable to the proposal, may include:
•The
scope and structure of the proposal;
•The
company's stated confidential voting policy (or other relevant policies) and
whether it ensures a "level playing field" by providing shareholder proponents
with equal access to vote information prior to the annual meeting;
•The
company's vote standard for management and shareholder proposals and whether it
ensures consistency and fairness in the proxy voting process and maintains the
integrity of vote results;
•Whether
the company's disclosure regarding its vote counting method and other relevant
voting policies with respect to management and shareholder proposals are
consistent and clear;
•Any
recent controversies or concerns related to the company's proxy voting
mechanics;
•Any
unintended consequences resulting from implementation of the proposal;
and
•Any
other factors that may be relevant.
3.13
Reimbursing Proxy Solicitation Expenses
Vote
CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting
in conjunction with support of a dissident slate, vote FOR the reimbursement of
all appropriate proxy solicitation expenses associated with the
election.
Generally
vote FOR shareholder proposals calling for the reimbursement of reasonable costs
incurred in connection with nominating one or more candidates in a contested
election where the following apply:
•The
election of fewer than 50% of the directors to be elected is contested in the
election;
•One
or more of the dissident’s candidates is elected;
•Shareholders
are not permitted to cumulate their votes for directors; and
•The
election occurred, and the expenses were incurred, after the adoption of this
bylaw.
3.14
Reincorporation Proposals
Management
or shareholder proposals to change a company's state of incorporation should be
evaluated CASE-BY-CASE, giving consideration to both financial and corporate
governance concerns including the following:
•Reasons
for reincorporation;
•Comparison
of company's governance practices and provisions prior to and following the
reincorporation; and
•Comparison
of corporation laws of original state and destination state.
Generally
vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
3.15
Shareholder Ability to Act by Written Consent
Generally
vote AGAINST management and shareholder proposals to restrict or prohibit
shareholders' ability to act by written consent.
Generally
vote FOR management and shareholder proposals that provide shareholders with the
ability to act by written consent, taking into account the following
factors:
•Shareholders’
current right to act by written consent;
•The
consent threshold;
•The
inclusion of exclusionary or prohibitive language;
•Investor
ownership structure; and
•Shareholder
support of and management’s response to previous shareholder
proposals.
Vote
CASE-BY-CASE on shareholder proposals if, in addition to the considerations
above, the company has the following governance and antitakeover
provisions:
•An
unfettered right for shareholders to call special meetings at a 10 percent
threshold;
•A
majority vote standard in uncontested director elections;
•No
non-shareholder-approved pill; and
•An
annually elected board.
3.16
Shareholder Ability to Call Special Meetings
Generally
vote AGAINST management or shareholder proposals to restrict or prohibit
shareholders’ ability to call special meetings.
Generally
vote FOR management or shareholder proposals that provide shareholders with the
ability to call special meetings taking into account the following
factors:
•Shareholders’
current right to call special meetings;
•Minimum
ownership threshold necessary to call special meetings (10%
preferred);
•The
inclusion of exclusionary or prohibitive language;
•Investor
ownership structure; and
•Shareholder
support of and management’s response to previous shareholder
proposals.
3.17
Stakeholder Provisions
Generally
vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
3.18
State Antitakeover Statutes
Vote
CASE-BY-CASE on proposals to opt in or out of state takeover statutes (including
fair price provisions, stakeholder laws, poison pill endorsements, severance pay
and labor contract provisions, and anti-greenmail provisions).
3.19
Supermajority Vote Requirements
Generally
vote AGAINST proposals to require a supermajority shareholder vote.
Generally
vote FOR management or shareholder proposals to reduce supermajority vote
requirements. However, for companies with shareholder(s) who have significant
ownership levels, vote CASE-BY-CASE, taking into account:
•Ownership
structure;
•Quorum
requirements; and
•Vote
requirements.
4.
Capital/Restructuring
4.1
Capital
4.1a
Adjustments to Par Value of Common Stock
Generally
vote FOR management proposals to reduce the par value of common stock unless the
action is being taken to facilitate an anti-takeover device or some other
negative corporate governance action
Generally
vote FOR management proposals to eliminate par value.
4.1
b Common Stock Authorization
Generally
vote FOR proposals to increase the number of authorized common shares where the
primary purpose of the increase is to issue shares in connection with a
transaction on the same ballot that warrants support.
Generally
vote AGAINST proposals at companies with more than one class of common stock to
increase the number of authorized shares of the class of common stock that has
superior voting rights.
Generally
vote AGAINST proposals to increase the number of authorized common shares if a
vote for a reverse stock split on the same ballot is warranted despite the fact
that the authorized shares would not be reduced proportionally.
Vote
CASE-BY-CASE on all other proposals to increase the number of shares of common
stock authorized for issuance. Take into account company-specific factors that
include, at a minimum, the following:
•Past
Board Performance:
•The
company’s use of authorized shares during the last three years
•The
Current Request:
•Disclosure
in the proxy statement of the specific purposes of the proposed
increase;
•Disclosure
in the proxy statement of specific and severe risks to shareholders of not
approving the request; and
•The
dilutive impact of the request as determined by an allowable increase (typically
100 percent of existing authorized shares) that reflects the company's need for
shares and total shareholder returns.
4.1c
Dual Class Structure
Generally
vote AGAINST proposals to create a new class of common stock
unless:
•The
company discloses a compelling rationale for the dual-class capital structure,
such as:
•The
company's auditor has concluded that there is substantial doubt about the
company's ability to continue as a going concern; or
•The
new class of shares will be transitory;
•The
new class is intended for financing purposes with minimal or no dilution to
current shareholders in both the short term and long term; and
•The
new class is not designed to preserve or increase the voting power of an insider
or significant shareholder.
4.1d
Issue Stock for Use with Rights Plan
Generally
vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder- approved shareholder rights plan
(poison pill).
4.1e
Preemptive Rights
Vote
CASE-BY-CASE on shareholder proposals that seek preemptive rights, taking into
consideration:
•The
size of the company;
•The
shareholder base; and
•The
liquidity of the stock.
4.1f
Preferred Stock Authorization
Generally
vote FOR proposals to increase the number of authorized preferred shares where
the primary purpose of the increase is to issue shares in connection with a
transaction on the same ballot that warrants support.
Generally
vote AGAINST proposals at companies with more than one class or series of
preferred stock to increase the number of authorized shares of the class or
series of preferred stock that has superior voting rights.
Vote
CASE-BY-CASE on all other proposals to increase the number of shares of
preferred stock authorized for issuance. Take into account company-specific
factors that include, at a minimum, the following:
•Past
Board Performance:
•The
company's use of authorized preferred shares during the last three
years;
•The
Current Request:
•Disclosure
in the proxy statement of the specific purposes for the proposed
increase;
•Disclosure
in the proxy statement of specific and severe risks to shareholders of not
approving the request;
•In
cases where the company has existing authorized preferred stock, the dilutive
impact of the request as determined by an allowable increase (typically 100
percent of existing authorized shares) that reflects the company’s need for
shares and total shareholder returns; and
•Whether
the shares requested are blank check preferred shares that can be used for
antitakeover purposes.
4.1g
Recapitalization Plans
Vote
CASE-BY-CASE on recapitalizations (reclassifications of securities), taking into
account the following:
•More
simplified capital structure;
•Enhanced
liquidity;
•Fairness
of conversion terms;
•Impact
on voting power and dividends;
•Reasons
for the reclassification;
•Conflicts
of interest; and
•Other
alternatives considered.
4.1h
Reverse Stock Splits
Generally
vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.
Generally
vote AGAINST proposals when there is not a proportionate reduction of authorized
shares, unless:
•A
stock exchange has provided notice to the company of a potential delisting;
or
•The
effective increase in authorized shares is equal to or less than the allowable
increase calculated in accordance with the Common Stock Authorization
guidelines
4.1i
Share Issueance Mandates
Generally
vote FOR general share issuance authorities (those without a specified purpose)
without pre-emptive rights to a maximum of 20 percent of currently issued
capital, as long as the duration of
the
authority is clearly disclosed and reasonable. As a general rule, companies
should seek renewal of the issuance authority at each annual
meeting.
4.1j
Share Repurchase Programs
Generally
vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
4.1k
Stock Distributions: Splits and Dividends
Generally
vote FOR management proposals to increase the common share authorization for a
stock split or stock dividend, provided that the effective increase in
authorized shares is equal to or is less than the allowable increase calculated
in accordance with the Common Stock Authorization guidelines.
4.1l
Tracking Stock
Vote
CASE-BY-CASE on the creation of tracking stock, weighing the strategic value of
the transaction against such factors as:
•Adverse
governance changes;
•Excessive
increases in authorized capital stock;
•Unfair
method of distribution;
•Diminution
of voting rights;
•Adverse
conversion features;
•Negative
impact on stock option plans; and
•Alternatives
such as spin-off.
4.2
Restructuring
4.2a
Appraisal Rights
Generally
vote FOR proposals to restore or provide shareholders with rights of
appraisal.
4.2b
Asset Purchases
Vote
CASE-BY-CASE on asset purchase proposals, considering the following
factors:
•Purchase
price;
•Fairness
opinion;
•Financial
and strategic benefits;
•How
the deal was negotiated;
•Conflicts
of interest;
•Other
alternatives for the business;
•Non-completion
risk.
4.2c
Asset Sales
Vote
CASE-BY-CASE on asset sales, considering the following factors:
•Impact
on the balance sheet/working capital;
•Potential
elimination of diseconomies;
•Anticipated
financial and operating benefits;
•Anticipated
use of funds;
•Value
received for the asset;
•Fairness
opinion;
•How
the deal was negotiated;
•Conflicts
of interest.
4.2d
Bundled Proposals
Vote
CASE-BY-CASE on bundled or “conditional” proxy proposals. In the case of items
that are conditioned upon each other, examine the benefits and costs of the
packaged items. In instances when the joint effect of the conditioned items is
not in shareholders’ best interests, generally vote AGAINST the proposals. If
the combined effect is positive, generally support such proposals.
4.2e
Conversion of Securities
Vote
CASE-BY-CASE on proposals regarding conversion of securities. When evaluating
these proposals the investor should review the dilution to existing
shareholders, the conversion price relative to market value, financial issues,
control issues, termination penalties, and conflicts of interest.
Generally
vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved.
4.2f
Corporate Reorganization/Debt Restructuring/Prepackaged Bankruptcy Plans/
Reverse Leveraged Buyouts/Wrap Plans
Vote
CASE-BY-CASE on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan, after
evaluating:
•Dilution
to existing shareholders' positions;
•Terms
of the offer - discount/premium in purchase price to investor, including any
fairness opinion; termination penalties; exit strategy;
•Financial
issues - company's financial situation; degree of need for capital; use of
proceeds; effect of the financing on the company's cost of capital;
•Management's
efforts to pursue other alternatives;
•Control
issues - change in management; change in control, guaranteed board and committee
seats; standstill provisions; voting agreements; veto power over certain
corporate actions; and
•Conflict
of interest - arm's length transaction, managerial incentives.
Generally
vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
4.2g
Formation of Holding Company
Vote
CASE-BY-CASE on proposals regarding the formation of a holding company, taking
into consideration the following:
•The
reasons for the change;
•Any
financial or tax benefits;
•Regulatory
benefits;
•Increases
in capital structure; and
•Changes
to the articles of incorporation or bylaws of the company.
Absent
compelling financial reasons to recommend the transaction, generally vote
AGAINST the formation of a holding company if the transaction would include
either of the following:
•Increases
in common or preferred stock in excess of the allowable maximum (see discussion
under “Capital”); or
•Adverse
changes in shareholder rights.
4.2h
Going Private and Going Dark Transactions (LBOs and Minority Squeeze-
outs)
Vote
CASE-BY-CASE on going private transactions, taking into account the
following:
•Offer
price/premium;
•Fairness
opinion;
•How
the deal was negotiated;
•Conflicts
of interest;
•Other
alternatives/offers considered; and
•Non-completion
risk.
Vote
CASE-BY-CASE on going dark transactions, determining whether the transaction
enhances shareholder value by taking into consideration:
•Whether
the company has attained benefits from being publicly-traded (examination of
trading volume, liquidity, and market research of the stock);
•Balanced
interests of continuing vs. cashed-out shareholders, taking into account the
following:
•Are
all shareholders able to participate in the transaction?
•Will
there be a liquid market for remaining shareholders following the
transaction?
•Does
the company have strong corporate governance?
•Will
insiders reap the gains of control following the proposed
transaction?
•Does
the state of incorporation have laws requiring continued reporting that may
benefit shareholders?
4.2i
Joint Ventures
Vote
CASE-BY-CASE on proposals to form joint ventures, taking into account the
following:
•Percentage
of assets/business contributed;
•Percentage
ownership;
•Financial
and strategic benefits;
•Governance
structure;
•Conflicts
of interest;
•Other
alternatives; and
•Non-completion
risk.
4.2j
Liquidations
Vote
CASE-BY-CASE on liquidations, taking into account the following:
•Management’s
efforts to pursue other alternatives;
•Appraisal
value of assets; and
•The
compensation plan for executives managing the liquidation.
Generally
vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.
4.2k
Mergers and Acquisitions
Vote
CASE -BY- CASE on mergers and acquisitions. Review and evaluate the merits and
drawbacks of the proposed transaction, balancing various and sometimes
countervailing factors including:
•Valuation
- Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial starting
point for assessing valuation reasonableness, emphasis is placed on the offer
premium, market reaction and strategic rationale.
•Market
reaction - How has the market responded to the proposed deal? A negative market
reaction should cause closer scrutiny of a deal.
•Strategic
rationale - Does the deal make sense strategically? From where is the value
derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favorable
track record of successful integration of historical acquisitions.
•Negotiations
and process - Were the terms of the transaction negotiated at
•arm's-length?
Was the process fair and equitable? A fair process helps to ensure the best
price for shareholders. Significant negotiation "wins" can also signify the deal
makers' competency. The comprehensiveness of the sales process (e.g., full
auction, partial auction, no auction) can also affect shareholder
value.
•Conflicts
of interest - Are insiders benefiting from the transaction disproportionately
and inappropriately as compared to non-insider shareholders? As the result of
potential conflicts, the directors and officers of the company may be more
likely to vote to approve a merger than if they did not hold these interests.
Consider whether these interests may have influenced these directors and
officers to support or recommend the merger.
•Governance
- Will the combined company have a better or worse governance profile than the
current governance profiles of the respective parties to the transaction? If the
governance profile is to change for the worse, the burden is on the company to
prove that other issues (such as valuation) outweigh any deterioration in
governance.
4.2l
Private Placements/Warrants/Convertible Debentures
Vote
CASE-BY-CASE on proposals regarding private placements, warrants, and
convertible debentures taking into consideration:
•Dilution
to existing shareholders' position: The amount and timing of shareholder
ownership dilution should be weighed against the needs and proposed shareholder
benefits of the capital infusion. Although newly issued common stock, absent
preemptive rights, is typically dilutive to existing shareholders, share price
appreciation is often the necessary event to trigger the exercise of “out of the
money” warrants and convertible debt. In these instances from a value
standpoint, the negative impact of dilution is mitigated by the increase in the
company’s stock price that must occur to trigger the dilutive
event.
•Terms
of the offer (discount/premium in purchase price to investor, including any
fairness opinion, conversion features, termination penalties, exit
strategy):
•The
terms of the offer should be weighed against the alternatives of the company and
in light of company's financial condition. Ideally, the conversion price for
convertible debt and the exercise price for warrants should be at a premium to
the then prevailing stock price at the time of private placement.
•When
evaluating the magnitude of a private placement discount or premium, consider
factors that influence the discount or premium, such as, liquidity, due
diligence costs, control and monitoring costs, capital scarcity, information
asymmetry and anticipation of future performance.
•Financial
issues:
•The
company's financial condition;
•Degree
of need for capital;
•Use
of proceeds;
•Effect
of the financing on the company's cost of capital;
•Current
and proposed cash burn rate;
•Going
concern viability and the state of the capital and credit markets.
•Management's
efforts to pursue alternatives and whether the company engaged in a process to
evaluate alternatives: A fair, unconstrained process helps to ensure the best
price for shareholders. Financing alternatives can include joint ventures,
partnership, merger or sale of part or all of the company.
•Control
issues:
•Change
in management;
•Change
in control;
•Guaranteed
board and committee seats;
•Standstill
provisions;
•Voting
agreements;
•Veto
power over certain corporate actions; and
•Minority
versus majority ownership and corresponding minority discount or majority
control premium.
•Conflicts
of interest:
•Conflicts
of interest should be viewed from the perspective of the company and the
investor.
•Were
the terms of the transaction negotiated at arm's length? Are managerial
incentives aligned with shareholder interests?
•Market
reaction:
•The
market's response to the proposed deal. A negative market reaction may be a
cause for concern. Market reaction may be addressed by analyzing the one day
impact on the unaffected stock price.
Generally
vote FOR the private placement, or FOR the issuance of warrants and/or
convertible debentures in a private placement, if it is expected that the
company will file for bankruptcy if the transaction is not
approved.
4.2m
Reorganization/Restructuring Plan (Bankruptcy)
Vote
CASE-BY-CASE on proposals to common shareholders on bankruptcy plans of
reorganization, considering the following factors including, but not limited
to:
•Estimated
value and financial prospects of the reorganized company;
•Percentage
ownership of current shareholders in the reorganized company;
•Whether
shareholders are adequately represented in the reorganization process
(particularly through the existence of an Official Equity
Committee);
•The
cause(s) of the bankruptcy filing, and the extent to which the plan of
reorganization addresses the cause(s);
•Existence
of a superior alternative to the plan of reorganization; and
•Governance
of the reorganized company.
4.2n
Special Purpose Acquisition Corporations (SPACs)
Vote
CASE-BY-CASE on SPAC mergers and acquisitions taking into account the
following:
•Valuation
- Is the value being paid by the SPAC reasonable? SPACs generally lack an
independent fairness opinion and the financials on the target may be limited.
Compare the conversion price with the intrinsic value of the target company
provided in the fairness opinion. Also, evaluate the proportionate value of the
combined entity attributable to the SPAC IPO shareholders versus the pre- merger
value of SPAC. Additionally, a private company discount may be applied to the
target, if it is a private entity.
•Market
reaction - How has the market responded to the proposed deal? A negative market
reaction may be a cause for concern. Market reaction may be addressed by
analyzing the one-day impact on the unaffected stock price.
•Deal
timing - A main driver for most transactions is that the SPAC
•charter
typically requires the deal to be complete within 18 to 24 months, or the SPAC
is to be liquidated. Evaluate the valuation, market reaction, and potential
conflicts of interest for deals that are announced close to the liquidation
date.
•Negotiations
and process - What was the process undertaken to identify potential target
companies within specified industry or location specified in charter? Consider
the background of the sponsors.
•Conflicts
of interest - How are sponsors benefiting from the transaction compared to IPO
shareholders? Potential conflicts could arise if a fairness opinion is issued by
the insiders to qualify the deal rather than a third party or if management is
encouraged to pay a higher price for the target because of an 80% rule (the
charter requires that the fair market value of the target is at least equal to
80% of net assets of the SPAC). Also, there may be sense of urgency by the
management team of the SPAC to close the deal since its charter typically
requires a transaction to be completed within the 18-24 month
timeframe.
•Voting
agreements - Are the sponsors entering into any voting agreements/ tender offers
with shareholders who are likely to vote AGAINST the proposed merger or exercise
conversion rights?
•Governance
- What is the impact of having the SPAC CEO or founder on key committees
following the proposed merger?
4.2o
Spin-offs
Vote
CASE-BY-CASE on spin-offs, considering:
•Tax
and regulatory advantages;
•Planned
use of the sale proceeds;
•Valuation
of spinoff;
•Fairness
opinion;
•Benefits
to the parent company;
•Conflicts
of interest;
•Managerial
incentives;
•Corporate
governance changes;
•Changes
in the capital structure.
4.2p
Value Maximization Shareholder Proposals
Vote
CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by:
•Hiring
a financial advisor to explore strategic alternatives;
•Selling
the company; or
•Liquidating
the company and distributing the proceeds to shareholders.
These
proposals should be evaluated based on the following factors:
•Prolonged
poor performance with no turnaround in sight;
•Signs
of entrenched board and management (such as the adoption of takeover
defenses);
•Strategic
plan in place for improving value;
•Likelihood
of receiving reasonable value in a sale or dissolution; and
•The
company actively exploring its strategic options, including retaining a
financial advisor.
5.
Compensation
5.1
Executive Pay Evaluation
Underlying
all evaluations are five global principles that most investors expect
corporations to adhere to in designing and administering executive and director
compensation programs:
1.Maintain
appropriate pay-for-performance alignment, with emphasis on long-term
shareholder value: This principle encompasses overall executive pay practices,
which must be designed
to
attract, retain, and appropriately motivate the key employees who drive
shareholder value creation over the long term. It will take into consideration,
among other factors, the link between pay and performance; the mix between fixed
and variable pay; performance goals; and equity-based plan costs;
2.Avoid
arrangements that risk “pay for failure”: This principle addresses the
appropriateness of long or indefinite contracts, excessive severance packages,
and guaranteed compensation;
3.Maintain
an independent and effective compensation committee: This principle promotes
oversight of executive pay programs by directors with appropriate skills,
knowledge, experience, and a sound process for compensation decision- making
(e.g., including access to independent expertise and advice when
needed);
4.Provide
shareholders with clear, comprehensive compensation disclosures: This principle
underscores the importance of informative and timely disclosures that enable
shareholders to evaluate executive pay practices fully and fairly;
5.Avoid
inappropriate pay to non-executive directors: This principle recognizes the
interests of shareholders in ensuring that compensation to outside directors
does not compromise their independence and ability to make appropriate judgments
in overseeing managers’ pay and performance. At the market level, it may
incorporate a variety of generally accepted best practices.
5.1a
Advisory Votes on Executive Compensation - Management Proposals (Management
Say-on-Pay)
Vote
CASE-BY-CASE on ballot items related to executive pay and practices, as well as
certain aspects of outside director compensation.
Generally
vote AGAINST Advisory Votes on Executive Compensation (Management Say-on-Pay -
MSOP) if:
•There
is a significant misalignment between CEO pay and company performance (pay for
performance);
•The
company maintains significant problematic pay practices;
•The
board exhibits a significant level of poor communication and responsiveness to
shareholders.
Generally
vote AGAINST or WITHHOLD from the members of the Compensation Committee and
potentially the full board if:
•There
is no MSOP on the ballot, and an AGAINST vote on an MSOP is warranted due to pay
for performance misalignment, problematic pay practices, or the lack of adequate
responsiveness on compensation issues raised previously, or a combination
thereof;
•The
board fails to respond adequately to a previous MSOP proposal that received less
than 70 percent support of votes cast;
•The
company has recently practiced or approved problematic pay practices, including
option repricing or option backdating; or
•The
situation is egregious.
Primary
Evaluation Factors for Executive Pay
Pay-for-Performance
Evaluation
Evaluate
alignment between pay and performance over a sustained period. With respect to
companies in the Russell 3000 index, this analysis considers the
following:
•Peer
Group Alignment:
◦The
degree of alignment between the company's TSR rank and the CEO's total pay rank
within a peer group, as measured over one-year and three- year
periods;
◦The
multiple of the CEO's total pay relative to the peer group median.
•Absolute
Alignment - the absolute alignment between the trend in CEO pay and company TSR
over the prior five fiscal years - i.e., the difference between the trend in
annual pay changes and the trend in annualized TSR during the
period.
If
the above analysis demonstrates significant unsatisfactory long-term pay-for-
performance alignment or, in the case of non-Russell 3000 index companies
misaligned pay and performance are otherwise suggested, the analysis may include
any of the following qualitative factors, if they are relevant to the analysis
to determine how various pay elements may work to encourage or to undermine
long-term value creation and alignment with shareholder interests:
•The
ratio of performance- to time-based equity awards;
•The
overall ratio of performance-based compensation;
•The
completeness of disclosure and rigor of performance goals;
•The
company's peer group benchmarking practices;
•Actual
results of financial/operational metrics, such as growth in revenue, profit,
cash flow, etc., both absolute and relative to peers;
•Special
circumstances related to, for example, a new CEO in the prior fiscal year or
anomalous equity grant practices (e.g., bi-annual awards);
•Realizable
pay compared to grant pay; and
•Any
other factors deemed relevant.
Problematic
Pay Practices
The
focus is on executive compensation practices that contravene the global pay
principles, including:
•Problematic
practices related to non-performance-based compensation elements;
•Incentives
that may motivate excessive risk-taking; and
•Options
Backdating.
Problematic
Pay Practices related to Non-Performance-Based Compensation
Elements
Pay
elements that are not directly based on performance are generally evaluated
CASE-BY-CASE considering the context of a company's overall pay program and
demonstrated pay-for-performance philosophy. The following may be
considered:
1.Repricing
or replacing of underwater stock options/SARS without prior shareholder approval
(including cash buyouts and voluntary surrender of underwater
options);
•Excessive
perquisites or tax gross-ups, including any gross-up related to a secular trust
or restricted stock vesting;
•New
or extended agreements that provide for:
•Change-in-control
(CIC) payments exceeding 3 times base salary and average/target/most recent
bonus;
•CIC
severance payments without involuntary job loss or substantial diminution of
duties ("single" or "modified single" triggers);
•CIC
payments with excise tax gross-ups (including "modified"
gross-ups).
Incentives
that may Motivate Excessive Risk-Taking
•Multi-year
guaranteed bonuses;
•A
single or common performance metric used for short- and long-term
plans;
•Lucrative
severance packages;
•High
pay opportunities relative to industry peers;
•Disproportionate
supplemental pensions; or
•Mega
annual equity grants that provide unlimited upside with no downside
risk.
Factors
that potentially mitigate the impact of risky incentives include rigorous claw-
back provisions and robust stock ownership/holding guidelines.
Options
Backdating
The
following factors should be examined CASE-BY-CASE to allow for distinctions to
be made between “sloppy” plan administration versus deliberate action or
fraud:
•Reason
and motive for the options backdating issue, such as inadvertent vs. deliberate
grant date changes;
•Duration
of options backdating;
•Size
of restatement due to options backdating;
•Corrective
actions taken by the board or compensation committee, such as canceling or
re-pricing backdated options, the recouping of option gains on backdated grants;
and
•Adoption
of a grant policy that prohibits backdating, and creates a fixed grant schedule
or window period for equity grants in the future.
Board
Communications and Responsiveness
Consider
the following factors CASE-BY-CASE when evaluating ballot items related to
executive pay on the board’s responsiveness to investor input and engagement on
compensation issues:
•Failure
to respond to majority-supported shareholder proposals on executive pay topics;
or
•Failure
to adequately respond to the company's previous say-on-pay proposal that
received the support of less than 70 percent of votes cast, taking into
account:
•The
company's response, including:
◦Disclosure
of engagement efforts with major institutional investors regarding the issues
that contributed to the low level of support;
◦Specific
actions taken to address the issues that contributed to the low level of
support;
◦Other
recent compensation actions taken by the company;
•Whether
the issues raised are recurring or isolated;
•The
company's ownership structure; and
•Whether
the support level was less than 50 percent, which would warrant the highest
degree of responsiveness.
5.1b
Frequency of Advisory Vote on Executive Compensation ("Say When on
Pay")
Generally
vote FOR annual advisory votes on compensation, which provide the most
consistent and clear communication channel for shareholder concerns about
companies' executive pay programs.
5.1c
Voting on Golden Parachutes in an Acquisition, Merger,
Consolidation,
Vote
CASE-BY-CASE on Golden Parachute proposals, including consideration of existing
change-in-control arrangements maintained with named executive officers rather
than focusing primarily on new or extended arrangements.
Features
that may result in an AGAINST recommendation include one or more of the
following, depending on the number, magnitude, and/or timing of
issue(s):
•Single-
or modified-single-trigger cash severance;
•Single-trigger
acceleration of unvested equity awards;
•Excessive
cash severance (>3x base salary and bonus);
•Excise
tax gross-ups triggered and payable (as opposed to a provision to provide excise
tax gross-ups);
•Excessive
golden parachute payments (on an absolute basis or as a percentage of
transaction equity value); or
•Recent
amendments that incorporate any problematic features (such as those above) or
recent actions (such as extraordinary equity grants) that may make packages so
attractive as to influence merger agreements that may not be in the best
interests of shareholders; or
•The
company's assertion that a proposed transaction is conditioned on shareholder
approval of the golden parachute advisory vote.
Recent
amendment(s) that incorporate problematic features will tend to carry more
weight on the overall analysis. However, the presence of multiple legacy
problematic features will also be closely scrutinized.
In
cases where the golden parachute vote is incorporated into a company's advisory
vote on compensation (management say-on-pay), will evaluate the say-on-pay
proposal in accordance with these guidelines, which may give higher weight to
that component of the overall evaluation.
5.2
Equity-Based and Other Incentive Plans
Vote
CASE-BY-CASE on certain equity-based compensation plans¹ depending on a
combination of certain plan features and equity grant practices, where positive
factors may counterbalance negative factors, and vice versa, as evaluated using
the three factors below:
•Plan
Cost: The total estimated cost of the company’s equity plans relative to
industry/market cap peers;
•Plan
Features:
•Automatic
single-triggered award vesting upon a change in control (CIC);
•Discretionary
vesting authority;
•Liberal
share recycling on various award types;
•Lack
of minimum vesting period for grants made under the plan
•Dividends
payable prior to award vesting.
¹Proposals
evaluated generally include those to approve or amend (1) stock option plans for
employees and/or employees and directors, (2) restricted stock plans for
employees and/or employees and directors, and (3) omnibus stock incentive plans
for employees and/or employees and directors.
•Grant
Practices:
•The
company’s three year burn rate relative to its industry/market cap
peers;
•Vesting
requirements in most recent CEO equity grants (3-year look-back);
•The
estimated duration of the plan (based on the sum of shares remaining available
and the new shares requested, divided by the average annual shares granted in
the prior three years);
•The
proportion of the CEO's most recent equity grants/awards subject to performance
conditions;
•Whether
the company maintains a claw-back policy;
•Whether
the company has established post exercise/vesting share-holding
requirements.
Generally
vote AGAINST the plan proposal if the combination of above factors indicates
that the plan is not, overall, in shareholders' interests, or if any of the
following egregious factors apply:
•Awards
may vest in connection with a liberal change-of-control definition;
•The
plan would permit repricing or cash buyout of underwater options without
shareholder approval (either by expressly permitting it - for NYSE and Nasdaq
listed companies -- or by not prohibiting it when the company has a history of
repricing - for non-listed companies);
•The
plan is a vehicle for problematic pay practices or a significant pay-for-
performance disconnect under certain circumstances; or
•Any
other plan features are determined to have a significant negative impact on
shareholder interests.
Plan
Cost
Generally
vote AGAINST equity plans if the cost is unreasonable.
5.3
Other Compensation Plans
401(k)
Employee Benefit Plans
Generally
vote FOR proposals to implement a 401(k) savings plan for
employees.
Employee
Stock Ownership Plans (ESOPs)
Generally
vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares).
Employee
Stock Purchase Plans-- Qualified Plans
Vote
CASE-BY-CASE on qualified employee stock purchase plans. Generally vote FOR
employee stock purchase plans where all of the following apply:
•Purchase
price is at least 85 percent of fair market value;
•Offering
period is 27 months or less; and
•The
number of shares allocated to the plan is ten percent or less of the outstanding
shares.
Generally
vote AGAINST qualified employee stock purchase plans where any of the following
apply:
•Purchase
price is less than 85 percent of fair market value; or
•Offering
period is greater than 27 months; or
•The
number of shares allocated to the plan is more than ten percent of the
outstanding shares.
Employee
Stock Purchase Plans-- Non-Qualified Plans
Vote
CASE-BY-CASE on nonqualified employee stock purchase plans. Generally vote FOR
nonqualified employee stock purchase plans with all the following
features:
•Broad-based
participation (i.e., all employees of the company with the exclusion of
individuals with 5 percent or more of beneficial ownership of the
company);
•Limits
on employee contribution, which may be a fixed dollar amount or expressed as a
percent of base salary;
•Company
matching contribution up to 25 percent of employee’s contribution, which is
effectively a discount of 20 percent from market value;
•No
discount on the stock price on the date of purchase since there is a company
matching contribution.
Generally
vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee’s contribution, evaluate the cost of the plan
against its allowable cap.
Option
Exchange Programs/Repricing Options
Vote
CASE-BY-CASE on management proposals seeking approval to exchange/reprice
options taking into consideration:
•Historic
trading patterns--the stock price should not be so volatile that the options are
likely to be back “in-the-money” over the near term;
•Rationale
for the re-pricing--was the stock price decline beyond management's
control?
•Is
this a value-for-value exchange?
•Are
surrendered stock options added back to the plan reserve?
•Option
vesting--does the new option vest immediately or is there a black-out
period?
•Term
of the option--the term should remain the same as that of the replaced
option;
•Exercise
price--should be set at fair market or a premium to market;
•Participants--executive
officers and directors should be excluded.
If
the surrendered options are added back to the equity plans for re-issuance, then
also take into consideration the company’s total cost of equity plans and its
three-year average burn rate.
In
addition to the above considerations, evaluate the intent, rationale, and timing
of the repricing proposal. The proposal should clearly articulate why the board
is choosing to conduct an exchange program at this point in time. Repricing
underwater options after a recent precipitous drop in the company’s stock price
demonstrates poor timing.
Repricing
after a recent decline in stock price triggers additional scrutiny and a
potential AGAINST vote on the proposal. At a minimum, the decline should not
have happened within the past year. Also, consider the terms of the surrendered
options, such as the grant date, exercise price and vesting schedule. Grant
dates of surrendered options should be far enough back (two to three years) so
as not to suggest that repricings are being done to take advantage of short-term
downward price movements. Similarly, the exercise price of surrendered options
should generally be above the 52-week high for the stock price.
Generally
vote FOR shareholder proposals to put option repricings to a shareholder
vote.
Stock
Plans in Lieu of Cash
Vote
CASE-BY-CASE on plans that provide participants with the option of taking all or
a portion of their cash compensation in the form of stock.
Generally
vote FOR non-employee director-only equity plans that provide a dollar-for-
dollar cash-for-stock exchange.
Vote
CASE-BY-CASE on plans which do not provide a dollar-for-dollar cash for stock
exchange.
Transfer
Stock Option (TSO) Programs
One-time
Transfers: Generally vote AGAINST or WITHHOLD from compensation committee
members if they fail to submit one-time transfers to shareholders for
approval.
Vote
CASE-BY-CASE on one-time transfers. Generally vote FOR if:
•Executive
officers and non-employee directors are excluded from
participating;
•Stock
options are purchased by third-party financial institutions at a discount to
their fair value using option pricing models such as Black-Scholes or a Binomial
Option Valuation or other appropriate financial models; and
•There
is a two-year minimum holding period for sale proceeds (cash or stock) for all
participants.
