|
|
Ticker | |||||
Share
Class |
A |
C |
Y |
R6 |
R5 |
Investor |
American
Beacon SiM High Yield Opportunities Fund |
SHOAX |
SHOCX |
SHOYX |
|
SHOIX |
SHYPX |
American
Beacon The London Company Income Equity Fund |
ABCAX |
ABECX |
ABCYX |
ABCRX |
ABCIX |
ABCVX |
Strategy/Risk |
American
Beacon
SiM High
Yield Opportunities
Fund |
American
Beacon
The London
Company
Income
Equity
Fund |
Asset-Backed
Securities |
X |
|
Borrowing
Risk |
X |
X |
Callable
Securities |
X |
|
Cash
Equivalents and Other Short-Term Investments |
X |
X |
Bank
Deposit Notes |
X |
X |
Bankers’
Acceptances |
X |
X |
Bearer
Deposit Notes |
X |
X |
CDs |
X |
X |
Commercial
Paper |
X |
X |
Eurodollar
and Yankee CD Obligations |
X |
|
Government
Money Market Funds |
X |
X |
Government
Obligations |
X |
X |
Repurchase
Agreements |
X |
|
Short-term
Corporate Debt Securities |
X |
X |
Time
Deposits |
X |
X |
Collateralized
Bond Obligations, Collateralized Debt Obligations and Collateralized Loan
Obligations |
X |
|
Commodity
Instruments |
X |
|
Contingent
Convertible Securities (“CoCos”) |
X |
|
Convertible
Securities |
X |
|
Synthetic
Convertible Securities |
X |
|
Corporate
Actions |
X |
|
“Covenant-Lite”
Obligations Risk |
X |
|
Cover
and Asset Segregation |
X |
X |
Creditor
Liability and Participation on Creditors’ Committees |
X |
|
Currencies
Risk |
X |
|
Cybersecurity
and Operational Risk |
X |
X |
Debentures |
X |
|
Delayed
Funding Loans and Revolving Credit Facilities |
X |
|
Derivatives |
X |
X |
Strategy/Risk |
American
Beacon
SiM High
Yield Opportunities
Fund |
American
Beacon
The London
Company
Income
Equity
Fund |
Forward
Contracts |
X |
|
Forward
Foreign Currency Contracts |
X |
|
Non-Deliverable
Currency Forwards |
X |
|
Futures
Contracts |
X |
X |
Swap
Agreements |
X |
|
Credit
Default Swaps |
X |
|
Currency
Swaps |
X |
|
Equity
Swaps |
X |
|
Interest
Rate and Inflation Swaps |
X |
|
Total
Return Swaps |
X |
|
Volatility
Swaps |
X |
|
Warrants |
X |
|
Distressed
Investment Risk |
X |
|
Equity
Investments |
X |
X |
Common
Stock |
X |
X |
Depositary
Receipts |
X |
X |
ADRs |
X |
X |
EDRs |
X |
|
GDRs |
X |
|
NVDRs |
X |
|
Income
Deposit Securities |
X |
|
Income
Trusts |
X |
|
Initial
Public Offerings |
X |
|
Master
Limited Partnerships |
X |
|
Event-Linked
Exposure |
X |
|
Expense
Risk |
X |
X |
Fixed-Income
Investments |
X |
|
Corporate
Debt and Other Fixed-Income Securities |
X |
|
High-Yield
Bonds |
X |
|
Master
Demand Notes |
X |
|
Tennessee
Valley Authority Securities |
X |
|
Floaters
and Inverse Floaters |
X |
|
Foreign
Debt Securities |
X |
|
Foreign
Securities |
X |
X |
African
Securities |
X |
|
Canadian
Securities |
X |
Strategy/Risk |
American
Beacon
SiM High
Yield Opportunities
Fund |
American
Beacon
The London
Company
Income
Equity
Fund |
Chinese
Company Securities |
X |
|
Eastern
European and Russian Securities |
X |
|
Emerging
Market Securities |
X |
|
European
Securities |
X |
|
Latin
American Securities |
X |
|
Middle
East Securities |
X |
|
Pacific
Basin Securities |
X |
|
Growth
Companies |
X |
X |
Illiquid
and Restricted Securities |
X |
|
Inflation-Indexed
Securities |
X |
|
Interfund
Lending |
X |
X |
Issuer
Risk |
X |
X |
Large-Capitalization
Companies Risk |
X |
X |
Leverage
Risk |
X |
|
LIBOR
Risk |
X |
|
Loan
Interests, Participations and Assignments |
X |
|
Micro-Capitalization
Companies Risk |
X |
|
Mid-Capitalization
Companies Risk |
X |
X |
Mortgage-Backed
Securities |
X |
|
Collateralized
Mortgage Obligations (“CMOs”) |
X |
|
Collateralized
Mortgage Obligation (“CMO”) Residuals |
X |
|
Commercial
Mortgage-Backed Securities (“CMBSs”) |
X |
|
Mortgage
Dollar Rolls |
X |
|
Mortgage
Pass-Through Securities |
X |
|
Residential
Mortgage-Backed Securities (“RMBSs”) |
X |
|
Stripped
Mortgage-Backed Securities (“SMBSs”) |
X |
|
Municipal
Securities |
X |
|
Anticipation
Notes |
X |
|
Commercial
Paper |
X |
|
General
Obligation Bonds |
X |
|
Municipal
Lease Obligations |
X |
|
Municipal
Warrants |
X |
|
Private
Activity Bonds |
X |
|
Resource
Recovery Obligations |
X |
|
Revenue
Obligations |
X |
|
Other
Investment Company Securities and Exchange-Traded Products |
X |
X |
ETFs |
X |
|
Money
Market Funds |
X |
X |
Strategy/Risk |
American
Beacon
SiM High
Yield Opportunities
Fund |
American
Beacon
The London
Company
Income
Equity
Fund |
Pay-in-Kind
Securities |
X |
|
Preferred
Stock |
X |
X |
Prepayment
and Extension Risk |
X |
|
Real
Estate Related Investments |
X |
X |
Reliance
on Corporate Management and Financial Reporting Risk |
X |
|
Senior
Loans |
X |
|
Separately
Traded Registered Interest and Principal Securities and Other Zero-Coupon
Obligations |
X |
|
Small-Capitalization
Companies Risk |
X |
X |
Sovereign
and Quasi-Sovereign Government and Supranational Debt |
X |
|
Supranational
Risk |
X |
|
Time-Zone
Arbitrage |
X |
|
Trust
Preferred Securities |
X |
X |
U.S.
Government Agency Securities |
X |
|
U.S.
Treasury Obligations |
X |
|
Unrated
Securities Risk |
X |
|
Value
Companies Risk |
X |
X |
Variable
or Floating Rate Obligations |
X |
|
Variable
Rate Auction and Residual Interest Obligations |
X |
|
When-Issued
and Forward Commitment Transactions |
X |
■ |
Bank
Deposit Notes.
Bank deposit notes are obligations of a bank that provide an alternative
to certificates of deposit. Similar to certificates of deposit,
deposit notes represent bank level investment and, therefore, are senior
to all holding company corporate debt. Bank deposit notes rank
junior
to domestic deposit liabilities of the bank and pari passu with other
senior, unsecured obligations of the bank. Typically, bank deposit notes
are not
insured by the Federal Deposit Insurance Corporation or any other
insurer. |
■ |
Bankers’
Acceptances.
Bankers’ acceptances are short-term credit instruments designed to enable
businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by
an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then “accepted” by a bank that,
in effect, unconditionally guarantees to pay the face value of the
instrument
on its maturity date. The acceptance may then be held by the accepting
bank as an earning asset or it may be sold in the secondary market
at the going rate of discount for a specific maturity. Most acceptances
have maturities of six months or less. Bankers’ acceptances rank junior
to
domestic deposit liabilities of the bank and pari passu with other senior,
unsecured obligations of the bank.
|
■ |
Bearer
Deposit
Notes.
Bearer deposit notes, or bearer bonds, are bonds or debt securities that
entitle the holder of the document to ownership or title
in the deposit. Such notes are typically unregistered, and whoever
physically holds the bond is presumed to be the owner of the instrument.
Recovery
of the value of a bearer bond in the event of its loss or destruction
usually is impossible. Interest is typically paid upon presentment of an
interest
coupon for payment. |
■ |
CDs.
CDs are negotiable certificates issued against funds deposited in an
eligible bank (including its domestic and foreign branches, subsidiaries
and agencies)
for a definite period of time and earning a specified rate of return. U.S.
dollar denominated CDs issued by banks abroad are known as Eurodollar
CDs. CDs issued by foreign branches of U.S. banks are known as Yankee
CDs. |
■ |
Commercial
Paper.
Commercial paper is a short-term debt security issued by a corporation,
bank, municipality, or other issuer, usually for purposes such
as financing current operations. A Fund may invest in commercial paper
that cannot be resold to the public without an effective registration
statement
under the Securities Act. While some restricted commercial paper normally
is deemed illiquid, in certain cases it may be deemed
liquid. |
■ |
Eurodollar
and Yankee CD Obligations.
Eurodollar obligations are U.S. dollar obligations issued outside the
United States by domestic or foreign entities,
while Yankee CDs are U.S. dollar obligations issued inside the United
States by foreign entities. There is generally less publicly available
information
about foreign issuers and there may be less governmental regulation and
supervision of foreign stock exchanges, brokers and listed companies.
Foreign issuers may use different accounting and financial standards, and
the addition of foreign governmental restrictions may affect adversely
the payment of principal and interest on foreign investments. In addition,
not all foreign branches of United States banks are supervised or
examined
by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements. Eurodollar (and, to a
limited
extent, Yankee dollar) obligations are subject to certain sovereign risks.
One such risk is the possibility that a sovereign country might prevent
capital,
in the form of dollars, from flowing across its borders. Other risks
include adverse political and economic developments; the extent and
quality
of government regulation of financial markets and institutions; the
imposition of foreign withholding taxes; and the expropriation or
nationalization
of foreign issuers. |
■ |
Government
Money Market Funds. A
Fund may invest cash balances in money market funds that are registered as
investment companies under the
Investment Company Act, including money market funds that are advised by
the Manager. Money market funds invest in highly-liquid, short-term
instruments, which include cash and cash equivalents, and debt securities
with high credit ratings and short-term maturities, such as U.S.
Treasuries.
A “government money market fund” is required to invest at least 99.5% of
its total assets in cash, U.S. government securities, and/or repurchase
agreements that are fully collateralized by government securities or cash.
Government securities include any security issued or guaranteed
as to principal or interest by the U.S. government and its agencies or
instrumentalities. By investing in a money market fund, a Fund
becomes
a shareholder of that money market fund. As a result, Fund shareholders
indirectly bear their proportionate share of the expenses of the
money
market funds in which a Fund invests in addition to any fees and expenses
Fund shareholders directly bear in connection with a Fund’s own
operations.
These expenses may include, for example, advisory and administrative fees,
including advisory fees charged by the Manager to any applicable
money market funds advised by the Manager. These other fees and expenses
are reflected in the Fees and Expenses Table for a Fund in its
|
Prospectus,
if applicable. Shareholders also would be exposed to the risks associated
with money market funds and the portfolio investments of such money
market funds, including that a money market fund’s yield will be lower
than the return that a Fund would have derived from other investments
that would provide liquidity. Although a money market fund is designed to
be a relatively low risk investment, it is not free of risk. Despite
the short maturities and high credit quality of a money market fund’s
investments, increases in interest rates and deteriorations in the credit
quality
of the instruments the money market fund has purchased can cause the price
of a money market security to decrease and may reduce the money
market fund’s yield. In addition, a money market fund is subject to the
risk that the value of an investment may be eroded over time by
inflation.
Factors that could adversely affect the value of a money market fund’s
shares include, among other things, a sharp rise in interest rates, an
illiquid
market for the securities held by the money market fund, a high volume of
redemption activity in a money market fund’s shares, and a credit
event
or credit rating downgrade affecting one or more of the issuers of
securities held by the money market fund. There can be no assurance that a
money
market fund will maintain a $1.00 per share net asset value (“NAV”) at all
times. The
failure of an unrelated money market fund to maintain a
stable NAV could create a widespread risk of increased redemption
pressures on all money market funds, potentially jeopardizing the
stability of their
NAVs. Certain money market funds have in the past failed to maintain
stable NAVs, and there can be no assurance that such failures and
resulting
redemption pressures will not impact money market funds in the future.
In
the event of negative gross yields as a result of persistent negative
interest rates, government money market funds may consider various options
including but not limited to (1) the implementation of a reverse
distribution or share cancellation mechanism (that would periodically
reduce the number of the fund’s outstanding shares) to maintain a
stable
net asset value per share or (2) the potential conversion to a floating
net asset value per share money market fund. Certain
money market funds
may impose a fee upon sale of shares or may temporarily suspend the
ability to sell shares of the money market fund if the money market
fund’s
liquidity falls below required minimums because of market conditions or
other factors, at the determination of the money market fund’s
board.
Such a determination may conflict with the interest of a Fund. Government
money market funds are generally not permitted to impose liquidity
fees or temporarily suspend redemptions. However, government money market
funds typically offer materially lower yields than other money
market funds. Money market funds and the securities they invest in are
subject to comprehensive regulations. The enactment of new legislation
or regulations, as well as changes in interpretation and enforcement of
current laws, may affect the manner of operation, performance and/or
yield of money market funds. An
investment in a money market fund is not a bank deposit and is not insured
or guaranteed by any bank, the FDIC
or any other government agency. |
■ |
Government
Obligations.
Government obligations may include U.S. Treasury securities, Treasury
inflation-protected securities, and other debt instruments
backed by the full faith and credit of the United States, or debt
obligations of U.S. Government-sponsored
entities. |
■ |
Repurchase
Agreements.
Repurchase agreements are agreements pursuant to which a Fund purchases
securities from a bank that is a member of the
Federal Reserve System (or a foreign bank or U.S. branch or agency of a
foreign bank), or from a securities dealer, that agrees to repurchase the
securities
from a Fund at a higher price on a designated future date. Repurchase
agreements generally are for a short period of time, usually less
than
a week. Costs, delays, or losses could result if the selling party to a
repurchase agreement becomes bankrupt or otherwise
defaults. |
■ |
Short-term
Corporate
Debt Securities.
Short-term corporate debt securities are securities and bonds issued by
corporations with shorter terms to maturity.
Corporate securities generally bear a higher risk than U.S. government
bonds. |
■ |
Time
Deposits.
Time deposits, also referred to as “fixed time deposits,” are
non-negotiable deposits maintained at a banking institution for a
specified
period of time at a specified interest rate. Time deposits may be
withdrawn on demand by the investor, but may be subject to early
withdrawal
penalties which vary depending upon market conditions and the remaining
maturity of the obligation. There are no contractual restrictions
on the right to transfer a beneficial interest in a time deposit to a
third party, although there is no market for such deposits.
|
■ |
Synthetic
Convertible Securities. A
sub-advisor to a Fund or third party may create a “synthetic” convertible
security by combining fixed income securities
with the right to acquire equity securities. More flexibility is possible
in the assembly of a synthetic convertible security than in the purchase
of
a convertible security. Although synthetic convertible securities may be
selected where the two components are issued by a single issuer, thus
making
the synthetic convertible security similar to a true convertible security,
the character of a synthetic convertible security allows the combination
of components representing more than one issuer, when a sub-advisor
believes that such a combination would better promote a Fund’s
investment
objective. A synthetic convertible security also is a more flexible
investment in that its two components may be purchased separately. For
example,
a Fund may purchase a warrant for inclusion in a synthetic convertible
security but temporarily hold short-term investments while postponing
the purchase of a corresponding bond pending development of more favorable
market conditions. A Fund faces the risk of a decline in the price of the security or the level of the index involved in the convertible component, causing a decline in the value of the call option or warrant purchased to create the synthetic convertible security. Should the price of the stock fall below the exercise price and remain there throughout the exercise period, the entire amount paid for the call option or warrant would be lost. Because a synthetic convertible security includes the fixed income component as well, as with a convertible security, a Fund faces the risk that interest rates will rise, causing a decline in the value of the fixed income instrument. A Fund may also purchase synthetic convertible securities manufactured by other parties, including convertible structured notes. Convertible structured notes are fixed income debentures linked to equity, and are typically issued by investment banks. Convertible structured notes have the |
attributes
of a convertible security; however, the investment bank that issued the
convertible note assumes the credit risk associated with the investment,
rather than the issuer of the underlying common stock into which the note
is convertible, and a Fund in turn assumes credit risk associated
with the convertible note. |
■ |
Forward
Contracts. A
Fund may enter into forward contracts. Forward contracts are a type of
derivative instrument that obligate the purchaser to take
delivery of, or cash settle a specific amount of, a commodity, security or
obligation underlying the contract at a specified time in the future for a
specified
price. Likewise, the seller incurs an obligation to deliver the specified
amount of the underlying asset against receipt of the specified price.
Generally,
forward contracts are traded through financial institutions acting as
market-makers, on certain securities exchanges, or over-the-counter,
and
the protections afforded to investors may vary depending on the trading
environment. This is distinguishable from futures contracts, which are
traded
on U.S. and foreign commodities exchanges. Forward contracts are often negotiated on an individual basis and are not standardized. The market for forward contracts is substantially unregulated, as there is no limit on daily price movements and speculative position limits are not applicable. The principals who deal in certain forward contract markets are not required to continue to make markets in the underlying reference assets in which they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in forward contract markets have refused to quote prices for certain underlying references or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. At or prior to maturity of a forward contract, a Fund may enter into |
an
offsetting contract and may incur a loss to the extent there has been
adverse movement in forward contract prices. The liquidity of the markets
for
forward contracts depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants make
or take delivery, liquidity in the market for forwards could be reduced. A
relatively small price movement in a forward contract may result in
substantial
losses to a Fund, exceeding the amount of the margin paid. Forward
contracts can increase a Fund’s risk exposure to underlying reference
assets
and their attendant risks. A Fund bears the risk of loss of the amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty. If such a default occurs, a Fund may have contractual remedies pursuant to the forward contract, but such remedies may be subject to bankruptcy and insolvency laws which could affect a Fund’s rights as a creditor. |
■ |
Forward
Foreign Currency Contracts. A
Fund may enter into forward foreign currency contracts (“forward currency
contracts”), which are a type of
derivative instrument, for a variety of reasons. A forward currency
contract involves an obligation to purchase or sell a specified currency
at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties at a price set at the time of the contract.
Because these forward currency contracts normally are settled through an
exchange of currencies, they are traded in the interbank market
directly
between currency traders (usually large commercial banks) and their
customers. |
Forward
currency contracts may serve as long hedges. For example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price
of
a security denominated in a foreign currency that it intends to acquire.
Forward currency contract transactions also may serve as short hedges. For
example,
a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or
from
a dividend or interest payment on a security denominated in a foreign
currency. |
A Fund
may enter into forward currency contracts to sell a foreign currency for a
fixed U.S. dollar amount approximating the value of some or all of
its
respective portfolio securities denominated in such foreign currency. In
addition, a Fund may use forward currency contracts when a sub-advisor
wishes
to “lock in” the U.S. dollar price of a security when a Fund is purchasing
or selling a security denominated in a foreign currency or anticipates
receiving
a dividend or interest payment denominated in a foreign
currency. |
A Fund
may enter into forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with respect to
specific
transactions or with respect to portfolio positions in order to minimize
the risk to a Fund from adverse changes in the relationship between
the
U.S. dollar and foreign currencies. |
A Fund
may use forward currency contracts to seek to hedge against, or profit
from, changes in the value of a particular currency by using forward
currency
contracts on another foreign currency or a basket of currencies, the value
of which a sub-advisor believes will have a positive correlation to
the
values of the currency being hedged. When hedging, use of a different
foreign currency magnifies the risk that movements in the price of the
forward
contract will not correlate or will correlate unfavorably with the foreign
currency being hedged. |
In
addition, a Fund may use forward currency contracts to shift exposure to
foreign currency fluctuations from one country to another. For example,
if
a Fund owned securities denominated in a foreign currency that a
sub-advisor believed would decline relative to another currency, it might
enter into
a forward currency contract to sell an appropriate amount of the first
foreign currency, with payment to be made in the second currency.
Transactions
that involve two foreign currencies are sometimes referred to as “cross
hedging.” Use of a different foreign currency magnifies a Fund’s
exposure
to foreign currency exchange rate
fluctuations. |
A
Fund also may enter into forward currency contracts for non-hedging
purposes if a foreign currency is anticipated to appreciate or depreciate
in value,
but securities denominated in that currency do not present attractive
investment opportunities and are not held in a Fund’s investment
portfolio. |
The
cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period
and the
market conditions then prevailing. Because forward currency contracts
usually are entered into on a principal basis, no fees or commissions are
involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at
the
maturity of the contract. Failure by the counterparty to do so would
result in the loss of any expected benefit of the
transaction. |
Sellers
or purchasers of forward currency contracts can enter into offsetting
closing transactions, similar to closing transactions on futures, by
purchasing
or selling, respectively, an instrument identical to the instrument sold
or bought, respectively. Secondary markets generally do not exist
for
forward currency contracts, however, with the result that closing
transactions generally can be made for forward currency contracts only by
negotiating
directly with the counterparty. Thus, there can be no assurance that a
Fund will in fact be able to close out a forward currency contract
at
a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a
forward currency
contract at any time prior to maturity. In either event, a Fund would
continue to be subject to market risk with respect to the position, and
would
continue to be required to maintain a position in the securities or
currencies that are the subject of the hedge or to maintain cash or
securities. |
The
precise matching of forward currency contract amounts and the value of
securities whose U.S. dollar value is being hedged by those contracts
involved
generally will not be possible because the value of such securities,
measured in the foreign currency, will change after the forward currency
contract
has been established. Thus, a Fund might need to purchase or sell foreign
currencies in the spot (cash) market to the extent such foreign
currencies
are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful
execution
of a short-term hedging strategy is highly
uncertain. |
A Fund
bears the risk of loss of the amount expected to be received under a
forward currency contract in the event of the default or bankruptcy of a
counterparty.
If such a default occurs, a Fund may have contractual remedies pursuant to
the forward currency contract, but such remedies may be subject
to bankruptcy and insolvency laws which could affect a Fund’s rights as a
creditor. |
At
the maturity of a forward contract, a Fund may sell the portfolio security
and make delivery of the foreign currency, or it may retain the security
and
either extend the maturity of the forward contract (by “rolling” that
contract forward) or may initiate a new forward contract. If a Fund
retains |
the
portfolio security and engages in an offsetting transaction, a Fund will
incur a gain or a loss (as described below) to the extent that there has
been
movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to
sell
the foreign currency. |
Should
forward prices decline during the period between a Fund’s entering into a
forward contract for the sale of a foreign currency and the date it
enters
into an offsetting contract for the purchase of the foreign currency, a
Fund will realize a gain to the extent the price of the currency it has
agreed
to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, a Fund will suffer a loss to the extent
the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. |
Forward
currency contracts in which a Fund may engage include foreign exchange
forwards. The consummation of a foreign exchange forward requires
the actual exchange of the principal amounts of the two currencies in the
contract (i.e., settlement on a physical basis). Because foreign
exchange
forwards are physically settled through an exchange of currencies, they
are traded in the interbank market directly between currency traders
(usually large commercial banks) and their customers. A foreign exchange
forward generally has no deposit requirement, and no commissions
are charged at any stage for trades; foreign exchange dealers realize a
profit based on the difference (the spread) between the prices at
which
they are buying and the prices at which they are selling various
currencies. When a Fund enters into a foreign exchange forward, it
relies on the
counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would
result
in the loss of any expected benefit of the
transaction. |
A
Fund may be required to obtain the currency that it must deliver under the
foreign exchange forward through the sale of portfolio securities
denominated
in such currency or through conversion of other assets of a Fund into such
currency. When a Fund engages in foreign currency transactions
for hedging purposes, it will not enter into foreign exchange forwards to
sell currency or maintain a net exposure to such contracts if their
consummation would obligate a Fund to deliver an amount of foreign
currency materially in excess of the value of its portfolio securities or
other
assets denominated in that currency. |
■ |
Non-Deliverable
Currency Forwards. A
Fund also may enter into NDFs. NDFs are cash-settled, short-term forward
contracts on foreign currencies
(each a “Reference Currency”), generally on currencies that are
non-convertible, and may be thinly traded or illiquid. NDFs involve an
obligation
to pay a U. S. dollar amount (the “Settlement Amount”) equal to the
difference between the prevailing market exchange rate for the
Reference
Currency and the agreed upon exchange rate (the “NDF Rate”), with respect
to an agreed notional amount. NDFs have a fixing date and
a settlement (delivery) date. The fixing date is the date and time at
which the difference between the prevailing market exchange rate and the
agreed
upon exchange rate is calculated. The settlement (delivery) date is the
date by which the payment of the Settlement Amount is due to the
party
receiving payment. Although NDFs are similar to other forward currency contracts, NDFs do not require physical delivery of a Reference Currency on the settlement date. Rather, on the settlement date, one counterparty pays the Settlement Amount. NDFs typically may have terms from one month up to two years and are settled in U.S. dollars. A Fund will typically use NDFs for hedging purposes or for direct investment in a foreign country for income or gain. The use of NDFs for hedging or to increase income or gain may not be successful, resulting in losses to a Fund, and the cost of such strategies may reduce a Fund’s returns. NDFs are subject to many of the risks associated with derivatives in general and forward currency transactions including risks associated with fluctuations in foreign currency and the risk that the counterparty will fail to fulfill its obligations. In addition, pursuant to the Dodd-Frank Act and regulations adopted by the CFTC in connection with implementing the Dodd-Frank Act, NDFs are deemed to be swaps, and consequently commodity interests for purposes of amended Regulation 4.5. Although NDFs have historically been traded OTC, some are now exchange-traded pursuant to the Dodd-Frank Act. Under such circumstances, they will be centrally cleared and a secondary market for them will exist. All NDFs are subject to counterparty risk, which is the risk that the counterparty will not perform as contractually required under the NDF. With respect to NDFs that are centrally-cleared, a Fund could lose margin payments it has deposited with the clearing organization as well as the net amount of gains not yet paid by the clearing organization if it breaches its obligations under the NDF, becomes insolvent or goes into bankruptcy. In the event of bankruptcy of the clearing organization, the investor may be entitled to the net amount of gains the investor is entitled to receive plus the return of margin owed to it only in proportion to the amount received by the clearing organization’s other customers, potentially resulting in losses to the investor. NDFs that remain traded OTC will be subject to margin requirements for uncleared swaps and counterparty risk common to other swaps. |
■ |
Futures
Contracts. A
Fund may enter into futures contracts. Futures contracts are a type of
derivative instrument that obligate the purchaser to take
delivery of, or cash settle a specific amount of, a commodity, security or
other obligation underlying the contract at a specified time in the
future
for a specified price. Likewise, the seller incurs an obligation to
deliver the specified amount of the underlying obligation against receipt
of the specified
price. Futures are traded on both U.S. and foreign commodities exchanges.
