2022-05-12SpecialtyFunds-RetailProspectus
ALLSPRING
FUNDS TRUST
PART
B
ALLSPRING
SPECIALTY FUNDS
STATEMENT
OF ADDITIONAL INFORMATION
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Statement
of Additional Information August
1, 2022 |
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Fund |
A |
C |
Administrator |
Institutional |
Allspring
Precious Metals Fund |
EKWAX |
EKWCX |
EKWDX |
EKWYX |
Allspring
Utility and Telecommunications Fund |
EVUAX |
EVUCX |
EVUDX |
EVUYX |
Allspring
Funds Trust
(the “Trust”) is an open-end, management investment company. This Statement of
Additional Information (“SAI”) contains additional
information about the above referenced series of the Trust in the Allspring
family of funds - (each, a “Fund” and collectively, the “Funds”).
This SAI is
not a prospectus and should be read in conjunction with the Funds’ Prospectuses
(each a “Prospectus” and collectively the “Prospectuses”) dated
August 1,
2022. The audited financial statements for the Funds, which include the
portfolios of investments and report of the independent registered
public accounting firm for the fiscal year ended March 31,
2022, are hereby incorporated by reference to the Funds’ Annual
Reports dated
as of
March 31,
2022. The Prospectuses, Annual Reports and Semi-Annual Reports may be obtained
free of charge by visiting www.allspringglobal.com,
calling 1-800-222-8222
or writing to Allspring
Funds, P.O. Box 219967, Kansas City, MO 64121-9967.
SPEC/FASAI06
08-22
Specialty
Funds
HISTORICAL
FUND INFORMATION
The Trust
was organized as a Delaware statutory trust on March 10, 1999. On March 25,
1999, the Board of Trustees of Norwest
Advantage Funds (“Norwest”), the Board of Directors of Stagecoach Funds, Inc.
(“Stagecoach”) and the Board of
Trustees of the Trust (the “Board”), approved an Agreement and Plan of
Reorganization providing for, among other
things, the transfer of the assets and stated liabilities of various predecessor
Norwest and Stagecoach portfolios
to certain Funds of the Trust (the “Reorganization”). Prior to November 5, 1999,
the effective date of the Reorganization,
the Trust had only nominal assets.
On December
16, 2002, the Boards of Trustees of The Montgomery Funds and The Montgomery
Funds II (collectively,
“Montgomery”) approved an Agreement and Plan of Reorganization providing for,
among other things, the
transfer of the assets and stated liabilities of various predecessor Montgomery
portfolios into various Funds of the Trust.
The effective date of the reorganization was June 9, 2003.
On February
3, 2004, the Board, and on February 18, 2004, the Board of Trustees of The
Advisors’ Inner Circle Fund (“AIC
Trust”), approved an Agreement and Plan of Reorganization providing for, among
other things, the transfer of the assets
and stated liabilities of various predecessor AIC Trust portfolios into various
Funds of the Trust. The effective
date of the reorganization was July 26, 2004.
In August
and September 2004, the Boards of Directors of the Strong family of funds
(“Strong”) and the Board approved an
Agreement and Plan of Reorganization providing for, among other things, the
transfer of the assets and stated
liabilities of various predecessor Strong mutual funds into various Funds of the
Trust. The effective date of the reorganization
was April 8, 2005.
On December
30, 2009, the Board of Trustees of Evergreen Funds (“Evergreen”), and on January
11, 2010, the Board, approved an
Agreement and Plan of Reorganization providing for, among other things, the
transfer of the assets and stated
liabilities of various predecessor Evergreen portfolios and Wells Fargo
Advantage Funds portfolios to certain Funds of
the Trust. The effective date of the reorganization was July 12, 2010 for
certain Evergreen Funds, and July 19, 2010
for the remainder of the Evergreen Funds.
On December
15, 2015, the Wells Fargo Advantage Funds changed its name to the Wells Fargo
Funds.
On December
6, 2021, the Wells Fargo Funds changed its name to the Allspring
Funds.
The
Precious
Metals Fund commenced
operations on July 19, 2010, as successor to Evergreen Precious Metals
Fund, a
series of Evergreen International Trust. The predecessor Evergreen Precious
Metals Fund commenced operations
on January 30, 1978.
The
Utility
and Telecommunications Fund commenced
operations on July 19, 2010, as successor to Evergreen Utility and
Telecommunications Fund, a series of Evergreen Equity Trust. The predecessor
Evergreen Utility and Telecommunications
Fund commenced operations on January 4, 1994 as a series under Evergreen
Investment Trust (formerly
First Union Funds) and was later reorganized as a series of Evergreen Equity
Trust on December 22, 1997.
FUND
INVESTMENT POLICIES AND RISKS
Fundamental Investment
Policies
Each Fund
has adopted the following fundamental investment policies; that is, they may not
be changed without approval by
the holders of a majority (as defined under the 1940 Act) of the outstanding
voting securities of each
Fund.
The
Funds may
not:
(1)
purchase the securities of issuers conducting their principal business activity
in the same industry if, immediately after the
purchase and as a result thereof, the value of a Fund’s investments in that
industry would equal or exceed 25% of the
current value of the Fund’s total assets, provided that this restriction does
not limit a Fund’s investments in: (i)
securities of other investment companies, (ii) securities issued or guaranteed
by the U.S. Government, its
agencies or
instrumentalities, (iii) repurchase agreements, (iv) municipal securities, and
does not limit (v) Utility and Telecommunications
Fund’s investments in any industry within the utility and telecommunications
sector, (vii) Precious
Metals Fund’s investments in securities related to mining, processing or dealing
in gold or other precious metals;
(2) borrow
money, except to the extent permitted under the 1940 Act, including the rules,
regulations and any exemptive
orders obtained thereunder;
(3) issue
senior securities, except to the extent permitted under the 1940 Act, including
the rules, regulations and any
exemptive orders obtained thereunder;
(4) make
loans to other parties if, as a result, the aggregate value of such loans would
exceed one-third of a Fund’s total
assets. For the purposes of this limitation, entering into repurchase
agreements, lending securities and acquiring
any debt securities are not deemed to be the making of loans;
(5)
underwrite securities of other issuers, except to the extent that the purchase
of permitted investments directly from the
issuer thereof or from an underwriter for an issuer and the later disposition of
such securities in accordance with a
Fund’s investment program may be deemed to be an underwriting;
(6)
purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not
prevent a Fund from investing in securities or other instruments backed by real
estate or securities of companies
engaged in the real estate business);
(7)
purchase or sell commodities, provided that (i) currency will not be deemed to
be a commodity for purposes of this
restriction, (ii) this restriction does not limit the purchase or sale of
futures contracts, forward contracts or options,
and (iii) this restriction does not limit the purchase or sale of securities or
other instruments backed by commodities
or the purchase or sale of commodities acquired as a result of ownership of
securities or other instruments.
Non-Fundamental Investment
Policies
Each Fund
has adopted the following non-fundamental policies; that is, they may be changed
by the Trustees at any time
without approval of such Fund’s shareholders.
(1)
Each Fund
may invest in shares of other investment companies to the extent permitted under
the 1940 Act, including
the rules, regulations and any exemptive orders obtained thereunder, provided
however, that no Fund that has
knowledge that its shares are purchased by another investment company investor
pursuant to Section 12(d)(1)(G)
of the 1940 Act will acquire any securities of registered open-end management
investment companies or registered
unit investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the
1940 Act.
(2)
Each Fund
may not acquire any illiquid investment if, immediately after the acquisition,
the Fund would have invested
more than 15% of its net assets in illiquid investments that are
assets.
(3) The
Fund may invest in financial instruments subject to the Commodity Exchange Act
of 1936, as amended (“CEA”),
including futures, options on futures, and swaps (“commodity interests”),
consistent with its investment policies
and the 1940 Act, including the rules, regulations and interpretations of the
Securities and Exchange Commission
(“SEC”) thereunder or any exemptive orders obtained thereunder, and consistent
with investment in commodity
interests that would allow the Fund’s investment adviser to claim an exclusion
from being a “commodity pool
operator” as defined by the CEA.
(4)
Each Fund
may lend securities from its portfolio to approved brokers, dealers and
financial institutions, to the extent
permitted under the 1940 Act, including the rules, regulations and exemptions
thereunder, which currently limit such
activities to one-third of the value of a Fund’s total assets (including the
value of the collateral received). Any such
loans of portfolio securities will be fully collateralized based on values that
are marked-to-market daily.
(5)
Each Fund
may not make investments for the purpose of exercising control or management,
provided that this restriction
does not limit a Fund’s investments in securities of other investment companies
or investments in entities created
under the laws of foreign countries to facilitate investment in securities of
that country.
(6)
Each Fund
may not purchase securities on margin (except for short-term credits necessary
for the clearance of transactions).
(7)
Each Fund
may not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to
the securities sold short (short sales “against the box”), and provided that
transactions in futures contracts
and options are not deemed to constitute selling securities short.
(8) Each
Fund that is subject to Rule 35d-1 (the “Names Rule”) under the 1940 Act, and
that has a non-fundamental policy or
policies in place to comply with the Names Rule, has adopted the following
policy:
Shareholders
will receive at least 60 days’ notice of any change to a Fund’s non-fundamental
policy complying with the Names
Rule. The notice will be provided in Plain English in a separate written
document, and will contain the following
prominent statement or similar statement in bold-face type: “Important Notice
Regarding Change in Investment
Policy.” This statement will appear on both the notice and the envelope in which
it is delivered, unless it is
delivered separately from other communications to investors, in which case the
statement will appear either on the notice
or the envelope in which the notice is delivered.
Further Explanation of Investment
Policies
Notwithstanding
the foregoing policies, any other investment companies in which the Funds may
invest have adopted
their own
investment policies, which may be more or less restrictive than those listed
above, thereby allowing a
Fund to participate in certain investment strategies indirectly that are
prohibited under the fundamental and
non-fundamental investment policies listed above.
With
respect to repurchase agreements, each Fund
invests only in repurchase agreements that are fully collateralized
by securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of
each Fund’s
fundamental investment policy with respect to concentration, the Fund does not
consider such
repurchase agreements to constitute an industry or group of industries because
the Fund chooses to look through
such securities to the underlying collateral, which is itself excepted from the
Fund’s concentration policy.
With
respect to the exclusion of investments in other investment companies from the
fundamental investment policy regarding
concentration, Allspring Funds Management will use reasonable efforts to
consider the amount of any one industry
represented by the investments held in other investment companies when
monitoring a Fund’s
compliance with its
fundamental investment policy regarding industry concentration.
Additional Approved Investment Strategies and
Certain Associated Risks
In addition
to the principal investment strategies set forth in the Prospectus(es), the
Funds may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance
return. Please refer to a Fund’s
Prospectuses for information regarding the Fund’s anticipated use of
derivatives, if any, as a principal investment
strategy. Please note that even if a Fund’s Prospectuses do not currently
include information regarding derivatives,
or only includes information regarding certain derivative instruments, the Fund
may use any of the derivative
securities described below, at any time, and to any extent consistent with the
Fund’s other principal investment
strategies.
DERIVATIVE
SECURITIES
Derivatives
are financial instruments that derive their value, at least in part, from the
value of another security or asset, the
level of an index (e.g., the S&P 500 Index) or a rate (e.g., the Euro
Interbank Offered Rate (“Euribor”)), or the
relative change in two or more reference assets, indices or rates. The most
common types of derivatives are forward
contracts, futures, options and swap agreements. Some forms of derivative
instruments, such as exchange-traded
futures and options on securities, commodities, or indices, are traded on
regulated exchanges, like the Chicago
Board of Trade and the Chicago Mercantile Exchange. These types of derivative
instruments are standardized
contracts that can easily be bought and sold, and whose market values are
determined and published daily.
Non-standardized derivative instruments, on the other hand, tend to be more
specialized or complex, and may be harder
to value. Other common types of derivative instruments include forward foreign
currency contracts, linked securities
and structured products, participation notes and agreements, collateralized
mortgage obligations, inverse floaters,
stripped securities, warrants, and swaptions.
A Fund may
take advantage of opportunities to invest in a type of derivative that is not
presently contemplated for use by the
Fund, or that is not currently available, but that may be developed in the
future, to the extent such opportunities
are both consistent with the Fund’s investment objective and legally
permissible. The trading markets for less
traditional and/or newer types of derivative instruments are less developed than
the markets for traditional types of
derivative instruments and provide less certainty with respect to how such
instruments will perform in various
economic scenarios.
A Fund may
use derivative instruments for a variety of reasons, including: i) to employ
leverage to enhance returns; ii) to
increase or decrease exposure to particular securities or markets; iii) to
protect against possible unfavorable changes in
the market value of securities held in, or to be purchased for, its portfolio
(i.e., to hedge); iv) to protect its unrealized
gains reflected in the value of its portfolio; v) to facilitate the sale of
portfolio securities for investment purposes;
vi) to reduce transaction costs; vii) to manage the effective maturity or
duration of its portfolio; and/or viii) to maintain
cash reserves while remaining fully invested.
The risks
associated with the use of derivative instruments are different from, and
potentially much greater than, the risks
associated with investing directly in the underlying instruments on which the
derivatives are based. The value of some
derivative instruments in which a Fund may invest may be particularly sensitive
to changes in prevailing interest
rates, and, like the other investments of the Fund, the ability of the Fund to
successfully utilize derivative instruments
may depend, in part, upon the ability of the sub-adviser to forecast interest
rates and other economic factors
correctly. If the sub-adviser incorrectly forecasts such factors and has taken
positions in derivatives contrary to
prevailing market trends, the Fund could be exposed to additional, unforeseen
risks, including the risk of loss.
Because
certain derivatives have a leverage component, adverse changes in the value or
level of the underlying asset,
reference rate, or index can result in a loss substantially greater than the
amount invested in the derivative itself. The
risk of loss is heightened when a Fund uses derivative instruments to enhance
its returns or as a substitute for a
position or security, rather than solely to hedge or offset the risk of a
position or security held by a Fund. Certain
derivatives have the potential for unlimited loss, regardless of the size of the
initial investment.
Additional
risks of derivative instruments include, but are not limited to: i) the risk of
disruption of a Fund’s ability to trade in
derivative instruments because of regulatory compliance problems or regulatory
changes; ii) credit risk of counterparties
to derivative contracts; and iii) market risk (i.e., exposure to adverse price
changes). The possibility of default by
the issuer or the issuer’s credit provider may be greater for derivative
instruments than for other types of instruments.
The sub-adviser utilizes a variety of internal risk management procedures to
ensure that derivatives are closely
monitored, and that their use is consistent with a particular Fund’s investment
objective, policies, restrictions and quality
standards, and does not expose such Fund to undue risk.
A hedging
strategy may fail if the correlation between the value of the derivative
instruments and the other investments
in a Fund’s portfolio is not consistent with the sub-adviser’s expectations. If
the sub-adviser’s expectations
are not met, it is possible that the hedging strategy will not only fail to
protect the value of a Fund’s portfolio,
but the Fund may also lose money on the derivative instrument
itself.
In the case
of credit derivatives, which are a form of derivative that includes credit
default swaps and total return swaps,
payments of principal and interest are tied to the performance of one or more
reference obligations or assets. The
same general risks inherent in derivative transactions are present. However,
credit derivative transactions also carry
with them greater risks of imperfect correlation between the performance and
price of the underlying reference
security or asset, and the general performance of the designated interest rate
or index which is the basis for the
periodic payment.
Certain
derivative transactions may be modified or terminated only by mutual consent of
a Fund and its counterparty
and certain derivative transactions may be terminated by the counterparty or the
Fund, as the case may be,
upon the occurrence of certain Fund-related or counterparty-related events,
which may result in losses or gains to
the Fund based on the market value of the derivative transactions entered into
between the Fund and the counterparty.
In addition, such early terminations may result in taxable events and accelerate
gain or loss recognition
for tax purposes. It may not be possible for a Fund to modify, terminate, or
offset the Fund’s obligations or the
Fund’s exposure to the risks associated with a derivative transaction prior to
its termination or maturity date, which may
create a possibility of increased volatility and/or decreased liquidity to the
Fund. Upon the expiration or termination
of a particular contract, a Fund may wish to retain a Fund’s position in the
derivative instrument by
entering
into a similar contract, but may be unable to do so if the counterparty to the
original contract is unwilling to enter into
the new contract and no other appropriate counterparty can be found, which could
cause the Fund not to be able to
maintain certain desired investment exposures or not to be able to hedge other
investment positions or risks,
which could cause losses to the Fund. Furthermore, after such an expiration or
termination of a particular contract, a
Fund may have fewer counterparties with which to engage in additional derivative
transactions, which could lead
to potentially greater exposure to one or more counterparties and which could
increase the cost of entering
into certain derivatives. In such cases, the Fund may lose money.
The Funds
might not employ any of the strategies described herein, and no assurance can be
given that any strategy used will
succeed. Also, with some derivative strategies, there is the risk that a Fund
may not be able to find a suitable
counterparty for a derivative transaction. In addition, some over-the-counter
(“OTC”) derivative instruments may be
illiquid. Derivative instruments traded in the OTC market are also subject to
the risk that the other party will not meet
its obligations. The use of derivative instruments may also increase the amount
and accelerate the timing of taxes
payable by shareholders.
A Fund’s
use of derivative instruments also is subject to broadly applicable investment
policies. For example, a Fund may not
invest more than a specified percentage of its assets in “illiquid securities,”
including those derivative instruments
that are not transferable or that do not have active secondary
markets.
Because
certain derivatives may involve leverage, and a Fund could lose more than it
invested, federal securities laws,
regulations and guidance may require a Fund to segregate or “earmark” assets in
order to reduce the risks associated
with such derivatives, or to otherwise hold instruments that offset the Fund’s
current obligations from derivatives.
This process is known as “cover.” A Fund will not enter into any derivative
transactions unless it earmarks cash or
liquid assets with a value at least sufficient to cover its current obligations
under a derivative transaction or otherwise
covers the transaction in accordance with applicable SEC guidance. If a large
portion of a Fund’s assets is earmarked
or otherwise used for cover, it could affect portfolio management or the Fund’s
ability to meet redemption
requests or other current obligations.
In the case
of swaps, futures contracts, options, forward contracts and other derivative
instruments that do not cash settle a
Fund must earmark liquid assets equal to the full notional amount of the
instrument while the positions are open, to
the extent there is not a permissible offsetting position or a contractual
“netting” agreement with respect to swaps
(other than credit default swaps where the Fund is the protection seller).
Conversely, with respect to swaps, futures
contracts, options, forward contracts and other derivative instruments that are
required to cash settle, a Fund may
earmark liquid assets in an amount equal to the Fund’s daily marked-to-market
net obligations (i.e., the Fund’s
daily net liability) under the instrument, if any, rather than its full notional
amount. Forwards and futures contracts
that do not cash settle may be treated as cash settled for asset segregation
purposes when a Fund has entered
into contractual arrangements with a third party futures commission merchant
(“FCM”) or other counterparty
to offset the Fund’s exposure under the contract, and, failing that, to assign
their delivery obligations under the
contract to the counterparty. The Funds reserve the right to modify their asset
segregation policies in the future in
their discretion, consistent with the Investment Company Act of 1940 and SEC or
SEC-staff guidance. By earmarking
assets equal to only its net obligations under certain instruments, a Fund will
have the ability to employ leverage to
a greater extent than if the Fund were required to earmark assets equal to the
full notional amount of the instrument.
When a Fund
buys or sells a derivative that is cleared through a central clearing party, an
initial margin deposit with a FCM is
typically required subject to certain exceptions for uncleared swaps under
applicable rules. If the value of a Fund’s
derivatives that are cleared through a central clearing party decline, the Fund
will be required to make additional
“variation margin” payments to the FCM. If the value of a Fund’s derivatives
that are cleared through a central
clearing party increases, the FCM will be required to make additional “variation
margin” payments to the Fund. This
process is known as “marking-to-market” and is calculated on a daily
basis.
Central
clearing arrangements with respect to derivative instruments may be less
favorable to the Funds than bilateral
arrangements, because the Funds may be required to provide greater amounts of
margin for cleared transactions
than for bilateral transactions. Also, in contrast to bilateral derivatives
transactions, following a period of notice to a
Fund, a central clearing party generally can require termination of existing
cleared transactions at any time or
increase margin requirements.
While some
strategies involving derivative instruments can reduce the risk of loss, they
can also reduce the opportunity
for gain, or even result in losses by offsetting favorable price movements in
related investments or otherwise.
This is due, in part, to: i) the possible inability of a Fund to purchase or
sell a portfolio security at a time that
otherwise would be favorable; ii) the possible need to sell a portfolio security
at a disadvantageous time because the
Fund is required to maintain asset coverage or offsetting positions in
connection with transactions in derivative
instruments; and/or iii) the possible inability of a Fund to close out or
liquidate its derivatives positions. Accordingly,
there is the risk that such strategies may fail to serve their intended
purposes, and may reduce returns or increase
volatility. These strategies also entail transactional expenses.
It is
possible that current and/or future legislation and regulation with respect to
derivative instruments 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. For example, Title VII of the
Dodd-Frank Act made broad changes to
the OTC derivatives market and granted significant authority to the SEC and the
CFTC to regulate OTC derivatives
and market participants. Other provisions of the Dodd-Frank Act include: i)
position limits that may impact a
Fund’s ability to invest in futures, options and swaps in a manner that
efficiently meets its investment objective;
ii) capital and margin requirements; and iii) the mandatory use of clearinghouse
mechanisms for many OTC
derivative transactions. In addition, the SEC, CFTC and exchanges are authorized
to take extraordinary actions in the
event of a market emergency, including, for example, the implementation or
reduction of speculative position limits, the
implementation of higher margin requirements, the establishment of daily price
limits and the suspension of trading.
The regulation of futures, options and swaps transactions in the United States
is subject to modification by
government and judicial action. Changes to U.S. tax laws may affect the use of
derivatives by the Funds. It is impossible
to fully predict the effects of past, present or future legislation and
regulation in this area, but the effects could be
substantial and adverse.
The SEC has
adopted a new regulatory framework, including new Rule 18f-4 under the 1940 Act
(“Rule 18f-4”), governing
the Funds’ use of derivatives. Funds will be required to comply with Rule 18f-4
by the third quarter of 2022. Once
implemented, Rule 18f-4 will impose a limit on the amount of derivatives
exposure a Fund may take on (based on a
measure of risk of loss to the Fund), as well as require a Fund to adopt a
derivatives risk management program
and/or policies and procedures reasonably designed to manage the Fund’s
derivatives risks. This new regulatory
framework will also eliminate the asset segregation framework currently used by
the Funds to comply with
Section 18 of the 1940 Act.
Futures Contracts. A futures
contract is an agreement to buy or sell a security or other asset at a set price
on a future date. An
option on a future gives the holder of the option the right, which may or may
not be exercised, to buy or sell a position
in a futures contract from or to the writer of the option, at a specified price
on or before a specified expiration
date. Futures contracts and options on futures are standardized and
exchange-traded, where the exchange
serves as the ultimate counterparty for all contracts. Consequently, the primary
credit risk on such contracts
is the creditworthiness of the exchange. In addition, futures contracts and
options on futures are subject to market
risk (i.e., exposure to adverse price changes).
An interest
rate, commodity, foreign currency or index futures contract provides for the
future sale or purchase of a specified
quantity of a financial instrument, commodity, foreign currency or the cash
value of an index at a specified price and
time. A futures contract on an index is an agreement pursuant to which a party
agrees to pay or receive an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract
and the price at which the index contract was originally written. Although the
value of an index might be a function of
the value of certain specified securities, no physical delivery of these
securities is made. A public market exists in
futures contracts covering a number of indexes as well as financial instruments
and foreign currencies. To the extent
that a Fund may invest in foreign currency-denominated securities, it also may
invest in foreign currency futures
contracts and options thereon. Certain of the Funds also may invest in commodity
futures contracts and options
thereon. A commodity futures contract is an agreement to buy or sell a
commodity, such as an energy, agricultural
or metal commodity at a later date at a price and quantity agreed-upon when the
contract is bought or sold.
Futures
contracts often call for making or taking delivery of an underlying asset;
however, futures are exchange-traded,
so that a party can close out its position on the exchange for cash, without
ever having to make or take
delivery of an asset. Closing out a futures position is affected by purchasing
or selling an offsetting contract for
the same
aggregate amount with the same delivery date; however, there can be no assurance
that a liquid market will exist
at a time a Fund seeks to close out an exchange-traded position, including
options positions.
A Fund may
purchase and write call and put options on futures contracts. The holder of an
option on a futures contract
has the right, in return for the premium paid, to assume a long position (call)
or short position (put) in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the
holder acquires a long position in the futures contract and the writer is
assigned the opposite short position.
In the case of a put option, the opposite is true. A call option is “in the
money” if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
“in the money” if the exercise price
exceeds the value of the futures contract that is the subject of the option. The
potential loss related to the purchase of
futures options is limited to the premium paid for the option (plus transaction
costs). Because the value of the
option is fixed at the time of sale, there are no daily cash payments to reflect
changes in the value of the underlying
contract; however, the value of the option may change daily, and that change
would be reflected in the net asset
value (“NAV”) of a Fund.
To the
extent securities are segregated or “earmarked” to cover a Fund’s obligations
under futures contracts and related
options, such use will not eliminate the risk of leverage, which may exaggerate
the effect of any increase or decrease in
the market value of a Fund’s portfolio, and may require liquidation of portfolio
positions when it is not advantageous
to do so.
There are
several risks associated with the use of futures contracts and options on
futures as hedging instruments. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. There can
be no guarantee that there will be a correlation between price movements in a
hedging vehicle and the securities
being hedged. In addition, there are significant differences between securities
and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree
of imperfection of correlation depends on circumstances such as variations in
speculative market demand for
futures and options on futures contracts for securities, including technical
influences in futures and options
trading, and differences between the financial instruments being hedged and the
instruments underlying the
standard contracts available for trading in such respects as interest rate
levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Futures
contracts on U.S. Government securities have historically been highly correlated
to their respective underlying
U.S. Government securities. However, to the extent a Fund enters into such
futures contracts, the value of the futures
will not fluctuate in direct proportion to the value of the Fund’s holdings of
U.S. Government securities. Thus, the
anticipated spread between the price of a futures contract and its respective
underlying security may be affected by
differences in the nature of their respective markets. The spread may also be
affected by differences in initial and
variation margin requirements, the liquidity of such markets and the
participation of speculators in such markets.
There are
several additional risks associated with transactions in commodity futures
contracts, including but not limited
to:
■ |
Storage:
Unlike the financial futures markets, in the commodity futures markets
there are costs of physical storage associated
with purchasing the underlying commodity. The price of the commodity
futures contract will reflect the
storage costs of purchasing the physical commodity, including the time
value of money invested in the physical
commodity. To the extent that the storage costs for an underlying
commodity change while a Fund is invested
in futures contracts on that commodity, the value of the futures contract
may change proportionately. |
■ |
Reinvestment:
In the commodity futures markets, producers of the underlying commodity
may decide to hedge the
price risk of selling the commodity by selling futures contracts today to
lock in the price of the commodity at delivery
tomorrow. In order to induce speculators to purchase the other side of the
same futures contract, the commodity
producer generally must sell the futures contract at a lower price than
the expected future spot price. Conversely,
if most hedgers in the futures market are purchasing futures contracts to
hedge against a rise in prices,
then speculators will only sell the other side of the futures contract at
a higher futures price than the expected
future spot price of the commodity. The changing nature of the hedgers and
speculators in the |
|
commodity
markets will influence whether futures prices are above or below the
expected future spot price, which
can have significant implications for a Fund. If the nature of hedgers and
speculators in futures markets has shifted
when it is time for a Fund to reinvest the proceeds of a maturing contract
in a new futures contract, the Fund
might reinvest at higher or lower futures prices, or choose to pursue
other investments. |
■ |
Other
Economic Factors: The commodities which underlie commodity futures
contracts may be subject to additional
economic and non-economic variables, such as drought, floods, weather,
livestock disease, embargoes, tariffs,
and international economic, political and regulatory developments. These
factors may have a larger impact on
commodity prices and commodity-linked instruments, including futures
contracts, than on traditional securities.
Certain commodities are also subject to limited pricing flexibility
because of supply and demand factors.
Others are subject to broad price fluctuations as a result of the
volatility of the prices for certain raw materials
and the instability of supplies of other materials. These additional
variables may create additional investment
risks which subject a Fund’s investments to greater volatility than
investments in traditional securities. |
The
requirements for qualification as a regulated investment company may limit the
extent to which a Fund may enter into
futures and options on futures positions. Unless otherwise noted in the section
entitled “Non-Fundamental Investment
Policies,” each of the Funds has claimed an exclusion from the definition of
“Commodity Pool Operator” (“CPO”)
found in Rule 4.5 of the Commodity Exchange Act (“CEA”). Accordingly, the
manager of each such Fund, as well as
each sub-adviser, is not subject to registration or regulation as a CPO with
respect to the Funds under the CEA.
Options. A Fund may
purchase and sell both put and call options on various instruments, including,
but not limited to,
fixed-income or other securities or indices in standardized contracts traded on
foreign or domestic securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ or on an OTC market,
and agreements, sometimes
called cash puts, which may accompany the purchase of a new issue of bonds from
a dealer. A Fund may also write
covered straddles consisting of a combination of calls and puts written on the
same underlying securities or
indices.
An option
on a security (or index) is a contract that gives the holder of the option, in
return for a premium, the right to buy from
(in the case of a call) or sell to (in the case of a put) the writer of the
option the security underlying the option (or
the cash value of the index) at a specified exercise price often at any time
during the term of the option for American
options or only at expiration for European options. The writer of an option on a
security has the obligation upon
exercise of the option to deliver the underlying security upon payment of the
exercise price (in the case of a call) or to
pay the exercise price upon delivery of the underlying security (in the case of
a put). Certain put options written by
a Fund may be structured to have an exercise price that is less than the market
value of the underlying securities
that would be received by the Fund. Upon exercise, the writer of an option on an
index is obligated to pay the
difference between the cash value of the index and the exercise price multiplied
by the specified multiplier for the index
option. An index is designed to reflect features of a particular financial or
securities market, a specific group of
financial instruments or securities, or certain economic
indicators.
If an
option written by a Fund expires unexercised, the Fund realizes a capital gain
equal to the premium received at the time
the option was written. If an option purchased by a Fund expires unexercised,
the Fund realizes a capital loss equal
to the premium paid. Prior to the earlier of exercise or expiration, an
exchange-traded option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index,
exercise price, and expiration). There can be no assurance, however, that a
closing purchase or sale transaction
can be effected when a Fund desires.
A Fund may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the
amount realized on the sale is more or less than the premium and other
transaction costs paid on the put or call
option which is sold. Prior to exercise or expiration, an option may be closed
out by an offsetting purchase or
sale of an option of the same series. A Fund will realize a capital gain from a
closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a closing sale
transaction is more than the premium
paid to purchase the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The
principal factors affecting the market value of a put or a call option include
supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility
of the underlying security or index, and the time remaining until the expiration
date.
The value
of an option purchased or written is marked to market daily and is valued at the
closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last
bid and ask prices.
There are
several risks associated with transactions in options on securities and on
indexes. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to
use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
The writer
of an American option typically has no control over the time when it may be
required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver the underlying security at the
exercise price. To the extent a Fund writes a put option, the Fund has assumed
the obligation during the option period to
purchase the underlying investment from the put buyer at the option’s exercise
price if the put buyer exercises
its option, regardless of whether the value of the underlying investment falls
below the exercise price. This means that
a Fund that writes a put option may be required to take delivery of the
underlying investment and make payment for
such investment at the exercise price. This may result in losses to the Fund and
may result in the Fund holding the
underlying investment for some period of time when it is disadvantageous to do
so.
If a put or
call option purchased by a Fund is not sold when it has remaining value, and if
the market price of the underlying
security remains equal to or greater than the exercise price (in the case of a
put), or remains less than or equal to
the exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call
option on a particular security is purchased to hedge against price movements in
a related security, the price of
the put or call option may move more or less than the price of the related
security.
If trading
were suspended in an option purchased by a Fund, the Fund would not be able to
close out the option. If restrictions
on exercise were imposed, the Fund might be unable to exercise an option it has
purchased. Except to the extent
that a call option on an index written by a Fund is covered by an option on the
same index purchased by the Fund,
movements in the index may result in a loss to the Fund; however, such losses
may be mitigated by changes in
the value of the Fund’s securities during the period the option was
outstanding.
To the
extent that a Fund writes a call option on a security it holds in its portfolio
and intends to use such security as the sole
means of “covering” its obligation under the call option, the Fund has, in
return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
security above the exercise price during the
option period, but, as long as its obligation under such call option continues,
has retained the risk of loss should the
price of the underlying security decline.
Foreign
Currency Options. Funds that
may invest in foreign currency-denominated securities may buy or sell put and
call
options on foreign currencies. These Funds may buy or sell put and call options
on foreign currencies either on exchanges
or in the OTC market. A put option on a foreign currency gives the purchaser of
the option the right to sell a
foreign currency at the exercise price until the option expires. A call option
on a foreign currency gives the purchaser
of the option the right to purchase the currency at the exercise price until the
option expires. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce
foreign currency risk using such options. OTC options differ from
exchange-traded options in that they are bilateral
contracts with price and other terms negotiated between buyer and seller, and
generally do not have as much market
liquidity as exchange-traded options. Under definitions adopted by the CFTC and
SEC, many foreign currency
options are considered swaps for certain purposes, including determination of
whether such instruments need to be
exchange-traded and centrally cleared.
Stock
Index Options. A Fund may
purchase and write (i.e., sell) put and call options on stock indices to gain
exposure to
comparable market positions in the underlying securities or to manage risk
(i.e., hedge) on direct investments in the
underlying securities. A stock index fluctuates with changes of the market
values of the stocks included in the index. For
example, some stock index options are based on a broad market index, such as the
S&P 500 Index or a narrower
market index, such as the S&P 100 Index. Indices may also be based on an
industry or market segment. A Fund may,
for the purpose of hedging its portfolio, subject to applicable securities
regulations, purchase and write put and
call options on stock indices listed on foreign and domestic stock exchanges.
The effectiveness of
purchasing
or writing stock index options will depend upon the extent to which price
movements of the securities in a Fund’s
portfolio correlate with price movements of the stock index selected. Because
the value of an index option depends
upon movements in the level of the index rather than the price of a particular
stock, whether a Fund will realize a
gain or loss from purchasing or writing stock index options depends upon
movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an industry or
market segment, rather than movements
in the price of particular stock.
There is a
key difference between stock options and stock index options in connection with
their exercise. In the case of
stock options, the underlying security, common stock, is delivered. However,
upon the exercise of a stock index
option, settlement does not occur by delivery of the securities comprising the
index. The option holder who exercises
the stock index option receives an amount of cash if the closing level of the
stock index upon which the option is
based is greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option. This amount
of cash is equal to the difference between the closing price of the stock index
and the exercise price of the option
expressed in dollars times a specified multiple.
Swap Agreements. Swap
agreements are derivative instruments that can be individually negotiated and
structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap
agreements may increase or decrease a Fund’s exposure to long- or short-term
interest rates, foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. A Fund may
enter into a variety of swap agreements, including interest rate, index,
commodity, equity, credit default and
currency exchange rate, among others, each of which may include special
features, such as caps, collars and floors.
Swap
agreements are usually entered into without an upfront payment because the value
of each party’s position is the same.
The market values of the underlying commitments will change over time, resulting
in one of the commitments
being worth more than the other and the net market value creating a risk
exposure for one party or the other.
A Fund may
enter into swap agreements for any legal purpose consistent with its investment
objectives and policies, such as
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, or to gain exposure to certain markets in a more cost efficient
manner.
OTC swap
agreements are bilateral contracts entered into primarily by institutional
investors for periods ranging from a few
weeks to more than one year. In a standard OTC swap transaction, two parties
agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross
returns to be exchanged or “swapped” between the parties are generally
calculated with respect to a “notional
amount,” i.e., the return on or change in value of a particular dollar amount
invested at a particular interest rate, in a
particular foreign (non-U.S.) currency, or in a “basket” of securities or
commodities representing a particular index. A
“quanto” or “differential” swap combines both an interest rate and a currency
transaction. Certain swap agreements,
such as interest rate swaps, are traded on exchanges and cleared through central
clearing counterparties.
Other forms of swap agreements 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. A total return swap agreement is a contract in which
one party agrees to make periodic
payments to another party based on the change in market value of underlying
assets, which may include a single
stock, a basket of stocks, or a stock index during the specified period, in
return for periodic payments based on a fixed
or variable interest rate or the total return from other underlying assets.
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 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 Euribor, 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.
A Fund may
also enter into combinations of swap agreements in order to achieve certain
economic results. For example, a
Fund may enter into two swap transactions, one of which offsets the other for a
period of time. After the offsetting
swap transaction expires, the Fund would be left with the economic exposure
provided by the remaining swap
transaction. The intent of such an arrangement would be to lock in certain terms
of the remaining swap transaction
that a Fund may wish to gain exposure to in the future without having that
exposure during the period the
offsetting swap is in place.
Most types
of swap agreements entered into by the Funds will calculate the obligations of
the parties to the agreement
on a “net basis.” Consequently, a Fund’s current obligations (or rights) under 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 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 or “earmarking”
of cash or other liquid assets to
limit the extent of any potential leveraging of the Fund’s portfolio.
Obligations under swap agreements so covered
will not be construed to be “senior securities” for purposes of a Fund’s
investment restriction concerning senior
securities.
Swap
agreements are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude
of risks assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a Fund’s
performance. Depending on how they are used, swap agreements may increase or
decrease the overall volatility
of a Fund’s investments and its share price and yield. Additionally, the extent
to which a Fund’s use of swap agreements
will be successful in furthering its investment objective will depend on the
sub-adviser’s ability to correctly
predict whether certain types of investments are likely to produce greater
returns than other investments.
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. When a counterparty’s
obligations are not fully secured by
collateral, then a Fund is essentially an unsecured creditor of the
counterparty. If the counterparty defaults,
the Fund will have contractual remedies, but there is no assurance that a
counterparty will be able to meet its
obligations pursuant to such contracts or that, in the event of default, the
Fund will succeed in enforcing contractual
remedies. Counterparty risk still exists even if a counterparty’s obligations
are secured by collateral because a
Fund’s interest in collateral may not be perfected or additional collateral may
not be promptly posted as required.
Counterparty risk also may be more pronounced if a counterparty’s obligations
exceed the amount of collateral
held by a Fund (if any), the Fund is unable to exercise its interest in
collateral upon default by the counterparty,
or the termination value of the instrument varies significantly from the
marked-to-market value of the instrument.
The sub-adviser will closely monitor the credit of a swap agreement counterparty
in order to attempt to minimize
this risk. Certain restrictions imposed on the Funds by the Internal Revenue
Code may limit the Funds’ ability to
use swap agreements. The swaps market is subject to increasing regulations, in
both U.S. and non-U.S. markets. It
is possible that developments in the swaps market, including additional
government regulation, could adversely
affect a Fund’s ability to terminate existing swap agreements or to realize
amounts to be received under such
agreements.
The use of
swaps is a highly specialized activity that requires investment techniques, risk
analyses and tax planning different
from those associated with traditional investments. The use of a swap requires
an understanding, not only of the
reference asset, interest rate, or index, but also of the terms of the swap
agreement, without the benefit of observing
the performance of the swap under all possible market conditions. Because OTC
swap agreements are bilateral
contracts that may be subject to contractual restrictions on transferability and
termination, and because they may
have remaining terms of greater than seven days, OTC swap agreements may be
considered illiquid and subject to
a Fund’s limitation on investments in illiquid securities. To the extent that a
swap is not liquid, it may not be possible
to initiate a transaction or liquidate a position at an advantageous time or
price, which may result in significant
losses.
Moreover,
like most other investments, swap agreements are subject to the risk that the
market value of the instrument
will change in a way detrimental to a Fund’s interest. A Fund bears the risk
that the sub-adviser will not accurately
forecast future market trends or the values of assets, reference rates, indexes,
or other economic factors in
establishing swap positions for the Fund. If the sub-adviser attempts to use a
swap as a hedge on, or as a substitute
for, a portfolio investment, the Fund will be exposed to the risk that the swap
will have or will develop an imperfect
correlation with the portfolio investment. This could cause substantial losses
for the Fund. While hedging strategies
involving swap instruments can reduce the risk of loss, they can also reduce the
opportunity for gain or even result
in losses by offsetting favorable price movements in other Fund investments. In
addition, because swap transactions
generally do not involve the delivery of securities or other underlying assets
or principal, the risk of loss with
respect to swap agreements and swaptions (described below) generally is limited
to the net amount of payments
that a Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap agreement
or swaption, in which case a Fund may not receive the net amount of payments
that such Fund contractually
is entitled to receive.
Many swaps
are complex, and their valuation often requires modeling and judgment, which
increases the risk of mispricing
or incorrect valuation. The pricing models used may not produce valuations that
are consistent with the values a
Fund realizes when it closes or sells an over-the-counter derivative. Valuation
risk is more pronounced when a Fund
enters into an over-the-counter swap with specialized terms, because the market
value of a swap, in some cases, is
partially determined by reference to similar derivatives with more standardized
terms. Incorrect valuations may result
in increased cash payment requirements to counterparties, undercollateralization
and/or errors in calculation
of a Fund’s net asset value.
A Fund also
may enter into options to enter into a swap agreement (“swaptions”). These
transactions give a party 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. A Fund may
write (sell) and purchase put and call swaptions. Depending on the terms of the
particular option agreement,
a Fund will generally incur a greater degree of risk when it writes a swaption
than it will incur when it purchases a
swaption. When a Fund purchases a swaption, 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
swaption, upon exercise of the option the
Fund will become obligated according to the terms of the underlying
agreement.
Commodity-Linked
Swap Agreements.
Commodity-linked swaps are two-party contracts in which the parties agree
to exchange
the return or interest rate on one instrument for the return of a particular
commodity, commodity index or
commodities futures or options contract. The payment streams are calculated by
reference to an agreed upon notional
amount. A one-period swap contract operates in a manner similar to a forward or
futures contract because there is an
agreement to swap a commodity for cash at only one forward date. A Fund may
engage in swap transactions
that have more than one period and more than one exchange of
commodities.
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, the Fund
will pay a fixed fee, established at the outset of the swap. However, if the
term of the commodity swap is more than
one period, with interim swap payments, the Fund will pay an adjustable or
floating fee. With a “floating” rate, the
fee is pegged to a base rate such as Euribor, 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.
A Fund’s
ability to invest in commodity-linked swaps may be adversely affected by changes
in legislation, regulations or other
legally binding authority. Under the Internal Revenue Code of 1986, as amended
(the “Code”), a Fund must derive at
least 90% of its gross income from qualifying sources to qualify as a regulated
investment company. The Internal
Revenue Service has also issued a revenue ruling which holds that income derived
from commodity-linked swaps is
not qualifying income with respect to the 90% threshold. As a result, a Fund’s
ability to directly invest in commodity-linked
swaps as part of its investment strategy is limited to a maximum of 10% of its
gross income. Failure to
comply with the restrictions in the Code and any future legislation or guidance
may cause a Fund to fail to qualify as
a regulated investment company, which may adversely impact a shareholder’s
return. Alternatively, a Fund may forego
such investments, which could adversely affect the Fund’s ability to achieve its
investment goal.
Credit
Default Swap Agreements. A Fund may
enter into OTC and cleared credit default swap agreements, which may
reference one or more debt securities or obligations that are or are not
currently held by a Fund. The protection “buyer” in
an OTC credit default swap agreement is generally obligated to pay the
protection “seller” an upfront or a periodic
stream of payments over the term of the contract until a credit event, such as a
default, on a reference obligation
has occurred. If a credit event occurs, the seller generally must pay the buyer
the “par value” (full notional value) of
the swap in exchange for an equal face amount of deliverable obligations of the
reference entity described in the
swap, or the seller may be required to deliver the related net cash amount, if
the swap is cash settled. A Fund may be
either the buyer or seller in the transaction. If a Fund is a buyer and no
credit event occurs, the Fund may recover
nothing if the swap is held through its termination date. However, if a credit
event occurs, the buyer generally
may elect to receive the full notional value of the swap in exchange for an
equal face amount of deliverable obligations
of the reference entity whose value may have significantly decreased. As a
seller, a Fund generally receives an
upfront payment or a fixed rate of income throughout the term of the swap
provided that there is no credit
event. As the seller, a Fund would effectively add leverage to its portfolio
because, in addition to its total net assets, a
Fund would be subject to investment exposure on the notional amount of the
swap.