Additionally,
management should provide a clear explanation of why options are being
transferred to a third-party institution and whether the events leading up to a
decline in stock price were beyond management's control. A review of the
company's historic stock price volatility should indicate if the options are
likely to be back “in-the-money” over the near term.
Ongoing
TSO program: Generally vote AGAINST equity plan proposals if the details of
ongoing TSO programs are not provided to shareholders. Since TSOs will be one of
the award types under a stock
plan,
the ongoing TSO program, structure and mechanics must be disclosed to
shareholders. The specific criteria to be considered in evaluating these
proposals include, but not limited, to the following:
•Eligibility;
•Vesting;
•Bid-price;
•Term
of options;
•Cost
of the program and impact of the TSOs on company’s total option
expense
•Option
repricing policy.
Amendments
to existing plans that allow for introduction of transferability of stock
options should make clear that only options granted post-amendment shall be
transferable.
5.4
Director Compensation
Shareholder
Ratification of Director Pay Programs
Vote
CASE-BY-CASE on management proposals seeking ratification of non-employee
director compensation, based on the following factors:
•If
the equity plan under which non-employee director grants are made is on the
ballot, whether or not it warrants support; and
•An
assessment of the following qualitative factors:
•The
relative magnitude of director compensation as compared to companies of a
similar profile;
•The
presence of problematic pay practices relating to director
compensation;
•Director
stock ownership guidelines and holding requirements;
•Equity
award vesting schedules;
•The
mix of cash and equity-based compensation;
•Meaningful
limits on director compensation;
•The
availability of retirement benefits or perquisites; and
•The
quality of disclosure surrounding director compensation.
5.4a
Equity Plans for Non-Employee Directors
Vote
CASE-BY-CASE on compensation plans for non-employee directors, based
on:
•The
total estimated cost of the company’s equity plans relative to industry/market
cap peers;
•The
company’s three year burn rate relative to its industry/market cap peers;
and
•The
presence of any egregious plan features (such as an option repricing provision
or liberal CIC vesting risk).
On
occasion, director stock plans will exceed the plan cost or burn rate benchmark
when combined with employee or executive stock plans. Generally vote FOR the
plan if all of the following qualitative factors in the board’s compensation are
met and disclosed in the proxy statement:
•The
relative magnitude of director compensation as compared to companies of a
similar profile.
•The
presence of problematic pay practices relating to director
compensation;
•Director
stock ownership guidelines and holding requirements.
•Equity
award vesting schedules:
•The
mix of cash and equity based compensation;
•Meaningful
limits on director compensation:
•The
availability of retirement benefits, or perquisites; and
•The
quality of disclosure surrounding director compensation.
5.4b
Non-Employee Director Retirement Plans
Generally
vote AGAINST retirement plans for non-employee directors.
Generally
vote FOR shareholder proposals to eliminate retirement plans for non- employee
directors.
5.5
Shareholder Proposals on Compensation
5.5a
Adopt Anti-Hedging/Pledging/Speculative Investments Policy
Generally
vote FOR proposals seeking a policy that prohibits named executive officers from
engaging in derivative or speculative transactions involving company stock,
including hedging, holding stock in a margin account, or pledging stock as
collateral for a loan. However, the company’s existing policies regarding
responsible use of company stock will be considered.
5.5b
Bonus Banking/Bonus Banking “Plus”
Vote
CASE-BY-CASE on proposals seeking deferral of a portion of annual bonus pay,
with ultimate payout linked to sustained results for the performance metrics on
which the bonus was earned (whether for the named executive officers or a wider
group of employees), taking into account the following factors:
•The
company’s past practices regarding equity and cash compensation;
•Whether
the company has a holding period or stock ownership requirements in place, such
as a meaningful retention ratio (at least 50 percent for full tenure);
and
•Whether
the company has a rigorous claw-back policy in place.
5.5c
Compensation Consultants- Disclosure of Board or Company’s
Utilization
Generally
vote FOR shareholder proposals seeking disclosure regarding the Company, Board,
or Compensation Committee’s use of compensation consultants, such as company
name, business relationship(s) and fees paid.
5.5d
Disclosure/Setting Levels or Types of Compensation for Executives and
Directors
Generally
vote FOR shareholder proposals seeking additional disclosure of executive and
director pay information, provided the information requested is relevant to
shareholders' needs, would not put the company at a competitive disadvantage
relative to its industry, and is not unduly burdensome to the
company.
Generally
vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of
compensation.
Generally
vote AGAINST shareholder proposals seeking to eliminate stock options or any
other equity grants to employees or directors.
Generally
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only.
Generally
vote AGAINST shareholder proposals that mandate a minimum amount of stock that
directors must own in order to qualify as a director or to remain on the
board.
Vote
CASE-BY-CASE on all other shareholder proposals regarding executive and director
pay, taking into account relevant factors, including but not limited to, company
performance, pay level and design versus peers, history to compensation concerns
or pay-for-performance disconnect, and/or the scope and prescriptive nature of
the proposal.
5.5e
Golden Coffins/Executive Death Benefits
Generally
vote FOR proposals calling companies to adopt a policy of obtaining shareholder
approval for any future agreements and corporate policies that could oblige the
company to make payments or awards following the death of a senior executive in
the form of unearned salary or bonuses, accelerated vesting or the continuation
in force of unvested equity grants, perquisites and other payments or awards
made in lieu of compensation. This would not apply to any benefit programs or
equity plan proposals for which the broad-based employee population is
eligible.
5.5f
Hold Equity Past Retirement or for a Significant Period of Time
Vote
CASE-BY-CASE on shareholder proposals asking companies to adopt policies
requiring senior executive officers to retain a portion of the net shares
acquired through compensation plans. The following factors will be taken into
account:
•The
percentage /ratio of net shares required to be retained;
•The
time period required to retain the shares;
•Whether
the company has equity retention, holding period, and/or stock ownership
requirements in place and the robustness of such requirements;
•Whether
the company has any other policies aimed at mitigating risk taking by
executives;
•Executives’
actual stock ownership and the degree to which it meets or exceeds the
proponent’s suggested holding period/retention ratio or the company’s existing
requirements; and
•Problematic
pay practices, current and past, which may demonstrate a short- term versus
long-term focus.
5.5g
Non-Deductible Compensation
Generally
vote FOR proposals seeking disclosure of the extent to which the company paid
non-deductible compensation to senior executives due to Internal Revenue Code
Section 162(m), while considering the company’s existing disclosure
practices.
5.5h
Pay Disparity
Generally
vote against proposals calling for the company to use the pay disparity analysis
or pay ratio in a specific way to set or limit executive pay.
5.5i
Pay for Performance
Performance-Based
Awards
Vote
CASE-BY-CASE on shareholder proposals requesting that a significant amount of
future long-term incentive compensation awarded to senior executives shall be
performance-based and requesting that the board adopt and disclose challenging
performance metrics to shareholders, based on the following analytical
steps:
•First,
generally vote FOR shareholder proposals advocating the use of performance-based
equity awards, such as performance contingent options or restricted stock,
indexed options or premium-priced options, unless the proposal is overly
restrictive or if the company has demonstrated that it is using a “substantial”
portion of performance-based awards for its top executives. Standard stock
options and performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium- priced options should
have a premium of at least 25 percent and higher to be considered
performance-based awards.
•Second,
assess the rigor of the company’s performance-based equity program. If the bar
set for the performance-based program is too low based on the company’s
historical or peer group comparison, generally vote FOR the proposal.
Furthermore, if target performance results in an above target payout, vote FOR
the shareholder proposal due to program’s poor design. If the company does not
disclose the performance metric of the performance-based
equity
program, vote FOR the shareholder proposal regardless of the outcome of the
first step to the test.
In
general, vote FOR the shareholder proposal if the company does not meet both of
the above two steps.
Pay
for Superior Performance
Vote
CASE-BY-CASE on shareholder proposals requesting that the board establish a
pay-for-superior performance standard in the company's executive compensation
plan for senior executives. These proposals generally include the following
principles:
•Set
compensation targets for the plan’s annual and long-term incentive pay
components at or below the peer group median;
•Deliver
a majority of the plan’s target long-term compensation through
performance-vested, not simply time-vested, equity awards;
•Provide
the strategic rationale and relative weightings of the financial and non-
financial performance metrics or criteria used in the annual and performance-
vested long-term incentive components of the plan;
•Establish
performance targets for each plan financial metric relative to the performance
of the company’s peer companies;
•Limit
payment under the annual and performance-vested long-term incentive components
of the plan to when the company’s performance on its selected financial
performance metrics exceeds peer group median performance.
Consider
the following factors in evaluating this proposal:
•What
aspects of the company’s annual and long-term equity incentive programs are
performance driven?
•If
the annual and long-term equity incentive programs are performance driven, are
the performance criteria and hurdle rates disclosed to shareholders or are they
benchmarked against a disclosed peer group?
•Can
shareholders assess the correlation between pay and performance based on the
current disclosure?
•What
type of industry and stage of business cycle does the company belong
to?
5.5j
Pre-Arranged Trading Plans (10b5-1 Plans)
Generally
vote FOR shareholder proposals calling for certain principles regarding the use
of prearranged trading plans (10b5-1 plans) for executives. These principles
include:
•Adoption,
amendment, or termination of a 10b5-1 Plan must be disclosed within two business
days in a Form 8-K;
•Amendment
or early termination of a 10b5-1 Plan is allowed only under extraordinary
circumstances, as determined by the board;
•Ninety
days must elapse between adoption or amendment of a 10b5-1 Plan and initial
trading under the plan;
•Reports
on Form 4 must identify transactions made pursuant to a 10b5-1
Plan;
•An
executive may not trade in company stock outside the 10b5-1 Plan.
•Trades
under a 10b5-1 Plan must be handled by a broker who does not handle other
securities transactions for the executive.
5.5k
Prohibit CEOs from Serving on Compensation Committees
Generally
vote AGAINST proposals seeking a policy to prohibit any outside CEO from serving
on a company’s compensation committee, unless the company has demonstrated
problematic pay practices that raise concerns about the performance and
composition of the committee.
5.5
Recoupment of Incentive or Stock Compensation in Specified
Circumstances
Vote
CASE-BY-CASE on proposals to recoup incentive cash or stock compensation made to
senior executives if it is later determined that the figures upon which
incentive compensation is earned turn out to have been in error or if senior
executive has breached company policy or has engaged in misconduct that may be
significantly detrimental to the company’s financial position or reputation, or
if the senior executive failed to manage or monitor risks that subsequently led
to significant financial or reputational harm to the company. Many companies
have adopted policies that permit recoupment in cases where an executive’s
fraud, misconduct, or negligence significantly contributed to a restatement of
financial results that led to the awarding of unearned incentive compensation.
However, such policies may be narrow given that not all misconduct or negligence
may result in significant financial restatements.
Misconduct,
negligence or lack of sufficient oversight by senior executives may lead to
significant financial loss or reputational damage that may have long-lasting
impact.
In
considering whether to support such shareholder proposals, the following factors
will be taken into consideration:
•If
the company has adopted a formal recoupment bonus policy;
•The
rigor of the recoupment policy focusing on how and under what circumstances the
company may recoup incentive or stock compensation;
•If
the company has chronic restatement history or material financial problems;
or
•If
the company’s policy substantially addresses the concerns raised by the
proponent;
•Disclosure
of recoupment of incentive or stock compensation from senior executives or lack
thereof; or
•Any
other relevant factors.
5.5m
Severance Agreements for Executives/Golden Parachutes
Generally
vote FOR shareholder proposals requiring that golden parachutes or executive
severance agreements be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote
CASE-BY-CASE on proposals to ratify or cancel golden parachutes. An acceptable
parachute should include, but is not limited to, the following:
•The
triggering mechanism should be beyond the control of management;
•The
amount should not exceed three times base amount (defined as the average annual
taxable W-2 compensation during the five years prior to the year in which the
change of control occurs);
•Change-in-control
payments should be double-triggered, i.e., (1) after a change in control has
taken place, and (2) termination of the executive as a result of the change in
control. Change in control is defined as a change in the company ownership
structure.
5.5n
Share Buyback Holding Periods
Generally
vote AGAINST shareholder proposals prohibiting executives from selling shares of
company stock during periods in which the company has announced that it may or
will be repurchasing shares of its stock. Generally vote FOR the proposal when
there is a pattern of abuse by executives exercising options or selling shares
during periods of share buybacks.
5.5o
Supplemental Executive Retirement Plans (SERPs)
Generally
vote FOR shareholder proposals requesting to put extraordinary benefits
contained in SERP agreements to a shareholder vote unless the company’s
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.
Generally
vote FOR shareholder proposals requesting to limit the executive benefits
provided under the company’s supplemental executive retirement plan (SERP) by
limiting covered compensation to a senior executive’s annual salary and
excluding all incentive or bonus pay from the plan’s definition of covered
compensation used to establish such benefits.
5.5p
Tax Gross-Up Proposals
Generally
vote FOR proposals calling for companies to adopt a policy of not providing tax
gross-up payments to executives, except in situations where gross-ups are
provided pursuant to a plan, policy, or arrangement applicable to management
employees of the company, such as a relocation or expatriate tax equalization
policy.
5.5q
Termination of Employment Prior to Severance Payment/Eliminating Accelerated
Vesting of Unvested Equity
Vote
CASE-BY-CASE on shareholder proposals seeking a policy requiring termination of
employment prior to severance payment and/or eliminating accelerated vesting of
unvested equity. The following factors will be considered:
•The
company’s current treatment of equity upon employment termination and/or in
change-of-control situations (i.e. vesting is double triggered and/or pro rata,
does it allow for the assumption of equity by acquiring company, the treatment
of performance shares, etc.);
•Current
employment agreements, including potential poor pay practices such as gross-ups
embedded in those agreements.
Generally
vote FOR proposals seeking a policy that prohibits automatic acceleration of the
vesting of equity awards to senior executives upon a voluntary termination of
employment or in the event of a change in control (except for pro rata vesting
considering the time elapsed and attainment of any related performance goals
between the award date and the change in control).
6
Social/Environmental Issues
6.1
Global Approach
Issues
covered under the policy include a wide range of topics, including consumer and
product safety, environment and energy, labor standards and human rights,
workplace and board diversity and corporate political issues. While a variety of
factors goes into each analysis, the overall principle guiding all vote
recommendations focuses on how the proposal may enhance or protect shareholder
value in either the short term or long term.
Vote
CASE-BY-CASE, taking into consideration whether implementation of the proposal
is likely to enhance or protect shareholder value, and in addition the following
will also be considered:
•If
the issues presented in the proposal are more appropriately or effectively dealt
with through legislation or government regulation;
•If
the company has already responded in an appropriate and sufficient manner to the
issue(s) raised in the proposal;
•Whether
the proposal’s request is unduly burdensome (scope, timeframe, or cost) or
overly prescriptive;
•The
company’s approach compared with any industry standard practices for addressing
the issue(s) raised by the proposal;
•If
the proposal requests increased disclosure or greater transparency, whether or
not reasonable and sufficient information is currently available to shareholders
from the company or from other publicly available sources; and
•If
the proposal requests increased disclosure or greater transparency, whether or
not implementation would reveal proprietary or confidential information that
could place the company at a competitive disadvantage.
6.2
Endorsement of Principles
Generally
vote AGAINST proposals seeking a company's endorsement of principles that
support a particular public policy position. Endorsing a set of principles may
require a company to take a stand on an issue that is beyond its own control and
may limit its flexibility with respect to future developments. Management and
the board should be afforded the flexibility to make decisions on specific
public policy positions based on their own assessment of the most beneficial
strategies for the company.
6.3
Animal Welfare
6.3a
Animal Welfare Policies
Generally
vote FOR proposals seeking a report on the company’s animal welfare standards
unless:
•The
company has already published a set of animal welfare standards and monitors
compliance;
•The
company’s standards are comparable to industry peers; and
•There
are no recent, significant fines or litigation or controversies related to the
company’s and/or its suppliers’ treatment of animals.
6.3b
Animal Testing
Generally
vote AGAINST proposals to phase out the use of animals in product testing
unless:
•The
company is conducting animal testing programs that are unnecessary or not
required by regulation;
•The
company is conducting animal testing when suitable alternatives are commonly
accepted and used at industry peers; or
•There
are recent, significant fines or litigation related to the company’s treatment
of animals.
6.3c
Animal Slaughter (Controlled Atmosphere Killing (CAK))
Generally
vote AGAINST proposals requesting the implementation of CAK methods at company
and/or supplier operations unless such methods are required by legislation or
generally accepted as the industry standard.
Vote
CASE-BY-CASE on proposals requesting a report on the feasibility of implementing
CAK methods at company and/or supplier operations considering the availability
of existing research conducted by the company or industry groups on this topic
and any fines or litigation related to current animal processing procedures at
the company.
6.4
Consumer Issues
6.4a
Genetically Modified Ingredients
Generally
vote AGAINST proposals requesting that a company voluntarily label genetically
engineered (GE) ingredients in its products. Labeling of products with GE
ingredients is best left to appropriate regulators/authorities.
Vote
CASE-BY-CASE on proposals asking for a report on the feasibility of labeling
products containing GE ingredients taking into account:
•The
potential impact of such labeling on the company's business;
•The
quality of the company’s disclosure on GE product labeling, related voluntary
initiatives, and how this disclosure compares with industry peer disclosure;
and
•Company’s
current disclosure on the feasibility of GE product labeling.
Generally
vote AGAINST proposals seeking a report on the social, health, and environmental
effects of genetically modified organisms (GMOs). Studies of this sort are
better undertaken by regulators and the scientific community.
Generally
vote AGAINST proposals to eliminate GE ingredients from the company's products
or proposals asking for reports outlining the steps necessary to eliminate GE
ingredients from the company’s products. Such decisions are more appropriately
made by management with consideration of current regulation.
6.5
Reports on Potentially Controversial Business/Financial Practices
Vote
CASE-BY CASE on requests for reports on the company’s potentially controversial
business or financial practices or products taking into account:
•Whether
the company has adequately disclosed mechanisms in place to prevent
abuses;
•Whether
the company has adequately disclosed the financial risks of the
products/practices in question;
•Whether
the company has been subject to violations of related laws or serious
controversies; and
•Peer
companies’ policies/practices in this area.
6.6
Pharmaceutical Pricing, Access to Medicines, and Prescription Drugs
Reimportation
Generally
vote AGAINST proposals requesting that companies implement specific price
restraints on pharmaceutical products unless the company fails to adhere to
legislative guidelines or industry norms in its product pricing.
Vote
CASE-BY-CASE on proposals requesting that a company report on its product
pricing or access to medicine policies, considering:
•The
nature of the company’s business and the potential for reputational, market and
regulatory risk exposure;
•The
existing disclosure of relevant policies;
•Deviation
from established industry norms;
•Relevant
company initiatives to provide research and/or products to disadvantaged
consumers;
•Whether
the proposal focuses on specific products or geographic regions;
•The
potential burden and scope of the requested report; and
•Recent
significant controversies, litigation, or fines at the company.
Generally
vote FOR proposals requesting that companies report on the financial and legal
impact of their prescription drug reimportation policies unless such information
is already publicly disclosed.
Generally
vote AGAINST proposals requesting that companies adopt specific policies to
encourage or constrain prescription drug reimportation. Such matters are more
appropriately the province of legislative activity and may place the company at
a competitive disadvantage relative to its peers.
6.7
Product Safety and Toxic/Hazardous Materials
Generally
vote FOR proposals requesting the company to report on its policies,
initiatives/procedures, and oversight mechanisms related to toxic/hazardous
materials or product safety in its supply chain, unless:
•The
company already discloses similar information through existing reports such as a
Supplier Code of Conduct and/or a sustainability report;
•The
company has formally committed to the implementation of a toxic/hazardous
materials and/or product safety and supply chain reporting and monitoring
program based on industry norms or similar standards within a specified time
frame; and
•The
company has not been recently involved in relevant significant controversies,
fines, or litigation.
Vote
CASE-BY-CASE on resolutions requesting that companies develop a feasibility
assessment to phase-out of certain toxic/hazardous materials, or evaluate and
disclose the potential financial and legal risks associated with utilizing
certain materials, considering:
•The
company’s current level of disclosure regarding its product safety policies,
initiatives and oversight mechanisms.
•Current
regulations in the markets in which the company operates; and
•Recent
significant controversies, litigation, or fines stemming from toxic/hazardous
materials at the company.
Generally
vote AGAINST resolutions requiring that a company reformulate its
products.
6.8
Tobacco - Related Proposals
Vote
CASE-BY-CASE on resolutions regarding the advertisement of tobacco products,
considering:
•Recent
related fines, controversies, or significant litigation;
•Whether
the company complies with relevant laws and regulations on the marketing of
tobacco;
•Whether
the company’s advertising restrictions deviate from those of industry
peers;
•Whether
the company entered into the Master Settlement Agreement, which restricts
marketing of tobacco to youth;
•Whether
restrictions on marketing to youth extend to foreign countries.
Vote
CASE-BY-CASE on proposals regarding second-hand smoke, considering;
•Whether
the company complies with all laws and regulations;
•The
degree that voluntary restrictions beyond those mandated by law might hurt the
company’s competitiveness;
•The
risk of any health-related liabilities.
Generally
vote AGAINST resolutions to cease production of tobacco-related products, to
avoid selling products to tobacco companies, to spin-off tobacco-related
businesses, or prohibit investment in tobacco equities. Such business decisions
are better left to company management or portfolio managers.
Generally
vote AGAINST proposals regarding tobacco product warnings. Such decisions are
better left to public health authorities.
6.9
Climate Change and the Environment
Generally
vote FOR resolutions requesting that a company disclose information on the
impact of climate change on the company’s operations and investments such as
financial, physical, or regulatory risks; considering:
•Whether
the company already provides current, publicly-available information on the
impacts that climate change may have on the company as well as associated
company policies and procedures to address related risks and/or
opportunities;
•The
company’s level of disclosure is at least comparable to that of industry peers;
and
•There
are no significant, controversies, fines, penalties, or litigation associated
with the company’s environmental performance.
Generally
vote FOR proposals requesting a report on greenhouse gas (GHG) emissions from
company operations and/or products and operations, unless:
•The
company already discloses current, publicly-available information on the impacts
that GHG emissions may have on the company as well as associated company
policies and procedures to address related risks and/or
opportunities;
•The
company's level of disclosure is comparable to that of industry peers;
and
•There
are no significant, controversies, fines, penalties, or litigation associated
with the company's GHG emissions.
Vote
CASE-BY-CASE on proposals that call for the adoption of GHG reduction goals from
products and operations, taking into account:
•Whether
the company provides disclosure of year-over-year GHG emissions performance
data;
•Whether
company disclosure lags behind industry peers;
•The
company’s actual GHG emissions performance;
•The
company’s current GHG emission policies, oversight mechanisms and related
initiatives; and
•Whether
the company has been the subject of recent, significant violations, fines,
litigation, or controversy related to GHG emissions;
6.10
General Environmental Proposals and Community Impact Assessments
6.10a
General Environmental Proposals and Community Impact Assessments
Vote
CASE-BY-CASE on requests for reports outlining policies and/or the potential
(community) social and/or environmental impact of company operations
considering:
•Current
disclosure of applicable policies and risk assessment report(s) and risk
management procedures;
•The
impact of regulatory non-compliance, litigation, remediation, or reputational
loss that may be associated with failure to manage the company’s operations in
question, including the management of relevant community and stakeholder
relations;
•The
nature, purpose, and scope of the company’s operations in the specific
region(s);
•The
degree to which company policies and procedures are consistent with industry
norms; and
•The
scope of the resolution.
6.10b
Energy Efficiency
Generally
vote FOR proposals requesting a company report on its comprehensive energy
efficiency policies, unless:
•The
company complies with applicable energy efficiency regulations and laws, and
discloses its participation in energy efficiency policies and programs,
including disclosure of benchmark data, targets, and performance measures;
or
•The
proponent requests adoption of specific energy efficiency goals within specific
timelines.
6.10c
Hydraulic Fracturing
Generally
vote FOR proposals requesting greater disclosure of a company's (natural gas)
hydraulic fracturing operations, including measures the company has taken to
manage and mitigate the potential community and environmental impacts of those
operations, considering:
•The
company's current level of disclosure of relevant policies and oversight
mechanisms;
•The
company's current level of such disclosure relative to its industry
peers;
•Potential
relevant local, state, or national regulatory developments; and
•Controversies,
fines, or litigation related to the company's hydraulic fracturing
operations.
6.10d
Operations in Protected Areas
Generally
vote FOR requests for reports on potential environmental damage as a result of
company operations in protected regions unless:
•Operations
in the specified regions are not permitted by current laws or
regulations;
•The
company does not currently have operations or plans to develop operations in
these protected regions; or,
•The
company’s disclosure of its operations and environmental policies in these
regions is comparable to industry peers.
6.10e
Recycling
Vote
CASE-BY-CASE on proposals to report on an existing recycling program, or adopt a
new recycling program, taking into account:
•The
nature of the company’s business;
•The
current level of disclosure of the company's existing related
programs;
•The
timetable and methods of program implementation prescribed by the
proposal;
•The
ability of the company to address the issues raised in the proposal;
and
•The
company's recycling programs compared with the similar programs of its industry
peers.
6.10f
Renewable Energy
Generally
vote FOR requests for reports on the feasibility of developing renewable energy
resources unless the report is duplicative of existing disclosure or irrelevant
to the company’s line of business.
Generally
vote AGAINST proposals requesting that the company invest in renewable energy
resources. Such decisions are best left to management’s evaluation of the
feasibility and financial impact that such programs may have on the
company.
Generally
vote AGAINST proposals that call for the adoption of renewable energy goals,
taking into account:
•The
scope and structure of the proposal;
•The
company’s current level of disclosure on renewable energy use and GHG emissions;
and
•The
company’s disclosure of policies, practices, and oversight implemented to manage
GHG emissions and mitigate climate change risks.
6.11Diversity
6.11a
Board Diversity
Generally
vote FOR requests for reports on the company's efforts to diversify the board,
unless:
•The
gender and racial minority representation of the company’s board is reasonably
inclusive in relation to companies of similar size and business;
and
•The
board already reports on its nominating procedures and gender and racial
minority initiatives on the board and within the company.
Vote
CASE-BY-CASE on proposals asking the company to increase the gender and racial
minority representation on its board, taking into account:
•The
degree of existing gender and racial minority diversity on the company’s board
and among its executive officers;
•The
level of gender and racial minority representation that exists at the company’s
industry peers;
•The
company’s established process for addressing gender and racial minority board
representation;
•Whether
the proposal includes an overly prescriptive request to amend nominating
committee charter language;
•The
independence of the company’s nominating committee;
•The
company uses an outside search firm to identify potential director nominees;
and
•Whether
the company has had recent controversies, fines, or litigation regarding equal
employment practices.
6.11b
Equality of Opportunity
Generally
vote FOR proposals requesting a company disclose its diversity policies or
initiatives, or proposals requesting disclosure of a company’s comprehensive
workforce diversity data, including requests for EEO-1 data,
unless:
•The
company publicly discloses its comprehensive equal opportunity policies and
initiatives;
•The
company already publicly discloses comprehensive workforce diversity data;
and
•The
company has no recent significant EEO-related violations or
litigation.
Generally
vote AGAINST proposals seeking information on the diversity efforts of suppliers
and service providers. Such requests may pose a significant cost and
administration burden on the company.
6.11c
Gender Identity, Sexual Orientation, and Domestic Partner Benefits
Generally
vote FOR proposals seeking to amend a company’s EEO statement or diversity
policies to prohibit discrimination based on sexual orientation and/or gender
identity, unless the change would result in excessive costs for the
company.
Generally
vote AGAINST proposals to extend company benefits to, or eliminate benefits from
domestic partners. Decisions regarding benefits should be left to the discretion
of the company.
General
Corporate Issues
6.12a
Charitable Contributions
Generally
vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self- dealing, or gross negligence, management should determine
which, and if, contributions are in the best interests of the
company.
6.12b
Environmental, Social, and Governance (ESG) Compensation-Related
Proposals
Vote
CASE-BY-CASE on proposals to link, or report on linking, executive compensation
to sustainability (environmental and social) criteria. The following factors
will be considered:
•The
scope and prescriptive nature of the proposal;
•Whether
the company has significant and/or persistent controversies or regulatory
violations regarding social and/or environmental issues;
•Whether
the company has management systems and oversight mechanisms in place regarding
its social and environmental performance;
•The
degree to which industry peers have incorporated similar non-financial
performance criteria in their executive compensation practices; and
•The
company‘s current level of disclosure regarding its environmental and social
performance.
6.12c
Political Spending & Lobbying Activities
Generally
vote AGAINST proposals asking the company to affirm political nonpartisanship in
the workplace so long as:
•There
are no recent, significant controversies, fines or litigation regarding the
company’s political contributions or trade association spending;
and
•The
company has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and
prohibit coercion.
Generally
vote AGAINST proposals to publish in newspapers and other media the company's
political contributions. Such publications could present significant cost to the
company without providing commensurate value to shareholders.
Generally
vote FOR proposals requesting greater disclosure of a company's political
contributions and trade association spending policies and activities. However
the following will be considered:
•The
company’s policies, and management and board oversight related to its direct
political contributions and payments to trade associations or other groups that
may be used for political purposes;
•The
company’s disclosure regarding its support of, and participation in, trade
associations or other groups that may make political contributions;
and
•Recent
significant controversies, fines, or litigation related to the company's
political contributions or political activities.
Generally
vote AGAINST proposals barring the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level;
barring political contributions can put the company at a competitive
disadvantage.
Generally
vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
Vote
CASE-BY-CASE on proposals requesting information on a company’s lobbying
(including direct, indirect, and grassroots lobbying) activities, policies, or
procedures, considering:
•The
company’s current disclosure of relevant lobbying policies, and management and
board oversight;
•The
company’s disclosure regarding trade associations or other groups that it
supports, or is a member of, that engage in lobbying activities;
and
•Recent
significant controversies, fines, or litigation regarding the company’s
lobbying-related activities.
International
Issues, Labor Issues, and Human Rights
6.13a
Human Rights Proposals
Generally
vote FOR proposals requesting a report on company or company supplier labor
and/or human rights standards and policies unless such information is already
publicly disclosed.
Vote
CASE-BY-CASE on proposals to implement company or company supplier labor and/or
human rights standards and policies, considering:
•The
degree to which existing relevant policies and practices are
disclosed;
•Whether
or not existing relevant policies are consistent with internationally recognized
standards;
•Whether
company facilities and those of its suppliers are monitored and
how;
•Company
participation in fair labor organizations or other internationally recognized
human rights initiatives;
•Scope
and nature of business conducted in markets known to have higher risk of
workplace labor/human rights abuse;
•Recent,
significant company controversies, fines, or litigation regarding human rights
at the company or its suppliers;
•The
scope of the request; and
•Deviation
from industry sector peer company standards and practices.
Vote
CASE-BY-CASE on proposals requesting that a company conduct an assessment of the
human rights risks in its operations or in its supply chain, or report on its
human rights risk assessment process, considering:
•The
degree to which existing relevant policies and practices are disclosed,
including information on the implementation of these policies and any related
oversight mechanisms;
•The
company’s industry and whether the company or its suppliers operate in countries
or areas where there is a history of human rights concerns;
•Recent,
significant controversies, fines, or litigation regarding human rights involving
the company or its suppliers, and whether the company has taken remedial steps;
and
•Whether
the proposal is unduly burdensome or overly prescriptive.
6.13b
Data Security, Privacy and Internet Issues
Vote
CASE-BY-CASE on resolutions requesting the disclosure and implementation of
Internet privacy and censorship policies and procedures
considering:
•The
level of disclosure of company policies and procedures relating to data
security, privacy, freedom of speech, information access and management, and
internet censorship;
•Engagement
in dialogue with governments and/or relevant groups with respect to the data
security, privacy, or the free flow of information on the internet;
•The
scope of business involvement and of investment in markets that maintain
government censorship or monitoring of the Internet;
•The
applicable market-specific laws or regulations that may be imposed on the
company; and,
•The
level of controversy, fines or litigation related to data security, privacy,
freedom of speech or Internet censorship.
6.13c
Operations in High Risk Markets
Vote
CASE-BY-CASE on requests for a report on a company’s potential financial and
reputational risks associated with operations in “high-risk” markets, such as a
terrorism-sponsoring state or politically/socially unstable region, taking into
account:
•The
nature, purpose, and scope of the operations and business involved that could be
affected by social or political disruption;
•Current
disclosure of applicable risk assessment(s) and risk management
procedures;
•Compliance
with U.S. sanctions and laws;
•Consideration
of other international policies, standards, and laws; and
•Whether
the company has been recently involved in recent, significant controversies,
fines or litigation related to its operations in "high-risk"
markets.
6.13d
Outsourcing/Offshoring
Vote
CASE-BY-CASE on proposals calling for companies to report on the risks
associated with outsourcing/plant closures, considering:
•Controversies
surrounding operations in the relevant market(s);
•The
value of the requested report to shareholders;
•The
company’s current level of disclosure of relevant information on outsourcing and
plant closure procedures; and
•The
company’s existing human rights standards relative to industry
peers.
6.13e
Workplace Safety
Vote
CASE-BY CASE on requests for workplace safety reports, including reports on
accident risk reduction efforts, taking into account:
•The
current level of company disclosure of its workplace health and safety
performance data, health and safety management policies, initiatives, and
oversight mechanisms;
•The
nature of the company’s business, specifically regarding company and employee
exposure to health and safety risks;
•Recent
significant controversies, fines, or violations related to workplace health and
safety; and
•The
company's workplace health and safety performance relative to industry
peers.
Vote
CASE-BY-CASE on resolutions that a company report on safety and/or security
risks associated with its operations and/or facilities,
considering:
•The
company’s compliance with applicable regulations and guidelines;
•The
company’s current level of disclosure regarding its security and safety
policies, procedures, and compliance monitoring; and
•The
existence of recent, significant violations, fines, or controversy regarding the
safety and security of the company’s operations and/or facilities.
6.13f
Weapons and Military Sales
Foreign
Military Sales/Offsets
Generally
vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
Nuclear
and Depleted Uranium Weapons
Generally
vote AGAINST proposals asking a company to cease production or report on the
risks associated with the use of depleted uranium munitions or nuclear weapons
components and delivery systems, including disengaging from current and proposed
contracts. Such contracts are monitored by government agencies, serve multiple
military and non-military uses, and withdrawal from these contracts could have a
negative impact on the company’s business.
6.14Sustainability
6.14a
Sustainability Reporting
Generally
vote FOR proposals requesting the company to report on its policies,
initiatives, and oversight mechanisms related to social, economic, and
environmental sustainability, unless:
•The
company already discloses similar information through existing reports or
policies such as an Environment, Health, and Safety (EHS) report; a
comprehensive Code of Corporate Conduct; and/or a Diversity Report;
or
•The
company has formally committed to the implementation of a reporting program
based on Global Reporting Initiative (GRI) guidelines or a similar standard
within a specified time frame.