The purchase of futures can serve as a long hedge, and the sale
of
futures can serve as a short hedge. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract, a Fund is required to deposit “initial margin” consisting of cash, U.S. Government securities, suitable money market instruments, or liquid, high-grade debt securities in an amount set by the exchange on which the contract is traded and varying based on the volatility of the underlying asset. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a Fund may be required by a futures exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent “variation margin” payments (sometimes referred to as “maintenance margin” payments) are made to and from the futures broker daily as the value of the futures position varies, a process known as “marking-to-market.” Variation margin does not involve borrowing, but rather represents a daily settlement of a Fund’s obligations to or from a futures broker. When a Fund purchases or sells a futures contract, it is subject to daily, or even intraday, variation margin calls that could be substantial in the event of adverse price movements. If a Fund has insufficient cash to meet daily or intraday variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Purchasers and sellers of futures contracts can enter into offsetting closing transactions, by selling or purchasing, respectively, an instrument identical |
to
the instrument purchased or sold. Positions in futures contracts may be
closed only on a futures exchange or board of trade that trades that
contract.
A Fund intends to enter into futures contracts only on exchanges or boards
of trade where there appears to be a liquid secondary market. However,
there can be no assurance that such a market will exist for a particular
contract at a particular time. In such event, it may not be possible to
close
a futures contract. Although many futures contracts by their terms call for the actual delivery or acquisition of the underlying asset, in most cases the contractual obligation is fulfilled before the date of the contract without having to make or take delivery of the securities or currency. The offsetting of a contractual obligation is accomplished by buying (or selling, as appropriate) on a commodities exchange an identical futures contract calling for delivery in the same month. Such a transaction, which is effected through a member of an exchange, cancels the obligation to make or take delivery of the securities or currency. Since all transactions in the futures market are made, offset or fulfilled through a clearinghouse associated with the exchange on which the contracts are traded, a Fund will incur brokerage fees when it purchases or sells futures contracts. If an offsetting purchase price is less than the original sale price, a Fund realizes a capital gain, or if it is more, a Fund realizes a capital loss. Conversely, if an offsetting sell price is more than the original purchase price, a Fund realizes a capital gain, or if it is less, a Fund realizes a capital loss. The Funds has no current intent to accept physical delivery in connection with the settlement of futures contracts. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day’s settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures contract due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. A Fund would continue to be subject to market risk with respect to the position. In addition, a Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option thereon or to maintain cash or securities in a segregated account. The ordinary spreads between prices in the cash and futures markets, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin deposit requirements, investors may close futures contracts through offsetting transactions that could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of securities price or currency exchange rate trends by a sub-advisor may still not result in a successful transaction. Futures contracts also entail other risks. Although the use of such contracts may benefit a Fund, if investment judgment about the general direction of, for example, an index is incorrect, a Fund’s overall performance would be worse than if it had not entered into any such contract. There are differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given transaction not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures, including technical influences in futures 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. |
■ |
Swap
Agreements.
A swap is a transaction in which a Fund and a counterparty agree to pay or
receive payments at specified dates based upon or calculated
by reference to changes in specified prices or rates (e.g., interest rates
in the case of interest rate swaps) or the performance of specified
securities
or indices based on a specified amount (the “notional” amount). Nearly any
type of derivative, including forward contracts, can be structured
as a swap. See “Derivatives” for a further discussion of derivatives
risks. Swap agreements can be structured to provide exposure to a
variety
of different types of investments or market factors. For example, in an
interest rate swap, fixed-rate payments may be exchanged for floating
rate
payments; in a currency swap, U.S. dollar-denominated payments may be
exchanged for payments denominated in a foreign currency; and in a
total
return swap, payments tied to the investment return on a particular asset,
group of assets or index may be exchanged for payments that are
effectively
equivalent to interest payments or for payments tied to the return on
another asset, group of assets, or index. Swaps may have a leverage
component,
and adverse changes in the value or level of the underlying asset,
reference rate or index can result in gains or losses that are
substantially
greater than the amount invested in the swap itself. Some swaps currently
are, and more in the future will be, centrally cleared. Swaps that
are centrally-cleared are exposed to the creditworthiness of the clearing
organizations (and, consequently, that of their members - generally,
banks
and broker-dealers) involved in the transaction. For example, an investor
could lose margin payments it has deposited with the clearing organization
as well as the net amount of gains not yet paid by the clearing
organization if it breaches its agreement with the investor or becomes
insolvent
or goes into bankruptcy. In the event of bankruptcy of the clearing
organization, the investor may be able to recover only a portion of the
net
amount of gains on its transactions and of the margin owed to it,
potentially resulting in losses to the investor. Swaps that are not
centrally cleared
involve the risk that a loss may be sustained as a result of the
insolvency or bankruptcy of the counterparty or the failure of the
counterparty to
make required payments or otherwise comply with the terms of the
agreement. If a counterparty’s creditworthiness declines, the value of the
swap
might decline, potentially resulting in losses to a Fund. Changing
conditions in a particular market area, whether or not directly related to
the referenced
assets that underlie the swap agreement, may have an adverse impact on the
creditworthiness of a counterparty. To mitigate this risk, a Fund
will only enter into swap agreements with counterparties considered by a
sub-advisor to present minimum risk of default, and a Fund normally
obtains
collateral to secure its exposure. Swaps involve the risk that, if the
swap declines in value, additional margin would be required to maintain
the
margin level. The seller may require a Fund to deposit additional sums to
cover this, and this may be at short notice. If additional margin is not
provided
in time, the seller may liquidate the positions at a loss, which may cause
a Fund to owe money to the seller. The centrally cleared and OTC
swap
agreements into which a Fund enters normally provide for the obligations
of a Fund and its counterparty in the event of a default or other
early
termination to be determined on a net basis. Similarly, periodic payments
on a swap transaction that are due by each party on the same day
normally
are netted. The use of swap agreements requires special skills, knowledge
and investment techniques that differ from those required for
|
normal
portfolio management. Swaps may be considered illiquid investments,
and a Fund may be unable to sell a swap agreement to a third party
at a
favorable price; see “Illiquid and Restricted Securities” for a
description of liquidity risk. |
■ |
Credit
Default Swaps.
In a credit default swap, one party (the seller) agrees to make a payment
to the other party (the buyer) in the event that a “credit
event,” such as a default or issuer insolvency, occurs with respect to one
or more underlying or “reference” bonds or other debt securities.
A
Fund may be either a seller or a buyer of credit protection under a credit
default swap. The purchaser pays a fee during the life of the swap. If
there
is a credit event with respect to a referenced debt security, the seller
under a credit default swap may be required to pay the buyer the par
amount
(or a specified percentage of the par amount) of that security in exchange
for receiving the referenced security (or a specified alternative
security)
from the buyer. Credit default swaps may be on a single security, a basket
of securities or on a securities index. Alternatively, the credit
default
swap may be cash settled, meaning that the seller will pay the buyer the
difference between the par value and the market value of the defaulted
bonds. If the swap is on a basket of securities (such as the CDX indices),
the notional amount of the swap is reduced by the par amount of
the defaulted bond, and the fixed payments are then made on the reduced
notional amount. Taking a long position in (i.e., acting as the seller under) a credit default swap increases the exposure to the specific issuers, and the seller could experience a loss if a credit event occurs and the credit of the reference entity or underlying asset has deteriorated. As a seller, a Fund would effectively add leverage because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap. Taking a short position in (i.e., acting as the buyer under) a credit default swap results in opposite exposures for a Fund. The risks of being the buyer of credit default swaps include the cost of paying for credit protection if there are no credit events, pricing transparency when assessing the cost of a credit default swap, counterparty risk, and the need to fund any delivery obligation, particularly in the event of adverse pricing when purchasing bonds to satisfy a delivery obligation. Credit default swap buyers are also subject to counterparty risk since the ability of the seller to make required payments is dependent on its creditworthiness. |
■ |
Currency
Swaps.
A currency swap involves the exchange of payments denominated in one
currency for payments denominated in another. Payments
are based on a notional principal amount, the value of which is fixed in
exchange rate terms at the swap’s inception. Currency swap agreements
may be entered into on a net basis or may involve the delivery of the
entire principal value of one designated currency in exchange for
the
entire principal value of another designated currency. In such cases, the
entire principal value of a currency swap is subject to the risk that the
counterparty
will default on its contractual delivery obligations. Currency swaps are
subject to currency risk. |
■ |
Equity
Swaps.
Equity swaps are contracts that allow one party to exchange the returns,
including any dividend income, on an equity security or group
of equity securities for another payment stream. Under an equity swap,
payments may be made at the conclusion of the equity swap or periodically
during its term. An equity swap may be used to invest in a market without
owning or taking physical custody of securities in circumstances
in which direct investment may be restricted for legal reasons or is
otherwise deemed impractical or disadvantageous. To the extent
that
there is an imperfect correlation between the return on a Fund’s
obligation to its counterparty under the equity swap and the return on
related
assets in its portfolio, the equity swap transaction may increase a Fund’s
financial risk. |
■ |
Interest
Rate and Inflation Swaps.
In an interest rate swap, the parties exchange payments based on fixed or
floating interest rates multiplied by
a hypothetical or “notional” amount. For example, one party might agree to
pay the other a specified fixed rate on the notional amount in
exchange
for recovering a floating rate on that notional amount. Interest rate swap
agreements entail both interest rate risk and counterparty risk.
The
purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments
of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser,
to the extent that a specified index falls below a predetermined interest
rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. There is a risk that
based on movements of interest rates, the payments made under a swap
agreement
will be greater than the payments received. A Fund may also invest in
inflation swaps, where an inflation rate index is used in place of
an
interest rate index. |
■ |
Total
Return Swaps.
In a total return swap transaction, one party agrees to pay the other
party an amount equal to the total return on a defined underlying
asset such as a security or basket of securities or on a referenced index
during a specified period of time. In return, the other party would
make periodic payments based on a fixed or variable interest rate or on
the total return from a different underlying asset or index. Total
return
swap agreements may be used to gain exposure to price changes in an
overall market or an asset. Total return swaps may effectively add
leverage
to a Fund’s portfolio because, in addition to its net assets, a Fund would
be subject to investment exposure on the notional amount of the
swap, which may exceed a Fund’s net assets. If a Fund is the total return
receiver in a total return swap, then the credit risk for an underlying
asset
is transferred to a Fund in exchange for its receipt of the return
(appreciation) on that asset or index. If a Fund is the total return
payer, it is hedging
the downside risk of an underlying asset or index but it is obligated to
pay the amount of any appreciation on that asset or index. Total
return
swaps could result in losses if the underlying asset or index does not
perform as anticipated. Written total return swaps can have the
potential
for unlimited losses. |
■ |
Volatility
Swaps.
A volatility swap is a forward contract under which the payments to be
received are dependent on the future realized volatility of
an underlying asset, such as a stock. A volatility swap involves exposure
to volatility, not on whether the value of the underlying asset goes up
or
down. Volatility swaps can be used to speculate on future volatility or as
a hedge against volatility. A volatility swap is subject to the risk that
the
future volatility of the underlying asset is higher or lower than a
sub-advisor anticipated. |
■ |
Warrants.
Warrants are options to purchase an issuer’s securities at a stated price
during a stated term, usually at a price below the initial offering
price
of the securities and before the securities are offered to the general
public. If the market price of the underlying common stock does not
exceed
the warrant’s exercise price during the life of the warrant, the warrant
will expire worthless. As a result, warrants may be considered more
speculative
than certain other types of investments. Warrants usually have no voting
rights, pay no dividends and have no rights with respect to the
assets
of the corporation issuing them. The percentage increase or decrease in
the value of a warrant may be greater than the percentage increase
or
decrease in the value of the underlying common stock. Warrants may be
purchased with values that vary depending on the change in value of
one
or more specified indices (“index warrants”). Index warrants are generally
issued by banks or other financial institutions and give the holder the
right,
at any time during the term of the warrant, to receive upon exercise of
the warrant a cash payment from the issuer based on the value of the
underlying
index at the time of the exercise. Warrants
may also be linked to the performance of oil and/or the GDP of specific
emerging |
markets. Warrants
may also be linked to the performance of a foreign economy, such as the
GDP growth rate.
Warrants are usually freely transferable,
but may not be as liquid as exchange-traded options, and the market for
warrants may be very limited and it may be difficult to sell them
promptly at an acceptable price. |
■ |
Common
Stock.
Common stock generally takes the form of shares in a corporation which
represent an ownership interest. It ranks below preferred stock
and debt securities in claims for dividends and for assets of the company
in a liquidation or bankruptcy. The value of a company’s common
stock
may fall as a result of factors directly relating to that company, such as
decisions made by its management or decreased demand for the company’s
products or services. A stock’s value may also decline because of factors
affecting not just the company, but also companies in the same
industry
or sector. The price of a company’s stock may also be affected by changes
in financial markets that are relatively unrelated to the company,
such
as changes in interest rates, currency exchange rates or industry
regulation. Companies that elect to pay dividends on their common stock
generally
only do so after they invest in their own business and make required
payments to bondholders and on other debt and preferred stock.
Therefore,
the value of a company’s common stock will usually be more volatile than
its bonds, other debt and preferred stock. Common stock may be
exchange-traded or traded over-the-counter. OTC stock may be less liquid
than exchange-traded stock. |
■ |
Depositary
Receipts. A
Fund may invest in depositary receipts, which represent ownership
interests in securities of foreign companies (an “underlying
issuer”) that have been deposited with a bank or trust and that trade on
an exchange or OTC. Depositary receipts may not be denominated
in the same currency as the securities into which they may be converted,
and they are subject to the risk of fluctuation in the currency
exchange
rate. Investing in depositary receipts entails substantially the same
risks as direct investment in foreign securities. There is generally less
publicly
available information about foreign companies and there may be less
governmental regulation and supervision of foreign stock exchanges,
brokers,
and listed companies. In addition, such companies may use different
accounting and financial standards (and certain currencies may become
unavailable
for transfer from a foreign currency), resulting in a Fund’s possible
inability to convert immediately into U.S. currency proceeds realized
upon
the sale of portfolio securities of the affected foreign companies. In
addition, the issuers of unsponsored depositary receipts are not obligated
to
disclose material information about the underlying securities to investors
in the United States. Ownership of unsponsored depositary receipts may
not
entitle a Fund to the same benefits and rights as ownership of a sponsored
depositary receipt or the underlying security. Please see “Foreign
Securities”
below for a description of the risks associated with investments in
foreign securities. A Fund may invest in the following type of
depositary
receipts: |
■ |
ADRs.
ADRs are depositary receipts for foreign issuers in registered form,
typically issued by a U.S. financial institution, traded in U.S.
securities markets. |
■ |
EDRs.
EDRs, which are sometimes called Continental Depositary Receipts, are
issued in Europe in bearer form and are traded in European securities
markets. |
■ |
GDRs.
GDRs are in bearer form and traded in both the U.S. and European
securities markets. |
■ |
NVDRs.
NVDRs represent financial interests in an issuer but the holder is not
entitled to any voting rights. |
■ |
Income
Deposit Securities.
A
Fund may purchase IDSs. Each IDS represents two separate securities,
shares of common stock and subordinated notes
issued by the same company, that are combined into one unit that trades
like a stock on an exchange. Holders of IDSs receive dividends on the
common
shares and interest at a fixed rate on the subordinated notes to produce a
blended yield. An IDS is typically listed on a stock exchange, but
the
underlying securities typically are not listed on the exchange until a
period of time after the listing of the IDS or upon the occurrence of
certain events
(e.g., a change of control of the issuer of the IDS). When the underlying
securities are listed, the holders of IDSs generally have the right to
separate
the components of the IDSs and trade them
separately. |
There
may be a thinner and less active market for IDSs than that available for
other securities. The value of an IDS will be affected by factors
generally
affecting common stock and subordinated debt securities, including the
issuer’s actual or perceived ability to pay interest and principal on
the
notes and pay dividends on the stock. |
The
federal income tax treatment of IDSs is not entirely clear and there is no
authority that directly addresses the tax treatment of securities with
terms
substantially similar to IDSs. Among other things, although it is expected
that the subordinated notes portion of an IDS will be treated as debt,
if
it is characterized as equity rather than debt, then interest paid on the
notes could be treated as dividends (to the extent paid out of the
issuer’s earnings
and profits). |
■ |
Income
Trusts. A
Fund may invest in shares of income trusts, including Canadian royalty
trusts. An income trust is an investment trust which holds income-producing
assets and generally distributes the income generated by such assets on to
its security holders. Income trusts also may include royalty
trusts, a particular type of income trust whose securities are listed on a
stock exchange and which controls an underlying company whose business
relates to, without limitation, the acquisition, exploitation, production
and sale of oil and natural gas. The main attraction of an income
trust
is its ability to generate constant cash flows. Income trusts have the
potential to deliver higher yields than bonds. During periods of low
interest rates,
income trusts may achieve higher yields compared with cash investments.
During periods of increasing rates, the opposite may be true. Income
trusts
may experience losses during periods of both low and high interest
rates. |
Income
trusts generally are structured to avoid income taxes at the entity level.
In a traditional corporate tax structure, net income is taxed at the
corporate
level and again when distributed as dividends to its shareholders. Under
current law, an income trust, if properly structured, should not be
subject
to federal income tax. This flow-through structure means that the
distributions to income trust investors are generally higher than
dividends from
an equivalent corporate entity. |
Despite
the potential for attractive regular payments, income trusts are equity
investments, not fixed-income securities, and they share many of the
risks
inherent in stock ownership, including operating risk based on the income
trusts’ underlying assets and their respective businesses. Such risks
may
include lack of, or limited, operating histories. In addition, an income
trust may lack diversification and potential growth may be sacrificed
because
revenue is passed on to security holders, rather than reinvested in the
business. Because income trusts may pay out more than their net
income,
the unitholder equity (capital) may decline over time. Income trusts often
grow through acquisition of additional assets, funded through the
issuance
of additional equity or, where the trust is able, additional debt. Income
trusts do not guarantee minimum distributions or even return of
capital;
therefore, if the business of a trust starts to lose money, the trust can
reduce or even eliminate distributions. The tax structure of income
trusts
described above, which would allow income to flow through to investors and
be taxed only at the investor level, could be challenged under
existing
law, or the tax laws could change. Royalty trusts and income trusts
frequently are found in Canada, and an investment in a Canadian trust
will
be subject to certain additional risks of investing in foreign
securities. |
■ |
Initial
Public Offerings. A
Fund can invest in IPOs. By definition, securities issued in IPOs have not
traded publicly until the time of their offerings. Special
risks associated with IPOs may include, among others, the fact that there
may only be a limited number of shares available for trading. The
market
for those securities may be unseasoned. The issuer may have a limited
operating history. These factors may contribute to price volatility. The
limited
number of shares available for trading in some IPOs may also make it more
difficult for a Fund to buy or sell significant amounts of shares
without
an unfavorable impact on prevailing prices. In addition, some companies
initially offering their shares publicly are involved in relatively new
industries
or lines of business, which may not be widely understood by investors.
Some of the companies involved in new industries may be regarded
as
developmental state companies, without revenues or operating income, or
the near-term prospects of them. Many IPOs are by small- or micro-cap
companies
that are undercapitalized. IPOs may adversely impact a Fund’s performance.
However, the impact of IPOs on a Fund’s performance will likely
decrease as a Fund’s asset size
increases. |
■ |
Master
Limited Partnerships. A
Fund may invest in publicly traded partnerships such as MLPs. MLPs issue
units that are registered with the SEC and
are freely tradable on a securities exchange or in the OTC market. An MLP
may have one or more general partners, who conduct the business,
and
one or more limited partners, who contribute capital. The general partner
or partners are jointly and severally responsible for the liabilities of
the MLP.
An MLP also may be an entity similar to a limited partnership, such as an
LLC, which has one or more managers or managing members and non-managing
members (who are like limited partners). A Fund will invest in an MLP as a
limited partner, and normally would not be liable for the debts
of an MLP beyond the amount that a Fund has invested therein. However, as
a limited partner, a Fund would not be shielded to the same extent
that a stockholder of a corporation would be. In certain instances,
creditors of an MLP would have the right to seek a return of capital that
had
been distributed to a limited partner. This right of an MLP’s creditors
would continue even after a Fund had sold its investment in the
partnership.
Holders of MLP units have more limited rights to vote on matters affecting
the partnership than owners of common stock. MLPs typically
invest in real estate and oil and gas equipment leasing assets, but they
also finance entertainment, research and development, and other
projects. |
■ |
Corporate
Debt and Other Fixed-Income Securities.
Typically, the values of fixed income securities change inversely with
prevailing interest rates. Therefore,
a fundamental risk of fixed income securities is interest rate risk, which
is the risk that their value generally will decline as prevailing
interest
rates rise, which may cause a Fund’s NAV to likewise decrease, and vice
versa. How specific fixed income securities may react to changes in
interest
rates will depend on the specific characteristics of each security. For
example, while securities with longer maturities tend to produce higher
yields,
they also tend to be more sensitive to changes in prevailing interest
rates. They are therefore more volatile than shorter-term securities and
are subject
to greater market fluctuations as a result of changes in interest rates.
Fixed income securities are also subject to credit risk, which is the risk
that
the credit strength of an issuer of a fixed income security will weaken
and/or that the issuer will be unable to make timely principal and
interest payments,
and that the security may go into
default. |
■ |
High-Yield
Bonds.
High-yield, non-investment grade bonds (also known as “junk bonds”) are
low-quality, high-risk corporate bonds that generally offer
a high level of current income. These bonds are considered speculative
with respect to the issuer’s ability to pay interest and repay principal
by rating
organizations. For example, Moody’s, S&P Global, and Fitch, Inc.
currently rate them below Baa3, BBB- and BBB-, respectively. Please see
“Appendix
C: Ratings Definitions” below for an explanation of the ratings applied to
high-yield bonds. High-yield bonds are often issued as a result
|
of
corporate restructurings, such as leveraged buyouts, mergers,
acquisitions, or other similar events. They may also be issued by smaller,
less creditworthy
companies or by highly leveraged firms, which are generally less able to
make scheduled payments of interest and principal than more financially
stable firms. Because of their lower credit quality, high-yield bonds must
pay higher interest to compensate investors for the substantial
credit
risk they assume. Lower-rated securities are subject to certain risks that
may not be present with investments in higher-grade securities.