The spread
of a credit default swap is the annual amount the protection buyer must pay the
protection seller over the length
of the contract, expressed as a percentage of the notional amount. Market
perceived credit risk increases as spreads
widen; market perceived credit risk decreases as spreads narrow. Wider credit
spreads and decreasing market
values, when compared to the notional amount of the swap, represent a
deterioration of the credit soundness
of the issuer of the reference obligation and a greater likelihood or risk of
default or other credit event occurring
as defined under the terms of the agreement. For credit default swap agreements
on asset-backed securities
and credit indices, the quoted market prices and resulting values, as well as
the annual payment rate, serve as an
indication of the current status of the payment/performance risk. A Fund’s
obligations under a credit default
swap agreement will be accrued daily (offset against any amounts owing to the
Fund).
Credit
default swap agreements sold by a Fund may involve greater risks than if a Fund
had invested in the reference obligation
directly because, in addition to general market risks, credit default swaps are
subject to illiquidity risk and counterparty
credit risk (with respect to OTC credit default swaps). A Fund will enter into
uncleared credit default swap
agreements generally with counterparties that meet certain standards of
creditworthiness. A buyer generally also will
lose its investment and recover nothing should no credit event occur and the
swap is held to its termination date. If a
credit event were to occur, the value of any deliverable obligation received by
the seller, coupled with the upfront or
periodic payments previously received, may be less than the full notional value
it pays to the buyer, resulting
in a loss of value to the seller. In addition, there may be disputes between the
buyer and seller of a credit default
swap agreement or within the swaps market as a whole as to whether a credit
event has occurred or what the payment
should be. Such disputes could result in litigation or other delays, and the
outcome could be adverse for the buyer
or seller.
Interest
Rate Swap Agreements. Interest
rate swap agreements may be used to obtain or preserve a desired return or
spread at a
lower cost than through a direct investment in an instrument that yields the
desired return or spread. They are
financial instruments that involve the exchange of one type of interest rate
cash flow for another type of interest
rate cash flow on specified dates in the future. In a standard interest rate
swap transaction, two parties agree to exchange
their respective commitments to pay fixed or floating interest rates on a
predetermined specified (notional)
amount. The swap agreement’s notional amount is the predetermined basis for
calculating the obligations that the
swap counterparties have agreed to exchange. Under most swap agreements, the
obligations of the parties are
exchanged on a net basis. The two payment streams are netted out, with each
party receiving or paying, as the case may
be, only the net amount of the two payments. Interest rate swaps can be based on
various measures of interest
rates, including Euribor, swap rates, Treasury rates and foreign interest
rates.
Swap
agreements will tend to shift a Fund’s investment exposure from one type of
investment to another. For example, if
a Fund agreed to pay fixed rates in exchange for floating rates while holding
fixed-rate bonds, the swap would tend
to decrease a Fund’s exposure to long-term interest rates. Another example is if
a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease a Fund’s
exposure to U.S. interest rates and increase its exposure to foreign currency
and interest rates.
Total
Return Swap Agreements. Total
return swap agreements are contracts in which one party agrees to make
periodic
payments to another party based on the change in market value of the assets
underlying the contract,
which may
include a specified security, basket of securities or securities indices during
the specified period, in return for
periodic payments based on a fixed or variable interest rate or the total return
from other underlying assets.
Total return swap agreements may be used to obtain exposure to a security or
market without owning or taking
physical custody of such security or investing directly in such market. Total
return swap agreements may effectively
add leverage to a Fund’s portfolio because, in addition to its total net assets,
a Fund would be subject to investment
exposure on the notional amount of the swap.
Total
return swap agreements are subject to the risk that a counterparty will default
on its payment obligations to a Fund
thereunder, and conversely, that a Fund will not be able to meet its obligation
to the counterparty. Generally, a Fund will
enter into total return swaps on a net basis (i.e., the two payment streams are
netted against one another with a Fund
receiving or paying, as the case may be, only the net amount of the two
payments).
Contracts
for Differences. Contracts
for differences are swap arrangements in which the parties agree that their
return (or
loss) will be based on the relative performance of two different groups or
baskets of securities. Often, one or both
baskets will be an established securities index. A Fund’s return will be based
on changes in value of theoretical
long futures positions in the securities comprising one basket (with an
aggregate face value equal to the notional
amount of the contract for differences) and theoretical short futures positions
in the securities comprising the other
basket. A Fund also may use actual long and short futures positions and achieve
similar market exposure by netting
the payment obligations of the two contracts. A Fund typically enters into
contracts for differences (and analogous
futures positions) when the sub-adviser believes that the basket of securities
constituting the long position
will outperform the basket constituting the short position. If the short basket
outperforms the long basket, a Fund will
realize a loss, even in circumstances when the securities in both the long and
short baskets appreciate in value.
Cross-Currency
Swap Agreements. Cross
currency swap agreements are similar to interest rate swaps, except that
they
involve multiple currencies. A Fund may enter into a cross currency swap
agreement when it has exposure to one
currency and desires exposure to a different currency. Typically, the interest
rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a floating
rate of interest. Unlike an interest
rate swap agreement, however, the principal amounts are exchanged at the
beginning of the contract and returned at
the end of the contract. In addition to paying and receiving amounts at the
beginning and termination of the
agreements, both sides will have to pay in full periodically based upon the
currency they have borrowed. Changes in
foreign exchange currency rates and changes in interest rates may negatively
affect currency swaps.
Volatility,
Variance and Correlation Swap Agreements. A Fund
also may enter into forward volatility agreements, also known as
volatility swaps. In a volatility swap, the counterparties agree to make
payments in connection with changes in
the volatility (i.e., the magnitude of change over a specified period of time)
of an underlying reference instrument,
such as a currency, rate, index, security or other financial instrument.
Volatility swaps permit the parties to attempt
to hedge volatility risk and/or take positions on the projected future
volatility of an underlying reference instrument.
For example, a Fund may enter into a volatility swap in order to take the
position that the reference instrument’s
volatility will increase over a particular period of time. If the reference
instrument’s volatility does increase
over the specified time, the Fund will receive a payment from its counterparty
based upon the amount by which the
reference instrument’s realized volatility level exceeds a volatility level
agreed upon by the parties. If the reference
instrument’s volatility does not increase over the specified time, the Fund will
make a payment to the counterparty
based upon the amount by which the reference instrument’s realized volatility
level falls below the volatility
level agreed upon by the parties. Payments on a volatility swap will be greater
if they are based upon the mathematical
square of volatility (i.e., the measured volatility multiplied by itself, which
is referred to as “variance”). This type
of a volatility swap is frequently referred to as a variance swap. Certain of
the Funds may engage in variance
swaps. Correlation swaps are contracts that provide exposure to increases or
decreases in the correlation between the
prices of different assets or different market rates. Certain of the Funds may
engage in variance swaps and
correlation swaps.
Interest Rate Futures Contracts and Options
on Interest Rate Futures Contracts. A Fund may
invest in interest rate futures
contracts and options on interest rate futures contracts for various investment
reasons, including to serve as a
substitute for a comparable market position in the underlying securities. A Fund
may also sell options on interest rate
futures contracts as part of closing purchase transactions to terminate its
options positions. No assurance can be given
that such closing transactions can be effected or as to the degree of
correlation between price movements
in the
options on interest rate futures and price movements in a Fund’s portfolio
securities which are the subject of the
transaction.
Bond prices
are established in both the cash market and the futures market. In the cash
market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business
days after the trade. In the futures market, a contract is made to purchase or
sell a bond in the future for a set price
on a certain date. Historically, the prices for bonds established in the futures
markets have tended to move generally
in the aggregate in concert with the cash market prices and have maintained
fairly predictable relationships.
Accordingly, a Fund may use interest rate futures contracts as a defense, or
hedge, against anticipated interest
rate changes. A Fund presently could accomplish a similar result to that which
it hopes to achieve through the use of
interest rate futures contracts by selling bonds with long maturities and
investing in bonds with short maturities
when interest rates are expected to increase, or conversely, selling bonds with
short maturities and investing
in bonds with long maturities when interest rates are expected to decline.
However, because of the liquidity
that is often available in the futures market, the protection is more likely to
be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, through using
futures contracts.
Inverse Floaters. Inverse
floaters (also known as “residual interest bonds”) are inverse floating rate
debt securities. The
interest rate on an inverse floater varies inversely with a floating rate (which
may be reset periodically by a “Dutch”
auction, a remarketing agent or by reference to a short-term tax-exempt interest
rate index). A change in the interest
rate on the referenced security or index will inversely affect the rate of
interest paid on an inverse floater. That is,
income on inverse floating rate debt securities will decrease when interest
rates increase, and will increase when
interest rates decrease.
Markets for
inverse floaters may be less developed and more volatile, and may experience
less or varying degrees of liquidity
relative to markets for more traditional securities, especially during periods
of instability in credit markets. The value
of an inverse floater is generally more volatile than that of a traditional
fixed-rate bond having similar credit quality,
redemption provisions and maturity. Inverse floaters may have interest rate
adjustment formulas that generally
reduce or, in the extreme cases, eliminate the interest paid to a Fund when
short-term interest rates rise, and
increase the interest paid to a Fund when short-term interest rates fall. The
value of an inverse floater also tends to fall
faster than the value of a fixed-rate bond when interest rates rise, and
conversely, the value of an inverse floater
tends to rise more rapidly when interest rates fall. Inverse floaters tend to
underperform fixed-rate bonds in a rising
long-term interest rate environment, but tend to outperform fixed-rate bonds
when long-term interest rates decline.
Inverse
floaters have the effect of providing a degree of investment leverage because
they may increase or decrease in value in
response to changes (e.g., changes in market interest rates) at a rate that is a
multiple of the rate at which fixed-rate
securities increase or decrease in response to the same changes. As a result,
the market values of such securities
are generally more volatile than the market values of fixed-rate securities
(especially during periods when interest
rates are fluctuating). A Fund could lose money and its net asset value could
decline if movements in interest
rates are incorrectly anticipated. To seek to limit the volatility of these
securities, a Fund may purchase inverse
floating obligations that have shorter-term maturities or that contain
limitations on the extent to which the interest
rate may vary. Certain investments in such obligations may be illiquid.
Furthermore, where such a security includes a
contingent liability, in the event of an adverse movement in the underlying
index or interest rate, a Fund may be
required to pay substantial additional margin to maintain the
position.
A Fund may
either participate in structuring an inverse floater or purchase an inverse
floater in the secondary market.
When structuring an inverse floater, a Fund will transfer fixed-rate securities
held in the Fund’s portfolio to a trust. The
trust then typically issues the inverse floaters and the floating rate notes
that are collateralized by the cash flows of
the fixed-rate securities. In return for the transfer of the securities to the
trust, the Fund receives the inverse floaters
and cash associated with the sale of the notes from the trust.
Inverse
floaters are sometimes created by depositing municipal securities in a tender
option bond trust (“TOB Trust”). In
a tender option bond (“TOB”) transaction, a TOB Trust issues a floating rate
certificate (“TOB Floater”) and a residual
interest certificate (“TOB Residual”) and utilizes the proceeds of such issuance
to purchase a fixed-rate municipal
bond (“Fixed-Rate Bond”) that either is owned or identified by a Fund. The TOB
Floater is generally issued to third
party investors (typically a money market fund) and the TOB Residual is
generally issued to the Fund that sold
or
identified the Fixed-Rate Bond. The TOB Trust divides the income stream provided
by the Fixed-Rate Bond to create two
securities, the TOB Floater, which is a short-term security, and the TOB
Residual, which is a longer-term security.
The interest rates payable on the TOB Residual issued to a Fund bear an inverse
relationship to the interest rate on the
TOB Floater. The interest rate on the TOB Floater is reset by a remarketing
process typically every 7 to 35 days. After
income is paid on the TOB Floater at current rates, the residual income from the
Fixed-Rate Bond goes to the TOB
Residual. Therefore, rising short-term rates result in lower income for the TOB
Residual, and vice versa. In the case of
a TOB Trust that utilizes the cash received (less transaction expenses) from the
issuance of the TOB Floater and
TOB Residual to purchase the Fixed Rate Bond from a Fund, the Fund may then
invest the cash received in
additional securities, generating leverage for the Fund.
The TOB
Residual may be more volatile and less liquid than other municipal bonds of
comparable maturity. In most circumstances,
the TOB Residual holder bears substantially all of the underlying Fixed-Rate
Bond’s downside investment
risk and also benefits from any appreciation in the value of the underlying
Fixed-Rate Bond. Investments in a TOB
Residual typically will involve greater risk than investments in Fixed-Rate
Bonds.
The TOB
Residual held by a Fund provides the Fund with the right to: i) cause the
holders of the TOB Floater to tender
their notes at par; and ii) cause the sale of the Fixed-Rate Bond held by the
TOB Trust, thereby collapsing the TOB Trust.
TOB Trusts are generally supported by a liquidity facility provided by a
third-party bank or other financial institution
(the “Liquidity Provider”) that provides for the purchase of TOB Floaters that
cannot be remarketed. The holders of
the TOB Floaters have the right to tender their certificates in exchange for
payment of par plus accrued interest on
a periodic basis (typically weekly) or on the occurrence of certain mandatory
tender events. The tendered TOB
Floaters are remarketed by a remarketing agent, which is typically an affiliated
entity of the Liquidity Provider. If the TOB
Floaters cannot be remarketed, the TOB Floaters are purchased by the TOB Trust
either from the proceeds of a loan
from the Liquidity Provider or from a liquidation of the Fixed-Rate
Bond.
The TOB
Trust may also be collapsed without the consent of a Fund, as the TOB Residual
holder, upon the occurrence
of certain “tender option termination events” (or “TOTEs”), as defined in the
TOB Trust agreements. Such termination
events typically include the bankruptcy or default of the municipal bond, a
substantial downgrade in credit
quality of the municipal bond, or a judgment or ruling that interest on the
Fixed-Rate Bond is subject to federal income
taxation. Upon the occurrence of a termination event, the TOB Trust would
generally be liquidated in full with the
proceeds typically applied first to any accrued fees owed to the trustee,
remarketing agent and liquidity provider,
and then to the holders of the TOB Floater up to par plus accrued interest owed
on the TOB Floater and a portion of
gain share, if any, with the balance paid out to the TOB Residual holder. In the
case of a mandatory termination
event (“MTE”), after the payment of fees, the TOB Floater holders would be paid
before the TOB Residual holders
(i.e., the Fund). In contrast, in the case of a TOTE, after payment of fees, the
TOB Floater holders and the TOB Residual
holders would be paid pro rata in proportion to the respective face values of
their certificates.
Participation
Notes.
Participation notes (“P-notes”) are participation interest notes that are issued
by banks and broker-dealers
and are designed to offer a return linked to a particular equity, debt, currency
or market. An investment
in a P-note involves additional risks beyond the risks normally associated with
a direct investment in the underlying
security, and the P-note’s performance may differ from the underlying security’s
performance. While the holder of a
P-note is entitled to receive from the bank or issuing broker-dealer any
dividends paid on the underlying security,
the holder is not entitled to the same rights (e.g., voting rights) as an owner
of the underlying stock. P-notes are
considered general unsecured contractual obligations of the banks or
broker-dealers that issue them. As such, a Fund must
rely on the creditworthiness of the issuer of a P-note for their investment
returns on such P-note, and would have
no rights against the issuer of the underlying security. There is also no
assurance that there will be a secondary
trading market for a P-note or that the trading price of a P-note will equal the
value of the underlying security.
Additionally, issuers of P-notes and the calculation agent may have broad
authority to control the foreign exchange
rates related to the P-notes and discretion to adjust the P-note’s terms in
response to certain events.
Stock Index Futures Contracts and Options on
Stock Index Futures Contracts. Stock
index futures and options on stock index
futures provide exposure to comparable market positions in the underlying
securities or to manage risk (i.e.,
hedge) on direct investments in the underlying securities. A stock index future
obligates the seller to deliver (and the
purchaser to take), effectively, an amount of cash equal to a specific dollar
amount times the difference between the
value of a specific stock index at the close of the last trading day of the
contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. With respect to stock
indices
that are permitted investments, each Fund intends to purchase and sell futures
contracts on the stock index for which
it can obtain the best price with consideration also given to
liquidity.
Options on
stock index futures give the purchaser the right, in return for the premium
paid, to assume a position in a stock index
futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated
balance in the writer’s futures margin account, which represents the amount by
which the market price of the
stock index futures contract, at exercise, exceeds (in the case of a call) or is
less than (in the case of a put) the exercise
price of the option on the stock index future. If an option is exercised on the
last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise
price of the option and the closing level of the index on which the future is
based on the expiration date. Purchasers
of options who fail to exercise their options prior to the exercise date suffer
a loss of the premium paid.
Permitted Investment Activities and Certain
Associated Risks
Set forth
below are descriptions of permitted investment activities for the Funds and
certain of their associated risks. The
activities are organized into various categories. To the extent that an activity
overlaps two or more categories, the
activity is referenced only once in this section. Not all of the Funds
participate in all of the investment activities described
below. In addition, with respect to any particular Fund, to the extent that an
investment activity is described
in such Fund’s Prospectus as being part of its principal investment strategy,
the information provided below
regarding such investment activity is intended to supplement, but not supersede,
the information contained in the
Prospectus, and the Fund may engage in such investment activity in accordance
with the limitations set forth in the
Prospectus. To the extent an investment activity is described in this SAI that
is not referenced in the Prospectus,
a Fund under normal circumstances will not engage in such investment activity
with more than 15% of its assets
unless otherwise specified below. Unless otherwise noted or required by
applicable law, the percentage limitations
included in this SAI apply at the time of purchase of a security.
For
purposes of monitoring the investment policies and restrictions of the Funds
(with the exception of the loans of portfolio
securities policy described below), the amount of any securities lending
collateral held by a Fund will be excluded in
calculating total assets.
DEBT
SECURITIES
Debt
securities include bonds, corporate debt securities and similar instruments,
issued by various U.S. and non-U.S. public- or
private-sector entities. The issuer of a debt security has a contractual
obligation to pay interest at a stated rate on
specific dates and to repay principal (the debt security’s face value)
periodically or on a specified maturity date. An
issuer may have the right to redeem or “call” a debt security before maturity,
in which case the investor may have to
reinvest the proceeds at lower market rates. The value of fixed-rate debt
securities will tend to fall when interest
rates rise, and rise when interest rates fall. The values of “floating-rate” or
“variable-rate” debt securities, on the other
hand, fluctuate much less in response to market interest-rate movements than the
value of fixed-rate debt securities.
Debt securities may be senior or subordinated obligations. Senior obligations,
including certain bonds and
corporate debt securities, generally have the first claim on a corporation’s
earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Debt securities may be unsecured
(backed only by the issuer’s general
creditworthiness) or secured (also backed by specified collateral).
Debt
securities are interest-bearing investments that promise a stable stream of
income; however, the prices of such securities
are inversely affected by changes in interest rates and, therefore, are subject
to the risk of market price fluctuations.
Longer-term securities are affected to a greater extent by changes in interest
rates than shorter-term securities.
The values of debt securities also may be affected by changes in the credit
rating or financial condition of the issuing
entities. Certain securities that may be purchased by a Fund, such as those
rated “Baa” or lower by Moody’s
Investors Service, Inc. (“Moody’s”) and “BBB” or lower by Standard & Poor’s
Rating Group (“S&P”) and Fitch Investors
Service, Inc. (“Fitch”) tend to be subject to greater issuer credit risk, to
greater market fluctuations and pricing
uncertainty, and to less liquidity than lower-yielding, higher-rated debt
securities. A Fund could lose money if the issuer
fails to meet its financial obligations. If a security held by a Fund is
downgraded, such Fund may continue to hold the
security until such time as the Fund’s sub-adviser determines it to be
advantageous for the Fund to sell
the
security. Investing in debt securities is subject to certain risks including,
among others, credit and interest rate risk, as
more fully described in this section.
A Fund may
purchase instruments that are not rated if, as determined by the Fund’s
sub-adviser, such obligations are of
investment quality comparable to other rated investments that are permitted to
be purchased by such Fund. After purchase by
a Fund, a security may cease to be rated, or its rating may be reduced below the
minimum required for purchase by
such Fund. Neither event will require a sale of such security by the Fund. To
the extent the ratings given by Moody’s,
Fitch or S&P may change as a result of changes in such organizations’ rating
systems, a Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained
in its Prospectus and in this SAI.
Certain of
the debt obligations a Fund may purchase (including certificates of
participation, commercial paper and other
short-term obligations) may be backed by a letter of credit from a bank or
insurance company. A letter of credit
guarantees that payment to a lender will be received on time and for the correct
amount, and is typically unconditional
and irrevocable. In the event that the indebted party is unable to make payment
on the debt obligation,
the bank or insurance company will be required to cover the full or remaining
amount of the debt obligation.
Corporate
debt securities are long and short term fixed-income securities typically issued
by businesses to finance their
operations. The issuer of a corporate debt security has a contractual obligation
to pay interest at a stated rate on specific
dates and to repay principal periodically or on a specified maturity date. The
rate of interest on a corporate
debt security may be fixed, floating, or variable, and could vary directly or
inversely with respect to a reference
rate. An issuer may have the right to redeem or “call” a corporate debt security
before maturity, in which case the
investor may have to reinvest the proceeds at lower market rates. The value of
fixed-rate corporate debt securities
will tend to fall when interest rates rise and rise when interest rates fall.
Senior obligations generally have the first
claim on a corporation’s earnings and assets and, in the event of liquidation,
are paid before subordinated debt.
Corporate debt securities may be unsecured (backed only by the issuer’s general
creditworthiness) or secured (also
backed by specified collateral). Because of the wide range of types and
maturities of corporate debt securities, as well as
the range of creditworthiness of issuers, corporate debt securities can have
widely varying risk/return profiles.
LIBOR Transition. The Funds’
investments, payment obligations and financing terms may be based on floating
rates, such as
London Inter-bank Offered Rate (“LIBOR”), Euro Interbank Offered Rate
(“EURIBOR”) and other similar types of
reference rates (each, a “Reference Rate”). On July 27, 2017, the Chief
Executive of the U.K. Financial Conduct Authority
(“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade
nor compel banks to submit
rates for the calculation of LIBOR and certain other Reference Rates after 2021.
The FCA and the ICE Benchmark
Administration have since announced that most LIBOR settings will no longer be
published after December
31, 2021 and a majority of U.S. dollar LIBOR settings will cease publication
after June 30, 2023. It is possible
that a subset of LIBOR settings will be published after these dates on a
“synthetic” basis, but any such publications
would be considered non-representative of the underlying market. On March 5,
2021, the FCA and the ICE
Benchmark Administration (“IBA”) announced that most LIBOR settings will no
longer be published after December
31, 2021 and a majority of U.S. dollar LIBOR settings will cease publication
after June 30, 2023. Specifically,
the IBA announced that all LIBOR settings will either cease to be provided by
any administrator, or no longer be
representative immediately after December 31, 2021, for all four LIBOR settings
(Great British Pound (“GBP”),
Euro, Swiss Franc and Japanese Yen) and for the one-week and two-month U.S.
dollar LIBOR settings, and immediately
after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including
three-month U.S. dollar LIBOR.
While the FCA may consult on the issue of requiring the IBA to produce certain
LIBOR tenors on a synthetic basis, it
has announced that all 35 LIBOR settings will either cease to be provided by any
administrator or will no longer be
representative as of the dates published by the IBA. Various financial industry
groups have begun planning for that
transition and certain regulators and industry groups have taken actions to
establish alternative Reference Rates.
Replacement rates that have been identified include the Secured Overnight
Financing Rate (“SOFR”), which is intended to
replace U.S. dollar LIBOR and measures the cost of overnight borrowings through
repurchase agreement transactions
collateralized with U.S. Treasury securities, and the Sterling Overnight Index
Average Rate (“SONIA”), which is
intended to replace GBP LIBOR and measures the overnight interest rate paid by
banks for unsecured transactions
in the sterling market, although other replacement rates could be adopted by
market participants.
The
termination of certain Reference Rates presents risks to the Funds. At this
time, it is not possible to exhaustively identify or
predict the effect of any such changes, any establishment of alternative
Reference Rates or any other reforms to
Reference Rates that may be enacted in the UK or elsewhere. The elimination of a
Reference Rate, or any other
changes or reforms to the determination or supervision of Reference Rates, could
have an adverse impact on the market
for, or value of any, securities or payments linked to those Reference Rates and
other financial obligations held by a
Fund, or on its overall financial condition or results of operations. In
addition, any substitute Reference Rate, and
any pricing adjustments imposed by a regulator or by counterparties or
otherwise, may adversely affect a Fund’s
performance and/or net asset value.
Negative Interest
Rates. Certain
countries have recently experienced negative interest rates on deposits and debt
instruments
have traded at negative yields. A negative interest rate policy is an
unconventional central bank monetary
policy tool where nominal target interest rates are set with a negative value
(i.e., below zero percent) intended to
help create self-sustaining growth in the local economy. Negative interest rates
may become more prevalent
among non-U.S. issuers, and potentially within the U.S. To the extent a Fund has
a bank deposit or holds a debt
instrument with a negative interest rate to maturity, the Fund would generate a
negative return on that investment.
While negative yields can be expected to reduce demand for fixed-income
investments trading at a negative
interest rate, investors may be willing to continue to purchase such investments
for a number of reasons including,
but not limited to, price insensitivity, arbitrage opportunities across
fixed-income markets or rules-based investment
strategies. If negative interest rates become more prevalent in the market, it
is expected that investors will seek
to reallocate assets to other income-producing assets such as investment grade
and high-yield debt instruments,
or equity investments that pay a dividend. This increased demand for higher
yielding assets may cause the price
of such instruments to rise while triggering a corresponding decrease in yield
and the value of debt instruments
over time.
Money Market
Instruments. Money
market instruments provide short-term funds to businesses, financial
institutions and
governments. They are debt instruments issued with maturities of thirteen months
or less, and that are determined
to present minimal credit risk. Because of their short-term maturities and by
whom these debt instruments
are issued, money market instruments are extremely liquid and provide relatively
few risks. Common money
market instruments include Treasury bills, certificates of deposit, commercial
paper, banker’s acceptances, and
repurchase agreements among others.
Bank Obligations. Bank
obligations include certificates of deposit, time deposits, bankers’
acceptances, and other short-term
obligations of domestic banks, foreign subsidiaries of domestic banks, foreign
branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions.
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited
with it for a specified period of time. Time deposits are non-negotiable
deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Bankers’ acceptances
are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the
bank and of the customer to pay the face amount of the instrument upon maturity.
Other short-term obligations
may include uninsured, direct obligations of the banking institution bearing
fixed, floating or variable interest
rates.
The
activities of U.S. banks and most foreign banks are subject to comprehensive
regulations. New legislation or regulations,
or changes in interpretation and enforcement of existing laws or regulations,
may affect the manner of operations
and profitability of domestic banks. With respect to such obligations issued by
foreign branches of domestic
banks, foreign subsidiaries of domestic banks, and domestic and foreign branches
of foreign banks, a Fund may be
subject to additional investment risks that are different in some respects from
those incurred by a Fund that invests
only in debt obligations of domestic issuers. Such risks include political,
regulatory or economic developments,
the possible imposition of foreign withholding and other taxes (at potentially
confiscatory levels) on amounts
realized on such obligations, the possible establishment of exchange controls or
the adoption of other foreign
governmental restrictions that might adversely affect the payment of principal
and interest on these obligations
and the possible seizure or nationalization of foreign deposits. In addition,
foreign branches of domestic banks and
foreign banks may be subject to less stringent reserve requirements and to
different regulatory, accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Banks may
be particularly susceptible to certain economic factors, such as interest rate
changes or adverse developments
in the market for real estate. Fiscal and monetary policy and general economic
cycles can affect the availability
and cost of funds, loan demand and asset quality and thereby impact the earnings
and financial conditions
of banks. Further, the traditional banking industry is experiencing increased
competition from alternative types of
financial institutions.
Commercial Paper. Commercial
paper is a short-term, promissory note issued by a bank, corporation or other
borrower to
finance short-term credit needs. Commercial paper is typically unsecured but it
may be supported by letters of
credit, surety bonds or other forms of collateral. Commercial paper may be sold
at par or on a discount basis and
typically has a maturity from 1 to 270 days. Like bonds, and other fixed-income
securities, commercial paper
prices are susceptible to fluctuations in interest rates. As interest rates
rise, commercial paper prices typically will
decline and vice versa. The short-term nature of a commercial paper investment,
however, makes it less susceptible
to such volatility than many other securities. Variable amount master demand
notes are a type of commercial
paper. They are demand obligations that permit the investment of fluctuating
amounts at varying market rates of
interest pursuant to arrangements between the issuer and a commercial bank
acting as agent for the payee of such
notes whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes.
Convertible
Securities. A
convertible security is a bond, debenture, note, preferred stock, or other
security that may be
converted or exchanged (by the holder or by the issuer) within a specified
period of time into a certain amount of common
stock of the same or a different issuer. As such, convertible securities combine
the investment characteristics
of debt and equity securities. A convertible security provides a fixed-income
stream and the opportunity,
through its conversion feature, to participate in the capital appreciation
resulting from a market price advance in
its underlying common stock.
As with a
straight fixed-income security, a convertible security tends to increase in
market value when interest rates decline and
decrease in value when interest rates rise. Like a common stock, the value of a
convertible security also tends to
increase as the market value of the underlying stock rises, and it tends to
decrease as the market value of the
underlying stock declines. Because its value can be influenced by both
interest-rate and market movements, a convertible
security tends not to be as sensitive to interest rate changes as a similar
fixed-income security, and tends not to be
as sensitive to share price changes as its underlying stock.
Investing
in convertible securities is subject to certain risks in addition to those
generally associated with debt securities.
Certain convertible securities, particularly securities that are convertible
into securities of an issuer other than the
issuer of the convertible security, may be or become illiquid and, therefore,
may be more difficult to resell in a timely
fashion or for a fair price, which could result in investment
losses.
The
creditworthiness of the issuer of a convertible security is important because
the holder of a convertible security will
typically have recourse only to the issuer. In addition, a convertible security
may be subject to conversion or redemption
by the issuer, but only after a specified date and under circumstances
established at the time the security is
issued. This feature may require a holder to convert the security into the
underlying common stock, even if the
value of the underlying common stock has declined substantially. In addition,
companies that issue convertible securities
frequently are small- or mid-capitalization companies and, accordingly, carry
the risks associated with investments
in such companies.
While the
Funds use the same criteria to evaluate the credit quality of a convertible debt
security that they would use for a more
conventional debt security, a convertible preferred stock is treated like a
preferred stock for a Fund’s credit
evaluation, as well as financial reporting and investment limitation
purposes.
Contingent
Convertible Bonds. Contingent
convertible bonds are a type of convertible security typically issued by
non-U.S.
banks. Unlike more traditional convertible securities, which typically may
convert into equity after the issuer’s
common stock has reached a certain strike price, the trigger event for a
contingent convertible bond is typically a
decline in the issuing bank’s capital threshold below a specified level.
Contingent convertible bonds typically
are subordinated to other debt instruments of the issuer and generally rank
junior to the claims of all holders of
unsubordinated obligations of the issuer. Coupon payments on contingent
convertible securities may be discretionary
and may be cancelled by the issuer. Contingent convertible bonds are a new form
of instrument, and the market
and regulatory environment for contingent convertible bonds is evolving.
Therefore, it is uncertain how the overall
market for contingent convertible bonds would react to a triggering event or
coupon suspension
applicable
to one issuer. A Fund may lose money on its investment in a contingent
convertible bond when holders of the
issuer’s equity securities do not.
Exchange-Traded
Notes.
Exchange-traded notes (“ETNs”) are generally notes representing debt of an
issuer, usually a financial
institution. ETNs combine aspects of both bonds and ETFs. An ETN’s returns are
based on the performance of one or
more underlying assets, reference rates or indexes, minus fees and expenses.
Similar to ETFs, ETNs are listed on
an exchange and traded in the secondary market. However, unlike an ETF, an ETN
can be held until the ETN’s
maturity, at which time the issuer will pay a return linked to the performance
of the specific asset, index or rate (“reference
instrument”) to which the ETN is linked minus certain fees. Unlike regular
bonds, ETNs do not make periodic
interest payments, and principal is not protected.
The value
of an ETN may be influenced by, among other things, time to maturity, levels of
supply and demand for the ETN,
volatility and lack of liquidity in underlying markets, changes in the
applicable interest rates, the performance of the
reference instrument, changes in the issuer’s credit rating and economic, legal,
political or geographic events that affect
the reference instrument. An ETN that is tied to a reference instrument may not
replicate the performance of the
reference instrument. ETNs also incur certain expenses not incurred by their
applicable reference instrument. Some ETNs
that use leverage can, at times, be relatively illiquid and, thus, they may be
difficult to purchase or sell at a fair
price. Levered ETNs are subject to the same risk as other instruments that use
leverage in any form. While leverage
allows for greater potential returns, the potential for loss is also greater.
Finally, additional losses may be incurred if
the investment loses value because, in addition to the money lost on the
investment, the loan still needs to be
repaid.
Because the
return on an ETN is dependent on the issuer’s ability or willingness to meet its
obligations, the value of the ETN may
change due to a change in the issuer’s credit rating, despite there being no
change in the underlying reference
instrument. The market value of ETN shares may differ from the value of the
reference instrument. This difference
in price may be due to the fact that the supply and demand in the market for ETN
shares at any point in time is not
always identical to the supply and demand in the market for the assets
underlying the reference instrument
that the ETN seeks to track.
There may
be restrictions on a Fund’s right to redeem its investment in an ETN, which is
generally designed to be held until
maturity. A Fund’s decision to sell its ETN holdings may be limited by the
unavailability or limited nature of a secondary
market. A Fund could lose some or all of the amount invested in an
ETN.
Loan
Participations. A loan
participation gives a Fund an undivided proportionate interest in a partnership
or trust that owns a
loan or instrument originated by a bank or other financial institution.
Typically, loan participations are offered by
banks or other financial institutions or lending syndicates and are acquired by
multiple investors. Principal and
interest payments are passed through to the holder of the loan participation.
Loan participations may carry a demand
feature permitting the holder to tender the participations back to the bank or
other institution. Loan participations,
however, typically do not provide the holder with any right to enforce
compliance by the borrower, nor any
rights of set-off against the borrower, and the holder may not directly benefit
from any collateral supporting the loan in
which it purchased a loan participation. As a result, the holder may assume the
credit risk of both the borrower
and the lender that is selling the loan participation.
Loan
participations in which a Fund may invest are subject generally to the same
risks as debt securities in which the Fund may
invest. Loan participations in which a Fund invests may be made to finance
highly leveraged corporate acquisitions.
The highly leveraged capital structure of the borrowers in such transactions may
make such loan participations
especially vulnerable to adverse changes in economic or market conditions. Loan
participations generally
are subject to restrictions on transfer, and only limited opportunities may
exist to sell such loan participations
in secondary markets. As a result, a Fund may be unable to sell loan
participations at a time when it may
otherwise be desirable to do so, or may be able to sell them only at a price
below their fair market value. Market bids may be
unavailable for loan participations from time to time; a Fund may find it
difficult to establish a fair value for loan
participations held by it. Many loan participations in which a Fund invests may
be unrated, and the Fund’s sub-adviser
will be required to rely exclusively on its analysis of the borrower in
determining whether to acquire, or to continue
to hold, a loan participation. In addition, under legal theories of lender
liability, a Fund potentially might be held
liable as a co-lender.
Synthetic Convertible
Securities. Synthetic
convertible securities are derivative positions composed of two or more
different
securities whose investment characteristics, taken together, resemble those of
convertible securities. For example, a
Fund may purchase a non-convertible debt security and a warrant or option, which
enables a Fund to have a
convertible-like position with respect to a company, group of companies or a
stock index. Synthetic convertible
securities are typically offered by financial institutions and investment banks
in private placement transactions.
Upon conversion, a Fund generally receives an amount in cash equal to the
difference between the conversion
price and the then current value of the underlying security. Unlike a true
convertible security, a synthetic convertible
comprises two or more separate securities, each with its own market value.
Therefore, the market value of a
synthetic convertible is the sum of the values of its fixed-income component and
its convertible component. For this
reason, the values of a synthetic convertible and a true convertible security
may respond differently to market fluctuations.
In addition to the general risks of convertible securities and the special risks
of enhanced convertible securities,
there are risks unique to synthetic convertible securities. In addition, the
component parts of a synthetic convertible
security may be purchased simultaneously or separately; and the holder of a
synthetic convertible faces the risk
that the price of the stock, or the level of the market index underlying the
convertibility component will decline.
Exposure to more than one issuer or participant will increase the number of
parties upon which the investment
depends and the complexity of that investment and, as a result, increase a
Fund’s credit risk and valuation
risk. A Fund only invests in synthetic convertibles with respect to companies
whose corporate debt securities
are rated “A” or higher by Moody’s or S&P and will not invest more than 15%
of its net assets in such synthetic
securities and other illiquid securities.
U.S. Government
Obligations. U.S.
Government obligations include direct obligations of the U.S. Treasury,
including Treasury
bills, notes and bonds, the principal and interest payments of which are backed
by the full faith and credit of the U.S.
This category also includes other securities issued by U.S. Government agencies
or U.S. Government sponsored
entities, such as the Government National Mortgage Association (“GNMA”), Federal
National Mortgage Association
(“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”). U.S. Government
Obligations issued by U.S.
Government agencies or government-sponsored entities may not be backed by the
full faith and credit of the U.S.
Government.
GNMA, a
wholly owned U.S. Government corporation, is authorized to guarantee, with the
full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and
backed by pools of mortgages insured by the Federal Housing Administration or
the Department of Veterans
Affairs. Securities issued by FNMA and FHLMC are not backed by the full faith
and credit of the U.S. Government.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but
are not backed by the full faith and credit of the U.S. Government. FHLMC
guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its
guarantees are not backed by the full
faith and credit of the U.S. Government.
While U.S.
Treasury obligations are backed by the “full faith and credit” of the U.S.
Government, such securities are nonetheless
subject to risk. U.S. Government obligations are subject to low but varying
degrees of credit risk, and are still
subject to interest rate and market risk. From time to time, uncertainty
regarding congressional action to increase
the statutory debt ceiling could: i) increase the risk that the U.S. Government
may default on payments on certain
U.S. Government securities; ii) cause the credit rating of the U.S. Government
to be downgraded or increase volatility
in both stock and bond markets; iii) result in higher interest rates; iv) reduce
prices of U.S. Treasury securities;
and/or v) increase the costs of certain kinds of debt. U.S. Government
obligations may be adversely affected by
a default by, or decline in the credit quality of, the U.S. Government. In the
past, U.S. sovereign credit has experienced
downgrades, and there can be no guarantee that it will not be downgraded in the
future. Further, if a U.S.
Government-sponsored entity is negatively impacted by legislative or regulatory
action, is unable to meet its obligations,
or its creditworthiness declines, the performance of a Fund that holds
securities of the entity will be adversely
impacted.
Under the
direction of the Federal Housing Finance Agency (“FHFA”), FNMA and FHLMC have
entered into a joint initiative
to develop a common securitization platform for the issuance of a uniform
mortgage-backed security (the “Single
Security Initiative”) that aligns the characteristics of FNMA and FHLMC
certificates. The Single Security Initiative
was implemented in June 2019, and the effects it may have on the market for
mortgage-backed securities are
uncertain.
EQUITY
SECURITIES
Equity
securities represent an ownership interest, or the right to acquire an ownership
interest, in an issuer. Different types of
equity securities provide different voting and dividend rights and priority in
the event of the bankruptcy and/or
insolvency of the issuer. Equity securities include common stocks and certain
preferred stocks, certain types of
convertible securities and warrants (see “Other Securities Section below”).
Equity securities other than common stock are
subject to many of the same risks as common stock, although possibly to
different degrees. The risks of equity
securities are generally magnified in the case of equity investments in
distressed companies.
Equity
securities fluctuate in value and the prices of equity securities tend to move
by industry, market or sector. When market
conditions favorably affect, or are expected to favorably affect, an industry,
the share prices of the equity
securities of companies in that industry tend to rise. Conversely, negative news
or a poor outlook for a particular
industry can cause the share prices of such securities of companies in that
industry to decline. Investing in equity
securities poses risks specific to an issuer, as well as to the particular type
of company issuing the equity securities.
For example, investing in the equity securities of small- or mid-capitalization
companies can involve greater
risk than is customarily associated with investing in stocks of larger,
more-established companies. Small- or mid-capitalization
companies often have limited product lines, limited operating histories, limited
markets or financial
resources, may be dependent on one or a few key persons for management, and can
be more susceptible to
financial losses. Also, their securities may be thinly traded (and therefore may
have to be sold at a discount from current
prices or sold in small lots over an extended period of time) and may be subject
to wider price swings, thus creating a
greater risk of loss than securities of larger capitalization
companies.
Common Stock. Common
stock represents a unit of equity ownership of a corporation. Owners typically
are entitled to vote on
the election of directors and other important corporate governance matters, and
to receive dividend payments,
if any, on their holdings. However, ownership of common stock does not entitle
owners to participate in the
day-to-day operations of the corporation. Common stocks of domestic and foreign
public corporations can be listed, and
their shares traded, on domestic stock exchanges, such as the NYSE or the NASDAQ
Stock Market. Domestic
and foreign corporations also may have their shares traded on foreign exchanges,
such as the London Stock
Exchange or Tokyo Stock Exchange. Common stock may be privately placed or
publicly offered.
The price
of common stock is generally affected by corporate earnings, anticipated
dividend payments, types of products or
services offered, projected growth rates, experience of management, liquidity,
and general market conditions.
In the event that a corporation declares bankruptcy or is liquidated, the claims
of secured and unsecured creditors
and owners of bonds and preferred stock take precedence over the claims of those
who own common stock.
The value
of common stock may fall due to changes in general economic conditions that
impact the market as a whole, as
well as factors that directly relate to a specific company or its industry. Such
general economic conditions include
changes in interest rates, periods of market turbulence or instability, or
general and prolonged periods of economic
decline and cyclical change. It is possible that a drop in the stock market may
depress the price of most or all of the
common stocks in a Fund’s portfolio. Common stock is also subject to the risk
that investor sentiment toward
particular industries will become negative. The value of a company’s common
stock may fall because of various
factors, including an increase in production costs that negatively impact other
companies in the same region,
industry or sector of the market. The value of common stock also may decline
significantly over a short period of
time due to factors specific to a company, including decisions made by
management or lower demand for the
company’s products or services.
Preferred Stock. Preferred
stock represents an equity interest in a company that generally entitles the
holder to receive, in
preference to the holders of other stocks, such as common stocks, dividends and
a fixed share of the proceeds
resulting from a liquidation of the company. Some preferred stock also entitles
holders to receive additional
liquidation proceeds on the same basis as holders of a company’s common stock
and, thus, also represent an
ownership interest in that company. Distributions on preferred stock generally
are taxable as dividend income, rather than
interest payments, for federal income tax purposes.
Preferred
stock generally has no maturity date, so its market value is dependent on the
issuer’s business prospects for an
indefinite period of time. Preferred stock may pay fixed or adjustable rates of
return. Preferred stock is subject to
issuer-specific and market risks generally applicable to equity securities. A
company generally pays dividends on
its
preferred stock only after making required payments to holders of its bonds and
other debt. For this reason, the value of
preferred stock will usually react more strongly than bonds and other debt to
actual or perceived changes in the
company’s financial condition or prospects. Preferred stock of smaller companies
may be more vulnerable to adverse
developments than preferred stock of larger companies. In addition, preferred
stock is subordinated to all debt
obligations in the event of insolvency, and an issuer’s failure to make a
dividend payment is generally not an event of
default entitling the preferred shareholders to take action.
Auction
preferred stock (“APS”) is a type of adjustable-rate preferred stock with a
dividend determined periodically in a Dutch
auction process by institutional bidders. An APS is distinguished from standard
preferred stock because its dividends
change more frequently. Shares typically are bought and sold at face values
generally ranging from $100,000 to
$500,000 per share. Holders of APS may not be able to sell their shares if an
auction fails, such as when there are
more shares of APS for sale at an auction than there are purchase
bids.
Trust-preferred
securities, also known as trust-issued securities, are securities that have
characteristics of both debt and equity
instruments and are typically treated by the Funds as debt investments.
Generally, trust-preferred securities
are cumulative preferred stocks issued by a trust that is created by a financial
institution, such as a bank holding
company. The financial institution typically creates the trust with the
objective of increasing its capital by issuing
subordinated debt to the trust in return for cash proceeds that are reflected on
the financial institution’s balance
sheet.