6.15
Water Issues
Vote
CASE-BY-CASE on proposals requesting that a company report on, or adopt a new
policy on, water-related risks and concerns, taking into account:
•The
company's current disclosure of relevant policies, initiatives, oversight
mechanisms, and water usage metrics;
•Whether
or not the company's existing water-related policies and practices are
consistent with relevant internationally recognized standards and national/local
regulations;
•The
potential financial impact or risk to the company associated with water- related
concerns or issues; and
•Recent,
significant company controversies, fines, or litigation regarding water use by
the company and its suppliers.
7.
Mutual Fund Proxies
7.1
Election of Directors
Vote
CASE-BY-CASE on the election of directors and trustees, following the same
guidelines for uncontested directors for public company shareholder meetings.
However, mutual fund boards do not usually have compensation committees, so do
not withhold for the lack of this committee.
7.2
Converting Closed-end Fund to Open-end Fund
Vote
CASE-BY-CASE on conversion proposals, considering the following
factors:
•Past
performance as a closed-end fund;
•Market
in which the fund invests;
•Measures
taken by the board to address the discount; and
•Past
shareholder activism, board activity, and votes on related
proposals.
7.3
Proxy Contests
Vote
CASE-BY-CASE on proxy contests, considering the following factors:
•Past
performance relative to its peers;
•Market
in which fund invests;
•Measures
taken by the board to address the issues;
•Past
shareholder activism, board activity, and votes on related
proposals;
•Strategy
of the incumbents versus the dissidents;
•Independence
of directors;
•Experience
and skills of director candidates;
•Governance
profile of the company;
•Evidence
of management entrenchment.
7.4
Investment Advisory Agreements
Vote
CASE-BY-CASE on investment advisory agreements, considering the following
factors:
•Proposed
and current fee schedules;
•Fund
category/investment objective;
•Performance
benchmarks;
•Share
price performance as compared with peers;
•Resulting
fees relative to peers;
•Assignments
(where the advisor undergoes a change of control).
7.5
Approving New Classes or Series of Shares
Generally
vote FOR the establishment of new classes or series of shares.
7.6
Preferred Stock Proposals
Vote
CASE-BY-CASE on the authorization for or increase in preferred shares,
considering the following factors:
•Stated
specific financing purpose;
•Possible
dilution for common shares;
•Whether
the shares can be used for antitakeover purposes.
7.7
1940 Act Policies
Vote
CASE-BY-CASE on policies under the Investment Advisor Act of 1940, considering
the following factors:
•Potential
competitiveness;
•Regulatory
developments;
•Current
and potential returns; and
•Current
and potential risk.
Generally
vote FOR these amendments as long as the proposed changes do not fundamentally
alter the investment focus of the fund and do comply with the current SEC
interpretation.
7.8
Changing a Fundamental Restriction to a Nonfundamental Restriction
Vote
CASE-BY-CASE on proposals to change a fundamental restriction to a non-
fundamental restriction, considering the following factors:
•The
fund's target investments;
•The
reasons given by the fund for the change; and
•The
projected impact of the change on the portfolio.
7.9
Change Fundamental Investment Objective to Nonfundamental
Vote
CASE-BY-CASE on proposals to change a fund’s fundamental investment objective to
non-fundamental.
7.10
Name Change Proposals
Vote
CASE-BY-CASE on name change proposals, considering the following
factors:
•Political/economic
changes in the target market;
•Consolidation
in the target market; and
•Current
asset composition.
7.11
Change in Fund's Subclassification
Vote
CASE-BY-CASE on changes in a fund's sub-classification, considering the
following factors:
•Potential
competitiveness;
•Current
and potential returns;
•Risk
of concentration;
•Consolidation
in target industry.
7.12
Business Development Companies-Authorization to Sell Shares of Common Stock at a
Price below Net Asset Value
Generally
vote FOR proposals authorizing the board to issue shares below Net Asset Value
(NAV) if:
•The
proposal to allow share issuances below NAV has an expiration date no more than
one year from the date shareholders approve the underlying proposal, as required
under the Investment Company Act of 1940;
•The
sale is deemed to be in the best interests of shareholders by (1) a majority of
the company’s independent directors and (2) a majority of the company’s
directors who have no financial interest in the issuance; and
•The
company has demonstrated responsible past use of share issuances by
either:
•Outperforming
peers in its 8-digit GICS group as measured by one- and three-year median TSRs;
or
•Providing
disclosure that its past share issuances were priced at levels that resulted in
only small or moderate discounts to NAV and economic dilution to existing
non-participating shareholders.
7.13
Disposition of Assets/Termination/Liquidation
Vote
CASE-BY-CASE on proposals to dispose of assets, to terminate or liquidate,
considering the following factors:
•Strategies
employed to salvage the company;
•The
fund’s past performance;
•The
terms of the liquidation.
7.14
Changes to the Charter Document
Vote
CASE-BY-CASE on changes to the charter document, considering the following
factors:
•The
degree of change implied by the proposal;
•The
efficiencies that could result;
•The
state of incorporation;
•Regulatory
standards and implications.
Generally
vote AGAINST any of the following changes:
•Removal
of shareholder approval requirement to reorganize or terminate the trust or any
of its series;
•Removal
of shareholder approval requirement for amendments to the new declaration of
trust;
•Removal
of shareholder approval requirement to amend the fund's management contract,
allowing the contract to be modified by the investment manager and the trust
management, as permitted by the 1940 Act;
•Allow
the trustees to impose other fees in addition to sales charges on investment in
a fund, such as deferred sales charges and redemption fees that may be imposed
upon redemption of a fund's shares;
•Removal
of shareholder approval requirement to engage in and terminate subadvisory
arrangements;
•Removal
of shareholder approval requirement to change the domicile of the
fund.
7.15
Changing the Domicile of a Fund
Vote
CASE-BY-CASE on re-incorporations, considering the following
factors:
•Regulations
of both states;
•Required
fundamental policies of both states;
•The
increased flexibility available.
7.16
Authorizing the Board to Hire and Terminate Subadvisers Without Shareholder
Approval
Vote
CASE-BY-CASE on proposals authorizing the board to hire or terminate subadvisors
without shareholder approval after considering appropriate factors in connection
therewith.
7.17
Distribution Agreements
Vote
CASE-BY-CASE on distribution agreement proposals, considering the following
factors:
•Fees
charged to comparably sized funds with similar objectives;
•The
proposed distributor’s reputation and past performance;
•The
competitiveness of the fund in the industry;
•The
terms of the agreement.
7.18
Master-Feeder Structure
Generally
vote FOR the establishment of a master-feeder structure.
7.19
Mergers
Vote
CASE-BY-CASE on merger proposals, considering the following
factors:
•Resulting
fee structure;
•Performance
of both funds;
•Continuity
of management personnel;
•Changes
in corporate governance and their impact on shareholder rights.
Shareholder
Proposals for Mutual Funds
7.20a
Establish Director Ownership Requirement
Generally
vote AGAINST shareholder proposals that mandate a specific minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board.
7.20b
Reimburse Shareholder for Expenses Incurred
Vote
CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation
expenses.
When
supporting the dissidents, generally vote FOR the reimbursement of the proxy
solicitation expenses.
7.20c
Terminate the Investment Advisor
Vote
CASE-BY-CASE on proposals to terminate the investment advisor, considering the
following factors:
•Performance
of the fund’s Net Asset Value (NAV);
•The
fund’s history of shareholder relations;
•The
performance of other funds under the advisor’s management.
European
Portfolio Securities Voting Issues
European
Policy applies to Member States of the European Union (EU) or the European Free
Trade Association (EFTA), with the exception of the United Kingdom and Ireland,
which are subject to separate policies available on request.
Specifically,
the European Policy applies to companies incorporated in the following
territories: Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Cyprus,
Denmark, Estonia, the Faroe Islands, Finland, France, Germany, Greece,
Greenland, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania,
Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Spain,
Slovakia, Slovenia, Sweden, and Switzerland.
This
approach is not “one-size-fits-all” and takes relevant market-specific factors
into account. Therefore this document distinguishes in various places between
different markets and on the basis of other differentiating factors. These
distinctions are based on different market practices and best practice
recommendations throughout Europe.
1.
Operational Items
Financial
Results/Director and Auditor Reports
Generally
vote FOR approval of financial statements and director and auditor reports,
unless:
•There
are concerns about the accounts presented or audit procedures used;
or
•The
company is not responsive to shareholder questions about specific items that
should be publicly disclosed.
Appointment
of Auditors and Auditor Fees
Generally
vote FOR proposals to ratify auditors and/or proposals authorizing the board to
fix auditor fees, unless:
•There
are serious concerns about the procedures used by the auditor;
•There
is reason to believe that the auditor has rendered an opinion which is neither
accurate nor indicative of the company's financial position;
•External
auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company;
•Name
of the proposed auditors has not been published;
•The
auditors are being changed without explanation; or
•For
widely-held companies, fees for non-audit services exceed either 100 percent of
standard audit-related fees or any stricter limit set in local best practice
recommendations or law.
In
circumstances where fees for non-audit services include fees related to
significant one-time capital structure events: initial public offerings,
bankruptcy emergence, and spinoffs; and the company makes public disclosure of
the amount and nature of those fees which are an exception to the standard
"non-audit fee" category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non- audit to audit fees.
For
concerns relating to the audit procedures, independence of auditors, and/or name
of auditors, focus on the auditor election. For concerns relating to fees paid
to the auditors, focus on remuneration of auditors if this is a separate voting
item, otherwise focus on the auditor election.
Appointment
of Internal Statutory Auditors
Generally
vote FOR the appointment or reelection of statutory auditors,
unless:
•There
are serious concerns about the statutory reports presented or the audit
procedures used; or
•Questions
exist concerning any of the statutory auditors being appointed; or
•The
auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company.
Allocation
of Income
Generally
vote FOR approval of the allocation of income, unless:
•The
dividend payout ratio has been consistently below 30 percent without adequate
explanation; or
•The
payout is excessive given the company's financial position.
Amendments
to Articles of Association
Vote
on a CASE-BY-CASE basis on amendments to the articles of
association.
Change
in Company Fiscal Term
Generally
vote FOR resolutions to change a company's fiscal term unless a company's
motivation for the change is to postpone its AGM.
Lower
Disclosure Threshold for Stock Ownership
Generally
vote AGAINST resolutions to lower the stock ownership disclosure threshold below
5 percent unless specific reasons exist to implement a lower
threshold.
Amend
Quorum Requirements
Vote
on a CASE-BY-CASE basis on proposals to amend quorum requirements for
shareholder meetings.
Transact
Other Business
Generally
vote AGAINST other business when it appears as a voting item.
2.
Board of Directors
Non-Contested
Director Elections
Generally
vote FOR management nominees in the election of directors, unless:
•Adequate
disclosure has not been provided in a timely manner;
•There
are clear concerns over questionable finances or restatements;
•There
have been questionable transactions with conflicts of interest;
•There
are any records of abuses against minority shareholder interests;
•The
board fails to meet minimum corporate governance standards;
•There
are specific concerns about the individual, such as criminal wrongdoing or
breach of fiduciary responsibilities; and
•Repeated
absences at board meetings have not been explained (in countries where this
information is disclosed).
Generally
vote AGAINST director nominee due to concerns related to at least one of the
following specific factors, which are presented below as separate
subsections:
I.Director
Terms
II.Bundling
of Proposals to Elect Directors
III.Board
independence
IV.Disclosure
of Names of Nominees
V.Combined
Chairman/CEO
VI.Election
of a Former CEO as Chairman of the Board
VII.Overboarded
Directors
VIII.Voto
di Lista (Italy)
IX.One
Board Seat per Director
X.Composition
of Committees
XI.Composition
Nominating Committee (Sweden and Norway)
XII.Election
of Censors (France)
Director
Terms
For
Belgium,
France, Italy, Netherlands, Spain,
and Switzerland,
generally vote AGAINST the election or re-election of any director when his/her
term is not disclosed or when it exceeds four years and adequate explanation for
non-compliance has not been provided. In these markets, the maximum board terms
are either recommended best practice or required by legislation. Under best
practice recommendations, companies should shorten the terms for directors when
the terms exceed the limits suggested by best practices. The policy will be
applied to all companies in these markets, for bundled as well as unbundled
items.
Bundling
of Proposal to Elect Directors
Bundling
together proposals that could be presented as separate voting items is not
considered good market practice, because bundled resolutions leave shareholders
with an all-or-nothing choice, skewing power disproportionately towards the
board and away from shareholders. As director elections are one of the most
important voting decisions that shareholders make, directors should be elected
individually.
For
the markets of Bulgaria,
Croatia, Czech Republic, Estonia, France, Germany, Hungary, Latvia, Lithuania,
Poland, Romania, Slovakia, Slovenia,
and
Spain
generally vote AGAINST the election or reelection of any directors if individual
director elections are an established market practice and the company proposes a
single slate of directors.
Board
Independence
The
following policies would be applied to all widely held companies², unless there
is a majority shareholder:
•For
all markets (except Greece or Portugal), generally vote AGAINST the election or
reelection of any non-independent directors (excluding the CEO) if:
◦Fewer
than 50 percent of the board members elected by shareholders excluding, where
relevant employee shareholder representatives would be independent,
or
◦Fewer
than one-third of all board members, including those who, in accordance with
local law(s) requiring their mandatory board membership, are not elected by
shareholders, would be independent.
•In
Italy, at least half of the board should be independent (50 percent). Issuers
with a controlling shareholder will be required to have a board consisting of at
least one-third independent members (33 percent). This applies to individual
director appointments (co-options). In the case of complete board renewals that
are regulated by the Italian slate system (“voto di lista”), board independence
will be one of the factors for determining which list of nominees we consider
best suited to add value for shareholders based, as applicable, on European
policies.
•For
companies incorporated in Portugal or Greece, at least one-third of the board
will be required to be independent. Generally vote AGAINST the entire slate of
candidates (in the case of bundled elections), or a vote against the election of
any non-independent directors (in the case of unbundled elections) if board
independence level does not meet the minimum recommended one-third
threshold.
For
companies with a majority shareholder (excluding Italy and
Portugal):
•Generally
vote AGAINST the election or reelection of any non-independent directors
(excluding the CEO) if the level of independence on the board will be lower than
minority shareholders' percentage of equity ownership, or, in any case, if the
board will be less than one-third independent (whichever is
higher).
•Minority
shareholders' ownership percentage is calculated by subtracting the majority
shareholder's equity ownership percentage from 100 percent. Majority control is
defined in terms of economic interest and not voting rights, and is considered
to be any shareholder or group of shareholders acting collectively that control
at least 50 percent + 1 share of the company's equity capital. This independence
threshold is applied to controlled widely held companies or main
index-listed/MSCI-EAFE member companies which would otherwise fall under a
50-percent independence guideline as described in the Board Independence
Policy.
²Widely
held companies are generally interpreted as:
•Generally,
based on their membership in a major index;
•For
Sweden, Norway, Denmark, Finland, and Luxembourg: based on local blue chip
market index and/or MSCI EAFE companies;
•For
Portugal, based on their membership in the PSI-20 and/or MSCI-EAFE
index.
•However,
in markets where the local corporate governance code addresses board
independence at controlled companies, generally vote AGAINST the election or
reelection of any non-independent directors (excluding the CEO) if the level of
independence on the board is lower than the local code recommendation, but in
any case, if the level of board independence will be less than
one-third.
Disclosure
of Names of Nominees
Generally
vote AGAINST the election or reelection of any and all director nominees when
the names of the nominees are not available at the time the proxy analysis is
being written. This policy will be applied to all companies in these markets,
for bundled and unbundled items.
Combined
Chairman/CEO
Generally
vote AGAINST (re)election of combined chair/CEOs at widely held European
companies. However, when the company provides assurance that the chair/CEO would
only serve in the combined role on an interim basis (no more than two years),
with the intent of separating the roles within a given time frame,
considerations should be given to these exceptional circumstances. In this
respect, generally vote on a
CASE-BY-CASE
basis.
This
policy will be applied to all widely held European companies that propose the
(re)election of a combined chair/CEO to the board, including cases where the
chair/CEO is included in an election by slate.
Election
of a Former CEO as Chairman of the Board
Generally
vote AGAINST the election or reelection of a former CEO as chairman to the
supervisory board or board of directors at widely held companies in Germany,
Austria,
and the Netherlands.
In markets such as Germany,
where the general meeting only elects the nominees and, subsequently, the new
board’s chairman, generally vote AGAINST the election or reelection of a former
CEO, unless the company has publicly confirmed prior to the general meeting that
he will not proceed to become chairman of the board.
Considerations
should be given to any of the following exceptional circumstances on a
CASE-BY-CASE basis if:
•There
are compelling reasons that justify the election or reelection of a former CEO
as chairman; or
•The
former CEO is proposed to become the board’s chairman only on an interim or
temporary basis; or
•The
former CEO is proposed to be elected as the board’s chairman for the first time
after a reasonable cooling-off period; or
Overboarded
Directors
In
Austria,
Belgium, France, Germany, Italy, Luxembourg,
the Netherlands,
Spain,
and Switzerland,
at widely held companies, generally vote AGAINST a candidate when s/he holds an
excessive number of board appointments, as referenced by the more stringent of
the provisions prescribed in local law or best practice governance codes, or as
defined by the following guidelines:
•Directors
who hold more than five non-chair non-executive director positions.
•A
non-executive chairman who, in addition to this role, holds (i) more than three
non-chair non-executive director positions, (ii) more than one other non-
executive chair position and one non-chair non-executive director position, or
(iii) any executive position.
•Executive
directors or those in comparable roles holding (i) more than two non- chair
non-executive director positions, (ii) any other executive positions, or (iii)
any non-executive chair position.
An
adverse vote recommendation will not be applied to a director within a company
where he/she serves as CEO; instead, any adverse vote recommendations will be
applied to his/her additional seats on other company boards. The same is also
valid for non-executive chairman, except (i) where they exclusively hold other
non-executive chair and/or executive positions or (ii) where they are elected as
non-executive chairman for the first time.
We
will take into account board positions held in global publicly listed companies
outside the same group, defined as a group of companies in which a common parent
company controls at least 50 percent + 1 share of equity capital, alone or in
concert.
For
directors standing for (re)election at French companies, we will take into
account board appointments as censors in French publicly listed
companies.
Executive
directors or those in comparable roles within investment holding companies will
generally be treated similar to non-executive directors when applying this
policy.
Voto
di Lista (Italy)
In
Italy,
director elections generally take place through the voto di lista mechanism
(similar to slate elections). Since the Italian implementation of the European
Shareholder Rights Directive (effective since Nov. 1, 2010), issuers must
publish the various lists 21 days in advance of the meeting.
Since
shareholders only have the option to support one such list, where lists are
published in sufficient time, generally vote on a CASE-BY-CASE basis,
determining which list of nominees it considers is best suited to add value for
shareholders based, as applicable, on European policies for Director Elections
and for Contested Director Elections.
Those
companies that are excluded from the provisions of the European Shareholder
Rights Directive publish lists of nominees 10 days before the meeting. In the
case where nominees are not published in sufficient time, generally vote AGAINST
the director elections before the lists of director nominees are
disclosed.
One
Board Seat per Director
In
cases where a director holds more than one board seat on a single board and the
corresponding votes, manifested as one seat as a physical person plus an
additional seat(s) as a representative of a
legal
entity, generally vote AGAINST the election/reelection of such legal entities
and in favor of the physical person.
However,
an exception is made if the representative of the legal entity holds the
position of CEO. In such circumstances, generally vote FOR the legal entity and
AGAINST the election/reelection of the physical person.
Composition
of Committees
In
Belgium,
Denmark, Finland, France, Luxembourg,
the Netherlands,
Norway, Spain, Sweden,
and Switzerland,
generally vote AGAINST the (re)election of executives who serve on the company’s
audit or remuneration committee.
For
Belgium,
the Netherlands,
and Switzerland,
generally vote AGAINST the (re)election of non-independent members of the audit
committee and/or the remuneration committee if their (re)election would lead to
a non-independent majority on the respective committee.
Composition
Nomination Committee (Sweden, Norway, and Finland)
Generally
vote FOR proposals in Sweden,
Norway, and
Finland
to
elect or appoint a nominating committee consisting mainly of non-board
members.
Generally
vote FOR shareholder proposals calling for disclosure of the names of the
proposed candidates at the meeting, as well as the inclusion of a representative
of minority shareholders in the committee.
The
above policy notwithstanding, generally vote AGAINST proposals in Sweden
to elect or appoint such a committee if the company is on the MSCI-EAFE or local
main index and the following conditions exist:
1.A
member of the executive management would be a member of the
committee;
2.More
than one board member who is dependent on a major shareholder would be on the
committee; or
3.The
chair of the board would also be the chair of the committee.
In
cases where the principles for the establishment of the nominating committee,
rather than the election of the committee itself, are being voted on, generally
vote AGAINST the adoption of the principles if any of the above conditions are
met for the current committee, and there is no publicly available information
indicating that this would no longer be the case for the new nominating
committee.
Election
of Censors (France)
For
widely held companies, generally vote AGAINST proposals seeking shareholder
approval to elect a censor, to amend bylaws to authorize the appointment of
censors, or to extend the maximum number of censors to the board. However, vote
on a CASE- BY-CASE basis when the company provides assurance that the censor
would serve on a short-term basis (maximum one year) with the intent to retain
the nominee before his/her election as director. In this case, consideration
shall also be given to the nominee's situation (notably overboarding or other
factors of concern).
In
consideration of the principle that censors should be appointed on a short-term
basis, generally vote AGAINST any proposal to renew the term of a censor or to
extend the statutory term of censors.
Contested
Director Elections
For
contested elections of directors, e.g. the election of shareholder nominees or
the dismissal of incumbent directors, generally vote on a CASE-By-CASE basis,
determining which directors are considered best suited to add value for
shareholders. The analysis will generally be based on, but not limited to, the
following major decision factors:
•Company
performance relative to its peers;
•Strategy
of the incumbents versus the dissidents;
•Independence
of directors/nominees;
•Experience
and skills of board candidates;
•Governance
profile of the company;
•Evidence
of management entrenchment;
•Responsiveness
to shareholders;
•Whether
a takeover offer has been rebuffed;
•Whether
minority or majority representation is being sought.
Voting
on Directors for Egregious Actions
Under
extraordinary circumstances, generally vote AGAINST or WITHHOLD from directors
individually, on a committee, or the entire board, due to:
•Material
failures of governance, stewardship, risk oversight, or fiduciary
responsibilities at the company;
•Failure
to replace management as appropriate; or
•Egregious
actions related to the director(s)’service on other boards that raise
substantial doubt about his or her ability to effectively oversee management and
serve the best interests of shareholders at any company.
Committee
of Representatives and Corporate Assembly Elections (Denmark and
Norway)
For
Norwegian and Danish companies where shareholders vote on elections for members
of the corporate assembly or committee of representatives, but not directly on
the board of directors, generally vote CASE-BY-CASE on corporate assembly and
committee of representative elections based on the board of directors’
compliance with director election policy.
Discharge
of Directors
Generally
vote FOR the discharge of directors, including members of the management board
and/or supervisory board, unless there is reliable information about significant
and compelling concerns that the board is not fulfilling its fiduciary duties,
warranted on a CASE-BY-CASE basis, by:
•A
lack of oversight or actions by board members which invoke shareholder distrust
related to malfeasance or poor supervision, such as operating in private or
company interest rather than in shareholder interest;
•Any
legal issues (e.g. civil/criminal) aiming to hold the board responsible for
breach of trust in the past or related to currently alleged action yet to be
confirmed (and not only in the fiscal year in question) such as price fixing,
insider trading, bribery, fraud, and other illegal actions;
•Other
egregious governance issues where shareholders will bring legal action against
the company or its directors.
Director,
Officer, and Auditor Indemnification and Liability Provisions
Vote
on a CASE-BY-CASE basis proposals seeking indemnification and liability
protection for directors and officers.
Generally
vote AGAINST proposals to indemnify external auditors.
Board
Structure
Generally
vote FOR routine proposals to fix board size.
Generally
vote AGAINST the introduction of classified boards and/or mandatory
retirement
ages for directors.
Generally
vote AGAINST proposals to alter board structure or size in the context of a
fight for control of the company or the board.
Capital
Structure Capital Systems
European
capital systems can be broadly defined as either authorized or conditional. Both
systems provide companies with the means to finance business activities, but
they are considerably different in structure. Which system is used by a company
is determined by the economic and legal structure of the market in which it
operates.
However,
many capital systems display slight variations on the two systems, and some
systems bear features from both systems, if only on a cosmetic
level.
Under
the conditional capital system, companies seek authorizations for pools of
capital, which typically have fixed periods of availability. For example, if a
company seeks to establish a pool of capital for general issuance purposes, it
requests the creation of a certain number of shares with or without preemptive
rights, issuable piecemeal at the discretion of the board, generally for a fixed
period of time. This type of authority would be used to carry out a general
rights issue or small issuances without preemptive rights.
The
authorized capital system sets a limit in a company’s articles on the total
number of shares that can be issued by the company’s board. The system allows
companies to issue shares from this preapproved limit, although in many markets
shareholder approval must be obtained prior to an issuance. Companies also
request shareholder approval for increases in authorization when the amount of
shares contained in the articles is inadequate for issuance
authorities.
Share
Issuance Requests
General
Issuances
Generally
vote FOR issuance authorities with pre-emptive rights to a maximum of 100
percent over currently issued capital and as long as the share issuance
authorities’ periods are clearly disclosed (or implied by the application of a
legal maximum duration) and in line with market-specific practices and/or
recommended guidelines (e.g. issuance periods limited to 18 months for the
Netherlands).
Generally
vote FOR issuance authorities without pre-emptive rights to a maximum of 20
percent (or a lower limit if local market best practice recommendations provide)
of currently issued capital as long as the share issuance authorities’ periods
are clearly disclosed (or implied by the application of a legal maximum
duration) and in line with market-specific practices and/or recommended
guidelines (e.g. issuance periods limited to 18 months for the
Netherlands).
For
French companies:
•Generally
vote FOR general issuance requests with preemptive rights, or without preemptive
rights but with a binding “priority right,” for a maximum of 50 percent over
currently issued capital.
•Generally
vote FOR general authorities to issue shares without preemptive rights up to a
maximum of 10 percent of share capital.
Specific
Issuances
Vote
on a CASE-BY-CASE basis on all requests, with or without preemptive
rights.
Increases
in Authorized Capital
Generally
vote FOR non-specific proposals to increase authorized capital up to 100 percent
over the current authorization unless the increase would leave the company with
less than 30 percent of its new authorization outstanding.
Generally
vote FOR specific proposals to increase authorized capital to any amount,
unless:
•The
specific purpose of the increase (such as a share-based acquisition or merger)
does not meet the guidelines for the purpose being proposed; or
•The
increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed
issuances.
Generally
vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction
of Capital
Generally
vote FOR proposals to reduce capital for routine accounting purposes unless the
terms are unfavorable to shareholders.
Vote
on a CASE-BY-CASE basis proposals to reduce capital in connection with corporate
restructuring.
Capital
Structures
Generally
vote FOR resolutions that seek to maintain, or convert to, a one-share, one-
vote capital structure.
Generally
vote AGAINST requests for the creation or continuation of dual-class capital
structures or the creation of new or additional super voting
shares.
Florange
Act- Double Voting Rights (France)
For
French companies that:
•Did
not have a bylaw allowing for double voting rights before the enactment of the
Law of 29 March 2014 (Florange Act); and
•Do
not currently have a bylaw prohibiting double-voting rights; and
either
◦Do
not have on their ballot for shareholder approval a bylaw amendment to prohibit
double-voting, submitted by either management or shareholders; or
◦Have
not made a public commitment to submit such a bylaw amendment to shareholder
vote before April 3, 2016;
Then,
on a CASE-BY-CASE basis, we may recommend against the following types of
proposals:
•The
reelection of directors or supervisory board members; or
•The
approval of the discharge of directors; or
•If
neither reelection of directors/supervisory board members nor approval of
discharge is considered appropriate, then the approval of the annual report and
accounts.
Preferred
Stock
Generally
vote FOR the creation of a new class of preferred stock or for issuances of
preferred stock up to 50 percent of issued capital unless the terms of the
preferred stock would adversely affect the rights of existing
shareholders.
Generally
vote FOR the creation/issuance of convertible preferred stock as long as the
maximum number of common shares that could be issued upon conversion meets
guidelines on equity issuance requests.
Generally
vote AGAINST the creation of a new class of preference shares that would carry
superior voting rights to the common shares.
Generally
vote AGAINST the creation of blank check preferred stock unless the board
clearly states that the authorization will not be used to thwart a takeover
bid.
Vote
on a CASE-BY-CASE basis for proposals to increase blank check preferred
authorizations.
Debt
Issuance Requests
Vote
on a CASE-BY-CASE basis non-convertible debt issuance requests, with or without
pre-emptive rights.
Generally
vote FOR the creation/issuance of convertible debt instruments as long as the
maximum number of common shares that could be issued upon conversion meets
guidelines on equity issuance requests.
Generally
vote FOR proposals to restructure existing debt arrangements unless the terms of
the restructuring would adversely affect the rights of
shareholders.
Pledging
of Assets for Debt
Vote
on a CASE-BY-CASE basis proposals to approve the pledging of assets for
debt.
Increase
in Borrowing Powers
Vote
on a CASE-BY-CASE basis proposals to approve increases in a company's borrowing
powers.
Share
Repurchase Plans
Generally
vote FOR market repurchase authorities (share repurchase programs) if the terms
comply with the following criteria:
•A
repurchase limit of up to 10 percent of outstanding issued share
capital;
•A
holding limit of up to 10 percent of a company’s issued share capital in
treasury (“on the shelf”); and
•Duration
of no more than 5 years, or such lower threshold as may be set by applicable
law, regulation, or code of governance best practice.
Authorities
to repurchase shares in excess of the 10 percent repurchase limit will be
assessed on a CASE-BY-CASE basis. Such share repurchase authorities under
special circumstances, which are required to be publicly disclosed by the
company, provided that, on balance, the proposal is in shareholders’ interests.
In such cases, the authority must comply with the following
criteria:
•A
holding limit of up to 10 percent of a company’s issued share capital in
treasury (“on the shelf”);, and
•Duration
of no more than 18 months.
In
markets where it is normal practice not to provide a repurchase limit, the
proposal will be evaluated based on the company’s historical
practice.
In
addition, generally vote AGAINST any proposal where:
•The
repurchase can be used for takeover defenses;
•There
is clear evidence of abuse;
•There
is no safeguard against selective buybacks;
•Pricing
provisions and safeguards are deemed to be unreasonable in light of market
practice.
Market-Specific
Exceptions
For
Italy
and Germany,
generally vote FOR share-repurchase plans and share reissuance plans that would
use call and put options if the following criteria are met:
•The
duration of the authorization is limited in time to no more than 18
months;
•The
total number of shares covered by the authorization is disclosed;
•The
number of shares that would be purchased with call options and/or sold with put
options is limited to a maximum of 5 percent of currently outstanding capital
(or half of the total amounts allowed by law in Italy and Germany);
•A
financial institution, with experience conducting sophisticated transactions, is
indicated as the party responsible for the trading; and
•The
company has a clean track record regarding repurchases.
Reissuance
of Repurchased Shares
Generally
vote FOR requests to reissue any repurchased shares unless there is clear
evidence of abuse of this authority in the past.
Capitalization
of Reserves for Bonus Issues/Increase in Par Value
Generally
vote FOR requests to capitalize reserves for bonus issues of shares or to
increase par value.
4.
Compensation
Compensation
Guidelines
Executive
compensation-related proposals
Generally
Vote on a CASE-BY-CASE basis management proposals seeking ratification of a
company's executive compensation-related items, and where relevant, take into
account remuneration practices. Generally recommend a vote AGAINST a company's
compensation-related proposal if such proposal fails to comply with one or a
combination of several of the global principles and their corresponding
rules:
1.
Provide shareholders with clear and comprehensive compensation
disclosures:
1.1
Information on compensation-related proposals shall be made available
to
shareholders
in a timely manner;
1.2
The level of disclosure of the proposed compensation policy shall be sufficient
for
shareholders
to make an informed decision and shall be in line with what local market
best
practice standards dictate;
1.3
Companies shall adequately disclose all elements of the compensation,
including:
1.3.1
Any short- or long-term compensation component must include a
maximum
award
limit.
1.3.2
Long-term incentive plans must provide sufficient disclosure of (i) the
exercise
price/strike price (options); (ii) discount on grant; (iii) grant date/period;
(iv)
exercise/vesting period; and, if applicable, (v) performance
criteria.
1.3.3
Discretionary payments, if applicable.
2.
Maintain appropriate pay structure alignment with emphasis on long-term
shareholder
value:
2.1 The structure of the company's short-term incentive plan shall be
appropriate.
2.1.1
The compensation policy must notably avoid guaranteed or
discretionary
compensation.
2.2 The structure of the company's long-term incentives shall be appropriate,
including, but
not limited to, dilution, vesting period, and, if applicable, performance
conditions.
2.2.1
Equity-based plans or awards that are linked to long-term company
performance will be evaluated using the general policy for equity- based plans;
and
2.2.2
For awards granted to executives, generally require a clear link
between
shareholder value and awards, and stringent performance- based
elements.
2.3 The balance between short- and long-term variable compensation shall be
appropriate
2.3.1
The company's executive compensation policy must notably avoid
disproportionate focus on short-term variable element(s)
3.
Avoid arrangements that risk “pay for failure”:
3.1 The board shall demonstrate good stewardship of investor's interests
regarding
executive compensation practices.
3.1.1
There shall be a clear link between the company's performance and variable
awards.
3.1.2
There shall not be significant discrepancies between the company's
performance and real executive payouts.
3.1.3
The level of pay for the CEO and members of executive management should
not be excessive relative to peers, company performance, and market
practices.
3.1.4
Significant pay increases shall be explained by a detailed and compelling
disclosure.
3.2. Severance pay agreements must not be in excess of (i) 24 months' pay or
of
(ii) any more restrictive provision pursuant to local legal requirements and/or
market
best practices.
3.3 Arrangements with a company executive regarding pensions and post- mandate
exercise of equity-based awards must not result in an adverse impact on
shareholders'
interests or be misaligned with good market practices.
4.
Maintain an independent and effective compensation committee:
4.1 No executives may serve on the compensation committee.
4..2 In certain markets the compensation committee shall be composed of a
majority of
independent members, as per policies on director election and board or committee
composition.
In
addition to the above, generally vote AGAINST a compensation-related proposal if
such proposal is in breach of any other supplemental market-specific voting
policies.
Non-Executive
Director Compensation
Generally
vote FOR proposals to award cash fees to non-executive directors, and will
otherwise:
Generally
a vote AGAINST where:
•Documents
(including general meeting documents, annual report) provided prior to the
general meeting do not mention fees paid to non-executive
directors.