Investors
should consider carefully their ability to assume the risks associated
with lower-rated securities before investing in a Fund. The lower rating
of
certain high-yield corporate income securities reflects a greater
possibility that the financial condition of the issuer or adverse changes
in general economic
conditions may impair the ability of the issuer to pay income and
principal. Changes by rating agencies in their ratings of a fixed-income
security
also may affect the value of these investments; however, allocating
investments in a Fund among securities of different issuers should reduce
the
risks of owning any such securities separately. The prices of these
high-yield securities tend to be less sensitive to interest rate changes
than higher-rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. During economic downturns, periods
of rising interest rates, or when inflation or deflation occurs, highly
leveraged issuers may experience financial stress that adversely affects
their
ability to service principal and interest payment obligations, to meet
projected business goals or to obtain additional financing, and the
markets for
their securities may be more volatile. They may also not have more
traditional methods of financing available to them and may be unable to
repay
debt at maturity by refinancing. In addition, lower-rated securities may
experience substantial price declines when there is an expectation that
issuers
of such securities might experience financial difficulties. As a result,
the yields on lower-rated securities can rise dramatically. However, the
higher
yields of high-yield securities may not reflect the value of the income
stream that holders of such securities may expect, but rather the risk
that
such securities may lose a substantial portion of their value as a result
of their issuer’s financial restructuring or default. If an issuer
defaults, a Fund
may incur additional expenses to seek recovery. Additionally, accruals of
interest income for a Fund may have to be adjusted in the event of
default.
In the event of an issuer’s default, a Fund may write off prior income
accruals for that issuer, resulting in a reduction in a Fund’s current
dividend
payment. In the event of an in court or out of court restructuring of
high-yield bond in which a Fund invests, a Fund may acquire (and
subsequently
sell) equity securities or exercise warrants that it receives. In
addition, the market for high-yield securities generally is less robust
and active
than that for higher-rated securities, which may limit a Fund’s ability to
sell such securities at fair value in response to changes in the economy
or
financial markets and could make the valuation of these portfolio
securities more difficult. |
■ |
Master
Demand Notes.
Master demand notes are direct arrangements, between a lender and a
corporate borrower, that permit the investment of fluctuating
amounts of money at varying rates of interest. They permit daily changes
in the amounts borrowed. The lender has the right to increase or
decrease the amount it lends under the note at any time, up to the full
amount provided by the note agreement. The borrower may prepay up to
the
full amount of the note without penalty. These notes may or may not be
backed by bank letters of credit. These notes are direct lending arrangements between the lender and borrower, and there is no secondary market for them. The principal plus accrued interest is redeemable at any time, however. This right to redeem the notes depends on the ability of the borrower to make the specified payment on demand. The sub-advisors will consider the earning power, cash flow and other liquidity ratios of an issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes make demand simultaneously. Investments in master demand notes may be subject to limited liquidity. |
■ |
Tennessee
Valley Authority Securities.
The TVA is a federal corporation and the nation’s largest public power
company. The TVA issues a number of
different power bonds, quarterly income debt securities (“QUIDs”) and
discount notes to provide capital for its power program. TVA bonds
include:
global and domestic power bonds, valley inflation-indexed power
securities, which are indexed to inflation as measured by the Consumer
Price
Index; and puttable automatic rate reset securities, which are 30-year
non-callable securities. QUIDs pay interest quarterly, are callable after
five years
and are due at different times. TVA discount notes are available in
various amounts and with maturity dates less than one year from the date
of issue.
Although TVA is a federal corporation and may borrow under a line of
credit from the U.S. Treasury, the U.S. government does not guarantee
its
securities. |
■ |
African
Securities.
The Fund may invest in securities of issuers in African countries that
involve heightened risks of political instability, civil war, armed
conflict, social instability as a result of religious, ethnic and/or
socio-economic unrest, authoritarian and/or military involvement in
governmental
decision-making, corruption, expropriation and/or nationalization of
assets, confiscatory taxation, genocidal warfare in certain countries,
and other risks. Many under-developed African countries have less
developed
capital markets that do not contain the safeguards inherent in
those of developed countries
and, consequently, the risks of investing in foreign securities are
magnified in such countries.
Risks of investing in such
markets include heightened volatility, smaller investor base, fewer
brokerage firms, heightened counterparty risk, inconsistent and rapidly
changing
regulation, lower
market capitalization and trading volume, illiquidity, inflation,
uncertainty regarding the existence of trading markets, governmental
control and heavy regulation of labor and industry, and the
risk that trading on African securities markets may be suspended
altogether.
Some markets of the countries in Africa in which the Fund may invest are
in only the earliest stages of development with less liquidity,
fewer
and
less well capitalized securities
brokers, fewer issuers and more capital market restrictions than developed
markets. To
the extent a Fund effects
securities transactions through these brokerage firms, a Fund is subject
to the risk that these brokerage firms will not be able to fulfill their
obligations
to a Fund (i.e., counterparty risk). This risk is magnified to the extent
that a Fund effects securities transactions through a single brokerage
firm or a small number of brokerage firms. In addition, there may be no
single centralized securities exchange on which securities are
traded
in certain countries in Africa. There
may be less financial and other information publicly available to
investors, and the information that is provided
may lack integrity. Uniform accounting, auditing and financial reporting
standards may not exist. In addition, the governments of certain countries may exercise substantial influence over many aspects of the private sector, including ownership or control of companies. Government actions in the future could have a significant economic impact. In particular, changes in investment policies or shifts in the prevailing political climate could result in the introduction of changes to government regulations with respect to price controls, export and import controls, income and other taxes, foreign ownership restrictions, foreign exchange and currency controls and labor and welfare benefit policies. Unexpected changes in these policies or regulations could lead to increased investment, operating or compliance expenses. Investments in certain countries may require a Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to a Fund. Certain African countries may unpredictably restrict or control the extent to which foreign investors may invest in securities of issuers located in those countries, and governments may limit the repatriation of investment proceeds to foreign countries. Regulation may require governmental approval or special licenses for foreign investors and limitations could be placed on investment practices regarding share-class ownership, shareholder rights and title to securities. A delay in obtaining a government approval or a license would delay investments in a particular country, and, as a result, the Fund may not be able to invest in certain securities while approval is pending. The government of a particular country may also withdraw or decline to renew a license that enables a Fund to invest in such country. A Fund could be adversely affected by delays in, or a refusal to grant required governmental approval for repatriation of capital, as well as by the application to a Fund of any restrictions on investment. Additionally, withholding or other taxes may be levied on foreign investors, and while portions of these taxes may be recoverable, any non-recovered portions will reduce the income received from investments in such countries. During periods of instability or upheaval, a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. Securities laws in many countries in Africa are relatively new and unsettled and, consequently, there is a risk of rapid and unpredictable change in laws regarding foreign investment, securities regulation, title to securities and shareholder rights. Accordingly, foreign investors may be adversely affected by new or amended laws and regulations. In addition, the systems of corporate governance to which issuers located in countries in Africa are subject may be less advanced than those systems to which issuers located in more developed countries are subject, and, therefore, shareholders of issuers located in such countries may not receive many of the protections available to shareholders of issuers located in more developed countries. The legal systems, and the unpredictability thereof, in certain countries in the region also may have an adverse impact on a Fund and may expose a Fund to significant liabilities. Even in circumstances where adequate laws and shareholder rights exist, it may not be possible to obtain timely and |
equitable
enforcement of the law. African countries historically have suffered from underdeveloped infrastructure, high unemployment rates, a comparatively unskilled labor force, and inconsistent access to capital, which have contributed to economic instability and stifled economic growth in the region. Many countries in Africa are heavily dependent on international trade and are subject to trade barriers, embargoes, exchange controls, currency valuation adjustments and other protectionist measures. These countries also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. A primary source of revenue for these countries is the export of commodities including precious minerals and metals such as gold, silver, copper and diamonds, agricultural products and energy products, such as oil. The countries are, therefore, more vulnerable to changes in commodity prices, interest rates, or sectors affecting a particular commodity, such as drought, floods, weather, embargoes, tariffs, international economic, political and regulatory developments, and any weakening in global demand for these products. Certain African countries have currencies pegged to the U.S. dollar or euro rather than free-floating exchange rates determined by market forces. Although intended to stabilize the currencies, these pegs, if abandoned, may cause sudden and significant currency adjustments, which may adversely impact investment returns. Certain issuers located in countries in Africa in which the Fund may invest may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain financial penalties and damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks. In addition, disease epidemics are more likely to affect trade practices and international dealings with certain African countries. Political instability and protests in North Africa and the Middle East have caused significant disruptions to many industries. Political and social unrest can spread quickly through the region, and developments in one country can influence the political events in neighboring countries. Protests may turn violent, and civil war and political reconstruction in certain countries pose a risk to investments in the region. Continued political and social unrest, including ongoing warfare and terrorist activities in the Middle East and Africa, may negatively affect the value of an investment in the Fund. Although geographically remote from the conflict in Ukraine, African countries are subject to the adverse effect Russia’s invasion of Ukraine brought to the global economy. Surging oil and food prices are straining the external and fiscal balances of commodity-importing countries and have increased food security problems in these regions. These economic disruptions may undermine a Fund’s investment in these countries. All of these risks, among others, could adversely affect the Fund’s investments in African countries. Any particular country in Africa may be subject to the foregoing risks in greater or lesser degrees relative to other countries in Africa, and as a result, circumstances that may positively affect a country in Africa in which the Fund is not invested may not have a corresponding positive effect on other countries in Africa in which the Fund is invested. |
■ |
Canadian
Securities.
The Canadian economy is heavily dependent on the sale of natural
resources, agricultural products and commodities. Canada is
a major producer of timber and other forest products; agricultural
products; metals (e.g., gold, nickel, aluminum, lead, zinc); and
energy-related products
like oil, natural gas, uranium and hydroelectricity. Accordingly, a change
in the supply and/or demand of these commodities, in either domestic
or international markets, could have a significant effect on the Canadian
economy as a whole and on the performance of Canadian companies.
The Canadian economy is heavily dependent on relationships with certain
key trading partners, including the United States, Mexico and China.
Any reduction in trading with these key partners may adversely affect the
Canadian economy. Since the United States is Canada’s largest trading
and investment partner, the Canadian economy is significantly affected by
political and regulatory developments in the U.S. economy. Moreover,
any downturn in U.S. economic activity is likely to have an adverse impact
on the Canadian economy. |
■ |
Chinese
Company Securities.
Investing in China, Hong Kong and Taiwan involves a high degree of risk
and special considerations not typically associated
with investing in other more established economies or securities markets.
Such risks may include: (a) the risk of nationalization or expropriation
of assets, or confiscatory taxation; (b) greater social, economic and
political uncertainty (including the risk of war); (c) dependency on
exports
and the corresponding importance of international trade; (d) increasing
competition from Asia’s other low-cost emerging economies; (e)
greater
price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets, particularly in China; (f)
currency exchange
rate fluctuations and the lack of available currency hedging instruments;
(g) higher rates of inflation; (h) controls on foreign investment
and
limitations on repatriation of invested capital and on a Fund’s ability to
exchange local currencies for U.S. dollars; (i) greater governmental
involvement
in and control over the economy, and greater intervention in the Chinese
financial markets, such as the imposition of trading restrictions;
(j) the risk that the Chinese government may decide not to continue to
support economic reform programs currently in place and could return
to the completely centrally planned economy that was in place prior to
1978; (k) the fact that Chinese companies, particularly those located in
China,
may be smaller, less seasoned and newly-organized; (l) the difference in,
or lack of, auditing and financial reporting standards that may result
in
unavailability of material information about issuers, particularly in
China; (m) the fact that statistical information regarding the Chinese
economy may
be inaccurate or not comparable to statistical information regarding the
U.S. or other economies; (n) the less extensive, and still developing,
regulation
of the securities markets, business entities and commercial transactions;
(o) the fact that the settlement period of securities transactions in
foreign
markets may be longer; (p) uncertainty surrounding the willingness and
ability of the Chinese government to support the Chinese and Hong
Kong
economies and markets; (q) the risk that it may be more difficult or
impossible, to obtain and/or enforce a judgment than in other countries;
(r) the
rapidity and erratic nature of growth, particularly in China, resulting in
inefficiencies and dislocations; (s)
more
frequent (and potentially widespread)
trading suspensions and government interventions with respect to Chinese
issuers; (t) limitations on the use of brokers (or action by the
Chinese
government that discourages brokers from serving international clients);
and (u) the
risk that, because of the degree of interconnectivity between
the economies and financial markets of China, Hong Kong and Taiwan, any
sizable reduction in the demand for goods from China, or an economic
downturn in China could negatively affect the economies and financial
markets of Hong Kong and Taiwan, as well.
In addition, the China Securities
Regulatory Commission recently met with local law firms and asked them to
tone down negative descriptions of China’s policies in prospectuses
of companies going public outside the mainland in markets such as Hong
Kong and the United States. Comments in IPO listing documents
that misrepresent or disparage laws and policies, the business environment
and judicial situation of China are now barred. Such new listing
regime would inevitably deny approval for offshore listing applications
and further dampen the stock market sentiment, which in turn negatively
affects markets and the value of a Fund’s investments. China’s
economy has transitioned from a rigidly central-planned state-run economy
to
one that has been only partially reformed by more market-oriented
policies. Although the Chinese government has implemented economic
reform
measures, reduced state ownership of companies and established better
corporate governance practices, a substantial portion of productive
assets
in China are still owned by the Chinese government. The government
continues to exercise significant control in regulating industrial
|
development
and, ultimately, control over China’s economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment
to particular industries or companies. The
Chinese government
has from time to time taken actions that influence the prices at which
certain goods may be sold, encourage companies to invest or concentrate
in particular industries, induce mergers between companies in certain
industries and induce private companies to publicly offer their
securities
to increase or continue the rate of economic growth, control the rate of
inflation or otherwise regulate economic expansion. Investments
in
China involve risk of a total loss due to government action or inaction.
China
continues to limit direct foreign investments generally in industries
deemed
important to national interests. Foreign investment in domestic securities
are also subject to substantial restrictions. Some believe that
China’s
currency is undervalued. Currency fluctuations could significantly affect
China and its trading partners. China continues to exercise control
over
the value of its currency, rather than allowing the value of the currency
to be determined by market forces. This type of currency regime may
experience
sudden and significant currency adjustments, which may adversely impact
investment returns. For decades, a state of hostility has existed between Taiwan and the People’s Republic of China. Beijing has long deemed Taiwan a part of the “one China” and has made a nationalist cause of recovering it. This situation poses a threat to Taiwan’s economy and could negatively affect its stock market. By treaty, China has committed to preserve Hong Kong’s autonomy and its economic, political and social freedoms until 2047. However, if China would exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance. In addition, the Hong Kong dollar trades within a fixed trading bond rate to (or is “pegged” to) the U.S. dollar. This fixed exchange rate has contributed to the growth and stability of the Hong Kong economy. However, some market participants have questioned the continued viability of the currency peg. It is uncertain what affect any discontinuation of the currency peg and the establishment of an alternative exchange rate system would have on capital markets generally and the Hong Kong economy. As demonstrated by protests in Hong Kong in 2019 and 2020 over political, economic, and legal freedoms, and the Chinese government’s response to the protests, there continues to be a great deal of political unrest, which may result in economic disruption. China could be affected by military events on the Korean peninsula or internal instability within North Korea. North Korea and South Korea each have substantial military capabilities, and historical tensions between the two countries present the risk of war. Any outbreak of hostilities between the two countries could have a severe adverse effect on the South Korean economy and securities market. These situations may cause uncertainty in the Chinese market and may adversely affect performance of the Chinese economy. In addition, China has strained international relations with Japan, India, Russia and other neighbors due to territorial disputes, historical animosities and other defense concerns. China is also alleged to have participated in state-sponsored cyberattacks against foreign companies and foreign governments. Actual and threatened responses to such activity and strained international relations, including purchasing restrictions, sanctions, tariffs or cyberattacks on the Chinese government or Chinese companies, may impact China’s economy and Chinese issuers of securities in which a Fund invests. Investment in China, Hong Kong and Taiwan is subject to certain political risks. The current political climate has intensified concerns about trade tariffs and a potential trade war between China and the United States, despite the United States signing a partial trade agreement with China that reduced some U.S. tariffs on Chinese goods while boosting Chinese purchases of American goods. However, this agreement left in place a number of existing tariffs, and it is unclear whether further trade agreements may be reached in the future. The ability and willingness of China to comply with the trade deal may determine to some degree the extent to which its economy will be adversely affected, which cannot be predicted at the present time. Future tariffs imposed by China and the United States on the other country’s products, or other escalating actions, may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of China’s export industry with a potentially negative impact to a Fund. On June 3, 2021, President Biden issued an executive order prohibiting U.S. persons from entering into transactions in publicly traded securities, as well as derivatives and securities designed to provide investment exposure to, any securities of any issuers designated “Chinese Military-Industrial Complex Companies,” as designated by the Department of the Treasury’s Office of Foreign Assets Control. This executive order superseded a prior similar order from then-President Trump. Continued ownership of such securities by U.S. persons is prohibited after June 3, 2022, following a one-year divestment period. A number of Chinese issuers have been designated under this program and more could be added. Certain implementation matters related to the scope of, and compliance with, the executive order have not yet been resolved, and the ultimate application and enforcement of the executive order may change. Under current guidance, U.S. investors may purchase interests in an investment fund that does not make any new purchases of designated securities and is “seeking to” divest its holdings of such securities during the divestment period. As a result, the executive order and related guidance may significantly reduce the liquidity of such securities, force a Fund to sell certain positions at inopportune times or for unfavorable prices, and restrict future investments by a Fund. U.S. investment advisers are permitted to advise non-U.S. funds and non-U.S. persons that purchase and sell such prohibited securities, provided this activity does not indirectly expose U.S. persons to such companies. The Holding Foreign Companies Accountable Act (“HFCAA”), requires the SEC to identify reporting public companies that use public accounting firms with a branch or office located in a foreign jurisdiction that the Public Company Accounting Oversight Board (“PCAOB”) determines that it is unable to inspect or investigate completely because of a position taken by a governmental entity in that jurisdiction (“Commission-Identified Issuers”). If an issuer is identified as a Commission-Identified Issuer for three consecutive years, the issuer’s shares will be prohibited in U.S. exchange and over-the-counter markets. On March 8, 2022, pursuant to the implementing regulations established by the SEC as required by the HFCAA, the SEC began to identify companies as provisional Commission-Identified Issuers. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China (“PRC”), which marked the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely in accordance with U.S. law. However, as this development is relatively recent, the implementation of the Statement of Protocol remains to be tested. Audits performed by PCAOB registered accounting firms in mainland China and Hong Kong may be less reliable than those performed by firms subject to PCAOB inspection. Accordingly, information about the Chinese securities in which the Funds invest may be less reliable or complete. Listing and other regulatory requirements applicable to foreign issuers, including Chinese issuers, is evolving and any future legislation, regulations or rules may require a Fund to change its investment process, which could result in substantial investment losses. China has often restricted U.S. regulators’ access to information and limited regulators’ ability to investigate or pursue remedies with respect to China-based issuers, generally citing to state secrecy and national security laws, blocking statutes, or other laws or regulations. In addition, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator can directly conduct investigations or evidence collection activities within China and |
no
entity or individual in China may provide documents and information
relating to securities business activities to overseas regulators without
Chinese
government approval. The SEC, U.S. Department of Justice, and other U.S.
authorities face substantial challenges in bringing and enforcing
actions
against China-based issuers and their officers and directors. As a result,
a Fund may not benefit from a regulatory environment that fosters
effective
enforcement of U.S. federal securities laws. From time to time and in
recent years, China has experienced outbreaks of infectious illnesses
and
the country may be subject to other public health threats, infectious
illnesses, diseases or similar issues in the future. Any spread of an
infectious illness,
public health threat or similar issue, or the government response thereto,
could reduce consumer demand or economic output, result in market
closures, travel restrictions or quarantines, and generally have a
significant impact on the Chinese or global economy, which in turn could
adversely
affect a Fund’s investments. |
■ |
Eastern
European and Russian Securities.
In addition to the risks listed under “Foreign Securities - Emerging
Market Securities, “ investing in Russian
and other Eastern European issuers presents additional risks. Investing in
the securities of Eastern European and Russian issuers is highly
speculative
and involves risks not usually associated with investing in the more
developed markets of Western Europe, the U.S. or other developed
countries.
Political and economic reforms have not yet established a definite trend
away from centrally planned economies and state-owned industries.
Investments in Eastern European countries may involve risks of
nationalization, expropriation, and confiscatory taxation. Many Eastern
European
countries continue to move towards market economies at different paces
with different characteristics. Most Eastern European markets suffer
from thin trading activity and less reliable investor protections.
Additionally, because of less stringent auditing and financial reporting
standards
as compared to U.S. companies, there may be little reliable corporate
information available to investors. As a result, it may be difficult to
assess
the value or prospects of an investment in Eastern European and Russian
companies. Further, information and transaction costs, differential
taxes,
and sometimes political or transfer risk give a comparative advantage to
the domestic investor rather than the foreign investor. In addition,
these
markets are particularly sensitive to social, political, economic, and
currency events in Western Europe and Russia and may suffer heavy losses
as
a result of their trading and investment links to these economies and
currencies. Additionally, Russia may continue to attempt to assert its
influence
in the region through economic or even military measures, as evidenced by
its invasion of Ukraine in February 2022 and the ongoing conflict
in that region. The United States and the EU historically have imposed economic sanctions on certain Russian individuals and companies, including certain financial institutions, and have limited certain exports and imports to and from Russia. Sanctions, or even the threat of further sanctions, may result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the Russian economy. These sanctions could also result in the immediate freeze of Russian securities, either by issuer, sector or the Russian markets as a whole, impairing the ability of a Fund to buy, sell, receive or deliver those securities. In such circumstances, a Fund may be forced to liquidate non-restricted assets in order to satisfy shareholder redemptions. Such liquidation of Fund assets could result in a Fund receiving substantially lower prices for its securities. Sanctions could also result in Russia taking counter measures or retaliatory actions which may further impair the value and liquidity of Russian securities. As a result, a Fund’s performance may be adversely affected. The potential impact of sanctions imposed in response to Russia’s invasion of Ukraine in February 2022 are discussed below. In some of the countries of Eastern Europe, there is no stock exchange or formal market for securities. Such countries may also have government exchange controls, currencies with no recognizable market value relative to the established currencies of Western market economies, little or no experience in trading in securities, no accounting or financial reporting standards, a lack of banking and securities infrastructure to handle such trading and a legal tradition that does not recognize rights in private property. Credit and debt issues and other economic difficulties affecting Western Europe and its financial institutions can negatively affect Eastern European countries. Eastern European economies may also be particularly susceptible to the volatility of the international credit market due to their reliance on bank related inflows of foreign capital, and their continued dependence on the Western European zone for credit and trade. Accordingly, the European crisis may present serious risks for Eastern European economies, which may have a negative effect on a Fund’s investments in the region. Compared to most national stock markets, the Russian securities market suffers from a variety of problems not encountered in more developed markets. There is little long-term historical data on the Russian securities market because it is relatively new and a substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges. The inexperience of the Russian securities market and the limited volume of trading in securities in the market may make obtaining accurate prices on portfolio securities from independent sources more difficult than in more developed markets. Poor accounting standards, inept management, pervasive corruption, insider trading and crime, and inadequate regulatory protection for the rights of all investors all may pose additional risks, including to foreign investors. Because of the relatively recent formation of the Russian securities market as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration of securities transactions are subject to significant risks not normally associated with securities transactions in the United States and other more developed markets. Prior to 2013, there was no central registration system for equity share registration in Russia and registration was carried out by either the issuers themselves or by registrars located throughout Russia. Such registrars were not necessarily subject to effective state supervision nor were they licensed with any governmental entity, thereby increasing the risk that a Fund could lose ownership of its securities through fraud, negligence, or even mere oversight. With the implementation of the National Settlement Depository (“NSD”) in Russia as a recognized central securities depository, title to Russian equities is now based on the records of the NSD and not the registrars. Although the implementation of the NSD is generally expected to decrease the risk of loss in connection with recording and transferring title to securities, issues resulting in loss still might occur. In addition, issuers and registrars are still prominent in the validation and approval of documentation requirements for corporate action processing in Russia. Because the documentation requirements and approval criteria vary between registrars and/or issuers, there remain unclear and inconsistent market standards in the Russian market with respect to the completion and submission of corporate action elections. Significant delays or problems may occur in registering the transfer of securities, which could cause a Fund to incur losses due to a counterparty’s failure to pay for securities a Fund has delivered or a Fund’s inability to complete its contractual obligations because of theft or other reasons. To the extent that a Fund suffers a loss relating to title or corporate actions relating to its portfolio securities, it may be difficult for a Fund to enforce its rights or otherwise remedy the loss. In addition, there is the risk that the Russian tax system will not be reformed to prevent inconsistent, retroactive, and/or exorbitant taxation, or, in the alternative, the risk that a reformed tax system may result in the inconsistent and unpredictable enforcement of the new tax laws. |
The
Russian economy is heavily dependent upon the export of a range of
commodities including most industrial metals, forestry products, oil, and
gas.
