Prospectus
December
29, 2024
TACTICAL
TILT OVERLAY FUND
THE SECURITIES AND
EXCHANGE COMMISSION AND COMMODITY FUTURES TRADING COMMISSION HAVE NOT APPROVED
OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AN
INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT
INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES
INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN A
FUND. |
◼
Goldman Sachs
Tactical Tilt
Overlay Fund
Overlay Fund
◼
Class P
Shares: GSLPX
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Class
P |
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Management
Fees |
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Other
Expenses |
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Acquired
(Underlying) Fund Fees and Expenses |
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Total
Annual Fund Operating Expenses1 |
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Fee
Waivers and Expense Limitation2 |
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Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Limitation1
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1
2
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1
Year |
3
Years |
5
Years |
10
Years |
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Class
P Shares |
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$ |
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$ |
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1
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2
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The
following risks include the principal risks that the Fund is exposed to through
its direct investments in securities and other instruments, as well as the
principal risks of the Underlying Funds. The Fund is exposed to the same risks
as the Underlying Funds in direct proportion to the allocation of its assets
among the Underlying Funds. Each principal risk listed below is followed by a
parenthetical that indicates whether it is a principal risk of the Fund, of one
or more Underlying Funds, or both. Changes in the particular Underlying Funds in
which the Fund may invest, and changes in the investments of the Underlying
Funds, may cause the Fund to be subject to additional or different risks than
the risks listed below.
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4
5
6
7
8
Further
Information on Investment Objectives, Strategies and Risks of the Underlying
Funds. A concise
description of the investment objectives, practices and risks of each of the
Underlying Funds that are currently expected to be used for investment by the
Fund as of the date of the Prospectus is provided beginning on page 18 of the
Prospectus.
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9
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1
Year |
5
Years |
Since
Inception |
Inception
Date | |
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Class
P Shares |
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Returns
Before Taxes |
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Returns
After Taxes on Distributions |
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Returns
After Taxes on Distributions and Sale of Fund Shares |
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ICE
BofA 3-Month U.S. Treasury Bill Index (Total Return, USD,
Unhedged) |
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S&P
500®
Index |
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Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers: Sergey
Kraytman, Managing Director—Multi-Asset Solutions, has managed the Fund since
2014; David Hale, CFA, Vice President—Multi-Asset Solutions, has managed the
Fund since 2015; and Siwen Wu, Vice President—Multi-Asset Solutions, has managed
the Fund since 2019.
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Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
10
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Tax
Information |
The Fund’s
distributions are taxable, and will be taxed as ordinary income or capital
gains, unless you are investing through a tax-deferred arrangement, such as a
401(k) plan or an individual retirement account. Investments made through
tax-deferred arrangements may become taxable upon withdrawal from such
arrangements.
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Payments
to Broker-Dealers and
Other
Financial Intermediaries |
If you
purchase shares of the Fund through an intermediary that is authorized to offer
Class P Shares, the Fund and/or its related companies may pay the intermediary
for the sale of Fund shares and related services. These payments may create a
conflict of interest by influencing the intermediary and your salesperson to
recommend the Fund over another investment. Ask your salesperson or visit your
intermediary’s website for more information.
11
Investment
Management Approach
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INVESTMENT
OBJECTIVE |
The Fund
seeks long-term total return. The Fund’s investment objective may be changed
without shareholder approval upon 60 days’ notice.
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PRINCIPAL
INVESTMENT STRATEGY |
Tactical Tilt Overlay
Fund
The Fund
seeks to achieve its investment objective through the implementation of
investment ideas that are generally derived from short-term or medium-term
market views on a variety of asset classes and instruments (“Tactical Tilts”)
generated by the Goldman Sachs Investment Strategy Group (“Investment Strategy
Group”). Investment Strategy Group Tactical Tilt recommendations are
recommendations to overweight or underweight exposures to certain asset classes,
with such overweighting and underweighting to be funded from a “funding source”
from which assets should be reallocated. The Investment Strategy Group will
consider, among other things, the stand-alone risk/reward of each investment
idea that may become a Tactical Tilt recommendation, how it fits with the
Investment Strategy Group’s broader global economic and market views, and its
merits compared to other ideas. The Investment Strategy Group generates Tactical
Tilts using fundamental as well as quantitative inputs. In some instances
Tactical Tilts are generated based on systematic quantitative frameworks. The
Investment Adviser determines in its sole discretion how to implement Tactical
Tilt recommendations in the Fund.