•Proposed
amounts are excessive relative to other companies in the country or
industry.
•The
company intends to increase the fees excessively in comparison with
market/sector practices, without stating compelling reasons that justify the
increase.
•Proposals
provide for the granting of stock options, performance-based equity compensation
(including stock appreciation rights and performance-vesting restricted stock)
and performance-based cash, to non-executive directors.
•Proposals
introduce retirement benefits for non-executive directors.
Vote
on a CASE-BY-CASE basis where:
•Proposals
include both cash and share-based components to non-executive
directors.
•Proposals
bundle compensation for both non-executive and executive directors into a single
resolution.
Equity-based
Compensation Guidelines
Generally
vote FOR equity based compensation proposals for employees if the plan(s) are in
line with long-term shareholder interests and align the award with shareholder
value. This assessment includes, but is not limited to, the following
factors:
The
volume of awards transferred to participants must not be excessive: the
potential volume of fully diluted issued share capital from equity-based
compensation plans must not exceed the following guidelines:
•The
shares reserved for all share plans may not exceed 5 percent of a company's
issued share capital, except in the case of high-growth companies or
particularly well-designed plans, in which case we allow dilution of between 5
and 10 percent: in this case, we will need to have performance conditions
attached to the plans which should be acceptable under the criteria (challenging
criteria);
•The
plan(s) must be sufficiently long-term in nature/structure: the minimum vesting
period must be no less than three years from date of grant;
•The
awards must be granted at market price. Discounts, if any, must be mitigated by
performance criteria or other features that justify such discount.
•If
applicable, performance standards must be fully disclosed, quantified, and
long-term, with relative performance measures preferred.
Compensation-Related
Voting Sanctions
Should
a company be deemed to have egregious remuneration practices (as a result of one
or a combination of several factors highlighted above) and has not followed
market practice by submitting a resolution on executive compensation, generally
vote AGAINST other "appropriate" resolutions as a mark of discontent against
such practices.
An
adverse vote recommendation could be applied to any of the following on a
case-by case basis:
1.The
(re)election of members of the remuneration committee;
2.The
discharge of directors; or
3.The
annual report and accounts.
Failure
to propose a resolution on executive compensation to shareholders in a market
where this is routine practice may, by itself, lead to one of the above adverse
vote recommendations regardless of the companies remuneration
practices.
Stock
Option Plans - Adjustment for Dividend (Nordic Region)
Generally
vote AGAINST stock option plans in Denmark,
Finland, Norway,
and Sweden
if evidence is found that they contain provisions that may result in a
disconnect between shareholder value and employee/executive reward.
This
includes one or a combination of the following:
•Adjusting
the strike price for future ordinary dividends AND including expected dividend
yield above 0 percent when determining the number of options awarded under the
plan;
•Having
significantly higher expected dividends than actual historical
dividends;
•Favorably
adjusting the terms of existing options plans without valid reason;
and/or
•Any
other provisions or performance measures that result in undue
award.
This
policy applies to both new plans and amendments to introduce the provisions into
already existing stock option plans. Although, an exception may be made if a
company proposes to reduce the strike price by the amount of future special
(extraordinary) dividends only.
Generally
vote AGAINST if the potential increase of share capital amounts to more than 5
percent for mature companies or 10 percent for growth companies or if options
may be exercised below the market price of the share at the date of grant, or
that employee options do not lapse if employment is terminated.
Share
Matching Plans (Sweden and Norway)
Consider
the following factors when evaluating share matching plans:
•For
every share matching plan, require a holding period.
•For
plans without performance criteria, the shares must be purchased at market
price.
•For
broad-based share matching plans directed at all employees, accept an
arrangement up to a 1:1 ratio, i.e. no more than one free share is awarded for
every share purchased at market value.
•In
addition, for plans directed at executives, we require that sufficiently
challenging performance criteria be attached to the plan. Higher discounts
demand proportionally higher performance criteria.
The
dilution of the plan when combined with the dilution from any other proposed or
outstanding employee stock purchase/stock matching plans, must also be
appropriate.
5.
Environmental and Social Issues
Voting
on Social and Environmental Proposals
Vote
on a CASE-BY-CASE basis, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in addition the
following will be considered:
•If
the issues presented in the proposal are more appropriately or effectively dealt
with through legislation or government regulation;
•If
the company has already responded in an appropriate and sufficient manner to the
issue(s) raised in the proposal;
•Whether
the proposal's request is unduly burdensome (scope, timeframe, or cost) or
overly prescriptive;
•The
company's approach compared with any industry standard practices for addressing
the issue(s) raised by the proposal;
•If
the proposal requests increased disclosure or greater transparency, whether or
not reasonable and sufficient information is currently available to shareholders
from the company or from other publicly available sources; and
•If
the proposal requests increased disclosure or greater transparency, whether or
not implementation would reveal proprietary or confidential information that
could place the company at a competitive disadvantage.
6.
Other Items
Reorganizations/Restructurings
Vote
on a CASE-BY-CASE basis for reorganizations and restructurings.
Mergers
and Acquisitions
Vote
CASE-BY-CASE on mergers and acquisitions taking into account the
following:
For
every M&A analysis, review publicly available information as of the date of
the report and evaluates the merits and drawbacks of the proposed transaction,
balancing various and sometimes countervailing factors including:
•Valuation
- Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial starting
point for assessing valuation reasonableness, place emphasis on the offer
premium, market reaction, and strategic rationale.
•Market
reaction - How has the market responded to the proposed deal? A negative market
reaction will cause a deal to be scrutinized more closely.
•Strategic
rationale - Does the deal make sense strategically? From where is the value
derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favorable
track record of successful integration of historical acquisitions.
•Conflicts
of interest - Are insiders benefiting from the transaction disproportionately
and inappropriately as compared to non-insider shareholders? Consider whether
any special interests may have influenced these directors and officers to
support or recommend the merger.
•Governance
- Will the combined company have a better or worse governance profile than the
current governance profiles of the respective parties to the transaction? If the
governance profile is to change for the worse, the burden is on the company to
prove that other issues (such as valuation) outweigh any deterioration in
governance.
Generally
vote AGAINST if the companies do not provide sufficient information upon request
to allow shareholders to make an informed voting decision.
Mandatory
Takeover Bid Waivers
Vote
on a CASE-BY-CASE basis proposals to waive mandatory takeover bid
requirement.
Reincorporation
Proposals
Vote
on a CASE-BY-CASE basis reincorporation proposals.
Expansion
of Business Activities
Generally
vote FOR resolutions to expand business activities unless the new business takes
the company into risky areas.
Related-Party
Transactions
In
evaluating resolutions that seek shareholder approval on related-party
transactions (RPTs), vote on a CASE-BY-CASE basis, considering factors
including, but not limited to, the following:
•The
parties on either side of the transaction;
•The
nature of the asset to be transferred/service to be provided;
•The
pricing of the transaction (and any associated professional
valuation);
•The
views of independent directors (where provided);
•The
views of an independent financial adviser (where appointed);
•Whether
any entities party to the transaction (including advisers) is conflicted;
and
•The
stated rationale for the transaction, including discussions of
timing.
If
there is a transaction that is deemed problematic and that was not put to a
shareholder vote, generally vote AGAINST the election of the director involved
in the related-party transaction or the full board.
Antitakeover
Mechanisms
Generally
vote AGAINST all antitakeover proposals, unless they are structured in such a
way that they give shareholders the ultimate decision on any proposal or
offer.
For
the Netherlands,
vote recommendations regarding management proposals to approve protective
preference shares will be determined on a CASE-BY-CASE basis. In general,
recommend voting FOR protective preference shares (PPS) only if:
•The
supervisory board needs to approve an issuance of shares and the supervisory
board is independent;
•No
call / put option agreement exists between the company and a foundation for the
issuance of PPS;
•The
issuance authority is for a maximum of 18 months;
•The
board of the company-friendly foundation is fully independent;
•There
are no priority shares or other egregious protective or entrenchment
tools;
•The
company states specifically that the issue of PPS is not meant to block a
takeover, but will only be used to investigate alternative bids or to negotiate
a better deal;
•The
foundation buying the PPS does not have as a statutory goal to block a takeover;
and
•The
PPS will be outstanding for a period of maximum 6 months (an EGM must be called
to determine the continued use of such shares after this period).
For
French
CAC40
index companies, and until Jan. 31, 2016, generally vote AGAINST any general
share issuance authorities (with or without preemptive rights) if they can be
used for antitakeover purposes without shareholders' approval.
Shareholder
Proposals
Vote
on a CASE-BY-CASE basis all shareholder proposals.
Generally
vote FOR proposals that would improve the company's corporate governance or
business profile at a reasonable cost.
Generally
vote AGAINST proposals that limit the company's business activities or
capabilities or result in significant costs being incurred with little or no
benefit.
Policies
dealing with environmental
and social themes
are covered by their own dedicated policy, presented separately in this
document.
Authority
to Reduce Minimum Notice Period for Calling a Meeting
A
recommendation to approve the “enabling” authority proposal would be based on
the expectation companies would call EGMs/GMs using a notice period of less than
21 days only in limited circumstances where a shorter notice period will be to
the advantage of shareholders as a whole, for example, to keep a period of
uncertainty about the future of the company to a minimum. This is particularly
true of capital raising proposals or other price sensitive transactions. By
definition, AGMs, being regular meetings of the company, should not merit a
notice period of less than 21 days.
In
a market where local legislation permits an EGM/GM to be called at no less than
14- days' notice, generally vote FOR a resolution to approve the enabling
authority if the company discloses that the shorter notice period of between 20
and 14 days would not be used as a matter of routine for such meetings, but only
when the flexibility is merited by the business of the meeting. Where the
proposal(s) at a given EGM/GM is (are) not
time-sensitive,
such as the approval of incentive plans, do not expect a company to invoke the
shorter notice notwithstanding any prior approval of the enabling authority
proposal by shareholders.
In
evaluating an enabling authority proposal, first require that the company make a
clear disclosure of its compliance with any hurdle conditions for the authority
imposed by applicable law, such as the provision of an electronic voting
facility for shareholders. In addition, with the exception of the first AGM at
which approval of the enabling authority is sought following implementation of
the European Shareholder Rights Directive, when evaluating an enabling authority
proposal take into consideration the company's use (if any) of shorter notice
periods in the preceding year to ensure that such shorter notice periods were
invoked solely in connection with genuinely time- sensitive matters. Where the
company has not limited its use of the shorter notice periods to such time
sensitive-matters and fails to provide a clear explanation for this, generally
vote AGAINST the enabling authority for the coming year.
Auditor
Report Including Related Party Transactions (France)
Review
all auditor reports on related-party transactions and screen for and evaluate
agreements with respect to the following issues:
•Director
Remuneration (including Severance Packages and Pension Benefits)
•Consulting
Services
•Liability
Coverage
•Certain
Business Transactions
In
general, expect companies to provide the following regarding related-party
transactions:
•Adequate
disclosure of terms under listed transactions (including individual details of
any severance, consulting, or other remuneration agreements with directors and
for any asset sales and/or acquisitions);
•Sufficient
justification on transactions that appear to be unrelated to operations and/or
not in shareholders’ best interests;
•Fairness
opinion (if applicable in special business transactions); and
•Any
other relevant information that may affect or impair shareholder value, rights,
and/or judgment.
In
the event that the company fails to provide an annual report in a timely manner,
generally at least 21 days prior to the meeting, vote AGAINST these
proposals.
EMEA
Regional Portfolio Security Voting/Issues
Coverage
Universe
These
guidelines cover all markets in Europe, the Middle East, and Africa (EMEA) that
are not covered under a separate market-specific or region-specific policy.
Therefore, markets covered by this document exclude UK, Ireland, Israel, Russia,
Kazakhstan, and South Africa, and all markets that are covered under the
European Policy (which are subject to separate policies available upon
request).
1.
Operational items
Financial
Results/Director and Auditor Reports
Generally
vote FOR approval of financial statements and director and auditor reports,
unless:
•There
are concerns about the accounts presented or audit procedures used;
or
•The
company is not responsive to shareholder questions about specific items that
should be publicly disclosed.
Appointment
of Auditors and Auditor Fees
Generally
vote FOR the (re)election of auditors and/or proposals authorizing the board to
fix auditor fees, unless:
•There
are serious concerns about the procedures used by the auditor;
•There
is reason to believe that the auditor has rendered an opinion which is neither
accurate nor indicative of the company's financial position;
•External
auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company;
•The
name(s) of the proposed auditors has not been published;
•The
auditors are being changed without explanation; or
•For
widely-held companies, fees for non-audit services exceed either 100% of
standard annual audit-related fees or any stricter limit set in local best
practice recommendations or law.
In
circumstances where fees for non-audit services include fees related to
significant one-time capital structure events (initial public offerings,
bankruptcy emergencies, and spinoffs) and the company makes public disclosure of
the amount and nature of those fees, which are an exception to the standard
"non-audit fee" category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non- audit to audit fees.
For
concerns related to the audit procedures, independence of auditors, and/or name
of auditors, generally vote AGAINST the auditor (re)election. For concerns
related to fees paid to the auditors, generally vote AGAINST remuneration of
auditors if this is a separate voting item; otherwise, generally vote AGAINST
the auditor election.
Appointment
of Internal Statutory Auditors
Generally
vote FOR the appointment or (re)election of statutory auditors,
unless:
•There
are serious concerns about the statutory reports presented or the audit
procedures used;
•Questions
exist concerning any of the statutory auditors being appointed; or
•The
auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company.
Allocation
of Income
Generally
vote FOR approval of the allocation of income, unless:
•The
dividend payout ratio has been consistently below 30 percent without adequate
explanation; or
•The
payout is excessive given the company's financial position.
Stock
(Scrip) Dividend Alternative
Generally
vote FOR most stock (scrip) dividend proposals.
Generally
vote AGAINST proposals that do not allow for a cash option unless management
demonstrates that the cash option is harmful to shareholder value.
Amendments
to Articles of Association
Vote
on a CASE-BY-CASE basis for amendments to the articles of
association.
Change
in Company Fiscal Term
Generally
vote FOR resolutions to change a company's fiscal term unless a company's
motivation for the change is to postpone its AGM.
Lower
Disclosure Threshold for Stock Ownership
Generally
vote AGAINST resolutions to lower the stock ownership disclosure threshold below
5 percent unless specific reasons exist to implement a lower
threshold.
Amend
Quorum Requirements
Vote
on a CASE-BY-CASE basis for proposals to amend quorum requirements for
shareholder meetings.
Transact
Other Business
Generally
vote AGAINST other business when it appears as a voting item.
2.
Board of Directors Director Elections
Generally
vote FOR management nominees in the election of directors, unless:
•Adequate
disclosure has not been provided in a timely manner;
•There
are clear concerns over questionable finances or restatements;
•There
have been questionable transactions with conflicts of interest;
•There
are any records of abuses against minority shareholder interests;
•The
board fails to meet minimum corporate governance standards;
•There
are specific concerns about the individual, such as criminal wrongdoing or
breach of fiduciary responsibilities; or
•Repeated
absences at board meetings have not been explained (in countries where this
information is disclosed).
Generally
vote FOR employee and/or labor representatives if they sit on either the audit
or compensation committee and are required by law to be on those committees.
Generally vote AGAINST employee and/or labor representatives if they sit on
either the audit or compensation committee, if they are not required to be on
those committees.
Generally
vote AGAINST the election of directors at all companies if the name of the
nominee is not disclosed in a timely manner prior to the meeting.
Under
extraordinary circumstances, generally vote AGAINST individual directors,
members of a committee, or the entire board, due to:
•Material
failures of governance, stewardship, risk oversight, or fiduciary
responsibilities at the company;
•Failure
to replace management as appropriate; or
•Egregious
actions related to a director's service on other boards that raise substantial
doubt about his or her ability to effectively oversee management and serve the
best interests of shareholders at any company.
Contested
Director Elections
For
contested elections of directors, e.g. the election of shareholder nominees or
the dismissal of incumbent directors, vote on a CASE-BY-CASE basis, determining
which directors are best suited to add value for shareholders.
The
analysis will generally be based on, but not limited to, the following major
decision factors:
•Company
performance relative to its peers;
•Strategy
of the incumbents versus the dissidents;
•Independence
of directors/nominees;
•Experience
and skills of board candidates;
•Governance
profile of the company;
•Evidence
of management entrenchment;
•Responsiveness
to shareholders;
•Whether
a takeover offer has been rebuffed;
•Whether
minority or majority representation is being sought.
Discharge
of Directors
Generally
vote FOR the discharge of directors, including members of the management board
and/or supervisory board, unless there is reliable information about significant
and compelling controversies as to whether the board is fulfilling its fiduciary
duties, as evidenced by:
•A
lack of oversight or actions by board members that invoke shareholder distrust
related to malfeasance or poor supervision, such as operating in private or
company interest rather than in shareholder interest; or
•Any
legal proceedings (either civil or criminal) aiming to hold the board
responsible for breach of trust in the past or related to currently alleged
actions yet to be confirmed (and not only the fiscal year in question), such as
price fixing, insider trading, bribery, fraud, and other illegal actions;
or
•Other
egregious governance issues where shareholders will bring legal action against
the company or its directors.
Director,
Officer, and Auditor Indemnification and Liability Provisions
Vote
on a CASE-BY-CASE basis for proposals seeking indemnification and liability
protection for directors and officers.
Generally
vote AGAINST proposals to indemnify external auditors.
Board
Structure
Generally
vote FOR proposals to fix board size.
Generally
vote AGAINST the introduction of classified boards and mandatory retirement ages
for directors.
Generally
vote AGAINST proposals to alter board structure or size in the context of a
fight for control of the company or the board.
3.
Capital Structure
Share
Issuance Requests
General
Issuances
Generally
vote FOR issuance requests with preemptive rights to a maximum of 100 percent
over currently issued capital.
Generally
vote FOR issuance requests without preemptive rights to a maximum of 20 percent
of currently issued capital.
Specific
Issuances
Vote
on a CASE-BY-CASE basis on all requests, with or without preemptive
rights.
Increases
in Authorized Capital
Generally
vote FOR non-specific proposals to increase authorized capital up to 100 percent
over the current authorization unless the increase would leave the company with
less than 30 percent of its new authorization outstanding.
Generally
vote FOR specific proposals to increase authorized capital to any amount,
unless:
•The
specific purpose of the increase (such as a share-based acquisition or merger)
does not meet guidelines for the purpose being proposed; or
•The
increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed
issuances.
Generally
vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction
of Capital
Generally
vote FOR proposals to reduce capital for routine accounting purposes unless the
terms are unfavorable to shareholders.
Vote
on a CASE-BY-CASE basis for proposals to reduce capital in connection with
corporate restructuring.
Capital
Structures
Generally
vote FOR resolutions that seek to maintain or convert to a one-share, one- vote
capital structure.
Generally
vote AGAINST requests for the creation or continuation of dual-class capital
structures or the creation of new or additional super-voting
shares.
Preferred
Stock
Generally
vote FOR the creation of a new class of preferred stock or for issuances of
preferred stock up to 50 percent of issued capital unless the terms of the
preferred stock would adversely affect the rights of existing
shareholders.
Generally
vote FOR the creation/issuance of convertible preferred stock as long as the
maximum number of common shares that could be issued upon conversion meet the
guidelines on equity issuance requests.
Generally
vote AGAINST the creation of a new class of preference shares that would carry
superior voting rights to the common shares.
Generally
vote AGAINST the creation of blank check preferred stock unless the board
clearly states that the authorization will not be used to thwart a takeover
bid.
Vote
on a CASE-BY-CASE basis for proposals to increase blank check preferred
authorizations.
Debt
Issuance Requests
Vote
on a CASE-BY-CASE basis for non-convertible debt issuance requests, with or
without preemptive rights.
Generally
vote FOR the creation/issuance of convertible debt instruments as long as the
maximum number of common shares that could be issued upon conversion meets
guidelines on equity issuance requests.
Generally
vote FOR proposals to restructure existing debt arrangements unless the terms of
the restructuring would adversely affect the rights of
shareholders.
Pledging
of Assets for Debt
Vote
on a CASE-BY-CASE basis for proposals to approve the pledging of assets for
debt.
Increase
in Borrowing Powers
Vote
on a CASE-BY-CASE basis for proposals to approve increases in a company's
borrowing powers.
Share
Repurchase Plans
Generally
vote FOR market repurchase authorities (share repurchase programs) if the terms
comply with the following criteria:
•A
repurchase limit of up to 10 percent of outstanding issued share
capital;
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than five years, or such lower threshold as may be set by
applicable law, regulation, or code of governance best practice.
Authorities
to repurchase shares in excess of the 10 percent repurchase limit will be
assessed on a CASE-BY-CASE basis. Such share repurchase authorities may be
supported under special circumstances, which are required to be publicly
disclosed by the company, provided that, on balance, the proposal is in
shareholders' interests. In such cases, the authority must comply with the
following criteria:
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than 18 months.
In
markets where it is normal practice not to provide a repurchase limit, evaluate
the proposal based on the company's historical practice. However, companies
should disclose such limits and, in the future, generally a vote AGAINST may be
warranted at companies that fail to do so. In such cases, the authority must
comply with the following criteria:
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than 18 months.
In
addition, generally vote AGAINST any proposal where:
•The
repurchase can be used for takeover defenses;
•There
is clear evidence of abuse;
•There
is no safeguard against selective buybacks; and/or
•Pricing
provisions and safeguards are deemed to be unreasonable in light of market
practice.
Reissuance
of Repurchased Shares
Generally
vote FOR requests to reissue any repurchased shares unless there is clear
evidence of abuse of this authority in the past.
Capitalization
of Reserves for Bonus Issues/Increase in Par Value
Generally
vote FOR requests to capitalize reserves for bonus issues of shares or to
increase par value.
4.
Compensation Compensation Plans
Vote
on a CASE-BY-CASE basis for compensation plans.
Director
Compensation
Generally
vote FOR proposals to award cash fees to non-executive directors unless the
amounts are excessive relative to other companies in the country or
industry.
Vote
on a CASE-BY-CASE basis for non-executive director compensation proposals that
include both cash and share-based components.
Vote
on a CASE-BY-CASE basis for proposals that bundle compensation for both non-
executive and executive directors into a single resolution.
Generally
vote AGAINST proposals to introduce retirement benefits for non-executive
directors.
5.
Other Items
Reorganizations/Restructurings
Vote
on a CASE-BY-CASE basis for reorganizations and restructurings.
Mergers
and Acquisitions
Vote
on a CASE-BY-CASE basis on mergers and acquisitions taking into account the
following:
Review
publicly available information as of the date of the report and evaluate the
merits and drawbacks of the proposed transaction, balancing various and
sometimes countervailing factors including:
•Valuation
- Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial starting
point for assessing valuation reasonableness, place emphasis on the offer
premium, market reaction, and strategic rationale.
•Market
reaction - How has the market responded to the proposed deal? A negative market
reaction will cause a deal to be scrutinized more closely.
•Strategic
rationale - Does the deal make sense strategically? From where is the value
derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but reasonably achievable. Management should also have a favorable
track record of successful integration of historical acquisitions.
•Conflicts
of interest - Are insiders benefiting from the transaction disproportionately
and inappropriately as compared to non-insider shareholders? Consider whether
any special interests may have influenced these directors and officers to
support or recommend the merger.
•Governance
- Will the combined company have a better or worse governance profile than the
current governance profiles of the respective parties to the transaction? If the
governance profile is to change for the worse, the burden is on the company to
prove that other issues (such as valuation) outweigh any deterioration in
governance.
Generally
vote AGAINST if the companies do not provide sufficient information upon request
to make an informed voting decision.
Mandatory
Takeover Bid Waivers
Vote
on a CASE-BY-CASE basis for proposals to waive mandatory takeover bid
requirements.
Reincorporation
Proposals
Vote
on a CASE-BY-CASE basis for reincorporation proposals.
Expansion
of Business Activities
Generally
vote FOR resolutions to expand business activities unless the new business takes
the company into risky areas.
Related-Party
Transactions
In
evaluating resolutions that seek shareholder approval on related-party
transactions (RPTs), vote on a CASE-BY-CASE basis, considering factors
including, but not limited to, the following:
•The
parties on either side of the transaction;
•The
nature of the asset to be transferred/service to be provided;
•The
pricing of the transaction (and any associated professional
valuation);
•The
views of independent directors (where provided);
•The
views of an independent financial adviser (where appointed);
•Whether
any entities party to the transaction (including advisers) is conflicted;
and
•The
stated rationale for the transaction, including discussions of
timing.
If
there is a transaction that was deemed problematic and that was not put to a
shareholder vote, generally vote AGAINST the election of the director involved
in the related-party transaction or the full board.
Antitakeover
Mechanisms
Generally
vote AGAINST all antitakeover proposals, unless they are structured in such a
way that they give shareholders the ultimate decision on any proposal or
offer.
Shareholder
Proposals
Vote
on a CASE-BY-CASE basis for all shareholder proposals.
Generally
vote FOR proposals that would improve the company's corporate governance or
business profile at a reasonable cost.
Generally
vote AGAINST proposals that limit the company's business activities or
capabilities or result in significant costs being incurred with little or no
benefit.
6.
Social/environmental issues
Global
Approach
Vote
on a CASE-BY-CASE basis, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in addition the
following will be considered:
•If
the issues presented in the proposal are more appropriately or effectively dealt
with through legislation or government regulation;
•If
the company has already responded in an appropriate and sufficient manner to the
issue(s) raised in the proposal;
•Whether
the proposal's request is unduly burdensome (scope, timeframe, or cost) or
overly prescriptive;
•The
company's approach compared with any industry standard practices for addressing
the issue(s) raised by the proposal;
•If
the proposal requests increased disclosure or greater transparency, whether or
not reasonable and sufficient information is currently available to shareholders
from the company or from other publicly available sources; and
•If
the proposal requests increased disclosure or greater transparency, whether or
not implementation would reveal proprietary or confidential information that
could place the company at a competitive disadvantage.
Asia
- Pacific Regional Portfolio Security Voting Issues
This
section applies to all Asian Pacific markets (excluding Australia, New Zealand,
China, Japan, Hong Kong, Singapore, India, and Korea, which have separate market
policies available upon request). Currently this includes Thailand, Malaysia,
the Philippines, Indonesia, Pakistan, Bangladesh, Sri Lanka, Vietnam, and Papua
New Guinea. Any Asian Pacific markets added to this coverage would likely be
included under this regional policy.
1.
Operational Items
Financial
Results/Director and Auditor Reports
Generally
vote FOR approval of financial statements and director and auditor reports,
unless:
•There
are concerns about the accounts presented or audit procedures used;
or
•The
company is not responsive to shareholder questions about specific items that
should be publicly disclosed.
Appointment
of Auditors and Auditor Fees
Generally
vote FOR the (re)election of auditors and/or proposals authorizing the board to
fix auditor fees, unless:
•There
are serious concerns about the accounts presented or the audit procedures
used;
•The
auditors are being changed without explanation; or
•Non-audit-related
fees are substantial or are routinely in excess of standard annual audit-related
fees.
In
circumstances where fees for non-audit services include fees related to
significant one-time capital structure events (initial public offerings,
bankruptcy emergencies, and spinoffs) and the company makes public disclosure of
the amount and nature of those fees, which are an exception to the standard
"non-audit fee" category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non- audit to audit fees.
For
concerns related to the audit procedures, independence of auditors, and/or name
of auditors, generally vote AGAINST the auditor (re)election. For concerns
related to fees paid to the auditors, generally vote AGAINST remuneration of
auditors if this is a separate voting item; otherwise generally vote AGAINST the
auditor election.
Appointment
of Internal Statutory Auditors
Generally
vote FOR the appointment or (re)election of statutory auditors,
unless:
•There
are serious concerns about the statutory reports presented or the audit
procedures used;
•Questions
exist concerning any of the statutory auditors being appointed; or
•The
auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company.
Allocation
of Income
Generally
vote FOR approval of the allocation of income, unless:
•The
dividend payout ratio has been consistently below 30 percent without adequate
explanation; or
•The
payout is excessive given the company's financial position.
Stock
(Scrip) Dividend Alternative
Generally
vote FOR most stock (scrip) dividend proposals.
Generally
vote AGAINST proposals that do not allow for a cash option unless management
demonstrates that the cash option is harmful to shareholder value.
Amendments
to Articles of Association
Vote
on a CASE-BY-CASE basis for amendments to the articles of
association.
Change
in Company Fiscal Term
Generally
vote FOR resolutions to change a company's fiscal term unless a company's
motivation for the change is to postpone its AGM.
Lower
Disclosure Threshold for Stock Ownership
Generally
vote AGAINST resolutions to lower the stock ownership disclosure threshold below
5 percent unless specific reasons exist to implement a lower
threshold.
Amend
Quorum Requirements
Vote
on a CASE-BY-CASE basis for proposals to amend quorum requirements for
shareholder meetings.
Transact
Other Business
Generally
vote AGAINST other business when it appears as a voting item.
2.
Board of Directors
Director
Elections
Generally
vote FOR management nominees in the election of directors, unless:
•Adequate
disclosure has not been provided in a timely manner;
•There
are clear concerns over questionable finances or restatements;
•There
have been questionable transactions with conflicts of interest;
•There
are any records of abuses against minority shareholder interests;
or
•The
board fails to meet minimum corporate governance standards.
Generally
vote FOR individual nominees unless there are specific concerns about the
individual, such as criminal wrongdoing or breach of fiduciary
responsibilities.
Generally
vote AGAINST individual directors if repeated absences at board meetings have
not been explained (in countries where this information is
disclosed).
For
Malaysia
and Thailand,
generally vote FOR the election of a board-nominated candidate
unless:
•He/she
has attended less than 75 percent of board and key committee meetings over the
most recent year, without satisfactory explanation. Acceptable reasons for
director absences are generally limited to the following:
•Medical
issues/illness;
•Family
emergencies;
•The
director has served on the board for less than a year; and
•Missing
only one meeting (when the total of all meetings is three or
fewer).
•He/she
is an executive director serving on the audit, remuneration, or nomination
committees; or
•He/she
is a non-independent director nominee and the board is less than one- third
independent.
Generally
vote FOR the election of a CEO, managing director, executive chairman, or
founder who is integral to the company.
For
Bangladesh
and Pakistan,
vote FOR the election of a board-nominated candidate unless:
•The
nominee has attended less than 75 percent of board meetings over the most recent
fiscal year, without a satisfactory explanation. Acceptable reasons for director
absences are generally limited to the following:
◦Medical
issues/illness;
◦Family
emergencies;
◦The
director has served on the board for less than a year; and
◦Missing
only one meeting (when the total of all meetings is three or
fewer).
•He/she
is an executive directors serving on the audit remuneration, or nomination
committees.
For
Sri
Lanka,
vote FOR the election of a board nominated candidate unless:
•The
nominee has attended less than 75 percent of board meetings over the most recent
fiscal year, without a satisfactory explanation. Acceptable reasons for director
absences are generally limited to the following:
◦Medical
issues/illness;
◦Family
emergencies;
◦The
director has served on the board for less than a year; and
◦Missing
only one meeting (when the total of all meetings is three or
fewer).
•He/she
is an executive director serving on the audit, remuneration, or nomination
committees; or
•He/she
is a non-independent director nominee.
For
Philippines,
where independent directors represent less than the higher of: three independent
directors or 30 percent of the board, generally vote AGAINST the following
candidates:
•An
executive director with exception of the CEO; or
•One
non-executive non-independent director who represents a substantial shareholder
where the number of seats held by the representatives is disproportionate to its
holdings in the company
In
accordance with local standards, in determining whether the required percentage
of independent directors is satisfied, the total number of directors is
multiplied by 30 percent and the product is rounded down to the nearest whole
number. For example, a thirteen-director board with three independent directors
satisfies the board independence requirement, even though the board is only
21.4-percent independent.
Vote
on a CASE-BY-CASE basis for contested elections of directors, e.g. the election
of shareholder nominees or the dismissal of incumbent directors, determining
which directors are best suited to add value for shareholders.
Generally
vote FOR employee and/or labor representatives if they sit on either the audit
or compensation committee and are required by law to be on those committees.
Generally vote AGAINST employee and/or labor representatives if they sit on
either the audit or compensation committee, if they are not required to be on
those committees.
Generally
vote AGAINST the election of directors at all companies if the name(s) of the
nominee(s) is not disclosed in a timely manner prior to the
meeting.
Under
extraordinary circumstances, generally vote AGAINST individual directors,
members of a committee, or the entire board, due to:
•Material
failures of governance, stewardship, risk oversight, or fiduciary
responsibilities at the company;
•Failure
to replace management as appropriate; or
•Egregious
actions related to a director's service on other boards that raise substantial
doubt about his or her ability to effectively oversee management and serve the
best interests of shareholders at any company.
Contested
Director Elections
For
contested elections of directors, e.g. the election of shareholder nominees or
the dismissal of incumbent directors, vote on a CASE-BY-CASE basis to
determining which directors are best suited to add value for
shareholders.
The
analysis will generally be based on, but not limited to, the following major
decision factors:
•Company
performance relative to its peers;
•Strategy
of the incumbents versus the dissidents;
•Independence
of directors/nominees;
•Experience
and skills of board candidates;
•Governance
profile of the company;
•Evidence
of management entrenchment;
•Responsiveness
to shareholders;
•Whether
a takeover offer has been rebuffed;
•Whether
minority or majority representation is being sought.
Discharge
of Directors
Generally
vote FOR the discharge of directors, including members of the management board
and/or supervisory board, unless there is reliable information about significant
and compelling controversies as to whether the board is fulfilling its fiduciary
duties, as evidenced by:
•A
lack of oversight or actions by board members that invoke shareholder distrust
related to malfeasance or poor supervision, such as operating in private or
company interest rather than in shareholder interest; or
•Any
legal proceedings (either civil or criminal) aiming to hold the board
responsible for breach of trust in the past or related to currently alleged
actions yet to be confirmed (and not only the fiscal year in question), such as
price fixing, insider trading, bribery, fraud, and other illegal actions;
or
•Other
egregious governance issues where shareholders will bring legal action against
the company or its directors.
Director,
Officer, and Auditor Indemnification and Liability Provisions
Vote
on a CASE-BY-CASE basis for proposals seeking indemnification and liability
protection for directors and officers.
Generally
vote AGAINST proposals to indemnify external auditors.
Board
Structure
Generally
vote FOR proposals to fix board size.
Generally
vote AGAINST the introduction of classified boards and mandatory retirement ages
for directors.
Generally
vote AGAINST proposals to alter board structure or size in the context of a
fight for control of the company or the board.
3.
Capital Structure
Share
Issuance Requests
General
Issuances
Generally
vote FOR issuance requests with preemptive rights to a maximum of 100 percent
over currently issued capital.
Generally
vote FOR issuance requests without preemptive rights to a maximum of 20 percent
of currently issued capital.