Accordingly, it is strongly affected by international commodity prices and
is particularly vulnerable to any weakening in global demand for these
products.
Decreases in the price of commodities, which have in the past pushed the
whole economy into recession, have demonstrated the sensitivity
of the Russian economy to such price volatility. Russia continues to face
significant economic challenges, including weak levels of investment
and a sluggish recovery in external demand. Over the long-term, Russia
faces challenges including a shrinking workforce, a high level of
corruption,
and difficulty in accessing capital for smaller, non-energy companies and
poor infrastructure in need of large
investments. |
Foreign
investors also face a high degree of currency risk when investing in
Russian securities and a lack of available currency hedging instruments.
In the
past, the Russian ruble has been subject to significant devaluation
pressure as a result of the imposition of sanctions by the United States
and the European
Union and the decline in commodity prices and the value of Russian
exports. Although the Russian Central Bank has spent a significant
amount
of its foreign exchange reserves in an attempt to maintain the ruble’s
value, there is a risk of significant future devaluation. In addition,
there is
the risk that the Russian government may impose capital controls on
foreign portfolio investments in the event of extreme financial or
political crisis.
Such capital controls may prevent the sale of a portfolio of foreign
assets and the repatriation of investment income and capital. These risks
may
cause flight from the ruble into U.S. dollars and other
currencies. |
In
February 2022, Russia launched a large-scale invasion of Ukraine. The
outbreak of hostilities between the two countries could result in more
widespread
conflict and could have a severe adverse effect on the regional and the
global financial markets and economies (including in Europe and
the
U.S.), companies in other countries (including those that have done
business in Russia), and various sectors, industries and markets for
securities and
commodities. Actual and threatened responses to such military action have
impacted, and may continue to impact, the markets for certain Russian
commodities, such as oil and natural gas. In addition, tensions have
increased between Russia’s neighbors and Western countries, which may
adversely
affect the region’s economic growth. Moreover, disruptions caused by
Russian military action or other actions (including 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 Russian issuers of securities in which a
Fund invests. The extent and duration of the military action, the
resulting
sanctions or other punitive actions, and the resulting future market
disruptions, are impossible to predict but have been and could continue
to
be significant. Russia’s actions have induced the United States and other countries (collectively, the “Sanctioning Bodies”) to impose economic sanctions on Russia, Russian individuals, and Russian corporate and banking entities, which can consist of prohibiting certain securities trades and private transactions in the energy sector, asset freezes and prohibition of all business with such persons and entities. The sanctions have included a commitment by certain countries and the EU to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications, commonly called “SWIFT,” the electronic network that connects banks globally, and the imposition of restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. A number of large corporations and U.S. states have also divested or announced plans to divest interests or otherwise curtail business dealings with certain Russian businesses. The Sanctioning Bodies may impose additional sanctions in the future. Such sanctions, or even the threat of further sanctions, may impact many sectors of the Russian economy and related markets. Current and potential future sanctions, or the threat of sanctions, and Russia’s response, as discussed below, may cause any of the following: (a) a decline in the value and liquidity of Russian securities; (b) a weakening or devaluation of the ruble; (c) a downgrade in Russia’s credit rating and/or its default on sovereign obligations; (d) increased volatility of Russian securities; (e) the immediate freeze of Russian securities and/or funds invested in prohibited assets; or (f) additional counter measures or retaliatory actions. In response to the sanctions, the Russian Central Bank raised its interest rates, suspended the sales of Russian securities by non-residents of Russia on its local stock exchange, prohibited the repatriation of Russian assets by foreign investors, and barred Russian issuers from participating in depositary receipt programs. Russia may take additional countermeasures or retaliatory actions in the future, including, for example, restricting gas exports to other countries, seizing U.S. and European residents’ assets, imposing capital controls to restrict movements of capital entering and existing the country, or undertaking or provoking other military conflict elsewhere in Europe. The Russian invasion, sanctions in response, and any related events may adversely and significantly affect the performance of a Fund and its ability to achieve its investment objectives by restricting or prohibiting a Fund’s ability to gain exposure to Russian issuers or other affected issuers. To the extent that a Fund has direct exposure to Russian or Eastern European issuers, these events may also make it difficult for a Fund to sell, receive or deliver securities or assets to realize the value of that exposure. |
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Emerging
Market Securities. A
Fund may invest in emerging market securities. A Fund may consider a
country to be an emerging market country based
on a number of factors including, but not limited to, if the country is
classified as an emerging or developing economy by any supranational
organization
such as the World Bank, International Finance Corporation or the United
Nations, or related entities, or if the country is considered an
emerging
market country for purposes of constructing emerging markets indices.
Investments in emerging market country securities involve special
risks.
The economies, markets and political structures of a number of the
emerging market countries in which a Fund can invest do not compare
favorably
with the United States and other mature economies in terms of wealth and
stability. Therefore, investments in these countries may be riskier,
and will be subject to erratic and abrupt price movements. These risks are
discussed below. Economies: The economies of emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, reliable access to capital, capital reinvestment, resource self-sufficiency, balance of payments and trade difficulties. Some economies are less well developed and less diverse (for example, Latin America, Eastern Europe and certain Asian countries), and may be heavily dependent upon international trade, as well as the economic conditions in the countries with which they trade. Such economies accordingly have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist or retaliatory measures imposed or negotiated by the countries with which they trade. Similarly, many of these countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of national and external debt, severe recession, and extreme poverty and unemployment. The economies of emerging market countries may be based predominately on only a few industries or may be dependent on revenues from participating commodities or on international aid or developmental assistance. Emerging market economies may develop unevenly or may never fully develop. Investments in |
countries
that have recently begun moving away from central planning and state-owned
industries toward free markets, such as the Eastern European,
Russian or Chinese economies, should be regarded as
speculative. Governments: Emerging markets may have uncertain national policies and social, political and economic instability. 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. In the past, governments of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In addition, there is no guarantee that some future economic or political crisis will not lead to price controls, forced mergers of companies, confiscatory taxation or creation of government monopolies to the possible detriment of a Fund’s investments. In such event, it is possible that a Fund could lose the entire value of its investments in the affected markets. Emerging market countries may have national policies that limit a Fund’s investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests. 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. In addition, if a Fund invests in a market where restrictions are considered acceptable, a country could impose new or additional repatriation restrictions after investment that are unacceptable. This might require, 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. Further, some attractive securities may not be available, or may require a premium for purchase, due to foreign shareholders already holding the maximum amount legally permissible. In addition to withholding taxes on investment income, some countries with emerging capital markets may impose differential capital gain taxes on foreign investors. An issuer or governmental authority that controls the repayment of an emerging market country’s debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A debtor’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, and, in the case of a government debtor, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole and the political constraints to which a government debtor may be subject. Government debtors may default on their debt and may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Holders of government debt may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. There may be limited legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government fixed-income securities to obtain recourse may be subject to the political climate in the relevant country. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign government debt obligations in the event of default under their commercial bank loan agreements. Capital Markets: The capital markets in emerging market countries may be underdeveloped. They may have low or non-existent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities, as compared to securities from more developed capital markets. Emerging market securities may be substantially less liquid and more volatile than those of mature markets, and securities may be held by a limited number of investors. This may adversely affect the timing and pricing of a Fund’s acquisition or disposal of securities. There may be less publicly available information about emerging markets than would be available in more developed capital markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting standards vary widely. As a result, traditional investment measurements used in the U.S., may not be applicable. Investing in certain countries with emerging capital markets may entail purchasing securities issued by or on behalf of entities that are insolvent, bankrupt, in default or otherwise engaged in an attempt to reorganize or reschedule their obligations, and in entities that have little or no proven credit rating or credit history. In any such case, the issuer’s poor or deteriorating financial condition may increase the likelihood that the investing Fund will experience losses or diminution in available gains due to bankruptcy, insolvency or fraud. There may also be custodial restrictions or other non-U.S. or U.S. governmental laws or restrictions applicable to investments in emerging market countries. Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because a Fund may use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. Supervisory authorities also may 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 a Fund to suffer a loss. There can be no certainty that a Fund will be successful in eliminating counterparty risk, particularly as counterparties operating in emerging market countries frequently lack the substance 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. Regulatory authorities in some emerging markets currently do not provide the Public Company Accounting Oversight Board with the ability to inspect public accounting firms as required by U.S. law, including sufficient access to inspect audit work papers and practices, or otherwise do not cooperate with U.S. regulators, which potentially could expose investors to significant risks. Legal Systems: Investments in emerging market countries may be affected by the lack, or relatively early development, of legal structures governing private and foreign investments and private property. Such capital markets are emerging in a dynamic political and economic environment brought about by events over recent years that have reshaped political boundaries and traditional ideologies. Many emerging market countries have little experience with the corporate form of business organization and may not have well-developed corporation and business laws or concepts of fiduciary duty in the business context. The organizational structures of certain issuers in emerging markets may limit investor rights and recourse. A Fund may encounter substantial difficulties in obtaining and enforcing judgments against individuals and companies located in certain emerging market countries, either individually or in combination with other shareholders. It may be difficult or impossible to obtain or enforce legislation or remedies against governments, their agencies and sponsored entities. Additionally, in certain emerging market countries, fraud, corruption and attempts at market manipulation may be more prevalent than in developed market countries. Shareholder claims that are common in the U.S. and are generally viewed as determining misconduct, including class action securities law and fraud claims, generally are difficult or impossible to pursue |
as
a matter of law or practicality in many emerging markets. The laws in certain countries with emerging capital markets may be based upon or be highly influenced by religious codes or rules. The interpretation of how these laws apply to certain investments may change over time, which could have a negative impact on those investments and a Fund. Russia launched a large-scale invasion of Ukraine on February 24, 2022. The extent and duration of the military action, resulting sanctions and resulting future market disruptions, including declines in its stock markets and the value of the ruble against the U.S. dollar, are impossible to predict, but could be significant. Any such disruptions caused by Russian military action or other actions (including 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 Russian issuers of securities in which a Fund invests. Actual and threatened responses to such activity, including purchasing restrictions, sanctions, tariffs or cyberattacks on the Russian government or Russian companies, may impact Russia’s economy and Russian issuers of securities in which a Fund invests. Actual and threatened responses to such military action may also impact the markets for certain Russian commodities, such as oil and natural gas, as well as other sectors of the Russian economy, and may likely have collateral impacts on such sectors globally, and may negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact a Fund’s performance and the value of an investment in a Fund, even if a Fund does not have direct exposure to Russian issuers or issuers in other countries affected by the invasion. Governments in the United States and many other countries (collectively, the “Sanctioning Bodies”) have imposed economic sanctions, which can consist of prohibiting certain securities trades, certain private transactions in the energy sector, asset freezes and prohibition of all business, against certain Russian individuals, including politicians, and Russian corporate and banking entities. The Sanctioning Bodies, or others, could also institute broader sanctions on Russia, including banning Russia from global payments systems that facilitate cross-border payments. These sanctions, or even the threat of further sanctions, may result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the Russian economy. These sanctions could also result in the immediate freeze of Russian securities and/or funds invested in prohibited assets, impairing the ability of a Fund to buy, sell, receive or deliver those securities and/or assets. Sanctions could also result in Russia taking counter measures or retaliatory actions which may further impair the value and liquidity of Russian securities. |
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European
Securities.
A Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product
of the countries in the region),
the rate of inflation, the rate at which capital is reinvested into
European economies,
the success of governmental actions to reduce budget deficits, the
resource self-sufficiency of European countries,
interest rates in European
countries, monetary exchange rates between European countries,
and conflict between European countries. Most developed countries in
Western
Europe are members of the European Union (“EU”), and many are also members
of the European Economic and Monetary Union (“EMU” or
“Eurozone”). The EMU is comprised of EU members that have adopted the
Euro
currency. As part of EMU membership, member
states relinquish control
of their own monetary policies
to the European Central Bank.
The EMU requires Eurozone countries to comply with restrictions on
interest rates,
deficits, debt levels, and inflation rates; fiscal and monetary controls;
and other factors.
Although the EMU has adopted a common currency and
central bank, there is no fiscal union; therefore, money does not
automatically flow from countries with surpluses to those with deficits.
These restrictions
and characteristics may limit the ability of EMU member countries to
implement monetary policy to address regional economic conditions
and
significantly impact every European country and their economic partners,
including those countries that are not members of the EMU. In
addition,
those EU member states that are not currently in the Eurozone (except
Denmark) are required to seek to comply with convergence criteria
to
permit entry to the Eurozone. The economies and markets of European
countries are often closely connected and interdependent, and events in
one
country in Europe can have an adverse impact on other European countries.
Changes
in imports or exports, changes in governmental or European
regulations on trade, changes in the exchange rate of the Euro
,
the threat of default or actual default by one or more European
countries
on
its sovereign debt, and/or an economic recession in one or more
European
countries
may have a significant adverse effect on the economies of other
European
countries
and their trading partners. The European financial markets have experienced and may continue to experience volatility and adverse trends due to concerns relating to economic downturns; national unemployment; ageing populations; rising government debt levels and the possible default on government debt in several European countries; public health crises; political unrest; economic sanctions; inflation; energy crises; the future of the Euro as a common currency; and war and military conflict, such as the Russian invasion of Ukraine. These events have affected the exchange rate of the Euro and may continue to significantly affect European countries. Responses to financial problems by European governments, central banks, and others, including austerity measures and other reforms, may not produce the desired results, may result in social unrest and may limit future growth and economic recovery or may have unintended consequences. In order to prevent further economic deterioration, certain countries, without prior warning, can institute “capital controls.” Countries may use these controls to restrict volatile movements of capital entering and exiting their country. Such controls may negatively affect a Fund’s investments. In addition, one or more countries may abandon the Euro and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, could be significant and far-reaching. Many European nations are susceptible to economic risks associated with high levels of debt. Non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure, their debts, and other issuers have faced difficulties obtaining credit or refinancing existing obligations. A default or debt restructuring by any European country could adversely impact holders of that country’s debt and sellers of credit default swaps linked to that country’s creditworthiness, which may be located in other countries. Such a default or debt restructuring could affect exposures to other European countries and their companies as well. Further defaults on, or restructurings of, the debt of governments or other entities could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, issuers have faced difficulties obtaining credit or refinancing existing obligations; financial institutions have in some 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. Furthermore, certain European countries have had to accept assistance from supranational agencies such as the International Monetary Fund, the European Stability Mechanism or others. The European Central Bank has also intervened to purchase Eurozone debt in an attempt to stabilize markets and reduce borrowing costs. There can be no assurance that any creditors or supranational agencies will continue to intervene or provide further assistance, and markets may react adversely to |
any
expected reduction in the financial support provided by these
creditors. Certain European countries have experienced negative interest rates on certain fixed-income instruments. A negative interest rate 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 result in heightened market volatility and may detract from a Fund’s performance to the extent a Fund is exposed to such interest rates. Certain European countries have also developed increasingly strained relationships with the U.S., and if these relationships were to worsen, they could adversely affect European issuers that rely on the U.S. for trade. In addition, the national politics of European countries have been unpredictable and subject to influence by disruptive political groups and ideologies. Secessionist movements, as well as government or other responses to such movements, may create instability and uncertainty in a country or region. European governments may be subject to change and such countries may experience social and political unrest. Unanticipated or sudden political or social developments may result in sudden and significant investment losses. The occurrence of terrorist incidents throughout Europe also could impact financial markets, as could military conflicts. The impact of these or other events is not clear but could be significant and far-reaching and materially impact the value and liquidity of a Fund’s investments. Russia’s war with Ukraine has negatively impacted European economic activity. The Russia/Ukraine war and Russia’s response to sanctions imposed by the U.S., EU, UK and others have and could continue to severely impact the performance of the economies of European and other countries, including adverse effects to global financial and energy markets, global supply chains and global growth, and inflation. Certain countries have applied to become new member countries of the EU, and these candidate countries’ accessions may become more controversial to the existing EU members. Some member states may repudiate certain candidate countries joining the EU due to concerns about the possible economic, immigration and cultural implications. Also, Russia may be opposed to the expansion of the EU to members of the former Eastern Bloc (i.e. ex-Soviet Union-controlled countries in Europe) and may, at times, take actions that could negatively impact European economic activity. The United Kingdom withdrew from the European Union on January 31, 2020 and entered into a transition period, which ended on December 31, 2020. The longer term economic, legal, and political framework between the United Kingdom and the EU is still developing and may lead to ongoing political and economic uncertainly and periods of increased volatility in the United Kingdom, Europe, and the global market. Investments in companies with significant operations and/or assets in the United Kingdom could be adversely impacted by the new legal, political, and regulatory environment, whether by increased costs or impediments to the implementation of business plans. The uncertainty resulting from any further exits from the EU, or the possibility of such exits, would also be likely to cause market disruption in the EU and more broadly across the global economy, as well as introduce further legal, political, and regulatory uncertainty in Europe. |
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Latin
American Securities. Investments
in securities of Latin American issuers involve risks that are specific to
Latin America, including certain legal, regulatory,
political and economic risks. Most Latin American countries have
experienced, at one time or another, severe and persistent levels of
inflation,
including, in some cases, hyperinflation, as well as high interest rates.
This has at time led to extreme government measures to keep inflation
in check, and a generally debilitating effect on economic growth. Although
inflation in many countries has lessened, there is no guarantee
it
will remain at lower levels. Political Instability. Certain Latin American countries have historically suffered from social, political, and economic instability and volatility, currency devaluations, government defaults and high unemployment rates. For investors, this has meant additional risk caused by periods of regional conflict, political corruption, totalitarianism, protectionist measures, nationalization, hyperinflation, debt crises, sudden and large currency devaluation, and intervention by the military in civilian and economic spheres. However, in some Latin American countries, a move to sustainable democracy and a more mature and accountable political environment is under way. Domestic economies have been deregulated, privatization of state-owned companies is almost completed and foreign trade restrictions have been relaxed. Nonetheless, there can be no guarantee that such trends will continue or that the desired outcomes of these developments will be successful. In addition, to the extent that events such as those listed above continue in the future, they could reverse favorable trends toward market and economic reform, privatization, and removal of trade barriers, and result in significant disruption in securities markets in the region. Investors in the region continue to face a number of potential risks. Governments of many Latin American countries have exercised and continue to exercise substantial influence over many aspects of the private sector. Governmental actions in the future could have a significant effect on economic conditions in Latin American countries, which could affect the companies in which a Fund invests and, therefore, the value of Fund shares. Additionally, an investment in Latin America is subject to certain risks stemming from political and economic corruption, which may negatively affect the country or the reputation of companies domiciled in a certain country. For certain countries in Latin America, political risks have created significant uncertainty in the financial markets and may further limit the economic recovery in the region. Dependence on Exports and Economic Risk. Certain Latin American countries depend heavily on exports to the U.S., investments from a small number of countries, and trading relationships with key trading partners, including the U.S., Europe, Asia and other Latin American countries. Accordingly, these countries may be sensitive to fluctuations in demand, protectionist trade policies, exchange rates and changes in market conditions associated with those countries. Additionally, in Mexico, the long-term implications of the United States-Mexico-Canada Agreement, the 2020 successor to NAFTA, are yet to be determined. This uncertainty may have an adverse impact on Mexico’s economic outlook and the value of Fund investments in Mexico. |
The
economic growth of most Latin American countries is highly dependent on
commodity exports and the economies of certain Latin American countries,
particularly Mexico and Venezuela, are highly dependent on oil exports. As
a result, these economies are particularly susceptible to fluctuations
in the price of oil and other commodities and currency
fluctuations. |
The
prices of oil and other commodities experienced volatility driven, in
part, by a continued slowdown of growth in China and the effects of the
COVID-19
pandemic. If growth in China remains slow, or if global economic
conditions worsen, prices for Latin American commodities may experience
increased volatility and demand may continue to decrease. Although certain
of these countries have recently shown signs of recovery, such
recovery, if sustained, may be gradual. In addition, prolonged economic
difficulties may have negative effects on the transition to a more stable
democracy
in some Latin American countries. |
Trade
Agreements. Certain Latin American countries have entered into regional
trade agreements that are designed to, among other things, reduce
trade
barriers between countries, increase competition among companies, and
reduce government subsidies in certain industries. No assurance can
be
given that these changes will be successful in the long term, or that
these changes will result in the economic stability intended. There is a
possibility
that these trade arrangements will not be fully implemented, or will be
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 sharp appreciation or depreciation of participants’
national currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an undermining of
confidence
in the Latin American markets, an undermining of Latin American economic
stability, the collapse or slowdown of the drive towards Latin
American
economic unity, and/or reversion of the attempts to lower government debt
and inflation rates that were introduced in anticipation of such
trade agreements. Such developments could have an adverse impact on a
Fund’s investments in Latin America generally or in specific countries
participating
in such trade agreements. |
Sovereign
Debt. Latin American economies generally are heavily dependent upon
foreign credit and loans, and may be more vulnerable to diplomatic
developments,
the imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. In addition to risk of
default, debt repayment may be restructured or rescheduled, which
may
impair economic activity. Moreover, the debt may be susceptible to high
interest rates and may reach levels that would adversely affect Latin
American
economies. In addition, certain Latin American economies have been
influenced by changing supply and demand for a particular currency,
monetary
policies of governments (including exchange control programs, restrictions
on local exchanges or markets and limitations on foreign investment
in a country or on investment by residents of a country in other
countries), and currency devaluations and revaluations. A relatively small
number
of Latin American companies represents a large portion of Latin America’s
total market and thus may be more sensitive to adverse political
or
economic circumstances and market movements. A number of Latin American
countries are among the largest debtors of developing countries
and
have a history of reliance on foreign debt and default. The majority of
the region’s economies have become dependent upon foreign credit and
loans
from external sources to fund government economic plans. Historically,
these plans have frequently resulted in little benefit accruing to the
economy.
Most countries have been forced to restructure their loans or risk default
on their debt obligations. In addition, interest on the debt is
subject
to market conditions and may reach levels that would impair economic
activity and create a difficult and costly environment for borrowers.
Accordingly,
these governments may be forced to reschedule or freeze their debt
repayment, which could negatively affect local markets. While the
region
has recently had mixed levels of economic growth, recovery from past
economic downturns in Latin America has historically been slow, and
such
growth, if sustained, may be gradual. The ongoing effects of the European
debt crisis, the effects of the COVID-19 pandemic, and persistent
low
growth in the global economy may reduce demand for exports from Latin
America and limit the availability of foreign credit for some countries
in
the region. As a result, a Fund’s investments in Latin American securities
could be harmed if economic recovery in the region is
limited. |
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Middle
East Securities.
Many Middle Eastern countries are prone to political turbulence, and the
political and legal systems in such countries may have
an adverse impact on a Fund. Certain economies in the Middle East are
highly reliant on income from the exports of primary commodities, such
as
oil, or trade with countries involved in the sale of oil, and their
economies are therefore vulnerable to changes in the market for oil and
foreign currency
values. As global demand for oil fluctuates, many Middle Eastern economies
may be significantly impacted. Additionally, the economies of many
Middle Eastern countries are largely dependent on, and linked together by,
certain commodities (such as gold, silver, copper, diamonds, and
oil).