Tactical
Tilts are generally implemented by investing in any one or in any combination of
the following securities and instruments: (i) U.S. and foreign equity
securities, including common and preferred stocks; (ii) pooled investment
vehicles including, but not limited to, (a) unaffiliated investment companies,
ETFs and ETNs and (b) the Underlying Funds; (iii) fixed income instruments,
which include, among others, debt issued by governments (including the U.S. and
foreign governments), their agencies, instrumentalities, sponsored entities, and
political subdivisions, notes, commercial paper, certificates of deposit, debt
participations and non-investment grade securities (commonly known as “junk
bonds”); (iv) derivatives and (v) commodity investments, primarily through the
Subsidiary. The Fund’s investments may be publicly traded or privately issued or
negotiated. The Fund may invest without restriction as to issuer capitalization,
country, currency, maturity or credit rating. The Fund may implement short
positions for hedging purposes or to seek to enhance absolute return, and may do
so by using swaps or futures, or through short sales of any instrument that the
Fund may purchase for investment.
The
Investment Adviser expects that the Fund may invest in one or more of the
following Underlying Funds in order to implement Tactical Tilts: Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Dynamic Municipal Income Fund, Goldman
Sachs Emerging Markets Debt Fund, Goldman Sachs Energy Infrastructure Fund,
Goldman Sachs Enhanced Income Fund, Goldman Sachs Global Real Estate Securities
Fund, Goldman Sachs Government Income Fund, Goldman Sachs High Yield Fund,
Goldman Sachs High Yield Floating Rate Fund, Goldman Sachs High Yield Municipal
Fund, Goldman Sachs Inflation Protected Securities Fund, Goldman Sachs
Investment Grade Credit Fund, Goldman Sachs Emerging Markets Credit Fund,
Goldman Sachs MLP Energy Infrastructure Fund, Goldman Sachs Short Duration Bond
Fund and Goldman Sachs Short Duration Tax-Free Fund as may be determined by the
Investment Adviser from time to time without considering or canvassing the
universe of unaffiliated investment companies available.
The Fund
may invest in derivatives for both hedging and non-hedging purposes. Derivative
positions may be listed or OTC and may or may not be centrally cleared. The
Fund’s derivative investments may include but are not limited to (i) futures
contracts, including futures based on equity or fixed income securities and/or
equity or fixed income indices, interest rate futures, currency futures and swap
futures; (ii) swaps, including equity, currency, interest rate, total return,
excess return, variance and credit default swaps, and swaps on futures
contracts; (iii) options, including long and short positions in call options and
put options on indices, individual securities or currencies, swaptions and
options on futures contracts; (iv) forward contracts, including forwards based
on equity or fixed income securities and/or equity or fixed income indices,
currency forwards, interest rate forwards, swap forwards and non-deliverable
forwards; and (v) other instruments, including structured securities and
exchange-traded notes. As a result of the Fund’s use of derivatives, the Fund
may also hold significant amounts of U.S. Treasuries or short-term investments,
including money market funds, repurchase agreements, cash and time
deposits.
Investment
in Cayman Subsidiary. The Fund
seeks to gain exposure to the commodities markets by investing in the
Subsidiary. The Fund may invest up to 25% of its total assets in the Subsidiary.
The Subsidiary primarily obtains its commodity exposure by investing in
commodity-linked derivative instruments, which may include but are not limited
to total return swaps and excess return swaps on commodity indexes, sub-indexes
and single commodities, as well as commodity (U.S. or foreign) futures,
commodity options and commodity-linked notes. Commodity-linked swaps are
derivative instruments whereby the cash flows agreed upon between counterparties
are dependent upon the price of the underlying commodity or commodity index over
the life of the swap. Commodity
12
Investment
Management Approach
futures
contracts are standardized, exchange-traded contracts that provide for the sale
or purchase of, or economic exposure to the price of, a commodity or a specified
basket of commodities at a future time. An option on commodities gives the
purchaser the right (and the writer of the option the obligation) to assume a
position in a commodity or a specified basket of commodities at a specified
exercise price within a specified period of time. The value of these
commodity-linked derivatives will rise and fall in response to changes in the
underlying commodity or commodity index. Commodity-linked derivatives expose the
Subsidiary and the Fund economically to movements in commodity prices. Such
instruments may be leveraged so that small changes in the underlying commodity
prices would result in disproportionate changes in the value of the instrument.