Specific
Issuances
Vote
on a CASE-BY-CASE basis on all requests, with or without preemptive
rights.
Increases
in Authorized Capital
Generally
vote FOR non-specific proposals to increase authorized capital up to 100 percent
over the current authorization unless the increase would leave the company with
less than 30 percent of its new authorization outstanding.
Generally
vote FOR specific proposals to increase authorized capital to any amount,
unless:
•The
specific purpose of the increase (such as a share-based acquisition or merger)
does not meet the guidelines for the purpose being proposed; or
•The
increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed
issuances.
Generally
vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction
of Capital
Generally
vote FOR proposals to reduce capital for routine accounting purposes unless the
terms are unfavorable to shareholders.
Vote
on a CASE-BY-CASE basis for proposals to reduce capital in connection with
corporate restructuring.
Capital
Structures
Generally
vote FOR resolutions that seek to maintain or convert to a one-share, one- vote
capital structure.
Generally
vote AGAINST requests for the creation or continuation of dual-class capital
structures or the creation of new or additional super voting
shares.
Preferred
Stock
Generally
vote FOR the creation of a new class of preferred stock or for issuances of
preferred stock up to 50 percent of issued capital unless the terms of the
preferred stock would adversely affect the rights of existing
shareholders.
Generally
vote FOR the creation/issuance of convertible preferred stock as long as the
maximum number of common shares that could be issued upon conversion meets
guidelines on equity issuance requests.
Generally
vote AGAINST the creation of a new class of preference shares that would carry
superior voting rights to the common shares.
Generally
vote AGAINST the creation of blank check preferred stock unless the board
clearly states that the authorization will not be used to thwart a takeover
bid.
Vote
on a CASE-BY-CASE basis for proposals to increase blank check preferred
authorizations.
Debt
Issuance Requests
Vote
on a CASE-BY-CASE basis for non-convertible debt issuance requests, with or
without preemptive rights.
Generally
vote FOR the creation/issuance of convertible debt instruments as long as the
maximum number of common shares that could be issued upon conversion meet the
guidelines on equity issuance requests.
Generally
vote FOR proposals to restructure existing debt arrangements unless the terms of
the restructuring would adversely affect the rights of
shareholders.
Pledging
of Assets for Debt
Vote
on a CASE-BY-CASE basis for proposals to approve the pledging of assets for
debt.
Increase
in Borrowing Powers
Vote
on a CASE-BY-CASE basis for proposals to approve increases in a company's
borrowing powers.
Share
Repurchase Plans
Generally
vote FOR market repurchase authorities (share repurchase programs) if the terms
comply with the following criteria:
•A
repurchase limit of up to 10 percent of outstanding issued share
capital;
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than five years, or such lower threshold as may be set by
applicable law, regulation or code of governance best practice.
Authorities
to repurchase shares in excess of the 10 percent repurchase limit will be
assessed on a CASE-BY-CASE basis. Such share repurchase authorities under
special circumstances, which are required to be publicly disclosed by the
company, provided that, on balance, the proposal is in shareholders' interests.
In such cases, the authority must comply with the following
criteria:
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than 18 months.
In
markets where it is normal practice not to provide a repurchase limit, evaluate
the proposal based on the company's historical practice. However, companies
should disclose such limits and, in the future, generally vote AGAINST companies
that fail to do so. In such cases, the authority must comply with the following
criteria:
•A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
•A
duration of no more than 18 months.
In
addition, generally vote AGAINST any proposal where:
•The
repurchase can be used for takeover defenses;
•There
is clear evidence of abuse;
•There
is no safeguard against selective buybacks; and/or
•Pricing
provisions and safeguards are deemed to be unreasonable in light of market
practice.
Reissuance
of Repurchased Shares
Generally
vote FOR requests to reissue any repurchased shares unless there is clear
evidence of abuse of this authority in the past.
Capitalization
of Reserves for Bonus Issues/Increase in Par Value
Generally
vote FOR requests to capitalize reserves for bonus issues of shares or to
increase par value.
4.
Compensation
Compensation
Plans
Vote
on a CASE-BY-CASE basis for compensation plans.
Director
Compensation
Generally
vote FOR proposals to award cash fees to non-executive directors unless the
amounts are excessive relative to other companies in the country or
industry.
Vote
on a CASE-BY-CASE basis for non-executive director compensation proposals that
include both cash and share-based components.
Vote
on a CASE-BY-CASE basis for proposals that bundle compensation for both non-
executive and executive directors into a single resolution.
Generally
vote AGAINST proposals to introduce retirement benefits for non-executive
directors.
5.
Reorganizations/Restructurings
Vote
on a CASE-BY-CASE basis for reorganizations and restructurings.
6.
Mergers and Acquisitions
Vote
on a CASE-BY-CASE basis on mergers and acquisitions taking into account the
following:
•Valuation
- Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial starting
point for assessing valuation reasonableness, place emphasis on the offer
premium, market reaction, and strategic rationale.
•Market
reaction - How has the market responded to the proposed deal? A negative market
reaction will cause a deal to be scrutinized more closely.
•Strategic
rationale - Does the deal make sense strategically? From where is the value
derived? Cost and revenue synergies should not be overly aggressive or
optimistic, but
reasonably
achievable. Management should also have a favorable track record of successful
integration of historical acquisitions.
•Conflicts
of interest - Are insiders benefiting from the transaction disproportionately
and inappropriately as compared to non-insider shareholders? Consider whether
any special interests may have influenced these directors and officers to
support or recommend the merger.
•Governance
- Will the combined company have a better or worse governance profile than the
current governance profiles of the respective parties to the transaction? If the
governance profile is to change for the worse, the burden is on the company to
prove that other issues (such as valuation) outweigh any deterioration in
governance.
Generally
vote AGAINST if the companies do not provide sufficient information upon request
to make an informed voting decision.
7.
Miscellaneous and Other Proposals
Expansion
of Business Activities
Generally
vote FOR resolutions to expand business activities unless the new business takes
the company into risky areas.
Related-Party
Transactions
In
evaluating resolutions that seek shareholder approval on related-party
transactions (RPTs), vote on a CASE-BY-CASE basis, considering factors
including, but not limited to, the following:
•The
parties on either side of the transaction;
•The
nature of the asset to be transferred/service to be provided;
•The
pricing of the transaction (and any associated professional
valuation);
•The
views of independent directors (where provided);
•The
views of an independent financial adviser (where appointed);
•Whether
any entities party to the transaction (including advisers) is conflicted;
and
•The
stated rationale for the transaction, including discussions of
timing.
If
there is a transaction is deemed problematic was not put to a shareholder vote,
generally vote AGAINST the election of the director(s) involved in the
related-party transaction or AGAINST the full board.
Mandatory
Takeover Bid Waivers
Vote
on a CASE-BY-CASE basis for proposals to waive mandatory takeover bid
requirements.
Reincorporation
Proposals
Vote
on a CASE-BY-CASE basis for reincorporation proposals.
8.
Antitakeover Mechanisms
Generally
vote AGAINST all antitakeover proposals, unless they are structured in such a
way that they give shareholders the ultimate decision on any proposal or
offer.
9.
Shareholder Proposals
Vote
on a CASE-BY-CASE basis for shareholder proposals.
Generally
vote FOR proposals that would improve the company's corporate governance or
business profile at a reasonable cost.
Generally
vote AGAINST proposals that limit the company's business activities or
capabilities or result in significant costs being incurred with little or no
benefit.
10.
Social/Environmental Issues
Global
Approach
Vote
on a CASE-BY-CASE basis, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in addition the
following will be considered:
•If
the issues presented in the proposal are more appropriately or effectively dealt
with through legislation or government regulation;
•If
the company has already responded in an appropriate and sufficient manner to the
issue(s) raised in the proposal;
•Whether
the proposal's request is unduly burdensome (scope, timeframe, or cost) or
overly prescriptive;
•The
company's approach compared with any industry standard practices for addressing
the issue(s) raised by the proposal;
•If
the proposal requests increased disclosure or greater transparency, whether or
not reasonable and sufficient information is currently available to shareholders
from the company or from other publicly available sources; and
•If
the proposal requests increased disclosure or greater transparency, whether or
not implementation would reveal proprietary or confidential information that
could place the company at a competitive disadvantage.
GOTHAM
ASSET MANAGEMENT, LLC
PROXY
VOTING AND CLASS ACTIONS
A.Purpose
In
order to comply with Rule 206(4)-6 of the Investment Advisers Act, Gotham has
adopted written policies and procedures that are reasonably designed to ensure
that Gotham’s voting determinations with respect to Client securities are made
in the best interest of the Client (considering its investment strategy) and do
not place Gotham’s own interests ahead of the interests of its Client. The
Investment Advisers Act also requires disclosure to Clients with respect to
obtaining information on how their securities were voted and Gotham's guidelines
for voting Client securities.
B.Proxy
Policies and Procedures
Gotham
employs a value-based investment program for its Clients that is generally
passive and agnostic on corporate control and other management issues that are
presented to shareholders for approval ("proxies"). Nevertheless, at present,
Gotham generally votes proxies for its Clients in accordance with the procedures
below. These procedures may be modified with respect to certain Clients,
provided that such Client agrees to such arrangement. For example, certain SMA
Clients vote their own proxies pursuant to their investment management
agreement. Gotham votes Client securities using Proxy Exchange, an electronic
voting platform provided by ISS. Proxy Exchange retains a record of proxy votes
for each Client.
When
Gotham votes proxies, it seeks to do so in the best interests of its Clients
considering their investment strategy and must not place its own interests ahead
of the interests of its Clients. Accordingly, Gotham generally votes Client
securities in conformity with the recommendations of Institutional Shareholder
Services Inc. ("ISS").
ISS is a neutral third party that issues recommendations based on its own
internal guidelines and research. ISS retains a record of all of its
recommendations. Gotham believes that the retention of ISS to provide advice
with respect to proxy voting is an efficient and effective means to assist
Gotham in complying with its fiduciary duties to its Clients, and also provides
a means to avoid any impact on voting decisions that might arise from any
conflicts of interests between Gotham and its Clients.
When
it votes proxies, Gotham may, however, vote Client securities in a manner that
is inconsistent with ISS' recommendations when Gotham believes it is in the best
interest of its Clients and such a vote does not create an impermissible
conflict of interest between Gotham and its Clients. In such a case, Gotham will
keep a record of why ISS' recommendation was not in the Client's best interest
and information supporting Gotham's decision.
Gotham
also may determine not to vote a particular proxy if it determines that
abstaining or not voting is in the best interests of its Client. In making such
a determination, Gotham will consider various factors including, but not limited
to, whether:
(i)
the resolution of the proxy is not relevant to the Client's investment;
(ii)
Gotham believes the cost of voting the proxy outweighs the potential benefit to
the Client derived from voting;
(iii)
a proxy is received with respect to securities that are no longer held in a
Client account;
(iv)
the terms of a securities lending agreement prevent Gotham from voting a loaned
security;
(v)
Gotham (or Proxy Exchange) receives proxy materials without sufficient time to
reach an informed voting decision and vote the proxies;
(vi)
ISS does not have a recommendation; or
(vii)
the terms of the security or any related agreement or applicable law preclude
Gotham from voting.
The
Firm will generally vote in the same manner for all Clients holding a particular
security, subject to the investment objectives and best interests of each
Client.
In
accordance with SEC guidance issued in August 2019, and in order to verify that
proxy votes are cast in accordance with Clients' best interests and our proxy
voting procedures, the GC/CCO, the Director of Compliance or their designee will
periodically (but no less often than annually) sample proxy votes to review
whether they complied with the Firm's proxy voting policy and procedures.
The
Firm will also periodically review ISS' capacity and competency to adequately
analyze proxy issues. In this regard, Gotham may consider relevant factors,
including whether ISS, among other things:
•Has
sufficient resources, such as ISS’ staffing, personnel and/or technology;
•Has
an effective process for seeking input from issuers;
•Has
adequate disclosures as to it methodologies;
•Has
adequate policies and procedures to address conflicts of interest;
and
•Has
adequate processes to identify potential factual errors, incompleteness or
methodological weakness.
Finally,
the Firm will review and document, no less than annually, the adequacy of
Gotham’s policies and procedures to ensure they have been formulated reasonably
and implemented effectively, including whether they continue to be reasonably
designed to ensure that Gotham casts votes on behalf of its Clients in the best
interest of such Clients.
Gotham
Asset Management, LLC
January
2020
C.Conflicts
of Interest
Supervised
Persons must inform the GC/CCO if they become aware of any material conflict of
interest between the Firm and a Client or between Clients with respect to a
proxy vote. Since the Firm generally votes in accordance with ISS'
recommendations, Gotham believes that generally no conflicts of interest will
impact Gotham's vote. When voting Client securities in a manner that is
inconsistent with ISS' recommendations, Gotham will review any conflicts of
interest that are identified.
The
GC/CCO, or his designee, will attempt to resolve the conflict of interest before
the Firm votes. In the event that the material conflict of interest cannot be
reasonably resolved prior to voting, the Firm will take steps designed to ensure
that a decision to vote the proxy was based on the Firm's determination of the
Client's best interest and was not the product of the conflict. The Firm will
disclose and obtain consent of the Client to the extent required under
applicable law.
D.Reporting
and Disclosure Procedures
Gotham
generally does not disclose proxy votes on behalf of a Client to any other
Client. To the extent that Gotham serves as a sub-adviser to another adviser,
Gotham may provide proxy voting records to such adviser, if requested. Proxy
votes on behalf of Mutual Funds are disclosed annually on Form
N-PX.
The
Firm will include in its Brochure a summary of this proxy voting policy. Each
Client may request a copy of this proxy voting policy, ISS' proxy voting
guidelines, and records of how such Client's securities were voted by making a
written request to:
Gotham
Asset Management, LLC
535
Madison Avenue, 30th
Floor
New
York, NY 10022
Attention:
Legal & Compliance
E.Recordkeeping
The
Firm maintains records of: (a) this proxy voting policy; (b) all proxy
statements and materials the Firm receives on behalf of Clients unless such
materials are readily available from the SEC via EDGAR; (c) all proxy votes that
are made on behalf of the Clients; (d) all written requests from Clients
regarding voting history; and (e) all responses (written and oral) to Clients'
requests. Such records are available to the impacted Client upon request. To
fulfill some of these recordkeeping requirements, the Firm may rely on
information stored on Proxy Exchange (or the predecessor system used by the
Firm), Firm e-mail or other third party service providers.
Gotham
Asset Management, LLC
January
2020
Graham
Capital Management, L.P.
PROXY
VOTING AND CLASS ACTIONS
General
Graham
has adopted policies and procedures (the “Proxy Voting Policies and Procedures”)
which have been designed to ensure that Graham complies with the requirements of
Rule 206(4)-6 and Rule 204-2(c)(2) under the Advisers Act, and reflect Graham’s
commitment to vote all client securities for which it exercises voting authority
in a manner consistent with the best interest of the client. Employees who have
the authority to vote client securities must familiarize themselves with and
strictly adhere to Graham’s Proxy Voting Policies and Procedures.
Although
the Advisers Act does not obligate advisers to adopt policies and procedures in
respect of participating in class actions, in its capacity as a fiduciary to its
clients Graham has nonetheless adopted such policies and procedures.
Proxy
Voting Policies and Procedures
Graham
has retained ISS Governance Services to assist in the proxy voting process. The
CCO manages Graham’s relationship with ISS. The CCO ensures that ISS votes all
proxies according to Graham’s general guidance, and retains all required
documentation associated with proxy voting.
Portfolio
Managers that wish to deviate from ISS’s proxy recommendations must provide the
CCO with a written explanation of the reason for the deviation, as well as a
representation that the employee and Graham are not conflicted in making the
chosen voting decision.
Because
Graham generally will vote proxies based upon the recommendations of ISS, there
is little to no risk of a conflict of interest arising. However, in instances
that might involve a conflict of interest between Graham and its clients, such
as where a portfolio manager wishes to deviate from ISS’s recommendation or such
other instances as Graham may determine, the CCO, in conjunction with the
compliance committee as appropriate, will review the relevant facts and
determine whether or not a material conflict of interest may arise due to
business, personal or family relationships of Graham, its owners, its employees
or its affiliates, with persons having an interest in the outcome of the vote.
If a material conflict exists, Graham will take steps to ensure that its voting
decision is based on the best interests of the client and is not a product of
the conflict. Graham shall keep appropriate records demonstrating how such
conflicts were resolved.
ISS
will retain the following information in connection with each proxy vote:
•The
Issuer’s name;
•The
security ticker symbol or CUSIP, as applicable;
•The
shareholder meeting date;
•The
number of shares that Graham voted;
•A
brief identification of the matter voted on;
•Whether
the matter was proposed by the Issuer or a security holder;
•Whether
Graham cast a vote;
•How
Graham cast its vote (for the proposal, against the proposal, or abstain); and
•Whether
Graham cast its vote with or against management.
Class
Actions
As
a fiduciary, Graham always seeks to act in the best interest of its clients,
with good faith, loyalty, and due care. Accordingly, with respect to class
actions involving any Graham funds, Graham will determine whether the fund will
(a) participate in a recovery achieved through a class action, (b) opt out of
the class action and separately pursue its own remedy, or (c) opt out of the
class action and not pursue its own remedy. Graham’s legal department oversees
the completion of Proof of Claim forms and any associated documentation the
submission of such documents to the claim administrator, and the receipt of any
recovered monies. Graham will maintain documentation associated with
participation in class actions by any Graham Funds.
Graham,
for itself or on behalf of its funds, generally does not serve as the lead
plaintiff in class actions because the costs of such participation typically
exceed any extra benefits that accrue to lead plaintiffs.
Disclosures
to Investors
Graham
includes a description of its policies and procedures regarding proxy voting and
class actions in Part 2 of the Form ADV, along with a statement that Investors
can contact Graham to obtain a copy of these policies and procedures and
information about how Graham voted proxies.
Any
request for information about proxy voting or class actions should be promptly
forwarded to the CCO, who will respond to any such requests.
As
a matter of policy, Graham does not disclose how it expects to vote on upcoming
proxies. Additionally, Graham does not disclose the way it voted proxies to
unaffiliated third parties without a legitimate need to know such
information.
KLS
Diversified Asset Management LP
A.PROXY
VOTING
KLS’s
advisory agreements (including the operative documents of the Funds) generally
give KLS authority to vote proxies received by Clients. Certain managed account
Clients, however, may elect to be responsible for voting the proxies related to
their account. The proxy voting policies and procedures contained in this Manual
will apply solely to Clients for which KLS has the authority and responsibility
to vote proxies.
It
should be noted that based upon KLS’s investment strategy (and lack of
involvement in publicly-traded equities) it is not expected that much proxy
voting, if any, will be required under this section. Notwithstanding that fact,
KLS will follow these procedures when proxy voting is required.
(1)General
Proxy Voting Policies
(a)KLS
understands and appreciates the importance of proxy voting. KLS will vote any
such proxies (which will be very limited) in the best interests of the Clients
and Investors (as applicable) and in accordance with the procedures outlined
below (as applicable). It should be noted that these procedures will be applied
solely when KLS is requested to exercise its voting authority with respect to
Client securities. There are situations in which KLS may be requested to provide
consent with respect to a particular security where KLS may not apply the
technical requirements of the procedures because KLS is not being asked to
exercise voting authority with respect to Client securities (although KLS will
act in the best interests of the Clients and Investors (as applicable) in
responding to any such request). For example, in conjunction with a credit
facility, a borrower may ask KLS, as a lender, to approve amendments to the loan
facility. In this case, KLS is not being asked to exercise voting authority with
respect to Client securities and therefore it will not apply the technical
requirements of the proxy voting procedures described below (although KLS will
seek to act in the best interests of the Clients and the Investors (as
applicable)).
(b)On
behalf of the Clients and Investors (as applicable), KLS will generally manage
the receipt of incoming proxies and place votes based on specified policies and
guidelines established by KLS. In the event that KLS exercises discretion to
vote a proxy. KLS will vote any such proxies in the best interests of Clients
and Investors (as applicable) and in accordance with the procedures outlined
below (as applicable).
(2)Proxy
Voting Procedures
(a)All
proxies sent to Clients that are actually received by KLS (to vote on behalf of
Clients) will be provided to the Chief Compliance Officer.
(b)The
Chief Compliance Officer will generally adhere to the following procedures,
subject to limited exception:
(i)A
written record of each proxy received by KLS will be kept in KLS’s
files;
(ii)The
Chief Compliance Officer will determine which of the Clients hold the security
to which the proxy relates;
(iii)The
Chief Compliance Officer will send an email to the Managing Partners and provide
them with the following:
(1)a
copy of the proxy;
(2)a
list of the Clients to which the proxy is relevant;
(3)the
amount of votes controlled by each Client; and
(4)the
deadline that such proxies need to be completed and returned.
(iv)Prior
to voting any proxies with respect to the Clients, the Managing Partners will
determine if there are any conflicts of interest related to the proxy in
question in accordance with the general guidelines outlined in Section 3
below.
If a conflict is identified, the Managing Partners will then make a
determination (which may be in consultation with outside compliance consultants
and/or legal counsel) as to whether the conflict is material or not.
(v)If
no material conflict is identified pursuant to these procedures, the Managing
Partners will make a decision on how to vote the proxy in question in accordance
with the guidelines set forth in Section 4
below. The Chief Compliance Officer or such other designate will deliver the
proxy in accordance with instructions related to such proxy in a timely and
appropriate manner.
(3)Handling
of Proxy-Related Conflicts of Interest for the Funds
(a)As
stated above, in evaluating how to vote a proxy on behalf of the Funds, the
Managing Partners will first determine whether there is a conflict of interest
related to the proxy in question between KLS and the Funds. This examination
will include (but will not be limited to) an evaluation of whether KLS (or any
affiliate of KLS) has any relationship with the company (or an affiliate of the
company) to which the proxy relates outside an investment in such company by a
Client.
(b)If
a conflict is identified and deemed “material” by the Managing Partners, the
Chief Compliance Officer or such other designate (in consultations with outside
compliance consultants and/or legal counsel) will determine whether voting in
accordance with the proxy voting guidelines outlined in Section
4
below is in the best interests of the affected Clients (which may include
utilizing an independent third party to vote such proxies).
(c)With
respect to material conflicts, KLS will determine whether it is appropriate to
disclose the conflict to affected Funds and give such Funds (and Investors, if
applicable) the opportunity to vote the proxies in question themselves except
that if the Fund is subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), and an ERISA Investor has, in
writing, reserved the right to vote proxies when KLS has determined that a
material conflict exists that does affect its best judgment as a fiduciary to
the Fund, KLS will:
(i)Give
the ERISA Investor the opportunity to vote the proxies in question themselves;
or
(ii)Follow
designated special proxy voting procedures related to voting proxies pursuant to
the terms of the written agreements with such ERISA Investors (if
any).
(4)Voting
Guidelines
In
the absence of specific voting guidelines mandated by a particular Client, KLS
will endeavor to vote proxies, or in certain circumstances abstain from voting,
in the best interests of each Client.
Generally,
KLS will vote in favor of routine “corporate housekeeping” proposals, including
election of directors (where no corporate governance issues are implicated)
selection of auditors, and increases in or reclassification of common stock. For
other proposals, KLS shall determine whether a proposal is in the best interest
of its Clients and may take into account the following factors, among
others:
▪whether
the proposal was recommended by the issuer’s management;
▪KLS’
opinion of the issuer’s management;
▪whether
the proposal acts to entrench the issuer’s existing management and directors;
and
▪whether
the proposal fairly compensates management for past and future
performance.
Note
that KLS may abstain from voting in instances where KLS determines that
abstaining is in the Client’s best interest due to a conflict (e.g., if an
officer or director of KLS sits on the board of issuer).
<LOGO>
LOOMIS | SAYLES
Proxy
Voting Policies and Procedures
June
30, 2004
AMENDED
March
31, 2005
May
16, 2005
March
31, 2007
August
30, 2007
March
31, 2008
June
25, 2008
September
22, 2009
April
1, 2010
February
15, 2011
April
25, 2011
March
5, 2012
May
10, 2012
February
11, 2013
February
7, 2014
September
8, 2014
June
8, 2015
September
1, 2015
April
8, 2016
<LOGO>
LOOMIS | SAYLES
Proxy
Voting Policies and Procedures
CONTENTS
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LOOMIS | SAYLES
Proxy
Voting Policies and Procedures
|
|
|
|
|
|
|
|
|
1 |
GENERAL |
5 |
Introduction
General
Guidelines
Proxy
Committee
Conflicts
of Interest
Recordkeeping
and Disclosure |
2 |
PROPOSALS
USUALLY VOTED FOR |
10 |
Adjustments
to Par Value of Common Stock
Annual
Election of Directors
Appraisal
Rights
Authority
to Issue Shares ( for certain foreign issuers)
Blank
Check Preferred Authorization
Chairman
and CEO are the Same Person
Changing
Corporate Name
Confidential
Voting
Cumulative
Voting
Delivery
of Electronic Proxy Materials
Director
Nominees in Uncontested Elections
Director
Related Compensation
Election
of CEO Director Nominees
Election
of Mutual Fund Trustees
Equal
Access
Fair
Price Provisions
Golden
and Tin Parachutes
Greenshoe
Options
Independent
Audit, Compensation and Nominating Committees
Independent
Board Chairman
Majority
Voting
OBRA-Related
Compensation Proposals
Ratifying
Auditors
Reverse
Stock Splits
Right
to Adjourn
Right
to Call a Special Meeting
Share
Cancellation Programs
Shareholder
Ability to Alter the Size of the Board
Shareholder
Ability to Remove Directors
Share
Repurchase Programs
Stock
Distributions: Splits and Dividends
White
Squire Placements
Written
Consent |
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Voting Policies and Procedures
|
|
|
|
|
|
|
|
|
3 |
PROPOSALS
USUALLY VOTED AGAINST |
14 |
Common
Stock Authorization
Director
and Officer Indemnification and Liability Protection
Shareholder
Ability to Act by Written Consent
Shareholder
Ability to Call Special Meetings
Shareholder
Ability to Remove Directors
Share
Retention By Executives
Staggered
Director Elections
Stock
Ownership Requirements
Supermajority
Shareholder Vote Requirements
Term
of Office
Unequal
Voting Rights
|
|
4 |
PROPOSALS
USUALLY AS RECOMMENDED BY THE RPOXY VOTING SERVICE |
15 |
|
401(k)
Employee Benefit Plans
Compensation
Plans
Employee
Stock Ownership Plans
Executive
Compensation Advisory Resolutions (“Say-on-Pay”)
Non-Material
Miscellaneous Bookkeeping Proposals
Proxy
Access
Preemptive
Rights
Stock
Option Plans
Technical
Amendments to By-laws
|
|
5 |
PROPOSALS
REQUIRING SPECIAL CONSIDERATION |
16 |
Asset
Sales Bundled Proposals Charitable and Political Contributions and
Lobbying Expenditures Compensation in the Event of a Change in
Control Conversion of Debt Instruments Corporate Restructuring
Counting Abstentions Debt Restructurings Delisting a
Security Director Nominees in Contested Elections Disclosure of
Prior Government Service |
Environment
and Social issues
Animal
Rights
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Voting Policies and Procedures
Energy
and Environment
Equal
Employment Opportunity and Discrimination Human Resource Issues
Maquiladora
Standards and International Operations Policies Military Business
Northern
Ireland
Product
Integrity and Marketing Third World Debt Crisis
Golden
Coffins
Greenmail
Liquidations
Mergers
and Acquisitions
Mutual
Fund Distribution Agreements
Mutual
Fund Fundamental Investment Restrictions Mutual Fund Investment Advisory
Agreement
Poison
Pills
Proxy
Access
Proxy
Contest Defenses
Reimburse
Proxy Solicitation Expenses Reincorporation Proposals
Shareholder
Advisory Committees
Shareholder
Proposals to Limit Executive and Director Pay State Spin-offs
Takeover
Statutes
Tender
Offer Defenses
Transition
Manager Ballots
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LOOMIS | SAYLES
Proxy
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1.
GENERAL
A.Introduction.
Loomis,
Sayles & Company, L.P. (“Loomis Sayles”) will vote proxies on behalf of a
client if, in its investment management agreement (“IMA”) with Loomis Sayles,
the client has delegated to Loomis Sayles the authority to vote proxies on its
behalf. With respect to IMAs executed with clients prior to June 30, 2004,
Loomis Sayles assumes that the proxy voting authority assigned by Loomis Sayles
at account setup is accurate unless the client or their representative has
instructed Loomis Sayles otherwise. Loomis Sayles has adopted and implemented
these policies and procedures (“Proxy Voting Procedures”) to ensure that, where
it has voting authority, proxy matters are handled in the best interest of
clients, in accordance with Loomis Sayles’ fiduciary duties, SEC rule 206(4)-6
under the Investment Advisers Act of 1940 and Staff Legal Bulletin No. 20 (June
30, 2014). In addition to SEC requirements governing advisers, its Proxy Voting
Procedures reflect the long-standing fiduciary standards and responsibilities
for ERISA accounts set out in Department of Labor Bulletin 08-2, 29 C.F.R.
2509.08-2 (October 17, 2008).
Loomis
Sayles uses the services of third parties (“Proxy Voting Service(s)”), to
research and administer the vote on proxies for those accounts and funds for
which Loomis Sayles has voting authority. Loomis Sayles will generally follow
its express policy with input from the Proxy Voting Services unless the Proxy
Committee determines that the client’s best interests are served by voting
otherwise.
B.General
Guidelines.
The
following guidelines will apply when voting proxies on behalf of accounts for
which Loomis Sayles has voting authority.
a.Client’s
Best Interest. Loomis Sayles’ Proxy Voting Procedures are designed and
implemented in a way that is reasonably expected to ensure that proxy matters
are conducted in the best interest of clients. When considering the best
interest of clients, Loomis Sayles has determined that this means the best
investment interest of its clients as shareholders of the issuer. Loomis Sayles
has established its Proxy Voting Procedures to assist it in making its proxy
voting decisions with a view to enhancing the value of its clients’ interests in
an issuer over the period during which it expects its clients to hold their
investments. Loomis Sayles will vote against proposals that it believes could
adversely impact the current or potential market value of the issuer’s
securities during the expected holding period.
b.Client
Proxy Voting Policies. Rather than delegating proxy voting authority to Loomis
Sayles, a client may (1) retain the authority to vote proxies on securities in
its account, (2) delegate voting authority to another party or (3) instruct
Loomis Sayles to vote proxies according to a policy that differs from that of
Loomis Sayles. Loomis Sayles will honor any of these instructions if the client
includes the instruction in writing in
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its
IMA or in a written instruction from a person authorized under the IMA to give
such instructions. If Loomis incurs additional costs or expenses in following
any such instruction, Loomis may request payment of such additional costs or
expenses from the client.
c.Stated
Policies. These policies identify issues where Loomis Sayles will (1) generally
vote in favor of a proposal, (2) generally vote against a proposal, (3)
generally vote as recommended by the proxy voting service and (4) specifically
consider its vote for or against a proposal. However, these policies are
guidelines and each vote may be cast differently than the stated policy, taking
into consideration all relevant facts and circumstances at the time of the
vote.
d.Abstain
from Voting. Our policy is to vote rather than abstain from voting on issues
presented unless the client’s best interest requires abstention. Loomis Sayles
will abstain in cases where the impact of the expected costs involved in voting
exceeds the expected benefits of the vote such as where foreign corporations
follow share-blocking practices or where proxy material is not available in
English. Loomis Sayles will vote against ballot issues where the issuer does not
provide sufficient information to make an informed decision. In addition, there
may be instances where Loomis Sayles is not able to vote proxies on a client's
behalf, such as when ballot delivery instructions have not been processed by a
client's custodian, the Proxy Voting Service has not received a ballot for a
client's account or under other circumstances beyond Loomis Sayles'
control.
e.Oversight.
All issues presented for shareholder vote will be considered under the oversight
of the Proxy Committee. All non-routine issues will be directly considered by
the Proxy Committee and, when necessary, the equity analyst following the
company and/or the portfolio manager of an account holding the security, and
will be voted in the best investment interests of the client. All routine for
and against issues will be voted according to Loomis Sayles’ policy approved by
the Proxy Committee unless special factors require that they be considered by
the Proxy Committee and, when necessary, the equity analyst following the
company and/or the portfolio manager of an account holding the security. Loomis
Sayles’ Proxy Committee has established these routine policies in what it
believes are the client’s best interests.
f.Availability
of Procedures. Upon request, Loomis Sayles provides clients with a copy of its
Proxy Voting Procedures, as updated from time to time. In addition, Loomis
Sayles includes its Proxy Voting Procedures and/or a description of its Proxy
Voting Procedures on its public website, www.loomissayles.com, and in its Form
ADV, Part II.
g.Disclosure
of Vote. Upon request, a client can obtain information from Loomis Sayles on how
its proxies were voted. Any client interested in obtaining this information
should contact its Loomis Sayles representatives.
h.Disclosure
to Third Parties. Loomis Sayles’ general policy is not to disclose to third
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parties
how it (or its voting delegate) voted a client’s proxy except that for
registered investment companies, Loomis Sayles makes disclosures as required by
Rule 30(b)(1)-(4) under the Investment Company Act of 1940 and, from time to
time at the request of client groups, Loomis may make general disclosures (not
specific as to client) of its voting instructions.
C.Proxy
Committee.
a.Proxy
Committee. Loomis Sayles has established a Proxy Committee. The Proxy Committee
is composed of representatives of the Equity Research department and the Legal
& Compliance department and other employees of Loomis Sayles as needed. In
the event that any member is unable to participate in a meeting of the Proxy
Committee, his or her designee acts on his or her behalf. A vacancy in the Proxy
Committee is filled by the prior member’s successor in position at Loomis Sayles
or a person of equivalent experience. Each portfolio manager of an account that
holds voting securities of an issuer or analyst covering the issuer or its
securities may be an ad hoc member of the Proxy Committee in connection with the
vote of proxies.
b.Duties.