As a result, Middle Eastern economies are vulnerable to changes in
commodity prices, and fluctuations in demand for these commodities could
significantly
impact economies in these regions. A downturn in one country’s economy
could have a disproportionally large effect on others in the region. Many Middle Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, a Middle Eastern country’s government may own or control many companies, including some of the largest companies in the country. Accordingly, governmental actions in the future could have a significant effect on economic conditions in Middle Eastern countries, and a country’s government may act in a detrimental or hostile manner toward private enterprise or foreign investment. This could affect private sector companies and a Fund, as well as the value of securities in a Fund’s portfolio. Certain Middle Eastern markets are in the earliest stages of development and may be considered “frontier markets.” Financial markets in the Middle East generally are less liquid and more volatile than other markets, including markets in developed and other emerging economies. As a result, there may be a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Brokers in Middle Eastern countries typically are fewer in number and less well-capitalized than brokers in the United States. Since a Fund may need to effect securities transactions through these brokers, a Fund is subject to the risk that these brokers will not be able to fulfill their obligations to a Fund (i.e., counterparty risk). This risk is magnified to the extent that a Fund effects securities transactions through a single broker or a small number of brokers. In addition, securities may have limited marketability and be subject to erratic price movements. The legal systems in certain Middle Eastern countries also may have an adverse impact on a Fund. For example, the potential liability of a shareholder in a U.S. corporation with respect to acts of the corporation generally is limited to the amount of the shareholder’s investment. However, the concept of limited liability is less clear in certain Middle Eastern countries. A Fund therefore may be liable in certain Middle Eastern countries for the acts of a corporation in which it invests for an amount greater than its actual investment in that corporation. Similarly, the rights of investors in Middle Eastern issuers may be more limited than those of shareholders of a U.S. corporation. It may be difficult or impossible to obtain or enforce a legal judgment in a Middle Eastern country. Some Middle Eastern countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as a Fund. For example, certain countries may require governmental approval prior to investment by foreign persons or limit the amount of investment by foreign persons in a particular issuer. Certain Middle Eastern countries may also limit the investment by foreign persons to a specific class of securities of an issuer that may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals of the relevant Middle Eastern country. The manner in which foreign investors may invest in issuers in certain Middle Eastern countries, as well as limitations on those investments, may have an adverse impact on the operations of a Fund. For example, in certain of these countries, a Fund may be required to invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration in some instances may |
not
be possible on a timely basis. This may result in a delay during which a
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. There also may
be instances where a Fund places a purchase order but is subsequently
informed, at the time of re-registration, that the permissible allocation
of the investment to foreign investors has been filled and, consequently,
the Fund may not be able to invest in the relevant
company. Substantial limitations may exist in certain Middle Eastern countries with respect to a Fund’s ability to repatriate investment income or capital gains. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investment. Certain Middle Eastern countries may be heavily dependent upon international trade and, consequently, have been and may continue to be negatively affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These countries also have been and may continue to be adversely impacted by economic conditions in the countries with which they trade. In addition, certain issuers located in Middle Eastern countries in which a Fund invests may operate in, or have dealings with, countries subject to sanctions and/or embargoes imposed by the U.S. government and the United Nations, and/or countries identified by the U.S. government as state sponsors of terrorism. As a result, an issuer may sustain damage to its reputation if it is identified as an issuer which operates in, or has dealings with, such countries. A Fund, as an investor in such issuers, will be indirectly subject to those risks. Certain Middle Eastern countries have strained relations with other Middle Eastern countries due to territorial and sovereignty disputes, historical animosities, international alliances, religious tensions or defense concerns, which may periodically become violent and may adversely affect the economies of these countries. Certain Middle Eastern countries experience significant unemployment as well as widespread underemployment. Many Middle Eastern countries periodically have experienced political, economic and social unrest as protestors have called for widespread reform. Some of these protests have resulted in a governmental regime change, internal conflict or civil war. In some instances where pro-democracy movements successfully toppled regimes, the stability of successor regimes has at times proven weak, as evidenced, for example, in Egypt. In other instances, these changes have devolved into armed conflict involving local factions, regional allies or international forces, and even protracted civil wars. If further regime change were to occur, internal conflicts were to intensify, or a civil war were to continue in any of these countries, such instability could adversely affect the economies of these Middle Eastern countries in which a Fund invests and could decrease the value of a Fund’s investments. Middle Eastern economies may be subject to acts of terrorism, political strife, religious, ethnic or socioeconomic unrest, conflict and violence and sudden outbreaks of hostilities with neighboring countries. There has been an increase in recruitment efforts and an aggressive push for territorial control by terrorist groups in the region, which has led to an outbreak of warfare and hostilities. Such hostilities may continue into the future or may escalate at any time due to ethnic, racial, political, religious or ideological tensions between groups in the region or foreign intervention or lack of intervention, among other factors. These developments could adversely affect a Fund. |
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Pacific
Basin Securities.
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the U.S.
and Western European countries. Such instability may result from, among
other things, (i) authoritarian governments or military involvement in
political
and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with
demands
for improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v)
ethnic,
religious and racial disaffection. In addition, the Asia-Pacific
geographic region has historically been prone to natural disasters. The
occurrence of
a natural disaster in the region, including the subsequent recovery, could
negatively impact the economy of any country in the region. The
existence
of overburdened infrastructure and obsolete financial systems also
presents risks in certain Asian countries, as do environmental
problems. The economies of most of the Asian countries are heavily dependent on international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners, principally, the U.S., Japan, China and the EU. The enactment by the U.S. or other principal trading partners of protectionist trade legislation, reduction of foreign investment in the local economies and general declines in the international securities markets could have a significant adverse effect upon the securities markets of the Asian countries. The economies of certain Asian countries may depend to a significant degree upon only a few industries and/or exports of primary commodities and, therefore, are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors. In addition, certain developing Asian countries, such as the Philippines and India, are especially large debtors to commercial banks and foreign governments. Many of the Pacific Basin economies may be intertwined, so an economic downturn in one country may result in, or be accompanied by, an economic downturn in other countries in the region. Furthermore, many of the Pacific Basin economies are characterized by high inflation, underdeveloped financial services sectors, heavy reliance on international trade, frequent currency fluctuations, devaluations, or restrictions, political and social instability, and less efficient markets. The securities markets in Asia are substantially smaller, less liquid and more volatile than the major securities markets in the U.S., and some of the stock exchanges in the region are in the early stages of their development, as compared to the stock exchanges in the U.S. Equity securities of many companies in the region may be less liquid and more volatile than equity securities of U.S. companies of comparable size. Additionally, many companies traded on stock exchanges in the region are smaller and less seasoned than companies whose securities are traded on stock exchanges in the U.S. A high proportion of the shares of many issuers may be held by a limited number of persons and financial institutions, which may limit the number of shares available for investment by a Fund. In some countries, there is no established secondary market for securities. Therefore, liquidity of securities may be generally low and transaction costs generally high. Similarly, volume and liquidity in the bond markets in Asia are less than in the U.S. and, at times, price volatility can be greater than in the U.S. A limited number of issuers in Asian securities markets may represent a disproportionately large percentage of market capitalization and trading value. The limited liquidity of securities markets in Asia may also affect a Fund’s ability to acquire or dispose of securities at the price and time it wishes to do so. In addition, the Asian securities markets are susceptible to being influenced by large investors trading significant blocks of securities. |
The
legal systems in certain developing market Pacific Basin countries also
may have an adverse impact on a Fund. For example, while the potential
liability
of a shareholder in a U.S. corporation with respect to acts of the
corporation is generally limited to the amount of the shareholder’s
investment,
the notion of limited liability is less clear in certain Pacific Basin
countries. Similarly, the rights of investors in Pacific Basin companies
may be
more limited than those of shareholders of U.S. corporations. It may be
difficult or impossible to obtain and/or enforce a judgment in a Pacific
Basin
country. |
Many
stock markets are undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and
recording
of transactions, and in interpreting and applying the relevant law and
regulations. With respect to investments in the currencies of Asian
countries,
changes in the value of those currencies against the U.S. dollar will
result in corresponding changes in the U.S. dollar value of a Fund’s
assets
denominated in those currencies. Certain developing economies in the
Asia-Pacific region have experienced currency fluctuations, devaluations,
and restrictions; unstable employment rates; rapid fluctuation in, among
other things, inflation and reliance on exports; and less efficient
markets. Currency fluctuations or devaluations in any one country can have
a significant effect on the entire Asia Pacific region. Holding
securities
in currencies that are devalued (or in companies whose revenues are
substantially in currencies that are devalued) will likely decrease the
value
of a Fund’s investments. Some developing Asian countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly
their equity markets, by foreign entities such as a Fund. 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 and shareholder rights) than
securities
of the company available for purchase by nationals of the relevant
country. There can be no assurance that a Fund will be able to obtain
required
governmental 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.
Certain countries may restrict investment opportunities in issuers
or
industries deemed important to national
interests. |
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Collateralized
Mortgage Obligations (“CMOs”). A
CMO is a debt obligation of a legal entity that is collateralized by
mortgages or mortgage-related
assets. These
securities may be issued by U.S. Government agencies, instrumentalities or
sponsored enterprises such as Fannie Mae or
Freddie Mac or by trusts formed by private originators of, or investors
in, mortgage loans, including savings and loan associations, mortgage
bankers,
commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. CMOs
divide the cash flow generated
from the underlying mortgages or mortgage pass-through securities into
different groups referred to as “tranches,” which are typically
retired
sequentially over time in order of priority. Interest
and prepaid principal is paid, in most cases, on a monthly basis. CMOs may
be collateralized
by whole mortgage loans or private mortgage bonds, but they
are
more typically collateralized by portfolios of mortgage pass-through
securities
guaranteed by GNMA; FHLMC and FNMA (each a government-sponsored enterprise
and
may be owned
entirely by private shareholders); and
their income streams. The issuers of CMOs are structured as trusts or corporations established for the purpose of issuing such CMOs and often have no assets other than those underlying the securities and any credit support provided. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by the U.S. Government or government-sponsored enterprises, these CMOs represent |
obligations
solely of the private issuer and are not insured or guaranteed by the U.S.
Government, any government-sponsored enterprise, or any other
person or entity. Prepayments could cause early retirement of CMOs.
Payment of interest or principal on certain tranches of CMOs may be
subject
to contingencies, and certain tranches may bear some or all of the risk of
default on the underlying mortgages. CMO tranches are generally
retired
in sequence as the underlying mortgage loans in the mortgage pool are
repaid. If enough mortgages are repaid ahead of schedule, the CMO
tranches
with the earliest maturities generally will be retired prior to their
stated maturity date. Thus, the early retirement of particular tranches of
a CMO
would have a similar effect as the prepayment of mortgages underlying
other MBS. Conversely, slower than anticipated prepayments can
extend
the effective maturities of CMOs, subjecting them to a greater risk of
decline in market value in response to rising interest rates than
traditional
debt securities, and therefore, potentially increasing the volatility of a
Fund’s investments in CMOs. An increase or decrease in prepayment
rates
(resulting from a decrease or increase in mortgage interest rates) will
affect the yield, average life, and price of CMOs. Under certain CMO
structures,
certain tranches have priority over others with respect to the receipt of
repayments on the mortgages. Therefore, depending on the type of
CMOs in which a Fund invests, the investment may be subject to a greater
or lesser risk of prepayment than other types of mortgage-related
securities.
The prices of certain CMOs, depending on their structure and the rate of
prepayments, can be volatile. Some CMOs may also not be as liquid
as other securities. |
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Collateralized
Mortgage Obligation (“CMO”) Residuals.
CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage
banks,
commercial banks, investment banks and special purpose entities of the
foregoing. The cash flow generated by the mortgage assets underlying
a series of CMOs is applied first to make required payments of principal
and interest on the CMOs and second to pay the related administrative
expenses and any management fee of the issuer. The residual in a CMO
structure generally represents the interest in any excess cash
flow
remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting
from a CMO will depend on, among other things, the characteristics of
the
mortgage assets, the coupon rate of each class of CMO, prevailing interest
rates, the amount of administrative expenses and the pre-payment
experience
on the mortgage assets. In particular, the yield to maturity on CMO
residuals is extremely sensitive to pre-payments on the related
underlying
mortgage assets, in the same manner as an interest-only (“IO”) class of
stripped mortgage-backed securities. See “Stripped
Mortgage-Backed
Securities.” In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of
the index upon which interest rate adjustments are based. As described
elsewhere
with respect to stripped mortgage-backed securities, in certain
circumstances a Fund may fail to recoup fully its initial investment
in a CMO residual. CMO residuals are generally purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers.. In addition, CMO residuals may, or pursuant to an exemption therefrom, may not have been registered under the Securities Act. CMO residuals, whether or not registered under the Securities Act, may be subject to certain restrictions on transferability, and may be deemed “illiquid” and subject to a Fund’s limitations on investment in illiquid securities. Liquidity in CMO trading markets also may be limited, and CMO residuals may be significantly more volatile than other CMO interests. |
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Commercial
Mortgage-Backed Securities (“CMBSs”).
CMBS include securities that reflect an interest in, and are secured by,
mortgage loans on commercial
real estate property. CMBS are generally multi-class or pass-through
securities backed by a mortgage loan or a pool of mortgage loans
secured
by commercial property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multifamily properties
and
cooperative apartments. The commercial mortgage loans that underlie CMBS
are generally not amortizing or not fully amortizing. That is, at
their
maturity date, repayment of the remaining principal balance or “balloon”
is due and is repaid through the attainment of an additional loan or
sale
of the property. Many of the risks of investing in CMBS reflect the risk
of investing in the real estate securing the underlying mortgage loans.
These
risks reflect the effects of local and other economic conditions on real
estate markets, the ability of tenants to make loan payments, and the
ability
of a property to attract and retain tenants. CMBS may be less liquid and
exhibit greater price volatility than other types of mortgage- or
asset-backed
securities. |
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Mortgage
Dollar Rolls. A
Fund may enter into mortgage dollar rolls in which a Fund sells
mortgage-backed securities for delivery in the current month
and simultaneously contracts with the same counterparty to repurchase
fungible securities (e.g., same type, coupon, and maturity) on a
specified
future date at a pre-determined price. During the roll period, a Fund
would lose the right to receive principal (including prepayments of
principal)
and interest paid on the securities sold. However, a Fund would benefit to
the extent of any difference between the price received for the
securities
sold and the lower forward price for the future purchase (often referred
to as the “drop”) or fee income plus the return
earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. If
such benefits do
not exceed
the income, capital appreciation
and gain due
to mortgage prepayments that would have been realized on the securities
sold as part of the mortgage dollar roll, the Fund
would incur a loss. A Fund only enters into covered dollar rolls, which means that a Fund will earmark cash or liquid securities to secure its obligation for the forward commitment to buy mortgage-backed securities plus any accrued interest, marked-to-market daily. Mortgage dollar roll transactions may be considered a borrowing under certain circumstances. Since a Fund may reinvest the cash proceeds from the sale, the transactions may involve leverage. Each mortgage dollar roll transaction is accounted for as a sale or purchase of a portfolio security and a subsequent purchase or sale of a substantially similar security in the forward market. Mortgage dollar roll transactions may result in higher transaction costs, increase interest rate risk or result in an increased portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities subject to a Fund’s forward purchase commitment may decline below, or the market value of the securities subject to a Fund’s forward sale commitment may increase above, the exercise price of the forward commitment. Additionally, because dollar roll transactions do not require the purchase and sale of identical securities, the characteristics of the security delivered to a Fund may be less favorable than the security delivered to the dealer. The successful use of dollar rolls may depend upon a sub-advisor’s ability to correctly predict interest rates and prepayments, depending on the underlying security. There is no assurance that dollar rolls can be successfully employed. In addition, in the event the buyer of the securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds of the sale portion of the transaction may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to purchase the similar securities in the forward transaction. |
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Mortgage
Pass-Through Securities. Mortgage
pass-through securities are securities representing interests in “pools”
of mortgages in which payments
of both interest and principal on the securities are generally made
monthly, in effect “passing through” monthly payments made by the
individual
borrowers on the residential mortgage loans that underlie the securities
(net of fees paid to the issuer or guarantor of the securities). There
are
generally three types of mortgage pass-through securities: (1) those
issued by the U.S. government or one of its agencies or instrumentalities,
such
as GNMA, FNMA, and FHLMC; (2) those issued by private issuers that
represent an interest in or are collateralized by pass-through securities
issued
or guaranteed by the U.S. government or one of its agencies or
instrumentalities; and (3) those issued by private issuers that represent
an interest
in or are collateralized by whole mortgage loans or pass-through
securities without a government guarantee but that usually have some
form
of private credit enhancement. The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. To the extent that unanticipated rates of pre-payment on underlying mortgages increase the effective duration of a mortgage-related security, the volatility of such security can be expected to increase.Government and Government-Related Mortgage Pass-Through Securities. Payment of principal and interest on some mortgage pass-through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. Government, as in the case of securities guaranteed by GNMA, or guaranteed by government-sponsored enterprises, as in the case of securities guaranteed by FNMA or FHLMC, which are supported only by the discretionary authority of the U.S. Government to purchase the agency’s obligations. There are a number of important differences among the agencies of the U.S. government and government-sponsored enterprises that issue mortgage-related securities and among the securities that they issue. Such agencies and securities include: GNMA Mortgage Pass-Through Certificates (“Ginnie Maes”) — GNMA is a wholly owned U.S. Government corporation within the U.S. Department of Housing and Urban Development. Ginnie Maes represent an undivided interest in a pool of mortgages that are insured by the Federal Housing Administration or the Farmers Home Administration or guaranteed by the Veterans Administration. Ginnie Maes entitle the holder to receive all payments (including prepayments) of principal and interest owed by the individual mortgagors, net of fees paid to GNMA and to the issuer that assembles the mortgage pool and passes through the monthly mortgage payments to the certificate holders (typically, a mortgage banking firm), regardless of whether the individual mortgagor actually makes the payment. Because payments are made to certificate holders regardless of whether payments are actually received on the underlying mortgages, Ginnie Maes are of the “modified pass-through” mortgage certificate type. GNMA guarantees the timely payment of principal and interest on Ginnie Maes. GNMA’s guarantee is backed by the full faith and credit of the United States, and GNMA has unlimited authority to borrow funds from the U.S. Treasury to make payments under the guarantee. The market for Ginnie Maes is highly liquid because of the government guarantee, the size of the market, and the active participation in the secondary market of security dealers and a variety of investors.FHLMC Mortgage Participation Certificates (“Freddie Macs”) — FHLMC is a government-sponsored enterprise owned by stockholders; it is similar to Fannie Mae. FHLMC issues participation certificates that represent interests in mortgages from its national portfolio. Freddie Macs are not guaranteed by the United States and do not constitute a debt or obligation of the United States. Freddie Macs represent interests in groups of specified first lien residential conventional mortgages underwritten and owned by FHLMC. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. In cases where FHLMC has not guaranteed timely payment of principal, FHLMC may remit the amount due because of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable.FNMA Guaranteed Mortgage Pass-Through Certificates (“Fannie Maes”) — FNMA is a government-sponsored enterprise owned by stockholders; it is similar to Freddie Mac. It is subject to general regulation by the Federal Housing Finance Authority (“FHFA”). Fannie Maes entitle the holder to timely payment of interest, which is guaranteed by FNMA. FNMA guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. In cases where FNMA has not guaranteed timely payment of principal, FNMA may remit the amount due because of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. Fannie Maes represent an undivided interest in a pool of conventional mortgage loans secured by first mortgages or deeds of trust, on one family or two to four family, residential properties. FNMA is obligated to distribute scheduled monthly installments of principal and interest on the mortgages in the pool, whether or not received, plus full principal of any foreclosed or otherwise liquidated mortgages.The U.S. Treasury has historically had the authority to purchase obligations of Fannie Mae and Freddie Mac. However, in 2008, due to capitalization concerns, Congress provided the Treasury with additional authority to lend Fannie Mae and Freddie Mac emergency funds and to purchase their stock. In September 2008, the Treasury and the FHFA announced that FNMA and FHLMC had been placed in conservatorship. Since that time, FNMA and FHLMC have received significant capital support through Treasury preferred stock purchases, as well as Treasury and Federal Reserve purchases of their mortgage - backed securities. The FHFA and the U.S. Treasury (through its agreement to purchase FNMA and FHLMC preferred stock) have imposed strict limits on the size of their mortgage portfolios. While the mortgage-backed securities purchase programs ended in 2010, the Treasury continued its support for the entities’ capital as necessary to prevent a negative net worth. When a credit rating agency downgraded long-term U.S. Government debt in August 2011, the agency also downgraded FNMA and FHLMC’s bond ratings, from AAA to AA+, based on their direct reliance on the U.S. Government (although that rating did not directly relate to their mortgage-backed securities). In August 2012, the Treasury amended its preferred stock purchase agreements to provide that FNMA’s and FHLMC’s portfolios will be wound down at an annual rate of 15 percent (up from the previously agreed annual rate of 10 percent), requiring them to reach the $250 billion target by December 31, 2018. FNMA and FHLMC were below the $250 billion cap for year-end 2018. On December 21, 2017, a letter agreement between the Treasury and Fannie Mae and Freddie Mac changed the terms of the senior preferred stock certificates issued to the Treasury to permit the GSEs each to retain a $3 billion capital reserve, quarterly. Under the 2017 letter, each GSE paid a dividend to Treasury equal to the amount that its net worth exceeded $3 billion at the end of each quarter. On September 30, 2019, the Treasury and the FHFA, acting as conservator to Fannie Mae and Freddie Mac, announced amendments to the respective senior preferred stock certificates that will permit the GSEs to retain earnings beyond the $3 billion capital reserves previously allowed through the 2017 letter agreements. Fannie Mae and Freddie Mac are now permitted to maintain capital reserves of $25 billion and $20 billion, respectively. In late 2020, the FHFA issued a new |
capital
rule requiring Fannie Mae and Freddie Mac to hold $283 billion in
unadjusted total capital as of June 30, 2020, based on their assets at the
time.
In January 2021, the FHFA and the U.S. Treasury agreed to amend the
preferred stock purchase agreements for the shares in Fannie Mae and
Freddie
Mac that the federal government continues to hold. The amendments permit Fannie Mae and Freddie Mac to retain all earnings until they have reached the requirements set by the 2020 capital rule. The problems faced by FNMA and FHLMC, resulting from their being placed into federal conservatorship and receiving significant U.S. Government support, sparked serious debate among federal policymakers regarding the continued role of the U.S. Government in providing liquidity for mortgage loans. In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 which, among other provisions, requires that FNMA and FHLMC increase their single-family guaranty fees by at least 10 basis points and remit this increase to the Treasury with respect to all loans acquired by FNMA or FHLMC on or after April 1, 2012 and before January 1, 2022. There have been discussions among policymakers, however, as to whether FNMA and FHLMC should be nationalized, privatized, restructured or eliminated altogether. FNMA and FHLMC also are the subject of several continuing legal actions and investigations over certain accounting, disclosure or corporate governance matters, which (along with any resulting financial restatements) may continue to have an adverse effect on the guaranteeing entities. Under the direction of the FHFA, FNMA and FHLMC jointly developed a common securitization platform for the issuance of a uniform mortgage-backed security (“UMBS”) (the “Single Security Initiative”) that aligns the characteristics of FNMA and FHLMC certificates. In June 2019, under the Single Security Initiative, FNMA and FHLMC started issuing UMBS in place of their prior offerings of TBA-eligible securities. The Single Security Initiative seeks to support the overall liquidity of the TBA market by aligning the characteristics of FNMA and FHLMC certificates. The effects that the Single Security Initiative may have on the market for TBA and other mortgage-backed securities are uncertain.Mortgage Pass-Through Securities Issued by Private Organizations — The pools underlying privately-issued mortgage pass-through securities consist of mortgage loans secured by mortgages or deeds of trust creating a first lien on commercial, residential, residential multi-family and mixed residential/commercial properties. Pools created by non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payments in such pools. The timely payment of interest and principal on mortgage loans in these pools may be supported by various other forms of insurance or guarantees, including individual loan, pool and hazard insurance, subordination and letters of credit. Such insurance and guarantees may be issued by private insurers, banks and mortgage poolers. There is no assurance that private guarantors or insurers, if any, will meet their obligations. Timely payment of interest and principal of these pools also may be partially supported by various enhancements such as over-collateralization and senior/subordination structures and by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers or the mortgage poolers. These mortgage pass-through securities do not have the same credit standing as U.S. government guaranteed securities and generally offer a higher yield than similar securities issued by a government entity. Some mortgage pass-through securities issued by private organizations may not be readily marketable, may be more difficult to value accurately and may be more volatile than similar securities issued by a government entity. Many transactions in the fixed-rate mortgage pass-through securities occur through the use of TBA transactions. TBA transactions are generally conducted in accordance with widely-accepted guidelines that establish commonly observed terms and conditions for execution, settlement and delivery. In a TBA transaction, the buyer and seller decided on general trade parameters, such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to settlement date. Default by or bankruptcy of a counterparty to a TBA transaction would expose a Fund to possible loss because of adverse market action, expenses or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction. |
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Residential
Mortgage-Backed Securities (“RMBSs”).