Neither the Fund nor the Subsidiary invests directly in physical commodities.
The Subsidiary may also invest in other instruments, including fixed income
securities, either as investments or to serve as margin or collateral for its
swap positions, and foreign currency transactions (including forward
contracts).
Exposure
to Commodities. The Fund
may also gain exposure to commodities by investing in commodity index-linked
structured notes, PTPs and pooled investment vehicles (including ETFs, ETNs and
affiliated or unaffiliated investment companies). PTPs are limited partnerships,
the interests (or “units”) in which are traded on public exchanges. The Fund may
invest in PTPs that are commodity pools.
The
investments and positions that the Investment Adviser determines to use to
implement the Tactical Tilt recommendations will constitute the Fund’s only
investments, other than its investments in investment-grade fixed income
instruments, cash or cash equivalents or other short-term instruments. At any
time, and from time to time, a material portion of the Fund’s assets may be
invested in such instruments, and not for the purpose of implementing Tactical
Tilts.
The Fund is
designed to provide investors with an efficient means of implementing the
Tactical Tilts strategy, which is intended to complement an investor’s broader,
diversified investment portfolio. A Tactical Tilt strategy should be an
appropriately sized portion of an investor’s overall investment portfolio. It is
important that investors view an allocation to the Fund as a long-term addition
to a broader, diversified portfolio and not look to opportunistically time their
investments in or redemptions from the Fund.
The Fund
may, from time to time, take temporary defensive positions that are inconsistent
with the Fund’s principal investment strategies in attempting to respond to
adverse market, political or other conditions. For temporary defensive purposes,
the Fund may invest up to 100% of its total assets in securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or sponsored
enterprises (“U.S. Government Securities”), commercial paper rated at least A-2
by S&P Global Ratings (“Standard & Poor’s”), P-2 by Moody’s Investors
Service, Inc. (“Moody’s”) or having a comparable credit rating by another NRSRO
(or if unrated, determined by the Investment Adviser to be of comparable credit
quality), certificates of deposit, bankers’ acceptances, repurchase agreements,
non-convertible preferred stocks and non-convertible corporate bonds with a
remaining maturity of less than one year, certain ETFs and other investment
companies and cash items. When
the Fund’s assets are invested in such instruments, the Fund may not be
achieving its investment objective.
The Investment Adviser
measures the Fund’s performance against the ICE® Bank of America Merrill
Lynch Three-Month U.S. Treasury Bill Index.
The Fund’s
broad-based securities market index is the S&P 500® Index.
The
ICE® Bank of America Merrill
Lynch Three-Month U.S.
Treasury Bill
Index measures the performance of a single issue of outstanding treasury bill
which matures closest to, but not beyond, three months from the rebalancing
date. The issue is purchased at the beginning of the month and held for a full
month; at the end of the month that issue is sold and rolled into a newly
selected issue. The S&P 500®
Index is the
Standard
&
Poor’s 500
Composite index of 500 stocks,
an unmanaged
index of common
stock
prices.
THE
PARTICULAR UNDERLYING FUNDS IN WHICH THE FUND MAY INVEST, AND THE INVESTMENTS IN
EACH UNDERLYING FUND, MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER
APPROVAL OR NOTICE.
In
addition, the Fund’s investment objective and all policies not specifically
designated as fundamental in the Prospectus or the SAI are non-fundamental and
may be changed without shareholder approval. If there is a change in the Fund’s
investment objective, you should consider whether the Fund remains an
appropriate investment in light of your then current financial position and
needs.