The specific responsibilities of the Proxy Committee include,
i.to
develop, authorize, implement and update these Proxy Voting Procedures,
including:
(1)annual
review of these Proxy Voting Procedures to ensure consistency with internal
policies and regulatory agency policies,
(2)annual
review of existing voting guidelines and development of additional voting
guidelines to assist in the review of proxy proposals, and
(3)annual
review of the proxy voting process and any general issues that relate to proxy
voting;
ii.to
oversee the proxy voting process, including:
(1)overseeing
the vote on proposals according to the predetermined policies in the voting
guidelines,
(2)directing
the vote on proposals where there is reason not to vote according to the
predetermined policies in the voting guidelines or where proposals require
special consideration,
(3)consulting
with the portfolio managers and analysts for the accounts holding the security
when necessary or appropriate, and
(4)periodically
sampling or engaging an outside party to sample proxy votes to ensure they
comply with the Proxy Voting Procedures and are cast in accordance with the
clients’ best interests;
iii.to
engage and oversee third-party vendors, such as Proxy Voting Services,
including:
(1)determining
whether a Proxy Voting Service has the capacity and competency to adequately
analyze proxy issues by considering:
(a)the
adequacy and quality of the Proxy Voting Service’s
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Proxy
Voting Policies and Procedures
staffing
and personnel, and
(b)the
robustness of the Proxy Voting Service’s policies and procedures regarding its
ability to ensure that its recommendations are based on current and accurate
information and to identify and address any relevant conflicts of
interest,
(2)providing
ongoing oversight of Proxy Voting Services to ensure that proxies continue to be
voted in the best interests of clients,
(3)receiving
and reviewing updates from Proxy Voting Services regarding relevant business
changes or changes to Proxy Voting Services’ conflict policies and procedures,
and
(4)in
the event that the Proxy Committee becomes aware that a Proxy Voting Service’s
recommendation was based on a material factual error, investigating the error,
considering the nature of the error and the related recommendation, and
determining whether the Proxy Voting Service has taken reasonable steps to
reduce the likelihood of similar errors in the future; and
iv.to
develop and/or modify these Proxy Voting Procedures as appropriate or
necessary.
c.Standards.
i.When
determining the vote of any proposal for which it has responsibility, the Proxy
Committee shall vote in the client’s best interest as described in section
1(B)(1) above. In the event a client believes that its other interests require a
different vote, Loomis Sayles shall vote as the client instructs if the
instructions are provided as required in section 1(B)(2) above.
ii.When
determining the vote on any proposal, the Proxy Committee shall not consider any
benefit to Loomis Sayles, any of its affiliates, any of its or their clients or
service providers, other than benefits to the owner of the securities to be
voted.
d.Charter.
The Proxy Committee may adopt a Charter, which shall be consistent with these
Proxy Voting Procedures. Any Charter shall set forth the Committee’s purpose,
membership and operation and shall include procedures prohibiting a member from
voting on a matter for which he or she has a conflict of interest by reason of a
direct relationship with the issuer or other party affected by a given proposal
(e.g., he or she is a portfolio manager for an account of the issuer).
D.Conflicts
of Interest.
Loomis
Sayles has established several policies to ensure that proxy votes are voted in
its clients’ best interest and are not affected by any possible conflicts of
interest. First, except in certain limited instances, Loomis Sayles votes in
accordance with its pre-determined policies set forth in these Proxy Voting
Procedures. Second, where these Proxy Voting Procedures allow for discretion,
Loomis Sayles will generally consider the recommendations of the Proxy Voting
Services in making its voting decisions.
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Voting Policies and Procedures
However,
if the Proxy Committee determines that the Proxy Voting Services’ recommendation
is not in the best interest of its clients, then the Proxy Committee may use its
discretion to vote against the Proxy Voting Services’ recommendation, but only
after taking the following steps: (1) conducting a review for any material
conflict of interest Loomis Sayles may have and, (2) if any material conflict is
found to exist, excluding anyone at Loomis Sayles who is subject to that
conflict of interest from participating in the voting decision in any way.
However, if deemed necessary or appropriate by the Proxy Committee after full
prior disclosure of any conflict, that person may provide information, opinions
or recommendations on any proposal to the Proxy Committee. In such event the
Proxy Committee will make reasonable efforts to obtain and consider, prior to
directing any vote information, opinions or recommendations from or about the
opposing position on any proposal.
E.Recordkeeping
and Disclosure.
Loomis
Sayles or its Proxy Voting Service will maintain records of proxies voted
pursuant to Section 204-2 of the Advisers Act. The records include: (1) a copy
of its Proxy Voting Procedures and its charter; (2) proxy statements received
regarding client securities; (3) a record of each vote cast; (4) a copy of any
document created by Loomis Sayles that is material to making a decision how to
vote proxies on behalf of a client or that memorializes the basis for that
decision; and (5) each written client request for proxy voting records and
Loomis Sayles’ written response to any (written or oral) client request for such
records.
Proxy
voting books and records are maintained in an easily accessible place for a
period of five years, the first two in an appropriate office of Loomis
Sayles.
Loomis
Sayles will provide disclosure of its Proxy Voting Procedures as well as its
voting record as required under applicable SEC rules.
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Voting Policies and Procedures
2.
PROPOSALS USUALLY VOTED FOR
Proxies
involving the issues set forth below generally will be voted FOR.
Adjustments
to Par Value of Common Stock: Vote for management proposals to reduce the par
value of common stock.
Annual
Election of Directors: Vote for proposals to repeal classified boards and to
elect all directors annually.
Appraisal
Rights: Vote for proposals to restore, or provide shareholders with, rights of
appraisal.
Authority
to Issue Shares (for certain foreign issuers): Vote for proposals by boards of
non- US issuers where: (1) the board’s authority to issue shares with preemptive
rights is limited to no more than 66% of the issuer’s issued ordinary share
capital; or (2) the board’s authority to issue shares without preemptive rights
is limited to no more than 5% of the issuer’s issued ordinary share capital, to
the extent such limits continue to be consistent with the guidelines issued by
the Association of British Insurers and other UK investor bodies; and the
recommendations of the issuer’s board and the Proxy Voting Service are in
agreement.
Review
on a case-by-case basis proposals that do not meet the above
criteria.
Blank
Check Preferred Authorization:
A.Vote
for proposals to create blank check preferred stock in cases when the company
expressly states that the stock will not be used as a takeover defense or carry
superior voting rights, and expressly states conversion, dividend, distribution
and other rights.
B.Vote
for shareholder proposals to have blank check preferred stock placements, other
than those shares issued for the purpose of raising capital or making
acquisitions in the normal course of business, submitted for shareholder
ratification.
C.Review
on a case-by-case basis proposals to increase the number of authorized blank
check preferred shares.
Chairman
and CEO are the Same Person: Vote for proposals that would require the positions
of chairman and CEO to be held by different persons.
Changing
Corporate Name: Vote for changing the corporate name.
Confidential
Voting: Vote for shareholder proposals that request corporations to adopt
confidential voting, use independent tabulators and use independent inspectors
of election as long as the proposals include clauses for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents do not agree,
the confidential voting policy is waived. Vote for management proposals to adopt
confidential voting.
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Voting Policies and Procedures
Cumulative
Voting: Vote for proposals to permit cumulative voting, except where the issuer
already has in place a policy of majority voting.
Delivery
of Electronic Proxy Materials: Vote for proposals to allow electronic delivery
of proxy materials to shareholders.
Director
Nominees in Uncontested Elections:
A.Vote
for proposals involving routine matters such as election of directors, provided
that two-thirds of the directors would be independent and affiliated or inside
nominees do not serve on any board committee.
B.Vote
against nominees that are CFOs and, generally, against nominees that the Proxy
Voting Service has identified as not acting in the best interest of
shareholders. Vote against nominees that have attended less than 75% of board
and committee meetings, unless a reasonable cause (e.g., health or family
emergency) for the absence is noted and accepted by the Proxy Voting Service and
the board. Vote against affiliated or inside nominees who serve on a board
committee or if two thirds of the board would not be independent. Vote against
governance or nominating committee members if there is no independent lead or
presiding director and if the CEO and chairman are the same person. Generally,
vote against audit committee members if auditor ratification is not proposed,
except in cases involving mutual fund board members, who are not required to
submit auditor ratification for shareholder approval pursuant to Investment
Company Act of 1940 rules. Vote against compensation committee members when the
Proxy Voting Service recommends a vote against the issuer's "say on pay"
advisory vote. A recommendation of the Proxy Voting Service will generally be
followed when electing directors of foreign companies.
C.Generally,
vote against all members of a board committee and not just the chairman or a
representative thereof in situations where the Proxy Voting Service finds that
the board committee has not acted in the best interest of
shareholders.
D.Vote
as recommended by the Proxy Voting Service when directors are being elected as a
slate and not individually.
Director
Related Compensation: Vote for proposals that are required by and comply with
the applicable statutory or listing requirements governing the issuer. Review on
a case-by- case basis all other proposals.
Election
of CEO Director Nominees: Vote for a CEO director nominee that sits on less than
four U.S.-domiciled company boards and committees. Vote against a CEO director
nominee that sits on four or more U.S.-domiciled boards and committees. Vote for
a CEO director nominee of non-U.S.-domiciled companies that sits on more than 4
non-U.S.- domiciled company boards and committees.
Election
of Mutual Fund Trustees: Vote for nominees who oversee less than 60 mutual fund
portfolios. Vote against nominees who oversee 60 or more mutual fund portfolios
that
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invest
in substantially different asset classes (e.g., if the applicable portfolios
include both fixed income funds and equity funds). Vote on a case-by-case basis
for or against nominees who oversee 60 or more mutual fund portfolios that
invest in substantially similar asset classes (e.g., if the applicable
portfolios include only fixed income funds or only equity funds).
Equal
Access: Vote for shareholder proposals that would allow significant company
shareholders equal access to management's proxy material in order to evaluate
and propose voting recommendations on proxy proposals and director nominees, and
in order to nominate their own candidates to the board.
Fair
Price Provisions:
A.Vote
for fair price proposals, as long as the shareholder vote requirement embedded
in the provision is no more than a majority of disinterested
shares.
B.Vote
for shareholder proposals to lower the shareholder vote requirement in existing
fair price provisions.
Golden
and Tin Parachutes:
A.Vote
for shareholder proposals to have golden (top management) and tin (all
employees) parachutes submitted for shareholder ratification.
B.Review
on a case-by-case basis all proposals to ratify or cancel golden or tin
parachutes.
Greenshoe
Options (French issuers only): Vote for proposals by boards of French issuers in
favor of greenshoe options that grant the issuer the flexibility to increase an
over-subscribed securities issuance by up to 15% so long as such increase takes
place on the same terms and within thirty days of the initial issuance, provided
that the recommendation of the issuer’s board and the Proxy Voting Service are
in agreement. Review on a case-by-case basis proposals that do not meet the
above criteria.
Independent
Audit, Compensation and Nominating Committees: Vote for proposals requesting
that the board audit, compensation and/or nominating committees include
independent directors exclusively.
Independent
Board Chairman:
A.Vote
for shareholder proposals that generally request the board to adopt a policy
requiring its chairman to be "independent," as defined by a relevant exchange or
market with respect to any issuer whose enterprise value is, according to the
Proxy Voting Service, greater than or equal to $10 billion.
B.Vote
such proposals on a case-by-case basis when, according to the Proxy Voting
Service, the issuer's enterprise value is less than $10 billion.
Majority
Voting: Vote for proposals to permit majority rather than plurality or
cumulative voting for the election of directors/trustees.
OBRA
(Omnibus Budget Reconciliation Act)-Related Compensation Proposals:
A.Vote
for plans that simply amend shareholder-approved plans to include
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administrative
features or place a cap on the annual grants any one participant may receive to
comply with the provisions of Section 162(m) of OBRA.
B.Vote
for amendments to add performance goals to existing compensation plans to comply
with the provisions of Section 162(m) of OBRA.
C.Vote
for cash or cash-and-stock bonus plans to exempt the compensation from taxes
under the provisions of Section 162(m) of OBRA.
D.Votes
on amendments to existing plans to increase shares reserved and to qualify the
plan for favorable tax treatment under the provisions of Section 162(m) should
be evaluated on a case-by-case basis.
Ratifying
Auditors:
A.Generally
vote for proposals to ratify auditors.
B.Vote
against ratification of auditors where an auditor has a financial interest in or
association with the company, and is therefore not independent; or there is
reason to believe that the independent auditor has rendered an opinion which is
neither accurate nor indicative of the company's financial position. In general,
if non-audit fees amount to 35% or more of total fees paid to a company's
auditor we will vote against ratification and against the members of the audit
committee.
C.Vote
against ratification of auditors and vote against members of the audit committee
where it is known that an auditor has negotiated an alternative dispute
resolution procedure.
Reverse
Stock Splits: Vote for management proposals to reduce the number of outstanding
shares available through a reverse stock split.
Right
to Adjourn: Vote for the right to adjourn in conjunction with a vote for a
merger or acquisition or other proposal, and vote against the right to adjourn
in conjunction with a vote against a merger or acquisition or other
proposal.
Right
to Call a Special Meeting: Vote for proposals that set a threshold of 10% of the
outstanding voting stock as a minimum percentage allowable to call a special
meeting of shareholders. Vote against proposals that increase or decrease the
threshold from 10%.
Share
Cancellation Programs: Vote for management proposals to reduce share capital by
means of cancelling outstanding shares held in the issuer's
treasury.
Shareholder
Ability to Alter the Size of the Board:
A.Vote
for proposals that seek to fix the size of the board.
B.Vote
against proposals that give management the ability to alter the size of the
board without shareholder approval.
Shareholder
Ability to Remove Directors: Vote for proposals to restore shareholder ability
to remove directors with or without cause and proposals that permit shareholders
to elect directors to fill board vacancies.
Share
Repurchase Programs: Vote for management proposals to institute open-market
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share
repurchase plans in which all shareholders may participate on equal
terms.
Stock
Distributions: Splits and Dividends: Generally vote for management proposals to
increase common share authorization, provided that the increase in authorized
shares following the split or dividend is not greater than 100 percent of
existing authorized shares.
White
Squire Placements: Vote for shareholder proposals to require shareholder
approval of blank check preferred stock issues.
Written
Consent: Vote for proposals regarding the right to act by written consent when
the Proxy Voting Service recommends a vote for the proposal. Proposals regarding
the right to act by written consent where the Proxy Voting Service recommends a
vote against will be sent to the Proxy Committee for determination.
3.
PROPOSALS USUALLY VOTED AGAINST
Proxies
involving the issues set forth below generally will be voted
AGAINST.
Common
Stock Authorization: Vote against proposed common stock authorizations that
increase the existing authorization by more than 100 percent unless a clear need
for the excess shares is presented by the company. A recommendation of the Proxy
Voting Service will generally be followed.
Director
and Officer Indemnification and Liability Protection:
A.Proposals
concerning director and officer indemnification and liability protection that
limit or eliminate entirely director and officer liability for monetary damages
for violating the duty of care, or that would expand coverage beyond just legal
expenses to acts, such as gross negligence, that are more serious violations of
fiduciary obligations than mere carelessness.
B.Vote
for only those proposals that provide such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if (i) the director was
found to have acted in good faith and in a manner that he reasonably believed
was in the best interests of the company, and (ii) only if the director's legal
expenses would be covered.
Shareholder
Ability to Act by Written Consent: Vote against proposals to restrict or
prohibit shareholder ability to take action by written consent.
Shareholder
Ability to Call Special Meetings: Vote against proposals to restrict or prohibit
shareholder ability to call special meetings.
Shareholder
Ability to Remove Directors:
A.Vote
against proposals that provide that directors may be removed only for
cause.
B.Vote
against proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
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Share
Retention by Executives: Generally vote against shareholder proposals requiring
executives to retain shares of the issuer for fixed periods unless the board and
the Proxy Voting Service recommend voting in favor of the proposal.
Staggered
Director Elections: Vote against proposals to classify or stagger the
board.
Stock
Ownership Requirements: Generally vote against shareholder proposals requiring
directors to own a minimum amount of company stock in order to qualify as a
director, or to remain on the board.
Supermajority
Shareholder Vote Requirements: Vote against management proposals to require a
supermajority shareholder vote to approve charter and bylaw
amendments.
Term
of Office: Vote against shareholder proposals to limit the tenure of outside
directors.
Unequal
Voting Rights:
A.Vote
against dual class exchange offers and dual class
recapitalizations.
B.Vote,
on a case-by-case basis, proposals to eliminate an existing dual class voting
structure.
4.
PROPOSALS USUALLY VOTED AS RECOMMENDED BY THE PROXY VOTING SERVICE
Proxies
involving compensation issues, not limited to those set forth below, generally
will be voted as recommended by the Proxy Voting Service but may, in the
consideration of the Proxy Committee, be reviewed on a case-by-case
basis.
401(k)
Employee Benefit Plans: Vote for proposals to implement a 401(k) savings plan
for employees.
Compensation
Plans: Votes with respect to compensation plans generally will be voted as
recommended by the Proxy Voting Service.
Employee
Stock Ownership Plans (“ESOPs”): Vote for proposals that request shareholder
approval in order to implement an ESOP or to increase authorized shares for
existing ESOPs, except in cases when the number of shares allocated to the ESOP
is "excessive" (i.e., generally greater than five percent of outstanding
shares). A recommendation of the Proxy Voting Service will generally be
followed.
Executive
Compensation Advisory Resolutions (“Say-on-Pay”): A recommendation of the Proxy
Voting Service will generally be followed using the following as a
guide:
A.Vote
for shareholder proposals to permit non-binding advisory votes on executive
compensation.
B.Non-binding
advisory votes on executive compensation will be voted as
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recommended
by the Proxy Voting Service.
C.Vote
for a 3 year review of executive compensation when a recommendation of the Proxy
Voting Service is for the approval of the executive compensation proposal, and
vote for an annual review of executive compensation when the Proxy Voting
Service is against the approval of the executive compensation
proposal.
Non-Material
Miscellaneous Bookkeeping Proposals: A recommendation of the Proxy Voting
Service will generally be followed regarding miscellaneous bookkeeping proposals
of a non-material nature.
Preemptive
Rights: Votes with respect to preemptive rights generally will be voted as
recommended by the Proxy Voting Service subject to Common Stock Authorization
requirements above.
Proxy
Access: A recommendation of the Proxy Voting Service will generally be followed
with regard to proposals intended to grant shareholders the right to place
nominees for director on the issuer’s proxy ballot (“Proxy Access”). The
nominating shareholder(s) should hold, in aggregate, at least 3% of the voting
shares of the issuer for at least three years, and be allowed to nominate up to
25% of the nominees. All other proposals relating to Proxy Access will be
reviewed on a case-by-case basis.
Stock
Option Plans: A recommendation of the Proxy Voting Service will generally be
followed using the following as a guide:
A.Vote
against plans which expressly permit repricing of underwater
options.
B.Vote
against proposals to make all stock options performance based.
C.Vote
against stock option plans that could result in an earnings dilution above the
company specific cap considered by the Proxy Voting Service.
D.Vote
for proposals that request expensing of stock options.
Technical
Amendments to By-Laws: A recommendation of the Proxy Voting Service will
generally be followed regarding technical or housekeeping amendments to by-laws
or articles designed to bring the by-laws or articles into line with current
regulations and/or laws.
5.
PROPOSALS REQUIRING SPECIAL CONSIDERATION
The
Proxy Committee will vote proxies involving the issues set forth below generally
on a case-by-case basis after review. Proposals on many of these types of
matters will typically be reviewed with the analyst following the company before
any vote is cast.
Asset
Sales: Votes on asset sales should be made on a case-by-case basis after
considering the impact on the balance sheet/working capital, value received for
the asset, and potential elimination of diseconomies.
Bundled
Proposals: Review on a case-by-case basis bundled or "conditioned" proxy
proposals. In the case of items that are conditioned upon each other, examine
the benefits
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and
costs of the packaged items. In instances when the joint effect of the
conditioned items is not in shareholders' best interests, vote against the
proposals. If the combined effect is positive, support such
proposals.
Charitable
and Political Contributions and Lobbying Expenditures: Votes on proposals
regarding charitable contributions, political contributions, and lobbying
expenditures, should be considered on a case-by-case basis. Votes for UK issuers
concerning political contributions will be voted for if the issuer states that
(a) it does not intend to make any political donations or incur any expenditures
in respect to any political party in the EU; and (b) the proposal is submitted
to ensure that the issuer does not inadvertently breach the Political Parties,
Elections and Referendums Act 2000 and sections 366 and 367 of the Companies Act
2006.
Compensation
in the Event of a Change in Control: Votes on proposals regarding executive
compensation in the event of a change in control of the issuer should be
considered on a case-by-case basis.
Conversion
of Debt Instruments: Votes on the conversion of debt instruments should be
considered on a case-by-case basis after the recommendation of the relevant
Loomis Sayles equity or fixed income analyst is obtained.
Corporate
Restructuring: Votes on corporate restructuring proposals, including minority
squeezeouts, leveraged buyouts, spin-offs, liquidations, and asset sales should
be considered on a case-by-case basis.
Counting
Abstentions: Votes on proposals regarding counting abstentions when calculating
vote proposal outcomes should be considered on a case-by-case
basis.
Debt
Restructurings: Review on a case-by-case basis proposals to increase common
and/or preferred shares and to issue shares as part of a debt-restructuring
plan. Consider the following issues: Dilution - How much will ownership interest
of existing shareholders be reduced, and how extreme will dilution to any future
earnings be? Change in Control - Will the transaction result in a change in
control of the company? Bankruptcy - Loomis Sayles’ Corporate Actions Department
is responsible for consents related to bankruptcies and debt holder consents
related to restructurings.
Delisting
a Security: Review on a case-by-case basis all proposals to delist a security
from an exchange.
Director
Nominees in Contested Elections: Votes in a contested election of directors or
vote no campaign must be evaluated on a case-by-case basis, considering the
following factors: long-term financial performance of the target company
relative to its industry; management's track record; background to the proxy
contest; qualifications of director nominees (both slates); evaluation of what
each side is offering shareholders as well as the likelihood that the proposed
objectives and goals can be met; and stock ownership positions.
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Disclosure
of Prior Government Service: Review on a case-by-case basis all proposals to
disclose a list of employees previously employed in a governmental
capacity.
Environmental
and Social Issues: Proxies involving social and environmental issues, not
limited to those set forth below, frequently will be voted as recommended by the
Proxy Voting Service but may, in the consideration of the Proxy Committee, be
reviewed on a case-by-case basis if the Proxy Committee believes that a
particular proposal (i) could have a significant impact on an industry or issuer
(ii) is appropriate for the issuer and the cost to
implement
would not be excessive, (iii) is appropriate for the issuer in light of various
factors such as reputational damage or litigation risk or (iv) is otherwise
appropriate for the issuer.
Animal
Rights: Proposals that deal with animal rights.
Energy
and Environment: Proposals that request companies to file the CERES
Principles.
Equal
Employment Opportunity and Discrimination: Proposals regarding equal employment
opportunities and discrimination.
Human
Resources Issues: Proposals regarding human resources issues.
Maquiladora
Standards and International Operations Policies: Proposals relating to the
Maquiladora Standards and international operating policies.
Military
Business: Proposals on defense issues.
Northern
Ireland: Proposals pertaining to the MacBride Principles.
Product
Integrity and Marketing: Proposals that ask companies to end their production of
legal, but socially questionable, products.
Third
World Debt Crisis: Proposals dealing with third world debt.
Golden
Coffins: Review on a case-by-case basis all proposals relating to the obligation
of an issuer to provide remuneration or awards to survivors of executives
payable upon such executive's death.
Greenmail:
A.Vote
for proposals to adopt anti-greenmail charter of bylaw amendments or otherwise
restrict a company’s ability to make greenmail payments.
B.Review
on a case-by-case basis anti-greenmail proposals when they are bundled with
other charter or bylaw amendments.
Liquidations:
Votes on liquidations should be made on a case-by-case basis after
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reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.
Mergers
and Acquisitions: Votes on mergers and acquisitions should be considered on a
case-by-case basis, taking into account at least the following: anticipated
financial and operating benefits; offer price (cost vs. premium); prospects of
the combined companies; how the deal was negotiated; and changes in corporate
governance and their impact on shareholder rights.
Mutual
Fund Distribution Agreements: Votes on mutual fund distribution agreements
should be evaluated on a case-by-case basis.
Mutual
Fund Fundamental Investment Restrictions: Votes on amendments to a mutual fund's
fundamental investment restrictions should be evaluated on a case-by-case
basis.
Mutual
Fund Investment Advisory Agreement: Votes on mutual fund investment advisory
agreements should be evaluated on a case-by-case basis.
Poison
Pills:
A.Vote
for shareholder proposals that ask a company to submit its poison pill for
shareholder ratification.
B.Review
on a case-by-case basis shareholder proposals to redeem a company's poison
pill.
C.Review
on a case-by-case basis management proposals to ratify a poison
pill.
Proxy
Access: Proposals to allow shareholders to nominate their own candidates for
seats on a board should be evaluated on a case-by-case basis.
Proxy
Contest Defenses: Generally, proposals concerning all proxy contest defenses
should be evaluated on a case-by-case basis.
Reimburse
Proxy Solicitation Expenses: Decisions to provide full reimbursement for
dissidents waging a proxy contest should be made on a case-by-case
basis.
Reincorporation
Proposals: Proposals to change a company's domicile should be examined on a
case-by-case basis.
Shareholder
Advisory Committees: Review on a case-by-case basis proposals to establish a
shareholder advisory committee.
Shareholder
Proposals to Limit Executive and Director Pay:
A.Generally,
vote for shareholder proposals that seek additional disclosure of executive and
director pay information.
B.Review
on a case-by-case basis (i) all shareholder proposals that seek to limit
executive and director pay and (ii) all advisory resolutions on executive pay
other than shareholder resolutions to permit such advisory resolutions. Vote
against proposals to
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link
all executive or director variable compensation to performance
goals.
Spin-offs:
Votes on spin-offs should be considered on a case-by-case basis depending on the
tax and regulatory advantages, planned use of sale proceeds, market focus, and
managerial incentives.
State
Takeover Statutes: Review on a case-by-case basis proposals to opt in or out of
state takeover statutes (including control share acquisition statutes, control
share cash-out statutes, freezeout provisions, fair price provisions,
stakeholder laws, poison pill endorsements, severance pay and labor contract
provisions, antigreenmail provisions, and disgorgement provisions).
Tender
Offer Defenses: Generally, proposals concerning tender offer defenses should be
evaluated on a case-by-case basis.
Transition
Manager Ballots: Any ballot received by Loomis Sayles for a security that was
held for a client by a Transition Manager prior to Loomis Sayles’ management of
the client’s holdings will be considered on a case-by case basis by the Proxy
Committee (without the input of any Loomis Sayles analyst or portfolio manager)
if such security is no longer held in the client’s account with Loomis
Sayles.
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LOS
ANGELES CAPITAL
Proxy
Policy
Rev.
September 30, 2019
Los
Angeles Capital Management and Equity Research, Inc.
Table
of Contents
I. Introduction
3
II. Proxy
Policy Statement 3
A.
Limitations 4
B. Special
Considerations 4
C. Disclosures 4
III.
Responsibility and Oversight 5
IV.
Proxy Procedures 5
A. Conflicts
of Interest 5
B. Recordkeeping 5
I.Introduction
Los
Angeles Capital Management and Equity Research, Inc. (“Los Angeles Capital” or
the “Firm”) has adopted and implemented policies and procedures that are
reasonably designed to ensure that proxies are voted in the best interest of
clients, in accordance with U.S. Securities and Exchange Commission (“SEC”) Rule
206(4) ‐ 6 under the Investment Advisers Act of 1940 (the “Advisers Act”) and
its obligations under the Employee Retirement Income Security Act of 1974
(“ERISA”). Los Angeles Capital provides investment advisory or sub-advisory
services to various types of clients. These clients frequently give Los Angeles
Capital the authority to vote proxies relating to the underlying securities that
are held on behalf of such clients. Such authority is established by advisory
contracts or comparable documents, and the proxy voting guidelines have been
tailored to reflect these specific contractual obligations.
In
addition to SEC requirements governing advisers, the proxy voting policies
reflect the long‐standing fiduciary standards and responsibilities for ERISA
accounts set out in Department of Labor Interpretive Bulletins including
2016‐01. Los Angeles Capital believes that this Proxy Policy is reasonably
designed to meet its goal of ensuring that the Firm endeavors to vote (or
refrain from voting) proxies in a manner consistent with the best interests of
its clients, as understood by the Firm at the time of the vote.
II.Proxy
Policy Statement
Los
Angeles Capital has retained Glass Lewis & Co., LLC (“Glass Lewis”) an
unaffiliated third‐party, to act as an independent voting agent on its behalf.
Glass Lewis provides objective proxy analysis, voting recommendations,
recordkeeping, and manages other operational matters of the proxy voting
process. If at any time a material conflict arises it would be resolved in the
best interest of the client.
Los
Angeles Capital has adopted Glass Lewis’ U.S. and International Proxy Paper
Guidelines for those accounts where proxy voting authority has been granted to
the Firm. Although the Firm has adopted Glass Lewis’ established guidelines and
has a pre‐determined voting policy, the Firm retains the right to ultimately
cast each vote on a case‐by‐case basis, taking into consideration the
contractual obligations under the advisory or sub-advisory agreement and all
other relevant facts and circumstances at the time of the vote. In doing so, the
Firm may incorporate information gathered from other sources beyond Glass Lewis.
The Firm may conduct research internally and/or use the resources of an
independent research consultant, or the Firm may use information from any of the
following sources: legislative materials, studies of corporate governance and
other proxy voting issues, and/or analyses of shareholder and management
proposals by a certain sector of companies (e.g.,
Fortune 500 companies).
The
Proxy Committee (the “Committee”) may also be called on to vote a proxy that its
third‐party provider cannot. In these circumstances, two votes from members of
the Committee or one member of the Committee and an internal counsel are
required.
Los
Angeles Capital recognizes that a client may issue directives regarding how
particular proxy issues are to be voted for the client’s portfolio holdings. Los
Angeles Capital requires that the advisory or sub‐advisory contract provides for
such direction, including instructions as to how those votes will be managed,
particularly where they differ from Los Angeles Capital’s policies.
It
is unlikely that serious conflicts of interest will arise in the context of the
Firm’s proxy voting because the Firm does not engage in managing or advising
public companies, underwriting, or investment banking. Further, as a matter of
policy, the employees, officers, or principals of Los Angeles Capital will not
be influenced by outside sources whose interests conflict with the interests of
its clients.
A.Limitations
Circumstances
may arise, where subject to contractual obligations established by the client,
Los Angeles Capital will take a limited role in voting proxies:
•Los
Angeles Capital may abstain from voting a client proxy if it concludes that the
value of the portfolio holding is indeterminable or insignificant, or if the
costs of voting such proxy are unjustifiable.
•Los
Angeles Capital abstains from voting proxies for securities that participate in
a securities
lending program and
are out on loan. In many cases, where a client directs the securities lending,
Los Angeles Capital may not be aware when the security is out on loan and thus
may not be able to recall the security before the record date. Where Los Angeles
Capital deems a holding materially significant or is directing the securities
lending it may recall securities, if operationally feasible, so that they can be
voted where the Firm determines it has a fiduciary obligation to do
so.
•Los
Angeles Capital abstains from voting shares of securities in a country that
participates in share
blocking because
it is disruptive to the management of the portfolio.
•Los
Angeles Capital may be unable to vote proxies in instances where multiple global
custodian accounts roll up into one omnibus
sub-custodian account.
In the specific markets where this may occur the account managed by Los Angeles
Capital is not registered individually. Therefore, if ballots are voted
differently for the underlying accounts, the omnibus vote is considered split
and is rejected.
•Los
Angeles Capital may abstain from voting shares of securities where in the Firm’s
judgement the unjustifiable
costs or
disadvantages of voting the proxy would exceed the anticipated benefit of voting
(e.g., certain non‐U.S. securities).
•The
Firm does not actively engage in shareholder
activism,
such as dialogue with management with respect to pending proxy voting
issues.
•The
Firm is unable to vote proxies where a required Power
of Attorney is
not on file.
B.
Special Considerations
Certain
accounts may warrant specialized treatment in voting proxies. Contractual
stipulations and individual client direction will dictate how voting will be
done in these cases.
Mutual
Funds
Proxies
will be voted in accordance with the requirements of securities laws. Proxies of
portfolio companies voted may be subject to investment restrictions of the fund
and voted in accordance with any resolutions or other instructions approved by
authorized persons of the fund.
ERISA
Accounts
Responsibilities
for voting ERISA accounts include: the duty of loyalty, prudence, compliance
with the plan, as well as a duty to avoid prohibited transactions.
C.
Disclosure
Los
Angeles Capital will provide all clients with a copy of the Firm’s current
policies and procedures upon request. In addition, clients may request, at any
time, a copy of the Firm’s voting records for their respective account(s) by
making a formal request to Los Angeles Capital. Los Angeles Capital will make
this information available to a client upon its request within a reasonable
time. For further information, please contact a member of Operations at Los
Angeles Capital at 310‐479‐9998 or [email protected].
Los
Angeles Capital generally will not disclose how it intends to vote on behalf of
a client account except as required by applicable law, but may disclose such
information to a client who itself may decide or may be required to make public
such information. Los Angeles Capital will not disclose past votes or share
amounts voted except to the respective client or as required by
law.
III.Responsibility
and Oversight
The
Firm’s Proxy Committee (the “Committee”) was established to provide oversight to
the proxy voting process. The Committee is responsible for developing,
implementing, and updating the Firm’s proxy policy, reviewing and approving all
proxy paper guidelines, overseeing the third‐party proxy vendor, identifying any
conflicts of interest, and meeting to discuss any material issues regarding the
proxy voting process. The Committee meets annually and as necessary to fulfill
its obligations.
Los
Angeles Capital’s Operations Department handles the day to day administration of
the proxy voting process.
IV.Proxy
Procedures
Glass
Lewis provides for the timely execution of specified proxy votes on the Firm’s
behalf, which includes complete account set‐up, vote execution, reporting,
recordkeeping, and compliance with ERISA.
Los
Angeles Capital’s responsibility for voting proxies is generally determined by
the obligations set forth under each client’s Investment Management Agreement,
Limited Partnership Agreement, Prospectus, or other legal documentation
governing the account. Voting ERISA client proxies is a fiduciary act of plan
asset management that must be performed by the adviser, unless the voting right
is retained by a named fiduciary of the plan. If an advisory or sub‐advisory
contract or similar document states that Los Angeles Capital does not have the
authority to vote client proxies, then voting is the responsibility of some
other named fiduciary.
A
client may issue directives regarding how particular proxy issues are to be
voted for the client’s account. Los Angeles Capital requires that the advisory
or sub‐advisory contract provides for such direction, including instructions as
to how those votes will be managed, particularly where they differ from the
Firm’s policies. While Los Angeles Capital will accept direction from clients on
specific proxy issues for their account, the Firm reserves the right to maintain
its standard position on all other client accounts.
A.
Conflicts of Interest
Los
Angeles Capital attempts to minimize the risks of conflicts by adopting the
policies of an independent third party. Los Angeles Capital reviews the Conflict
of Interest Statement prepared by Glass Lewis on an annual basis.
If
Glass Lewis identifies a potential conflict of interest between it and a
publicly‐held company, it will disclose the relationship on the relevant
research report. If an unforeseen conflict requires specialized treatment,
alternate measures may be taken, up to and including having Glass Lewis refrain
from writing a Proxy Paper report on the company. In this scenario the Firm may
be required to vote the proxy.