RMBSs include securities that reflect an interest in, and are secured by,
interest paid on loans
for residential real property, such as mortgages, home-equity loans and
subprime mortgages. Some RMBSs, called agency RMBSs, are guaranteed
or supported by U.S. government agencies or by government sponsored
enterprises, such as the Federal National Mortgage Association
(“Fannie
Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”).
Non-agency RMBS, generally created by banks and other financial
institutions, are not guaranteed or supported by these government agencies
or government sponsored enterprises.
Residential loans may be prepaid
at any time. Prepayments could reduce the yield received on the related
issue of RMBS. RMBS are particularly susceptible to prepayment
risks,
as they generally do not contain prepayment penalties and a reduction in
interest rates will increase the prepayments on the RMBS, resulting in
a
reduction in yield to maturity for holders of such securities.Residential
mortgage loans in an issue of RMBS may be subject to various U.S. federal
and
state laws, public policies and principles of equity that protect
consumers which, among other things, may regulate interest rates and other
fees, require
certain disclosures, require licensing of originators, prohibit
discriminatory lending practices, regulate the use of consumer credit
information, and
regulate debt collection practices. In addition, a number of legislative
proposals have been introduced in the United States at both the federal,
state,
and municipal level that are designed to discourage predatory lending
practices. Violation of such laws, public policies, and principles may
limit the
servicer’s ability to collect all or part of the principal or interest on
a residential mortgage loan, entitle the borrower to a refund of amounts
previously
paid by it, or subject the servicer to damages and administrative
enforcement. Any such violation could also result in cash flow delays and
losses
on the related issue of RMBS. Credit-related risk on RMBS arises from
losses due to delinquencies and defaults by the borrowers in payments
on
the underlying mortgage loans and breaches by originators and servicers of
their obligations under the underlying documentation pursuant to
which
the RMBS are issued. If a residential mortgage loan is in default,
foreclosure of such residential mortgage loan may be a lengthy and
difficult process,
and may involve significant expenses. Furthermore, the market for
defaulted residential mortgage loans or foreclosed properties may be very
limited.
The net proceeds obtained by the holder on a residential mortgage loan
following the foreclosure on the related property may be less than
the
total amount that remains due on the loan. The prospect of incurring a
loss upon the foreclosure of the related property may lead the holder of
the
residential mortgage loan to restructure the residential mortgage loan or
otherwise delay the foreclosure process. |
■ |
Stripped
Mortgage-Backed Securities (“SMBSs”).
SMBS are derivative multi-class mortgage securities. SMBS are created when
a U.S. government
agency or a financial institution separates the interest and principal
components of a MBS and sells them as individual securities. SMBS
may
be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans, including
savings
and loan associations, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing. SMBS are usually
structured
with two classes that receive different proportions of the interest and
principal distributions on a pool of mortgage assets. A common type
|
of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive
most of
the interest and the remainder of the principal. In the most extreme case,
one class will receive all of the interest (the interest-only or “IO”
class), while
the other class will receive the entire principal (the principal-only or
“PO” class).
A
Fund may invest in both the IO class and the PO class. The prices
of stripped MBS may be particularly affected by changes in interest
rates
and the rate of principal payments (including prepayments) on the
related
underlying mortgage assets.
As interest rates fall, prepayment rates tend to increase, which tends to
reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect. The yield to
maturity on an IO class is extremely sensitive to the rate of principal
payments (including
pre-payments) on the related underlying mortgage assets, and a rapid rate
of principal payments in
excess of that considered in pricing the
securities may
have a material adverse effect on
a Fund’s yield to maturity from these securities. If the underlying
mortgage assets experience greater
than anticipated pre-payments of principal,
a Fund may fail to recoup some or all of its initial investment in these
securities even if the security
is in one of the highest rating categories. In
addition, there are certain types of IOs that represent the interest
portion of a particular class as opposed
to the interest portion of the entire pool. The sensitivity of this type
of IO to interest rate fluctuations may be increased because of the
characteristics
of the principal portion to which they relate. The
secondary market for stripped MBS may be more volatile and less liquid
than that for other
MBS, potentially limiting
a Fund’s ability to buy or sell those securities at any particular
time. |
■ |
Anticipation
Notes.
Tax, revenue or bond anticipation notes are issued by municipalities in
expectation of future tax or other revenues that are payable
from those taxes or revenues. Bond anticipation notes usually provide
interim financing in advance of an issue of bonds or notes, the
proceeds
of which are used to repay the anticipation
notes. |
■ |
Commercial
Paper.
Commercial paper, the interest on which is exempt from federal income tax,
is issued by municipalities to help finance short-term
capital or operating needs in anticipation of future tax or other
revenue. |
■ |
General
Obligation
Bonds.
General obligation bonds are secured by the pledge of the issuer’s full
faith, credit, and usually, taxing power and are payable
from and backed only by the issuer’s general unrestricted revenues and not
from any particular fund or source. The characteristics and method
of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer, and payment may be dependent
upon
appropriation by the issuer’s legislative body. The taxing power may be an
unlimited ad valorem tax or a limited tax, usually on real estate and
personal
property. Most states do not tax real estate, but leave that power to
local units of government. |
■ |
Municipal
Lease Obligations.
Municipal lease obligations are issued by state and local governments and
authorities to acquire land and a wide variety
of equipment and facilities. These obligations typically are not fully
backed by the municipality’s credit and thus interest thereon may become
taxable
if the lease is assigned. If funds are not appropriated for the following
year’s lease payments, a lease may terminate with the possibility of
default
on the lease obligation. |
■ |
Municipal
Warrants.
Municipal warrants are essentially call options on municipal bonds. In
exchange for a premium, municipal warrants give the purchaser
the right, but not the obligation, to purchase a municipal bond in the
future. A Fund may purchase a warrant to lock in forward supply in
an
environment where the current issuance of bonds is sharply reduced. Like
options, warrants may expire worthless and they may have reduced
liquidity. |
■ |
Private
Activity Bonds.
Private activity bonds are issued to finance, among other things,
privately operated housing facilities, pollution control facilities,
convention or trade show facilities, mass transit, airport, port or
parking facilities and certain facilities for water supply, gas,
electricity, sewage
or solid waste disposal. Private activity bonds are also issued to
privately held or publicly owned corporations in the financing of
commercial or
industrial facilities. The principal and interest on these obligations may
be payable from the general revenues of the users of such facilities. They
are
not backed by the credit of any governmental or public
authority. |
■ |
Resource
Recovery Obligations.
Resource recovery obligations are a type of municipal revenue obligation
issued to build facilities such as solid waste
incinerators or waste-to-energy plants. Usually, a private corporation
will be involved and the revenue cash flow will be supported by fees or
units
paid by municipalities for use of the facilities. The viability of a
resource recovery project, environmental protection regulations and
project operator
tax incentives may affect the value and credit quality of these
obligations. |
■ |
Revenue
Obligations.
Revenue obligations, such as industrial development bonds, are backed by
the revenue cash flow of a project or facility. The interest
on such obligations is payable only from the revenues derived from a
particular project, facility, specific excise tax or other revenue source.
Revenue
obligations are not a debt or liability of the local or state government
and do not obligate that government to levy or pledge any form of
taxation
or to make any appropriation for payment. |
■ |
ETFs. A
Fund may purchase shares of ETFs. ETFs trade like a common stock and
passive ETFs usually represent a fixed portfolio of securities designed
to
track the performance and dividend yield of a particular domestic or
foreign market index. Typically, a Fund would purchase passive ETF
shares to obtain
exposure to all or a portion of the stock or bond market. As a shareholder
of an ETF, a Fund would be subject to its ratable share of the ETF’s
expenses,
including its advisory and administration expenses. An investment in an
ETF generally presents the same primary risks as an investment in a
conventional
mutual fund (i.e., one that is not exchange traded) that has the same
investment objective, strategies, and policies. The price of an ETF
can
fluctuate within a wide range, and a Fund could lose money investing
in an ETF if the prices of the securities owned by the ETF decline in
value. In
addition, ETFs are subject to the following risks that do not apply to
conventional mutual funds: (1) the market price of the ETF’s shares may
trade at
a discount or premium to their NAV per share; (2) an active trading market
for an ETF’s shares may not develop or be maintained; or (3) trading of
an
ETF’s shares may be halted if the listing exchange’s officials deem such
action appropriate, the shares are de-listed from the exchange, or the
activation
of market-wide “circuit breakers” (which are tied to large decreases in
stock prices) halts stock trading
generally. |
■ |
Money
Market Funds. A
Fund can invest free cash balances in registered open-end investment
companies regulated as money market funds under the
Investment Company Act, to provide liquidity or for defensive
purposes. A Fund would invest in money market funds rather
than purchasing |
individual
short-term investments. Although a money market fund is designed to be a
relatively low risk investment, it is not free of risk. Despite the
short
maturities and high credit quality of a money market fund’s investments,
increases in interest rates and deteriorations in the credit quality of
the
instruments the money market fund has purchased may reduce the money
market fund’s yield and can cause the price of a money market security
to decrease. In addition, a money market fund is subject to the risk that
the value of an investment may be eroded over time by inflation. If
the
liquidity of a money market fund’s portfolio deteriorates below certain
levels, the money market fund may suspend redemptions (i.e., impose a
redemption
gate) and thereby prevent a Fund from selling its investment in the money
market fund, or impose a fee of up to 2% on amounts redeemed
from the money market fund. |
1 | Engage in dollar rolls or purchase or sell securities on a when-issued or forward commitment basis. The purchase or sale of when-issued securities enables an investor to hedge against anticipated changes in interest rates and prices by locking in an attractive price or yield. The price of when-issued securities is fixed at the time the commitment to purchase or sell is made, but delivery and payment for the when-issued securities takes place at a later date, normally one to two months after the date of purchase. During the period between purchase and settlement, no payment is made by the purchaser to the issuer and no interest accrues to the purchaser. Such transactions therefore involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value of the security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that the other party will be unable to settle the transaction. Dollar rolls are a type of |
forward commitment transaction. Purchases and sales of securities on a forward commitment basis involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. As with when-issued securities, these transactions involve certain risks, but they also enable an investor to hedge against anticipated changes in interest rates and prices. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. |
2 | Invest in other investment companies (including affiliated investment companies) to the extent permitted by the Investment Company Act, or exemptive relief granted by the SEC. |
3 | Loan securities to broker-dealers or other institutional investors. Securities loans will not be made if, as a result, the aggregate amount of all outstanding securities loans by a Fund exceeds 33¹/3% of its total assets (including the market value of collateral received). For purposes of complying with a Fund’s investment policies and restrictions, collateral received in connection with securities loans is deemed an asset of a Fund to the extent required by law. |
4 | Enter into repurchase agreements. A repurchase agreement is an agreement under which securities are acquired by a Fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and a Fund is delayed or prevented from exercising its rights to dispose of the collateral securities. However, the Manager or the sub-advisors, as applicable, attempt to minimize this risk by entering into repurchase agreements only with financial institutions that are deemed to be of good financial standing. |
5 | Purchase securities sold in private placement offerings made in reliance on the “private placement” exemption from registration afforded by Section 4(a)(2) of the Securities Act and resold to qualified institutional buyers under Rule 144A under the Securities Act. A Fund will not invest more than 15% of its net assets in Section 4(a)(2) securities and illiquid securities unless the Manager or the sub-advisor, as applicable, determines that any Section 4(a)(2) securities held by such Fund in excess of this level are liquid. |
1 | Purchase or sell real estate or real estate limited partnership interests, provided, however, that a Fund may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein when consistent with the other policies and limitations described in the Prospectus. |
2 | Invest in physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from purchasing or selling foreign currency, options, futures contracts, options on futures contracts, forward contracts, swaps, caps, floors, collars, securities on a forward-commitment or delayed-delivery basis, and other similar financial instruments). |
3 | Engage in the business of underwriting securities issued by others, except to the extent that, in connection with the disposition of securities, a Fund may be deemed an underwriter under federal securities law. |
4 | Lend any security or make any other loan except (i) as otherwise permitted under the Investment Company Act, (ii) pursuant to a rule, order or interpretation issued by the SEC or its staff, (iii) through the purchase of a portion of an issue of debt securities in accordance with a Fund’s investment objective, policies and limitations, or (iv) by engaging in repurchase agreements with respect to portfolio securities. |
5 | Issue any senior security except as otherwise permitted (i) under the Investment Company Act or (ii) pursuant to a rule, order or interpretation issued by the SEC or its staff. |
6 | Borrow money, except as otherwise permitted under the Investment Company Act or pursuant to a rule, order or interpretation issued by the SEC or its staff, including (i) as a temporary measure, (ii) by entering into reverse repurchase agreements, and (iii) by lending portfolio securities as collateral. For purposes of this investment limitation, the purchase or sale of options, futures contracts, options on futures contracts, forward contracts, swaps, caps, floors, collars and other similar financial instruments shall not constitute borrowing. |
7 | Invest more than 5% of its total assets (taken at market value) in securities of any one issuer, other than obligations issued by the U.S. Government, its agencies and instrumentalities, or purchase more than 10% of the voting securities of any one issuer, with respect to 75% of a Fund’s total assets. |
8 | Invest more than 25% of its total assets in the securities of companies primarily engaged in any one industry provided that: (i) this limitation does not apply to obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities; and (ii) municipalities and their agencies and authorities are not deemed to be industries. For purposes of this restriction, the Fund will regard only tax-exempt securities issued by municipalities and their agencies not to be an industry. |
1 | Invest more than 15% of its net assets in illiquid securities, including time deposits and repurchase agreements that mature in more than seven days; or |
2 | Purchase securities on margin or effect short sales, except that a Fund may obtain such short term credits as may be necessary for the clearance of purchases or sales of securities. |
1 | a complete list of holdings for each Fund on an annual and semi-annual basis in the reports to shareholders within sixty days of the end of each fiscal semi-annual period and in publicly available filings of Form N-CSR with the SEC within ten days thereafter (available on the SEC’s website at www.sec.gov); |
2 | a complete list of holdings for each Fund as of the end of each fiscal quarter in publicly available filings of Form N-PORT with the SEC within sixty days of the end of the fiscal quarter (available on the SEC’s website at www.sec.gov); |
3 | a complete list of holdings for the American Beacon SiM High Yield Opportunities Fund and American Beacon The London Company Income Equity Fund as of the end of each month on the Funds’ website (www.americanbeaconfunds.com) approximately twenty days after the end of the month; and |
4 | the ten largest holdings for each Fund as of the end of each calendar quarter on the Funds’ website (www.americanbeaconfunds.com) and in sales materials approximately fifteen days after the end of the calendar quarter. |
Service
Provider |
Service |
Holdings
Access |
Manager |
Investment
management and administrator |
Complete
list on intraday basis with no lag |
Sub-Advisors |
Investment
management |
Holdings
under a sub-advisor’s management on intraday
basis with no lag |
Abel
Noser |
Trade
execution cost analysis |
Complete
list on intraday basis with no lag |
Bloomberg,
L.P. |
Performance
and portfolio analytics reporting |
Complete
list on intraday basis with no lag |
Broadridge
Financial Solutions, Inc. |
Proxy
voting research provider to sub-advisor |
Complete
list on daily basis with no lag |
Empaxsis
Data Management LLC |
Account
reconciliation for Strategic Income Management,
LLC |
Complete
list on daily basis with no lag |
FactSet
Research Systems, Inc. |
Performance
and portfolio analytics reporting for the
Manager and sub-advisors |
Complete
list on intraday basis with no lag |
Glass,
Lewis & Co., LLC |
Proxy
voting research provider to sub-advisor |
Complete
list on intraday basis with no lag |
Institutional
Shareholder Services (“ISS”) |
Proxy
voting research provider to sub-advisors and
share recall services provider to the Manager |
Complete
list on intraday basis with no lag |
KPMG
International |
Service
provider to State Street |
Complete
list on annual basis with lag |
Portfolio
BI |
Order
management software vendor for Strategic
Income Management, LLC |
Complete
list on as needed basis with no lag |
PricewaterhouseCoopers
LLP |
Funds‘
independent registered public accounting firm |
Complete
list on intraday basis with no lag |
State
Street Bank and Trust Co. (“State Street”) and
its designated foreign sub-custodians |
Funds’
custodian and foreign custody manager, foreign
sub-custodians, and securities lending agent
for Funds that participate in securities lending |
Complete
list on intraday basis with no lag |
VIRTU
Financial Inc. (formerly Investment Technology
Group, Inc.) |
Fair
valuation of portfolio securities for Funds with
significant foreign securities holdings; transaction
cost analysis for sub-advisor |
Complete
list on daily basis with no lag and more
frequently when the Manager seeks advice with
respect to certain holdings |
WealthTechs |
Custodial
data reconciliation for The London Company
of Virginia, LLC |
Complete
list on daily basis with no lag |
1 | Recipients of portfolio holdings information must agree in writing to keep the information confidential until it has been posted to the Funds’ website and not to trade based on the information; |
2 | Holdings may only be disclosed as of a month-end date; |
3 | No compensation may be paid to the Funds, the Manager or any other party in connection with the disclosure of information about portfolio securities; and |
4 | A member of the Manager’s Compliance staff must approve requests for nonpublic holdings information. |
Name
and Year of Birth*
|
Position
and Length of
Time Served on the
American Beacon Funds
and American Beacon
Select Funds |
Position
and Length of
Time Served on the
American Beacon Institutional
Funds Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
INTERESTED
TRUSTEE |
|||
Eugene
J. Duffy (1954)** |
Trustee
since 2008 |
Trustee
since 2017 |
Managing
Director, Global Investment Management Distribution, Mesirow Financial
Administrative Corporation (2016-Present); Managing Director, Institutional
Services, Intercontinental Real Estate Corporation (2014-2016);
Trustee,
American Beacon Sound Point Enhanced Income Fund (2018-2021); Trustee,
American Beacon Apollo Total Return Fund (2018-2021). |
NON-INTERESTED
TRUSTEES |
|||
Gilbert
G. Alvarado (1969) |
Trustee
since 2015 |
Trustee
since 2017 |
Chief
Financial Officer, The Conrad Prebys Foundation (2022-Present); President,
SJVIIF,
LLC, Impact Investment Fund (2018-2022); Director, Kura MD, Inc. (local
telehealth
organization) (2015-2017); Senior Vice President/CFO, Sierra Health
Foundation
(health conversion private foundation) (2006-2022); Senior Vice
President/CFO,
Sierra Health Foundation: Center for Health Program Management
(California
public benefit corporation) (2012-2022); Director, Sacramento Regional
Technology
Alliance (2011-2016); Director, Valley Healthcare Staffing (2017–2018);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Joseph
B. Armes (1962) |
Trustee
since 2015 |
Trustee
since 2017 |
Director,
Switchback Energy Acquisition (2019-2021); Chairman & CEO, CSW
Industrials
f/k/a Capital Southwest Corporation (investment company) (2015-Present);
Chairman of the Board of Capital Southwest Corporation, predecessor
to CSW Industrials, Inc. (investment company) (2014-2017); President
&
CEO, JBA Investment Partners (family investment vehicle) (2010-Present);
Director
and Chair of Audit Committee, RSP Permian (oil and gas producer)
(2013-2018);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Gerard
J. Arpey (1958) |
Trustee
since 2012 |
Trustee
since 2017 |
Partner,
Emerald Creek Group (private equity firm) (2011-Present); Director, S.C.
Johnson
& Son, Inc. (privately held company) (2008-Present); Director, The
Home Depot,
Inc. (NYSE: HD) (2015-Present); Trustee, American Beacon Sound Point
Enhanced
Income Fund (2018-2021); Trustee, American Beacon Apollo Total
Return
Fund (2018-2021). |
Brenda
A. Cline (1960) |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2004 |
Chair
since 2019
Vice
Chair 2018
Trustee
since 2017 |
Chief
Financial Officer, Treasurer and Secretary, Kimbell Art Foundation
(1993-Present);
Director, Tyler Technologies, Inc. (public sector software solutions
company)
(2014-Present); Director, Range Resources Corporation (oil and natural
gas
company) (2015-Present); Trustee, Cushing Closed-End (2) and Open-End
Funds
(3) (2017-2021); Chair, American Beacon Sound Point Enhanced Income
Fund
(2019-2021), Vice Chair (2018), Trustee (2018-2021); Chair, American
Beacon
Apollo Total Return Fund (2019-2021), Vice Chair (2018), Trustee
(2018-2021). |
Claudia
A. Holz (1957) |
Trustee
since 2018 |
Trustee
since 2018 |
Independent
Director, Blue Owl Capital Inc. (2021-Present); Partner, KPMG LLP
(1990-2017);
Trustee, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
Name
and Year of Birth* |
Position
and Length of
Time Served on the
American Beacon Funds
and American Beacon
Select Funds |
Position
and Length of
Time Served on the
American Beacon Institutional
Funds Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Douglas
A. Lindgren (1961) |
Trustee
since 2018 |
Trustee
since 2018 |
Director,
JLL Income Property Trust (2022-Present); CEO North America, Carne
Global
Financial Services (2016-2017); Consultant, Carne Financial Services
(2017-2019);
Managing Director, IPS Investment Management and Global Head, Content
Management, UBS Wealth Management (2010-2016); Trustee, American
Beacon
Sound Point Enhanced Income Fund (2018-2021); Trustee, American
Beacon
Apollo Total Return Fund (2018-2021). |
Barbara
J. McKenna (1963) |
Trustee
since 2012 |
Trustee
since 2017 |
President/Managing
Principal, Longfellow Investment Management Company (2005-Present,
President since 2009); Member, External Diversity Council of the
Federal
Reserve Bank of Boston (2021-Present); Member, Federal Reserve Bank of
Boston
CEO Roundtable (2021-Present); Board Advisor, United States Tennis
Association
(2021-Present); Trustee, American Beacon Sound Point Enhanced Income
Fund (2018-2021); Trustee, American Beacon Apollo Total Return Fund
(2018-2021). |
* | The Board has adopted a retirement policy that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 75. |
** | Mr. Duffy is deemed to be an “interested person” of the Trust, as defined by the Investment Company Act of 1940, as amended, by virtue of his position with Mesirow |
Financial, Inc., a broker-dealer. |
INTERESTED
TRUSTEE | |
American
Beacon Fund |
Duffy |
American
Beacon SiM High Yield Opportunities Fund |
$10,001-$50,000 |
American
Beacon The London Company Income Equity Fund |
None |
Aggregate
Dollar Range of Equity Securities in all Trusts
(27
Funds as of December 31, 2022) |
Over
$100,000 |
NON-INTERESTED
TRUSTEES | |||||||
American
Beacon Fund |
Alvarado |
Armes |
Arpey |
Cline |
Holz |
Lindgren |
McKenna |
American
Beacon SiM High Yield Opportunities Fund |
$10,001-
$50,000 |
None |
None |
None |
None |
None |
None |
American
Beacon The London Company Income Equity Fund |
$10,001-
$50,000 |
None |
None |
None |
$50,001
- $100,000 |
Over
$100,000 |
Over
$100,000 |
Aggregate
Dollar Range of Equity Securities in all Trusts
(27
Funds as of December 31, 2022) |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
The
following table shows total compensation (excluding reimbursements) paid
by the Trusts to each Trustee for the fiscal year ended August 31,
2023. | ||
Name
of Trustee |
Aggregate
Compensation from the Trust |
Total
Compensation from the Trusts |
INTERESTED
TRUSTEE |
||
Eugene
J. Duffy |
$189,532 |
$201,000 |
NON-INTERESTED
TRUSTEES |
||
Gilbert
G. Alvarado |
$208,627 |
$221,250 |
Joseph
B. Armes |
$201,791 |
$214,000 |
Gerard
J. Arpey |
$200,848 |
$213,000 |
Brenda
A. Cline1
|
$249,881 |
$265,000 |
Claudia
A. Holz |
$217,585 |
$230,750 |
Douglas
A. Lindgren |
$217,585 |
$230,750 |
Barbara
J. McKenna |
$208,627 |
$221,250 |
1 | Upon her retirement from the Board, Ms. Cline is eligible for flight benefits afforded to Eligible Trustees who served on the Boards prior to September 12, 2008 as described below. |
Name
and Year of Birth |
Position
and Length of
Time Served on the
American Beacon Funds
and American Beacon
Select Funds |
Position
and Length of
Time Served on the
American Beacon Institutional
Funds Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
OFFICERS |
|||
Jeffrey
K. Ringdahl (1975) |
President
since April 2022 Vice
President 2010-2022 |
President
since April 2022 Vice
President 2017-2022 |
Director
(2015-Present), President (2018-Present), Chief Executive Officer
(2022-Present),
Chief Operating Officer (2010-2022), Senior Vice President (2013-2018),
American Beacon Advisors, Inc.; Director (2015-Present), President
(2018-Present),
Senior Vice President (2015-2018), Resolute Investment Holdings,
LLC;
Director (2015-Present), President (2018-Present), Senior Vice President
(2015-2018),
Resolute Topco, Inc.; Director (2015-Present), President (2018-Present),
Senior Vice President (2015-2018), Resolute Acquisition, Inc.;
Director
(2015-Present), President (2018-Present), Chief Executive Officer
(2022-Present),
Chief Operating Officer (2018-2022), Senior Vice President (2015-2018),
Resolute Investment Managers, Inc.; Director (2017-Present), President
and Chief Executive Officer (2022-Present), Executive Vice President
(2017-2022),
Resolute Investment Distributors, Inc.; Director (2017-Present),
President
(2018-Present), Chief Executive Officer (2022-Present), Chief Operating
Officer
(2018-2022), Executive Vice President (2017-2018), Resolute Investment
Services,
Inc.; President (2022-Present), Senior Vice President (2017-2022), Vice
President
(2012-2017), Manager (2015-Present), American Private Equity Management,
L.L.C.; Trustee, American Beacon NextShares Trust (2015-2020);
Director
and Executive Vice President & Chief Operating Officer, Alpha Quant
Advisors,
LLC (2016-2020); Director, Shapiro Capital Management, LLC (2017-Present);
Director and Executive Vice President, Continuous Capital, LLC
(2018-2022);
Director, RSW Investments Holdings, LLC (2019-Present); Manager,
SSI
Investment Management, LLC (2019-Present); Director, National Investment
Services
of America, LLC (2019-Present); Director and Vice President, American
Beacon
Cayman Transformational Innovation Company, Ltd., (2017-2018); Vice
President,
American Beacon Delaware Transformational Innovation Corporation
(2017-2018);
Director (2014-Present), President (2022-Present) and Vice President
(2014-2022),
American Beacon Cayman Managed Futures Strategy Fund, Ltd.; Director
(2018-Present) and, President (2022-Present), Vice President (2018-2022),
American
Beacon Cayman TargetRisk Company, Ltd.; Director and President,
American
Beacon Cayman Multi-Alternatives Company, Ltd. (2023-Present);
Director
and President, American Beacon Cayman Trend Company, Ltd. (2023-Present);
Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021); Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Rosemary
K. Behan (1959) |
Vice
President, Secretary
and Chief Legal
Officer since 2006 |
Vice
President, Secretary
and Chief Legal
Officer since 2017 |
Senior
Vice President (2021-Present), Vice President (2006-2021), Secretary and
General
Counsel (2006-Present), American Beacon Advisors, Inc.; Secretary,
Resolute
Investment Holdings, LLC (2015-Present); Secretary, Resolute Topco, Inc.