The primary
asset owned by a trust is the subordinated debt issued to the trust by the
financial institution. The financial
institution makes periodic interest payments on the debt as discussed further
below. The financial institution
will own the trust’s common securities, which typically represents a small
percentage of the trust’s capital structure.
The remainder of the trust’s capital structure typically consists of
trust-preferred securities which are sold to
investors. The trust uses the proceeds from selling the trust-preferred
securities to purchase the subordinated debt issued
by the financial institution.
The trust
uses the interest received from the financial institution on its subordinated
debt to make dividend payments to
the holders of the trust-preferred securities. The dividends are generally paid
on a quarterly basis and are often
higher than other dividends potentially available on the financial institution’s
common stocks. The interests of the
holders of the trust-preferred securities are senior to those of the financial
institution’s common stockholders in the
event that the financial institution is liquidated, although their interests are
typically subordinated to those of other
holders of other debt issued by the institution.
In certain
instances, the structure involves more than one financial institution and thus,
more than one trust. In such a pooled
offering, an additional separate trust may be created. This trust will issue
securities to investors and use the proceeds to
purchase the trust-preferred securities issued by trust-preferred trust
subsidiaries of the participating financial
institutions. In such a structure, the trust-preferred securities held by the
investors are backed by other trust-preferred
securities issued by the trust subsidiaries.
If a
financial institution is financially unsound and defaults on interest payments
to the trust, the trust will not be able to make
dividend payments to holders of the trust-preferred securities (e.g, a Fund), as
the trust typically has no business
operations other than holding the subordinated debt issued by the financial
institution(s) and issuing the trust-preferred
securities and common stock backed by the subordinated debt.
Real Estate/REIT
Securities. Common,
preferred and convertible securities of issuers in real estate-related
industries, real
estate-linked derivatives and real estate investment trusts (“REITs”) provide
exposure to the real estate sector. Each of
these types of investments is subject to risks similar to those associated with
direct ownership of real estate, including
loss to casualty or condemnation, increases in property taxes and operating
expenses, zoning law amendments,
changes in interest rates, overbuilding and increased competition, variations in
market value, and possible
environmental liabilities.
REITs are
pooled investment vehicles that own, and typically operate, income-producing
real estate. If a REIT meets certain
requirements, including distributing to shareholders substantially all of its
taxable income (other than net capital
gains), then it is not generally taxed on the income distributed to
shareholders. REITs are subject to management
fees and other expenses, and so the Funds that invest in REITs will bear their
proportionate share of the costs of
the REITs’ operations, which are not shown as acquired fund fees and expenses in
a Fund’s fee table.
There are
three general categories of REITs: Equity REITs, Mortgage REITs and Hybrid
REITs. Equity REITs invest primarily
in direct fee ownership or leasehold ownership of real property; they derive
most of their income from rents.
Mortgage REITs invest mostly in mortgages on real estate, which may secure
construction, development or long-term
loans, and the main source of their income is mortgage interest payments. Hybrid
REITs hold both ownership
and mortgage interests in real estate.
Along with
the risks common to different types of real estate-related securities, REITs, no
matter the type, involve additional
risk factors. These include poor performance by the REIT’s manager, changes to
the tax laws, and failure by the REIT
to qualify for tax-free distribution of income or exemption under the 1940 Act.
Furthermore, REITs are not typically
diversified and are heavily dependent on cash flows from property owners and/or
tenants.
A Fund or
some of the REITs in which a Fund may invest may be permitted to hold senior or
residual interests in real estate
mortgage investment conduits (“REMICs”) or debt or equity interests in taxable
mortgage pools. A Fund may also hold
interests in “Re-REMICs”, which are interests in securitizations formed by the
contribution of asset backed or other
similar securities into a trust which then issues securities in various
tranches. The Funds may participate in the
creation of a Re-REMIC by contributing assets to the issuing trust and receiving
junior and/or senior securities in return. An
interest in a Re-REMIC security may be riskier than the securities originally
held by and contributed to the issuing
trust, and the holders of the Re-REMIC securities will bear the costs associated
with the securitization.
Special Purpose Acquisition
Companies. A Fund may
invest in stock, warrants, and other securities of special purpose
acquisition companies (SPACs) or similar special purpose entities that pool
funds to seek potential acquisition
or merger opportunities. A SPAC is typically a publicly traded company that
raises funds through an initial
public offering (IPO) for the purpose of acquiring or merging with an
unaffiliated company to be identified subsequent
to the SPAC’s IPO. SPACs are often used as a vehicle to transition a company
from private to publicly traded. The
securities of a SPAC are often issued in “units” that include one share of
common stock and one right or warrant (or
partial right or warrant) conveying the right to purchase additional shares or
partial shares. Unless and until a
transaction is completed, a SPAC generally invests its assets (less a portion
retained to cover expenses) in U.S. Government
securities, money market fund securities and cash. To the extent the SPAC is
invested in cash or similar securities,
this may impact a Fund’s ability to meet its investment objective. If an
acquisition or merger that meets the
requirements for the SPAC is not completed within a pre-established period of
time, the invested funds are returned to
the SPAC’s shareholders, less certain permitted expenses, and any rights or
warrants issued by the SPAC will expire
worthless. Because SPACs and similar entities have no operating history or
ongoing business other than seeking
acquisitions, the value of their securities is particularly dependent on the
ability of the entity’s management to identify
and complete a suitable transaction. Some SPACs may pursue acquisitions or
mergers only within certain industries
or regions, which may further increase the volatility of their securities’
prices. In addition to purchasing publicly
traded SPAC securities, a Fund may invest in SPACs through additional financings
via securities offerings that are
exempt from registration under the federal securities laws (restricted
securities) and private investment in public
equity transactions (PIPEs). No public market will exist for these restricted
securities unless and until they are registered
for resale with the SEC, and such securities may be considered illiquid and/or
be subject to restrictions on resale. It
may also be difficult to value restricted securities issued by
SPACs.
An
investment in a SPAC is subject to a variety of risks, including that: a
significant portion of the funds raised by the SPAC for
the purpose of identifying and effecting an acquisition or merger may be
expended during the search for a target
transaction; an attractive acquisition or merger target may not be identified
and the SPAC will be required to return any
remaining invested funds to shareholders; attractive acquisition or merger
targets may become scarce if the number
of SPACs seeking to acquire operating businesses increases; any proposed merger
or acquisition may be unable
to obtain the requisite approval, if any, of SPAC shareholders and/or antitrust
and securities regulators; an acquisition
or merger once effected may prove unsuccessful and an investment in the SPAC may
lose value; the warrants or
other rights with respect to the SPAC held by the Fund may expire worthless or
may be repurchased or retired by
the SPAC at an unfavorable price; the Fund may be delayed in receiving any
redemption or liquidation proceeds
from a SPAC to which it is entitled; an investment in a SPAC may be diluted by
subsequent public or private
offerings of securities in the SPAC or by other investors exercising existing
rights to purchase securities of the SPAC;
SPAC sponsors generally purchase interests in the SPAC at more favorable terms
than investors in the IPO or
subsequent investors on the open market; no or only a thinly traded market for
shares of or interests in a SPAC may
develop, leaving the Fund unable to sell its interest in a SPAC or to sell its
interest only at a price below what the
Fund
believes is the SPAC security’s value; and the values of investments in SPACs
may be highly volatile and may depreciate
significantly over time.
FOREIGN
SECURITIES
Unless
otherwise stated in a Fund’s prospectus, the decision on whether stocks and
other securities or investments are deemed
to be “foreign” is based primarily on the issuer’s place of
organization/incorporation, but the Fund may also
consider the issuer’s domicile, principal place of business, primary stock
exchange listing, sources of revenue or other
factors, such as, in the case of asset-backed or other collateralized
securities, the countries in which the collateral
backing the securities is located. Foreign equity securities include common
stocks and certain preferred stocks,
certain types of convertible securities and warrants (see “Equity Securities”
above and “Other Securities Section”
below). Foreign debt securities may be structured as fixed-, variable- or
floating-rate obligations or as zero-coupon,
pay-in-kind and step-coupon securities and may be privately placed or publicly
offered (see “Debt Securities”
above).
Foreign
securities may include securities of issuers in emerging and frontier market
countries, which carry heightened
risks relative to investments in more developed foreign markets. Unless
otherwise stated in a Fund’s prospectus,
countries are generally characterized by a Fund’s sub-adviser as “emerging
market countries” by reference
to a broad market index, by reference to the World Bank’s per capita income
brackets or based on the sub-adviser’s
qualitative judgments about a country’s level of economic and institutional
development, and include markets
commonly referred to as “frontier markets.” An emerging market is generally in
the earlier stages of its industrialization
cycle with a low per capita gross domestic product (“GDP”) and a low market
capitalization to GDP ratio
relative to those in the United States and the European Union. Frontier market
countries generally have smaller economies
and even less developed capital markets than typical emerging market countries
and, as a result, the risks of
investing in emerging market countries are magnified in frontier market
countries.
Investments
in or exposure to foreign securities involve certain risks not associated with
investments in or exposure to
securities of U.S. companies. For example, foreign markets can be extremely
volatile. Foreign securities may also be less
liquid than securities of U.S. companies so that a Fund may, at times, be unable
to sell foreign securities at desirable
times and/or prices. Brokerage commissions, custodial costs, currency conversion
costs and other fees are also
generally higher for foreign securities. A Fund may have limited or no legal
recourse in the event of default with respect to
certain foreign debt securities, including those issued by foreign
governments.
The
performance of a Fund may also be negatively affected by fluctuations in a
foreign currency’s strength or weakness
relative to the U.S. dollar, particularly to the extent the Fund invests a
significant percentage of its assets in foreign
securities or other assets denominated in non-U.S. currencies. Currency rates in
foreign countries may fluctuate
significantly over short or long periods of time for a number of reasons,
including changes in interest rates, imposition
of currency exchange controls and economic or political developments in the U.S.
or abroad. A Fund may also incur
currency conversion costs when converting foreign currencies into U.S. dollars
and vice versa.
It may be
difficult to obtain reliable information about the securities and business
operations of certain foreign issuers. It
may also be difficult to evaluate such information, as well as foreign economic
trends, due to foreign regulation
and accounting standards. Governments or trade groups may compel local agents to
hold securities in designated
depositories that are not subject to independent evaluation. Additionally,
investments in certain countries
may subject a Fund to tax rules, the application of which may be uncertain.
Countries may amend or revise their
existing tax laws, regulations and/or procedures in the future, possibly with
retroactive effect. Changes in or uncertainties
regarding the laws, regulations or procedures of a country could reduce the
after-tax profits of a Fund, directly or
indirectly, including by reducing the after-tax profits of companies located in
such countries in which the Fund
invests, or result in unexpected tax liabilities for the Fund.
Global
economies and financial markets have become increasingly interconnected, which
increases the possibility that
conditions in one country or region might adversely impact issuers in a
different country or region. Any attempt by a Fund
to hedge against or otherwise protect its portfolio, or to profit from such
circumstances, may fail and, accordingly,
an investment in a Fund could lose money over short or long periods. For
example, the economies of many
countries or regions in which a Fund may invest are highly dependent on trading
with certain key trading partners.
Reductions in spending on products and services by these key trading partners,
the institution of tariffs or other trade
barriers, or a slowdown in the economies of key trading partners may adversely
affect the performance
of
securities in which a Fund may invest. The severity or duration of adverse
economic conditions may also be affected by
policy changes made by governments or quasi-governmental organizations. The
imposition of sanctions by the
United States or another government on a country could cause disruptions to the
country’s financial system and
economy, which could negatively impact the value of securities. To the extent a
Fund holds securities of an issuer that
becomes subject to sanctions, such securities may also become less liquid and a
Fund may be forced to sell
securities when it otherwise would not have done so. The risks posed by
sanctions may be heightened to the extent a
Fund invests significantly in the affected country or region or in issuers from
the affected country that depend on
global markets.
In
addition, foreign securities may be impacted by economic, political, social,
diplomatic or other conditions or events
(including, for example, military confrontations, war and terrorism), as well as
the seizure, expropriation or nationalization
of a company or its assets or the assets of a particular investor or category of
investors. A foreign government
may also restrict an issuer from paying principal and interest on its debt
obligations to investors outside the
country. It may also be difficult to use foreign laws and courts to force a
foreign issuer to make principal and interest
payments on its debt obligations.
Although it
is not uncommon for governments to enter into trade agreements that would, among
other things, reduce
barriers among countries, increase competition among companies and reduce
government subsidies, there are no
assurances that such agreements will achieve their intended economic objectives.
There is also a possibility that such
trade arrangements: i) will not be implemented; ii) will be implemented, but not
completed; iii) or will be completed,
but then partially or completely unwound. It is also possible that a significant
participant could choose to abandon
a trade agreement, which could diminish its credibility and influence. Any of
these occurrences could have
adverse effects on the markets of both participating and non-participating
countries, including appreciation or depreciation
of currencies, a significant increase in exchange rate volatility, a resurgence
in economic protectionism and an
undermining of confidence in markets. Such developments could have an adverse
impact on a Fund’s investments
in the debt of countries participating in such trade agreements.
Some
foreign countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly
their equity markets, by foreign entities, like the Funds. For example, certain
countries may require governmental
approval prior to investments by foreign persons or limit the amount of
investment by foreign persons in a
particular company, or limit the investment by foreign persons to only a
specific class of securities of a company which may
have less advantageous terms (including price) than securities of the company
available for purchase by nationals.
Even in instances where there is no individual investment quota that applies,
trading may be subject to aggregate
and daily investment quota limitations that apply to foreign entities in the
aggregate. Such limitations may restrict a
Fund from investing on a timely basis, which could affect the Fund’s ability to
effectively pursue its investment
strategy. Investment quotas are also subject to change. In instances where
governmental approval is required,
there can be no assurance that a Fund will be able to obtain such approvals in a
timely manner. In addition, changes to
restrictions on foreign ownership of securities subsequent to a Fund’s purchase
of such securities may have an
adverse effect on the value of such shares.
Regulations
that govern the manner in which foreign investors may invest in companies in
certain countries can subject a
Fund to trading, clearance and settlement procedures that could pose risks to
the Fund. For example, a Fund may be
required in certain countries to invest initially through a local broker or
other entity, and then have the shares
purchased re-registered in the name of the Fund. Re-registration may, in some
instances, not be able to occur on a timely
basis, resulting in a delay during which the Fund may be denied certain of its
rights as an investor, including
rights as to dividends or to be made aware of certain corporate actions. In
certain other countries, shares may be held
only through a nominee structure whereby a local company holds purchased shares
as nominee on behalf of
foreign investors. The precise nature and rights of a Fund as the beneficial
owner of shares held through such a
nominee structure may not be well defined under local law, and as a result,
should such local company become
insolvent, there is a risk that such shares may not be regarded as held for the
beneficial ownership of the Fund, but
rather as part of the general assets of the local company available for general
distribution to its creditors.
Investments
in companies that use a special structure known as a variable interest entity
(“VIE”) may pose additional risks.
Chinese operating companies sometimes use such structures to raise capital from
non-Chinese investors. In a VIE
structure, a China-based operating company establishes an entity (typically
offshore) that enters into service and other
contracts with the Chinese company designed to provide economic exposure to the
company. The offshore
entity then
issues exchange-traded shares that are sold to the public, including non-Chinese
investors. It is important to note
that shares of the offshore entity are not equity ownership interests in the
Chinese operating company and the
contractual arrangements put in place may not be as effective in providing
operational control as direct equity ownership.
Further, while the VIE structure is a longstanding industry practice that is
well known to Chinese officials and
regulators, it is not formally recognized under Chinese law. Risks associated
with such investments therefore include the
risk that the Chinese government could determine at any time and without notice
that the underlying contractual
arrangements on which control of the VIE is based violate Chinese law, which may
result in a significant loss in the
value of an investment in a listed company that uses a VIE structure; that a
breach of the contractual agreements
between the listed company and the China-based VIE (or its officers, directors,
or Chinese equity owners)
will likely be subject to Chinese law and jurisdiction, which raises questions
about whether and how the listed
company or its investors could seek recourse in the event of an adverse ruling
as to its contractual rights; and that
investments in the listed company may be affected by conflicts of interest and
duties between the legal owners of the
China-based VIE and the stockholders of the listed company, which may adversely
impact the value of investments
of the listed company.
A Fund’s
foreign debt securities are generally held outside of the United States in the
primary market for the securities
in the custody of certain eligible foreign banks and trust companies (“foreign
sub-custodians”), as permitted
under the 1940 Act. Settlement practices for foreign securities may differ from
those in the United States. Some
countries have limited governmental oversight and regulation of industry
practices, stock exchanges, depositories,
registrars, brokers and listed companies, which increases the risk of corruption
and fraud and the possibility
of losses to a Fund. In particular, under certain circumstances, foreign
securities may settle on a delayed delivery
basis, meaning that a Fund may be required to make payment for securities before
the Fund has actually received
delivery of the securities or deliver securities prior to the receipt of
payment. Typically, in these cases, the Fund will
receive evidence of ownership in accordance with the generally accepted
settlement practices in the local market
entitling the Fund to delivery or payment at a future date, but there is a risk
that the security will not be delivered
to the Fund or that payment will not be received, although the Fund and its
foreign sub-custodians take reasonable
precautions to mitigate this risk. Losses can also result from lost, stolen or
counterfeit securities; defaults by brokers
and banks; failures or defects of the settlement system; or poor and improper
recordkeeping by registrars and
issuers.
There is a
practice in certain foreign markets under which an issuer’s securities are
blocked from trading at the custodian
or sub-custodian level for a specified number of days before and, in certain
instances, after a shareholder meeting
where such shares are voted. This is referred to as “share blocking.” The
blocking period can last up to several
weeks. Share blocking may prevent a Fund from buying or selling securities
during this period, because during the
time shares are blocked, trades in such securities will not settle. It may be
difficult or impossible to lift blocking
restrictions, with the particular requirements varying widely by country. To
avoid these restrictions, a sub-adviser,
on behalf of a Fund, may abstain from voting proxies in markets that require
share blocking.
Foreign Debt
Securities. Foreign
debt securities may be structured as fixed-, variable- or floating-rate
obligations, or as
zero-coupon, pay-in-kind and step-coupon securities. They include fixed-income
securities of foreign issuers and securities
or contracts payable or denominated in non-U.S. currencies. Investments in, or
exposure to, foreign debt securities
involve certain risks not associated with securities of U.S. issuers. Unless
otherwise stated in a Fund’s prospectus,
the decision on whether a security is deemed to be “foreign” is based primarily
on the issuer’s place of organization/incorporation,
but the Fund may also consider the issuer’s domicile, principal place of
business, primary
stock exchange listing, sources of revenue or other factors.
Foreign
debt securities may include securities of issuers in emerging and frontier
market countries, which carry heightened
risks relative to investments in more developed foreign markets. Unless
otherwise stated in a Fund’s prospectus,
countries are generally characterized by a Fund’s sub-adviser as “emerging
market countries” by reference
to a broad market index, by reference to the World Bank’s per capita income
brackets or based on the sub-adviser’s
qualitative judgments about a country’s level of economic and institutional
development, and include markets
commonly referred to as “frontier markets.” An emerging market is generally in
the earlier stages of its industrialization
cycle with a low per capita gross domestic product (“GDP”) and a low market
capitalization to GDP ratio
relative to those in the United States and the European Union. Frontier market
countries generally have smaller
economies
and even less developed capital markets than typical emerging market countries
and, as a result, the risks of
investing in emerging market countries are magnified in frontier market
countries.
Investments
in or exposure to foreign debt securities involve certain risks not associated
with investments in or exposure to
securities of U.S. companies. For example, foreign markets can be extremely
volatile. Foreign debt securities
may also be less liquid than securities of U.S. issuers so that a Fund may, at
times, be unable to sell foreign debt
securities at desirable times and/or prices. Transaction fees, custodial costs,
currency conversion costs and other fees
are also generally higher for foreign debt securities. A Fund may have limited
or no legal recourse in the event of
default with respect to certain foreign debt securities, including those issued
by foreign governments. Foreign
debt securities carry many of the same risks as other types of foreign
securities. For more information, refer to “Foreign
Securities.”
During
periods of very low or negative interest rates, a Fund’s foreign debt
investments may be unable to generate or maintain
positive returns. Certain countries have recently experienced negative interest
rates on certain fixed-income
instruments. Very low or negative interest rates may magnify interest rate risk.
Changing interest rates, including
rates that fall below zero, may have unpredictable effects on markets, may
result in heightened market volatility,
and may detract from Fund performance to the extent a Fund is exposed to such
interest rates.
The cost of
servicing foreign debt will also generally be adversely affected by rising
international interest rates, because
many external debt obligations bear interest at rates which are adjusted based
upon international interest rates.
Furthermore, there is a risk of restructuring of certain foreign debt
obligations that could reduce and reschedule
interest and principal payments.
The
performance of a Fund may also be negatively affected by fluctuations in a
foreign currency’s strength or weakness
relative to the U.S. dollar, particularly to the extent the Fund invests a
significant percentage of its assets in foreign
debt securities denominated in non-U.S. currencies. Currency rates in foreign
countries may fluctuate significantly
over short or long periods of time for a number of reasons, including changes in
interest rates, imposition
of currency exchange controls and economic or political developments in the U.S.
or abroad. A Fund may also incur
currency conversion costs when converting foreign currencies into U.S. dollars
and vice versa.
It may be
difficult to obtain reliable information about the securities and business
operations of certain foreign issuers. It
may also be difficult to evaluate such information, as well as foreign economic
trends, due to foreign regulation
and accounting standards. Governments or trade groups may compel local agents to
hold securities in designated
depositories that are not subject to independent evaluation. Additionally,
investments in certain countries
may subject a Fund to tax rules, the application of which may be uncertain.
Countries may amend or revise their
existing tax laws, regulations and/or procedures in the future, possibly with
retroactive effect. Changes in or uncertainties
regarding the laws, regulations or procedures of a country could reduce the
after-tax profits of a Fund, directly or
indirectly, including by reducing the after-tax profits of companies located in
such countries in which the Fund
invests, or result in unexpected tax liabilities for the Fund.
Global
economies and financial markets have become increasingly interconnected, which
increases the possibility that
conditions in one country or region might adversely impact issuers in a
different country or region. Any attempt by a Fund
to hedge against or otherwise protect its portfolio, or to profit from such
circumstances, may fail and, accordingly,
an investment in a Fund could lose money over short or long periods. For
example, the economies of many
countries or regions in which a Fund may invest are highly dependent on trading
with certain key trading partners.
Reductions in spending on products and services by these key trading partners,
the institution of tariffs or other trade
barriers, or a slowdown in the economies of key trading partners may adversely
affect the performance of
securities in which a Fund may invest. The severity or duration of adverse
economic conditions may also be affected by
policy changes made by governments or quasi-governmental organizations. The
imposition of sanctions by the
United States or another government on a country could cause disruptions to the
country’s financial system and
economy, which could negatively impact the value of securities. The risks posed
by sanctions may be heightened
to the extent a Fund invests significantly in the affected country or region or
in issuers from the affected country
that depend on global markets.
In
addition, foreign debt securities may be impacted by economic, political,
social, diplomatic or other conditions or events
(including, for example, military confrontations, war and terrorism), as well as
the seizure, expropriation or nationalization
of a company or its assets or the assets of a particular investor or category of
investors. A foreign
government
may also restrict an issuer from paying principal and interest on its debt
obligations to investors outside the
country. It may also be difficult to use foreign laws and courts to force a
foreign issuer to make principal and interest
payments on its debt obligations.
Further,
investments in certain countries may subject a Fund to tax rules, the
application of which may be uncertain. Countries
may amend or revise their existing tax laws, regulations and/or procedures in
the future, possibly with retroactive
effect. Changes in, or uncertainties regarding the laws, regulations or
procedures of a country could reduce the
after-tax profits of a Fund, directly or indirectly, including by reducing the
after-tax profits of companies located in
such countries in which the Fund invests, or result in unexpected tax
liabilities for the Fund.
Although it
is not uncommon for governments to enter into trade agreements that would, among
other things, reduce
barriers among countries, increase competition among companies and reduce
government subsidies, there are no
assurances that such agreements will achieve their intended economic objectives.
There is also a possibility that such
trade arrangements: i) will not be implemented; ii) will be implemented, but not
completed; iii) or will be completed,
but then partially or completely unwound. It is also possible that a significant
participant could choose to abandon
a trade agreement, which could diminish its credibility and influence. Any of
these occurrences could have
adverse effects on the markets of both participating and non-participating
countries, including appreciation or depreciation
of currencies, a significant increase in exchange rate volatility, a resurgence
in economic protectionism and an
undermining of confidence in markets. Such developments could have an adverse
impact on a Fund’s investments
in the debt of countries participating in such trade agreements.
A Fund’s
foreign debt securities are generally held outside of the United States in the
primary market for the securities
in the custody of certain eligible foreign banks and trust companies (“foreign
sub-custodians”), as permitted
under the 1940 Act. Settlement practices for foreign securities may differ from
those in the United States. Some
countries have limited governmental oversight and regulation of industry
practices, stock exchanges, depositories,
registrars, brokers and listed companies, which increases the risk of corruption
and fraud and the possibility
of losses to a Fund. In particular, under certain circumstances, foreign
securities may settle on a delayed delivery
basis, meaning that a Fund may be required to make payment for securities before
the Fund has actually received
delivery of the securities or deliver securities prior to the receipt of
payment. Typically, in these cases, the Fund will
receive evidence of ownership in accordance with the generally accepted
settlement practices in the local market
entitling the Fund to delivery or payment at a future date, but there is a risk
that the security will not be delivered
to the Fund or that payment will not be received, although the Fund and its
foreign sub-custodians take reasonable
precautions to mitigate this risk. Losses can also result from lost, stolen or
counterfeit securities; defaults by brokers
and banks; failures or defects of the settlement system; or poor and improper
recordkeeping by registrars and
issuers.
Foreign Currency
Contracts. To the
extent that a Fund may i) invest in securities denominated in foreign
currencies, ii)
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, or iii) engage
in foreign currency contract transactions, the Fund may be affected favorably or
unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the U.S.
dollar. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign
exchange markets. The international balance of payments and other economic and
financial conditions, market
interest rates, government intervention, speculation and other factors affect
these forces. A Fund may engage in
foreign currency transactions in order to hedge its portfolio and to attempt to
protect it against uncertainty
in the level of future foreign exchange rates in the purchase and sale of
securities. A Fund may also engage in
foreign currency transactions to increase exposure to a foreign currency or to
shift exposure to foreign currency
fluctuations from one country to another.
Forward
foreign currency contracts are also contracts for the future delivery of a
specified currency at a specified time and at
a specified price. These contracts may be bought or sold to protect a Fund
against a possible loss resulting
from an adverse change in the relationship between foreign currencies and the
U.S. dollar or to increase exposure to
a particular foreign currency. These transactions differ from futures contracts
in that they are usually conducted
on a principal basis instead of through an exchange, and therefore there are no
brokerage fees, margin deposits
are negotiated between the parties, and the contracts are settled through
different procedures. The sub-advisers
will consider on an ongoing basis the creditworthiness of the institutions with
which each Fund will enter into
such forward foreign currency contracts.
The use of
foreign currency contracts involves the risk of imperfect correlation between
movements in contract prices and
movements in the price of the currencies to which the contracts relate. The
successful use of foreign currency
transaction strategies also depends on the ability of the sub-adviser to
correctly forecast interest rate movements,
currency rate movements and general stock market price movements. There can be
no assurance that the
sub-adviser’s forecasts will be accurate. Accordingly, a Fund may be required to
buy or sell additional currency on the spot
market (and bear the expense of such transaction) if the sub-adviser’s
predictions regarding the movement of
foreign currency or securities markets prove inaccurate. Also, foreign currency
transactions, like currency
exchange rates, can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments
or central banks, or by currency controls or political developments. Such events
may prevent or restrict a
Fund’s ability to enter into foreign currency transactions, force the Fund to
exit a foreign currency transaction
at a disadvantageous time or price or result in penalties for the Fund, any of
which may result in a loss to the Fund.
When such contracts are used for hedging purposes, they are intended to reduce
the risk of loss due to a decline in
the value of the hedged currency, but at the same time, they tend to limit any
potential gain which might result
should the value of such currency increase.
Foreign
currency contracts may be either futures contracts or forward contracts. Similar
to other futures contracts, a foreign
currency futures contract is an agreement for the future delivery of a specified
currency at a specified time and at a
specified price that will be secured by margin deposits, is regulated by the
CFTC and is traded on designated
exchanges. A Fund will incur brokerage fees when it purchases and sells foreign
currency futures contracts.
Foreign
currency futures contracts carry the same risks as other futures contracts, but
also entail risks associated with
international investing. Similar to other futures contracts, a foreign currency
futures contract is an agreement for the
future delivery of a specified currency at a specified time and at a specified
price that will be secured by margin
deposits, is regulated by the CFTC and is traded on designated exchanges. A Fund
will incur brokerage fees when it
purchases and sells futures contracts.
To the
extent a Fund may invest in securities denominated in foreign currencies, and
may temporarily hold funds in bank
deposits or other money market investments denominated in foreign currencies,
the Fund may be affected favorably
or unfavorably by exchange control regulations or changes in the exchange rates
between such currencies and the
U.S. dollar. The rate of exchange between the U.S. dollar and other currencies
is determined by the forces of supply and
demand in the foreign exchange markets. The international balance of payments
and other economic and
financial conditions, government intervention, speculation and other factors
affect these forces.
If a
decline in the exchange rate for a particular currency is anticipated, a Fund
may enter into a foreign currency futures
position as a hedge. If it is anticipated that an exchange rate for a particular
currency will rise, a Fund may enter into
a foreign currency futures position to hedge against an increase in the price of
securities denominated in that
currency. These foreign currency futures contracts will only be used as a hedge
against anticipated currency rate
changes. Although such contracts are intended to minimize the risk of loss due
to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency
increase.
The use of
foreign currency futures contracts involves the risk of imperfect correlation
between movements in futures
prices and movements in the price of currencies which are the subject of the
hedge. The successful use of foreign
currency futures contracts also depends on the ability of the sub-adviser to
correctly forecast interest rate movements,
currency rate movements and general stock market price movements. There can be
no assurance that the
sub-adviser’s judgment will be accurate. The use of foreign currency futures
contracts also exposes a Fund to the general
risks of investing in futures contracts, including: the risk of an illiquid
market for the foreign currency futures
contracts and the risk of adverse regulatory actions. Any of these events may
cause a Fund to be unable to hedge its
currency risks, and may cause a Fund to lose money on its investments in foreign
currency futures contracts.
Recent
Events in European Countries. A number
of countries in Europe have experienced severe economic and financial
difficulties. Many non-governmental issuers, and even certain governments, have
defaulted on, or been forced to
restructure, their debts; many other issuers have faced difficulties obtaining
credit or refinancing existing obligations;
financial institutions have in many cases required government or central bank
support, have needed to
raise
capital, and/or have been impaired in their ability to extend credit; and
financial markets in Europe and elsewhere
have experienced extreme volatility and declines in asset values and liquidity.
These difficulties may continue,
worsen or spread within and beyond Europe. Responses to the financial problems
by European governments,
central banks and others, including austerity measures and reforms, may not
work, may result in social unrest and
may limit future growth and economic recovery or have other unintended
consequences. Further defaults or
restructurings by governments and others of their debt could have additional
adverse effects on economies,
financial markets and asset valuations around the world.
The United
Kingdom formally left the European Union (“EU”) on January 31, 2020 (a measure
commonly referred to as
“Brexit”). In December 2020, the United Kingdom and the EU entered into a new
trading relationship. The agreement
allows for continued trading free of tariffs, but institutes other new
requirements for trading between the United
Kingdom and the EU. Aspects of the EU-United Kingdom trade relationship remain
subject to further negotiation.
Due to political uncertainty, it is not possible to anticipate the form or
nature of the future trading relationship
between the EU and the United Kingdom.
Since the
citizens of the United Kingdom voted via referendum to leave the EU in June
2016, global financial markets have
experienced significant volatility due to the uncertainty around Brexit. Even
with a new trading relationship having been
established, there will likely continue to be considerable uncertainty about the
potential impact of these developments
on United Kingdom, European and global economies and markets. There is also the
possibility of withdrawal
movements within other EU countries and the possibility of additional political,
economic and market uncertainty
and instability. Brexit and any similar developments may have negative effects
on economies and markets,
such as increased volatility and illiquidity and potentially lower economic
growth in the United Kingdom, EU and
globally, which may adversely affect the value of a Fund’s investments. Whether
or not a Fund invests in securities
of issuers located in Europe or with significant exposure to European issuers or
countries, these events could
result in losses to the Fund, as there may be negative effects on the value and
liquidity of the Fund’s investments
and/or the Fund’s ability to enter into certain transactions.
Russia
launched a large-scale invasion of Ukraine on February 24, 2022, significantly
amplifying already existing geopolitical
tensions. Actual and threatened responses to such military action may impact the
markets for certain Russian
commodities and may likely have collateral impacts on markets globally. As a
result of this military action, the United
States and many other countries (“Sanctioning Bodies) have instituted various
economic sanctions against
Russian individuals and entities (including corporate and banking). These
sanctions include, but are not limited to:
a prohibition on doing business with certain Russian companies, officials and
oligarchs; a commitment by certain
countries and the European Union to remove selected Russian banks from the
Society for Worldwide Interbank
Financial Telecommunications “SWIFT,” the electronic banking network that
connects banks globally; and restrictive
measures to prevent the Russian Central Bank from undermining the impact of the
sanctions. The Sanctioning
Bodies, or others, could also institute broader sanctions on Russia. These
sanctions and the resulting market
environment could result in the immediate freeze of Russian securities,
commodities, resources, and/or funds
invested in prohibited assets, impairing the ability of a Fund to buy, sell,
receive or deliver those securities and/or
assets. Further, due to closures of certain markets and restrictions on trading
certain securities, the value of certain
securities held by the Fund could be significantly impacted, which could lead to
such securities being valued at zero.
Sanctions could also result in Russia taking counter measures or retaliatory
actions which may further impair the value
and liquidity of Russian securities, including cyber actions. The extent and
duration of the military action, resulting
sanctions imposed and other punitive action taken and resulting future market
disruptions, including declines in
its stock markets, the value of Russian sovereign debt and the value of the
ruble against the U.S. dollar, cannot be
easily predicted, but could be significant. Any such disruptions caused by
Russian military action or other actions
(including terror attacks, cyberattacks and espionage) or resulting actual and
threatened responses to such activity,
including purchasing and financing restrictions, boycotts or changes in consumer
or purchaser preferences, sanctions,
tariffs or cyberattacks on the Russian government, Russian companies or Russian
individuals, including politicians,
may impact Russia’s economy and a Fund’s investments in Russian securities. As
Russia produces and exports
large amounts of crude oil and gas, any acts of terrorism, armed conflict or
government interventions (such as the
imposition of sanctions or other governmental restrictions on trade) causing
disruptions of Russian oil and gas exports
could negatively impact the Russian economy and, thus, adversely affect the
financial condition, results of operations
or prospects of related companies. Russia’s invasion of Ukraine, the responses
of countries and political
bodies to
Russia’s actions, and the potential for wider conflict may increase financial
market volatility and could have severe
adverse effects on regional and global economic markets, including the markets
for certain securities and commodities,
such as oil and natural gas.
Depositary
Receipts. American
Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and European
Depositary
Receipts (“EDRs”) represent interests in securities of foreign companies that
have been deposited with a U.S.
financial institution, such as a bank or trust company, and that trade on an
exchange or over-the-counter (“OTC”).
A Fund may
invest in depositary receipts through “sponsored” or “unsponsored” facilities. A
sponsored facility is established
jointly by the issuer of the underlying security and a depositary (the issuing
bank or trust company), whereas a
depositary may establish an unsponsored facility without participation by the
issuer of the deposited security.
Holders of
unsponsored depositary receipts generally bear all the costs of such facilities,
and the depositary of an unsponsored
facility frequently is under no obligation to distribute interest holder
communications received from the issuer
of the deposited security or to pass through voting rights to the holders of
such receipts in respect of the deposited
securities. The issuers of unsponsored depositary receipts are not obligated to
disclose material information
in the United States; as such, there may be limited information available
regarding such issuers and/or limited
correlation between available information and the market value of depositary
receipts.
ADRs
represent interests in foreign issuers that trade on U.S. exchanges or OTC. ADRs
represent the right to receive securities
of the foreign issuer deposited with the issuing bank or trust company.
Generally, ADRs are denominated in U.S.
dollars and are designed for use in the U.S. securities markets. The
depositaries that issue ADRs are usually U.S.
financial institutions, such as a bank or trust company, but the underlying
securities are issued by a foreign issuer.
GDRs may be
issued in U.S. dollars or other currencies and are generally designed for use in
securities markets outside the
United States. GDRs represent the right to receive foreign securities and may be
traded on the exchanges
of the depositary’s country. The issuing depositary, which may be a foreign or a
U.S. entity, converts dividends
and the share price into the shareholder’s home currency. EDRs are generally
issued by a European bank and traded
on local exchanges.
Although an
issuing bank or trust company may impose charges for the collection of dividends
on foreign securities that
underlie ADRs, GDRs and EDRs, and for the conversion of ADRs, GDRs and EDRs into
their respective underlying securities,
there are generally no fees imposed on the purchase or sale of ADRs, GDRs and
EDRs, other than transaction
fees ordinarily involved with trading stocks. ADRs, GDRs and EDRs may be less
liquid or may trade at a lower price
than the underlying securities of the issuer. Additionally, receipt of corporate
information about the underlying
issuer may be untimely.
Emerging Market
Securities. Unless
otherwise stated in a Fund’s prospectus, countries are generally characterized
by a Fund’s
sub-adviser as “emerging market countries” by reference to a broad-based market
index, by reference to the World
Bank’s per capita income brackets or based on the sub-adviser’s qualitative
judgments about a country’s level of economic
and institutional development, and include markets commonly referred to as
“frontier markets.” An emerging
market is generally in the earlier stages of its industrialization cycle with a
low per capita gross domestic product
(“GDP”) and a low market capitalization to GDP ratio relative to those in the
United States and the European Union.
Frontier market countries generally have smaller economies and even less
developed capital markets than typical
emerging market countries (which themselves have increased investment risk
relative to investing in more developed
markets) and, as a result, the risks of investing in emerging market countries
are magnified in frontier market
countries.
Investing
in emerging markets may involve risks in addition to and greater than those
generally associated with investing
in the securities markets of developed countries. For example, economies in
emerging market countries may be
dependent on relatively few industries that are more susceptible to local and
global changes. Securities markets in
these countries can also be relatively small and have substantially lower
trading volumes. As a result, securities
issued in these countries may be more volatile and less liquid, and may be more
difficult to value, than securities
issued in countries with more developed economies and/or
markets.
Certain
emerging market countries lack uniform accounting, auditing and financial
reporting and disclosure standards,
have less governmental supervision of financial markets than developed
countries, and have less developed
legal systems than developed countries. Certain governments may be more unstable
and present greater risks of
nationalization or restrictions on foreign ownership of local companies.
Repatriation of investment income, capital and
the proceeds of sales by foreign investors may require governmental registration
and/or approval in some
emerging market countries. Some emerging market countries may also impose
punitive taxes that could adversely
affect the prices of securities. While a Fund will only invest in markets where
these restrictions are considered
acceptable by the Fund’s sub-adviser, a country could impose new or additional
repatriation restrictions after the
Fund’s investment. If this happens, the Fund’s response might include, among
other things, applying to the appropriate
authorities for a waiver of the restrictions or engaging in transactions in
other markets designed to offset the
risks of decline in that country. Such restrictions will be considered in
relation to a Fund’s liquidity needs and other
factors. Further, some attractive equity securities may not be available to a
Fund if foreign shareholders already
hold the maximum amount legally permissible.
While
government involvement in the private sector varies in degree among emerging
market countries, such involvement
may in some cases include government ownership of companies in certain sectors,
wage and price controls or
imposition of trade barriers and other protectionist measures. With respect to
any developing country, there is no
guarantee that some future economic or political crisis will not lead to price
controls, forced mergers of companies,
expropriation, or creation of government monopolies to the possible detriment of
a Fund’s investments. In
addition, rapid fluctuations in inflation rates may have negative impacts on the
economies and securities markets of certain
emerging market countries.
Additionally,
there may be increased settlement risk for transactions in securities of
emerging market issuers. Settlement
systems in emerging market countries are generally less organized than those in
developed markets. Supervisory
authorities may also be unable to apply standards comparable to those in
developed markets. Thus, there may
be risks that settlement may be delayed and that cash or securities belonging to
a Fund may be in jeopardy
because of failures of or defects in the systems. In particular, market practice
may require that payment be made before
receipt of the security being purchased or that delivery of a security be made
before payment is received.
In such cases, default by a broker or bank (the “counterparty”) through whom the
transaction is effected might cause
the Fund to suffer a loss. A Fund will seek, where possible, to use
counterparties whose financial status is such
that this risk is reduced. However, there can be no certainty that a Fund will
be successful in eliminating this risk,
particularly as counterparties operating in emerging market countries frequently
lack the standing or financial resources
of those in developed countries. There may also be a danger that, because of
uncertainties in the operation
of settlement systems in individual markets, competing claims may arise with
respect to securities held by or to be
transferred to a Fund. A Fund and its shareholders may also encounter
substantial difficulties in obtaining and
enforcing judgments against individuals residing outside of the U.S. and
companies domiciled outside of the U.S.
Taxation of
dividends, interest and capital gains received by a Fund varies among emerging
market countries and, in some cases,
is comparatively high. In addition, emerging market countries typically have
less well-defined tax laws and
procedures, and such laws may permit retroactive taxation so that a Fund could
become subject in the future to local tax
liability that it had not reasonably anticipated in conducting its investment
activities or valuing its assets.
Sovereign Debt
Obligations. Sovereign
debt instruments are issued or guaranteed by foreign governments or their
agencies,
including those of emerging market countries. Sovereign debt may be in the form
of conventional securities
or other types of debt instruments, such as loans or loan participations. The
debt obligations of a foreign government
or entity may not be supported by the full faith and credit of such foreign
government. Sovereign debt of emerging
market countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental
entities responsible for repayment of the debt may fail to repay principal and
interest when due, and may require
renegotiation or rescheduling of debt payments. Prospects for repayment of
principal and interest may depend on
political and economic factors. A Fund may have limited or no legal recourse in
the event of default with respect to
sovereign debt obligations. Sovereign debt instruments and foreign debt
securities share many of the same risks.
For more information, refer to “Foreign Debt Securities.”
Unless
otherwise stated in a Fund’s prospectus, countries are generally characterized
by a Fund’s sub-adviser as “emerging
market countries” by reference to a broad market index, by reference to the
World Bank’s per capita
income
brackets or based on the sub-adviser’s qualitative judgments about a country’s
level of economic and institutional
development, and include markets commonly referred to as “frontier markets.” An
emerging market is generally
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product (“GDP”) and a low
market capitalization to GDP ratio relative to those in the United States and
the European Union. Frontier market
countries generally have smaller economies and even less developed capital
markets than typical emerging market
countries and, as a result, the risks of investing in emerging market countries
are magnified in frontier market countries.
The
performance of sovereign debt instruments may be negatively affected by
fluctuations in a foreign currency’s strength or
weakness relative to the U.S. dollar, particularly to the extent the Fund
invests a significant percentage of its assets
in sovereign debt instruments denominated in non-U.S. currencies. Currency rates
in foreign countries may fluctuate
significantly over short or long periods of time for a number of reasons,
including changes in interest rates, imposition
of currency exchange controls and economic or political developments in the U.S.
or abroad.
Global
economies and financial markets have become increasingly interconnected, which
increases the possibility that
conditions in one country or region might adversely impact issuers in a
different country or region. Sovereign debt
instruments may be impacted by economic, political, social, diplomatic or other
conditions or events (including,
for example, military confrontations, war and terrorism). Any attempt by a Fund
to hedge against or otherwise
protect its portfolio, or to profit from such circumstances, may fail and,
accordingly, an investment in a Fund could
lose money over short or long periods. For example, the economies of many
countries or regions in which a
Fund may invest are highly dependent on trading with certain key trading
partners. Reductions in spending on products
and services by these key trading partners, the institution of tariffs or other
trade barriers, or a slowdown in
the economies of key trading partners may adversely affect the performance of
securities in which a Fund may
invest. The severity or duration of adverse economic conditions may also be
affected by policy changes made by
governments or quasi-governmental organizations. The imposition of sanctions by
the United States or another
government on a country could cause disruptions to the country’s financial
system and economy, which could
negatively impact the value of securities, including sovereign debt instruments.