Investment
Philosophy
The
Investment Strategy Group, a group of researchers, economists, and strategists
within Goldman Sachs & Co. LLC (“Goldman Sachs”), is responsible for
generating Tactical Tilt recommendations for Goldman Sachs and its clients by
employing a range of fundamental, quantitative, and technical analyses at macro,
regional, country and sector levels. The Investment Strategy Group has been
generating Tactical Tilt views since 2001.
The Fund
will not necessarily track the Investment Strategy Group’s Tactical Tilt views;
rather, the Investment Adviser will have complete and final discretion as to
whether any Investment Strategy Group Tactical Tilt views will be implemented
within the Fund. The Investment Adviser will evaluate the Investment Strategy
Group’s Tactical Tilt views and determine whether such Investment Strategy Group
Tactical Tilt views should be implemented. The Investment Adviser will consider,
among other things, the conviction of the Investment Adviser’s views about the
Tactical Tilt, the number and type of Tactical Tilts that are being implemented
in the Fund at
13
the time,
the merits of the Tactical Tilt view compared to other Tactical Tilts already
implemented in the Fund’s portfolio and risk management considerations. It is
expected that not all of the Investment Strategy Group’s Tactical Tilt views
will be implemented within the Fund. In addition, the Investment Adviser may not
implement Tactical Tilts in the same magnitude or utilize the same
implementation techniques.
With
respect to the Investment Strategy Group Tactical Tilt views that the Investment
Adviser determines to implement within the Fund, the Investment Adviser will
determine, in its sole discretion, the timing and the sizing of each Tactical
Tilt implemented by the Fund and the structure, instruments and techniques that
will be used to implement the Investment Strategy Group’s Tactical Tilt view
within the Fund. The structure, method and instruments used to implement a
Tactical Tilt within the Fund may differ from those proposed by the Investment
Strategy Group. The Investment Adviser also does not expect to consider the
funding source as an Investment Strategy Group Tactical Tilt view unless the
Investment Strategy Group Tactical Tilt views include a proposal related to the
asset class selected as the funding source.
One of the
core tenets of the Fund’s strategy is value investing. As such, the Tactical
Tilts approach used by the Investment Adviser depends on patient capital. For
example, in periods of market stress the Fund may look to be a provider of
liquidity to the market to the extent that it can identify dislocations that
present potentially attractive entry points for a new Tactical Tilt or a change
to an existing position. Thus, the Fund potentially may be adding to a
shareholder’s overall portfolio risk at a time when market risk already is
independently increasing. The potential ability to profitably capitalize on any
such dislocation(s) requires patient capital as it is often the time when market
participants wish to reduce risk that the most attractive Tactical Tilt
opportunities present themselves. There is no guarantee that an investment in
the Fund or any such Tactical Tilt(s) will be profitable. Investors should
carefully evaluate the risks and potential rewards involved with the Fund’s
tactical asset allocation strategy and incorporate these considerations when
determining their allocation to the Fund in the context of their broader,
diversified investment portfolio.
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ADDITIONAL
FEES AND EXPENSES INFORMATION |
“Acquired
(Underlying) Fund Fees and Expenses” reflect the expenses (including the
management fee) borne by the Fund as the sole shareholder of the Subsidiary and
through its ownership of shares in other investment companies.
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ADDITIONAL
PERFORMANCE AND BENCHMARK
INFORMATION |
The below
is additional information that relates to the “Performance” section of the
Fund’s summary section.
Note that
the “Best Quarter” and “Worst Quarter” figures shown in the “Performance”
section of the Fund’s Summary section are applicable only to the time period
covered by the bar chart.
These
definitions apply to the after-tax returns shown in the “Performance” section of
the Fund’s Summary section.
Average
Annual Total Returns Before Taxes. These
returns do not reflect taxes on distributions on the Fund’s Shares nor do they
show how performance can be impacted by taxes when shares are redeemed (sold) by
you.
Average
Annual Total Returns After Taxes on Distributions. These
returns assume that taxes are paid on distributions on the Fund’s Institutional
Shares (i.e., dividends and capital gains) but do not reflect taxes that may be
incurred upon redemption (sale) of the Institutional Shares at the end of the
performance period.