(2015-Present);
Secretary, Resolute Acquisition, Inc. (2015-Present); Senior Vice
President
(2021-Present), Vice President (2015-2021), Secretary and General
Counsel
(2015-Present), Resolute Investment Managers, Inc.; Secretary, Resolute
Investment
Distributors, Inc. (2017-Present); Senior Vice President (2021-Present),
Vice
President (2017-2021), Secretary and General Counsel (2017-Present),
Resolute
Investment Services, Inc.; Secretary, American Private Equity Management,
LLC (2008-Present); Secretary and General Counsel, Alpha Quant
Advisors,
LLC (2016-2020); Vice President and Secretary, Continuous Capital, LLC
(2018-2022);
Secretary, Green Harvest Asset Management, LLC (2019-2021); Secretary,
American Beacon Delaware Transformational Innovation Corporation
(2017-2018);
Secretary, American Beacon Cayman Transformational Innovation Company,
Ltd. (2017-2018); Secretary, American Beacon Cayman Managed Futures
Strategy Fund, Ltd. (2014-Present); Secretary, American Beacon Cayman
TargetRisk
Company, Ltd (2018-Present); Secretary, American Beacon Cayman
Multi-Alternatives
Company, Ltd. (2023-Present); Secretary, American Beacon Cayman
Trend Company, Ltd. (2023-Present); Vice President, Secretary, and Chief
Legal
Officer, American Beacon Sound Point Enhanced Income Fund (2018-2021);
Vice
President, Secretary, and Chief Legal Officer, American Beacon Apollo
Total Return
Fund (2018-2021). |
Paul
B. Cavazos (1969) |
Vice
President since 2016 |
Vice
President since 2017 |
Chief
Investment Officer and Senior Vice President, American Beacon Advisors,
Inc.
(2016-Present); Vice President, American Private Equity Management, L.L.C.
(2017-Present);
Vice President, American Beacon Sound Point Enhanced Income Fund
(2018-2021); Vice President, American Beacon Apollo Total Return Fund
(2018-2021). |
Name
and Year of Birth |
Position
and Length of
Time Served on the
American Beacon Funds
and American Beacon
Select Funds |
Position
and Length of
Time Served on the
American Beacon Institutional
Funds Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Erica
B. Duncan (1970) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President, American Beacon Advisors, Inc. (2011-Present); Vice President,
Resolute
Investment Managers, Inc. (2018-Present); Vice President, Resolute
Investment
Services, Inc. (2018-Present); Vice President, American Beacon Sound
Point
Enhanced Income Fund (2018-2021); Vice President, American Beacon
Apollo
Total Return Fund (2018-2021). |
Rebecca
L. Harris (1966) |
Vice
President Since 2022 |
Vice
President Since 2022 |
Senior
Vice President (2021-Present), Vice President (2011-2021), American
Beacon
Advisors, Inc.; Senior Vice President (2021-Present), Vice President
(2017-2021),
Resolute Investment Managers, Inc.; Senior Vice President (2021-Present),
Vice President (2017-2021), Resolute Investment Services, Inc.;
Vice
President, Alpha Quant Advisors, LLC (2016-2020); Vice President
(2018-2022),
Director (2022) Continuous Capital, LLC; Director (2022-Present)
National
Investment Services of America, LLC; Director (2022-Present) RSW
Investments
Holdings LLC; Director (2022-Present) Shapiro Capital Management
LLC;
Director (2022-Present) SSI Investment Management LLC; Assistant
Secretary, American
Beacon Sound Point Enhanced Income Fund (2018-2021); Assistant
Secretary,
American Beacon Apollo Total Return Fund (2018-2021); Assistant
Secretary,
American Beacon Funds (2010 – 2022); Assistant Secretary, American
Beacon
Select Funds (2010 – 2022); Assistant Secretary, American Beacon
Institutional
Funds Trust (2017 – 2022). |
Terri
L. McKinney (1963) |
Vice
President since 2010 |
Vice
President since 2017 |
Senior
Vice President, (2021-Present) Vice President, (2009-2021), American
Beacon
Advisors, Inc.; Senior Vice President (2021-Present), Vice President
(2017-2021),
Resolute Investment Managers, Inc.; Senior Vice President (2021-Present),
Vice President (2018-2021), Resolute Investment Services, Inc.;
Vice
President, Alpha Quant Advisors, LLC (2016-2020); Vice President,
Continuous
Capital, LLC (2018-2022); Vice President, American Beacon Sound
Point
Enhanced Income Fund (2018-2021); Vice President, American Beacon
Apollo
Total Return Fund (2018-2021). |
Samuel
J. Silver (1963) |
Vice
President since 2011 |
Vice
President since 2017 |
Vice
President (2011-Present), Chief Fixed Income Officer (2016-Present),
American
Beacon Advisors, Inc.; Vice President, American Beacon Sound Point
Enhanced
Income Fund (2018-2021); Vice President, American Beacon Apollo
Total
Return Fund (2018-2021). |
Melinda
G. Heika (1961) |
Vice
President since 2021 |
Vice
President since 2021 |
Senior
Vice President (2021-Present), Treasurer and CFO (2010-Present), American
Beacon
Advisors, Inc.; Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer,
Resolute
Investment Holdings, LLC (2015-Present); Treasurer, Resolute Acquisition,
Inc.
(2015-Present); Senior Vice President (2021-Present), Treasurer and CFO
(2017-Present),
Resolute Investment Managers, Inc.; Treasurer, Resolute Investment
Distributors, Inc. (2017); Senior Vice President (2021-Present), Treasurer
and
CFO (2017-Present), Resolute Investment Services, Inc.; Treasurer,
American Private
Equity Management, L.L.C. (2012-Present); Treasurer and CFO, Alpha
Quant
Advisors, LLC (2016-2020); Treasurer, Continuous Capital, LLC (2018-2022);
Treasurer, American Beacon Cayman Transformational Innovation,
Ltd.
(2017-2018); Treasurer, American Beacon Delaware Transformational
Innovation
Corporation (2017-2018); Director (2014-Present), Vice President
(2022-Present)
and Treasurer (2014-2022), American Beacon Cayman Managed Futures
Strategy Fund, Ltd.; Director and Vice President (2022-Present), and
Treasurer
(2018-2022), American Beacon Cayman TargetRisk Company, Ltd.; Director
and Vice President, American Beacon Cayman Multi-Alternatives Company,
Ltd. (2023-Present); Director and Vice President, American Beacon
Cayman
Trend Company, Ltd. (2023-Present); Principal Accounting Officer and
Treasurer,
American Beacon Funds (2010-2021); Principal Accounting Officer and
Treasurer,
American Beacon Select Funds (2010-2021); Principal Accounting
Officer
and Treasurer, American Beacon Institutional Funds Trust (2017-2021);
Principal
Accounting Officer and Treasurer (2018-2021), Vice President (2021),
American
Beacon Sound Point Enhanced Income Fund; Principal Accounting Officer
and Treasurer (2018-2021), Vice President (2021), American Beacon Apollo
Total
Return Fund (2018-2021). |
Gregory
Stumm (1981) |
Vice
President since 2022 |
Vice
President since 2022 |
Senior
Vice President, American Beacon Advisors, Inc. (2022-Present); Senior Vice
President,
Resolute Investment Managers, Inc. (2022-Present); Senior
Vice President,
Resolute Investment Services, Inc. (2022-Present); Director and Senior
Vice
President, Resolute Investment Distributors, Inc.
(2022-Present). |
Name
and Year of Birth |
Position
and Length of
Time Served on the
American Beacon Funds
and American Beacon
Select Funds |
Position
and Length of
Time Served on the
American Beacon Institutional
Funds Trust |
Principal
Occupation(s) and Directorships During Past 5 Years |
Sonia
L. Bates (1956) |
Principal
Accounting Officer
and Treasurer since 2021 |
Principal
Accounting Officer
and Treasurer since 2021 |
Assistant
Treasurer, American Beacon Advisors, Inc. (2011-2018); Vice President,
Fund
and Tax Reporting (2023-Present), Director, Fund and Tax Reporting
(2011-2023),
Resolute Investment Services, Inc; Assistant Treasurer, American
Private
Equity Management, L.L.C. (2012-Present); Assistant Treasurer, American
Beacon
Cayman Transformational Innovation Company, Ltd. (2017-2018); Treasurer,
American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2022-Present);
Treasurer (2022-Present) and Assistant Treasurer (2018-2022), American
Beacon Cayman TargetRisk Company, Ltd.; Treasurer, American Beacon
Cayman
Multi-Alternatives Company, Ltd. (2023-Present); Treasurer, American
Beacon
Cayman Trend Company, Ltd. (2023-Present); Assistant Treasurer
(2018-2021),
Principal Accounting Officer and Treasurer (2021), American Beacon
Sound
Point Enhanced Income Fund; Assistant Treasurer (2019-2021), Principal
Accounting
Officer and Treasurer (2021), American Beacon Apollo Total Return
Fund;
Assistant Treasurer, American Beacon Funds (2011-2021); Assistant
Treasurer,
American Beacon Select Funds (2011-2021); Assistant Treasurer,
American
Beacon Institutional Funds Trust (2017-2021). |
Christina
E. Sears (1971) |
Chief
Compliance Officer since 2004 Assistant Secretary since 1999 |
Chief
Compliance Officer
and Assistant Secretary since 2017 |
Chief
Compliance Officer (2004-Present), Vice President (2019-Present), American
Beacon
Advisors, Inc.; Vice President, Resolute Investment Managers, Inc.
(2017-Present);
Vice President, Resolute Investment Distributors, Inc. (2017-Present);
Vice President, Resolute Investment Services, Inc. (2019-Present);
Chief
Compliance Officer, American Private Equity Management, LLC (2012-Present);
Chief Compliance Officer, Green Harvest Asset Management, LLC (2019-2021);
Chief Compliance Officer, RSW Investments Holdings, LLC (2019-Present);
Chief Compliance Officer (2016-2019), Vice President (2016-2020),
Alpha Quant Advisors, LLC; Chief Compliance Officer (2018-2019),
Vice
President (2018-2022), Continuous Capital, LLC.; Chief Compliance Officer
and
Assistant Secretary, American Beacon Sound Point Enhanced Income Fund
(2018-2021);
Chief Compliance Officer and Assistant Secretary, American Beacon
Apollo
Total Return Fund (2018-2021). |
Shelley
L. Dyson (1969) |
Assistant
Treasurer since 2021 |
Assistant
Treasurer since 2021 |
Fund
Tax Manager (2020-Present), Manager, Tax (2014-2020), Resolute
Investment
Services, Inc.; Assistant Treasurer, American Beacon Cayman Managed
Futures
Strategy Fund, Ltd. (2022-Present); Assistant Treasurer, American Beacon
Cayman
TargetRisk Company, Ltd (2022-Present); Assistant Treasurer, American
Beacon
Cayman Multi-Alternatives Company, Ltd. (2023-Present); Assistant
Treasurer,
American Beacon Cayman Trend Company, Ltd. (2023-Present); Assistant
Treasurer, American Beacon Sound Point Enhanced Income Fund (2021);
Assistant
Treasurer, American Beacon Apollo Total Return Fund
(2021). |
Shelley
D. Abrahams (1974) |
Assistant
Secretary since 2008 |
Assistant
Secretary since 2017 |
Corporate
Governance Manager (2023-Present), Senior Corporate Governance &
Regulatory
Specialist (2020-2023), Corporate Governance & Regulatory Specialist
(2017-2020),
Resolute Investment Services, Inc.; Assistant Secretary, American
Beacon
Cayman Managed Futures Strategy Fund, Ltd. (2022-Present); Assistant
Secretary,
American Beacon Cayman TargetRisk Company, Ltd (2022-Present);
Assistant
Secretary, American Beacon Cayman Multi-Alternatives Company, Ltd.
(2023-Present);
Assistant Secretary, American Beacon Cayman Trend Company, Ltd.
(2023-Present); Assistant Secretary, American Beacon Sound Point Enhanced
Income
Fund (2018-2021); Assistant Secretary, American Beacon Apollo Total
Return
Fund (2018-2021). |
Teresa
A. Oxford (1958) |
Assistant
Secretary since 2015 |
Assistant
Secretary since 2017 |
Assistant
Secretary and Associate General Counsel (2015-Present), American
Beacon
Advisors, Inc.; Assistant Secretary (2018-2021), Resolute Investment
Distributors,
Inc.; Assistant Secretary and Associate General Counsel (2017-Present),
Resolute Investment Managers, Inc.; Assistant Secretary and Associate
General Counsel (2018-Present), Resolute Investment Services, Inc.;
Assistant
Secretary (2016-2020), Alpha Quant Advisors, LLC; Assistant Secretary
(2020-2022),
Continuous Capital, LLC.; Assistant Secretary, American Beacon
Sound
Point Enhanced Income Fund (2018-2021); Assistant Secretary, American
Beacon
Apollo Total Return Fund (2018-2021). |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R5
CLASS |
Investor
CLASS |
AMERICAN
ENTERPRISE INV SVCS*
|
6.85% |
10.77% |
||||
707
2ND AVE S |
||||||
MINNEAPOLIS
MN 55402-2405 |
||||||
CHARLES
SCHWAB & CO INC* |
12.89% |
7.80% |
55.71% | |||
SPECIAL
CUST A/C |
||||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
||||||
ATTN
MUTUAL FUNDS |
||||||
101
MONTGOMERY ST |
||||||
SAN
FRANCISCO CA 94104-4151 |
||||||
LPL
FINANCIAL* |
25.10% |
19.27% |
15.73% |
37.42% |
1.56% |
1.20% |
4707
EXECUTIVE DR |
||||||
SAN
DIEGO CA 92121-3091 |
||||||
MERRILL
LYNCH PIERCE FENNER & |
5.94% |
5.61% |
7.63% | |||
SMITH
INC (HOUSE ACCOUNT)* |
||||||
THE
AMERICAN BEACON FUNDS |
||||||
4800
DEER LAKE DR EAST |
||||||
JACKSONVILLE
FL 32246-6484 |
||||||
MORGAN
STANLEY SMITH BARNEY LLC* |
5.41% |
18.97% |
||||
FOR
THE EXCLUSIVE BENE OF ITS CUST |
||||||
1
NEW YORK PLZ FL 12 |
||||||
NEW
YORK NY 10004-1965 |
||||||
NATIONAL
FINANCIAL SERVICES LLC* |
10.04% |
7.54% |
10.76% |
32.12% |
27.93% | |
FOR
EXCLUSIVE BENEFIT OF |
||||||
OUR
CUSTOMERS |
||||||
ATTN
MUTUAL FUND DEPT 4TH FLR |
||||||
499
WASHINGTON BLVD |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R5
CLASS |
Investor
CLASS |
JERSEY
CITY NJ 07310-1995 |
||||||
PERSHING
LLC* |
5.14% |
16.72% |
||||
1
PERSHING PLZ |
||||||
JERSEY
CITY NJ 07399-0001 |
||||||
RAYMOND
JAMES* |
7.31% |
|||||
OMNIBUS
FOR MUTUAL FUNDS |
||||||
ATTN
COURTNEY WALLER |
||||||
880
CARILLON PKWY |
||||||
ST
PETERSBURG FL 33716-1100 |
||||||
UBS
WM USA* |
11.42% |
10.04% |
7.37% |
10.11% |
||
OMNI
ACCOUNT M/F |
||||||
SPEC
CDY A/C EBOC UBSFSI |
||||||
1000
HARBOR BLVD |
||||||
WEEHAWKEN
NJ 07086-6761 |
||||||
WELLS
FARGO CLEARING SERVICES LLC* |
10.81% |
13.38% |
5.01% |
|||
SPECIAL
CUSTODY ACCT FOR THE |
||||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
||||||
2801
MARKET ST |
||||||
ST
LOUIS MO 63103-2523 |
||||||
SEI
PRIVATE TRUST COMPANY* |
13.61% |
|||||
C/O
M&T BANK ID 337 |
||||||
ATTN:
MUTUAL FUND ADMINISTRATOR |
||||||
ONE
FREEDOM VALLEY DRIVE |
||||||
OAKS
PA 19456-9989 |
* | Denotes record owner of Fund shares only |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R6
CLASS |
R5
CLASS |
Investor
CLASS |
CHARLES
SCHWAB & CO INC*
|
12.81% |
20.17% | |||||
SPECIAL
CUST A/C |
|||||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
|||||||
ATTN
MUTUAL FUNDS |
|||||||
101
MONTGOMERY ST |
|||||||
SAN
FRANCISCO CA 94104-4151 |
|||||||
CHARLES
SCHWAB & CO INC* |
9.22% |
5.26% | |||||
SPECIAL
CUSTODY A/C FBO CUSTOMERS |
|||||||
ATTN
MUTUAL FUNDS |
|||||||
211
MAIN STREET |
|||||||
SAN
FRANCISCO CA 94105-1901 |
|||||||
LPL
FINANCIAL* |
5.71% |
||||||
A/C
1000-0005 |
|||||||
4707
EXECUTIVE DR |
|||||||
SAN
DIEGO CA 92121-3091 |
|||||||
MERRILL
LYNCH PIERCE FENNER & |
56.75% |
24.79% |
26.82% |
||||
SMITH
INC (HOUSE ACCOUNT)* |
|||||||
THE
AMERICAN BEACON FUNDS |
|||||||
4800
DEER LAKE DR EAST |
|||||||
JACKSONVILLE
FL 32246-6484 |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R6
CLASS |
R5
CLASS |
Investor
CLASS |
MORGAN
STANLEY SMITH BARNEY LLC* |
7.95% |
12.07% |
9.28% |
||||
FOR
THE EXCLUSIVE BENE OF ITS CUST |
|||||||
1
NEW YORK PLZ FL 12 |
|||||||
NEW
YORK NY 10004-1965 |
|||||||
NATIONAL
FINANCIAL SERVICES LLC* |
25.23% |
14.85% |
89.17% |
49.95% |
27.54% | ||
FOR
EXCLUSIVE BENEFIT OF |
|||||||
OUR
CUSTOMERS |
|||||||
ATTN
MUTUAL FUNDS DEPT 4TH FLOOR |
|||||||
499
WASHINGTON BLVD |
|||||||
JERSEY
CITY NJ 07310-1995 |
|||||||
PERSHING
LLC* |
5.72% |
22.69% |
|||||
1
PERSHING PLZ |
|||||||
JERSEY
CITY NJ 07399-0001 |
|||||||
RAYMOND
JAMES* |
9.11% |
||||||
OMNIBUS
FOR MUTUAL FUNDS |
|||||||
HOUSE
ACCT FIRM 92500015 |
|||||||
ATTN
COURTNEY WALLER |
|||||||
880
CARILLON PKWY |
|||||||
ST
PETERSBURG FL 33716-1100 |
|||||||
UBS
WM USA* |
5.71% |
10.29% |
14.71% |
||||
0O0
11011 6100 |
|||||||
OMNI
ACCOUNT M/F |
|||||||
SPEC
CDY A/C EBOC UBSFSI |
|||||||
1000
HARBOR BLVD |
|||||||
WEEHAWKEN
NJ 07086-6761 |
|||||||
WELLS
FARGO CLEARING SERVICES LLC* |
5.31% |
14.30% |
|||||
SPECIAL
CUSTODY ACCT FOR THE |
|||||||
EXCLUSIVE
BENEFIT OF CUSTOMERS |
|||||||
2801
MARKET ST |
|||||||
ST
LOUIS MO 63103-2523 |
|||||||
MATRIX
TRUST COMPANY AS AGENT FOR |
10.81% |
||||||
NEWPORT
TRUST COMPANY |
|||||||
QHN,
LLC 401(K) PROFIT SHARING |
|||||||
PLAN |
|||||||
35
IRON POINT CIRCLE |
|||||||
FOLSOM
CA 95630-8587 |
|||||||
NATIONWIDE
LIFE |
16.68% | ||||||
INSURANCE
COMPANY (NACO) |
|||||||
C/O
IPO PORTFOLIO ACCOUNTING |
|||||||
PO
BOX 182029 |
|||||||
COLUMBUS
OH 43218-2029 |
|||||||
PIMS/PRUDENTIAL
RETIREMENT |
10.93% | ||||||
AS
NOMINEE FOR THE TTEE/CUST PL 740 |
|||||||
IBEW
LOCAL NO. 269 ANNUITY FUND |
|||||||
C/O
I.E. SHAFFER & CO. |
|||||||
830
BEAR TAVERN ROAD |
|||||||
WEST
TRENTON NJ 08628-1020 |
Shareholder
Address |
Fund
Percentage (listed
if over 25%) |
A
CLASS |
C
CLASS |
Y
CLASS |
R6
CLASS |
R5
CLASS |
Investor
CLASS |
SEI
PRIVATE TRUST COMPANY |
6.32% |
||||||
C/O
JOHNSON BANK ID 243 |
|||||||
ATTN:
MUTUAL FUND ADMINISTRATOR |
|||||||
ONE
FREEDOM VALLEY DRIVE |
|||||||
OAKS
PA 19456-9989 |
* | Denotes record owner of Fund shares only |
Strategic
Income Management, LLC (“SiM”) |
||
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
Gary
Pokrzywinski |
Majority
Owner |
Financial
Services |
The
London Company of Virginia, LLC (“The London
Company”) | ||
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity Business |
Stephen
M. Goddard |
Indirect
Majority Owner |
Financial
Services |
TLC
Holdings, LLC |
Majority
Owner |
Financial
Services |
Controlling
Person/Entity |
Basis
of Control |
Nature
of Controlling Person/Entity’s Business |
Resolute
Investment Holdings, LLC |
Parent
Company |
Holding
Company – Founded in 2015 |
Kelso
Investment Associates VIII, L.P. |
Ownership
in Parent Company |
Investment
Fund |
First
$5 billion |
0.35% |
Next
$5 billion |
0.325% |
Next
$10 billion |
0.30% |
Over
$20 billion |
0.275% |
■ |
complying
with reporting requirements; |
■ |
corresponding
with shareholders; |
■ |
maintaining
internal bookkeeping, accounting and auditing services and
records; |
■ |
supervising
the provision of services to the Trust by third parties;
and |
■ |
administering
the interfund lending facility and lines of credit, if
applicable. |
Management
Fees Paid to American Beacon Advisors, Inc. (Gross) |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$4,419,760 |
$4,813,414 |
$4,700,633 |
American
Beacon The London Company Income Equity Fund |
$5,420,513 |
$6,325,839 |
$6,095,146 |
Sub-Advisor
Fees (Gross) |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$4,667,015 |
$4,999,830 |
$4,904,114 |
0.37% |
0.37% |
0.36% |
Sub-Advisor
Fees (Gross) |
|
|
|
Fund |
2021 |
2022 |
2023 |
American
Beacon The London Company Income Equity Fund |
$4,699,157 |
$5,482,035 |
$5,357,538 |
0.31% |
0.31% |
0.30% |
Management
Fees (Waived)/Recouped |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$(27,865) |
$(490,261) |
$(475,140) |
American
Beacon The London Company Income Equity Fund |
$(71) |
$(124) |
$(361) |
Sub-Advisor
Fees (Waived) |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$(189,569) |
$0 |
$0 |
American
Beacon The London Company Income Equity Fund |
$0 |
$0 |
$0 |
A
Class |
|
Fund |
Distribution
Fee |
American
Beacon SiM High Yield Opportunities Fund |
$86,575 |
American
Beacon The London Company Income Equity Fund |
$346,648 |
C
Class |
|
Fund |
Distribution
Fee |
American
Beacon SiM High Yield Opportunities Fund |
$278,454 |
American
Beacon The London Company Income Equity Fund |
$537,510 |
A
Class |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$25,686 |
$26,127 |
$31,045 |
American
Beacon The London Company Income Equity Fund |
$96,748 |
$125,214 |
$122,439 |
C
Class |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$30,103 |
$24,233 |
$20,451 |
American
Beacon The London Company Income Equity Fund |
$71,543 |
$51,060 |
$41,932 |
Investor
Class |
|||
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$161,699 |
$178,964 |
$160,119 |
American
Beacon The London Company Income Equity Fund |
$186,004 |
$184,057 |
$131,290 |
Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
N/A |
N/A |
N/A |
American
Beacon The London Company Income Equity Fund |
$1,262 |
$1,060 |
$7,457 |
American
Beacon SiM High Yield
Opportunities Fund |
American
Beacon The London
Company Income Equity
Fund | |
Gross
income earned by the fund from securities lending
activities |
N/A |
$964,971 |
Fees
and/or compensation paid by the fund for securities lending activities and
related
services |
||
Fees
paid to securities lending agent from a revenue split |
N/A |
$7,457 |
Fees
paid for any cash collateral management service (including fees deducted
from a pooled
cash collateral reinvestment vehicle) that are not included in the revenue
split |
N/A |
$19,540 |
Administrative
fees not included in revenue split |
N/A |
$0 |
|
American
Beacon SiM High Yield
Opportunities Fund |
American
Beacon The London
Company Income Equity
Fund |
Indemnification
fee not included in revenue split |
N/A |
$0 |
Rebate
(paid to borrower) |
N/A |
$874,654 |
Other
fees not included in revenue split (administrative and oversight functions
provided by
the Manager) |
N/A |
$7,457 |
Aggregate
fees/compensation paid by the fund for securities lending
activities |
N/A |
$909,108 |
Net
income from securities lending activities |
N/A |
$55,863 |
American
Beacon Fund |
Sales
Charge Revenue |
Deferred
Sales Charge Revenue | |||
Fiscal
Year |
Amount
Paid
to Distributor |
Amount
Retained
by Distributor |
Amount
Paid
to Distributor |
Amount
Retained
by Distributor | |
American
Beacon SiM High Yield Opportunities Fund |
2023 |
$123,060 |
$20,187 |
$1,463 |
$0 |
2022 |
$90,670 |
$11,167 |
$5,389 |
$0 | |
2021 |
$135,894 |
$21,103 |
$1,610 |
$0 | |
American
Beacon The London Company Income Equity Fund |
2023 |
$62,174 |
$8,989 |
$3,401 |
$0 |
2022 |
$138,491 |
$16,700 |
$6,043 |
$0 | |
2021 |
$218,758 |
$32,577 |
$5,658 |
$0 |
Number
of Other Accounts Managed and Assets by Account
Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance-Based | |||||
Name
of Investment Advisor and
Portfolio Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Strategic
Income Management, LLC |
||||||
Gary
Pokrzywinski |
None |
1
($194.5 mil) |
3
($229.3 mil) |
None |
None |
None |
Ryan
Larson |
None |
1
($194.5 mil) |
3
($229.3 mil) |
None |
None |
None |
Number
of Other Accounts Managed and Assets by Account
Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance-Based | |||||
Name
of Investment Advisor and
Portfolio Manager |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
Registered
Investment
Companies |
Other
Pooled Investment
Vehicles |
Other
Accounts |
The
London Company of Virginia, LLC |
||||||
Stephen
M. Goddard |
4
($5.2 bil) |
None |
624
($8.5 bil) |
None |
None |
2
($9.2 mil) |
Jonathan
T. Moody |
4
($5.2 bil) |
None |
624
($8.5 bil) |
None |
None |
None |
J.