The risks posed by sanctions may be
heightened to the extent a Fund invests significantly in the affected country or
region or in issuers from the affected
country that depend on global markets.
Although it
is not uncommon for governments to enter into trade agreements that would, among
other things, reduce
barriers among countries, increase competition among companies and reduce
government subsidies, there are no
assurances that such agreements will achieve their intended economic objectives.
There is also a possibility that such
trade arrangements: i) will not be implemented; ii) will be implemented, but not
completed; iii) or will be completed,
but then partially or completely unwound. It is also possible that a significant
participant could choose to abandon
a trade agreement, which could diminish its credibility and influence. Any of
these occurrences could have
adverse effects on the markets of both participating and non-participating
countries, including appreciation or depreciation
of currencies, a significant increase in exchange rate volatility, a resurgence
in economic protectionism and an
undermining of confidence in markets. Such developments could have an adverse
impact on a Fund’s investments
in the debt of countries participating in such trade agreements.
Further,
investments in certain countries may subject a Fund to tax rules, the
application of which may be uncertain. Countries
may amend or revise their existing tax laws, regulations and/or procedures in
the future, possibly with retroactive
effect. Changes in, or uncertainties regarding the laws, regulations or
procedures of a country could directly or
indirectly reduce the after-tax profits of a Fund.
Supranational Entity
Securities. Debt
security investments may include the debt securities of “supranational”
entities, which are
international groups or unions in which the power and influence of member states
transcend national boundaries
or interests in order to share in decision making and vote on issues concerning
the collective body. They include
international organizations designated or supported by governments to promote
economic reconstruction or
development and international banking institutions and related government
agencies, such as the International Bank for
Reconstruction and Development (part of the World Bank), the European Union, the
Asian Development Bank and
the Inter-American Development Bank. The governmental members of these
supranational entities are “stockholders”
that typically make capital contributions and may be committed to make
additional capital contributions
if the entity is unable to repay its borrowings. There can be no assurance that
the constituent foreign governments
will continue to be able or willing to honor their capitalization commitments
for such entities.
Supranational
Entity Securities are subject to risks in addition to those relating to foreign
government and sovereign debt
securities and debt securities generally. Issuers of such debt securities may be
unwilling to pay interest and repay
principal, or otherwise meet obligations, when due and may require that the
conditions for payment be renegotiated.
The foreign governmental or other organizations supporting such supranational
issuers may be immune from
lawsuits in the event of the issuer’s failure or inability to pay the
obligations when due. Issuers may be dependent
on expected disbursements from foreign governmental or other
organizations.
OTHER
PERMITTED INVESTMENT ACTIVITIES
Borrowing. Generally,
under the 1940 Act, a Fund may borrow money only from banks in an amount not
exceeding 1/3 of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). A Fund may borrow money for
temporary or emergency purposes, including for short-term redemptions and
liquidity needs. Borrowing involves
special risk considerations. Interest costs on borrowings may fluctuate with
changing market rates of interest
and may partially offset or exceed the return earned on borrowed funds (or on
the assets that were retained rather than
sold to meet the needs for which funds were borrowed). Under adverse market
conditions, a Fund might have to
sell portfolio securities to meet interest or principal payments at a time when
investment considerations would not
favor such sales. Reverse repurchase agreements, dollar roll transactions and
other similar investments that
involve a form of leverage have characteristics similar to borrowings, but are
not considered borrowings if a Fund covers
such leverage by maintaining a segregated account or otherwise. To help meet
short-term redemptions and
liquidity needs, the Funds are parties to a revolving credit agreement whereby a
Fund is permitted to use bank borrowings
for temporary or emergency purposes.
Cayman Subsidiary
For the
Precious Metals Fund only, the Fund has a wholly owned subsidiary set up in the
Cayman Islands for the purpose of
making direct investments in precious metals and minerals. The value of the
Fund’s investment in its subsidiary
may be adversely impacted by the risks associated with delivery, storage and
maintenance, possible illiquidity,
and the unavailability of accurate market valuations of precious metals or
minerals as well as by custody and
transaction costs associated with a subsidiary’s investment in precious metals
or minerals. Changes in tax or other laws
could also negatively affect investments in the subsidiary and impact the Fund’s
ability to continue to invest
indirectly in precious metals and minerals through the subsidiary.
Loans of Portfolio
Securities. Portfolio
securities of a Fund may be loaned pursuant to guidelines approved by the
Board to
brokers, dealers and financial institutions, provided: i) the loan is secured
continuously by collateral consisting
of cash, securities of the U.S. Government, its agencies or instrumentalities,
or an irrevocable letter of credit
issued by a bank organized under the laws of the United States, organized under
the laws of a state, or a foreign
bank that has filed an agreement with the Federal Reserve Board to comply with
the same rules and regulations
applicable to U.S. banks in securities credit transactions, initially in an
amount at least equal to 100% of the value
of the loaned securities (which includes any accrued interest or dividends),
with the borrower being obligated,
under certain circumstances, to post additional collateral on a daily
marked-to-market basis, all as described
in further detail in the following paragraph; although the loans may not be
fully supported at all times if, for
example, the instruments in which cash collateral is invested decline in value
or the borrower fails to provide additional
collateral when required in a timely manner or at all; ii) the Fund may at any
time terminate the loan and request the
return of the loaned securities upon sufficient prior notification; iii) the
Fund will receive any interest or distributions
paid on the loaned securities; and iv) the aggregate market value of loaned
securities will not at any time exceed
the limits established under the 1940 Act.
For lending
its securities, a Fund will earn either a fee payable by the borrower (on loans
that are collateralized by U.S.
Government securities or a letter of credit) or the income on instruments
purchased with cash collateral (after payment of
a rebate fee to the borrower and a portion of the investment income to the
securities lending agent). Cash
collateral may be invested on behalf of a Fund by the Fund’s sub-adviser in U.S.
dollar-denominated short-term money
market instruments that are permissible investments for the Fund and that, at
the time of investment, are considered
high-quality. Currently, cash collateral generated from securities lending is
invested in shares of Securities
Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral
Fund is a Delaware limited
liability company that is exempt from registration under the 1940 Act. The Cash
Collateral Fund is managed by
Allspring Funds Management, LLC (“Allspring
Funds Management”) and is sub-advised by Allspring Global
Investments,
LLC (“Allspring Investments”). The Cash Collateral Fund is required to comply
with the credit quality, maturity
and other limitations set forth in Rule 2a-7 under the 1940 Act. The Cash
Collateral Fund seeks to provide preservation
of principal and daily liquidity by investing in high-quality, U.S.
dollar-denominated short-term money market
instruments. The Cash Collateral Fund may invest in securities with fixed,
variable, or floating rates of interest.
The Cash Collateral Fund seeks to maintain a stable price per share of $1.00,
although there is no guarantee that this
will be achieved. Income on shares of the Cash Collateral Fund is reinvested in
shares of the Cash Collateral Fund. The
net asset value of a Fund will be affected by an increase or decrease in the
value of the securities loaned by it, and
by an increase or decrease in the value of instruments purchased with cash
collateral received by it.
The
interests in the Cash Collateral Fund are not insured by the FDIC, and are not
deposits, obligations of, or endorsed or
guaranteed in any way by any banking entity. Any losses in the Cash Collateral
Fund will be borne solely by the Cash
Collateral Fund.
Loans of
securities involve a risk that the borrower may fail to return the securities
when due or when recalled by a Fund or may
fail to provide additional collateral when required. In either case, a Fund
could experience delays in recovering
securities or could lose all or part of the value of the loaned securities.
Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, loans may be recalled at
any time and generally will be recalled if
a material event affecting the investment is expected to be presented to a
shareholder vote, so that the securities
may be voted by a Fund.
Each
lending Fund pays a portion of the income (net of rebate fees) or fees earned by
it from securities lending to a securities
lending agent. Goldman Sachs Bank USA, an unaffiliated third party doing
business as Goldman Sachs Agency
Lending, currently acts as securities lending agent for the Funds, subject to
the overall supervision of the Funds’
manager.
Investment
Companies. These
securities include shares of other affiliated or unaffiliated open-end
investment companies
(i.e., mutual funds), closed-end funds, exchange-traded funds (“ETFs”), UCITS
funds (pooled investment vehicles
established in accordance with the Undertaking for Collective Investment in
Transferable Securities adopted by
European Union member states) and business development companies. A Fund may
invest in securities of other
investment companies up to the limits prescribed in Section 12(d) under the 1940
Act, the rules and regulations
thereunder and any exemptive relief currently or in the future available to a
Fund.
Except with
respect to funds structured as funds-of-funds or so-called master/feeder funds
or other funds whose strategies
otherwise allow such investments, the 1940 Act generally requires that a fund
limit its investments in another
investment company or series thereof so that, as of the time at which a
securities purchase is made: i) no more than
3% of the outstanding voting stock of any one investment company or series
thereof will be owned by a fund or by
companies controlled by a fund; ii) no more than 5% of the value of its total
assets will be invested in the securities
of any one investment company; and iii) no more than 10% of the value of its
total assets will be invested in the
aggregate in securities of other investment companies.
In October
2020, the SEC adopted a new regulatory framework, including new Rule 12d1-4
under the 1940 Act, for fund-of-funds
arrangements. This new regulatory framework included, among other things, the
rescission of certain SEC
exemptive orders and rules permitting investments in excess of the statutory
limits and the withdrawal of certain
related SEC staff no-action letters. While this new regulatory framework permits
the Funds to enter into more types of
fund-of-funds structures and to invest in other investment companies beyond the
statutory limits without an exemptive
order, it also imposes several conditions, including: (i) limits on ownership
and voting of acquired fund shares;
(ii) evaluations and findings by investment advisers of funds in fund-of-funds
arrangements; (iii) investment agreements
between funds in fund-of-funds arrangements; and (iv) limits on complex
fund-of-funds structures. These
regulatory changes may adversely impact a Fund’s investment strategies and
operations to the extent that it invests, or
might otherwise have invested, in shares of other investment companies. In
addition, these regulatory changes may
adversely impact a Fund’s investment strategies and operations to the extent
that it is invested in by other
investment companies in reliance on Rule 12d1-4 or Section
12(d)(1)(G).
Other
investment companies in which a Fund invests can be expected to pay fees and
other operating expenses, such as
investment advisory and administration fees, that would be in addition to those
paid by the Fund. Other investment
companies may include ETFs, which are publicly-traded unit investment trusts,
open-end funds or depositary
receipts that seek to track the performance of specific indices or companies in
related industries (e.g.,
passive
ETFs), and index funds. A passive ETF or index fund is an investment company
that seeks to track the performance
of an index (before fees and expenses) by holding in its portfolio either the
securities that comprise the index or a
representative sample of the securities in the index. Passive ETFs or index
funds in which the Funds invest will incur
expenses not incurred by their applicable indices. Certain securities comprising
the indices tracked by passive
ETFs or index funds may, from time to time, temporarily be unavailable, which
may further impede a passive ETF’s or
index fund’s ability to track their respective indices. An actively-managed ETF
is an investment company that seeks to
outperform the performance of an index.
ETFs
generally are subject to the same risks as the underlying securities the ETFs
are designed to track and to the risks of
the specific sector or industry tracked by the ETF. ETFs also are subject to the
risk that their prices may not totally
correlate to the prices of the underlying securities the ETFs are designed to
track and the risk of possible trading
halts due to market conditions or for other reasons. Although ETFs that track
broad market indexes are typically
large and their shares are fairly liquid, ETFs that track more specific indexes
tend to be newer and smaller, and ETFs
have limited redemption features. Additionally, to the extent an ETF holds
securities traded in markets that close at a
different time from the ETF’s listing exchange, liquidity in such securities may
be reduced after the applicable
closing times, and during the time when the ETF’s listing exchange is open but
after the applicable market closing,
fixing or settlement times, bid/ask spreads and the resulting premium or
discount to the ETF’s shares’ NAV may
widen.
In
addition, a Fund may invest in the securities of closed-end investment
companies. Because shares of closed-end investment
companies trade on a stock exchange or in the OTC market, they may trade at a
premium or discount to their net
asset values, which may be substantial, and their potential lack of liquidity
could result in greater volatility. In
addition, closed-end investment companies may employ leverage, which also
subjects the closed-end investment company to
increased risks such as increased volatility. Moreover, closed-end investment
companies incur their own fees and
expenses.
Private Placement and Other Restricted
Securities. Private
placement securities are securities sold in offerings that are exempt
from registration under the 1933 Act. They are generally eligible for sale only
to certain eligible investors. Private
placements often may offer attractive opportunities for investment not otherwise
available on the open market.
However, private placement and other “restricted” securities typically cannot be
resold without registration under the
1933 Act or the availability of an exemption from registration (such as Rules
144A (a “Rule 144A Security”)),
and may not be readily marketable because they are subject to legal or
contractual delays in or restrictions
on resale. Asset-backed securities, common stock, convertible securities,
corporate debt securities, foreign
securities, high-yield securities, money market instruments, mortgage-backed
securities, municipal securities,
participation interests, preferred stock and other types of equity and debt
instruments may be privately placed or
restricted securities.
Private
placement and other restricted securities typically may be resold only to
qualified institutional buyers, or in a privately
negotiated transaction, or to a limited number of qualified purchasers, or in
limited quantities after they have been
held for a specified period of time and other conditions are met for an
exemption from registration. Private
placement and other restricted securities may be considered illiquid securities,
as they typically are subject to
restrictions on resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential
qualified purchasers for such securities, especially under adverse market or
economic conditions, or in the event of
adverse changes in the financial condition of the issuer, a Fund could find it
more difficult to sell such securities
when it may be advisable to do so or it may be able to sell such securities only
at prices lower than if such securities
were more widely held and traded. At times, it also may be more difficult to
determine the fair value of such
securities for purposes of computing a Fund’s net asset value due to the absence
of an active trading market. Delay or
difficulty in selling such securities may result in a loss to a Fund. Restricted
securities that are “illiquid” are subject to
each Fund’s policy of not investing or holding more than 15% of its net assets
in illiquid securities. The term
“illiquid” in this context refers to securities that cannot be disposed of
within seven days in the ordinary course of business
at approximately the amount at which a Fund has valued the
securities.
The manager
typically will evaluate the liquidity characteristics of each Rule 144A Security
proposed for purchase by a Fund on a
case-by-case basis and will consider the following factors, among others, in its
evaluation: i) the frequency
of trades and quotes for the Rule 144A Security; ii) the number of dealers
willing to purchase or sell the Rule 144A
Security and the number of other potential purchasers; iii) dealer undertakings
to make a market in the
Rule 144A
Security; and iv) the nature of the Rule 144A Security and the nature of the
marketplace trades (e.g., the time needed
to dispose of the Rule 144A Security, the method of soliciting offers and the
mechanics of transfer).
The manager
will apply a similar process to evaluating the liquidity characteristics of
other restricted securities. A restricted
security that is deemed to be liquid when purchased may not continue to be
deemed to be liquid for as long as it
is held by a Fund. As a result of the resale restrictions on 144A securities,
there is a greater risk that they will become
illiquid than securities registered with the SEC.
Convertible
Securities. A
convertible security is a bond, debenture, note, preferred stock, or other
security that may be
converted or exchanged (by the holder or by the issuer) within a specified
period of time into a certain amount of common
stock of the same or a different issuer. As such, convertible securities combine
the investment characteristics
of debt and equity securities. A convertible security provides a fixed-income
stream and the opportunity,
through its conversion feature, to participate in the capital appreciation
resulting from a market price advance in
its underlying common stock.
As with a
straight fixed-income security, a convertible security tends to increase in
market value when interest rates decline and
decrease in value when interest rates rise. Like a common stock, the value of a
convertible security also tends to
increase as the market value of the underlying stock rises, and it tends to
decrease as the market value of the
underlying stock declines. Because its value can be influenced by both
interest-rate and market movements, a convertible
security tends not to be as sensitive to interest rate changes as a similar
fixed-income security, and tends not to be
as sensitive to share price changes as its underlying stock.
Investing
in convertible securities is subject to certain risks in addition to those
generally associated with debt securities.
Certain convertible securities, particularly securities that are convertible
into securities of an issuer other than the
issuer of the convertible security, may be or become illiquid and, therefore,
may be more difficult to resell in a timely
fashion or for a fair price, which could result in investment
losses.
The
creditworthiness of the issuer of a convertible security is important because
the holder of a convertible security will
typically have recourse only to the issuer. In addition, a convertible security
may be subject to conversion or redemption
by the issuer, but only after a specified date and under circumstances
established at the time the security is
issued. This feature may require a holder to convert the security into the
underlying common stock, even if the
value of the underlying common stock has declined substantially. In addition,
companies that issue convertible securities
frequently are small- or mid-capitalization companies and, accordingly, carry
the risks associated with investments
in such companies.
While the
Funds use the same criteria to evaluate the credit quality of a convertible debt
security that they would use for a more
conventional debt security, a convertible preferred stock is treated like a
preferred stock for a Fund’s credit
evaluation, as well as financial reporting and investment limitation
purposes.
Contingent
Convertible Bonds. Contingent
convertible bonds are a type of convertible security typically issued by
non-U.S.
banks. Unlike more traditional convertible securities, which typically may
convert into equity after the issuer’s
common stock has reached a certain strike price, the trigger event for a
contingent convertible bond is typically a
decline in the issuing bank’s capital threshold below a specified level.
Contingent convertible bonds typically
are subordinated to other debt instruments of the issuer and generally rank
junior to the claims of all holders of
unsubordinated obligations of the issuer. Coupon payments on contingent
convertible securities may be discretionary
and may be cancelled by the issuer. Contingent convertible bonds are a new form
of instrument, and the market
and regulatory environment for contingent convertible bonds is evolving.
Therefore, it is uncertain how the overall
market for contingent convertible bonds would react to a triggering event or
coupon suspension applicable
to one issuer. A Fund may lose money on its investment in a contingent
convertible bond when holders of the
issuer’s equity securities do not.
Exchange-Traded
Notes.
Exchange-traded notes (“ETNs”) are generally notes representing debt of an
issuer, usually a financial
institution. ETNs combine aspects of both bonds and ETFs. An ETN’s returns are
based on the performance of one or
more underlying assets, reference rates or indexes, minus fees and expenses.
Similar to ETFs, ETNs are listed on
an exchange and traded in the secondary market. However, unlike an ETF, an ETN
can be held until the ETN’s
maturity, at which time the issuer will pay a return linked to the performance
of the specific asset, index or rate
(“reference
instrument”) to which the ETN is linked minus certain fees. Unlike regular
bonds, ETNs do not make periodic
interest payments, and principal is not protected.
The value
of an ETN may be influenced by, among other things, time to maturity, levels of
supply and demand for the ETN,
volatility and lack of liquidity in underlying markets, changes in the
applicable interest rates, the performance of the
reference instrument, changes in the issuer’s credit rating and economic, legal,
political or geographic events that affect
the reference instrument. An ETN that is tied to a reference instrument may not
replicate the performance of the
reference instrument. ETNs also incur certain expenses not incurred by their
applicable reference instrument. Some ETNs
that use leverage can, at times, be relatively illiquid and, thus, they may be
difficult to purchase or sell at a fair
price. Levered ETNs are subject to the same risk as other instruments that use
leverage in any form. While leverage
allows for greater potential returns, the potential for loss is also greater.
Finally, additional losses may be incurred if
the investment loses value because, in addition to the money lost on the
investment, the loan still needs to be
repaid.
Because the
return on an ETN is dependent on the issuer’s ability or willingness to meet its
obligations, the value of the ETN may
change due to a change in the issuer’s credit rating, despite there being no
change in the underlying reference
instrument. The market value of ETN shares may differ from the value of the
reference instrument. This difference
in price may be due to the fact that the supply and demand in the market for ETN
shares at any point in time is not
always identical to the supply and demand in the market for the assets
underlying the reference instrument
that the ETN seeks to track.
There may
be restrictions on a Fund’s right to redeem its investment in an ETN, which is
generally designed to be held until
maturity. A Fund’s decision to sell its ETN holdings may be limited by the
unavailability or limited nature of a secondary
market. A Fund could lose some or all of the amount invested in an
ETN.
Illiquid
Securities. Pursuant
to Rule 22e-4 under the 1940 Act, a Fund (other than a money market Fund) may
not acquire any
“illiquid investment” if, immediately after the acquisition, the Fund would have
invested more than 15% of its net
assets in illiquid investments that are assets. An “illiquid investment” is any
investment that such a Fund reasonably
expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the
sale or disposition significantly changing the market value of the investment.
Illiquid investments include repurchase
agreements with a notice or demand period of more than seven days, certain
over-the-counter derivative instruments,
and securities and other financial instruments that are not readily marketable,
unless, based upon a review of
the relevant market, trading and investment-specific considerations, those
investments are determined not to be
illiquid. The Funds (other than the money market Funds) have implemented a
liquidity risk management program and
related procedures to identify illiquid investments pursuant to Rule 22e-4, and
the Board has approved the
designation of Allspring
Funds Management to administer the liquidity risk management program and
related procedures.
The money market Funds may invest up to 5% of its net assets in illiquid
investments. The 15% and 5% limits are
applied as of the date a Fund purchases an illiquid investment. It is possible
that a Fund’s holding of illiquid investment
could exceed the 15% limit (5% for the money market Funds), for example as a
result of market developments
or redemptions.
Each Fund
may purchase certain restricted securities that can be resold to institutional
investors and which may be determined
not to be illiquid investments pursuant to the Trust’s liquidity risk management
program. In many cases, those
securities are traded in the institutional market under Rule 144A under the 1933
Act and are called Rule 144A securities.
Investments
in illiquid investments involve more risks than investments in similar
securities that are readily marketable.
Illiquid investments may trade at a discount from comparable, more liquid
investments. Investment of a Fund’s
assets in illiquid investments may restrict the ability of the Fund to dispose
of its investments in a timely fashion and
for a fair price as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity
will be particularly acute where a Fund’s operations require cash, such as when
a Fund has net redemptions,
and could result in the Fund borrowing to meet short-term cash requirements or
incurring losses on the sale of
illiquid investments.
Illiquid
investments are often restricted securities sold in private placement
transactions between issuers and their purchasers
and may be neither listed on an exchange nor traded in other established
markets. In many cases, the privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to
contractual
restrictions on resale. To the extent privately placed securities may be resold
in privately negotiated transactions,
the prices realized from the sales could be less than those originally paid by
the Fund or less than the fair value
of the securities. In addition, issuers whose securities are not publicly traded
may not be subject to the disclosure
and other investor protection requirements that may be applicable if their
securities were publicly traded. If any
privately placed securities held by a Fund are required to be registered under
the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the expenses
of registration. Private placement
investments may involve investments in smaller, less seasoned issuers, which may
involve greater risks than
investments in more established companies. These issuers may have limited
product lines, markets or financial resources,
or they may be dependent on a limited management group. In making investments in
private placement securities,
a Fund may obtain access to material non-public information, which may restrict
the Fund’s ability to conduct
transactions in those securities.
Repurchase
Agreements. A
repurchase agreement is an agreement wherein a Fund purchases a security for a
relatively
short period of time (usually less than or up to seven days) and, at the time of
purchase, the seller agrees to repurchase
that security from the Fund at a mutually agreed upon time and price
(representing the Fund’s cost plus interest).
The repurchase agreement specifies the yield during the purchaser’s holding
period. Entering into repurchase
agreements allows a Fund to earn a return on cash in the Fund’s portfolio that
would otherwise remain un-invested.
Repurchase
agreements also may be viewed as loans made by a Fund that are collateralized by
the securities subject to
repurchase, which may consist of a variety of security types. The maturities of
the underlying securities in a repurchase
agreement transaction may be greater than twelve months, although the maximum
term of a repurchase agreement
will always be less than twelve months. Repurchase agreements may involve risks
in the event of default or
insolvency of the counterparty that has agreed to repurchase the securities from
a Fund, including possible delays or
restrictions upon the Fund’s ability to sell the underlying security and
additional expenses in seeking to enforce the
Fund’s rights and recover any losses. Although the Fund seeks to limit the
credit risk under a repurchase agreement
by carefully selecting counterparties and accepting only high quality
collateral, some credit risk remains. The
counterparty could default, which may make it necessary for the Fund to incur
expenses to liquidate the collateral.
In addition, the collateral may decline in value before it can be liquidated by
the Fund.
A Fund may
enter into reverse repurchase agreements under which the Fund sells portfolio
securities and agrees to repurchase
them at an agreed-upon future date and price. Use of a reverse repurchase
agreement may be preferable to a
regular sale and later repurchase of securities, because it avoids certain
market risks and transaction costs. At the time a
Fund enters into a reverse repurchase agreement, it will segregate cash or other
liquid assets having a value equal
to or greater than the repurchase price (including accrued interest), and will
subsequently monitor the account to
ensure that the value of such segregated assets continues to be equal to or
greater than the repurchase price.
In the
event that the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent,
a Fund’s use of proceeds from the agreement may be restricted pending a
determination by the other party, or
its trustee or receiver, whether to enforce a Fund’s obligation to repurchase
the securities. Reverse repurchase
agreements may be viewed as a form of borrowing.
Short Sales. A short
sale is a transaction in which a Fund sells a security it may not own in
anticipation of a decline in market
value of that security. When a Fund makes a short sale, the proceeds it receives
are retained by the broker until the
Fund replaces the borrowed security. In order to deliver the security to the
buyer, a Fund must arrange through a
broker to borrow the security and, in so doing, the Fund becomes obligated to
replace the security borrowed at
its market price at the time of replacement, whatever that price may be. Short
sales “against the box” means that
a Fund owns the securities, which are placed in a segregated account until the
transaction is closed out, or has the
right to obtain securities equivalent in kind and amount to the securities sold
short. A Fund’s ability to enter into
short sales transactions is limited by the requirements of the 1940
Act.
Short
positions in futures and options create opportunities to increase a Fund’s
return but, at the same time, involve special
risk considerations and may be considered speculative. Since a Fund in effect
profits from a decline in the price of
the futures or options sold short without having to invest the full purchase
price of the futures or options on the date of
the short sale, a Fund’s NAV per share will tend to increase more when the
futures or options it has sold
short
decrease in value, and to decrease more when the futures or options it has sold
short increase in value, than would
otherwise be the case if it had not engaged in such short sales. Short sales
theoretically involve unlimited loss potential,
as the market price of futures or options sold short may continuously increase,
although a Fund may mitigate
such losses by replacing the futures or options sold short before the market
price has increased significantly.
Under adverse market conditions, a Fund might have difficulty purchasing futures
or options to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale
obligations at a time when fundamental investment considerations would not favor
such sales.
If a Fund
makes a short sale “against the box,” it would not immediately deliver the
securities sold and would not receive the
proceeds from the sale. The seller is said to have a short position in the
securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A sub-adviser’s
decision to make a short sale “against
the box” may be a technique to hedge against market risks when the sub-adviser
believes that the price of a security
may decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable
for such security. In such case, any future losses in the Fund’s long position
would be reduced by a gain in the
short position. Short sale transactions may have adverse tax consequences to a
Fund and its shareholders.
In the view
of the SEC, a short sale involves the creation of a “senior security,” as such
term is defined in the 1940 Act, unless
the sale is “against the box,” and the securities sold are placed in a
segregated account, or unless a Fund’s
obligation to deliver the securities sold short is “covered” by segregating cash
or other liquid assets in an amount
equal to the difference between the current market value of the securities sold
short and any cash or liquid securities
required to be deposited as collateral with a broker in connection with the
transaction. Collateral deposited
with a broker will be marked-to-market daily, and any amounts deposited with a
broker or in a segregated account
will not have the effect of limiting a Fund’s potential losses on a short
sale.
To avoid
limitations under the 1940 Act on borrowing by investment companies, all short
sales not “against the box” will be
“covered” by segregating cash, U.S. Government securities or other liquid debt
or equity securities in an amount
equal to the market value of its delivery obligation. A Fund will not make short
sales of futures or options not “against
the box” or maintain a short position if doing so could create liabilities or
require collateral deposits and segregation
of assets totaling more than a specified percentage of the value of the Fund’s
total assets.
Warrants. Warrants
are instruments, typically issued with preferred stock or bonds, that give the
holder the right to purchase a
given number of shares of common stock at a specified price, usually during a
specified period of time. The price
usually represents a premium over the applicable market value of the common
stock at the time of the warrant’s
issuance. Warrants have no voting rights with respect to the common stock,
receive no dividends and have no rights
with respect to the assets of the issuer. Warrants do not pay a fixed dividend.
Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations
as a result of speculation or other factors and failure of the price of the
common stock to rise. A warrant becomes
worthless if it is not exercised within the specified time
period.
Other Risks
Large Shareholder
Risk To the
extent a large number of shares of a Fund is held by a single shareholder or a
small group of
shareholders, the Fund is subject to the risk that redemption by those
shareholders of all or a large portion of their
shares will adversely affect the Fund’s performance by forcing the Fund to sell
securities, potentially at disadvantageous
prices, to raise the cash needed to satisfy such redemption requests. This risk
may be heightened during
periods of declining or illiquid markets, or to the extent that such large
shareholders have short investment horizons or
unpredictable cash flow needs. Such redemptions may also increase transaction
costs and/or have adverse tax
consequences for remaining shareholders. In certain situations, redemptions by
large shareholders may also cause
a Fund to liquidate.
Liquidation Risk. There can
be no assurance that a Fund will grow to or maintain a viable size and, pursuant
to the Declaration
of Trust, the Board is authorized to close and/or liquidate a Fund at any time.
In the event of the liquidation
of a Fund, the expenses, timing and tax consequences of such liquidation may not
be favorable to some or all of
the Fund’s shareholders.
In addition
to the possibility that redemptions by large shareholders may cause a Fund to
liquidate (as discussed above),
other factors and events that may lead to the liquidation of a Fund include
changes in laws or regulations governing
the Fund or affecting the type of assets in which the Fund invests, or economic
developments or trends having a
significant adverse impact on the business or operations of the
Fund.
After a
Fund liquidation is announced, such Fund may begin to experience greater
redemption activity as the Fund approaches
its liquidation date. As portfolio managers effect portfolio transactions to
meet redemptions and prepare the Fund
for liquidation, the Fund may not meet its investment objective and principal
investment strategies. The Fund will
incur transaction costs as a result of these portfolio transactions which will
indirectly be borne by the Fund’s
shareholders. The Fund may be required to make a distribution of income and
capital gains realized, if any, from
liquidating its portfolio. It is anticipated that any distribution would be paid
to shareholders prior to liquidation. Shareholders
of the Fund on the date of liquidation would receive a distribution of their
account proceeds on the settlement
date in complete redemption of their shares. In the event of a liquidation,
please consult with a tax advisor to
determine your specific tax consequences, if any.
Operational and Cybersecurity
Risks. Fund
operations, including business, financial, accounting, data processing
systems or
other operating systems and facilities may be disrupted, disabled or damaged as
a result of a number of factors,
including events that are wholly or partially beyond our control. For example,
there could be electrical or telecommunications
outages; degradation or loss of internet or web services; natural disasters,
such as earthquakes, tornados
and hurricanes; disease pandemics; or events arising from local or larger scale
political or social events, as well as
terrorist acts.
The Funds
are also subject to the risk of potential cyber incidents, which may include,
but are not limited to, the harming of
or unauthorized access to digital systems (for example, through “hacking” or
infection by computer viruses or
other malicious software code), denial-of-service attacks on websites, and the
inadvertent or intentional release of
confidential or proprietary information. Cyber incidents may, among other
things, harm Fund operations, result in
financial losses to a Fund and its shareholders, cause the release of
confidential or highly restricted information,
and result in regulatory penalties, reputational damage, and/or increased
compliance, reimbursement or other
compensation costs. Fund operations that may be disrupted or halted due to a
cyber incident include trading,
the processing of shareholder transactions, and the calculation of a Fund’s net
asset value.
Issues
affecting operating systems and facilities through cyber incidents, any of the
scenarios described above, or other
factors, may harm the Funds by affecting a Fund’s manager, sub-adviser(s), or
other service providers, or issuers of
securities in which a Fund invests. Although the Funds have business continuity
plans and other safeguards
in place, including what the Funds believe to be robust information security
procedures and controls, there is no
guarantee that these measures will prevent cyber incidents or prevent or
ameliorate the effects of significant
and widespread disruption to our physical infrastructure or operating systems.
Furthermore, the Funds cannot
directly control the security or other measures taken by unaffiliated service
providers or the issuers of securities
in which the Funds invest. Such risks at issuers of securities in which the
Funds invest could result in material
adverse consequences for such issuers, and may cause a Fund’s investment in such
securities to lose value.
COVID-19/Coronavirus. A recent
outbreak of respiratory disease caused by a novel coronavirus was detected in
Wuhan City,
Hubei Province, China and has since spread globally. The disease, coronavirus
disease 2019 (abbreviated
as “COVID-19”), and concern about its spread has resulted in disruptions to
global markets, including through
border closings, restrictions on travel and large gatherings, expedited and
enhanced health screenings, quarantines,
cancellations, business and school closings, disruptions to employment and
supply chains, reduced productivity, and
reduced customer and client activity in multiple markets and sectors. On March
11, 2020, the World
Health Organization announced that it had made the assessment that COVID-19
can be characterized as a pandemic.
The impacts of COVID-19, and other epidemics and pandemics that may arise in the
future, could adversely
affect the economies of many nations, particular regions, or the entire global
economy, individual companies
and investment products, and the market in general. The full extent of such
impacts cannot necessarily be foreseen
at the present time. The impacts maybe short term or may last for an extended
period of time, and may exacerbate
other pre-existing political, social and economic risks in certain countries.
The risk of further spreading of COVID-19
has led to significant uncertainty and volatility in the financial markets. The
value of a Fund and the securities
in which a Fund invests may be adversely affected by impacts caused by COVID-19
and other epidemics and
pandemics that may arise in the future.
TRUSTEES
AND OFFICERS
The
following information supplements, and should be read in conjunction with, the
section in each
Prospectus entitled
“Management of the Funds.”
General
The
following table provides basic information about the Trustees and those Officers
of the Trust who perform policy-making
functions. Each of the Trustees and Officers listed below acts in identical
capacities for the Allspring
family of
funds which consists of, as of March 31,
2022, 138 series
comprising Allspring
Funds Trust, Allspring
Variable
Trust, Allspring
Master Trust and four closed-end funds (collectively the “Fund Complex” or
the “Trusts”). The
business address of each Trustee and Officer is 525 Market Street, 12th Floor,
San Francisco, CA 94105. Each Trustee and
Officer serves an indefinite term, with the Trustees subject to retirement from
service as required pursuant to
the Trust’s retirement policy at the end of the calendar year in which a Trustee
turns 75.
Information
for Trustees, all of whom are not “interested” persons of the Trust, as that
term is defined under the 1940 Act
(“Independent Trustees”), appears below. In addition to the Officers listed
below, the Funds have appointed an
Anti-Money Laundering Compliance Officer.
|
|
|
|
Name
and Year of Birth |
Position
Held with
Registrant/Length
of Service1
|
Principal
Occupation(s) During Past 5 Years or Longer |
Current
Other Public Company or Investment
Company Directorships |
|
|
INDEPENDENT
TRUSTEES |
|
William
R. Ebsworth (Born
1957) |
Trustee,
since 2015 |
Retired.
From 1984 to 2013, equities analyst,
portfolio manager, research director
and chief investment officer at Fidelity
Management and Research Company
in Boston, Tokyo, and Hong Kong,
and retired in 2013 as Chief Investment
Officer of Fidelity Strategic Advisers,
Inc. where he led a team of investment
professionals managing client
assets. Prior thereto, Board member
of Hong Kong Securities Clearing
Co., Hong Kong Options Clearing
Corp., the Thailand International Fund,
Ltd., Fidelity Investments Life Insurance
Company, and Empire Fidelity Investments
Life Insurance Company. Audit
Committee Chair and Investment Committee
Chair of the Vincent Memorial
Hospital Endowment (non-profit
organization). Mr. Ebsworth is a
CFA® charterholder. |
N/A |
Jane
A. Freeman (Born
1953) |
Trustee,
since 2015;
Chair Liaison,
since 2018 |
Retired.
From 2012 to 2014 and 1999 to 2008,
Chief Financial Officer of Scientific Learning
Corporation. From 2008 to 2012,
Ms. Freeman provided consulting services
related to strategic business projects.
Prior to 1999, Portfolio Manager at
Rockefeller & Co. and Scudder, Stevens
& Clark. Board member of the Harding
Loevner Funds from 1996 to 2014,
serving as both Lead Independent Director
and chair of the Audit Committee.
Board member of the Russell Exchange
Traded Funds Trust from 2011 to
2012 and the chair of the Audit Committee.
Ms. Freeman is also an inactive
Chartered Financial Analyst. |
N/A |
|
|
|
|
Name
and Year of Birth |
Position
Held with
Registrant/Length
of Service1 |
Principal
Occupation(s) During Past 5 Years or Longer |
Current
Other Public Company or Investment
Company Directorships |
Isaiah
Harris, Jr. (Born
1952) |
Trustee,
since 2009;
Audit Committee
Chair,
since 2019 |
Retired.
Chairman of the Board of CIGNA Corporation
from 2009 to 2021, and Director
from 2005 to 2008. From 2003 to
2011, Director of Deluxe Corporation. Prior
thereto, President and CEO of BellSouth
Advertising and Publishing Corp.
from 2005 to 2007, President and CEO
of BellSouth Enterprises from 2004 to
2005 and President of BellSouth Consumer
Services from 2000 to 2003. Emeritus
member of the Iowa State University
Foundation Board of Governors.
Emeritus Member of the Advisory
Board of Iowa State University School
of Business. Advisory Board Member,
Palm Harbor Academy (private school).
Advisory Board Member, Fellowship
of Christian Athletes. Mr. Harris
is a certified public accountant (inactive
status). |
N/A |
David
F. Larcker (Born
1950) |
Trustee,
since 2009 |
James
Irvin Miller Professor of Accounting
at the Graduate School of Business
(Emeritus), Stanford University, Director
of the Corporate Governance Research
Initiative and Senior Faculty of The
Rock Center for Corporate Governance
since 2006. From 2005 to 2008,
Professor of Accounting at the Graduate
School of Business, Stanford University.
Prior thereto, Ernst & Young Professor
of Accounting at The Wharton School,
University of Pennsylvania from 1985
to 2005. |
N/A |
Olivia
S. Mitchell (Born
1953) |
Trustee,
since 2006;
Nominating
and
Governance
Committee
Chair,
since 2018 |
International
Foundation of Employee Benefit
Plans Professor since 1993, Wharton
School of the University of Pennsylvania.
Director of Wharton’s Pension
Research Council and Boettner Center
on Pensions & Retirement Research,
and Research Associate at the National
Bureau of Economic Research. Previously
taught at Cornell University from
1978 to 1993. |
N/A |
Timothy
J. Penny (Born
1951) |
Trustee,
since 1996;
Chair, since
2018 |
President
and Chief Executive Officer of Southern
Minnesota Initiative Foundation,
a non-profit organization, since
2007. Member of the Board of Trustees
of NorthStar Education Finance, Inc.,
a non-profit organization, since 2007. |
N/A |
|
|
|
|
Name
and Year of Birth |
Position
Held with
Registrant/Length
of Service1 |
Principal
Occupation(s) During Past 5 Years or Longer |
Current
Other Public Company or Investment
Company Directorships |
James
G. Polisson (Born
1959) |
Trustee,
since 2018 |
Retired.
Chief Marketing Officer, Source (ETF)
UK Services, Ltd, from 2015 to 2017.
From 2012 to 2015, Principal of The
Polisson Group, LLC, a management consulting,
corporate advisory and principal
investing company. Chief Executive
Officer and Managing Director at
Russell Investments, Global Exchange Traded
Funds from 2010 to 2012. Managing
Director of Barclays Global Investors
from 1998 to 2010 and Global Chief
Marketing Officer for iShares and Barclays
Global Investors from 2000 to 2010.
Trustee of the San Francisco Mechanics’
Institute, a non-profit organization,
from 2013 to 2015. Board member
of the Russell Exchange Traded Fund
Trust from 2011 to 2012. Director of
Barclays Global Investors Holdings Deutschland
GmbH from 2006 to 2009. Mr.
Polisson is an attorney and has a retired
status with the Massachusetts and
District of Columbia Bar Associations. |
N/A |
|
|
|
|
Name
and Year of Birth |
Position
Held with
Registrant/Length
of Service1 |
Principal
Occupation(s) During Past 5 Years or Longer |
Current
Other Public Company or Investment
Company Directorships |
Pamela
Wheelock (Born
1959) |
Trustee,
since January
2020; previously
Trustee
from January
2018 to
July 2019 |
Board
member of the Destination Medical
Center Economic Development Agency,
Rochester, Minnesota since 2019.
Interim President of the McKnight Foundation
from January to September 2020.
McKnight Foundation Consultant, November
2020 to February 2021. Acting
Commissioner, Minnesota Department
of Human Services, July 2019
through September 2019. Consultant
(part-time), Minnesota Department
of Human Services, October 2019
through December 2019. Chief Operating
Officer, Twin Cities Habitat for Humanity
from 2017 to 2019. Vice President
of University Services, University
of Minnesota from 2012 to 2016.
Prior thereto, on the Board of Directors,
Governance Committee and Finance
Committee for the Minnesota Philanthropy
Partners (Saint Paul Foundation)
from 2012 to 2018, Interim Chief
Executive Officer of Blue Cross Blue
Shield of Minnesota from 2011 to 2012,
Chairman of the Board from 2009 to
2012 and Board Director from 2003 to 2015.
Vice President, Leadership and Community
Engagement, Bush Foundation,
Saint Paul, Minnesota (a private
foundation) from 2009 to 2011. Executive
Vice President and Chief Financial
Officer, Minnesota Sports and Entertainment
from 2004 to 2009 and Senior
Vice President from 2002 to 2004. Executive
Vice President of the Minnesota
Wild Foundation from 2004 to 2008.