If
during this process the Committee identifies a potential material conflict of
interest between Los Angeles Capital or an affiliated person of the Firm and
that of one of its clients or prospects, the client will be notified. If no
directive is issued by the client, the Committee will vote in such a way that,
in the Firm’s opinion, fairly addresses the conflict in the best interest of the
client.
B.
Recordkeeping
All
proxy records pursuant to Section 204‐2 of the Advisers Act are retained by
either Glass Lewis or Los Angeles Capital. Glass Lewis retains (1) records of
proxy statements received regarding client securities and (2) records of each
vote cast. Los Angeles Capital retains (1) copies of its proxy policies,
procedures, and guidelines; (2) copies of any document created by Los Angeles
Capital that was material to making a decision how to vote proxies on behalf of
a client or that memorializes the basis for that decision; (3) each written
client request for information on how the adviser voted proxies on behalf of the
client; and (4) a copy of any written response by Los Angeles Capital to any
(written or oral) client request for information on how the adviser voted
proxies on behalf of the requesting client.
ERISA
Accounts
Los
Angeles Capital maintains proxy voting records (both procedures and actions
taken in individual situations) to enable the named fiduciary to determine
whether Los Angeles Capital is fulfilling its obligations. Such records may be
maintained via Glass Lewis’ electronic system. Retention may include: (1) issuer
name and meeting; (2) issues voted on and record of the vote; (3) number of
shares eligible to be voted on the record date; (4) number of shares voted; and
(5) where appropriate, cost‐benefit analyses.
Duration
Proxy
voting books and records will be maintained in an easily accessible place for at
least five years from the end of the fiscal year during which the last entry was
made on such records. For the first two years, the records will be maintained in
Los Angeles Capital’s office.
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Mellon
Category:
Portfolio Management
It
is the policy of Mellon to fully meet its fiduciary obligations in exercising
the power, discretion and responsibility to vote proxies where clients have
delegated such authority.
Registered
Investment Advisers have a number of responsibilities regarding voting of
proxies for client securities that are under its management and that are
governed by the Advisers Act. Rule 206(4)-6 requires investments advisers to (a)
adopt and implement written policies and procedures that are reasonably designed
to ensure that the adviser votes client securities in the best interests of
clients, which procedures must include how material conflicts that may arise
between an adviser's interests and those of its clients are addressed; (b)
disclose to clients how they may obtain information from the adviser with
respect to the voting of proxies for their securities; and (c) describe to
clients its proxy voting policies and procedures and, upon request, furnish a
copy to its clients. Rule 204-2 further requires an investment adviser to retain
certain records relating to the exercise of its proxy voting
authority.
As
a registered Investment Advisor, Mellon is often entrusted with the fiduciary
responsibility to vote proxies for shares of corporate stock held on behalf of
our clients. Proxy voting is an integral part of the management of the
investment in those shares. In voting proxies, Mellon takes into account long
term economic value as we evaluate issues relating to corporate governance,
including structures and practices, the nature of long-term business plans,
including sustainability policies and practices to address environmental and
social factors that are likely to have an impact on shareholder value, and other
financial and non-financial measures of corporate performance.
For
clients that have delegated proxy authority, Mellon will make every reasonable
effort to ensure that proxies are received and are voted in accordance with this
policy and related procedures. To assist us in that process, Mellon retains
Institutional Shareholder Services (“ISS”) to provide various services related
to proxy voting, such as research, analysis, voting services, proxy vote
tracking, recordkeeping, and reporting. In addition, Mellon also retains Glass
Lewis for research services only.
Mellon
seeks to avoid potential material conflicts of interest through its
participation on The Bank of New York Mellon Corporation’s (“BNY Mellon”) Proxy
Voting and Governance Committee (“Committee”). As such, Mellon has adopted and
implemented BNY Mellon’s Proxy Voting Policy and proxy voting guidelines. The
guidelines are applied to all client accounts for which Mellon has been
delegated the authority to vote in a consistent manner and without consideration
of any client relationship factors.
Under
this policy, the Committee permits member firms (such as Mellon) to consider
specific interests and issues and cast votes differently from the collective
vote of the Committee where the member firm determines that a different vote is
in the best interests of the affected account(s).
Mellon
will furnish a copy of its Proxy Voting Policy and its proxy voting guidelines
upon request to each advisory client that has delegated voting
authority.
Voting
BNY Mellon Stock
It
is the policy of Mellon not to vote or make recommendations on how to vote
shares of BNY Mellon stock, even where Mellon has the legal power to do so under
the relevant governing instrument. In order to avoid any appearance of conflict
relating to voting BNY Mellon stock, Mellon has contracted with an independent
fiduciary (ISS) to direct all voting of BNY Mellon Stock held by any Mellon
accounts on any matter in which shareholders of BNY Mellon Stock are required or
permitted to vote.
Proxy
Voting Disclosure
Clients
who have delegated proxy voting authority to Mellon may obtain the proxy voting
records for their account upon written or verbal request.
Oversight
Activities
Mellon
performs periodic oversight of the operational and voting processes implemented
on behalf of clients to ensure that proxy ballots are voted in accordance with
established guidelines. These activities may include, but are not limited to,
monthly account reconciliation between the voting agent and Mellon records and
forensic testing of the application of vote instruction in relation to policy
vote recommendations at the ballot level. These efforts are completed as
component of our Rule 206(4) -7 compliance program.
Appropriate
disciplinary action will be taken for failure to comply with the requirements of
this policy, which could include termination of employment.
Rules
206(4)-6 and 204-2 under The Investment Advisers Act of 1940
BNY
Mellon Policy II-G-051 (“Proxy Voting and Governance Committee Voting Policy”)
BNY
Mellon Policy II-G-052 (“Proxy Voting and Governance Committee”)
Compliance
February
2018 (Original)
BNY
MELLON | INVESTMENT MANAGEMENT
Symphony
Asset Management Proxy Voting Policy
Symphony
has adopted and implemented a proxy voting policy and procedures (the “Policy”)
to ensure that proxies are voted in the best interest of its clients
(“Clients”). These are merely guidelines and specific situations could call for
a vote which does not follow the guidelines. In determining how to vote proxies,
Symphony will typically follow the proxy voting guidelines of the independent
third party Symphony has retained to provide proxy voting services, which are
available from Symphony upon request (Third Party Proxy Guidelines”). As a rule,
Symphony will vote proxies in accordance with its determination of its Client’s
best interest and fully and fairly disclose conflict of interests as
appropriate.
Symphony
has created a Proxy Voting Committee to periodically review the Policy, address
conflicts of interest, evaluate proxy voting service providers, and oversee
portfolio manager decisions for consistency with client instructions, policies,
procedures, that deviate from the Third Party Proxy Guidelines. The Policy
provides that under certain circumstances, Symphony can vote one way for some
Clients and another way for other Clients. For example, votes for a Client who
provides specific voting instructions may differ from votes for Clients who do
not provide proxy voting instructions. However, when Symphony has discretion,
proxies will generally be voted the same way for all Clients. In addition,
conflicts of interest in voting proxies can arise between Clients, Symphony
and/or its Employees due to the existence of a lending or other material
relationship or otherwise. As a general rule, conflicts will be resolved by
Symphony voting in accordance with the Third Party Proxy Guidelines when:
•Symphony
manages the account of a corporation or a pension fund sponsored by a
corporation in which other Clients of Symphony also own stock. Symphony will
vote the proxy for its other Clients in accordance with Third-party Proxy
Guidelines and will follow any directions from the corporation or the pension
plan, if different than the Third Party Proxy Guidelines.
•Symphony
has knowledge that an Employee or a member of his/her immediate family is on the
Board of Directors or a member of senior management of the company that is the
issuer of securities held in a Client’s account.
•Symphony
has a borrowing or other material relationship with a corporation whose
securities are the subject of the proxy.
In
seeking to address conflicts, Symphony’s fundamental objective is to vote
proxies in the best interest of its Clients, and not place its own interests
ahead of the Client interests.
As
a general rule, Symphony’s Client’s Investment Management Agreements delegate
proxy voting authority to Symphony. In voting proxies for its Clients, when
Symphony follows Third
Party Proxy Guidelines, prior to such vote it will consider the best interest of
the Client and if appropriate independently analyze certain events such as
mergers and acquisitions to determine if Symphony
in
in agreement with the Third Party Proxy Guidelines. .
Clients
can also decide not to delegate voting rights to Symphony or can set
restrictions on Symphony’s voting authority, which Symphony will comply
with.
Examples
of possible voting arrangements could include:
•parameters
based on the client’s preferences, such as proposals relating to corporate
events (mergers and acquisition transactions, dissolutions, conversions, or
consolidations) or contested elections for directors;
•voting
in accordance with the voting recommendations of management of the
issuer;
•voting
in favor of all (or certain) proposals made by particular shareholder
proponents;
•agreeing
that Symphony would not exercise voting authority in circumstances under which
voting could impose costs on the client and the vote would not reasonably be
expected to have a material effect on the value of the client’s investment;
or,
•voting
pursuant to certain environmental, social, or governance standards or
factors.
Proxies
will always be voted by Symphony based upon its reasonable belief about what is
in the best interest of Clients. Those situations that do not fit within the
general rules for the resolution of conflicts of interest will be reviewed by
the Proxy Voting Committee. The Proxy Voting Committee, after consulting with
Symphony’s Risk Committee if deemed appropriate, will determine how the proxy
should be voted. For example, when a portfolio manager decides not to follow the
Third Party Proxy Guidelines, the Proxy Voting Committee will review a portfolio
manager’s recommendation and determine how to vote the proxy. Decisions by the
Proxy Voting Committee will be documented and kept with records related to the
voting of proxies. A summary of specific votes will be retained in accordance
with Symphony’s recordkeeping requirements.
Revised
May
2020
|
|
|
Origin
Asset Management LLP |
(‘Origin’
or the ‘Firm’) |
|
Proxy
Voting Policy – December 2019 |
This
document draws on the Advisers Act of 1940, a United States federal law, and
subsequent Securities and Exchange Commission guidance IA-5325; IC-33605, 17 CFR
Parts 271 and 276 (effective date 10th
September 2019) and provides an outline of the policies in place to ensure
Origin LLP (‘the Firm’) meets its obligation to vote on proxies in the best
interest of its clients.
This
document draws on the Advisers Act of 1940, a United States federal law, and
subsequent Securities and Exchange Commission guidance IA-5325; IC-33605, 17 CFR
Parts 271 and 276 (effective date 10th
September 2019) and provides an outline of the policies in place to ensure
Origin LLP (‘the Firm’) meets its obligation to vote on proxies in the best
interest of its clients.
Origin
reviews and documents the adequacy of its proxy voting policies at least
annually.
The
Firm has engaged a third party international corporate governance research and
proxy voting service provider (‘third party proxy voting service provider’). The
Firm’s policy is to actively vote proxies for all clients by adopting the
provider’s proxy voting policy, unless a client does not wish or require us to
do so. Any proxy voting arrangements shall be approved by the Investment Team
and the Compliance Officer.
The
Firm must;
(a)Adopt
and implement written policies and procedures that are reasonably designed to
ensure that the Firm votes client securities in the best interest of
clients.
(b)Disclose
to clients how they may obtain information from the Firm about votes with
respect to securities; and
(c)Describe
to clients the proxy voting policies and procedures and, upon request, provide
the clients with a copy of these policies and procedures.
(d)Take
steps to demonstrate that it is making voting determinations in a client’s best
interests.
(e)Consider
factors such as the third party proxy voting service provider’s capacity and
competency when deciding whether to use a proxy advisory firm.
(f)Take
steps to ensure that its voting determinations are not based on materially
inaccurate or incomplete information. This can take the form of scrutinising the
third party proxy service provider firm’s procedures.
The
duty of care requires the Firm to monitor corporate actions and vote client
proxies. This does not necessarily mean that a failure to vote every proxy would
necessarily violate fiduciary obligations. Due to the nature of some of the
holdings, how they are registered, and our strategies, there will be many times
when refraining from voting a proxy will be in the client's best interest. This
will mainly be when it is determined that the cost of voting a proxy exceeds the
expected benefit to a client. It is not mandatory to vote proxies on behalf of a
client where this has been covered by a prior agreement with the
client.
The
Firm has engaged a third party proxy voting service provider to enable the firm
to vote stock on portfolios managed for its clients. The Firm believes that the
third party proxy voting service provider has the necessary resources, in-depth
knowledge and expertise to vote in the best interests of our clients and thus
enables the firm to meet this key objective of its Proxy Voting Policy. The Firm
can override the guideline proxy voting recommendation of the third party proxy
voting service provider on the basis of a client request or where the Firm
disagrees with the guideline proxy voting recommendation.
The
Firm shall obtain from the third party proxy voting service provider a
notification of all pending proxy vote opportunities. The Custodian will provide
a list of all proxy voting requests relevant to the Firm’s holdings to the third
party proxy voting service provider. The third party proxy voting service
provider shall then issue the recommendations corresponding to this list. These
are then returned to the Custodian for instruction and votes are cast via a
voting platform in accordance with the third party proxy voting service
recommendations. Prior to the votes being returned to the Custodian to be cast,
the Firm’s operations team access the voting platform and confirm the voting
decisions. This will usually be in line with the recommendations provided by the
third party proxy voting service provider but the Firm does have the option to
override these recommendations at this stage, should the client request this or
should the Firm deem it to be in the client’s best interest
The
rationale for disagreeing with a guideline proxy voting recommendation of the
international governance provider must be discussed, recorded and agreed with
Compliance before the override instruction is communicated to the third party
proxy voting service provider. A record of all voting decisions is maintained by
the Firm and the Custodian.
Conflicts
of Interests in respect of voting Proxies
When
the Firm has, or may have, a conflict of interest between it and its clients, or
between one client and another, it must pay due regard to the interests of each
customer and manage the conflict of interest fairly.
Where
a conflict arises, or may arise, the Firm must not knowingly advise or deal in
the exercise of discretion, in relation to that transaction unless it takes
reasonable steps to ensure fair treatment for the client. The Firm’s client
agreements make a formal disclosure that such conflicts could arise (i.e.
non-exclusivity), and by doing so puts the customer on notice of the
possibility. This keeps the Firm within the strict letter of the rules and
principles, but it is an overriding policy of the Firm that all such conflicts
should be brought to the attention of the Compliance Officer in order that they
may be sure that the firm’s procedures are adequate.
If
an investment decision is made for any client that departs from previous advice
or recorded strategy for that client or which may result in an increased risk
profile for the client's portfolio, the Firm must record the reasons behind the
decision. If the reasons are the same for a number of clients or transactions,
only one record needs to be made. These records must be made in writing and be
kept in the relevant client files.
The
Firm will notify clients of how they may obtain a copy of how the Firm voted
free of charge and will provide a contact for that purpose.
Origin
Asset Management LLP
Compliance
Monitoring and Policy Review
An
investment adviser that retains a third party proxy advisory service provider to
provide voting recommendations or voting execution services also should consider
additional steps to evaluate whether the investment adviser’s voting
determinations are consistent with its voting policies and procedures and in the
client’s best interest before the votes are cast. The operations and investment
teams view all “pre-populated” vote recommendation by the third party proxy
advisory firm before they are cast via the electronic voting platform.
The
Firm’s ongoing compliance monitoring program will include;
1)An
annual review of the Firm’s internal compliance monitoring procedures and
policies with respect to proxy voting.
2)An
annual review of the adequacy of service provided by the third party proxy
voting service provider and its compliance with the SEC guidelines and federal
law with respect to proxy voting.
3)A
quarterly review of the ongoing communication of voting intentions to the
investment team to ensure that these are visible to the investment
team.
4)A
quarterly sample test of pre-populated voting intentions focused on votes that
are likely to impact the client, such as those for corporate events or contested
elections of directors, to ensure the voting rationales and relevant background
information supplied by the third party proxy voting service provider is
available and of adequate quality.
5)Ad-hoc
reviews of company-specific voting intentions where the Firm considers this
appropriate based on the above sample testing.
The
Firm is in compliance with the Financial Reporting Council’s UK Stewardship Code
and Shareholders Rights Directive II regarding corporate governance and
engagement. A copy of Origin’s latest disclosure response to the UK Stewardship
Code and Shareholders Rights Directive II is available for download on the
origin website at https://www.originam.com/library.
Origin
Asset Management LLP
|
|
|
Proxy
Voting Policy |
Pictet
Asset Management |
March
2013 |
Table
of Contents
1.
Operational Items 2
2.
Board of Directors 4
3.
Capital Structure 7
4.
Compensation 10
5.
Other Items 11
6.
Foreign Private Issuers listed on US
Exchanges 14
APPENDIX
I – Classification of Directors 15
Executive
Director 15
Non-Independent
Non-Executive Director (NED) 15
Independent
NED 16
Employee
Representative 16
March
2013 | PROXY VOTING POLICY |
1.
Operational Items
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Financial
Results/ Director and Auditor Reports |
Vote
FOR approval of financial statements and director and auditor reports,
unless:
›
There
are concerns about the accounts presented or audit procedures used;
or
›
The company is not responsive to shareholder questions about specific
items that should be publicly disclosed. |
Appointment
of Auditors and Auditor Fees
|
Vote
FOR the (re)election of auditors and/or proposals authorizing the board to
fix auditor fees, unless:
›
There
are serious concerns about the procedures used by the auditor;
›
There
is reason to believe that the auditor has rendered an opinion which is
neither accurate nor indicative of the company's financial position;
›
External
auditors have previously served the company in an executive capacity or
can otherwise be considered affiliated with the company;
›
Name
of the proposed auditors has not been published;
›
The
auditors are being changed without explanation; or
›
Fees
for non‐audit services exceed standard annual audit‐related fees (only
applies to companies on the MSCI EAFE index and/or listed on any country
main index).
In
circumstances where fees for non‐audit services include fees related to
significant one‐time capital structure events (initial public offerings,
bankruptcy emergencies, and spin‐offs) and the company makes public
disclosure of the amount and nature of those fees, which are an exception
to the standard "non‐audit fee" category, then such fees may be excluded
from the non‐audit fees considered in determining the ratio of non‐audit
to audit fees.
For
concerns related to the audit procedures, independence of auditors, and/or
name of auditors, PAM may vote AGAINST the auditor (re)election. For
concerns related to fees paid to the auditors, PAM may vote AGAINST
remuneration of auditors if this is a separate voting item; otherwise PAM
may vote AGAINST the auditor
election. |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Appointment
of Internal Statutory Auditors |
Vote
FOR the appointment or re-election of statutory auditors,
unless:
›
There
are serious concerns about the statutory reports presented or the audit
procedures used;
›
Questions
exist concerning any of the statutory auditors being appointed;
or
›
The
auditors have previously served the company in an executive capacity or
can otherwise be considered affiliated with the
company. |
Allocation
of Income |
Vote
FOR approval of the allocation of income, unless:
›
The
dividend payout ratio has been consistently below 30 percent without
adequate explanation; or
›
The
payout is excessive given the company's financial
position. |
Stock
(Scrip) Dividend Alternative |
Vote
FOR most stock (scrip) dividend proposals
Vote
AGAINST proposals that do not allow for a cash option unless management
demonstrate that the cash option is harmful to shareholder
value. |
Amendments
to Articles of Association |
Vote
amendments to the articles of association on a CASE-BY-CASE
basis. |
Change
in Company Fiscal Term |
Vote
FOR resolutions to change a company's fiscal term unless a company's
motivation for the change is to postpone its AGM. |
Lower
Disclosure Threshold for Stock Ownership |
Vote
AGAINST resolutions to lower the stock ownership disclosure threshold
below 5 percent unless specific reasons exist to implement a lower
threshold. |
Amend
Quorum Requirements |
Vote
proposals to amend quorum requirements for shareholder meetings on a
CASE-BY-CASE basis. |
Transact
Other Business |
Vote
AGAINST other business when it appears as a voting
item. |
March
2013 | PROXY VOTING POLICY |
2.
Board of Directors
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Director
Elections |
Vote
FOR management nominees in the election of directors, unless:
›
Adequate
disclosure has not been provided in a timely manner;
›
There
are clear concerns over questionable finances or
restatements;
›
There
have been questionable transactions with conflicts of
interest;
›
There
are any records of abuses against minority shareholder interests;
or
›
The
board fails to meet minimum corporate governance standards.
Vote
FOR individual nominees unless there are specific concerns about the
individual, such as criminal wrongdoing or breach of fiduciary
responsibilities.
Vote
AGAINST individual directors if repeated absences at board meetings have
not been explained (in countries where this information is
disclosed).
Vote
on a CASE-BY-CASE basis for contested elections of directors, e.g. the
election of shareholder nominees or the dismissal of incumbent directors,
determining which directors are best suited to add value for
shareholders.
Vote
FOR employee and/or labour representatives if they sit on either the audit
or compensation committee and are required by law to be on those
committees.
Vote
AGAINST employee and/or labour representatives if they sit on either the
audit or compensation committee, if they are not required to be on those
committees.
Vote
AGAINST the election of directors of all companies if the name of the
nominee is not disclosed in a timely manner prior to the
meeting.
Grace
period:
Vote FOR the election of directors at all Polish companies and non-index
Turkish Companies in 2013 even if nominee names are not disclosed in a
timely manner prior to the meeting. Beginning in 2014, vote AGAINST the
election of directors at all Polish companies and non-index Turkish
companies if nominee names are not disclosed in a timely manner prior to
the meeting.
Under
extraordinary circumstances, vote AGAINST individual directors, members of
a committee, or the entire board, due to:
›
Material
failures of governance, stewardship, risk oversight or fiduciary
responsibilities at the company; or
›
Failure
to replace management as appropriate; or
›
Egregious
actions related to the director(s)' service on other boards that raise
substantial doubt about his or her ability to effectively oversee
management and serve the best interests of shareholders at any
company.
[Please
see the classification of Directors in Appendix
1] |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Contested
Director Elections |
For
contested elections of directors, e.g. the election of shareholder
nominees or the dismissal of incumbent directors, PAM will vote on a
CASE-BY-CASE basis, determining which directors are best suited to add
value for shareholders.
The
analysis will generally be based on, but not limited to, the following
major decision factors:
›
Company
performance relative to its peers;
›
Strategy
of the incumbents versus the dissidents;
›
Independence
of directors/nominees;
›
Experience
and skills of board candidates;
›
Governance
profile of the company;
›
Evidence
of management entrenchment;
›
Responsiveness
to shareholders;
›
Whether
a takeover offer has been rebuffed;
›
Whether
minority or majority representation is being sought.
When
analyzing a contested election of directors, PAM will generally focus on
two central questions: (1) Have the dissidents proved that board change is
warranted? And (2) if so, are the dissident board nominees likely to
effect positive change (i.e. maximize long-term shareholder
value). |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Discharge
of Directors |
Generally
vote FOR the discharge of directors, including members of the management
board and/or supervisory board, unless there is reliable information about
significant and compelling controversies as to whether the board is not
fulfilling its fiduciary duties as evidenced by:
›
A
lack of oversight or actions by board members which invoke shareholder
distrust related to malfeasance or poor supervision, such as operating in
private or company interest rather than in shareholder interest;
or
›
Any
legal proceedings, (either . civil or criminal) aiming to hold the board
responsible for breach of trust in the past or related to currently
alleged actions yet to be confirmed (and not only the fiscal year in
question), such as price fixing, insider trading, bribery, fraud, and
other illegal actions; or
›
Other
egregious governance issues where shareholders will bring legal action
against the company or its directors.
For
markets which do not routinely request discharge resolutions (e.g. common
law countries or markets where discharge is not mandatory), we may voice
concern in other appropriate agenda items, such as approval of the annual
accounts or other relevant resolutions, to enable us to express discontent
with the board. |
Director,
Officer, and Auditor Indemnification and Liability
Provisions |
Vote
proposals seeking indemnification and liability protection for directors
and officers on a CASE-BY-CASE basis. Vote AGAINST proposals to
indemnify external auditors. |
Board
Structure |
Vote
FOR proposals to fix board size. Vote AGAINST the introduction of
classified boards and mandatory retirement ages for directors. Vote
AGAINST proposals to alter board structure or size in the context of a
fight for control of the company or the
board. |
March
2013 | PROXY VOTING POLICY |
3.
Capital Structure
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Share
Issuance Requests |
General
Issuances:
Vote
FOR issuance requests with pre-emptive rights to a maximum of 100 percent
over currently issued capital.
Vote
FOR issuance requests without pre-emptive rights to a maximum of 20
percent of currently issued capital.
Specific
Issuances:
Vote
on a CASE-BY-CASE basis on all requests, with or without pre-emptive
rights. |
Increases
in Authorized Capital |
Vote
FOR non-specific proposals to increase authorized capital up to 100
percent over the current authorization unless the increase would leave the
company with less than 30 percent of its new authorization
outstanding.
Vote
FOR specific proposals to increase authorized capital to any amount,
unless:
›
The
specific purpose of the increase (such as a share-based acquisition or
merger) does not meet the ISS guidelines for the purpose being proposed;
or
›
The
increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed
issuances.
Vote
AGAINST proposals to adopt unlimited capital
authorizations. |
Reduction
of Capital |
Vote
FOR proposals to reduce capital for routine accounting purposes unless the
terms are unfavorable to shareholders. Vote proposals to reduce capital
in connection with corporate restructuring on a CASE-BY-CASE
basis. |
Capital
Structures |
Vote
FOR resolutions that seek to maintain or convert to a one-share, one-vote
capital structure. Vote AGAINST requests for the creation or
continuation of dual-class capital structures or the creation of new or
additional super-voting shares. |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Preferred
Stock |
Vote
FOR the creation of a new class of preferred stock or for issuances of
preferred stock up to 50 percent of issued capital unless the terms of the
preferred stock would adversely affect the rights of existing
shareholders. Vote FOR the creation/issuance of convertible preferred
stock as long as the maximum number of common shares that could be issued
upon conversion meets ISS guidelines on equity issuance requests. Vote
AGAINST the creation of a new class of preference shares that would carry
superior voting rights to the common shares. Vote AGAINST the creation
of blank check preferred stock unless the board clearly states that the
authorization will not be used to thwart a takeover bid. Vote proposals
to increase blank check preferred authorizations on a CASE-BY-CASE
basis. |
Debt
Issuance Requests |
Vote
non-convertible debt issuance requests on a CASE-BY-CASE basis, with or
without preemptive rights. Vote FOR the creation/issuance of
convertible debt instruments as long as the maximum number of common
shares that could be issued upon conversion meets ISS guidelines on equity
issuance requests. Vote FOR proposals to restructure existing debt
arrangements unless the terms of the restructuring would adversely affect
the rights of shareholders. |
Pledging
of Assets for Debt |
Vote
proposals to approve the pledging of assets for debt on a CASE-BY-CASE
basis. |
Increase
in Borrowing Powers |
Vote
proposals to approve increases in a company's borrowing powers on a
CASE-BY-CASE basis. |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Share
Repurchase Plans |
Generally
vote FOR market repurchase authorities (share repurchase programs) if the
terms comply with the following criteria:
›
A
repurchase limit of up to 10 percent of outstanding issued share capital
(15 percent in UK/Ireland);
›
A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
›
A
duration of no more than 5 years, or such lower threshold as may be set by
applicable law, regulation or code of governance best
practice.
Authorities
to repurchase shares in excess of the 10 percent repurchase limit will be
assessed on a case-by-case basis. We may support such share repurchase
authorities under special circumstances, which are required to be publicly
disclosed by the company, provided that, on balance, the proposal is in
shareholders' interests. In such cases, the authority must comply with the
following criteria:
›
A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
›
A
duration of no more than 18 months.
In
markets where it is normal practice not to provide a repurchase limit, we
will evaluate the proposal based on the company's historical practice.
However, we expect companies to disclose such limits and, in the future,
may vote against companies that fail to do so. In such cases, the
authority must comply with the following criteria:
›
A
holding limit of up to 10 percent of a company's issued share capital in
treasury (“on the shelf”); and
›
A
duration of no more than 18 months.
In
addition, we will vote AGAINST any proposal where:
›
The
repurchase can be used for takeover defences;
›
There
is clear evidence of abuse;
›
There
is no safeguard against selective buybacks; and/or
›
Pricing
provisions and safeguards are deemed to be unreasonable in light of market
practice. |
Re-issuance
of Repurchased Shares |
Vote
FOR requests to reissue any repurchased shares unless there is clear
evidence of abuse of this authority in the past. |
Capitalization
of Reserves for Bonus Issues/Increase in Par Value |
Vote
FOR requests to capitalize reserves for b onus issues of shares or to
increase par value. |
March
2013 | PROXY VOTING POLICY |
4.
Compensation
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Compensation
Plans |
Vote
compensation plans on a CASE-BY- CASE basis. |
Director
Compensation |
Vote
FOR proposals to award cash fees to non-executive directors unless the
amounts are excessive relative to other companies in the country or
industry. Vote non-executive director compensation proposals that
include both cash and share-based components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both non-executive and
executive directors into a single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for
non-executive directors. |
March
2013 | PROXY VOTING POLICY |
5.
Other Items
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Reorganizations/
Restructurings |
Vote
reorganizations and restructurings on a CASE-BY-CASE
basis. |
Mergers
and Acquisitions |
Vote
CASE-BY-CASE on mergers and acquisitions taking into account the
following:
For
every M&A analysis, we review publicly available information as of the
date of the report and evaluate the merits and drawbacks of the proposed
transaction, balancing various and sometimes countervailing factors
including:
›
Valuation
- Is the value to be received by the target shareholders (or paid by the
acquirer) reasonable? While the fairness opinion may provide an initial
starting point for assessing valuation reasonableness, we place emphasis
on the offer premium, market reaction, and strategic
rationale.
›
Market
reaction - How has the market responded to the proposed deal? A negative
market reaction will cause us to scrutinize a deal more
closely.
›
Strategic
rationale - Does the deal make sense strategically? From where is the
value derived? Cost and revenue synergies should not be overly aggressive
or optimistic, but reasonably achievable. Management should also have a
favorable track record of successful integration of historical
acquisitions.
›
Conflicts
of interest - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider
shareholders? We will consider whether any special interests may have
influenced these directors and officers to support or recommend the
merger.
›
Governance
- Will the combined company have a better or worse governance profile than
the current governance profiles of the respective parties to the
transaction? If the governance profile is to change for the worse, the
burden is on the company to prove that other issues (such as valuation)
outweigh any deterioration in governance.
Vote
AGAINST if the companies do not provide sufficient information upon
request to make an informed voting decision. |
Mandatory
Takeover Bid Waivers |
Vote
proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE
basis. |
Reincorporation
Proposals |
Vote
reincorporation proposals on a CASE-BY-CASE basis. |
Expansion
of Business Activities |
Vote
FOR resolutions to expand business activities unless the new business
takes the company into risky areas. |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Related-Party
Transactions |
In
evaluating resolutions that seek shareholder approval on related party
transactions (RPTs), vote on a CASE-BY-CASE basis, considering factors
including, but not limited to, the following:
›
The
parties on either side of the transaction;
›
The
nature of the asset to be transferred / service to be
provided;
›
The
pricing of the transaction (and any associated professional
valuation);
›
The
views of independent directors (where provided);
›
The
views of an independent financial adviser (where appointed);
›
Whether
any entities party to the transaction (including advisers) are conflicted;
and
›
The
stated rationale for the transaction, including discussions of
timing.
If
there is a transaction that is deemed to be problematic and that was not
put to a shareholder vote, we may vote against the election of the
director involved in the related-party transaction or the full
board. |
Anti-takeover
Mechanisms |
Generally
vote AGAINST all anti-takeover proposals, unless they are structured in
such a way that they give shareholders the ultimate decision on any
proposal or offer. |
March
2013 | PROXY VOTING POLICY |
|
|
|
|
|
|
ISSUE
SUBJECT TO VOTE |
VOTING
POLICY |
Shareholder
Proposals |
Vote
all shareholder proposals on a CASE-BY-CASE basis. Vote FOR proposals
that would improve the company's corporate governance or business profile
at a reasonable cost. Vote AGAINST proposals that limit the company's
business activities or capabilities or result in significant costs being
incurred with little or no benefit. |
Social
/ Environmental Issues |
Issues
covered under the policy include a wide range of topics, including
consumer and product safety, environmental and energy, labour covered
standards and human rights, workplace and board diversity, and corporate
political issues. While a variety of factors goes into each analysis, the
overall principle guiding all votes focuses on how the proposal may
enhance or protect shareholder value in either the short term or long
term.
Generally
vote CASE-BY-CASE, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in
addition the following will be considered:
›
If
the issues presented in the proposal are more appropriately dealt with
through legislation or government regulation.;
›
If
the company has already responded in an appropriate and sufficient manner
to the issue(s) raised in the proposal;
›
Whether
the proposal’s request is unduly burdensome (scope, timeframe, or cost) or
overly prescriptive;
›
The
company’s approach compared with any industry standard practices for
addressing the issue(s) raised by the proposal;
›
If
the proposal requests increased disclosure or greater transparency,
whether or not reasonable and sufficient information is currently
available to shareholders from the company or from other publicly
available sources; and
›
If
the proposal requests increased disclosure or greater transparency,
whether or not implementation would reveal proprietary or confidential
information that could place the company at a competitive
disadvantage. |
March
2013 | PROXY VOTING POLICY |
6.
Foreign Private Issuers listed on US Exchanges
Foreign
Private Issuers (“FPIs”) are defined as companies whose business is administered
outside the
US, with more than 50% of assets located outside the US; a
majority of whose directors / officers are not US citizens or residents; and a
majority of whose outstanding voting shares are held by non-residents
of the
US.
Companies
that are incorporated outside of the US and listed solely on US exchanges, where
they qualify as FPIs, will be subject to the following policy.
Vote
AGAINST (or WITHHOLD from) non-independent director nominees at companies which
fail to meet the following criteria, a majority-independent board, and the
presence of an audit, a compensation and a nomination committee, each of which
is entirely composed of independent directors.
Where
the design and disclosure levels of equity compensation plans are comparable to
those seen at US companies, US compensation will be used to evaluate the
compensation plan proposals. In all other cases, equity compensation plans will
be evaluated according to the PAM Proxy Voting Policy.
All
other voting items will be evaluated according to the PAM Proxy Voting
Policy.
March
2013 | PROXY VOTING POLICY |
APPENDIX
I – Classification of Directors
Executive
Director
› Employee
or executive of the company;
› Any
director who is classified as a non-executive, but receives salary, fees, bonus,
and/or other benefits that are in line with the highest-paid executives of the
company.