Brian Campbell |
4
($5.2 bil) |
None |
624
($8.5 bil) |
None |
None |
None |
Mark
E. DeVaul |
4
($5.2 bil) |
None |
624
($8.5 bil) |
None |
None |
None |
Sam
Hutchings |
4
($5.2 bil) |
None |
624
($8.5 bil) |
None |
None |
None |
Name
of Investment Advisor and Portfolio Manager |
American
Beacon SiM High Yield
Opportunities Fund |
Strategic
Income Management, LLC |
|
Gary
Pokrzywinski |
Over
$1,000,000 |
Ryan
Larson |
$50,001-$100,000 |
Name
of Investment Advisor and Portfolio Manager |
American
Beacon The London
Company Income Equity
Fund |
The
London Company of Virginia, LLC |
|
Stephen
M Goddard |
Over
$1,000,000 |
Jonathan
T. Moody |
None |
J.
Brian Campbell |
None |
Mark
E. DeVaul |
None |
Sam
Hutchings |
None |
American
Beacon Fund |
Amount
Received |
American
Beacon SiM High Yield Opportunities Fund |
$0 |
American
Beacon The London Company Income Equity Fund |
$19,375 |
American
Beacon Fund |
2021 |
2022 |
2023 |
American
Beacon SiM High Yield Opportunities Fund |
$21,301 |
$129,864 |
$48,671 |
American
Beacon The London Company Income Equity Fund |
$114,050 |
$135,672 |
$112,085 |
American
Beacon Fund |
Amounts
Directed |
Amounts
Paid in Commissions |
American
Beacon SiM High Yield Opportunities Fund |
$0 |
$0 |
American
Beacon The London Company Income Equity Fund |
$209,434,949 |
$57,110 |
American
Beacon Fund |
Regular
Broker-Dealers |
Aggregate
Value of Securities |
The
London Company Income Equity Fund |
Charles
Schwab |
$55,522 |
■ |
individual-type
employee benefit plans, such as an IRA, individual 403(b) plan or
single-participant Keogh-type plan; |
■ |
business
accounts solely controlled by you or your immediate family (for example,
you own the entire business); |
■ |
trust
accounts established by you or your immediate family (for trusts with only
one primary beneficiary, upon the trustor’s death the trust account
may
be aggregated with such beneficiary’s own accounts; for trusts with
multiple primary beneficiaries, upon the trustor’s death the trustees of
the trust
may instruct the Funds’ transfer agent to establish separate trust
accounts for each primary beneficiary; each primary beneficiary’s separate
trust account
may then be aggregated with such beneficiary’s own
accounts); |
■ |
endowments
or foundations established and controlled by you or your immediate family;
or |
■ |
529
accounts, which will be aggregated at the account owner level (Class 529-E
accounts may only be aggregated with an eligible employer
plan). |
■ |
for
a single trust estate or fiduciary account, including employee benefit
plans other than the individual-type employee benefit plans described
above; |
■ |
made
for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the Investment Company Act, excluding
the
individual-type employee benefit plans described
above; |
■ |
for
nonprofit, charitable or educational organizations, or any endowments or
foundations established and controlled by such organizations, or any
employer-sponsored
retirement plans established for the benefit of the employees of such
organizations, their endowments, or their foundations;
or |
■ |
for
individually established participant accounts of a 403(b) plan that is
treated similarly to an employer-sponsored plan for sales charge purposes
(see
“Purchases by certain 403(b) plans” under “Sales Charges” above), or made
for two or more such 403(b) plans that are treated similarly to
employer-sponsored
plans for sales charge purposes, in each case of a single employer or
affiliated employers as defined in the Investment Company Act.
Purchases made for nominee or street name accounts (securities held in the
name of a broker-dealer or another nominee such as a bank trust
department
instead of the customer) may not be aggregated with those made for other
accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described
above. |
1 | current or retired trustees, and officers of the American Beacon Funds family, current or retired employees and directors of the Manager and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; |
2 | currently registered representatives and assistants directly employed by such representatives, retired registered representatives with respect to accounts established while active, or full-time employees (collectively, “Eligible Persons”) (and their spouses, and children, including children in step and adoptive relationships, sons-in-law and daughters-in-law, if the Eligible Persons or the spouses or children of the Eligible Persons are listed in the account registration with the spouse or parent) of broker-dealers who have sales agreements with the Distributor (or who clear transactions through such dealers), plans for the dealers, and plans that include as participants only the Eligible Persons, their spouses and/or children; |
3 | companies exchanging securities with the Funds through a merger, acquisition or exchange offer; |
4 | insurance company separate accounts; |
5 | accounts managed by the Manager, a sub-advisor to the Funds and their affiliated companies; |
6 | the Manager or a sub-advisor to the Funds and their affiliated companies; |
7 | an individual or entity with a substantial business relationship with, which may include the officers and employees of the Funds’ custodian or transfer agent, the Manager or a sub-advisor to the Funds and their affiliated companies, or an individual or entity related or relating to such individual or entity; |
8 | full-time employees of banks that have sales agreements with the Distributor, who are solely dedicated to directly supporting the sale of mutual funds; |
9 | directors, officers and employees of financial institutions that have a selling group agreement with the Distributor; |
10 | banks, broker-dealers and other financial institutions (including registered investment advisors and financial planners) that have entered into an agreement with the Distributor or one of its affiliates, purchasing shares on behalf of clients participating in a fund supermarket or in a wrap program, asset allocation program or other program in which the clients pay an asset-based fee; |
11 | clients of authorized dealers purchasing shares in fixed or flat fee brokerage accounts; |
12 | Employer-sponsored defined contribution - type plans, including 401(k) plans, 457 plans, employer sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans and non-qualified deferred compensation plans, and IRA rollovers involving retirement plan assets invested in a Fund in the American Beacon Funds fund family; and |
13 | Employee benefit and retirement plans for the Manager and its affiliates. |
■ |
redemption
proceeds from a non-retirement account (for example, a joint tenant
account) used to purchase Fund shares in an IRA or other individual-type
retirement account; |
■ |
“required
minimum distributions” (as described in Section 401(a)(9) of the Internal
Revenue Code) from an IRA or other individual-type retirement
account
used to purchase Fund shares in a non-retirement account;
and |
■ |
death
distributions paid to a beneficiary’s account that are used by the
beneficiary to purchase Fund shares in a different
account. |
■ |
Any
partial or complete redemption following death or “disability” (as defined
in the Internal Revenue Code) of a shareholder (including one who
owns
the shares with his or her spouse as a joint tenant with rights of
survivorship) from an account in which the deceased or disabled is named.
The
Manager or a Fund’s transfer agent may require documentation prior to
waiver of the charge, including death certificates, physicians’
certificates,
etc. |
■ |
Redemptions
from a systematic withdrawal plan. If the systematic withdrawal plan is
based on a fixed dollar amount or number of shares, systematic
withdrawal
redemptions are limited to no more than 10% of your account value or
number of shares per year, as of the date the Manager or a Fund’s
transfer agent receives your request. If the systematic withdrawal plan is
based on a fixed percentage of your account value, each redemption
is
limited to an amount that would not exceed 10% of your annual account
value at the time of withdrawal. |
■ |
Redemptions
from retirement plans qualified under Section 401 of the Internal Revenue
Code. The CDSC will be waived for benefit payments made by
American Beacon Funds directly to plan participants. Benefit payments
include, but are not limited to, payments resulting from death,
“disability,” “retirement,”
“separation from service” (each as defined in the Internal Revenue Code),
“required minimum distributions” (as described in Section 401(a)(9)
of the Internal Revenue Code), in-service distributions, hardships, loans
and qualified domestic relations orders. The CDSC waiver will not
apply
in the event of termination of the plan or transfer of the plan to another
financial institution. |
■ |
Redemptions
that are required minimum distributions from a traditional IRA as required
by the Internal Revenue Service. |
■ |
Involuntary
redemptions as a result of your account not meeting the minimum balance
requirements, the termination and liquidation of the Fund, or other
actions by the Fund. |
■ |
Distributions
from accounts for which the broker-dealer of record has entered into a
written agreement with the Distributor (or Manager) allowing this
waiver. |
■ |
To
return excess contributions made to a retirement
plan. |
■ |
To
return contributions made due to a mistake of
fact. |
■ |
Derive
at least 90% of its gross income each taxable year from (1) dividends,
interest, payments with respect to securities loans and gains from the
sale
or other disposition of securities or foreign currencies (together with
Qualifying Other Income (as defined below), “Qualifying Income”), or other
income,
including gains from options, futures or forward contracts, derived with
respect to its business of investing in securities or those currencies
(“Qualifying
Other Income”) and (2) net income derived from an interest in a “qualified
publicly traded partnership” (“QPTP”) (“Gross Income Requirement”).
A QPTP is a “publicly traded partnership” (that is, a partnership the
interests in which are “traded on an established securities market”
or “readily tradable on a secondary market (or the substantial equivalent
thereof)” (a “PTP”)) that meets certain qualifying income requirements
other than a partnership at least 90% of the gross income of which is
Qualifying Income; |
■ |
Diversify
its investments so that, at the close of each quarter of its taxable year,
(1) at least 50% of the value of its total assets is represented by cash
and
cash items, Government securities, securities of other RICs, and other
securities, with those other securities limited, in respect of any one
issuer, to
an amount that does not exceed 5% of the value of the Fund’s total assets
and that does not represent more than 10% of the issuer’s outstanding
voting securities (equity securities of QPTPs being considered voting
securities for these purposes), and (2) not more than 25% of the
value
of its total assets is invested in (a) the securities (other than
Government securities or securities of other RICs) of any one
issuer, (b) the securities
(other than securities of other RICs) of two or more issuers the Fund
controls (by owning 20% or more of their voting power) that are
determined
to be engaged in the same, similar or related trades or businesses, or (c)
the securities of one or more QPTPs (“Diversification Requirements”);
and |
■ |
Distribute
annually to its shareholders at least the sum of 90% of its investment
company taxable income (generally, net investment income, the excess
(if any) of net short-term capital gain over net long-term capital loss,
and net gains and losses (if any) from certain foreign currency
transactions,
all determined without regard to any deduction for dividends paid) and 90%
of its net exempt interest income (“Distribution Requirement”). |
■ |
Approval
of auditors |
■ |
Name
changes |
■ |
Declaring
stock splits |
■ |
Changing
the date and/or the location of the annual
meeting |
■ |
Minor
amendments to the articles of
incorporation |
■ |
Automatic
dividend reinvestment plans |
■ |
Retirement
plans, pensions plans and profit sharing plans, creation of and amendments
to the same |
■ |
Any
other issues that do not adversely affect
investors |
■ |
Mergers
and acquisitions |
■ |
Restructuring |
■ |
Re-incorporation
or formation |
■ |
Incentive
compensation plans |
■ |
Changes
in capitalization |
■ |
Increase
or decrease in number of directors |
■ |
Increase
or decrease in preferred stock |
■ |
Increase
or decrease in common stock or other equity
securities |
■ |
Stock
option plans or other compensation plans |
■ |
Poison
pills |
■ |
Golden
parachutes |
1. | Disclose the conflict to affected clients and obtain their consent before voting; |
2. | Suggest that affected client engage an independent third party to determine how the proxy should be voted; or |
3. | Vote according to the recommendation of an independent third party, such as a: proxy consultant; research analyst; proxy voting department of a mutual fund or pension fund; or compliance consultant. |
1. | a copy of these policies and procedures; |
2. | a copy of each proxy statement that SiM receives regarding Client securities (SiM may satisfy this requirement by relying on a third party to make and retain, on SiM’s behalf, a copy of a proxy statement (provided that SiM has obtained an undertaking from the third party to provide a copy of the proxy statement promptly upon request) or may rely on obtaining a copy of a proxy statement from the SEC’s Electronic Data Gathering Analysis, and Retrieval (EDGAR) system); |
3. | a record of each vote cast by SiM on behalf of a Client (SiM may satisfy this requirement by relying on a third party to make and retain, on SiM’s behalf, a record of the vote cast (provided that SiM has obtained an undertaking from the third party to provide a copy of the record promptly upon request)); |
4. | a copy of any document created by SiM that was material to making a decision how to vote proxies on behalf of a Client or that memorializes the basis for that decision; and |
5. | a copy of each written Client request for information on how SiM voted proxies on behalf of the Client, and a copy of any written response by SiM to any (written or oral) Client request for information on how SiM voted proxies on behalf of the requesting Client. All books and records required to be made and described above generally must be maintained and preserved in an easily accessible place for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of SiM. |
1. | Conflicts
of Interest Where a proxy proposal raises a material conflict between the Adviser’s interests and a client’s interest, including a mutual fund client, the Adviser will resolve the matter on a case-by-case basis by abstaining from the vote, voting in accordance with the guidelines set forth by the proxy voting service, or vote the way London feels is in the best interest of the client. |
2. | Limitations In certain circumstances, in accordance with a client’s investment advisory contract (or other written directive), or where the Adviser has determined that it is in the client’s best interest, the Adviser will not vote proxies received. The following are certain circumstances where the Adviser will limit its role in voting proxies: |
A. | Client Maintains Proxy Voting Authority: Where client specifies in writing that it will maintain the authority to vote proxies itself or that it has delegated the right to vote proxies to a third party, the Adviser will not vote the securities and will direct the relevant custodian to send the proxy material directly to the client. If any proxy material is received by the Adviser, it will promptly be forwarded to the client or specified third party. |
B. | Terminated Account: Once a client account has been terminated with the Adviser, in accordance with its investment advisory agreement, the Adviser will not vote any proxies received after the termination. However, the client may choose to specify, in writing, that proxies should be directed to the client (or a specified third party) for action. There may be occurrences in which a proxy may be voted by the Adviser, for a terminated account (i.e., the record date of a proxy vote occurs prior to termination). |
C. | Limited Value: If the Adviser determines that the value of a client’s economic interest, or portfolio holding is indeterminable or insignificant, the Adviser may abstain from voting proxies. |
D. | Securities Lending Programs: When securities are out on loan, they are transferred into the borrower’s name and are voted by the borrower, in its discretion. However, where the Adviser determines that a proxy vote (or other shareholder action) is materially important to the client’s account, the Adviser may recall the security for purposes of voting. |
E. | Unjustifiable Costs: In certain circumstances, after doing a cost-benefit analysis, the Adviser may abstain from voting where the cost of voting a client’s proxy would exceed any anticipated benefits to the client of the proxy proposal. |
F. | Paper ballot does not arrive in the mail: On occasion, a paper ballot will not arrive in the mail until after the voting deadline. In this circumstance, Adviser is unable to vote the client’s proxy. |
3. | Procedures |
A.
During the onboarding process for a new account, the Portfolio
Administrator will confirm, with certain custodians, as required, the
address to which
proxy ballots will be mailed. The Portfolio Administrator sends all new
account information to the proxy voting service for accounts that
elect
to have the Adviser vote proxies on their behalf. The Adviser, in
conjunction with the proxy voting service, contacts custodians to set up
electronic
voting. B. When a ballot is received by US mail, the Portfolio Administrator will send ISS/ProxyExchange notification to establish electronic voting. C. Each proxy statement, sample ballot and copies of any ballots voted by US mail will be available. (ProxyExchange retains voting history for those voted electronically, which is accessible through their web portal.) |
* | London moved from ISS, utilizing Institutional Shareholder Services (ISS) and its proxy voting guidelines, to Broadridge and Glass Lewis guidelines, in April, 2009. In February, 2014, London upgraded from utilizing Glass Lewis Investment Management to Glass Lewis Full Service. In March, 2017, London completed a transition back to ISS, in order to better align with the firm’s voting preferences. |
ADRs |
American
Depositary Receipts |
Advisers
Act |
Investment
Advisers Act of 1940, as amended |
American
Beacon or the Manager |
American
Beacon Advisors, Inc. |
Beacon
Funds or Trust |
American
Beacon Funds |
Board |
Board
of Trustees |
Brexit |
The
United Kingdom’s departure from the European Union |
CBO |
Collateralized
Bond Obligations |
CCO |
Chief
Compliance Officer |
CD |
Certificate
of Deposit |
CDO |
Collateralized
Debt Obligations |
CDSC |
Contingent
Deferred Sales Charge |
CFTC |
U.S.
Commodity Futures Trading Commission |
CLO |
Collateralized
Loan Obligation |
CLS |
Credit-Linked
Securities |
CMO |
Collateralized
Mortgage Obligation |
CPO |
Commodity
Pool Operator |
Denial
of Services |
A
cybersecurity incident that results in customers or employees being
unable
to access electronic systems |
Dividends |
Distributions
of most or all of a Fund’s net investment income |
Dodd-Frank
Act |
Dodd-Frank
Wall Street Reform and Consumer Protection Act |
EDR |
European
Depositary Receipt |
ETF |
Exchange-Traded
Fund |
EU |
European
Union |
Fannie
Mae |
Federal
National Mortgage Association |
FHFA |
Federal
Housing Finance Agency |
FHLB |
Federal
Home Loan Bank |
FHLMC |
Federal
Home Loan Mortgage Corporation |
FINRA |
Financial
Industry Regulatory Authority, Inc. |
Floaters |
Floating
rate debt instruments |
FNMA |
Federal
National Mortgage Association |
Forwards |
Forward
Currency Contracts |
Freddie
Mac |
Federal
Home Loan Mortgage Corporation |
GDR |
Global
Depositary Receipt |
Ginnie
Mae |
Government
National Mortgage Association |
GNMA |
Government
National Mortgage Association |
Holdings
Policy |
Policies
and Procedures for Disclosure of Portfolio Holdings |
IDS |
Income
Deposit Securities |
Internal
Revenue Code |
Internal
Revenue Code of 1986, as amended |
Investment
Company Act |
Investment
Company Act of 1940, as amended |
IPO |
Initial
Public Offering |
IRA |
Individual
Retirement Account |
IRS |
Internal
Revenue Service |
ISS |
Institutional
Shareholder Services |
Junk
Bonds |
High
yield, non-investment grade bonds |
|
|
LIBOR |
ICE
LIBOR |
LOI |
Letter
of Intent |
LSEG |
London
Stock Exchange Group |
Management
Agreement |
The
Fund’s Management Agreement with the Manager |
MLP |
Master
Limited Partnership |
Moody’s |
Moody’s
Investors Service, Inc. |
NAV |
Net
asset value |
NDF |
Non-deliverable
foreign currency forward contracts |
NDO |
Non-deliverable
Option |
NVDR |
Non-voting
Depository Receipt |
NYSE |
New
York Stock Exchange |
OTC |
Over-the-Counter |
Proxy
Policy |
Proxy
Voting Policy and Procedures |
QDI |
Qualified
Dividend Income |
REIT |
Real
Estate Investment Trust |
REMICs |
Real
Estate Mortgage Investment Conduits |
RIC |
Regulated
Investment Company |
RIH |
Resolute
Investment Holdings, LLC |
S&P
Global |
S&P
Global Ratings |
SAI |
Statement
of Additional Information |
SEC |
Securities
and Exchange Commission |
Securities
Act |
Securities
Act of 1933, as amended |
SOFR |
Secured
Overnight Financing Rate |
SMBS |
Stripped
Mortgage-Backed Securities |
SPE |
Special
Purpose Entity |
State
Street |
State
Street Bank and Trust Co. |
STRIPS |
Separately
traded registered interest and principal securities |
Trustee
Retirement Plan |
Trustee
Retirement and Trustee Emeritus and Retirement Plan |
UK |
United
Kingdom |