Commissioner of Finance, State of Minnesota,
from 1999 to 2002. Currently Board
Chair of the Minnesota Wild Foundation
since 2010. |
N/A |
1. |
Length
of service dates reflect the Trustee’s commencement of service with the
Trust’s predecessor entities, where
applicable. |
|
|
|
Name
and Year of Birth |
Position
Held with Registrant/Length
of
Service1
|
Principal
Occupation(s) During Past 5 Years or Longer2
|
|
|
OFFICERS |
Andrew
Owen (Born
1960) |
President,
since 2017 |
President,
Chief Executive Officer and Director of Allspring Funds Management,
LLC since 2017 and co-president of Galliard Capital Management,
LLC, an affiliate of Allspring Funds Management, LLC,
since
2019. Prior thereto, Head of Affiliated Managers, Allspring Global
Investments,
from 2014 to 2019 and Executive Vice President responsible
for marketing, investments and product development for Allspring
Funds Management, LLC, from 2009 to 2014. In addition, Mr. Owen
was an Executive Vice President of Wells Fargo & Company from
2014
to 2021. |
Jeremy
DePalma (Born
1974) |
Treasurer,
since 2012
(for certain funds
in the Fund Complex);
since 2021
(for the remaining
funds in
the Fund Complex) |
Senior
Vice President of Allspring Funds Management, LLC since 2009. Senior
Vice President of Evergreen Investment Management Company, LLC
from 2008 to 2010 and head of the Fund Reporting and Control Team
within Fund Administration from 2005 to 2010. |
Kate
McKinley (Born
1977) |
Chief
Legal Officer
since 2021 |
Chief
Legal Officer of Allspring Global Investments since 2021. Prior
thereto,
held various roles at State Street Global Advisors beginning in
2010,
including serving as Senior Vice President and General Counsel
from
2019 to 2021, and Chief Operating Officer of the Institutional
Client
Group from 2016 - 2019. Prior to working at State Street Global
Advisors
served as Assistant General Counsel for Bank of America Corporation
from 2005 to 2010 and as an Associate at WilmerHale from
2002 to 2005. |
Christopher
Baker (Born
1976) |
Chief
Compliance
Officer
since 2022 |
Global
Chief Compliance Officer for Allspring Global Investments since
2022. Prior
thereto, Chief Compliance Officer for State Street Global Advisors
from 2018 to 2021. Senior Compliance Officer for the State Street
divisions of Alternative Investment Solutions, Sector Solutions,
and
Global Marketing from 2015 to 2018. From 2010 to 2015 Vice
President,
Global Head of Investment and Marketing Compliance for State
Street Global Advisors. |
Matthew
Prasse (Born
1983) |
Secretary,
since 2021 |
Senior
Counsel of the Allspring Legal Department since 2021. Senior Counsel
of the Wells Fargo Legal Department from 2018 to 2021. Previously,
Counsel for Barings LLC from 2015 to 2018. Prior to joining Barings,
Associate at Morgan, Lewis & Bockius LLP from 2008 to
2015. |
1. |
Length
of service dates reflect the Officer’s commencement of service with the
Trust’s predecessor entities, where applicable. |
2. |
For
those Officers with tenures at Allspring Global Investments and/or
Allspring Funds Management, LLC that began prior to 2021, such tenures
include years
of service during which these businesses/entities were known as Wells
Fargo Asset Management and Wells Fargo Funds Management, LLC, respectively. |
The Trust’s
Declaration of Trust, as amended and restated from time to time (the
“Declaration of Trust”), does not set forth any
specific qualifications to serve as a Trustee other than that no person shall
stand for initial election or appointment
as a Trustee if such person has already reached the age of 72. The Charter and
the Statement of Governance
Principles of the Nominating and Governance Committee also do not set forth any
specific qualifications,
but do set forth certain factors that the Nominating and Governance
Committee may take into account in
considering Trustee candidates and a process for evaluating potential conflicts
of interest, which identifies
certain disqualifying conflicts. All of the current Trustees are Independent
Trustees. Among the attributes or skills
common to all Trustees are their ability to review critically, evaluate,
question and discuss information provided to
them, to interact effectively with the other Trustees, Allspring
Funds Management, LLC (“Allspring
Funds Management”
or the “Manager”), sub-advisers, other service providers, counsel and the
independent registered public
accounting firm, and to exercise effective and independent business judgment in
the performance of their duties as
Trustees. Each Trustee’s ability to perform his or her duties effectively has
been attained through the Trustee’s
business, consulting, public service, professional and/or academic positions and
through experience from service as
a board member of the Trust and the other Trusts in the Fund Complex (and/or in
other capacities, including
for any predecessor funds), other registered investment companies, public
companies, and/or non-profit
entities or
other organizations. Each Trustee’s ability to perform his or her duties
effectively also has been enhanced by his or
her educational background, professional training, and/or other life
experiences. The specific experience, qualifications,
attributes and/or skills that led to the conclusion that a Trustee should serve
as a Trustee of the Trusts in the Fund
Complex are as set forth below.
William
R. Ebsworth. Mr.
Ebsworth has served as a Trustee of the Trusts in the Fund Complex since January
1, 2015. He also
served as a Trustee of Asset Allocation Trust from 2015 to 2018. From 1984 to
2013, he was employed as an equities
analyst, portfolio manager and research director at Fidelity Management and
Research Company in Boston, Tokyo, and
Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic
Advisers, Inc., where he led a team
of investment professionals managing client assets. Prior thereto, he was a
Board member of Hong Kong Securities
Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund,
Ltd., Fidelity Investments
Life Insurance Company, and Empire Fidelity Investments Life Insurance Company.
Mr. Ebsworth is a CFA®
charterholder.
Jane
A. Freeman. Ms.
Freeman has served as a Trustee of the Trusts in the Fund Complex since January
1, 2015. She also served
as a Trustee of Asset Allocation Trust from 2015 to 2018. From 2012 to 2014 and
1999 to 2008, Ms. Freeman
served as the Chief Financial Officer of Scientific Learning Corporation. From
2008 to 2012, Ms. Freeman provided
consulting services related to strategic business projects. Prior to joining
Scientific Learning, Ms. Freeman was
employed as a portfolio manager at Rockefeller & Co. and Scudder, Stevens
& Clark. She served as a board member of
the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent
Director and chair of the Audit
Committee. She also served as a board member of the Russell Exchange Traded
Funds Trust from 2011 to 2012, and
as chair of the Audit Committee. Ms. Freeman is also an
inactive Chartered Financial Analyst.
Isaiah
Harris, Jr. Mr.
Harris has served as a Trustee of the Trusts in the Fund Complex since 2009 and
as Chair of the Audit
Committee since 2019 and was an Advisory Board Member from 2008 to 2009. He also
served as a Trustee of Asset
Allocation Trust from 2010 to 2018. He was the Chairman of the Board of CIGNA
Corporation from 2009 to 2021, and
was a director of CIGNA Corporation from 2005 to 2008. He served as a
director of Deluxe Corporation from 2003
to 2011. As a director of these and other public companies, he has served on
board committees, including
Governance, Audit and Compensation Committees. Mr. Harris served in senior
executive positions, including
as president, chief executive officer, vice president of finance and/or chief
financial officer, of operating companies
for approximately 20 years. Mr. Harris has been determined by the Board to be an
audit committee financial
expert, as such term is defined in the applicable rules of the SEC.
David
F. Larcker. Mr.
Larcker has served as a Trustee of the Trusts in the Fund Complex since 2009 and
was an Advisory
Board Member from 2008 to 2009. He also served as a Trustee of Asset Allocation
Trust from 2010 to 2018. Mr. Larcker
is the James Irvin Miller Professor of Accounting at the Graduate School of
Business (Emeritus) of Stanford
University. He is also the Morgan Stanley Director of the Center for Leadership
Development and Research and
Co-director of The Rock Center for Corporate Governance at Stanford University.
He has been a professor of accounting
for over 30 years. He has written numerous articles on a range of topics,
including managerial accounting,
financial statement analysis and corporate governance.
Olivia
S. Mitchell. Ms.
Mitchell has served as a Trustee of the Trusts in the Fund Complex since 2006
and as chair of the Nominating
and Governance Committee since 2018. She also served as a Trustee of Asset
Allocation Trust from 2010 to
2018. Ms. Mitchell is the International Foundation of Employee Benefit Plans
Professor at the Wharton School of
the University of Pennsylvania, where she is also Professor of Insurance/Risk
Management and Business Economics/Policy.
She also serves in senior positions with academic and policy organizations that
conduct research on
pensions, retirement, insurance, risk management and related topics, including
as Executive Director of the Pension
Research Council and Director of the Boettner Center on Pensions and Retirement
Research, both at the University
of Pennsylvania. She has taught on, and served as a consultant on economics,
insurance, and risk management,
served as Department Chair, advised numerous governmental entities, and written
numerous articles and books
on topics including retirement systems, private and social insurance, and health
and retirement policy.
Timothy
J. Penny. Mr. Penny
has served as a Trustee of the Trusts in the Fund Complex and their predecessor
funds since 1996,
and Chairman of the Board of Trustees since 2018. He also served as a Trustee of
Asset Allocation Trust from 2010
to 2018. He has been President and Chief Executive Officer of Southern Minnesota
Initiative Foundation
since 2007.
He also serves as a member of the board of another non-profit organization. Mr.
Penny was a member of the U.S.
House of Representatives for 12 years representing Southeastern Minnesota’s
First Congressional District.
James
G. Polisson. Mr.
Polisson has served as a Trustee of the Trusts in the Fund Complex since 2018
and was an Advisory
Board member in 2017. Mr. Polisson has extensive experience in the financial
services industry, including over 15
years in the ETF industry. From 2015 to July 31, 2017, Mr. Polisson was the
Chief Marketing Officer of Source (ETF) UK
Services, Ltd., one of the largest providers of exchange-traded products in
Europe. From 2012 to 2015, Mr. Polisson
was Principal of The Polisson Group, LLC, a management consulting, corporate
advisory and principal investing
firm. Prior to 2012, Mr. Polisson was Chief Executive Officer and Managing
Director of Russell Investments’ global ETF
business from 2010 to 2012. He was also a member of the Board of Trustees of
Russell Exchange Traded Funds
Trust, where he served as Chairman, President and Chief Executive Officer, from
2011 to 2012. Mr. Polisson also served
as Chief Marketing Officer for Barclays Global Investors from 2000 to 2010,
where he led global marketing
for the iShares ETF business.
Pamela
Wheelock. Ms.
Wheelock has served as a Trustee of the Trusts in the Fund Complex since January
2020 and previously
from January 2018 until July 2019 and was an Advisory Board member in 2017. Ms.
Wheelock has been a Board
member of the Destination Medical Center Economic Development Agency in
Rochester, Minnesota since 2019. She
was Interim President of the McKnight Foundation from January to September 2020.
She served as the acting
Commissioner of the Minnesota Department of Human Services from July 2019
through September 2019 and as a
consultant (part-time) of the Minnesota Department of Human Services from
October 2019 through December 2019. Ms.
Wheelock has more than 25 years of leadership experience in the private, public
and nonprofit sectors. Ms.
Wheelock was the Chief Operating Officer of Twin Cities Habitat for Humanity
from 2017 through 2019. Prior to joining
Habitat for Humanity in 2017, Ms. Wheelock was on the Board of Directors,
Governance Committee and Finance
Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) and
the Vice President of University
Services at the University of Minnesota from 2012, where she served as chief
operations officer of the University.
She also served as Interim President and Chief Executive Officer of Blue Cross
Blue Shield of Minnesota from 2011
to 2012, Vice President of the Bush Foundation from 2009 to 2011, and Executive
Vice President and Chief
Financial Officer of Minnesota Sports and Entertainment from 2004 to 2009. Ms.
Wheelock served as the Executive
Budget Officer and Finance Commissioner for the State of Minnesota from 1999 to
2002.
Board of Trustees - Leadership Structure and
Oversight Responsibilities
Overall
responsibility for oversight of the Trust and the Funds rests with the Board of
Trustees. The Board has engaged
Allspring
Funds Management to manage the Funds on a day-to day basis. The Board is
responsible for overseeing
Allspring
Funds Management and other service providers in the operation of the Trust
in accordance with the
provisions of the 1940 Act, applicable provisions of Delaware law, other
applicable laws and the Declaration of Trust. The
Board is currently composed of eight members, each of whom is an Independent
Trustee. The Board currently
conducts regular in-person meetings five times a year. In addition, the Board
may hold special in-person or telephonic
meetings or informal conference calls to discuss specific matters that may arise
or require action between
regular meetings. The Independent Trustees have engaged independent legal
counsel to assist them in performing
their oversight responsibilities.
The Board
has appointed an Independent Trustee to serve in the role of Chairman. The
Chairman’s role is to preside at all
meetings of the Board and to act as a liaison with respect to governance-related
matters with service providers, officers,
attorneys, and other Trustees generally between meetings. The Chairman may also
perform such other functions
as may be delegated by the Board from time to time. The Chairman of the Board
serves for a five-year term, which
may be extended with the approval of the Board. The Chairman of the Board shall
not serve more than two
consecutive five-year terms, unless such term limit is waived by the Board. This
term limit shall not apply to non-consecutive
terms. Timothy Penny serves as chairman of the Board. In order to assist the
Chairman in maintaining
effective communications with the other Trustees and Allspring
Funds Management, the Board has appointed a
Chair Liaison to work with the Chairman to coordinate Trustee communications and
to help coordinate timely
responses to Trustee inquiries relating to board governance and fiduciary
matters. The Chair Liaison serves for a one-year
term, which may be extended with the approval of the Board. Except for any
duties specified herein or pursuant to
the Trust’s charter document, the designation of Chairman or Chair Liaison does
not impose on such
Independent
Trustee any duties, obligations or liability that are greater than the duties,
obligations or liability imposed on
such person as a member of the Board generally.
The Board
also has established a Nominating and Governance Committee, an Audit
Committee, a Valuation Committee
and a Dividend Committee to assist the Board in the oversight and direction
of the business and affairs of the Trust,
and from time to time may establish informal working groups to review and
address the policies and practices
of the Trust with respect to certain specified matters. The Chairs of the Audit
Committee and Nominating and
Governance Committee serve for a three-year term, which may be extended with the
approval of the Board. The Chairs of
the Audit Committee and the Nominating and Governance Committee shall not serve
more than two consecutive
three-year terms, unless such term limit is waived by the Board. This term limit
shall not apply to non-consecutive
terms. Additionally, the Board has established investment teams to review in
detail the performance of each of
the Funds, to meet with portfolio managers, and to report back to the full
Board. The Board occasionally engages
independent consultants to assist it in evaluating initiatives or proposals. The
Board believes that the Board’s
current leadership structure is appropriate because it allows the Board to
exercise informed and independent
judgment over matters under its purview, and it allocates areas of
responsibility among committees of Trustees
and the full Board in a manner that enhances effective oversight. The leadership
structure of the Board may be changed,
at any time and in the discretion of the Board, including in response to changes
in circumstances or the characteristics
of the Trust.
The Funds
and Trusts are subject to a number of risks, including investment, compliance,
operational, liquidity and valuation
risks, among others. Day-to-day risk management functions are subsumed within
the responsibilities of Allspring
Funds Management, the sub-advisers and other service providers (depending on the
nature of the risk), who carry
out the Funds’ investment management and business affairs. Each of Allspring
Funds Management, the sub-advisers
and other service providers have their own, independent approach to risk
management, and their policies
and methods of carrying out risk management functions will depend, in part, on
their individual priorities, resources
and controls.
Risk
oversight forms part of the Board’s general oversight of the Funds and Trusts
and is addressed as part of various Board and
Committee activities. The Board recognizes that it is not possible to identify
all of the risks that may affect a Fund or
to develop processes and controls to eliminate or mitigate their occurrence or
effects and that it is necessary
for the Funds to bear certain risks (such as investment-related risks) to pursue
their goals. As part of its regular
oversight of the Trusts, the Board, directly or through a Committee, interacts
with and reviews reports from, among
others, Allspring
Funds Management, sub-advisers, the Chief Compliance Officer of the Funds, the
Chief Risk Officer of
Allspring
Funds Management, the independent registered public accounting firm for the
Funds, and internal
compliance auditors for Allspring
Funds Management or its affiliates, as appropriate, regarding risks faced
by the Funds
and relevant risk functions. The Board, with the assistance of its investment
teams, also reviews investment
policies and risks in connection with its review of the Funds’ performance, and
considers information regarding
the oversight of liquidity risks from Allspring
Funds Management’s investment personnel. The Board has appointed a
Chief Compliance Officer who oversees the implementation and testing of the
Funds’ compliance program and
regularly reports to the Board regarding compliance matters for the Funds and
their principal service providers.
Allspring
Funds Management has appointed a Chief Risk Officer to enhance the
framework around the assessment,
management, measurement and monitoring of risk indicators and other risk matters
concerning the Funds and
develop periodic reporting of risk management matters to the Board. In addition,
as part of the Board’s periodic
review of the Funds’ advisory, subadvisory 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 management valuation team comprised of officers and
employees of Allspring
Funds Management,
has approved and periodically reviews written valuation policies and
procedures applicable to valuing Fund
portfolio investments, and has established a valuation committee of Trustees.
The Board may, at any time and in its
discretion, change the manner in which it conducts its risk oversight
role.
Committees.
As noted
above, the Board has established a standing Nominating and Governance Committee,
a standing Audit Committee,
a standing Valuation Committee and a standing Dividend Committee to assist the
Board in the oversight and
direction of the business and affairs of the Trust. The Nominating and
Governance Committee and Audit Committee
operate pursuant to charters approved by the Board. The Valuation Committee’s
responsibilities are set
forth in
Valuation Procedures approved by the Board, and the Dividend Committee’s
responsibilities were set forth by the Board
when it established the Committee. Each Independent Trustee is a member of the
Trust’s Nominating and Governance
Committee, Audit Committee and Valuation Committee. The Dividend Committee is
comprised of three Independent
Trustees.
(1)
Nominating
and Governance Committee. Except
with respect to any trustee nomination made by an eligible shareholder
or shareholder group as permitted by applicable law and applicable provisions of
the Declaration of Trust and
any By-Laws of a Trust, the Committee shall make all nominations for membership
on the Board of Trustees of each
Trust. The Committee shall evaluate each candidate’s qualifications for Board
membership and his or her independence
from the Funds’ manager, sub-adviser(s) and principal underwriter(s) and, as it
deems appropriate, other
principal service providers. Olivia Mitchell serves as the chairman of the
Nominating and Governance Committee.
The Nominating
and Governance Committee has adopted procedures by which a shareholder may
properly submit a nominee
recommendation for the Committee’s consideration, which are set forth in
Appendix A to the Trusts’ Nominating
and Governance Committee Charter. The shareholder must submit any such
recommendation (a “Shareholder
Recommendation”) in writing to the Trust, to the attention of the Trust’s
Secretary, at the address of the principal
executive offices of the Trust. The Shareholder Recommendation must include: (i)
a statement in writing setting
forth (A) the name, age, date of birth, business address, residence address, and
nationality of the person recommended
by the shareholder (the “candidate”), (B) the series (and, if applicable, class)
and number of all shares of the
Trust owned of record or beneficially by the candidate, as reported to such
shareholder by the candidate; (C) any other
information regarding the candidate called for with respect to director nominees
by paragraphs (a), (d), (e), and (f ) of
Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule
14A) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), adopted by the SEC (or
the corresponding provisions
of any regulation or rule subsequently adopted by the SEC or any successor
agency applicable to the Trust); (D)
any other information regarding the candidate that would be required to be
disclosed if the candidate were a
nominee in a proxy statement or other filing required to be made in connection
with solicitation of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder;
and (E) whether the recommending shareholder believes that the candidate is or
will be an “interested person” of
the Trust (as defined in the 1940 Act) and information regarding the candidate
that will be sufficient for the Trust
to make such determination; (ii) the written and signed consent of the candidate
to be named as a nominee and to
serve as a Trustee if elected; (iii) the recommending shareholder’s name as it
appears on the Trust’s books; (iv) the series
(and, if applicable, class) and number of all shares of the Trust owned
beneficially and of record by the recommending
shareholder; and (v) a description of all arrangements or understandings between
the recommending
shareholder and the candidate and any other person or persons (including their
names) pursuant to which the
recommendation is being made by the recommending shareholder. In addition,
the Nominating and Governance
Committee may require the candidate to interview in person or furnish such other
information as it may reasonably
require or deem necessary to determine the eligibility of such candidate to
serve as a Trustee of the Trust.
The Nominating and Governance Committee has full discretion to reject
candidates recommended by shareholders,
and there is no assurance that any such person properly recommended and
considered by the Committee
will be nominated for election to the Board. In the event of any conflict or
inconsistency with respect to the
requirements applicable to a Shareholder Recommendation as between those
established in the procedures and those in
the By-Laws of a Closed-End Fund, the requirements of the By-Laws of such
Closed-End Fund shall control.
The Nominating
and Governance Committee may from time-to-time propose nominations of one or
more individuals to serve as
members of an “advisory board,” as such term is defined in Section 2(a)(1) of
the 1940 Act.
(2)
Audit
Committee. The Audit
Committee oversees the Funds’ accounting and financial reporting policies,
including
their internal controls over financial reporting; oversees the quality and
objectivity of the Funds’ financial statements
and the independent audit thereof; and interacts with the Funds’ independent
registered public accounting
firm on behalf of the full Board and with appropriate officers of the Trust.
Isaiah Harris, Jr. serves as the chairman of
the Audit Committee.
(3)
Valuation
Committee. The Board
has delegated to the Valuation Committee the authority to take any action
regarding
the valuation of portfolio securities that the Valuation Committee deems
necessary or appropriate, including
determining the fair value of securities between regularly scheduled Board
meetings in instances where
that
determination has not otherwise been delegated to the valuation team
(“Management Valuation Team”) of Allspring
Funds Management. The Board considers for ratification at each quarterly meeting
any valuation actions taken
during the previous quarter by the Valuation Committee or by the Management
Valuation Team other than pursuant to
Board-approved methodologies. Any one member of the Valuation Committee may
constitute a quorum for a
meeting of the committee.
(4)
Dividend
Committee. The Board
has delegated to the Dividend Committee the responsibility to review and
approve
certain dividend amount determinations made by a separate committee composed of
representatives from Allspring
Funds Management and certain sub-advisers (“Management Open-End Dividend
Committee”). The Board has
delegated to the Management Open-End Dividend Committee the authority to
determine periodic dividend amounts
subject to certain Board-approved parameters to be paid by each of the Core Plus
Bond Fund, Diversified Income
Builder Fund, Emerging Markets Equity Income Fund, Income Plus Fund,
International Bond Fund, Managed Account
CoreBuilder Shares - Series CP and Real Return Fund. Under certain
circumstances, the Dividend Committee
must review and consider for approval, as it deems appropriate, recommendations
of the Management Open-End
Dividend Committee.
The
committees met the following number of times during the most recently completed
fiscal year:
|
|
|
Committee
Name |
|
Committee
Meetings During Last Fiscal Year |
Nominating
and Governance Committee |
|
4 |
Audit
Committee |
|
7 |
Valuation
Committee |
|
8 |
Dividend
Committee |
|
0 |
Compensation. The
Trustees do not receive any retirement benefits or deferred compensation from
the Trust or any other
member of the Fund Complex. The Trust’s Officers are not compensated by the
Trust for their services. Listed below is
the compensation that was paid to each current Trustee by a Fund and the Fund
Complex for the most recently
completed fiscal period:
|
|
|
|
Trustee
Compensation |
Trustee
|
|
Compensation
from each
Fund |
Total
Compensation from
the Fund Complex1
|
William
R. Ebsworth |
|
$2,381 |
$331,000 |
Jane
A. Freeman |
|
$2,527 |
$351,250 |
Isaiah
Harris, Jr. |
|
$2,601 |
$361,500 |
David
F. Larcker |
|
$2,381 |
$331,000 |
Olivia
S. Mitchell |
|
$2,527 |
$351,250 |
Timothy
J. Penny |
|
$2,926 |
$406,750 |
James
G. Polisson |
|
$2,381 |
$331,000 |
Pamela
Wheelock |
|
$2,381 |
$331,000 |
1. |
As of
March 31, 2022, there were 138 series in the Fund
Complex. |
Beneficial
Equity Ownership Information. The
following table contains specific information about the dollar range of
equity
securities beneficially owned by each Trustee as of December
31, 2021 in each Fund and
the aggregate dollar range of
equity securities in other Funds in the Fund Complex overseen by the Trustees,
stated as one of the following
ranges: A = $0; B = $1 - $10,000; C = 10,001 - $50,000; D = $50,001 - $100,000;
and E = Over $100,000.
|
|
|
|
|
|
|
|
|
Fund
|
Ebsworth |
Freeman |
Harris |
Larcker |
Mitchell |
Penny |
Polisson |
Wheelock |
Precious
Metals Fund |
A |
A |
A |
A |
A |
A |
A |
A |
Utility
and Telecommunications Fund |
A |
A |
A |
A |
A |
A |
A |
A |
Aggregate
Dollar Range of Equity Securities in All Funds
Overseen by Trustee in Fund Complex1
|
E |
E |
E |
E |
E |
E |
E |
E |
1. |
Includes
Trustee ownership in shares of funds within the entire Allspring Fund
Complex (consisting of 139 funds). |
Ownership
of Securities of Certain Entities. As of the
calendar year ended December
31, 2021, none of the Independent
Trustees and/or their immediate family members owned securities of the manager,
any sub-advisers, or the
distributor, or any entity directly or indirectly controlling, controlled by, or
under common control with the manager,
any sub-advisers, or the distributor.
MANAGER
AND OTHER SERVICE PROVIDERS
Manager and Class-Level
Administrator
Allspring
Funds Management, a wholly owned subsidiary of Allspring Global Investments
Holdings, LLC, a holding company
indirectly owned by certain private funds of GTCR LLC and Reverence Capital
Partners, L.P., is the manager and
class-level administrator for the Funds. Allspring
Funds Management provides advisory and Fund-level administrative
services to the Funds under an investment management agreement (the “Management
Agreement”) and
provides class-level administrative services to the Funds under a class-level
administration agreement (the “Class-Level
Administration Agreement”). Under the Management Agreement, Allspring
Funds Management is responsible
for, among other services, (i) implementing the investment objectives and
strategies of the Funds, (ii) supervising
the applicable Sub-Adviser(s), (iii) providing Fund-level administrative
services in connection with the Funds’
operations, (iv) developing and implementing procedures for monitoring
compliance with regulatory requirements
and compliance with the Funds’ investment objectives, policies and restrictions,
and (v) providing any other
Fund-level administrative services reasonably necessary for the operation of the
Funds other than those services
that are provided by the Funds’ transfer and dividend disbursing agent,
custodian, and fund accountant. Allspring
Funds Management also furnishes office space and certain facilities
required for conducting the Funds’ business
together with ordinary clerical and bookkeeping services.
Under the
Class-Level Administration Agreement, Allspring
Funds Management is responsible for, among other services,
(i) coordinating, supervising and paying the applicable transfer agent and
various sub-transfer agents and omnibus
account servicers and record-keepers, (ii) coordinating the preparation and
filing of registration statements,
notices, shareholder reports and other information materials, including
prospectuses, proxies and other shareholder
communications for a class, (iii) receiving and tabulating class-specific
shareholder votes, (iv) reviewing bills
submitted to a Fund and, upon determining that a bill is appropriate, allocating
amounts to the appropriate classes
thereof and instructing the Funds’ custodian to pay such bills, and (v)
assembling and disseminating information
concerning class performance, expenses, distributions and administration.
Allspring
Funds Management has
agreed to pay all of the Funds’ fees and expenses for services provided by the
Funds’ transfer agent and various
sub-transfer agents and omnibus account servicers and record-keepers out of the
fees it receives pursuant to
the Class-Level Administration Agreement.
As
compensation for its services under the Management Agreement, Allspring
Funds Management is entitled to receive a
monthly fee at the annual rates indicated below of each Fund’s average daily net
assets:
|
|
|
Fund
|
Fee |
Management
Fee |
|
|
Precious
Metals Fund |
First
$500M Next
$500M Next
$1B Next
$2B Next
$1B Next
$5B Over
$10B |
0.650% 0.600% 0.550% 0.525% 0.500% 0.490% 0.480% |
Utility
and Telecommunications Fund |
First
$500M Next
$500M Next
$1B Next
$2B Next
$1B Next
$5B Over
$10B |
0.650% 0.600% 0.550% 0.525% 0.500% 0.490% 0.480% |
Management Fees
Paid. The
amounts shown below reflect fees paid to and waived by Allspring
Funds Management under
the Management Agreement for the past three fiscal years or
periods.
|
|
|
Management
Fees Paid |
Fund/Fiscal
Year or Period |
Management
Fees Paid |
Management
Fees Waived |
March
31, 2022 |
|
|
Precious
Metals Fund |
$2,087,102 |
$213,834 |
Utility
and Telecommunications Fund
|
$2,497,101 |
$444,460 |
March
31, 2021 |
|
|
Precious
Metals Fund |
$2,515,551 |
$228,732 |
Utility
and Telecommunications Fund
|
$2,283,142 |
$476,829 |
March
31, 2020 |
|
|
Precious
Metals Fund |
$1,780,653 |
$261,666 |
Utility
and Telecommunications Fund
|
$2,485,393 |
$279,446 |
For
providing class-level administrative services to the Funds pursuant to the
Class-Level Administration Agreement, including
paying the Funds’ fees
and expenses for services provided by the Funds’
transfer agent and various sub-transfer
agents and omnibus account servicers and record-keepers, Allspring
Funds Management is entitled to receive an
annual fee at the rates indicated below, as a percentage of the total net assets
of each Class:
|
|
|
|
|
Class-Level
Administrator
Fee |
Share
Class |
|
%
of Total Net
Assets |
Class
A |
|
0.21% |
Class
C |
|
0.21% |
Administrator
Class |
|
0.13% |
Institutional
Class |
|
0.13% |
Administrative Service Fees
Paid. The
amounts shown below reflect fees paid to and waived by Allspring
Funds Management under
the Class-Level Administration Agreement for the past three fiscal years or
periods.
|
|
|
Administrative
Service Fees Paid |
Fund/Fiscal
Year or Period |
Administrative
Service Fees Paid |
Administrative
Service Fees Waived |
March
31, 2022 |
|
|
Precious
Metals Fund |
$539,586 |
$86,103 |
Utility
and Telecommunications Fund
|
$795,741 |
$92,993 |
March
31, 2021 |
|
|
Precious
Metals Fund |
$653,173 |
$90,158 |
Utility
and Telecommunications Fund
|
$783,391 |
$56,673 |
March
31, 2020 |
|
|
Precious
Metals Fund |
$491,628 |
$69,763 |
Utility
and Telecommunications Fund
|
$768,732 |
$84,270 |
General. Each Fund’s
Management Agreement will continue in effect provided the continuance is
approved annually (i) by the
holders of a majority of the respective Fund’s outstanding voting securities or
by the Board and (ii) by a majority of
the Trustees who are not parties to the Management Agreement or “interested
persons” (as defined under the
1940 Act) of any such party. The Management Agreement may be terminated at any
time by vote of the
Board or by
vote of a majority of a Fund’s outstanding voting securities, or by Allspring
Funds Management on 60 days’
written notice. It will terminate automatically if assigned.
For each Fund,
the Class-Level Administration Agreement will continue in effect provided the
continuance is approved
annually by the Board, including a majority of the Trustees who are not
“interested persons” (as defined under the
1940 Act) of any party to the Class-Level Administration Agreement. The
Class-Level Administration Agreement
may be terminated on 60 days’ written notice by either party.
Fund Expenses. From time
to time, service providers to a Fund,
including Allspring
Funds Management and/or its affiliates,
may contractually agree to waive fees from a Fund in
whole or in part. In addition, such service providers may
voluntarily waive all or a portion of any fees to which they are entitled
and/or reimburse certain expenses as they may
determine from time to time. A
Funds’
service providers may discontinue or modify these voluntary actions at
any time
without notice. Any such contractual or voluntary waiver will reduce
expenses and, accordingly, have a favorable
impact on a Fund’s
performance. Such contractual and voluntary waivers may differ depending on
share class.
Except for
the expenses borne by Allspring
Funds Management, the Trust bears all costs of its operations, including
the
compensation of the Independent Trustees; investment management,
shareholder services and class-level administrative
fees; payments pursuant to any 12b-1 Plan; interest charges; taxes; fees and
expenses of its independent
auditors, legal counsel, transfer agent and distribution disbursing agent;
expenses of redeeming shares;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a 12b-1 Plan),
shareholders’ reports, notices, proxy
statements and reports to regulatory agencies; insurance premiums and certain
expenses relating to insurance
coverage; trade association membership dues (including membership dues in the
Investment Company Institute
allocable to a Fund);
brokerage and other expenses connected with the execution of portfolio
transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share
of a Fund;
expenses of shareholders’ meetings; expenses relating to the issuance,
registration and qualification of a Fund’s
shares; pricing services, organizational expenses and any extraordinary
expenses. Expenses attributable to a Fund are
charged against the Fund’s assets. General expenses of the Trust are allocated
among all of the series of the
Trust, including the Funds, in a manner proportionate to the net assets of each
Fund, on a transactional basis, or on such
other basis as the Board deems equitable.
Sub-Adviser
Allspring
Funds Management has engaged Allspring Global Investments, LLC (“Allspring
Investments”), an affiliate of Allspring
Funds Management, to serve as sub-adviser to the Funds (the “Sub-Adviser”).
Subject to the direction of the Trust’s
Board and the overall supervision and control of Allspring Funds Management and
the Trust, the Sub-Adviser
makes recommendations regarding the investment and reinvestment of the Funds’
assets. The Sub-Adviser
furnishes to Allspring Funds Management periodic reports on the investment
activity and performance of the
Funds. The Sub-Adviser also furnishes such additional reports and information as
Allspring Funds Management
and the Trust’s Board and Officers may reasonably request. Allspring Funds
Management may, from time to
time and in its sole discretion, allocate and reallocate services provided by
and fees paid to Allspring Investments.
For
providing investment sub-advisory services to the Funds, the Sub-Adviser is
entitled to receive monthly fees at the annual
rates indicated below of each Fund’s average daily net assets. These fees may be
paid by Allspring Funds Management
or directly by the Funds. If a sub-advisory fee is paid directly by a Fund, the
compensation paid to Allspring
Funds Management for advisory fees will be reduced accordingly.
|
|
|
|
Fund
|
Sub-Adviser |
Fee |
|
Precious
Metals Fund |
Allspring
Investments |
First
$100M Next
$100M Over
$200M |
0.400% 0.350% 0.300% |
Utility
and Telecommunications Fund |
Allspring
Investments |
First
$100M Next
$200M Next
$500M Over
$800M |
0.300% 0.275% 0.250% 0.200% |
Portfolio Managers
The
following information supplements, and should be read in conjunction with, the
section in each Prospectus entitled
“The Sub-Adviser and Portfolio Managers.” The information in this section is
provided as of March 31,
2022, the most
recent fiscal year end for the Funds
managed by the portfolio managers listed below (each, a “Portfolio Manager”
and together, the “Portfolio Managers”). The Portfolio Managers manage the
investment activities of the Funds on a
day-to-day basis as follows.
|
|
|
Fund
|
Sub-Adviser |
Portfolio
Managers |
Precious
Metals Equity |
Allspring
Investments |
Michael
Bradshaw, CFA Oleg
Makhorine |
Utility
and Telecommunications Fund |
Allspring
Investments |
Kent
Newcomb, CFA Jack
Spudich, CFA |
Management of Other
Accounts. The
following table(s) provide information relating to other accounts managed by
the
Portfolio Manager(s). The table(s) do not include the Funds or
any personal brokerage accounts of the Portfolio Manager(s)
and their families.
|
|
|
Allspring
Investments |
Michael
Bradshaw, CFA |
Registered
Investment Companies |
|
|
Number
of Accounts |
1 |
|
Total
Assets Managed |
$3.56
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Pooled Investment Vehicles |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Accounts |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
|
|
Oleg
Makhorine |
Registered
Investment Companies |
|
|
Number
of Accounts |
3 |
|
Total
Assets Managed |
$329.70
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Pooled Investment Vehicles |
|
|
Number
of Accounts |
2 |
|
Total
Assets Managed |
$108.03
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Accounts |
|
|
Number
of Accounts |
5 |
|
Total
Assets Managed |
$827.87
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
|
|
Kent
Newcomb, CFA |
Registered
Investment Companies |
|
|
Number
of Accounts |
1 |
|
Total
Assets Managed |
$108.58
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Pooled Investment Vehicles |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Accounts |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
|
|
Jack
Spudich, CFA |
Registered
Investment Companies |
|
|
Number
of Accounts |
1 |
|
Total
Assets Managed |
$108.58
M |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Pooled Investment Vehicles |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
|
Other
Accounts |
|
|
Number
of Accounts |
0 |
|
Total
Assets Managed |
$0 |
|
Number
of Accounts Subject to Performance Fee |
0 |
|
Assets
of Accounts Subject to Performance Fee |
$0 |
Material Conflicts of
Interest. The
Portfolio Managers face inherent conflicts of interest in their day-to-day
management
of the Funds and
other accounts because the Funds may
have different investment objectives, strategies
and risk profiles than the other accounts managed by the Portfolio Managers. For
instance, to the extent that the
Portfolio Managers manage accounts with different investment strategies than the
Funds, they
may from time to
time be inclined to purchase securities, including initial public offerings, for
one account but not for a Fund. Additionally,
some of the accounts managed by the Portfolio Managers may have different fee
structures, including performance
fees, which are or have the potential to be higher or lower, in some cases
significantly higher or lower, than the
fees paid by the Funds. The
differences in fee structures may provide an incentive to the Portfolio Managers
to allocate
more favorable trades to the higher-paying accounts.
To minimize
the effects of these inherent conflicts of interest, each firm listed below has
adopted and implemented policies
and procedures, including brokerage and trade allocation policies and
procedures, intended to address the potential
conflicts associated with managing portfolios for multiple clients and are
designed to ensure that all clients are treated
fairly and equitably. Accordingly, security block purchases are allocated to all
accounts with similar objectives
in a fair and equitable manner.
Allspring
Investments. Allspring
Investment’s Portfolio Managers often provide investment management for
separate
accounts advised in the same or similar investment style as that provided to
mutual funds. While management
of multiple accounts could potentially lead to conflicts of interest over
various issues such as trade
allocation,
fee disparities and research acquisition, Allspring Investments has implemented
policies and procedures for the
express purpose of ensuring that clients are treated fairly and that potential
conflicts of interest are minimized.
The
Portfolio Managers face inherent conflicts of interest in their day-to-day
management of the Funds and other accounts
because the Funds may have different investment objectives, strategies and risk
profiles than the other accounts
managed by the Portfolio Managers. For instance, to the extent that the
Portfolio Managers manage accounts
with different investment strategies than the Funds, they may from time to time
be inclined to purchase securities,
including initial public offerings, for one account but not for a Fund.
Additionally, some of the accounts managed by
the Portfolio Managers may have different fee structures, including performance
fees, which are or have the
potential to be higher or lower, in some cases significantly higher or lower,
than the fees paid by the Funds. The differences
in fee structures may provide an incentive to the Portfolio Managers to allocate
more favorable trades to the
higher-paying accounts.
To minimize
the effects of these inherent conflicts of interest, Allspring Investments has
adopted and implemented policies
and procedures, including brokerage and trade allocation policies and
procedures, that they believe address the
potential conflicts associated with managing portfolios for multiple clients and
are designed to ensure that all clients are
treated fairly and equitably. Accordingly, security block purchases are
allocated to all accounts with similar
objectives in a fair and equitable manner. Furthermore, Allspring Investments
has adopted a Code of Ethics under Rule
17j-1 under the 1940 Act and Rule 204A-1 under the Investment Advisers Act of
1940 (the “Advisers Act”) to address
potential conflicts associated with managing the Funds and any personal accounts
the Portfolio Managers
may maintain.
Compensation. The
Portfolio Managers were compensated by their employing Sub-Adviser using the
following compensation
structure:
Allspring
Investments. The
compensation structure for Allspring Investments’ Portfolio Managers includes a
competitive
fixed base salary plus variable incentives, payable annually and over a deferred
period. Allspring Investments
participates in third party investment management compensation surveys for
market-based compensation
information to help support individual pay decisions and to ensure our
compensation is aligned with the
marketplace. In addition to surveys, Allspring Investments also considers prior
professional experience, tenure, seniority,
and a Portfolio Manager’s team size, scope, and assets under management when
determining his/her total compensation.
In addition, Portfolio Managers who meet the eligibility requirements may
participate in our 401(k) plan that
features a limited matching contribution. Eligibility for and participation in
this plan is on the same basis for all
employees.
Allspring
Investments’ investment incentive program plays an important role in aligning
the interests of its Portfolio Managers,
investment team members, clients, and shareholders. Incentive awards for
Portfolio Managers are determined
based on a review of relative investment and business/team performance.
Investment performance is generally
evaluated for 1, 3, and 5 year performance results, with a predominant weighting
on the 3 and 5 year time periods,
versus the relevant benchmarks and/or peer groups consistent with the investment
style.
Once
determined, incentives are awarded to Portfolio Managers annually, with a
portion awarded as annual cash and a portion
awarded as a deferred incentive. The long-term portion of incentives generally
carry a pro-rated vesting schedule
over a 3 year period. For many of its Portfolio Managers, Allspring Investments
further requires a portion of their
annual long-term award be allocated directly into each strategy they manage
through a deferred compensation vehicle. In
addition, investment team members who are eligible for long term awards also
have the opportunity to invest up
to 100% of their awards into investment strategies they support (through a
deferred compensation vehicle).
As an
independent firm, approximately 20% of Allspring Group Holdings, LLC (of which
Allspring Investments is a subsidiary)
is owned by employees, including Portfolio Managers.
Beneficial Ownership in the
Funds. The
following table shows for each Portfolio Manager the dollar value of Fund
equity
securities beneficially owned by the Portfolio Manager, stated as one of the
following ranges:
$0;
$1 -
$10,000;
$10,001 -
$50,000;
$50,001 -
$100,000;
$100,001 -
$500,000;
$500,001 -
$1,000,000; and
over
$1,000,000.
|
|
|
Portfolio
Manager |
Fund |
Beneficial
Ownership |
Allspring
Investments1
|
|
|
Michael
Bradshaw, CFA |
Precious
Metals Fund |
$50,001
- $100,000 |
Oleg
Makhorine |
Precious
Metals Fund |
$10,001
- $50,000 |
Kent
Newcomb, CFA |
Utility
and Telecommunications Fund |
$0 |
Jack
Spudich, CFA |
Utility
and Telecommunications Fund |
$0 |
1. |
Amounts
included in the table above may include notional investments held by the
portfolio manager through a deferred compensation
vehicle. |
Distributor and Shareholder Servicing
Agent
Allspring
Funds Distributor, LLC (the “Distributor”), an affiliate of Allspring
Funds Management located at 525 Market Street, San
Francisco, California 94105, serves as the distributor to the Allspring
Funds.
Each Fund
has adopted a distribution plan (the “12b-1 Plan”) pursuant to Rule 12b-1 under
the 1940 Act (the “Rule”) for the
classes of shares listed in the table below. The 12b-1 Plan was adopted by the
Board, including a majority of the
Trustees who were not “interested persons” (as defined under the 1940 Act) of
the Fund and who had no direct or indirect
financial interest in the operation of the 12b-1 Plan or in any agreement
related to the 12b-1 Plan (the “Non-Interested
Trustees”).
Under the
12b-1 Plan and pursuant to the related Distribution Agreement, each applicable
class pays the Distributor, on a
monthly basis, an annual fee up to the amount indicated in the table. The
Distributor may retain any portion of the total
distribution fee to compensate it for distribution-related services provided by
it or to reimburse it for other distribution-related
expenses. The Distributor’s distribution-related revenues from the 12b-1 Plan
may be more or less than
distribution-related expenses incurred during the period.
|
|
|
Fund
|
|
Class
C |
Precious
Metals Fund |
|
0.75% |
Utility
and Telecommunications Fund |
|
0.75% |
For the
fiscal year ended March 31,
2022, the Funds paid the Distributor the following fees for distribution-related
services.
|
|
|
|
Distribution
Fees |
|
|
|
Fund
|
Total
Distribution Fees Paid by Fund |
Amount
of Total Distribution
Fees Retained
by Distributor |
Amount
of Total Distribution
Fees Distributor
Paid to Broker/
Dealers |
Precious
Metals Fund |
|
|
|
Class
C |
$89,927 |
$14,746 |
$75,181 |
Utility
and Telecommunications Fund |
|
|
|
Class
C |
$38,551 |
$9,006 |
$29,545 |
General. The 12b-1
Plan and Distribution Agreement will continue in effect from year to year if
such continuance is approved at
least annually by vote of a majority of both the Trustees and the Non-Interested
Trustees. The Distribution
Agreement will terminate automatically if assigned, and may be terminated at any
time, without payment of
any penalty, on not less than 60 days’ written notice, by the Trust’s Board, by
a vote of a majority of the outstanding
voting securities of the Fund or by the Distributor. The 12b-1 Plan may
not be amended to increase materially
the amounts payable thereunder by the relevant class of a Fund without approval
by a vote of a majority of
the
outstanding voting securities of such class, and no material amendment to the
12b-1 Plan shall be made unless approved by
vote of a majority of both the Trustees and Non-Interested Trustees. The 12b-1
Plan provides that, if and to the
extent any shareholder servicing payments are deemed to be payments for the
financing of any activity primarily
intended to result in the sale of Fund shares, such payments are deemed to have
been approved under the 12b-1
Plan.
Servicing Agent
Each Fund
has adopted a Shareholder Servicing Plan (the “Servicing Plan”) for its Class A,
Class C, and Administrator Class, as
applicable, shares and has entered into a related Shareholder Servicing
Agreement with the Distributor and Allspring
Funds Management. Under this agreement, the Distributor and Allspring
Funds Management are authorized to provide
or engage third parties to provide, pursuant to an Administrative and
Shareholder Services Agreement, shareholder
support services. For providing these services, the Distributor, Funds
Management and third parties are entitled to
an annual fee from the applicable class of the Fund of up to 0.25% of the
average daily net assets of such class owned
of record or beneficially by their customers.
General. The
Servicing Plan will continue in effect from year to year if such continuance is
approved by vote of a majority
vote of both the Trustees and the Non-Interested Trustees. No material amendment
to the Servicing Plan may be made
except by such a vote.
Underwriting Commissions
The
Distributor serves as the principal underwriter distributing securities of
the Funds on a
continuous basis.