Non-Independent
Non-Executive Director (NED)
› Any
director who is attested by the board to be a non-independent NED;
› Any
director specifically designated as a representative of a significant
shareholder of the company;
› Any
director who is also an employee or executive of a significant shareholder of
the company;
› Any
director who is nominated by a dissenting significant shareholder, unless there
is a clear lack of material[5]
connection with the dissident, either currently or historically;
› Beneficial
owner (direct or indirect) of at least 10% of the company’s stock, either in
economic terms or in voting rights (this may be aggregated if voting power is
distributed among more than one member of a defined group, e.g., family members
who beneficially own less than 10% individually, but collectively own more than
10%), unless market best practice dictates a lower ownership and/or disclosure
threshold (and in other special market-specific circumstances);
› Government
representative;
› Currently
provides (or a relative[1]
provides) professional services[2]
to the company, to an affiliate of the company, or to an individual officer of
the company or of one of its affiliates in excess of $10,000 per
year;
› Represents
customer, supplier, creditor, banker, or other entity with which company
maintains transactional/commercial relationship (unless company discloses
information to apply a materiality test[3]);
› Any
director who has conflicting or cross-directorships with executive directors or
the chairman of the company;
› Relative[1]
of a current employee of the company or its affiliates;
› Relative[1]
of a former executive of the company or its affiliates;
› A
new appointee elected other than by a formal process through the General Meeting
(such as a contractual appointment by a substantial shareholder);
› Founder/co-founder/member
of founding family but not currently an employee;
› Former
executive (5 year cooling off period);
› Years
of service is generally not a determining factor unless it is recommended best
practice in a market and/or in extreme circumstances, in which case it may be
considered. [4]
March
2013 | PROXY VOTING POLICY |
› Any
additional relationship or principle considered to compromise independence under
local corporate best practice guidance.
March
2013 | PROXY VOTING POLICY |
Independent
NED
› No
material[5]
connection, either directly or indirectly, to the company (other than a board
seat) or the dissenting significant shareholder.
Employee
Representative
› Represents
employees or employee shareholders of the company (classified as “employee
representative” but considered a non-independent NED
Footnotes:
[1]“Relative”
follows the definition of “immediate family members” which covers spouses,
parents, children, stepparents, step-children, siblings,
in-laws,
and any person (other than a tenant or employee) sharing the household of any
director, nominee for director, executive officer, or significant shareholder of
the company.
[2]Professional
services can be characterized as advisory in nature and generally include the
following: investment banking/financial advisory services; commercial banking
(beyond deposit services); investment services; insurance services;
accounting/audit services; consulting services; marketing services; and legal
services. The case of participation in a banking syndicate by a non-lead bank
should be considered a transaction
(and
hence subject to the associated materiality test) rather than a professional
relationship.
[3]A
business relationship may be material if the transaction value (of all
outstanding transactions) entered into between the company and the company or
organization with which the director is associated is equivalent to either 1 per
cent of the company’s turnover or 1 per cent of the turnover of the company or
organization with which the director is associated. OR, A business relationship
may be material if the transaction value
(of
all outstanding financing operations) entered into between the company and the
company or organization with which the director is associated is more than 10
per cent of the company’s shareholder equity or the transaction value (of all
outstanding financing operations) compared to the company’s total assets is more
than 5 per cent.
[4]For
example, in continental Europe, directors with a tenure exceeding 12 years will
be considered non-independent. In the United Kingdom and Ireland, directors with
a tenure exceeding nine years will be considered non-independent, unless the
company provides sufficient and clear justification that the director is
independent despite his long tenure.
[5]For
purposes of director independence classification, “material” will be defined as
a standard of relationship financial, personal or otherwise that a reasonable
person might conclude could potentially influence one’s objectivity in the
boardroom in a manner that would have a meaningful impact on an individual's
ability to satisfy requisite fiduciary standards on behalf of
shareholders.
March
2013 | PROXY VOTING POLICY |
SOUND
POINT CAPITAL MANAGEMENT, LP
POLICY
REGARDING PROXY VOTING
Purpose
and Scope
The
purpose of this policy and its related procedures regarding voting proxies for
securities held in Client accounts and for which Sound Point has been delegated
proxy voting authority (“Client Proxies”) is to establish guidelines regarding
Client Proxies that are reasonably designed to conform with the requirements of
applicable law (this “Policy”).
General
Policy
Rule
206(4)-6 of the Advisers Act requires a registered investment adviser that
exercises proxy voting authority over client securities to: (i) adopt and
implement written policies and procedures that are reasonably designed to ensure
that the investment adviser votes proxies related to client securities in the
best interest of its Clients; (ii) ensure that the written policies and
procedures address material conflicts that may arise between the interests of
the investment adviser and those of its Clients; (iii) describe its proxy voting
procedures to clients, and provide copies of such procedures upon request by
such clients; and (iv) disclose to clients how they may obtain information from
the investment adviser about how the adviser voted with respect to their
securities. Sound Point is committed to implementing policies and procedures
that conform to the requirements of the Advisers Act. To that end, it has
implemented this Policy to facilitate Sound Point’s compliance with Rule
206(4)-6 and to ensure that proxies related to Client Securities are voted (or
not voted) in a manner consistent with the best interest of its
Clients.
Proxy
Voting Policy
Rule
206(4)-6 of the Advisers Act requires a registered investment adviser that
exercises its authority to vote Client Proxies to: (i) adopt and implement
written policies and procedures that are reasonably designed to ensure that the
investment adviser votes Client Proxies in the best interest of its Clients;
(ii) ensure that the written policies and procedures address material conflicts
that may arise between the interests of the investment adviser and those of its
Clients; (iii) describe its proxy voting procedures to clients, and provide
copies of such procedures upon request by such clients; and (iv) disclose to
clients how they may obtain information from the investment adviser about how
the adviser voted their proxies.
Sound
Point generally has proxy voting authority over securities held in Client
accounts for which it has discretionary investment management responsibility.
Proxy voting, however, is not an integral component of Sound Point’s investment
strategy, which focuses primarily on investments and trading in fixed income,
credit and credit-linked securities (collectively referred to herein as “credit
positions”). These types of securities do not typically convey voting rights to
the holder. To the extent Clients holds equity securities, it will generally be
for the purpose of hedging credit positions or for short-term trading
strategies. In the absence of a specific duty, if Sound Point does not believe
the exercise of a proxy vote right will have a material economic impact on the
client account, Sound Point may not exercise its voting authority with respect
to a proxy. In addition, Sound Point may elect to not vote a proxy if the cost
of voting, or time commitment required to vote a proxy outweighs the expected
benefits of voting the proxy.
These
policies and procedures do not mandate that Sound Point vote every Client Proxy
that it receives. There may be circumstances when refraining from voting a proxy
is in a Client’s best interest, such as when and if Sound Point determines that
the cost of voting the proxy exceeds the expected benefit to the Client.
Further, Sound Point will not vote proxies for which a Client has not delegated
voting authority to Sound Point. Sound Point shall vote all proxies related to
Client Accounts where such account has mandated such practice (e.g. 40 Act
Clients, Client accounts that specifically instructed Sound Point to vote
proxies). With respect to ERISA clients, Sound Point will act prudently and
solely in the interest of the participants and beneficiaries of such ERISA
client.
Proxy
Voting Procedures
Procedures
The
CCO or his or her designee is responsible for determining whether a particular
proxy vote may have a material economic impact on an underlying Client position
or trading strategy and, if so, instructing the custodian to act in the manner
which the CCO believes will increase the value of the underlying credit position
or short-term trading strategy. In make any such determination, the CCO shall
consider any potential conflicts of interest which may exist and shall at all
times act in the manner in which he believes will further the economic interests
of the clients. The CCO shall document the rationale for any decision to vote or
not to vote a proxy.
Sound
Point has retained BroadRidge/ProxyEdge to assist it in coordinating and voting
Client Proxies. The CCO or his or her designee will monitor the third-party to
assure that all proxies are being properly voted and appropriate records are
being retained.
Any
employee, officer or director of Sound Point receiving an inquiry directly from
a company holding a proxy contest must promptly notify the CCO.
Conflicts
of Interest
Sound
Point will not put its own interests ahead of a Client’s interest at any time,
and will resolve any potential conflicts between its interests and those of its
Clients in favor of its Clients.
The
CCO will be primarily responsible for determining whether a conflict of interest
exists in connection with any Client Proxy vote. The CCO will presume a conflict
of interest to exist whenever Sound Point or any partner, member, affiliate,
subsidiary or employee of Sound Point has a personal or business interest in the
outcome of a particular matter before shareholders. The following conflicts of
interest are monitored and the results are presented to the Conflicts Committee
as they arise or on a quarterly basis if there are no conflicts identified;
director candidates related to Sound Point, shareholder proposals from Sound
Point, its affiliates or clients; votes by portfolio managers where securities
are also held in their personal accounts; and votes in securities where Sound
Point has a material position.
Limitations
on Proxy Voting
Sound
Point will not be obliged to vote a Client Proxy if Sound Point reasonably
determines that the cost of voting such Securities would exceed the expected
benefit to the Client.
Disclosure
to Clients
Form
ADV Disclosure
Sound
Point will disclose in Part 2A of its Form ADV that Clients may contact the CCO
during regular business hours, via email or telephone, to obtain information on
how Sound Point voted such Client’s proxies for the past 5 years. The summary of
this Policy included in Sound Point’s Part 2A of its Form ADV will be updated
whenever this Policy is revised. Clients may also receive a copy of this Policy
upon their request.
Note
that updating the Form ADV with a change to the proxy voting policy outside of
the annual update is voluntary. However, Sound Point will need to communicate to
the Client any changes to this Policy affecting its fiduciary duty.
Client
Requests for Information
Clients
and Private Fund Investors may request a copy of this Policy and/or information
about how Sound Point has voted securities in their behalf (or, with respect to
a Private Fund) account by contacting Sound Point.
Sound
Point will not disclose proxy votes made on behalf of a Client to other Clients
or third parties unless specifically requested, in writing, by the
Client.
However,
to the extent that Sound Point may serve as sub-adviser to another adviser to a
client, Sound Point will be deemed to be authorized to provide proxy voting
records on such Accounts to such other adviser.
Recordkeeping
In
accordance with the recordkeeping requirements of Rule 204-2 of the Advisers
Act, Sound Point will, for a period of at least 5 years from the end of the
fiscal year during which the record was finalized, maintain or have ready access
to the following documents, the first 2 years in an appropriate office of Sound
Point:
(i)a
copy of this Policy;
(ii)a
copy of each proxy statement received by Sound Point regarding Securities held
on behalf of its Clients;
(iii)a
record of each vote cast by Sound Point on behalf of its Clients;
(iv)a
copy of any documents prepared by Sound Point that were material to making a
decision how to vote, or that memorialized the basis for such decision;
and
(v)a
copy of each written request received from a Client as to how Sound Point voted
proxies on its behalf, and a copy of any written response from Sound Point to
any (written or oral) Client request for information on how Sound Point voted
proxies on its behalf.
To
fulfill some of these recordkeeping requirements, Sound Point may rely on proxy
statements filed on EDGAR and proxy statements and records of proxy votes cast
that are maintained with a proxy voting service or other third-party, provided
that Sound Point has obtained an undertaking from such third-party to provide a
copy of the documents promptly upon request.
Additionally,
Sound Point shall collect proxy information necessary for the preparation and
filing of any required forms, such as Form N-PX.
Sound
Point will retain each of the records listed above in accordance with Sound
Point’s Policy
Regarding Recordkeeping.
POLICY
ON PROXY VOTING
SPECTRUM
ASSET MANAGEMENT, INC.
FOR
INVESTMENT ADVISORY CLIENTS:
GENERAL
POLICY
Spectrum,
an investment adviser registered with the Securities and Exchange Commission,
acts as investment advisor for various types of client accounts (e.g. employee
benefit plans, governmental plans, mutual funds, insurance company separate
accounts, corporate pension plans, endowments and foundations). While
Spectrum receives few proxies for the preferred shares it manages, Spectrum
nonetheless will, when delegated the authority by a client, vote these shares
per the following policy voting standards and processes:
STANDARDS:
Spectrum’s
standards aim to ensure the following in keeping with the best interests of its
clients:
•That
Spectrum act solely in the interest of its clients in providing for ultimate
long-term stockholder value.
•That
Spectrum act without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote.
•That
the custodian bank is aware of our fiduciary duty to vote proxies on behalf of
others – Spectrum relies on the best efforts of the custodian bank to deliver
all proxies we are entitled to vote.
•That
Spectrum will exercise its right to vote all proxies on behalf of its clients
(or permit clients to vote their interest, as the case(s) may be).
•That
Spectrum will implement a reasonable and sound basis to vote
proxies.
PROCESSES:
A.Following
ISS’ Recommendations
Spectrum
has selected Institutional Shareholder Services (ISS) to assist it with its
proxy voting responsibilities. Spectrum follows ISS Standard Proxy
Voting guidelines (the “Guidelines”). The Guidelines embody the
positions and factors Spectrum generally considers important in casting proxy
votes. They address a wide variety of individual topics, including, among other
matters, shareholder voting rights, anti-takeover defenses, board structures,
the election of directors, executive and director compensation, reorganizations,
mergers, and various shareholder proposals. Recognizing the complexity and
fact-specific nature of many corporate governance issues, the Guidelines often
do not direct a particular voting outcome, but instead identify factors ISS
considers in determining how the vote should be cast.
In
connection with each proxy vote, ISS prepares a written analysis and
recommendation (an "ISS Recommendation") that reflects ISS's application of
Guidelines to the particular proxy issues. Where the Guidelines do not direct a
particular response and instead list relevant factors, the ISS Recommendation
will reflect ISS's own evaluation of the factors. Spectrum may on any particular
proxy vote decide to diverge from the Guidelines or an ISS Recommendation. In
such cases, our procedures require: (i) the requesting Portfolio Manager to set
forth the reasons for their decision; (ii) the approval of the Chief Investment
Officer; (iii) notification to the Compliance Department and other appropriate
Principal Global Investors personnel; (iv) a determination that the decision is
not influenced by any conflict of interest; and (v) the creation of a written
record reflecting the process.
Spectrum
generally votes proxies in accordance with ISS’ recommendations. When
Spectrum follows ISS’ recommendations, it need not follow the conflict of
interest procedures in Section B, below.
From
time to time ISS may have a business relationship or affiliation with one or
more issuers held in Spectrum client accounts, while also providing voting
recommendations on these issuers’ securities. Because this practice
may present a conflict of interest for ISS, Spectrum’s Chief Compliance Officer
will require from ISS at least annually additional information, or a
certification that ISS has adopted policies and procedures to detect and
mitigate such conflicts of interest in issuing voting
recommendations. Spectrum may obtain voting recommendations from two
proxy voting services as an additional check on the independence of the ISS’
voting recommendations.
B.Disregarding
ISS’ Recommendations
Should
Spectrum determine not to follow ISS’ recommendation for a particular proxy,
Spectrum will use the following procedures for identifying and resolving a
material conflict of interest, and will use the Proxy Voting Guidelines (below)
in determining how to vote. The Report for Proxy Vote(s) against ISS
Recommendation(s), Exhibit A hereto, shall be completed in each such
instance.
Spectrum
will classify proxy vote issues into three broad categories: Routine
Administrative Items, Special Interest Issues, and Issues Having the Potential
for Significant Economic Impact. Once the Senior Portfolio Manager
has analyzed and identified each issue as belonging in a particular category,
and disclosed the conflict of interests to affected clients and obtained their
consents prior to voting, Spectrum will cast the client’s vote(s) in accordance
with the philosophy and decision guidelines developed for that
category. New and unfamiliar issues are constantly appearing in the
proxy voting process. As new issues arise, we will make every effort
to classify them among the three categories below. If we believe it
would be informative to do so, we may revise this document to reflect how we
evaluate such issues.
Due
to timing delays, logistical hurdles and high costs associated with procuring
and voting international proxies, Spectrum has elected to approach international
proxy voting on the basis of achieving “best efforts at a reasonable
cost.”
As
a fiduciary, Spectrum owes its clients an undivided duty of
loyalty. We strive to avoid even the appearance of a conflict that
may compromise the trust our clients have placed in it. This is true
with respect to proxy voting and thus Spectrum has adopted the following
procedures for addressing potential or actual conflicts of
interest.
Identifying
a Conflict of Interest. There
may be a material conflict of interest when Spectrum votes a proxy solicited by
an issuer whose retirement plan or fund we manage or with whom Spectrum, an
affiliate, or an officer or director of Spectrum or of an affiliate has any
other material business or personal relationship that may affect how we vote the
issuer’s proxy. To avoid any perceived material conflict of interest,
the following procedures have been established for use when Spectrum encounters
a potential material conflict to ensure that voting decisions are based on a
clients’ best interest and are not the product of a material
conflict.
Monitoring
for Conflicts of Interest. All
employees of Spectrum are responsible for monitoring for conflicts of interest
and referring any that may be material to the CCO for resolution. At
least annually, the CCO will take reasonable steps to evaluate the nature of
Spectrum’s material business relationships (and those of its affiliates) with
any company whose preferred securities are held in client accounts (a “portfolio
company”) to assess which, if any, could give rise to a conflict of
interest. CCO’s review will focus on the following three
categories:
•Business
Relationships – The CCO will consider whether Spectrum (or an affiliate) has a
substantial business relationship with a portfolio company or a proponent of a
proxy proposal relating to the portfolio company (e.g., an employee group), such
that failure to vote in favor of management (or the proponent) could harm the
adviser’s relationship with the company (or proponent). For example,
if Spectrum manages money for the portfolio company or an employee group,
manages pension assets, leases office space from the company, or provides other
material services to the portfolio company, the CCO will review whether such
relationships may give rise to a conflict of interest.
•Personal
Relationships – The CCO will consider whether any senior executives or portfolio
managers (or similar persons at Spectrum’s affiliates) have a personal
relationship with other proponents of proxy proposals, participants in proxy
contests, corporate directors, or candidates for directorships that might give
rise to a conflict of interest.
•Familial
Relationships – The CCO will consider whether any senior executives or portfolio
managers (or similar persons at Spectrum’s affiliates) have a familial
relationship relating to a portfolio company (e.g., a spouse or other relative
who serves as a director of a portfolio company, is a candidate for such a
position, or is employed by a portfolio company in a senior
position).
In
monitoring for conflicts of interest, the CCO will consider all information
reasonably available to it about any material business, personal, or familial
relationship involving Spectrum (and its affiliates) and a portfolio company,
including the following:
•A
list of clients that are also public companies, which is prepared and updated by
the Operations Department and retained in the Compliance
Department.
•Publicly
available information.
•Information
generally known within Spectrum.
•Information
actually known by senior executives or portfolio managers. When considering a
proxy proposal, investment professionals involved in the decision-making process
must disclose any potential material conflict that they are aware of to the CCO
prior to any substantive discussion of a proxy matter.
•Information
obtained periodically from those persons whom the CCO reasonably believes could
be affected by a conflict arising from a personal or familial relationship
(e.g., portfolio managers, senior management).
The
CCO may, at his discretion, assign day-to-day responsibility for monitoring for
conflicts to a designated person. With respect to monitoring of
affiliates, the CCO in conjunction with PGI’s CCO may rely on information
barriers between Spectrum and its affiliates in determining the scope of its
monitoring of conflicts involving affiliates.
Determining
Whether a Conflict of Interest is “Material”
– On a regular basis, CCO will monitor conflicts of interest to determine
whether any may be “material” and therefore should be referred to PGI for
resolution. The SEC has not provided any specific guidance as to what
types of conflicts may be “material” for purposes of proxy voting, so therefore
it would be appropriate to look to the traditional materiality analysis under
the federal securities laws, i.e., that a “material” matter is one that is
reasonably likely to be viewed as important by the average
shareholder.
Whether
a conflict may be material in any case will, of course, depend on the facts and
circumstances. However, in considering the materiality of a conflict, Spectrum
will use the following two-step approach:
1.Financial
Materiality – The most likely indicator of materiality in most cases will be the
dollar amount involved with the relationship in question. For
purposes of proxy voting, it will be presumed that a conflict is not material
unless it involves at least 5% of Spectrum’s annual revenues or a minimum dollar
amount of $1,000,000. Different percentages or dollar amounts may be
used depending on the nature and degree of the conflict (e.g., a higher number
if the conflict arises through an affiliate rather than directly with
Spectrum).
2.Non-Financial
Materiality – A non-financial conflict of interest might be material (e.g.,
conflicts involving personal or familial relationships) and should be evaluated
based on the facts and circumstances of each case.
If
the CCO has any question as to whether a particular conflict is material, it
should presume the conflict to be material and refer it to the PGI’s CCO for
resolution. As in the case of monitoring conflicts, the CCO may
appoint a designated person or subgroup of Spectrum’s investment team to
determine whether potential conflicts of interest may be material.
Resolving
a Material Conflict of Interest
– When an employee of Spectrum refers a potential material conflict of interest
to the CCO, the CCO will determine whether a material conflict of interest
exists based on the facts and circumstances of each particular
situation. If the CCO determines that no material conflict of
interest exists, no further action is necessary and the CCO will notify
management accordingly. If the CCO determines that a material
conflict exists, CCO must disclose the conflict to affected clients and obtain
consent from each as to the manner in which Spectrum proposes to
vote.
Clients
may obtain information about how we voted proxies on their behalf by contacting
Spectrum’s Compliance Department.
PROXY
VOTING GUIDELINES
CATEGORY
I: Routine
Administrative Items
Philosophy: Spectrum
is willing to defer to management on matters of a routine administrative
nature. We feel management is best suited to make those decisions
which are essential to the ongoing operation of the company and which do not
have a major economic impact on the corporation and its
shareholders. Examples of issues on which we will normally defer to
management’s recommendation include:
1.selection
of auditors
2.increasing
the authorized number of common shares
3.election
of unopposed directors
CATEGORY
II: Special
Interest Issues
Philosophy: While
there are many social, political, environmental and other special interest
issues that are worthy of public attention, we do not believe the corporate
proxy process is the appropriate arena in which to achieve gains in these
areas. Our primary responsibility in voting proxies is to provide for
the greatest long-term value for Spectrum’s clients. We are opposed
to proposals which involve an economic cost to the corporation, or which
restrict the freedom of management to operate in the best interest of the
corporation and its shareholders. However, in general we will abstain
from voting on shareholder social, political and environmental proposals because
their long-term impact on share value cannot be calculated with any reasonable
degree of confidence.
CATEGORY
III: Issues
Having the Potential for Significant Economic Impact
Philosophy: Spectrum
is not willing to defer to management on proposals which have the potential for
major economic impact on the corporation and the value of its
shares. We believe such issues should be carefully analyzed and
decided by the owners of the corporation. Presented below are
examples of issues which we believe have the potential for significant economic
impact on shareholder value.
1.Classification
of Board of Directors.
Rather than electing all directors annually, these provisions
stagger a board, generally into three annual classes, and call for only
one-third to be elected each year. Staggered boards may help to
ensure leadership continuity, but they also serve as defensive
mechanisms. Classifying the board makes it more difficult to change
control of a company through a proxy contest involving election of
directors. In general, we vote on a case by case basis on proposals
for staggered boards, but generally favor annual elections of all
directors.
2.Cumulative
Voting of Directors. Most
corporations provide that shareholders are entitled to cast one vote for each
director for each share owned - the one share, one vote standard. The
process of cumulative voting, on the other hand, permits shareholders to
distribute the total number of votes they have in any manner they wish when
electing directors. Shareholders may possibly elect a minority
representative to a corporate board by this process, ensuring representation for
all sizes of shareholders. Outside shareholder involvement can
encourage management to maximize share value. We generally support
cumulative voting of directors.
3.Prevention
of Greenmail. These
proposals seek to prevent the practice of “greenmail”, or targeted share
repurchases by management of company stock from individuals or groups seeking
control of the company. Since only the hostile party receives
payment, usually at a substantial premium over the market value of its shares,
the practice discriminates against all other shareholders. By making
greenmail payments, management transfers significant sums of corporate cash to
one entity, most often for the primary purpose of saving their
jobs. Shareholders are left with an asset-depleted and often less
competitive company. We think that if a corporation offers to buy
back its stock, the offer should be made to all shareholders, not just to a
select group or individual. We are opposed to greenmail and will
support greenmail prevention proposals.
4.Supermajority
Provisions. These
corporate charter amendments generally require that a very high percentage of
share votes (70-81%) be cast affirmatively to approve a merger, unless the board
of directors has approved it in advance. These provisions have the
potential to give management veto power over merging with another company, even
though a majority of shareholders favor the merger. In most cases we
believe requiring supermajority approval of mergers places too much veto power
in the hands of management and other minority shareholders, at the expense of
the majority shareholders, and we oppose such provisions.
5.Defensive
Strategies. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
6.Business
Combinations or Restructuring. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
7.Executive
and Director Compensation. These
proposals will be analyzed on a case by case basis to determine the effect on
shareholder value. Our decision will be based on whether the proposal
enhances long-term economic value.
Exhibit
A to Proxy Policy
Report
for Proxy Vote(s) Against ISS Recommendation(s)
This
form should be completed in instances in which Spectrum Portfolio Manager(s)
decide to vote against ISS recommendations.
1.
Security Name / Symbol:
2.
Issue up for vote:
3.
Summary of ISS recommendation (see attached full ISS
recommendation:
4.
Reasons for voting against ISS recommendation (supporting documentation may be
attached):
5.
Determination of potential conflicts (if any):
6.
Contacted Compliance Department: Yes / No
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Name
of individual contacted: |
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Date: |
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7.
Contacted other Spectrum portfolio managers who have position in same
security:
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Yes
/ No |
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Name
of individual contacted: |
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Date: |
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8.
Portfolio Manager Signature: |
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Date: |
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Portfolio
Manager Name: |
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Portfolio
Manager Signature*: |
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Date: |
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Portfolio
Manager Name: |
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*Note:
All Portfolio Managers who manage portfolios that hold relevant security must
sign.
WELLINGTON
MANAGEMENT
GLOBAL
PROXY POLICY AND PROCEDURES
Wellington
Management has adopted and implemented policies and procedures that it believes
are reasonably designed to ensure that proxies are voted in the best economic
interests of clients for whom it exercises proxy-voting discretion.
Wellington
Management’s Proxy Voting Guidelines (the “Guidelines”) set forth broad
guidelines and positions on common proxy issues that Wellington Management uses
in voting on proxies. In addition, Wellington Management also considers each
proposal in the context of the issuer, industry and country or countries in
which the issuer’s business is conducted. The Guidelines are not rigid rules and
the merits of a particular proposal may cause Wellington Management to enter a
vote that differs from the Guidelines.
Statement
of policy
Wellington
Management:
1)Votes
client proxies for which clients have affirmatively delegated proxy-voting
authority, in writing, unless it determines that it is in the best interest of
one or more clients to refrain from voting a given proxy.
2)Votes
all proxies in the best interests of the client for whom it is voting, i.e., to
maximize economic value.
3)Identifies
and resolves all material proxy-related conflicts of interest between the firm
and its clients in the best interests of the client.
Responsibility
and oversight
The
Investment Research Group (“Investment Research”) monitors regulatory
requirements with respect to proxy voting and works with the firm’s Legal and
Compliance Group and the Investment Stewardship Committee to develop practices
that implement those requirements. Investment Research also acts as a resource
for portfolio managers and research analysts on proxy matters as needed.
Day-to-day administration of the proxy voting process is the responsibility of
Investment Research. The Investment Stewardship Committee is responsible for
oversight of the implementation of the Global Proxy Policy and Procedures,
review and approval of the Guidelines and for providing advice and guidance on
specific proxy votes for individual issuers.
Procedures
Use
of Third-Party Voting Agent
Wellington
Management uses the services of a third-party voting agent to manage the
administrative aspects of proxy voting. The voting agent processes proxies for
client accounts, casts votes based on the Guidelines and maintains records of
proxies voted.
Receipt
of Proxy
If
a client requests that Wellington Management votes proxies on its behalf the
client must instruct its custodian bank to deliver all relevant voting material
to Wellington Management or its voting agent.
Reconciliation
Each
public security proxy received by electronic means is matched to the securities
eligible to be voted and a reminder is sent to any custodian or trustee that has
not forwarded the proxies as due. Although proxies received for private
securities, as well as those received in non-electronic format, are voted as
received, Wellington Management is not able to reconcile these proxies to
holdings, nor does it notify custodians of non-receipt.
Research
In
addition to proprietary investment research undertaken by Wellington Management
investment professionals, Investment Research conducts proxy research
internally, and uses the resources of a number of external sources to keep
abreast of developments in corporate governance and of current practices of
specific companies.
Proxy
Voting
Following
the reconciliation process, each proxy is compared against the Guidelines, and
handled as follows:
•Generally,
issues for which explicit proxy voting guidance is provided in the Guidelines
(i.e., “For”, “Against”, “Abstain”) are reviewed by Investment Research and
voted in accordance with the Guidelines.
•Issues
identified as “case-by-case” in the Guidelines are further reviewed by
Investment Research. In certain circumstances, further input is needed, so the
issues are forwarded to the relevant research analyst and/or portfolio
manager(s) for their input.
•Absent
a material conflict of interest, the portfolio manager has the authority to
decide the final vote. Different portfolio managers holding the same securities
may arrive at different voting conclusions for their clients’
proxies.
Wellington
Management reviews regularly the voting record to ensure that proxies are voted
in accordance with these Global Proxy Policy and Procedures and the Guidelines;
and ensures that documentation and reports, for clients and for internal
purposes, relating to the voting of proxies are promptly and properly prepared
and disseminated.
Material
Conflict of Interest Identification and Resolution Processes
Wellington
Management’s broadly diversified client base and functional lines of
responsibility serve to minimize the number of, but not prevent, material
conflicts of interest it faces in voting proxies. Annually, the Investment
Stewardship Committee sets standards for identifying material conflicts based on
client, vendor, and lender relationships, and publishes those standards to
individuals involved in the proxy voting process. In addition, the Investment
Stewardship Committee encourages all personnel to contact Investment Research
about apparent conflicts of interest, even if the apparent conflict does not
meet the published materiality criteria. Apparent conflicts are reviewed by
designated members of the Investment Stewardship Committee to determine if there
is a conflict and if so whether the conflict is material.
If
a proxy is identified as presenting a material conflict of interest, the matter
must be reviewed by designated members of the Investment Stewardship Committee,
who will resolve the conflict and direct the vote. In certain circumstances, the
designated members may determine that the full Investment Stewardship Committee
should convene.
Other
Considerations
In
certain instances, Wellington Management may be unable to vote or may determine
not to vote a proxy on behalf of one or more clients. While not exhaustive, the
following are potential instances in which a proxy vote might not be
entered.
Securities
Lending
In
general, Wellington Management does not know when securities have been lent out
pursuant to a client’s securities lending program and are therefore unavailable
to be voted. Efforts to recall loaned securities are not always effective, but,
in rare circumstances, Wellington Management may recommend that a client attempt
to have its custodian recall the security to permit voting of related
proxies.
Share
Blocking and Re-registration
Certain
countries impose trading restrictions or requirements regarding re-registration
of securities held in omnibus accounts in order for shareholders to vote a
proxy. The potential impact of such requirements is evaluated when determining
whether to vote such proxies.
Lack
of Adequate Information, Untimely Receipt of Proxy Materials, or Excessive
Costs
Wellington
Management may abstain from voting a proxy when the proxy statement or other
available information is inadequate to allow for an informed vote, when the
proxy materials are not delivered in a timely fashion or when, in Wellington
Management’s judgment, the costs exceed the expected benefits to clients (such
as when powers of attorney or consularization are required).
Additional
Information
Wellington
Management maintains records related to proxies pursuant to Rule 204-2 of the
Investment Advisers Act of 1940 (the “Advisers Act”), the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), and other applicable
laws.
Wellington
Management provides clients with a copy of its Global Proxy Policy and
Procedures, including the Guidelines, upon written request. In addition,
Wellington Management will make specific client information relating to proxy
voting available to a client upon reasonable written request.
1
January 2018
©2018
Wellington Management Company llp
All
rights reserved.
YORK
REGISTERED HOLDINGS, L.P.
PROCEDURE
FOR PROXY VOTING AND OTHER CORPORATE ACTIONS
Rule
206(4)-6 requires that York have written policies governing proxy voting. York
is required to vote proxies in a manner that furthers the best interests of its
clients. York is required to disclose to clients, upon request, the way in which
it votes proxies for their accounts. In addition, York must disclose its proxy
voting policies to clients.
Proxy
statements are forwarded to York by the custodians who hold client portfolios or
via the ISS proxy system. Clients have appointed us by contract to execute and
sign proxies on their behalf.
Each
corporate proxy statement is reviewed by at least one Portfolio Manager. The
Portfolio Manager gives instruction as to how each item is to be voted.
PROXY
VOTING POLICIES AND PROCEDURES
The
Firm has adopted proxy voting policies and procedures, to guide York’s exercise
of this responsibility on behalf of the Funds and other clients. Information on
the proxy voting record of YRH with respect to the Registered Funds is available
upon request and posted periodically with the SEC in accordance with Investment
Company Act requirements.
The
Firm generally votes proxies in accordance with the Portfolio Manager’s
determination of what outcome is in the best interest of the particular Fund.
The Firm’s Operations Department keeps a record of each vote for a period of six
years. Compliance will spot check to ensure that the proxies are being voted and
that a record of each vote is maintained.
Voting
is subject to the advisory agreements of the respective Funds and managed
accounts. With respect to shareholder governance, covenants, social issues and
other votes, it is the policy of York to discuss each of these votes and issues
in order to determine its position on a case by case basis. York may, upon
occasion, delegate, pursuant to its approved voting procedures, the right to
vote on particular issues to the individual monitoring that investment. Each PM
considers the vote and votes as he determines is best for that particular fund.
The Firm uses a product from ISS/Risk Metrics to keep track of and document the
particular vote.
York
seeks to identify conflicts it may have in voting proxies. In the event of a
conflict, York will either: a. abstain from voting if the vote is not likely to
be affected; b. retain an disinterested third party adviser to advise on the
vote; c. vote the shares in proportion to other “yes” and “no” votes received by
the issuer; d. in the case of a Registered Fund, vote the shares as directed by
a committee of independent directors; or e. take such other actions, as may be
appropriate in the particular context.
OTHER
CORPORATE ACTIONS
York
is responsible for responding to corporate actions, including notices of class
action litigation on behalf of shareholders, with regard to certain advisory
clients, including the Registered Funds. As a fiduciary, York must respond
timely to certain corporate actions. The York staff member responsible for
handling corporate actions will contact (or provide a copy of the corporate
action) to the appropriate Portfolio Manager to determine whether the Firm will
respond to the corporate action. If it is concluded that the corporate action
requires a response, a York staff member will ensure that the filing deadline is
met and will maintain a log of all such corporate actions. Copies of corporate
actions will be maintained in a centralized file in accordance with usual book
and recordkeeping procedures.
DISCLOSURES
OF PROXY VOTING AND POLICIES
Investment
advisers and investment companies are required to disclose their proxy policies
and procedures, and to make available, upon request, their proxy voting record.
Proxy voting records of registered investment companies are required to be filed
with the SEC. Information on York’s proxy voting policies is contained in the
ADV Part 2A of YGA and in the offering documents of the Registered Funds.
Information regarding the Firm’s voting record will be available to investors
upon request. With regard to the Registered Funds, the voting record will also
be available on the SEC’s website.
Revised:
2020