For the
fiscal periods listed below, the aggregate amounts of underwriting commissions
paid to and retained by the Distributor
are as follows:
|
|
|
|
|
Underwriting
Commissions |
Fund/Fiscal
Year End |
Aggregate
Total Underwriting Commissions |
Underwriting
Commissions Retained |
March
31, 2022 |
|
|
|
|
Precious
Metals Fund |
$ |
13,469 |
$ |
13,469 |
Utility
and Telecommunications Fund |
$ |
13,541 |
$ |
13,541 |
March
31, 2021 |
|
|
|
|
Precious
Metals Fund |
$ |
26,494 |
$ |
26,494 |
Utility
and Telecommunications Fund |
$ |
25,149 |
$ |
25,149 |
March
31, 2020 |
|
|
|
|
Precious
Metals Fund |
$ |
14,023 |
$ |
14,023 |
Utility
and Telecommunications Fund |
$ |
47,002 |
$ |
47,002 |
Custodian and Fund
Accountant
State
Street Bank and Trust Company (“State Street”), located at State Street
Financial Center, One Lincoln Street Boston,
Massachusetts 02111, acts as Custodian and fund accountant for the Funds. As
Custodian, State Street, among other
things, maintains a custody account or accounts in the name of each Fund,
handles the receipt and delivery of
securities, selects and monitors foreign sub-custodians as the Fund’s global
custody manager, determines
income and collects interest on each Fund’s investments and maintains certain
books and records. As fund
accountant, State Street is responsible for calculating each Fund’s daily net
asset value per share and for maintaining
its portfolio and general accounting records. For its services, State Street is
entitled to receive certain transaction
fees, asset-based fees and out-of-pocket costs.
Securities Lending
Agent
Goldman
Sachs Bank USA, d/b/a Goldman Sachs Agency Lending (the “Securities Lending
Agent”) serves as the securities
lending agent to the Funds responsible for the implementation and administration
of the Funds’ securities lending
program including facilitating the lending of the Funds’ available securities to
approved borrowers and negotiating
the terms and conditions of each loan with a borrower. The Securities Lending
Agent ensures that all
substitute
interest, dividends, and other distributions paid with respect to loaned
securities is credited to each Fund’s
relevant account on the date such amounts are delivered by the borrower to the
Securities Lending Agent.
The
Securities Lending Agent ensures that all collateral received in connection with
securities loans is invested in the Cash
Collateral Fund, as described above in the section entitled “Permitted
Investment Activities and Certain Associated
Risks – Loans of Portfolio Securities”. The Securities Lending Agent monitors
the marked value of the collateral
delivered in connection with a securities loan so that such collateral equals to
at least 102% of the market value of
any domestic securities loaned or 105% of the market value of any foreign
securities loaned. The loaned securities
are marked to market on a daily basis, and additional collateral is required to
be paid to maintain coverage. At the
termination of the loan, the Securities Lending Agent returns the collateral to
the borrower upon the return of the loaned
securities.
The
Securities Lending Agent maintains records of all loans and makes available to
the Funds a monthly statement describing
the loans made and the income derived from the loans during the period. The
Securities Lending Agent performs
compliance monitoring and testing of the securities lending program and provides
quarterly report to the Funds’
Board of Trustees.
For the
fiscal year ended March 31,
2022, the Funds listed in the table below earned income and paid fees and
compensation
to the Securities Lending Agent as follows:
|
|
|
Fees
and/or compensation for securities lending activities and related
services: |
|
Precious
Metals Fund |
Utility
and Telecommunications
Fund |
Gross
income from securities lending activities |
$0 |
$0 |
Fees
paid to Securities Lending Agent from revenue split
|
$0 |
$0 |
Fees
paid for any cash collateral management services (including
fees deducted from a pooled cash collateral reinvestment
vehicle) that are not included in the revenue split
|
$0 |
$0 |
Administrative
fees not included in the revenue split |
$0 |
$0 |
Indemnification
fees not included in the revenue split |
$0 |
$0 |
Rebate
(paid to borrow) |
$0 |
$0 |
Other
fees not included in revenue split |
$0 |
$0 |
Aggregate
fees and/or compensation for securities lending activities
|
$0 |
$0 |
Net
income from securities lending activities |
$0 |
$0 |
Transfer and Distribution Disbursing
Agent
DST Asset
Manager Solutions, Inc. (“DST”), located at Two Thousand Crown Colony
Drive, Quincy, Massachusetts 02169, acts
as transfer and distribution disbursing agent for the Allspring
Funds. For providing such services, DST is entitled to
receive fees from the Administrator.
Independent Registered Public Accounting
Firm
KPMG LLP
(“KPMG”) has been selected as the independent registered public accounting firm
for the Funds. KPMG
provides
audit services, tax return preparation and assistance and consultation in
connection with review of certain SEC
filings. KPMG’s address is Two Financial Center, 60 South Street, Boston, MA
02111.
Code of Ethics
The Fund
Complex, Allspring
Funds Management, the Distributor and the Sub-Adviser each has adopted a code of
ethics
which contains policies on personal securities transactions by “access persons”
as defined in each of the codes.
These policies comply with Rule 17j-1 under the 1940 Act and Rule 204A-1 under
the Investment Advisers Act of
1940, as applicable. Each code of ethics, among other things, permits access
persons to invest in certain securities,
subject to various restrictions and requirements. To facilitate enforcement, the
codes of ethics generally require
that an access person submit reports to a designated compliance person regarding
personal securities
transactions.
The codes of ethics for the Fund Complex, Allspring
Funds Management, the Distributor and the Sub-Adviser
are on public file with, and are available from, the SEC.
Proxy Voting Policies and
Procedures
The Trusts
have adopted policies and procedures for the Funds (“Fund Proxy Voting
Procedures”) that are used to determine
how to vote proxies relating to portfolio securities held by the Funds of the
Trusts. The Fund Proxy Voting Procedures
are designed to ensure that proxies are voted in the best interests of Fund
shareholders, without regard to any
relationship that any affiliated person of a Fund (or an affiliated person of
such affiliated person) may have with the
issuer of the security and with the goal of maximizing value to shareholders
consistent with governing laws and the
investment policies of each Fund. While securities are not purchased to exercise
control or to seek to effect corporate
change through share ownership activism, the Funds support sound corporate
governance practices within
companies in which they invest. The Board of the Trusts has delegated the
responsibility for voting proxies relating to
the Funds’ portfolio securities to Allspring
Funds Management. Allspring
Funds Management utilizes the Allspring
Global Investments Proxy Voting Policies and Procedures, included below, to
ensure that proxies relating to the Funds’
portfolio securities are voted in shareholders’ best interests.
Allspring Global Investments Proxy Voting
Policies and Procedures
Allspring
Global Investments (“Allspring”)
Stewardship
As
fiduciaries, we are committed to effective stewardship of the assets we manage
on behalf of our clients. To us, good
stewardship reflects responsible, active ownership and includes both engaging
with investee companies and voting
proxies in a manner that we believe will maximize the long-term value of our
investments.
Scope
of Policies and Procedures
In
conjunction with the Allspring
Engagement Policy, these Proxy Voting Policies and Procedures (“Policies and
Procedures”)
sets out how Allspring
complies with applicable regulatory requirements in respect of how we exercise
voting
rights when we invest in shares traded on a regulated market on behalf of a
client.
With
respect to client accounts of Allspring
Funds Management, this includes, among others, Allspring
Funds Trust, Allspring
Master Trust, Allspring
Variable Trust, Allspring
Global Dividend Opportunity Fund, Allspring
Income Opportunities
Fund, Allspring
Multi-Sector Income Fund, Allspring
Utilities and High Income Fund (the “Trusts”). It also
includes Allspring
(Lux) Worldwide Fund and Worldwide Alternative Fund SICAV-SIF, both
domiciled in Luxembourg
(the “Luxembourg Funds”). Aside from the investment funds managed by
Allspring
Funds Management, Allspring
also offers medium term note programs, managed for issuers of such notes
domiciled in Luxembourg. Hereafter,
all series of the Trusts, and all such Trusts not having separate series, and
all sub-funds of the Luxembourg Fund, as
well as the MTN issuers, are referred to as the “Investment Products”. In
addition, these Policies and Procedures
are used to determine how to vote proxies for the assets managed on behalf of
Allspring’s
other clients. Not all
clients delegate proxy-voting authority to Allspring.
Allspring
will not vote proxies, or provide advice to clients on how to
vote proxies in the absence of specific delegation of authority, a pre-existing
contractual agreement, or an obligation
under applicable law (e.g., securities that are held in an investment advisory
account for which Allspring
exercises
no investment discretion are not voted by Allspring).
Luxembourg
Products
Allspring
Luxembourg has delegated the portfolio management of the Luxembourg Funds it
manages to Allspring
and the
responsibility for exercising voting rights in conjunction with such delegation;
as such, these Policies and Procedures
shall apply to the portfolio management of the Fund. The respective portfolio
management may also delegate
the responsibility for exercising voting rights to the Proxy Voting Vendor, with
the prior consent of Allspring
Luxembourg.
Responsibility for exercising voting rights has also been delegated to
Allspring
with respect to the Worldwide
Alternative Fund SICAV-SIF and to the MTN issuers.
Voting
Philosophy
Allspring
has adopted these Policies and Procedures to ensure that proxies are voted in
the best interests of clients and
Investment Product investors, without regard to any relationship that any
affiliated person of Allspring
or the Investment
Product (or an affiliated person of such affiliated person) may have with the
issuer. Allspring
exercises its voting
responsibility as a fiduciary with the goal of maximizing value to clients
consistent with governing laws and the
investment policies of each client. While securities are not purchased to
exercise control or to seek to effect
corporate
change through share ownership activism, Allspring
supports sound corporate governance practices at companies
in which client assets are invested. Allspring
has established an appropriate strategy determining when and how the
voting rights related to the instruments held in portfolios managed are
exercised, so that these rights are
exclusively reserved to the relevant Investment Product and its
investors.
Proxy
Administrator
Allspring’s
Operations Department (“Proxy Administrator”) administers the voting process.
The Proxy Administrator reports to
Allspring’s
Chief Operations Officer. The Proxy Administrator is responsible for
administering and overseeing
the proxy voting process to ensure the implementation of the Policies and
Procedures, including regular operational
reviews, typically conducted on a weekly basis. The Proxy Administrator monitors
third party voting of proxies to
ensure it is being done in a timely and responsible manner, including review of
scheduled vendor reports. The Proxy
Administrator in conjunction with the Allspring
Proxy Governance Committee reviews the continuing appropriateness
of the Policies and Procedures set forth herein, and recommends revisions as
necessary.
Third
Party Proxy Voting Vendor
Allspring
has retained a third-party proxy voting service, Institutional Shareholder
Services Inc. (“ISS”), to assist in the
implementation of certain proxy voting-related functions including: 1.)
Providing research on proxy matters 2.) Providing
technology to facilitate the sharing of research and discussions related to
proxy votes 3.) Vote proxies in accordance
with Allspring’s
guidelines 4.) Handle administrative and reporting items 5.) Maintain records of
proxy statements
received in connection with proxy votes and provide copies/analyses upon
request. Except in instances where
clients have retained voting authority, Allspring
retains the responsibility for proxy voting decisions.
Proxy
Committee
Allspring
Proxy Governance Committee
The
Allspring
Proxy Governance Committee shall be responsible for overseeing the proxy voting
process to ensure its
implementation in conformance with these Policies and Procedures. The
Allspring
Proxy Governance Committee shall
coordinate with Allspring
Compliance to monitor ISS, the proxy voting agent currently retained by
Allspring,
to determine
that ISS is accurately applying the Policies and Procedures as set forth herein
and operates as an independent
proxy voting agent. Allspring’s
ISS Vendor Oversight process includes an assessment of ISS’ Policy and
Procedures
(“P&P”), including conflict controls and monitoring, receipt and review of
routine performance-related reporting
by ISS to Allspring
and periodic onsite due diligence meetings. Due diligence meetings typically
include: meetings
with key staff, P&P related presentations and discussions,
technology-related demonstrations and assessments,
and some sample testing, if appropriate. The Allspring
Proxy Governance Committee shall review the continuing
appropriateness of the Policies and Procedures set forth herein. The
Allspring
Proxy Governance Committee
may delegate certain powers and responsibilities to proxy voting working groups.
The Allspring
Proxy Governance
Committee reviews and, in accordance with these Policies and Procedures, votes
on issues that have been
escalated from proxy voting working groups. Members of the Allspring
Proxy Governance Committee also oversee the
implementation of Allspring
Proxy Governance Committee recommendations for the respective functional
areas in Allspring
that they represent.
Proxy
Voting Due Diligence Working Group
Among other
delegated matters, the proxy voting Due Diligence Working Group (‘DDWG’) in
accordance with these Policies
and Procedures, reviews and votes on routine proxy proposals that it considers
under these Policies and Procedures
in a timely manner. If necessary, the DDWG escalates issues to the Allspring
Proxy Governance Committee
that are determined to be material by the DDWG or otherwise in accordance with
these Policies and Procedures.
The DDWG coordinates with Allspring
Global Investments Analytics and Compliance teams to review the performance
and independence of ISS in exercising its proxy voting
responsibilities.
Meetings;
Committee Actions
The
Allspring
Proxy Governance Committee shall convene or act through written consent,
including through the use of
electronic systems of record, of a majority of Allspring
Proxy Governance Committee members as needed and when
discretionary voting determinations need to be considered. Any working group of
the Allspring
Proxy Governance
Committee shall have the authority on matters delegated to it to act by vote or
written consent, including
through the use of electronic systems of record, of a majority of the working
group members available at
that time.
The Allspring
Proxy Governance Committee shall also meet quarterly to review the Policies and
Procedures.
Membership
Members are
selected based on subject matter expertise for the specific deliverables the
committee is required to complete.
The voting members of the Allspring
Proxy Governance Committee are identified in the Allspring
Proxy Charter.
Changes to the membership of the Allspring
Proxy Governance Committee will be made only with approval of the
Allspring
Proxy Governance Committee. Upon departure from Allspring
Global Investments, a member’s position on
the Allspring
Proxy Governance Committee will automatically terminate.
Voting
Procedures
Unless
otherwise required by applicable law,1 proxies
will be voted in accordance with the following steps and in the following
order of consideration:
|
1.
First, any voting items related to Allspring
“Top-of-House” voting principles (as described below under the heading
“Allspring
Proxy Voting Principles/Guidelines”) will generally be voted in accordance
with a custom voting policy with |
|
ISS
(“Custom Policy”) designed to implement the Allspring’s
Top-of-House voting principles.2
|
|
2.
Second, any voting items for meetings deemed of “high
importance”3
(e.g., proxy contests, significant transactions such
as mergers and acquisitions, where ISS opposes management
recommendations will be referred to the Portfolio Management
teams for recommendation or the DDWG (or escalated to the Allspring
Proxy Governance -Committee) for case-by-case
review and vote determination. |
|
3.
Third, with respect to any voting items where ISS Sustainability Voting
Guidelines4
provide a different recommendation
than ISS Standard Voting Guidelines, the following steps are
taken: |
|
|
a.
The Allspring
Investment Analytics team5
evaluates the matter for materiality and any other relevant considerations. b. If
the Investment Analytics team recommends further review, the voting item
is then referred to the Portfolio Management
teams for recommendation or the DDWG (or escalated to the Allspring
Proxy Governance Committee) for case-by-case
review and vote determination. c. If
the Investment Analytics team does not recommend further review, the
matter is voted in accordance with ISS Standard
Voting Guidelines. |
|
4.
Fourth, any remaining proposals are voted in accordance with ISS Standard
Voting Guidelines6. |
Commitment
to the Principles of Responsible Investment
As a
signatory to the Principles for Responsible Investment, Allspring
has integrated certain material environmental, social, and
governance factors into its investment processes, which includes the proxy
process. As described under Voting
Procedures above, Allspring
considers ISS’s Sustainability Voting Guidelines as a point of reference in
certain cases
deemed to be material to a company’s long-term shareholder value.
Voting
Discretion
In all
cases, the Allspring
Proxy Governance Committee (and any working group thereof) will exercise its
voting discretion
in accordance with the voting philosophy of these Policies and Procedures. In
cases where a proxy item is forwarded
by ISS to the Allspring
Proxy Governance Committee or a working group thereof, the Allspring
Proxy Governance
Committee or its working group may be assisted in its voting decision through
receipt of: (i) independent
research and voting recommendations provided by ISS or other independent
sources; (ii) input from the
investment sub-adviser responsible for purchasing the security; and (iii)
information provided by company management
and shareholder groups.
Portfolio
Manager and Sub-Adviser Input
The
Allspring
Proxy Governance Committee (and any working group thereof) may consult with
portfolio management
teams and Fund sub-advisers on specific proxy voting issues as it deems
appropriate. In addition, portfolio
management teams or Fund sub-advisers may proactively make recommendations to
the Allspring
Proxy Governance
Committee regarding any proxy voting issue. In this regard, the process takes
into consideration expressed
views of portfolio management teams and Fund sub-advisers given their deep
knowledge of investee companies.
For any proxy vote, portfolio management teams and Investment Product advisers
and sub-advisers may make a case
to vote against the ISS or Allspring
Proxy Governance Committee’s recommendation (which is
described
under Voting Procedures above). Any portfolio management team’s or Investment
Product adviser’s or sub-adviser’s
opinion should be documented in a brief write-up for consideration by the DDWG
who will determine, or escalate
to the Allspring
Proxy Governance Committee, the final voting decision.
Consistent
Voting
Proxies
will be voted consistently on the same matter when securities of an issuer are
held by multiple client accounts
unless there are special circumstances such as, for example, proposals
concerning corporate actions such as mergers,
tender offers, and acquisitions or as reasonably necessary to implement
specified proxy voting guidelines
as established by a client (e.g. Taft Hartley ISS Guidelines or custom proxy
guidelines).
Governance
and Oversight
Allspring
Top-of-House Proxy Voting Principles/Guidelines.
The
following reflects Allspring’s
Top-of-House Voting Principles in effect as of the date of these Policies and
Procedures.
Allspring
has put in place a custom voting policy with ISS to implement these voting
principles.
We believe
that Boards of Directors of investee companies should have strong, independent
leadership and should adopt
structures and practices that enhance their effectiveness. We recognize that the
optimal board size and governance
structure can vary by company size, industry, region of operations, and
circumstances specific to the company.
■ |
We
generally vote for the election of Directors in uncontested elections. We
reserve the right to vote on a case-by-case
basis when directors fail to meet their duties as a board member, such as
failing to act in the best economic
interest of shareholders; failing to maintain independent audit,
compensation, nominating committees; and
failing to attend at least 75% of meetings,
etc. |
■ |
We
generally vote for an independent board that has a majority of outside
directors who are not affiliated with the top
executives and have minimal or no business dealings with the company to
avoid potential conflicts of interests. |
■ |
Generally
speaking, we believe Directors serving on an excessive number of boards
could result in time constraints
and an inability to fulfill their duties. |
■ |
We
generally support adopting a declassified board structure for public
operating and holding companies. We reserve
the right to vote on a case-by-case basis when companies have certain
long-term business commitments. |
■ |
We
generally support annual election of directors of public operating and
holding companies. We reserve the right to
vote on a case-by-case basis when companies have certain long-term
business commitments. |
■ |
We
believe a well-composed board should embody multiple dimensions of
diversity in order to bring personal and professional
experiences to bear and create a constructive debate of competing
perspectives and opinions in the boardroom.
Diversity should consider factors such as gender, ethnicity, and age as
well as professional factors such
as area of expertise, industry experience and geographic
location. |
We believe
it is the responsibility of the Board of Directors to create, enhance, and
protect shareholder value and that
companies should strive to maximize shareholder rights and
representation.
■ |
We
believe that companies should adopt a one-share, one-vote standard and
avoid adopting share structures that create
unequal voting rights among their shareholders. We will normally support
proposals seeking to establish that
shareholders are entitled to voting rights in proportion to their economic
interests |
■ |
We
believe that directors of public operating and holding companies should be
elected by a majority of the shares voted.
We reserve the right to vote on a case-by-case basis when companies have
certain long-term business commitments.
This ensures that directors of public operating and holding companies who
are not broadly supported
by shareholders are not elected to serve as their representatives. We will
normally support proposals seeking
to introduce bylaws requiring a majority vote standard for director
elections. |
■ |
We
believe a simple majority voting standard should be required to pass
proposals. We will normally support proposals
seeking to introduce bylaws requiring a simple majority
vote. |
■ |
We
believe that shareholders who own a meaningful stake in the company and
have owned such stake for a sufficient
period of time should have, in the form of proxy access, the ability to
nominate directors to appear on the
management ballot at shareholder meetings. In general we support
market-standardized proxy access proposals
and we will analyze them based on various criteria such as threshold
ownership levels, a minimum holding
period, and the % and/or number of directors that are subject to
nomination. |
■ |
We
believe that shareholders should have the right to call a special meeting
and not wait for company management
to schedule a meeting if there is sufficiently high shareholder support
for doing so on issues of substantial
importance. In general we support the right to call a special meeting if
there is balance between a reasonable
threshold of shareholders and a hurdle high enough to also avoid the waste
of corporate resources for narrowly
supported interests. We will evaluate the issues of importance on the
basis of serving all shareholders well
and not structured for the benefit of a dominant shareholder over
others. |
Practical
Limitations to Proxy Voting
While
Allspring
uses its reasonable best efforts to vote proxies, in certain circumstances, it
may be impractical or impossible
for Allspring
to vote proxies (e.g., limited value or unjustifiable costs).
Securities
on Loan
As a
general matter, securities on loan will not be recalled to facilitate proxy
voting (in which case the borrower of the
security shall be entitled to vote the proxy). However, as it relates to
portfolio holdings of the Investment Products,
if the Allspring
Proxy Governance Committee is aware of an item in time to recall the security
and has determined
in good faith that the importance of the matter to be voted upon outweighs the
loss in lending revenue that would
result from recalling the security (e.g., if there is a controversial upcoming
merger or acquisition, or some other
significant matter), the security will be recalled for voting.
Share
Blocking
Proxy
voting in certain countries requires ‘share blocking’. Shareholders wishing to
vote their proxies must deposit their
shares with a designated depositary before the date of the meeting.
Consequently, the shares may not be sold in the
period preceding the proxy vote. Absent compelling reasons, Allspring
believes that the benefit derived from voting
these shares is outweighed by the burden of limited trading. Therefore, if share
blocking is required in certain markets,
Allspring
will not participate and refrain from voting proxies for those clients impacted
by share blocking.
Conflicts
of Interest
We always
seek to place the interests of our clients first and to identify and manage any
conflicts of interest, including
those that arise from proxy voting or engagement. Allspring
acts as a fiduciary with respect to its asset management
activities and therefore we must act in the best interest of our clients and
address conflicts that arise.
Conflicts
of interest are identified and managed through a strict and objective
application of our voting policy and procedures.
Allspring
may have a conflict of interest regarding a proxy to be voted upon if, for
example, Allspring
or its
affiliates (such as a sub-adviser or principal underwriter) have other
relationships with the issuer of the proxy. This type of
conflict is generally mitigated by the information barriers between Allspring
and its affiliates and our commitment
as a fiduciary to independent judgement. However, when the Allspring
Proxy Governance Committee becomes
aware of a conflict of interest (that gets uncovered through the Allspring
Proxy Voting Policy and Procedures),
it takes additional steps to mitigate the conflict, by using any of the
following methods:
|
1.
Instructing ISS to vote in accordance with its
recommendation; |
|
2.
Disclosing the conflict to the relevant Board and obtaining its consent
before voting; |
|
3.
Submitting the matter to the relevant Board to exercise its authority to
vote on such matter; |
|
4.
Engaging an independent fiduciary who will direct the vote on such
matter, |
|
5.
Consulting with Legal and Compliance and, if necessary, outside legal
counsel for guidance on resolving the conflict
of interest, |
|
6.
Voting in proportion to other shareholders (“mirror voting”) following
consultation with the Board of the Funds if the conflict
pertains to a matter involving a portfolio holding of the Funds;
or |
|
7.
Voting in other ways that are consistent with Allspring’s
obligation to vote in the best interests of its
clients. |
Vendor
Oversight
The
Allspring
Proxy Administrator monitors the ISS proxy process against specific criteria in
order to identify potential
issues relating to account reconciliation, unknown and rejected ballot reviews,
upcoming proxy reviews, share
reconciliation oversight, etc. With respect to ISS’s management of its potential
conflicts of interest with corporate
issuers, ISS provides institutional clients such as Allspring
with its “Policy and disclosure of Significant ISS Relationships”
and tools to provide transparency of those relationships.
Other
Provisions
Policy
Review and Ad Hoc Meetings
The
Allspring
Proxy Governance Committee meets at least annually to review this Policy and
consider any appropriate
changes. Meetings may be convened more frequently (for example, to discuss a
specific proxy agenda or
proposal) as requested by the Manager of Proxy Administrator, any member of the
Allspring
Proxy Governance Committee,
or Allspring’s
Chief Compliance Officer. The Allspring
Proxy Governance Committee includes representation
from Portfolio Management, Operations, Investment Analytics and, in a non-voting
consultative capacity,
Compliance.
Records
Retention
The
Allspring
Proxy Administrator will maintain the following records relating to the
implementation of the Policies and
Procedures:
■ |
A
copy of these proxy voting policies and
procedures; |
■ |
Proxy
statements received for client securities (which will be satisfied by
relying on ISS); |
■ |
Records
of votes cast on behalf of Investment Products and separate account
clients (which ISS maintains on behalf
of Allspring);
and |
■ |
Any
documents prepared by Allspring
or ISS that were material to making a proxy voting
decision. |
Such proxy
voting books and records shall be maintained at an office of Allspring
in an easily accessible place for a period of
six years.
Compliance
with Regional Regulations and Client Delegation Arrangements
U.S.
Regulation
These
Policies and Procedures have been written in compliance with Rule 206(4)-6 of
the Investment Advisers Act of 1940. Proxy
voting records for Allspring’s
mutual funds are disclosed on Form N-PX annually, as required by Section
30 and Rule
30b1-4 of the Investment Company Act of 1940, to the Securities and Exchange
Commission (“SEC”).
E.U.
Regulation
These
Policies and Procedures have been established, implemented and maintained, as
they apply to Allspring
Luxembourg
and Allspring
UK, in accordance the EU Shareholder Rights Directive II (EU 2017/828) (“SRD
II”). Specific to
Allspring
Luxembourg, the Policies and Procedures also comply with Article 23 of CSSF
Regulation No. 10-4, and
the CSSF Circular 18/698.
Disclosure
of policies and procedures
A summary
of the proxy voting policy and procedures are disclosed on Allspring’s
website.
In
addition, Allspring
will disclose to its separate clients (i.e. proxy votes for assets managed on
behalf of Allspring’s
other
clients as per a delegation arrangement) a summary description of its proxy
voting policy and procedures via mail.
Disclosure
of proxy voting results
Allspring
will provide to clients proxy statements and any records as to how Allspring
voted proxies on behalf of clients,
quarterly or upon request. For assistance, clients may contact their
relationship manager to request a record of proxies
voted on their behalf.
Allspring
will publish high-level proxy voting statistics in periodic reports. However,
except as otherwise required by law,
Allspring
has a general policy of not disclosing to any issuer specific or third party how
its separate account client
proxies are voted.
1. |
Where
provisions of the Investment Company Act of 1940 (the “1940 Act”) specify
the manner in which items for any third party registered investment
companies
(e.g., mutual funds, exchange-traded funds and closed-end funds) and
business development companies (as defined in Section 2(a)(48) of the
1940
Act) (“Third Party Fund Holding Voting Matters”) held by the Trusts or
series thereof, Allspring shall vote the Third Party Fund Holding Voting
Matter on
behalf of the Trusts or series thereof
accordingly. |
2. |
The
Allspring Proxy Governance Committee may determine that additional review
of a Top-of-House voting matter is warranted. For example, voting
matters
for declassified boards or annual election of directors of public
operating and holding companies that have certain long-term business
commitments
(e.g., developing proprietary technology; or having an important strategic
alliance in place) may warrant referral to the DDWG (or escalation
to
the Proxy Governance Committee) for case-by-case review and vote
determination. |
3. |
The
term “high importance” is defined as those items designated Proxy Level 6
or 5 by ISS, which include proxy contests, significant transactions such
as mergers
and acquisitions. |
4. |
ISS’s
Sustainability Voting Guidelines seeks to promote support for recognized
global governing bodies encouraging sustainable business practices
advocating
for stewardship of environment, fair labor practices, non-discrimination,
and the protection of human rights. |
5. |
The
Investment Analytics team comprises of approximately 35 team members,
focused on equity and fixed income risk analytics, mutual fund risk
analytics,
counterparty risk analytics, model documentation, scientific learning and
portfolio analytics (including portfolio characteristics, portfolio
construction
research, multi-asset class risk analytics, and ESG analytics). The team
and its processes serve a similar function as an investment risk
committee
and reports into the Allspring Chief Investment
Officer(s). |
6. |
The
voting of proxies for Taft Hartley clients may incorporate the use of
ISS’s Taft Hartley voting guidelines. |
Policies and Procedures for Disclosure of
Fund Portfolio Holdings
I.
Scope of Policies and
Procedures. The
following policies and procedures (the “Procedures”) govern the disclosure
of
portfolio holdings and any ongoing arrangements to make available information
about portfolio holdings for the separate
series of Allspring
Funds Trust (“Funds Trust”), Allspring
Master Trust (“Master Trust”), Allspring
Variable Trust
(“Variable Trust”) (each of Funds Trust, Master Trust and Variable Trust are
referred to collectively herein as the “Funds” or
individually as the “Fund”) now existing or hereafter created.
II.
Disclosure
Philosophy. The Funds
have adopted these Procedures to ensure that the disclosure of a Fund’s
portfolio
holdings is accomplished in a manner that is consistent with a Fund’s fiduciary
duty to its shareholders. For purposes of
these Procedures, the term “portfolio holdings” means the stock, bond and
derivative positions held by a Fund and
includes the cash investments held by the Fund.
Under no
circumstances shall Allspring
Funds Management, LLC (“Allspring
Funds Management”), Allspring
Global Investments
(“Allspring”)
or the Funds receive any compensation in return for the disclosure of
information about a Fund’s
portfolio holdings or for any ongoing arrangements to make available information
about a Fund’s portfolio holdings.
III.
Disclosure of Fund Portfolio
Holdings. The
complete portfolio holdings and top ten holdings information referenced
below (except for the Funds of Master Trust (“Master Portfolios”) and Funds of
Variable Trust) will be available
on the Funds’ website until updated for the next applicable period. Allspring
Funds Management may withhold
any portion of a Fund’s portfolio holdings from online disclosure when deemed to
be in the best interest of the Fund.
Once holdings information has been posted on the website, it may be further
disseminated without restriction.
A.
Complete Holdings. The
complete portfolio holdings for each Fund (except for Money Market Funds and
Alternative
Funds and Master Portfolios) shall be made publicly available monthly on the
Funds’ website (www.allspringglobal.com),
on a one-month delayed basis. Money Market Fund portfolio holdings shall be made
publicly
available on the Funds’ website, on a 1-day delayed basis. In addition to the
foregoing, each Money Market Fund shall
post on its website such portfolio holdings and other information required by
Rule 2a-7 under the Investment
Company Act of 1940, as amended. The categories of information included on the
website may differ slightly
from what is included in the Funds’ financial statements.
B.
Top Ten Holdings. Top ten
holdings information (excluding derivative positions) for each Fund (except for
Money Market
Funds, Alternative Funds and Master Portfolios) shall be made publicly available
on the Funds’ website on a monthly,
seven-day or more delayed basis.
C.
Fund of Funds
Structures.
1. The
underlying funds held by a Fund that operates as a fund of funds and invests
exclusively in multiple affiliated underlying
funds or multiple unaffiliated underlying funds or in a combination of
affiliated and unaffiliated underlying
funds (“fund of funds”) shall be posted to the Funds’ website on a monthly,
one-month delayed basis.
2. The
individual holdings of the underlying master funds held by Funds that operate as
a feeder fund in a master-feeder
structure shall be posted to the Funds’ website on a monthly, one-month delayed
basis.
3. A change
to the underlying funds held by a fund of funds or changes in fund of funds’
target allocations between or among
its fixed-income and/or equity investments may be posted to the Funds’ website
simultaneous with the occurrence
of the change.
D.
Alternative
Funds.
The
following holdings disclosure policy applies to Alternative
Funds:
1.
Complete Holdings as of Fiscal Quarter
Ends. As of each
fiscal quarter end, each Alternative Fund’s complete portfolio
holdings shall be made publicly available quarterly on the Funds’ website, on a
one-month delayed basis.
2.
Holdings as of Other Month
Ends. As of each
month end other than a month end that coincides with a fiscal
quarter
end, each Alternative Fund shall make publicly available monthly on the Funds’
website, on a one-month delayed
basis, the following: (i) all portfolio holdings held long other than any put
options on equity securities; (ii) portfolio
holdings held short other than short positions in equity securities of single
issuers; and (iii) the aggregate dollar
value of each of the following: (a) equity securities of single issuers held
short, and (b) any put options on equity
securities held long.
3.
Top Ten Holdings. Each
Alternative Fund shall make publicly available on the Funds’ website on a
monthly, seven-day
or more delayed basis information about its top ten holdings information,
provided that the following holdings
shall be excluded: (i) derivative positions; and (ii) equity securities of
single issuers held short.
E.
Master
Portfolios.
1. The
complete portfolio holdings of Master Portfolios shall be posted to the Funds’
website on a semi-annual, one-month
delayed basis.
Furthermore,
each Fund shall file such forms and portfolio holdings information in filings
made with the SEC in the manner
specified on such forms and with such frequency as required by such forms and
applicable SEC rules and regulations.
IV.
List of Approved
Recipients. The
following list identifies the third parties that are authorized to receive or
have access to a
Fund’s portfolio holdings information in advance of the monthly release on the
Funds’ website. Recipients
are included on this list based on a determination that such advance disclosure
is supported by a legitimate
business purpose and that the recipients, where feasible, are subject to an
independent duty or contractual
obligation not to disclose or trade on the nonpublic information.
A.
Allspring Holdings
Affiliates. Allspring
Holdings Affiliates. Employees of Allspring Global Investments Holdings,
LLC and its
affiliates who perform risk management functions and provide other services to
the Fund(s), as well as third-party
service providers utilized by them to perform such functions and provide such
services, shall have full daily
access to the portfolio holdings of the Fund(s).
B.
Wells Fargo
Affiliates. Team
members of Wells Fargo & Co. (“Wells Fargo”) and its affiliates who provide
certain services to
the Fund(s), as well as the third-party service providers utilized by them to
provide such services, shall have full
daily access to the portfolio holdings of the Fund(s).
C.
Sub-Advisers.
Sub-advisers shall have full daily access to fund holdings for the Fund(s) for
which they have direct management
responsibility. Sub-advisers may also release to and discuss portfolio holdings
with various broker/dealers
for purposes of analyzing the impact of existing and future market changes on
the prices, availability/demand and
liquidity of such securities, as well as for the purpose of assisting portfolio
managers in the trading of such
securities.
A new Fund
sub-adviser may periodically receive full portfolio holdings information for
such Fund from the date of Board
approval through the date upon which they take over day-to-day investment
management activities. Such disclosure
will be subject to confidential treatment.
D.
Money Market Portfolio Management
Team. The money
market portfolio management team at Allspring
Global Investments,
LLC (“Allspring
Investments”) shall have full daily access to daily transaction information
across the Allspring
Funds for purposes of anticipating money market sweep activity which in turn
helps to enhance liquidity management
within the money market funds.
E.
Allspring Funds
Management/Allspring Funds Distributor, LLC (“Funds
Distributor”).
1.
Allspring
Funds Management personnel that deal directly with the processing,
settlement, review, control, auditing,
reporting, and/or valuation of portfolio trades shall have full daily access to
Fund portfolio holdings through access to
the fund accountant’s system.
2.
Allspring
Funds Management personnel that deal directly with investment review and
analysis of the Funds shall have full
daily access to Fund portfolio holdings through Factset, a program that is used,
among other things, to evaluate
portfolio characteristics against available benchmarks.
3.
Allspring
Funds Management and Funds Distributor personnel may be given advance
disclosure of any changes to the
underlying funds in a fund of funds structure or changes in a Fund’s target
allocations that result in a shift between or
among asset classes.
F.
External Servicing
Agents. Portfolio
holdings may be disclosed to servicing agents in connection with the
day-to-day
operations and management of the Funds. These recipients include, but are not
limited to: a Fund’s auditors; a
Fund’s custodians; a Fund’s accountants; proxy voting service providers; class
action processing service providers;
pricing service vendors; prime brokers; securities lending agents; counsel to a
Fund or its independent Trustees;
regulatory authorities; third parties that assist in the review, processing
and/or analysis of Fund portfolio transactions,
portfolio accounting and reconciliation, portfolio performance, trade order
management, portfolio data analytics,
electronic order matching and other analytical or operational systems and
services in connection with supporting
a fund’s operations; a Fund’s insurers; financial printers; and providers of
electronic systems providing access to
materials for meetings of a Fund’s board of Trustees.
G.
Rating Agencies. Nationally
Recognized Statistical Ratings Organizations may receive full Fund holdings for
rating purposes.
H.
Reorganizations. Entities
hired as trading advisors that assist with the analysis and trading associated
with transitioning
portfolios may receive full portfolio holdings of both the target fund and the
acquiring fund. In addition, the
portfolio managers of the target fund and acquiring fund may receive full
portfolio holdings of the acquiring fund and
target fund, respectively, in order to assist with aligning the portfolios prior
to the closing date of the reorganization.
I.
Investment Company
Institute. The
Investment Company Institute may receive information about full money
market Fund
holdings concurrently at the time each money market Fund files with the SEC a
report containing such information.
J.
In-Kind
Redemptions. In
connection with satisfying in-kind redemption requests made to Funds, the
redeeming shareholders
and their advisers and service providers may receive full Fund holdings as
reasonably necessary to operationally
process such redemptions.
V.
Additions to List of Approved
Recipients. Any
additions to the list of approved recipients require approval by the
President,
Chief Legal Officer and Chief Compliance Officer of the Funds based on a review
of: (i) the type of fund involved;
(ii) the purpose for receiving the holdings information; (iii) the intended use
of the information; (iv) the frequency
of the information to be provided; (v) the length of the lag, if any, between
the date of the information and the date on
which the information will be disclosed; (vi) the proposed recipient’s
relationship to the Funds; (vii) the ability of
Allspring
Funds Management to monitor that such information will be used by the
proposed recipient in accordance
with the stated purpose for the disclosure; (viii) whether a confidentiality
agreement will be in place with such
proposed recipient; and (ix) whether any potential conflicts exist regarding
such disclosure between the interests
of Fund shareholders, on the one hand, and those of the Fund’s investment
adviser, principal underwriter, or any
affiliated person of the Fund.
VI.
Commentaries. Allspring Funds
Management and
Allspring
may disclose any views, opinions, judgments, advice or
commentary, or any analytical, statistical, performance or other information in
connection with or relating to a Fund or its
portfolio holdings (including historical holdings information), or any changes
to the portfolio holdings of a Fund. The
portfolio commentary and statistical information may be provided to members of
the press, shareholders in the
Funds, persons considering investment in the Funds or representatives of such
shareholders or potential shareholders.
The content and nature of the information provided to each of these persons may
differ.
Certain of
the information described above will be included in periodic fund commentaries
(e.g., quarterly, monthly, etc.) and
will contain information that includes, among other things, top
contributors/detractors from fund performance
and significant portfolio changes during the relevant period (e.g., calendar
quarter, month, etc.). This information
will be posted contemporaneously with their distribution on the Funds’
website.
No person
shall receive any of the information described above if, in the sole judgment of
Allspring
Funds Management and
Allspring,
the information could be used in a manner that would be harmful to the
Funds.
VII.
Other Investment Products.
Allspring
Funds Management, Allspring
and/or their affiliates manage other investment
products, including investment companies, offshore funds, and separate accounts.
Many of these other investment
products have strategies that are the same or substantially similar to those of
the Funds and thus may have the
same or substantially similar portfolio holdings. The provision of the portfolio
holdings of these other investment
products is excluded from these procedures. Similarly, the provision of a model
or reference portfolio to
clients,
investors and, in some cases, third-party sponsors, in connection with the
management or other investment products is
excluded from these procedures, even if the model or reference portfolio is the
same as or substantially similar to
that of a Fund, provided (1) the model or reference portfolio is not
characterized or otherwise identified to the
recipient, explicitly or implicitly, as being the portfolio of a Fund and (2)
the degree of overlap with the Fund’s portfolio
or with any portion thereof is not communicated, identified or confirmed to the
recipient.
VIII.
Board Approval. The Board
shall review these Procedures, including the list of approved recipients, as
often as they deem
appropriate, but not less often than annually, and will consider for approval
any changes that they deem appropriate.
IX.
Education
Component. In order
to promote strict compliance with these Procedures, Allspring
Funds Management has
informed its employees, and other parties possessing Fund portfolio holdings
information (such as sub-advisers,
the fund accounting agent and the custodian), of the limited circumstances in
which the Funds’ portfolio
holdings may be disclosed in advance of the monthly disclosure on the Funds’
website and the ramifications,
including possible dismissal, if disclosure is made in contravention of these
Procedures.
BROKERAGE
The Trust
has no obligation to deal with any broker-dealer or group of broker-dealers in
the execution of transactions in
portfolio securities. Subject to the supervision of the Trust’s Board and the
supervision of the Manager, the Sub-Advisers
are responsible for the Funds’ portfolio decisions and the placing of portfolio
transactions. In placing orders, it
is the policy of the Sub-Advisers to obtain the best overall results taking into
account various factors, including,
but not limited to, the size and type of transaction involved; the
broker-dealer’s risk in positioning the securities
involved; the nature and character of the market for the security; the
confidentiality, speed and certainty of
effective execution required for the transaction, the general execution and
operational capabilities of the broker-dealer;
the reputation, reliability, experience and financial condition of the firm, the
value and quality of the services
rendered by the firm in this and other transactions; and the reasonableness of
the spread or commission. While the
Sub-Advisers generally seek reasonably competitive spreads or commissions, the
Funds will not necessarily
be paying the lowest spread or commission available.
Purchases
and sales of equity securities on a securities exchange are effected through
broker-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the
manner permitted by applicable law, affiliated broker-dealers. However, the
Funds and Allspring Funds Management
have adopted a policy pursuant to Rule 12b- 1(h) under the 1940 Act that
prohibits the Funds from directing
portfolio brokerage to brokers who sell Fund shares as compensation for such
selling efforts. In the over-the-counter
market, securities are generally traded on a “net” basis with broker-dealers
acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the broker-dealer.
In underwritten offerings, securities are purchased at a fixed price that
includes an amount of compensation
to the underwriter, generally referred to as the underwriter’s concession or
discount.
In placing
orders for portfolio securities of the Fund, the Fund’s Sub-Adviser is required
to give primary consideration to
obtaining the most favorable price and efficient execution. This means that the
Sub-Adviser will seek to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable
in the circumstances. Commission rates are established pursuant to negotiations
with the broker-dealer based, in
part, on the quality and quantity of execution services provided by the
broker-dealer and in the light of generally
prevailing rates. Furthermore, the Manager oversees the trade execution
procedures of the Sub-Adviser to ensure that
such procedures are in place, that they are adhered to, and that adjustments are
made to the procedures to address
ongoing changes in the marketplace.
The
Sub-Adviser may, in circumstances in which two or more broker-dealers are in a
position to offer comparable results for
a portfolio transaction, give preference to a broker-dealer that has provided
statistical or other research services to
the Sub-Adviser. In selecting a broker-dealer under these circumstances, the
Sub-Adviser will consider, in addition to
the factors listed above, the quality of the research provided by the
broker-dealer.
The
Sub-Adviser may pay higher commissions than those obtainable from other
broker-dealers in exchange for such research
services. The research services generally include: (1) furnishing advice as to
the value of securities, the
advisability
of investing in, purchasing, or selling securities, and the advisability of
securities or purchasers or sellers of
securities; (2) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (3) effecting
securities transactions and performing functions
incidental thereto. By allocating transactions in this manner, a Sub-Adviser is
able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not
in lieu of, the services required to be performed by the Sub-Adviser under the
advisory contracts, and the expenses of
the Sub-Adviser will not necessarily be reduced as a result of the receipt of
this supplemental research information.
Furthermore, research services furnished by broker-dealers through which a
sub-adviser places securities
transactions for a Fund may be used by the Sub-Adviser in servicing its other
accounts, and not all of these
services may be used by the Sub-Adviser in connection with advising the
Funds.
Portfolio Turnover. The
portfolio turnover rate is not a limiting factor when a Sub-Adviser deems
portfolio changes appropriate.
Changes may be made in the portfolios consistent with the investment objectives
and policies of the Fund’s
whenever such changes are believed to be in the best interests of the Funds and
their shareholders. The portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities by the average monthly
value of a Fund’s portfolio securities. For purposes of this calculation,
portfolio securities exclude all securities
having a maturity when purchased of one year or less. Portfolio turnover
generally involves some expenses to the
Funds, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities
and the reinvestment in other securities. Portfolio turnover may also result in
adverse tax consequences to a Fund’s
shareholders.
The table
below shows each Fund’s portfolio turnover rates for the fiscal periods
shown in the table:
|
|
|
Fund
|
March
31, 2022 |
March
31, 2021 |
Precious
Metals Fund |
15% |
22% |
Utility
and Telecommunications Fund |
11% |
20% |
Brokerage
Commissions. Below are
the brokerage commissions paid for the last three fiscal years
by each Fund.
The table also
shows the brokerage commissions paid to a former affiliate for the periods prior
to November 1, 2021.
|
|
|
March
31, 2022 |
Total
Paid to all Brokers |
Total
Paid to Wells Fargo Advisors,
LLC |
Precious
Metals Fund |
$283,098 |
$0 |
Utility
and Telecommunications Fund |
$25,555 |
$0 |
March
31, 2021 |
|
|
Precious
Metals Fund |
$370,646 |
$0 |
Utility
and Telecommunications Fund |
$33,646 |
$0 |
March
31, 2020 |
|
|
Precious
Metals Fund |
$418,702 |
$0 |
Utility
and Telecommunications Fund |
$136,332 |
$0 |
Commissions Paid to Brokers that Provide
Research Services. For the
fiscal period ended March 31, 2022, the Funds paid the
following commissions to brokers that provided research services based on the
stated total amount of transactions.
|
|
|
Fund
|
Commissions
Paid |
Transactions
Value |
Precious
Metals Fund |
$648,923 |
$103,261,136 |
Utility
and Telecommunications Fund |
$10,212 |
$37,865,686 |
Securities of Regular
Broker-Dealers.
The Funds are
required to identify any securities of their
“regular brokers or dealers”
(as defined under Rule 10b-1 of the 1940 Act) or of their
parents that the Funds may
hold at the close of their most
recent fiscal year. As of March 31,
2022, the Funds held
no securities of their
regular broker-dealers or of their
parents.
DETERMINATION
OF NET ASSET VALUE
A Fund’s
NAV is the value of a single share. The NAV is calculated as of the close of
regular trading on the New York Stock
Exchange (“NYSE”) (generally 4:00 p.m. Eastern time) on each day that the NYSE
is open, although a Fund may deviate
from this calculation time under unusual or unexpected circumstances. The NAV is
calculated separately for each class
of shares of a multiple-class Fund. The most recent NAV for each class of a Fund
is available at www.allspringglobal.com.
To calculate the NAV of a Fund’s shares, the Fund’s assets are valued and
totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The price at which a
purchase or redemption request is processed is based on the next NAV calculated
after the request is received in
good order. Generally, NAV is not calculated, and purchase and redemption
requests are not processed, on days
that the NYSE is closed for trading; however under unusual or unexpected
circumstances a Fund may elect to remain
open even on days that the NYSE is closed or closes early. To the extent that a
Fund’s assets are traded in various
markets on days when the Fund is closed, the value of the Fund’s assets may be
affected on days when you are unable
to buy or sell Fund shares. Conversely, trading in some of a Fund’s assets may
not occur on days when the Fund is
open.
With
respect to any portion of a Fund’s assets that may be invested in other mutual
funds, the value of the Fund’s shares is
based on the NAV of the shares of the other mutual funds in which the Fund
invests. The valuation methods used by
mutual funds in pricing their shares, including the circumstances under which
they will use fair value pricing and the
effects of using fair value pricing, are included in the Prospectuses of such
funds. To the extent a Fund invests a
portion of its assets in non-registered investment vehicles, the Fund’s
interests in the non-registered vehicles
are fair valued at NAV.
With
respect to a Fund’s assets invested directly in securities, the Fund’s
investments are generally valued at current market
prices. Equity securities, options and futures are generally valued at the
official closing price or, if none, the last
reported sales price on the primary exchange or market on which they are listed
(closing price). Equity securities that are
not traded primarily on an exchange are generally valued at the quoted bid price
obtained from a broker-dealer.
Debt
securities are valued at the evaluated bid price provided by an independent
pricing service or, if a reliable price is not
available, the quoted bid price from an independent broker-dealer.
We are
required to depart from these general valuation methods and use fair value
pricing methods to determine the values of
certain investments if we believe that the closing price or the quoted bid price
of a security, including a security
that trades primarily on a foreign exchange, does not accurately reflect its
current market value at the time as of which
a Fund calculates its NAV. The closing price or the quoted bid price of a
security may not reflect its current
market value if, among other things, a significant event occurs after the
closing price or quoted bid price but before the
time as of which a Fund calculates its NAV that materially affects the value of
the security. We use various criteria,
including a systemic evaluation of U.S. market moves after the close of foreign
markets, in deciding whether a foreign
security’s market price is still reliable and, if not, what fair market value to
assign to the security. In addition, we use fair
value pricing to determine the value of investments in securities and other
assets, including illiquid securities,
for which current market quotations or evaluated prices from a pricing service
or broker-dealer are not readily
available.
The fair
value of a Fund’s securities and other assets is determined in good faith
pursuant to policies and procedures adopted by
the Fund’s Board of Trustees. In light of the judgment involved in making fair
value decisions, there can be no
assurance that a fair value assigned to a particular security is accurate or
that it reflects the price that the Fund could
obtain for such security if it were to sell the security at the time as of which
fair value pricing is determined. Such fair
value pricing may result in NAVs that are higher or lower than NAVs based on the
closing price or quoted bid
price.
ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION
Payment for
shares may, in the discretion of the Manager, be made in the form of securities
that are permissible investments
for a Fund. For further information about this form of payment, please contact
the Distributor. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be
valued on
the day of purchase in accordance with the pricing methods used by a Fund and
that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities
are in proper form for transfer to the Fund; and (iii) adequate information will
be provided concerning the basis and
other matters relating to the securities.
Each Fund
reserves the right to reject any purchase orders, and under the 1940 Act, may
suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than
customary weekend and holiday closings), or during which trading is restricted,
or during which, as determined
by SEC rule, regulation or order, an emergency exists as a result of which
disposal or valuation of portfolio
securities is not reasonably practicable, or for such periods as the SEC may
permit. In lieu of making cash payments,
the Fund reserves the right to determine in its sole discretion, including under
stressed market conditions,
to satisfy one or more redemption requests by making payments in securities. In
addition, the Fund may redeem
shares involuntarily to reimburse the Fund for any losses sustained by reason of
the failure of a shareholder to make
full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a
shareholder which is applicable to shares of the Fund as provided from time to
time in the Prospectuses.
Computation
of Class A Offering Price. Class A
shares are sold at their NAV plus a sales charge. Below is an example
of the
method of computing the offering price of Class A shares of each Fund.
The example assumes a purchase of Class A
shares of each Fund
aggregating less than $50,000 based upon the NAV of each Fund’s
Class A shares as of its most
recent fiscal year end.
|
|
|
|
Computation
of Class A Offering Price |
Fund
|
Net
Asset Value Per Share |
Sales
Charge Per Share1
|
Offering
Price Per Share |
Precious
Metals Fund (A) |
$54.61 |
5.75% |
$57.94 |
Utility
and Telecommunications Fund (A) |
$21.48 |
5.75% |
$22.79 |
1. |
The
sales charge you pay may differ slightly from the amounts listed here due
to rounding calculations. |
Online Purchases and Redemptions for Existing
Allspring Funds Account
Holders. All
shareholders with an existing Allspring
Funds account may purchase additional shares of funds or classes of funds within
the Allspring
Fund family of funds
that they already own and redeem existing shares online. For purchases, such
account holders must have a bank
account linked to their Allspring
Funds account. Redemptions may be deposited into a linked bank account or
mailed via
check to the shareholder’s address of record. Online account access is available
for institutional clients. Shareholders
should contact Investor Services at 1-800-222-8222 or log on
at www.allspringglobal.com
for further details.
Shareholders who hold their shares in a brokerage account should contact their
selling agent.
Extraordinary Circumstances Affecting
Redemptions. Under the
extraordinary circumstances discussed under Section
22(e) under the 1940 Act, we may suspend the right of redemption or postpone the
date of payment of a redemption
for longer than seven days for each Fund. Generally, those extraordinary
circumstances are when: (i) the NYSE is
closed or trading thereon is restricted; (ii) an emergency exists which makes
the disposal by a Fund of securities
it owns, or the fair determination of the value of the Fund’s net assets not
reasonable or practical; or (iii) the SEC, by
order, permits the suspension of the right of redemption for the protection of
shareholders.
Purchases and Redemptions Through Brokers
and/or Their Affiliates. A broker
may charge transaction fees on the purchase
and/or sale of Fund shares in addition to those fees described in the
Prospectuses in the Summary of Expenses.
The Trust has authorized one or more brokers to receive on its behalf purchase
and redemption orders, and such
brokers are authorized to designate other intermediaries to receive purchase and
redemption orders on the Trust’s
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an
authorized broker or, if applicable, a broker’s authorized designee, receives
the order, and such orders will be priced at
the Fund’s NAV next calculated after they are received by the authorized broker
or the broker’s designee.
Reduced Sales Charges for Employees of Wells
Fargo & Company. Current
and retired employees, directors/trustees and
officers of Wells Fargo & Company and its affiliates, including family
members (spouse, domestic partner, parents,
grandparents, children, grandchildren and siblings (including step and in-law))
of any of the foregoing, that have
accounts opened directly on the books of the Funds’ transfer agent prior to
November 1, 2021, may purchase Class A
shares without a front-end sales charge.
Reduced Sales Charges for Certain IRA
Accounts. Investors
with IRA accounts as of November 1, 2021, that were opened with
assets directly transferred from a qualified retirement plan using Wells Fargo
Institutional Retirement Trust or
another Wells Fargo affiliate for record keeping services may purchase Class A
shares without a front-end sales
charge. For such IRAs to qualify, a Wells Fargo-affiliated entity must hold the
account directly on the books of the Funds’
transfer agent, and the services of another intermediary may not be utilized
with respect to the IRA.
Reduced Sales Charges for Former C&B
Portfolio Shareholders.
Shareholders who purchased shares of the C&B Portfolios
directly from the C&B Portfolios, and who became Allspring
Fund shareholders in the reorganization between the
Advisors’ Inner Circle Fund and the Trust effective July 26, 2004 may purchase
Class A shares of any Allspring
Fund at NAV. However, beginning on July 1, 2013, this privilege will only be
available to those former C&B Portfolio
shareholders whose shares are held directly with the Fund. Please see your
account representative for details.
Reduced Sales Charges for Former Montgomery
Fund Shareholders. Former
Montgomery Fund Class P and Class R shareholders
who purchased their shares directly from the Montgomery Funds and became
Allspring
Fund shareholders
in the reorganization, may purchase Class A shares of any Allspring
Fund at NAV. However, beginning on July 1,
2013, this privilege will only be available to those former Montgomery Fund
shareholders whose shares are held
directly with the Fund. Shareholders who did not purchase such shares
directly from the Montgomery Funds may
purchase additional shares in the respective acquiring Allspring
Fund at NAV. However, beginning on July 1, 2013, this
privilege will only be available to those former Montgomery Fund shareholders
whose shares are held directly
with the Fund.
Reduced Sales Charges for Certain Former
Advisor Class Shareholders. Investors
who held Advisor Class shares of a Allspring
Fund at the close of business on June 20, 2008 (the “Eligibility Time”), may
purchase Class A shares of any Allspring
Fund at NAV, so long as the following conditions are met: (1) any purchases at
NAV are limited to Class A shares of
the same Fund in which the investor held Advisor Class shares at the Eligibility
Time; (2) share purchases are made in
the same account through which the investor held Advisor Class shares at the
Eligibility Time; (3) the owner of
the account remains the same as the account owner at the Eligibility Time; and
(4) following the Eligibility Time, the
account maintains a positive account balance at some time during a period of at
least six months in length.
Investors who held Advisor Class shares at the Eligibility Time are also
eligible to exchange their Class A shares for
Class A shares of another Allspring
Fund without imposition of any Class A sales charges and would be eligible to
make additional purchases of Class A shares of such other Fund at NAV in the
account holding the shares received in
exchange. The eligibility of such investors that hold Fund shares through an
account maintained by a financial
institution is also subject to the following additional limitation. In the event
that such an investor’s relationship
with and/or the services such investor receives from the financial institution
subsequently change, such investor
shall thereafter no longer be eligible to purchase Class A shares at NAV. Please
consult with your financial representative
for further details.
Reduced Sales Charges for Certain Former
Evergreen Fund Shareholders. Former
Evergreen Class IS shareholders who
received Class A shares of a Fund as a result of a reorganization can continue
to purchase Class A shares of that Fund and
any other Allspring
Fund purchased subsequently by exchange at NAV, without paying the customary
sales load, after
which subsequent purchases of shares of the subsequent Fund may also be made
at NAV. However, beginning
on July 31, 2012, this privilege will only be available to those former
Evergreen Fund shareholders whose shares are
held directly with the Fund.
Former
Evergreen Class R shareholders who received Class A shares of a Fund as a result
of a reorganization can continue to
purchase Class A shares of that Fund and any other Allspring
Fund purchased subsequently by exchange at NAV,
without paying the customary sales load, after which subsequent purchases of
shares of the subsequent Fund may
also be made at NAV. However, beginning on July 31, 2012, this privilege
will only be available to those former
Evergreen Fund shareholders whose shares are held directly with the
Fund.
Certain
investors in acquired funds who became investors in the Evergreen Funds and
subsequently became Allspring
Fund shareholders in a reorganization, including former Class IS shareholders of
Evergreen Strategic Value Fund and
Evergreen Limited Duration Fund, former Investor Class shareholders of
Undiscovered Managers Funds, former
shareholders of the GMO Global Balanced Allocation Fund, the GMO Pelican Fund
and America’s Utility Fund, former
shareholders of an Atlas Fund and shareholders of record on October 12, 1990
(and members of their
immediate
families) in any series of the Salem Funds in existence on that date, may
purchase Class A shares of any Allspring
Fund at NAV. However, beginning on July 1, 2013, this privilege will only be
available to former Evergreen Fund
shareholders whose shares are held directly with the Fund.
Reduced Sales Charges for Affiliated
Funds. Any
affiliated fund that invests in a Allspring
Fund may purchase Class A shares of
such Fund at NAV.
Reduced Sales Charges for Certain Holders of
Class C Shares. No CDSC
is imposed on redemptions of Class C shares
where a Fund did not pay a sales commission at the time of
purchase.
Reduced Sales Charges for Certain Former
Investor Class Shareholders. Former
Investor Class shareholders who received
Class A shares of a Fund as a result of a conversion at the close of business on
October 23, 2015, can continue to
purchase Class A shares of that Fund and any other Allspring
Fund purchased subsequently by exchange at NAV,
without paying the customary sales load, after which subsequent purchases of
shares of the subsequent Fund may
also be made at NAV.
Elimination of Minimum Initial Investment
Amount for Administrator Class Shares for Eligible
Investors. An
“Eligible Investor”
(as defined below) may purchase Administrator Class shares of the Allspring
Funds without meeting the minimum
initial investment amount. Eligible Investors include:
■ |
Clients
of sub-advisers to those Funds which offer an Administrator Class who are
clients of such subadvisers at the
time of their purchase of such Administrator Class shares;
and |
■ |
Clients
of Allspring
Investments who are clients of Allspring
Investments at the time of their purchase of Administrator
Class shares. |
Related
shareholders or shareholder accounts may be aggregated in order to meet the
minimum initial investment requirement
for Administrator Class shares. The following are examples of relationships that
may qualify for aggregation:
■ |
Related
business entities, including: (i) corporations and their subsidiaries;
(ii) general and limited partners; and (iii) other
business entities under common ownership or
control. |
■ |
Shareholder
accounts that share a common tax-id
number. |
■ |
Accounts
over which the shareholder has individual or shared authority to buy or
sell shares on behalf of the account
(i.e., a trust account or a solely owned business
account). |
Any of the
minimum initial investment waivers listed above may be modified or discontinued
at any time.
Elimination of Minimum Initial Investment
Amount for Institutional Class Shares for Eligible
Investors. An
“Eligible Investor”
(as defined below) may purchase Institutional Class shares of the Allspring
Funds without meeting the minimum
initial investment amount. Eligible Investors include:
■ |
Clients
of sub-advisers to those Funds which offer an Institutional Class who are
clients of such sub-advisers at the time
of their purchase of such Institutional Class shares;
and |
■ |
Clients
of Allspring
Investments who are clients of Allspring
Investments at the time of their purchase of Institutional
Class shares. |
Related
shareholders or shareholder accounts may be aggregated in order to meet the
minimum initial investment requirement
for Institutional Class shares. The following are examples of relationships that
may qualify for aggregation:
■ |
Related
business entities, including: (i) corporations and their subsidiaries;
(ii) general and limited partners; and (iii) other
business entities under common ownership or
control. |
■ |
Shareholder
accounts that share a common tax-id
number. |
■ |
Accounts
over which the shareholder has individual or shared authority to buy or
sell shares on behalf of the account
(i.e., a trust account or a solely owned business
account). |
Former
Institutional Class shareholders of an Evergreen Fund (including former Class Y
shareholders of an Evergreen Fund,
former SouthTrust shareholders and former Vestaur Securities Fund shareholders
who became Institutional Class
shareholders of an Evergreen Fund) who received Institutional Class shares of an
Allspring
Fund in connection
with the
reorganization of their Evergreen Fund may purchase Institutional Class shares
at their former minimum investment
amount.
Former
Institutional Class shareholders of Golden Large Cap Core Fund or Golden Small
Cap Core Fund who received
Institutional Class shares of Allspring
Large Cap Core Fund or Allspring
Small Cap Core Fund in connection with the
reorganization of their Fund may purchase Institutional Class shares of any
Allspring
Fund at their former minimum
investment amount.
Any of the
minimum initial investment waivers listed above may be modified or discontinued
at any time.
Investors Eligible to Purchase Closed
Funds. All
classes of the Special Small Cap Value Fund (the “Closed Fund”) are closed to
new investors, except in connection with the closing of a reorganization or as
outlined below. Additional investments
will not be accepted in the Closed Fund unless the investment falls within one
of the below referenced categories.
If you believe you are eligible to purchase shares of the Closed Fund, Allspring
Funds Management may require you
to provide appropriate proof of eligibility. Allspring Funds Management reserves
the right to reject any purchase
order into the Closed Fund if it believes that acceptance of such order would
interfere with its ability to effectively
manage the Closed Fund.
Existing
Shareholders. You may
continue to purchase shares of the Closed Fund if:
■ |
You
are an existing shareholder of the Closed Fund (either directly or through
a financial intermediary), with an open
and funded account, and you wish to: |
• |
add
to your existing account through the purchase of additional shares of the
Closed Fund, including the reinvestment
of dividends and cash distributions from shares owned in the Closed Fund;
or |
• |
open
a new account that is registered in your name or has the same primary
taxpayer identification or social security
number (this includes accounts where you serve as custodian, such as
UGMA/UTMA accounts). Please note:
Selling agents who transact in the Closed Fund through an omnibus account
are not permitted to purchase
shares of the Closed Fund on behalf of clients that do not currently own
shares of the Closed Fund. |
■ |
You
are the beneficiary of shares of the Closed Fund (i.e., through an IRA or
transfer on death account) or are the recipient
of shares of the Closed Fund through a transfer and wish to utilize the
proceeds of such account to open up a
new account in your name in the Closed
Fund. |
■ |
You
sponsor a retirement plan, benefit plan or retirement plan platform
(collectively, “Retirement Plans”) that currently
offers the Closed Fund as an investment option. Each such Retirement Plan
may add new participants, and
the sponsor may also offer the Closed Fund as an investment option in
other retirement or benefit plans offered
by the same company, its subsidiaries and
affiliates. |
■ |
Funds
of Funds advised by Allspring Funds Management which are invested in the
Closed Fund as of the closure date
are eligible to continue to invest in the Closed
Fund. |
New Investors. Certain
new investors who meet the conditions and/or criteria outlined below may qualify
to purchase
the Fund:
■ |
For
centrally managed (home office) model portfolios, new accounts may be
opened, and additional investment for
current accounts may be made, in the Closed Fund if they are made through
existing fee-based investment products
and/or existing mutual fund wrap programs (e.g. through a broker, dealer,
private bank and trust company
or consultant) that currently use the Closed Fund; however, new model
portfolios introduced in existing products
and platforms must be preapproved by Allspring Funds
Management; |
■ |
Separately
managed account clients of, or investors in a pooled vehicle advised by,
the Closed Fund’s sub-adviser and
whose assets are managed by the sub-adviser in a style similar to that of
the Closed Fund (either presently or within
the last 60 days of their request to open a new account) are allowed to
open a new account; |
■ |
Registered
investment advisers who currently utilize the Closed Fund in their asset
allocation programs will be able
to open new accounts and/or continue to invest in the Closed
Fund; |
■ |
Private
bank and trust platforms that currently offer shares of the Closed Fund
are eligible to add new accounts if approved
by Allspring Funds Management; |
■ |
Non-centrally
managed discretionary and non-discretionary portfolio programs that
currently offer shares of the Closed
Fund or share the same operational infrastructure as programs that
currently offer shares of the Closed Fund
if approved by Allspring Funds Management;
and |
Compensation to Financial Professionals and
Intermediaries. Set forth
below is a list of the member firms of FINRA to which the
Manager, the Distributor or their affiliates made payments out of their revenues
in connection with the sale and
distribution of shares of the Funds or for services to the Funds and their
shareholders in the year ending December
31, 2021 (“Additional Payments”). (Such payments are in addition to any amounts
paid to such FINRA firms in
the form of dealer reallowances or fees for shareholder servicing or
distribution. The payments are discussed in further
detail in the Prospectuses under the title “Compensation to Financial
Professionals and Intermediaries”). Any
additions, modifications, or deletions to the member firms identified in this
list that have occurred since December
31, 2021, are not reflected:
FINRA member firms
■ |
ADP
Broker-Dealer, Inc. |
■ |
Alight
Financial Solutions, LLC |
■ |
Ameriprise
Financial Services, LLC |
■ |
Broadridge
Business Process Outsourcing, LLC |
■ |
Charles
Schwab & Co., Inc. |
■ |
Citigroup
Global Markets, Inc. |
■ |
Fidelity
Brokerage Services LLC |
■ |
Goldman,
Sachs & Co. LLC |
■ |
Hightower
Securities, LLC |
■ |
Institutional
Bond Network, LLC |
■ |
Institutional
Cash Distributors, LLC |
■ |
Janney
Montgomery Scott LLC |
■ |
J.P.
Morgan Securities LLC |
■ |
Merrill
Lynch, Pierce, Fenner & Smith,
Incorporated |
■ |
Mid
Atlantic Clearing & Settlement
Corporation |
■ |
Nationwide
Investment Services Corporation |
■ |
Newedge
Securities, Inc. |
■ |
OneAmerica
Securities, Inc. |
■ |
PNC
Capital Markets LLC |
■ |
Raymond
James & Associates, Inc. |
■ |
Raymond
James Financial Services, Inc. |
■ |
RBC
Capital Markets, LLC |
■ |
Robert
W. Baird & Co. Incorporated |
■ |
State
Street Global Markets, LLC |
■ |
Stifel,
Nicolaus & Company, Incorporated |
■ |
UBS
Financial Services Inc. |
■ |
VALIC
Financial Advisors, Inc. |
■ |
Wells
Fargo Clearing Services, LLC |
■ |
Wells
Fargo Securities, LLC |
In addition
to member firms of FINRA, Additional Payments are also made to other selling and
shareholder servicing agents, and
to affiliates of selling and shareholder servicing agents that sell shares of or
provide services to the Funds and
their shareholders, such as banks, insurance companies and plan administrators.
These firms are not
included on
the list above, although they may be affiliated with companies on the above
list.
U.S.
FEDERAL INCOME TAXES
The
following information supplements and should be read in conjunction with the
section in each Prospectus entitled
“Taxes.” Each Prospectus generally describes the U.S. federal income tax
treatment of distributions by the Funds. This
section of the SAI provides additional information concerning certain material
U.S. federal income taxes. It is based
on the Internal Revenue Code of 1986, as amended (the “Code”), applicable
Treasury Regulations, judicial authority,
and administrative rulings and practice, all as of the date of this SAI and all
of which are subject to change, including
changes with retroactive effect. Except as specifically set forth below, the
following discussion does not address any
state, local or foreign tax matters.
A
shareholder’s tax treatment may vary depending upon the shareholder’s particular
situation. Except as specifically set forth
below, this discussion applies only to U.S. individual shareholders holding Fund
shares as capital assets within the
meaning of Section 1221 of the Code. A shareholder may also be subject to
special rules not discussed below if
they are a certain kind of shareholder, including, but not limited to: an
insurance company; a tax-exempt organization;
a shareholder holding a Fund’s shares through tax-advantaged accounts (such as
an individual retirement
account (an “IRA”), a 401(k) plan account or other qualified retirement
account); a financial institution or broker-dealer;
a person who is neither a citizen nor resident of the United States or entity
that is not organized under the laws of
the United States or political subdivision thereof; a shareholder who holds Fund
shares as part of a hedge,
straddle or conversion transaction; a shareholder subject to the alternative
minimum tax; or an entity taxable as a
partnership for U.S. federal income tax purposes and investors in such an
entity. The summary discussion that follows may
not be considered to be individual tax advice and may not be relied upon by any
shareholder.
The Trust
has not requested and will not request an advance ruling from the Internal
Revenue Service (the “IRS”) as to the U.S.
federal income tax matters described below. The IRS could adopt positions
contrary to those discussed below and
such positions could be sustained. In addition, the following discussion and the
discussions in each Prospectus
applicable to each shareholder address only some of the material U.S. federal
income tax considerations generally
affecting investments in the Funds.
On December
22, 2017, new tax legislation was enacted which includes significant changes in
tax rates, restrictions on
miscellaneous itemized deductions, changes to the dividends received deduction,
restrictions on the deduction of interest
and the international operations of domestic businesses. Certain changes have
sunset provisions, which are
important to note. Because the tax legislation is recently enacted, and Treasury
Regulations and additional guidance
interpreting the legislation are continuing to be issued, there is still
uncertainty in how the legislation will affect the
Fund’s investments and shareholders and whether such legislation could have an
adverse effect on a Fund’s
investments or the taxation of the shareholders of a Fund. Shareholders are
urged and advised to consult their own
tax advisor with respect to the impact of this legislation.
Prospective
shareholders are urged to consult their own tax advisers and financial planners
regarding the U.S. federal
tax consequences of an investment in a Fund, the application of state, local or
foreign laws, and the effect of any
possible changes in applicable tax laws on their investment in the
Funds.
Qualification as a Regulated Investment
Company. It is
intended that each Fund qualify as a regulated investment company
(“RIC”) under Subchapter M of Subtitle A, Chapter 1 of the Code. Each Fund will
be treated as a separate entity for
U.S. federal income tax purposes. Thus, the provisions of the Code applicable to
RICs generally will apply separately
to each Fund even though each Fund is a series of the Trust. Furthermore, each
Fund will separately determine
its income, gains, losses and expenses for U.S. federal income tax
purposes.
In order to
qualify as a RIC under the Code, each Fund must, among other things, derive at
least 90% of its gross income each
taxable year generally from (i) dividends, interest, certain payments with
respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, and
other income attributable to its business of
investing in such stock, securities or foreign currencies (including, but not
limited to, gains from options, futures or
forward contracts) and (ii) net income derived from an interest in a qualified
publicly traded partnership, as defined
in the Code (together with (i) the “qualifying income requirement”). Future U.S.
Treasury regulations may (possibly
retroactively) exclude from qualifying income foreign currency gains that are
not directly related to a Fund’s
principal business of investing in stock, securities or options and futures with
respect to stock or securities. In general,
for purposes of this 90% gross income requirement, income derived from a
partnership, except a qualified
publicly
traded partnership, will be treated as qualifying income only to the extent such
income is attributable to items of
income of the partnership which would be qualifying income if realized by the
RIC.
Each Fund
must also diversify its holdings so that, at the end of each quarter of the
Fund’s taxable year: (i) at least 50% of the
fair market value of its assets consists of (A) cash and cash items (including
receivables), U.S. government securities
and securities of other RICs, and (B) securities of any one issuer (other than
those described in clause (A)) to the
extent such securities do not exceed 5% of the value of the Fund’s total assets
and do not exceed 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of the
Fund’s total assets consists of
the securities of any one issuer (other than those described in clause (i)(A)),
the securities of two or more issuers the
Fund controls and which are engaged in the same, similar or related trades or
businesses, or the securities
of one or more qualified publicly traded partnerships (together with (i), the
“diversification requirement”). In
addition, for purposes of meeting this diversification requirement, the term
“outstanding voting securities of such issuer”
includes the equity securities of a qualified publicly traded partnership. The
qualifying income and diversification
requirements applicable to a Fund may limit the extent to which it can engage in
transactions in options,
futures contracts, forward contracts and swap agreements.
If a Fund
fails to satisfy the qualifying income or diversification requirements in any
taxable year, such Fund may be eligible
for relief provisions if the failures are due to reasonable cause and not
willful neglect and if a penalty tax is paid with
respect to each failure to satisfy the applicable requirements. Additionally,
relief is provided for certain de minimis
failures of the diversification requirements where the Fund corrects the failure
within a specified period. If the
applicable relief provisions are not available or cannot be met, such Fund will
be taxed in the same manner as an ordinary
corporation, described below.
In
addition, with respect to each taxable year, each Fund generally must distribute
to its shareholders at least 90% of its
investment company taxable income, which generally includes its ordinary income
and the excess of any net short-term
capital gain over net long-term capital loss, and at least 90% of its net
tax-exempt interest income earned for the
taxable year. If a Fund meets all of the RIC qualification requirements, it
generally will not be subject to U.S. federal
income tax on any of the investment company taxable income and net capital gain
(i.e., the excess of net long-term
capital gain over net short-term capital loss) it distributes to its
shareholders. For this purpose, a Fund generally
must make the distributions in the same year that it realizes the income and
gain, although in certain circumstances,
a Fund may make the distributions in the following taxable year. Shareholders
generally are taxed on any
distributions from a Fund in the year they are actually distributed. However, if
a Fund declares a distribution to shareholders
of record in October, November or December of one year and pays the distribution
by January 31 of the
following year, the Fund and its shareholders will be treated as if the Fund
paid the distribution by December 31 of the
first taxable year. Each Fund intends to distribute its net income and gain in a
timely manner to maintain its status as a
RIC and eliminate fund-level U.S. federal income taxation of such income and
gain. However, no assurance
can be given that a Fund will not be subject to U.S. federal income
taxation.
Moreover,
the Funds may retain for investment all or a portion of their net capital gain.
If a Fund retains any net capital
gain, it will be subject to a tax at regular corporate rates on the amount
retained, but may report the retained amount as
undistributed capital gain in a written statement furnished to its shareholders,
who (i) will be required to include in
income for U.S. federal income tax purposes, as long-term capital gain, their
shares of such undistributed amount, and
(ii) will be entitled to credit their proportionate shares of the tax paid by
the Fund on such undistributed amount
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be
increased by an amount equal to the difference between the amount of
undistributed capital gain included in the shareholder’s
gross income and the tax deemed paid by the shareholder under clause (ii) of the
preceding sentence. A Fund is
not required to, and there can be no assurance that it will, make this
designation if it retains all or a portion of its net
capital gain in a taxable year.
If, for any
taxable year, a Fund fails to qualify as a RIC, and is not eligible for relief
as described above, it will be taxed in the same
manner as an ordinary corporation without any deduction for its distributions to
shareholders, and all distributions
from the Fund’s current and accumulated earnings and profits (including any
distributions of its net tax-exempt
income and net long-term capital gain) to its shareholders will be taxable as
dividend income. To re-qualify
to be taxed as a RIC in a subsequent year, the Fund may be required to
distribute to its shareholders its earnings
and profits attributable to non-RIC years reduced by an interest charge on 50%
of such earnings and profits
payable by
the Fund to the IRS. In addition, if a Fund initially qualifies as a RIC but
subsequently fails to qualify as a RIC for a
period greater than two taxable years, the Fund generally would be required to
recognize and pay tax on any net
unrealized gain (the excess of aggregate gain, including items of income, over
aggregate loss that would have been
realized if the Fund had been liquidated) or, alternatively, be subject to tax
on such unrealized gain recognized
for a period of five years, in order to re-qualify as a RIC in a subsequent
year.
Equalization
Accounting. Each Fund
may use the so-called “equalization method” of accounting to allocate a portion
of its
“earnings and profits,” which generally equals a Fund’s undistributed investment
company taxable income and net capital
gain, with certain adjustments, to redemption proceeds. This method permits a
Fund to achieve more balanced
distributions for both continuing and redeeming shareholders. Although using
this method generally will not affect
a Fund’s total returns, it may reduce the amount that the Fund would otherwise
distribute to continuing shareholders
by reducing the effect of redemptions of Fund shares on Fund distributions to
shareholders. However, the IRS may
not have expressly sanctioned the particular equalization method used by a Fund,
and, thus, a Fund’s use of this
method may be subject to IRS scrutiny.
Capital Loss
Carry-Forwards. For net
capital losses realized in taxable years beginning before January 1, 2011, a
Fund is
permitted to carry forward a net capital loss to offset its capital gain, if
any, realized during the eight years following
the year of the loss, and such capital loss carry-forward is treated as a
short-term capital loss in the year to which it is
carried. For net capital losses realized in taxable years beginning on or after
January 1, 2011, a Fund is permitted
to carry forward a net capital loss to offset its capital gain indefinitely. For
capital losses realized in taxable years
beginning after January 1, 2011, the excess of a Fund’s net short-term capital
loss over its net long-term capital gain is
treated as a short-term capital loss arising on the first day of the Fund’s next
taxable year and the excess of a Fund’s net
long-term capital loss over its net short-term capital gain is treated as a
long-term capital loss arising on the first
day of the Fund’s next taxable year. If future capital gain is offset by
carried-forward capital losses, such future
capital gain is not subject to fund-level U.S. federal income tax, regardless of
whether it is distributed to shareholders.
Accordingly, the Funds do not expect to distribute any such offsetting capital
gain. The Funds cannot carry back
or carry forward any net operating losses.
If a Fund
engages in a reorganization, either as an acquiring fund or acquired fund, its
capital loss carry-forwards (if any), its
unrealized losses (if any), and any such losses of other funds participating in
the reorganization may be subject to
limitations that could make such losses, in particular losses realized in
taxable years beginning before January 1,
2011, substantially unusable. Various Funds in the Fund Complex have engaged in
reorganizations in the past and/or
may engage in reorganizations in the future.
As of a
Fund’s most recent fiscal year end, the Fund had capital loss carry-forwards
approximating the amount indicated
for U.S. federal income tax purposes in the table set forth below, expiring in
the year indicated (if applicable):
|
|
|
|
|
|
|
|
|
|
Post-January
1, 2011 Capital Loss Carryforwards |
Fund
|
Short-term |
Long-Term |
Precious
Metals Fund |
|
|
$33,908,700 |
$101,545,949 |
Excise Tax. If a Fund
fails to distribute by December 31 of each calendar year at least the sum of 98%
of its ordinary income for
that year (excluding capital gains and losses), 98.2% of its capital gain net
income (adjusted for certain net
ordinary losses) for the 12-month period ending on October 31 of that year, and
any of its ordinary income and capital
gain net income from previous years that was not distributed during such years,
the Fund will be subject to a nondeductible
4% U.S federal excise tax on the undistributed amounts (other than to the extent
of its tax-exempt interest
income, if any). For these purposes, a Fund will be treated as having
distributed any amount on which it is subject to
corporate level U.S. federal income tax for the taxable year ending within the
calendar year. Each Fund generally
intends to actually, or be deemed to, distribute substantially all of its
ordinary income and capital gain net income, if
any, by the end of each calendar year and thus expects not to be subject to the
excise tax. However, no assurance
can be given that a Fund will not be subject to the excise tax. Moreover, each
Fund reserves the right to pay an
excise tax rather than make an additional distribution when circumstances
warrant (for example, the amount of excise
tax to be paid by a Fund is determined to be de minimis).
Investment through Master
Portfolio. A Fund
that invests its assets through one or more master portfolios will seek to
continue to
qualify as a RIC. Each master portfolio will be treated as a non-publicly traded
partnership (or, in the event that
a Fund is the sole investor in the corresponding master portfolio, as
disregarded from the Fund) for U.S. federal
income tax purposes rather than as a RIC or a corporation under the Code. Under
the rules applicable to a non-publicly
traded partnership (or disregarded entity), a proportionate share of any
interest, dividends, gains and losses of a
master portfolio will be deemed to have been realized (i.e., “passed-through”)
by its investors, including the
corresponding Fund, regardless of whether any amounts are actually distributed
by the master portfolio. Each investor in
a master portfolio will be taxed on such share, as determined in accordance with
the governing instruments
of the particular master portfolio, the Code and U.S. Treasury regulations, in
determining such investor’s U.S.
federal income tax liability. Therefore, to the extent a master portfolio were
to accrue but not distribute any income or
gains, the corresponding Fund would be deemed to have realized its proportionate
share of such income or gains
without receipt of any corresponding distribution. However, each of the master
portfolios will seek to minimize
recognition by its investors (such as a corresponding Fund) of income and gains
without a corresponding distribution.
Furthermore, each master portfolio intends to manage its assets, income and
distributions in such a way that an
investor in a master portfolio will be able to continue to qualify as a RIC by
investing its assets through the master
portfolio.
Taxation of
Investments. In
general, realized gains or losses on the sale of securities held by a Fund will
be treated as capital
gains or losses, and long-term capital gains or losses if the Fund has held the
disposed securities for more than one
year at the time of disposition.
If a Fund
purchases a debt obligation with original issue discount (“OID”) (generally, a
debt obligation with a purchase
price at original issuance less than its principal amount, such as a zero-coupon
bond), which generally includes
“payment-in-kind” or “PIK” bonds, the Fund generally is required to annually
include in its taxable income a portion of
the OID as ordinary income, even though the Fund may not receive cash payments
attributable to the OID until a
later date, potentially until maturity or disposition of the obligation. A
portion of the OID includible in income with
respect to certain high-yield corporate discount obligations may be treated as a
dividend for U.S. federal income tax
purposes. Similarly, if a Fund purchases a debt obligation with market discount
(generally a debt obligation
with a purchase price after original issuance less than its principal amount
(reduced by any OID)) and a Fund elects
to include market discount in income as it accrues, the Fund generally is
required to annually include in its taxable
income a portion of the market discount as ordinary income, even though the
Acquiring Fund may not receive
cash payments attributable to the market discount until a later date,
potentially until maturity or disposition of the
obligation. A Fund generally will be required to make cash distributions to
shareholders representing the OID or market
discount income on debt obligations that is currently includible in income, even
though the cash representing
such income may not have been received by a Fund. Cash to pay such distributions
may be obtained from sales
proceeds of securities held by the Fund which a Fund otherwise might have
continued to hold; obtaining such cash
might be disadvantageous for the Fund.
If a Fund
invests in distressed debt obligations or obligations of issuers that later
become distressed, including debt obligations
of issuers not currently paying interest or who are in default, special tax
issues may exist for the Fund. U.S.
federal income tax rules are not entirely clear about issues such as when a Fund
may cease to accrue interest, OID, or
market discount, when and to what extent deductions may be taken for bad debts
or worthless securities, and how
payments received on obligations in default should be allocated between
principal and income. A Fund may be
required to include in income certain fees that are treated as OID and required
to be included in income for financial
statement purposes when received (rather than when accrued into income under
current law). These and other
related issues will be addressed by a Fund when, as, and if it invests in such
securities, in order to seek to ensure that
it distributes sufficient income to not become subject to U.S. federal income or
excise tax.
If an
option granted by a Fund is sold, lapses or is otherwise terminated through a
closing transaction, such as a repurchase
by the Fund of the option from its holder, the Fund will realize a short-term
capital gain or loss, depending
on whether the premium income is greater or less than the amount paid by the
Fund in the closing transaction.
Some capital losses realized by a Fund in the sale, exchange, exercise, or other
disposition of an option may be
deferred if they result from a position that is part of a “straddle,” discussed
below. If securities are sold by a Fund
pursuant to the exercise of a covered call option granted by it, the Fund
generally will add the premium received to
the sale price of the securities delivered in determining the amount of gain or
loss on the sale. If
securities
are purchased by a Fund pursuant to the exercise of a put option granted by it,
the Fund generally will subtract
the premium received from its cost basis in the securities
purchased.
Some
regulated futures contracts, certain foreign currency contracts, and non-equity,
listed options used by a Fund will be
deemed “Section 1256 contracts.” A Fund will be required to “mark-to-market” any
such contracts held at the end of the
taxable year by treating them as if they had been sold on the last day of that
year at market value. Provided
such positions are held as capital assets and are not part of a “hedging
transaction” nor part of a “straddle,” 60% of any
net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the
“mark-to-market” rule, generally will be treated as long-term capital gain or
loss, and the remaining 40% will be
treated as short-term capital gain or loss (although certain foreign currency
gains and losses from such contracts
may be treated as ordinary income or loss (as described below)). These
provisions may require a Fund to recognize
income or gains without a concurrent receipt of cash. Transactions that qualify
as designated hedges are exempt from
the mark-to-market rule and the “60%/40%” rule and may require the Fund to defer
the recognition of losses on
certain futures contracts, foreign currency contracts and non-equity
options.
Foreign
currency gains and losses realized by a Fund in connection with certain
transactions involving foreign currency-denominated
debt obligations, certain options, futures contracts, forward contracts, and
similar instruments
relating to foreign currency, foreign currencies, or payables or receivables
denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary
income or loss and may affect the amount and timing of recognition of the Fund’s
income. Under future U.S. Treasury
regulations, any such transactions that are not directly related to a Fund’s
investments in stock or securities (or its
options contracts or futures contracts with respect to stock or securities) may
have to be limited in order to enable the
Fund to satisfy the 90% income test described above. If the net foreign currency
loss exceeds a Fund’s net
investment company taxable income (computed without regard to such loss) for a
taxable year, the resulting ordinary
loss for such year will not be deductible by the Fund or its shareholders in
future years.
Offsetting
positions held by a Fund involving certain derivative instruments, such as
financial forward, futures, and options
contracts, may be considered, for U.S. federal income tax purposes, to
constitute “straddles.” “Straddles” are defined to
include “offsetting positions” in actively traded personal property. The tax
treatment of “straddles” is governed by
Section 1092 of the Code which, in certain circumstances, overrides or modifies
the provisions of Section
1256. If a Fund is treated as entering into a “straddle” and at least one (but
not all) of the Fund’s positions in derivative
contracts comprising a part of such straddle is governed by Section 1256 of the
Code, described above, then such
straddle could be characterized as a “mixed straddle.” A Fund may make one or
more elections with respect to
“mixed straddles.” Depending upon which election is made, if any, the results
with respect to a Fund may differ.
Generally, to the extent the straddle rules apply to positions established by a
Fund, losses realized by the Fund may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle rules,
short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital
gain may be characterized as short-term capital gain. In addition, the existence
of a straddle may affect the holding
period of the offsetting positions. As a result, the straddle rules could cause
distributions that would otherwise
constitute qualified dividend income (defined below) to fail to satisfy the
applicable holding period requirements
(described below) and therefore to be taxed as ordinary income. Furthermore, the
Fund may be required to
capitalize, rather than deduct currently, any interest expense and carrying
charges applicable to a position
that is part of a straddle, including any interest expense on indebtedness
incurred or continued to purchase or carry
any positions that are part of a straddle. Because the application of the
straddle rules may affect the character
and timing of gains and losses from affected straddle positions, the amount
which must be distributed to shareholders,
and which will be taxed to shareholders as ordinary income or long-term capital
gain, may be increased
or decreased substantially as compared to the situation where a Fund had not
engaged in such transactions.
If a Fund
enters into a “constructive sale” of any appreciated financial position in
stock, a partnership interest, or certain
debt instruments, the Fund will be treated as if it had sold and immediately
repurchased the property and must
recognize gain (but not loss) with respect to that position. A constructive sale
of an appreciated financial position
occurs when a Fund enters into certain offsetting transactions with respect to
the same or substantially identical
property, including: (i) a short sale; (ii) an offsetting notional principal
contract; (iii) a futures or forward contract;
or (iv) other transactions identified in future U.S. Treasury regulations. The
character of the gain from
constructive
sales will depend upon a Fund’s holding period in the appreciated financial
position. Losses realized from a sale
of a position that was previously the subject of a constructive sale will be
recognized when the position is subsequently
disposed of. The character of such losses will depend upon a Fund’s holding
period in the position and the
application of various loss deferral provisions in the Code. Constructive sale
treatment does not apply to certain closed
transactions, including if such a transaction is closed on or before the 30th
day after the close of the Fund’s taxable
year and the Fund holds the appreciated financial position unhedged throughout
the 60-day period beginning
with the day such transaction was closed.
The amount
of long-term capital gain a Fund may recognize from certain derivative
transactions with respect to interests
in certain pass-through entities is limited under the Code’s constructive
ownership rules. The amount of long-term
capital gain is limited to the amount of such gain a Fund would have had if the
Fund directly invested in the
pass-through entity during the term of the derivative contract. Any gain in
excess of this amount is treated as ordinary
income. An interest charge is imposed on the amount of gain that is treated as
ordinary income.
In
addition, a Fund’s transactions in securities and certain types of derivatives
(e.g., options, futures contracts, forward
contracts, and swap agreements) may be subject to other special tax rules, such
as the wash sale rules or the short
sale rules, the effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments
to the holding periods of the Fund’s securities, convert long-term capital gains
into short-term capital gains,
and/or convert short-term capital losses into long- term capital losses. These
rules could therefore affect the amount,
timing, and character of distributions to shareholders.
Rules
governing the U.S. federal income tax aspects of derivatives, including swap
agreements, are not entirely clear in certain
respects, particularly in light of IRS revenue rulings that held that income
from a derivative contract with respect to
a commodity index is not qualifying income for a RIC. Accordingly, while each
Fund intends to account for such
transactions in a manner it deems appropriate, the IRS might not accept such
treatment. If the IRS did not accept such
treatment, the status of a Fund as a RIC might be jeopardized. Certain
requirements that must be met under the
Code in order for each Fund to qualify as a RIC may limit the extent to which a
Fund will be able to engage in
derivatives transactions.
Certain
Funds may invest in a wholly-owned subsidiary classified as a controlled foreign
corporation, or “CFC,” for federal
income tax purposes. As a result, a Fund may be required to include in its gross
income for federal income tax
purposes all or a significant portion of the income of such subsidiary, referred
to as subpart F income, whether or not the
subsidiary makes a distribution to such Fund. Distributions by a CFC to a Fund
will not be taxable to such Fund to the
extent that the Fund has previously recognized subpart F income. This subpart F
income is generally treated as
ordinary income, regardless of the character of the CFC’s underlying
income.
In 2016,
the IRS and Treasury issued proposed regulations that require a passive foreign
investment company or a CFC,
including those that invest in certain commodities investments, to distribute
income in order for the income to satisfy the
Qualifying Income Requirement. Therefore, to the extent a Fund invests directly
in a CFC of PFIC, the IRS may contest
the Fund’s characterization of the income produced by such assets as qualifying
income which, if successful,
could cause the Fund to fail to qualify as a RIC. Each Fund and its investment
manager plan to direct investments
of the Fund’s assets in conformance with the proposed regulations, IRS guidance,
and the advice of counsel. In
addition, a Fund may not have more than 25% of the value of its assets invested
in a subsidiary to meet the
Diversification Requirement. The value of a Fund’s subsidiary may be volatile
and it may be difficult for such Fund to continue
to have less than 25% of the value of its assets invested in a subsidiary.
Accordingly, each Fund’s ability to invest
in a subsidiary may be limited by the Qualifying Income Requirement or
Diversification Requirement. Each Fund will
account for its investments in a subsidiary in a manner it deems to be
appropriate. However, the IRS might not accept
such treatment. If the IRS did not accept such treatment, the status of such
Fund as a RIC might be jeopardized.
A Fund may
invest in real estate investment trusts (“REITs”). Investments in REIT equity
securities may require a Fund to accrue
and distribute income not yet received. To generate sufficient cash to make the
requisite distributions, the Fund may be
required to sell securities in its portfolio (including when it is not
advantageous to do so) that it otherwise
would have continued to hold. A Fund’s investments in REIT equity securities may
at other times result in the Fund’s
receipt of cash in excess of the REIT’s earnings. If the Fund distributes these
amounts, these distributions could
constitute a return of capital to Fund shareholders for U.S. federal income tax
purposes. Dividends received by
the Fund
from a REIT generally will not constitute qualified dividend income and will not
qualify for the dividends-received
deduction. In addition, between 2018 and 2025, a direct REIT shareholder may
claim a 20% “qualified
business income” deduction for ordinary REIT dividends, and proposed regulations
issued in January 2019 (on which
taxpayers may currently rely) permit a RIC to pass through to its shareholders
the special character of this income.
Ordinary dividends received by a Fund from a REIT will generally not constitute
qualified dividend income, which would
be eligible for tax at a reduced rate.
A Fund may
invest directly or indirectly in residual interests in real estate mortgage
investment conduits (“REMICs”) or in other
interests that may be treated as taxable mortgage pools (“TMPs”) for U.S.
federal income tax purposes. Under IRS
guidance, a Fund must allocate “excess inclusion income” received directly or
indirectly from REMIC residual
interests or TMPs to its shareholders in proportion to dividends paid to such
shareholders, with the same consequences
as if the shareholders had invested in the REMIC residual interests or TMPs
directly.
In general,
excess inclusion income allocated to shareholders (i) cannot be offset by net
operating losses (subject to a limited
exception for certain thrift institutions), (ii) constitutes unrelated business
taxable income to Keogh, 401(k) and
qualified pension plans, as well as investment retirement accounts and certain
other tax exempt entities, thereby
potentially requiring such an entity, which otherwise might not be required to
file a tax return, to file a tax return and
pay tax on such income, and (iii) in the case of a foreign shareholder, does not
qualify for any reduction, by treaty
or otherwise, in the 30% U.S. federal withholding tax. In addition, if at any
time during any taxable year a “disqualified
organization” (as defined in the Code) is a record holder of a share in a Fund,
then the Fund will be subject to
a tax equal to that portion of its excess inclusion income for the taxable year
that is allocable to the disqualified
organization, multiplied by the highest federal corporate income tax rate. To
the extent permitted under the 1940
Act, a Fund may elect to specially allocate any such tax to the applicable
disqualified organization, and thus reduce
such shareholder’s distributions for the year by the amount of the tax that
relates to such shareholder’s interest in
the Fund. The Funds have not yet determined whether such an election will be
made.
“Passive
foreign investment companies” (“PFICs”) are generally defined as foreign
corporations with respect to which at
least 75% of their gross income for their taxable year is income from passive
sources (such as interest, dividends,
certain rents and royalties, or capital gains) or at least 50% of their assets
on average produce such passive
income. If a Fund acquires any equity interest in a PFIC, the Fund could be
subject to U.S. federal income tax and
interest charges on “excess distributions” received from the PFIC or on gain
from the sale of such equity interest in the
PFIC, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. Excess distributions
will be characterized as ordinary income even though, absent the application of
PFIC rules, some excess
distributions may have been classified as capital gain.
A Fund will
not be permitted to pass through to its shareholders any credit or deduction for
taxes and interest charges
incurred with respect to PFICs. Elections may be available that would ameliorate
these adverse tax consequences,
but such elections could require a Fund to recognize taxable income or gain
without the concurrent receipt of
cash. Investments in PFICs could also result in the treatment of associated
capital gains as ordinary income. The
Funds may attempt to limit and/or manage their holdings in PFICs to minimize
their tax liability or maximize
their returns from these investments but there can be no assurance that they
will be able to do so. Moreover,
because it is not always possible to identify a foreign corporation as a PFIC in
advance of acquiring shares in the
corporation, a Fund may incur the tax and interest charges described above in
some instances. Dividends paid by PFICs
will not be eligible to be treated as qualified dividend income.
In addition
to the investments described above, prospective shareholders should be aware
that other investments made by the
Funds may involve complex tax rules that may result in income or gain
recognition by the Funds without
corresponding current cash receipts. Although the Funds seek to avoid
significant non-cash income, such non-cash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in
order to meet the minimum distribution requirements described above. In this
regard, the Funds could be required at
times to liquidate investments prematurely in order to satisfy their minimum
distribution requirements.
Taxation of
Distributions. Except for
exempt-interest dividends (defined below) paid out by “Tax-Free Funds”,
distributions
paid out of a Fund’s current and accumulated earnings and profits (as determined
at the end of the year),
whether paid in cash or reinvested in the Fund, generally are deemed to be
taxable distributions and must be reported by
each shareholder who is required to file a U.S. federal income tax return.
Dividends and distributions on
a Fund’s
shares are generally subject to U.S. federal income tax as described herein to
the extent they do not exceed the Fund’s
realized income and gains, even though such dividends and distributions may
economically represent a return of a
particular shareholder’s investment. Such distributions are likely to occur in
respect of shares acquired at a time when
the Fund’s net asset value reflects gains that are either unrealized, or
realized but not distributed. For U.S.
federal income tax purposes, a Fund’s earnings and profits, described above, are
determined at the end of the Fund’s
taxable year and are allocated pro rata to distributions paid over the entire
year. Distributions in excess of a Fund’s
current and accumulated earnings and profits will first be treated as a return
of capital up to the amount of a shareholder’s
tax basis in the shareholder’s Fund shares and then as capital gain. A Fund may
make distributions in excess of
its earnings and profits, from time to time.
For U.S.
federal income tax purposes, distributions of investment income are generally
taxable as ordinary income, and
distributions of gains from the sale of investments that a Fund owned for one
year or less will be taxable as ordinary
income. Distributions properly designated by a Fund as capital gain dividends
will be taxable to shareholders
as long-term capital gain (to the extent such distributions do not exceed the
Fund’s net capital gain for the taxable
year), regardless of how long a shareholder has held Fund shares, and do not
qualify as dividends for purposes of
the dividends-received deduction or as qualified dividend income. Each Fund will
report capital gain dividends,
if any, in a written statement furnished to its shareholders after the close of
the Fund’s taxable year.
Fluctuations
in foreign currency exchange rates may result in foreign exchange gain or loss
on transactions in foreign
currencies, foreign currency-denominated debt obligations, and certain foreign
currency options, futures contracts
and forward contracts. Such gains or losses are generally characterized as
ordinary income or loss for tax purposes.
The Fund must make certain distributions in order to not become subject to U.S.
federal income or excise tax, and
the timing of and character of transactions such as foreign currency-related
gains and losses may result in the fund
paying a distribution treated as a return of capital. Such distribution is
nontaxable to the extent of the recipient’s
basis in its shares.
Sales and Exchanges of Fund
Shares. If a
shareholder sells, pursuant to a cash or in-kind redemption, or exchanges
the
shareholder’s Fund shares, subject to the discussion below, the shareholder
generally will recognize a taxable capital
gain or loss on the difference between the amount received for the shares (or
deemed received in the case of an
exchange) and the shareholder’s tax basis in the shares. This gain or loss will
be long-term capital gain or loss if the
shareholder has held such Fund shares for more than one year at the time of the
sale or exchange, and short-term
otherwise.
If a
shareholder sells or exchanges Fund shares within 90 days of having acquired
such shares and if, before January 31 of the
calendar year following the calendar year of the sale or exchange, as a result
of having initially acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different
RIC, the sales charge previously incurred in acquiring the Fund’s shares
generally shall not be taken into account (to
the extent the previous sales charges do not exceed the reduction in sales
charges on the new purchase)
for the purpose of determining the amount of gain or loss on the disposition,
but generally will be treated as having
been incurred in the new purchase. Also, if a shareholder recognizes a loss on a
disposition of Fund shares, the loss
will be disallowed under the “wash sale” rules to the extent the shareholder
purchases substantially identical shares
within the 61-day period beginning 30 days before and ending 30 days after the
disposition. Any disallowed loss
generally will be reflected in an adjustment to the tax basis of the purchased
shares.
If a
shareholder receives a capital gain dividend with respect to any Fund share and
such Fund share is held for six months or
less, then (unless otherwise disallowed) any loss on the sale or exchange of
that Fund share will be treated as a
long-term capital loss to the extent of the capital gain dividend. If such loss
is incurred from the redemption of shares
pursuant to a periodic redemption plan then U.S. Treasury regulations may permit
an exception to this six-month
rule. No such regulations have been issued as of the date of this
SAI.
In
addition, if a shareholder of a Tax-Free Fund holds such Fund shares for six
months or less, any loss on the sale or exchange of
those shares will be disallowed to the extent of the amount of exempt-interest
dividends (defined below)
received with respect to the shares. If such loss is incurred from the
redemption of shares pursuant to a periodic
redemption plan then U.S. Treasury regulations may permit an exception to this
six-month rule. Such a loss will also
not be disallowed where the loss is incurred with respect to shares of a Fund
that declares exempt-interest dividends
on a daily basis in an amount equal to at least 90% of its net-tax exempt
interest and distributes such
dividends
on a monthly, or more frequent, basis. Additionally, where a Fund regularly
distributes at least 90% of its net
tax-exempt interest, if any, the Treasury Department is authorized to issue
regulations reducing the six month holding
period requirement to a period of not less than the greater of 31 days or the
period between regular distributions.
No such regulations have been issued as of the date of this filing.
Foreign Taxes. Amounts
realized by a Fund from sources within foreign countries may be subject to
withholding and other taxes
imposed by such countries. Although in some countries a portion of these taxes
is recoverable by the Fund, the
unrecovered portion of foreign withholding taxes will reduce the income received
from such securities. If more than
50% of the value of a Fund’s total assets at the close of its taxable year
consists of securities of foreign corporations,
the Fund will be eligible to file an annual election with the IRS pursuant to
which the Fund may pass-through
to its shareholders on a pro rata basis certain foreign income and similar taxes
paid by the Fund, and such taxes
may be claimed, subject to certain limitations, either as a tax credit or
deduction by the shareholders. However,
even if a Fund qualifies for the election for any year, it may decide not to
make the election for such year. If a Fund does
not so elect, then shareholders will not be entitled to claim a credit or
deduction with respect to foreign taxes paid
or withheld. If a Fund does elect to “pass through” its foreign taxes paid in a
taxable year, the Fund will furnish a
written statement to its shareholders reporting such shareholders proportionate
share of the Funds’ foreign taxes
paid.
Even if a
Fund qualifies for the election, foreign income and similar taxes will only pass
through to the Fund’s shareholders
if the Fund and its shareholders meet certain holding period requirements.
Specifically, (i) the shareholders
must have held the Fund shares for at least 16 days during the 31-day period
beginning 15 days prior to the date
upon which the shareholders became entitled to receive Fund distributions
corresponding with the pass through of
such foreign taxes paid by the Fund, and (ii) with respect to dividends received
by the Fund on foreign shares
giving rise to such foreign taxes, the Fund must have held the shares for at
least 16 days during the 31-day period
beginning 15 days prior to the date upon which the Fund became entitled to the
dividend. These holding periods
increase for certain dividends on preferred stock. A Fund may choose not to make
the election if the Fund has not
satisfied its holding requirement.
If a Fund
makes the election, the Fund will not be permitted to claim a credit or
deduction for foreign taxes paid in that year,
and the Fund’s dividends-paid deduction will be increased by the amount of
foreign taxes paid that year. Fund
shareholders that have satisfied the holding period requirements and certain
other requirements shall include their
proportionate share of the foreign taxes paid by the Fund in their gross income
and treat that amount as paid by them for
the purpose of the foreign tax credit or deduction. If the shareholder claims a
credit for foreign taxes paid, the
credit will be limited to the extent it exceeds the shareholder’s federal income
tax attributable to foreign source
taxable income. If the credit is attributable, wholly or in part, to qualified
dividend income (as defined below), special
rules will be used to limit the credit in a manner that reflects any resulting
dividend rate differential.
In general,
an individual with $300 ($600 if married filing jointly) or less of
creditable foreign taxes may elect to be exempt from
the foreign source taxable income and qualified dividend income limitations if
the individual has no foreign
source income other than qualified passive income. A deduction for foreign
taxes paid may only be claimed by
shareholders that itemize their deductions. Notably, for tax years between 2018
and 2025, miscellaneous itemized
deductions are suspended for non-corporate taxpayers. Accordingly, during this
time period, individuals may be more
likely to take advantage of a foreign tax credit. Shareholders should consult
their tax advisers regarding the impact
of these changes on their personal situation.
U.S. Federal Income Tax
Rates.
Noncorporate Fund shareholders (i.e., individuals, trusts and estates) currently
are taxed at a
maximum rate of 37% on ordinary income and 20% on long-term capital
gain.
In
general, “qualified dividend income” realized by noncorporate Fund
shareholders is taxable at the same rate as net capital
gain. Generally, qualified dividend income is dividend income attributable to
certain U.S. and foreign corporations,
as long as certain holding period requirements are met. All dividend income,
other than qualified dividend
income, generally will be taxed at the same rate as ordinary income. If 95% or
more of a Fund’s gross income
(excluding net long-term capital gain over net short-term capital loss)
constitutes qualified dividend income, all of its
distributions (other than capital gain dividends) will be generally treated as
qualified dividend income in the hands of
individual shareholders, as long as they have owned their Fund shares for at
least 61 days during the 121-day
period beginning 60 days before the Fund’s ex-dividend date (or, in the case of
certain preferred stock, 91
days during
the 181-day period beginning 90 days before such date). In general, if less than
95% of a Fund’s income is
attributable to qualified dividend income, then only the portion of the Fund’s
distributions that is attributable to qualified
dividend income and designated as such in a timely manner will be so treated in
the hands of individual shareholders.
Payments received by a Fund from securities lending, repurchase, and other
derivative transactions ordinarily
will not qualify as qualified dividend income. The rules attributable to the
qualification of Fund distributions
as qualified dividend income are complex, including the holding period
requirements. Individual Fund shareholders
therefore are urged to consult their own tax advisers and financial planners.
Income and bond Funds typically
do not distribute significant amounts of “qualified dividend income” eligible
for reductions in individual U.S. federal
income tax rates.
The maximum
stated corporate U.S. federal income tax rate applicable to ordinary income and
net capital gain currently
is 21%. Actual marginal tax rates may be higher for some shareholders, for
example, through reductions in deductions.
Subject to limitations and other rules, a corporate shareholder of a Fund may
not be eligible for the dividends
received deduction on Fund distributions attributable to dividends received by
the Fund from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
a deduction. For eligible
corporate shareholders, the dividends-received deduction may be subject to
certain reductions, and a distribution
by a Fund attributable to dividends of a domestic corporation will be eligible
for the deduction only if certain
holding period and other requirements are met. These requirements are complex;
therefore, corporate shareholders
of the Funds are urged to consult their own tax advisers and financial planners.
The amount of tax payable by
any taxpayer will be affected by a combination of tax laws covering, for
example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
Noncorporate
Fund shareholders with income exceeding $200,000 ($250,000 if married and filing
jointly) generally will be
subject to a 3.8% tax on their “net investment income,” which ordinarily
includes taxable distributions received
from the Funds and taxable gain on the disposition of Fund shares.
Backup Withholding. A Fund is
generally required to withhold and remit to the U.S. Treasury, subject to
certain exemptions
(such as for certain corporate or foreign shareholders), an amount equal to 24%
of all distributions and redemption
proceeds (including proceeds from exchanges and redemptions in-kind) paid or
credited to a Fund shareholder
if (i) the shareholder fails to furnish the Fund with a correct “taxpayer
identification number” (“TIN”), (ii) the
shareholder fails to certify under penalties of perjury that the TIN provided is
correct, (iii) the shareholder fails to make
certain other certifications, or (iv) the IRS notifies the Fund that the
shareholder’s TIN is incorrect or that the shareholder
is otherwise subject to backup withholding. Backup withholding is not an
additional tax imposed on the shareholder.
The shareholder may apply amounts withheld as a credit against the shareholder’s
U.S. federal income tax
liability and may obtain a refund of any excess amounts withheld, provided that
the required information is furnished
to the IRS. If a shareholder fails to furnish a valid TIN upon request, the
shareholder can also be subject to IRS
penalties. A shareholder may generally avoid backup withholding by furnishing a
properly completed IRS Form W-9. State
backup withholding may also be required to be withheld by the Funds under
certain circumstances.
Foreign
Shareholders. For
purposes of this discussion, “foreign shareholders” include: (i) nonresident
alien individuals,
(ii) foreign trusts (i.e., a trust other than a trust with respect to which a
U.S. court is able to exercise primary
supervision over administration of that trust and one or more U.S. persons have
authority to control substantial
decisions of that trust), (iii) foreign estates (i.e., the income of which is
not subject to U.S. tax regardless of source),
and (iv) foreign corporations.
Distributions
made to foreign shareholders attributable to net investment income generally are
subject to U.S. federal
income tax withholding at a 30% rate (or such lower rate provided under an
applicable income tax treaty). Notwithstanding
the foregoing, if a distribution described above is effectively connected with
the conduct of a trade or business
carried on by a foreign shareholder within the United States (or, if an income
tax treaty applies, is attributable
to a permanent establishment in the United States), federal income tax
withholding and exemptions attributable
to foreign persons will not apply. Instead, the distribution will be subject to
withholding at the highest applicable
U.S. tax rate (currently 37% in the case of individuals and 21% in the case of
corporations) and the foreign shareholder
will be subject to federal income tax reporting requirements generally
applicable to U.S. persons described
above.
Under U.S.
federal tax law, a foreign shareholder is not, in general, subject to federal
income tax or withholding tax on capital
gains (and is not allowed a deduction for losses) realized on the sale of shares
of the Funds and on long-term
capital gains dividends, provided that the Funds obtain a properly completed and
signed certificate of foreign
status, unless (i) such gains or distributions are effectively connected with
the conduct of a trade or business carried on
by the foreign shareholder within the United States (or, if an income tax treaty
applies, are attributable to a permanent
establishment in the United States of the foreign shareholder); (ii) in the case
of an individual foreign shareholder,
the shareholder is present in the United States for a period or periods
aggregating 183 days or more during the
year of the sale and certain other conditions are met; or (iii) the shares of
the Funds constitute U.S. real property
interests (“USRPIs”), as described below.
Under
current law, if a Fund is considered to be a “United States Real Property
Holding Corporation” (as defined in the Code
and Treasury Regulations), then distributions attributable to certain underlying
real estate investment trust (“REIT”)
investments and redemption proceeds paid to a foreign shareholder that owns at
least 5% of a Fund, generally
will cause the foreign shareholder to treat such gain or distribution as income
effectively connected with a trade or
business in the United States, subject to such gain or distribution withholding
tax and cause the foreign shareholder
to be required to file a federal income tax return. In addition, in any year
when at least 50% of a Fund’s assets are
USRPIs (as defined in the Code and Treasury Regulations), distributions of the
Fund that are attributable to gains from
the sale or exchange of shares in USRPIs may be subject to U.S. withholding tax
(regardless of such shareholder’s
percentage interest in the Fund) and may require the foreign shareholder to file
a U.S. federal income tax return
in order to receive a refund (if any) of the withheld amount.
Subject to
the additional rules described herein, federal income tax withholding will apply
to distributions attributable
to dividends and other investment income distributed by the Funds. The federal
income tax withholding rate may be
reduced (and, in some cases, eliminated) under an applicable tax treaty between
the United States and the foreign
shareholder’s country of residence or incorporation. In order to qualify for
treaty benefits, a foreign shareholder
must comply with applicable certification requirements relating to its foreign
status (generally by providing a
Fund with a properly completed Form W-8BEN).
Pursuant to
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax
generally is imposed on payments of
interest and dividends to (i) foreign financial institutions including non-U.S.
investment funds and (ii) certain
other foreign entities, unless the foreign financial institution or foreign
entity provides the withholding agent with
documentation sufficient to show that it is compliant with FATCA (generally by
providing the Fund with a properly
completed Form W-8BEN or Form W-8BEN-E, as applicable). If the payment is
subject to the 30% withholding
tax under FATCA, a foreign shareholder will not be subject to the 30%
withholding tax described above on the same
income. Under proposed regulations, FATCA withholding on the gross proceeds of
share redemptions and certain
capital gain distributions, scheduled to take effect beginning January 1, 2019,
has been eliminated. Such proposed
regulations are subject to change.
Before
investing in a Fund’s shares, a prospective foreign shareholder should consult
with its own tax advisors, including
whether the shareholder’s investment can qualify for benefits under an
applicable income tax treaty.
Tax-Deferred Plans. Shares of
the Funds may be available for a variety of tax-deferred retirement and other
tax-advantaged
plans and accounts. However, shares of a Tax-Free Fund may not be suitable for
tax-deferred, retirement
and other tax-advantaged plans and accounts, since such plans and accounts are
generally tax-exempt and,
therefore, would not benefit from the tax-exempt status of certain distributions
from the Tax-Free Fund (discussed
below). Such distributions may ultimately be taxable to the beneficiaries when
distributed to them.
Prospective
investors should contact their tax advisers and financial planners regarding the
tax consequences to them of
holding Fund shares through such plans and/or accounts.
Tax-Exempt
Shareholders. Shares of
a Tax-Free Fund may not be suitable for tax-exempt shareholders since such
shareholders
generally would not benefit from the tax-exempt status of distributions from the
Tax-Free Funds (discussed
below). Tax-exempt shareholders should contact their tax advisers and financial
planners regarding the tax
consequences to them of an investment in the Funds.
Any
investment in residual interests of a collateralized mortgage obligation that
has elected to be treated as a REMIC can create
complex U.S. federal income tax consequences, especially if a Fund has state or
local governments or other
tax-exempt organizations as shareholders.
Special tax
consequences apply to charitable remainder trusts (“CRTs”) (as defined in
Section 664 of the Code) that invest in
RICs that invest directly or indirectly in residual interests in REMICs or
equity interests in TMPs. CRTs are urged to
consult their own tax advisers and financial planners concerning these special
tax consequences.
Foreign Bank and Financial Accounts and
Foreign Financial Assets Reporting Requirements. A
shareholder that owns directly or
indirectly more than 50% by vote or value of the Fund, is urged and advised to
consult its own tax adviser regarding
its filing obligations with respect to IRS Form FinCEN114, Report of Foreign
Bank and Financial Accounts.
Also, under
recently enacted rules, subject to exceptions, individuals (and, to the extent
provided in forthcoming future U.S.
Treasury regulations, certain domestic entities) must report annually their
interests in “specified foreign financial
assets” on their U.S. federal income tax returns. It is currently unclear
whether and under what circumstances
stockholders would be required to report their indirect interests in the Fund’s
“specified foreign financial
assets” (if any) under these new rules.
Shareholders
may be subject to substantial penalties for failure to comply with these
reporting requirements. Shareholders
are urged and advised to consult their own tax advisers to determine whether
these reporting requirements
are applicable to them.
Tax Shelter Reporting
Regulations. Generally,
under U.S. Treasury regulations, if an individual shareholder recognizes
a loss of
$2 million or more or if a corporate shareholder recognizes a loss of $10
million or more, the shareholder must file
with the IRS a disclosure statement on Form 8886. The fact that a loss is
reportable under these regulations does not
affect the legal determination of whether the taxpayer’s treatment of the loss
is proper. Shareholders should
consult their own tax advisers to determine the applicability of these
regulations in light of their individual circumstances.
Additional Considerations for the Tax-Free
Funds. If at
least 50% of the value of a Fund’s total assets at the close of each
quarter of its taxable years consists of debt obligations that generate interest
exempt from U.S. federal income tax under
Section 103 of the Internal Revenue Code, then the Fund may qualify to pass
through to its shareholders the
tax-exempt character of its income from such debt obligations by paying
exempt-interest dividends. The Tax-Free
Funds intend to so qualify and are designed to provide shareholders with income
exempt from U.S. federal income tax
in the form of exempt-interest dividends. “Exempt-interest dividends” are
dividends (other than capital gain
dividends) paid by a RIC that are properly reported as such in a written
statement furnished to shareholders.
Each
Tax-Free Fund will report to its shareholders the portion of the distributions
for the taxable year that constitutes exempt-interest
dividends. The designated portion cannot exceed the excess of the amount of
interest excludable from gross
income under Section 103 of the Internal Revenue Code received by a Tax-Free
Fund during the taxable year over
any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the
Internal Revenue Code. Interest on
indebtedness incurred to purchase or carry shares of the Tax-Free Funds will not
be deductible to the extent that
the Tax-Free Funds’ distributions are exempt from U.S. federal income tax. In
addition, an investment in a Tax-Free
Fund may result in liability for U.S. federal alternative minimum tax (“AMT”)
for noncorporate shareholders. Certain
deductions and exemptions have been designated “tax preference items” which must
be added back to taxable
income for purposes of calculating the U.S. federal AMT for noncorporate
shareholders. Tax preference items include
tax-exempt interest on certain “private activity bonds.” To the extent a
Tax-Free Fund invests in certain private
activity bonds, its shareholders will be required to report that portion of the
Fund’s distributions attributable to income
from the bonds as a tax preference item in determining noncorporate
shareholders’ U.S. federal AMT, if any.
Shareholders will be notified of the tax status of distributions made by a
Tax-Free Fund.
Persons who
may be “substantial users” (or “related persons” of substantial users) of
facilities financed by private activity
bonds should consult their tax advisers before purchasing shares in a Tax-Free
Fund. Furthermore, noncorporate
shareholders will not be permitted to deduct any of their share of a Tax-Free
Fund’s expenses in computing
their U.S. federal AMT. As of the date of this filing, individuals are subject
to the U.S. federal AMT at a maximum
rate of 28%. Corporations are not subject to the U.S. federal AMT for taxable
years beginning after
December
31, 2017. Shareholders with questions or concerns about the U.S. federal AMT
should consult own their own tax
advisers.
The IRS is
paying increased attention to whether debt obligations intended to produce
interest exempt from U.S. federal
income tax in fact meet the requirements for such exemption. Ordinarily, the
Tax-Free Funds rely on opinions from the
issuer’s bond counsel that interest on the issuer’s debt obligation will be
exempt from U.S. federal income tax.
However, no assurance can be given that the IRS will not successfully challenge
such exemption, which could cause
interest on the debt obligation to be taxable and could jeopardize a Tax-Free
Fund’s ability to pay any exempt-interest
dividends. Similar challenges may occur as to state-specific
exemptions.
A
shareholder who receives Social Security or railroad retirement benefits should
consult the shareholder’s own tax adviser to
determine what effect, if any, an investment in a Tax-Free Fund may have on the
U.S. federal taxation of such
benefits. Exempt-interest dividends are included in income for purposes of
determining the amount of benefits that are
taxable.
Distributions
of a Tax-Free Fund’s income other than exempt-interest dividends generally will
be taxable to shareholders.
Gains realized by a Tax-Free Fund on the sale or exchange of investments that
generate tax-exempt income will
also be taxable to shareholders.
Although
exempt-interest dividends are generally exempt from U.S. federal income tax,
there may not be a similar exemption
under the laws of a particular state or local taxing jurisdiction. Thus,
exempt-interest dividends may be subject to
state and local taxes. You should consult your own tax advisor to discuss the
tax consequences of your investment
in a Tax-Free Fund.
Legislative
Proposals.
Prospective shareholders should recognize that the present U.S. federal income
tax treatment of the
Funds and their shareholders may be modified by legislative, judicial or
administrative actions at any time, which may
be retroactive in effect. The rules dealing with U.S. federal income taxation
are constantly under review by
Congress, the IRS and the Treasury Department, and statutory changes as well as
promulgation of new regulations,
revisions to existing statutes, and revised interpretations of established
concepts occur frequently. You should
consult your advisors concerning the status of legislative proposals that may
pertain to holding Fund shares.
Cost Basis Reporting
Each Fund
or its delegate is required to report cost basis information for
shareholders who are individuals and S Corporations
to the Internal Revenue Service for redemptions of Fund shares acquired on or
after January 1, 2012. This
information will also be reported to a shareholder on Form 1099-B and the IRS
each year. If a shareholder is a
corporation and has not instructed a Fund that it is a C corporation by written
instruction, the Fund will treat the shareholder
as an S corporation and file a Form 1099-B.
Fund
shareholders should consult their tax advisors to obtain more information about
how the new cost basis rules apply to
them and determine which cost basis method allowed by the Internal Revenue
Service is best for their tax situation.
Methods allowed by the IRS include, but are not limited to:
■ |
Average
Cost. The
cost per share is determined by dividing the aggregate cost amount by the
total shares in the account.
The basis of the shares redeemed is determined by multiplying the shares
redeemed by the cost per share.
Starting in 2012, accounts may maintain two separate average costs: one
average for covered shares and a separate
average for noncovered shares. Under the Average Cost method, noncovered
shares are generally depleted
first. |
■ |
First
in first out (FIFO).
Shares acquired first in the shareholder’s account are the first shares
depleted and determine
the shareholder’s cost basis. The basis of the shares redeemed is
determined by the adjusted purchase price
of each date the shares were acquired. |
■ |
Specific
Identification. A
shareholder selects the shares to be redeemed from any of the purchase
lots that still have
shares remaining. The basis of the shares redeemed is determined by the
adjusted purchase price of each date
the shares were acquired. |
In the
absence of a shareholder method election, the Fund will apply its default
method, Average Cost. If the Average
Cost method is applied either by default or at the shareholder’s election, the
shareholder’s ability to change such
election once a sale occurs will be limited under the IRS rules. After an
election has been made, but before a
disposition
of shares occurs, a shareholder may make a retroactive change to an alternate
method. The cost basis method a
shareholder elects may not be changed with respect to a redemption of shares
after the settlement date of the
redemption. At any time, a shareholder may designate a new election for future
purchases.
Redemptions
of shares acquired prior to January 1, 2012 will continue to be reported using
the Average Cost method, if
available, and will not be reported to the IRS.
Money Market Fund
Shares. The cost
basis reporting rules described above do not apply to shares in money market
funds.
Beginning in 2016, pursuant to SEC rules, certain money market funds began using
a floating net asset value rather than
a stable net asset value. However, the IRS has issued regulations that permit
taxpayers to utilize a simplified
method of accounting for gains and losses from redemptions of shares in money
market funds that have a floating
net asset value (the “NAV method”). If taxpayers properly elect the NAV method,
taxpayers will not compute gain or
loss for each redemption. Instead, taxpayers utilizing the NAV method, will
aggregate the gains and losses for a period
and report the aggregate gain or loss on an annual basis. If taxpayers do not
elect the NAV method, the wash sales
rules shall not apply to losses generated by the redemption of money market
shares. Any capital gains or losses
reported utilizing the NAV method will be short-term capital gains or
losses.
CONTROL
PERSONS AND PRINCIPAL FUND HOLDERS
The
Funds
are two series
of the Trust in the Allspring family of funds. The Trust was organized as a
Delaware statutory trust on
March 10, 1999.
Most of the
Trust’s series are authorized to issue multiple classes of shares, one class
generally subject to a front-end sales
charge and, in some cases, classes subject to a CDSC, that are offered to retail
investors. Certain of the Trust’s series also
are authorized to issue other classes of shares, which are sold primarily to
institutional investors. Each share in a
series represents an equal, proportionate interest in the series with all other
shares. Shareholders bear their pro
rata portion of a series’ operating expenses, except for certain class-specific
expenses (e.g., any state securities
registration fees, shareholder servicing fees or distribution fees that may be
paid under Rule 12b-1) that are
allocated to a particular class. Please contact Investor Services at
1-800-222-8222 if you would like additional information
about other series or classes of shares offered.
With
respect to matters affecting one class but not another, shareholders vote as a
class; for example, the approval of a Plan.
Subject to the foregoing, all shares of a Fund have equal voting rights and will
be voted in the aggregate, and not by
series, except where voting by a series is required by law or where the matter
involved only affects one series. For
example, a change in a Fund’s fundamental investment policy affects only one
series and would be voted upon only
by shareholders of the Fund involved. Additionally, approval of an advisory
agreement, since it affects only one Fund,
is a matter to be determined separately by each series. Approval by the
shareholders of one series is effective
as to that series whether or not sufficient votes are received from the
shareholders of the other series to approve the
proposal as to those series.
As used in
the Prospectus(es) and in this SAI, the term “majority,” when referring to
approvals to be obtained from shareholders
of a class of shares of a Fund means the vote of the lesser of (i) 67% of the
shares of the class represented
at a meeting if the holders of more than 50% of the outstanding shares of the
class are present in person or
by proxy, or (ii) more than 50% of the outstanding shares of the class of the
Fund. The term “majority,” when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term “majority,”
when referring to the approvals to be obtained from shareholders of the Trust as
a whole, means the vote of the
lesser of (i) 67% of the Trust’s shares represented at a meeting if the holders
of more than 50% of the Trust’s outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Trust’s
outstanding shares.
Shareholders
are not entitled to any preemptive rights. All shares are issued in
uncertificated form only, and, when issued will
be fully paid and non-assessable by the Trust. The Trust may dispense with an
annual meeting of shareholders
in any year in which it is not required to elect Trustees under the 1940
Act.
Each share
of a class of a Fund represents an equal proportional interest in the Fund with
each other share of the same class
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to the Fund as
are declared in the discretion of the Trustees. In the event of the liquidation
or dissolution of the Trust, shareholders
of a Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and
on such basis as the Trustees in their sole discretion may
determine.
From time
to time, the Manager and/or its affiliates may invest seed capital in a Fund.
These investments are generally
intended to enable the Fund to commence investment operations and/or achieve
sufficient scale. The Manager
and/or its affiliates may redeem some or all of its seed capital investment in a
Fund at any time and without prior
notice, including at a time when such Fund has not otherwise achieved sufficient
scale. The redemption of seed
capital may adversely affect a Fund and its shareholders, including by causing
the Fund to realize gains that will be
distributed and may be taxable to remaining shareholders of the Fund, increasing
the Fund’s operating expense ratio and
transaction costs and leaving the Fund with remaining assets that are
insufficient to support the Fund’s continued
operation.
Set forth
below as of July 1,
2022, the following owned of record and/or beneficially 5% or more of the
outstanding shares of a
class or 25% or more of the outstanding shares of a Fund, as applicable.
Additionally, as of July 1,
2022,
the
Trustees and Officers of the Trust, as a group, beneficially owned less than 1%
of the outstanding shares of the Trust.
|
|
Principal
Fund Holders |
|
Precious
Metals Fund Class
A |
|
National
Financial Services, LLC For
Exclusive Benefit Of Our Customers Attn
Mutual Fund Dept 4th Fl 499
Washington Blvd Jersey
City, NJ 07310-1995 |
26.32% |
Wells
Fargo Clearing Services LLC Special
Custody Acct For The Exclusive
Benefit of Customers 2801
Market St Saint
Louis, MO 63103-2523 |
9.66% |
Precious
Metals Fund Class
C |
|
Wells
Fargo Clearing Services LLC Special
Custody Acct For The Exclusive
Benefit of Customer 2801
Market St Saint
Louis, MO 63103-2523 |
50.28% |
National
Financial Services, LLC For
Exclusive Benefit of our Customers Attn
Mutual Fund Dept, 4th Floor 499
Washington Blvd. Jersey
City, NJ 07310-1995 |
10.27% |
American
Enterprise Investment Services 707
2nd Ave South Minneapolis,
MN 55402-2405 |
9.82% |
Pershing
LLC 1
Pershing Plaza Jersey
City, NJ 07399-0002 |
8.60% |
Precious
Metals Fund Administrator
Class |
|
C/O
Fascore LLC Great-West
Trust Company LLC TTEE Great
West IRA Advantage 8515
E Orchard Rd Greenwood
Village, CO 80111-5002 |
45.90% |
Charles
Schwab & Co Inc Special
Custody Account Exclusively
FBO The Customers 211
Main Street San
Francisco, CA 94105-1905 |
36.97% |
State
Street Bank and Trust As
Trustee and/or Custodian FBO
ADP Access Product 1
Lincoln Street Boston,
MA 02111-2901 |
5.50% |
Precious
Metals Fund Institutional
Class |
|
c/o
Rockland SWP SEI
Private Trust Company 1 Freedom
Valley Drive Oaks,
PA 19456-9989 |
16.36% |
|
|
Principal
Fund Holders |
|
LPL
Financial Omnibus
Customer Account Attn
Mutual Fund Trading 4707
Executive Dr San
Diego, CA 92121-3091 |
13.64% |
National
Financial Services, LLC For
Exclusive Benefit Of Our Customers Attn:
Mutual Fund Dept. 4th Floor 499
Washington Blvd. Jersey
City, NJ 07310-1995 |
11.74% |
RBC
Capital Markets LLC Mutual
Fund Omnibus Processing Attn
Mutual Fund Ops Manager 60 S
6th St Minneapolis,
MN 55402-4413 |
5.10% |
Pershing,
LLC 1
Perching Plaza Jersey
City, NJ 07399-0002 |
5.10% |
Utility
and Telecommunications Fund Class
A |
|
Wells
Fargo Clearing Services LLC Special
Custody Acct for the Exclusive
Benefit of Customers 2801
Market St Saint
Louis, MO 63103-2523 |
16.65% |
National
Financial Services LLC For
Exclusive Benefit Of Our Customers Attn
Mutual Fund Dept 4th FL 499
Washington Blvd Jersey
City, NJ 07310-1995 |
7.14% |
Utility
and Telecommuniciations Fund Class
C |
|
American
Enterprise Investment Services 707
2nd Ave S Minneapolis,
MN 55402-2405 |
29.84% |
Wells
Fargo Clearing Services LLC Special
Custody Acct for the Exclusive
Benefit of Customers 2801
Market St Saint
Louis, MO 63103-2523 |
20.68% |
National
Financial Services LLC For
Exclusive Benefit of Our Customers Attn
Mutual Fund Dept 4th FL 499
Washington Blvd Jersey
City, NJ 07310-1995 |
10.58% |
Pershing
LLC 1
Pershing Plz Jersey
City, NJ 07399-0002 |
9.45% |
Morgan
Stanley Smith Barney LLC For
The Exclusive Benefit Of Its Customer 1 New
York Plz FL 12 New
York, NY 10004-1932 |
8.26% |
Utility
and Telecommuniciations Fund Administrator
Class |
|
National
Financial Services LLC For
Exclusive Benefit of our Customers Attn
Mutual Fund Dept, 4th Floor 499
Washington Blvd. Jersey
City, NJ 07310-1995 |
37.99% |
|
|
Principal
Fund Holders |
|
Charles
Schwab & Co Inc Special
Custody Acct FBO Customers Attn
Mutual Funds 211
Main Street San
Francisco, CA 94105-1905 |
17.38% |
TD
Ameritrade Inc FBO
Our Customers PO
Box 2226 Omaha,
NE 68103-2226 |
15.61% |
Wells
Fargo Clearing Services LLC Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St Saint
Louis, MO 63103-2523 |
12.40% |
Pershing
LLC 1
Pershing Plz Jersey
City, NJ 07399-0002 |
9.27% |
Charles
Schwab & Co Inc Special
Custody Acct FBO Customers Attn
Mutual Funds 211
Main Street San
Francisco, CA 94105-1905 |
5.33% |
Utility
and Telecommuniciations Fund Institutional
Class |
|
Pershing
LLC 1
Pershing Plz Jersey
City, NJ 07399-0002 |
29.32% |
National
Financial Services LLC For
Exclusive Benefit of Our Customers Attn
Mutual Fund Dept 4th FL 499
Washington Blvd Jersey
City, NJ 07310-1995 |
21.14% |
American
Enterprise Investment 707
2nd Ave S Minneapolis,
MN 55402-2405 |
7.51% |
Wells
Fargo Clearing Services LLC Special
Custody Acct for the Exclusive
Benefit of Customer 2801
Market St Saint
Louis, MO 63103-2523 |
7.29% |
TD
Ameritrade Inc For
The Exclusive Benefit Of Our Clients PO
Box 2226 Omaha,
NE 68103-2226 |
|
LPL
Financial Omnibus
Customer Account Attn
Mutual Fund Trading 4707
Executive Dr San
Diego, CA 92121-3091 |
5.88% |
For
purposes of the 1940 Act, any person who owns directly or through one or more
controlled companies more than 25% of
the voting securities of a company is presumed to “control” such company.
Accordingly, to the extent that a
person identified in the foregoing table is identified as the beneficial owner
of more than 25% of a Fund, or is identified
as the record owner of more than 25% of a Fund and has voting and/or investment
powers, it may be presumed to
control such Fund. A controlling person’s vote could have a more significant
effect on matters presented
to shareholders for approval than the vote of other Fund
shareholders.