Average
Annual Total Returns After Taxes on Distributions and Sale of Fund
Shares. These
returns reflect taxes paid on distributions on the Fund’s Institutional Shares
and taxes applicable when the shares are redeemed (sold).
Note
on Tax Rates. The
after-tax performance figures are calculated using the historically highest
individual federal marginal income tax rates at the time of the distributions
and do not reflect state and local taxes. In calculating the federal income
taxes due on redemptions, capital gains taxes resulting from a redemption are
subtracted from the redemption proceeds and the tax benefits from capital losses
resulting from the redemption are added to the redemption proceeds. Under
certain circumstances, the addition of the tax benefits from capital losses
resulting from redemptions may cause the Returns After Taxes on Distributions
and Sale of Fund Shares to be greater than the Returns After Taxes on
Distributions or even the Returns Before Taxes.
Note
on Benchmarks. References in the
Prospectus to a Fund’s Regulatory or Performance Benchmark (or any other
benchmark) are for informational purposes only, and unless otherwise noted, are
not an indication of how a particular Fund is managed or a particular Fund’s
risk characteristics.
14
Investment
Management Approach
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OTHER
INVESTMENT PRACTICES AND
SECURITIES |
Although the Fund’s
principal investment strategies are described in the Fund’s Summary—Principal
Strategy section of the Prospectus, the following tables identify some of the
investment techniques that may (but are not required to) be used by the Fund in
seeking to achieve its investment objective. Numbers in these tables show
allowable usage only; for actual usage, consult the Fund’s Form N-CSR dated
August 31, 2024. For more information about these and other investment practices
and securities, see Appendix A.
The Fund publishes on its
website (am.gs.com) complete portfolio holdings as of the end of each fiscal
quarter subject to a thirty day lag between the date of the information and the
date on which the information is disclosed. In addition, the Fund intends to
make available through the Goldman Sachs Private Wealth Management client portal
a review of the Investment Strategy Group views and Tactical Tilt proposals,
which may include selected holdings information. These reviews will be made
available on a monthly basis, and can be accessed by all Fund shareholders. In
addition, a description of the Fund's policies and procedures with respect to
the disclosure of the Fund's portfolio holdings is available in the Fund’s
Statement of Additional Information (“SAI”).
15
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10
Percent of total assets (including securities lending collateral) (italic
type)
10 Percent
of net assets (excluding borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund. |
Tactical
Tilt
Overlay
Fund |
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Investment
Practices |
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Borrowings |
33 1∕3 |
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Credit,
Currency, Equity, Index, Interest Rate, Excess Return, Total Return and
Mortgage Swaps and Options on Swaps |
• |
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Cross
Hedging of Currencies |
• |
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Custodial
Receipts and Trust Certificates |
• |
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Foreign
Currency Transactions (including forward contracts) |
• |
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Futures
Contracts and Options and Swaps on Futures Contracts |
• |
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Illiquid
Investments* |
15 |
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Initial
Public Offerings (“IPOs”) |
• |
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Interest
Rate Caps, Floors and Collars |
• |
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Investment
Company Securities (including ETFs)1
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10 |
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Mortgage
Dollar Rolls |
• |
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Options2
|
• |
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Options
on Foreign Currencies |
• |
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Options
on Futures |
• |
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Preferred
Stock, Warrants and Stock Purchase Rights |
• |
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Repurchase
Agreements |
• |
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Reverse
Repurchase Agreements (for investment purposes) |
• |
|
Securities
Lending |
33 1∕3 |
|
Short
Sales Against the Box |
• |
|
Unseasoned
Companies |
• |
|
When-Issued
Securities and Forward Commitments |
• |
*
Illiquid
investments are any investments that the Fund reasonably expects cannot be sold
or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment.
1
This
percentage limitation does not apply to the Fund’s investments in investment
companies (including ETFs) where a higher percentage limitation is permitted
under the Investment Company Act or rules, regulations or exemptive relief
thereunder.
2
The
Fund may sell call and put options and purchase call and put options on
securities and securities indices in which it may invest.
16
Investment
Management Approach
|
10 Percent
of total assets (including securities lending collateral) (italic
type)
10 Percent
of net assets (excluding borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund. |
Tactical
Tilt
Overlay
Fund |
|
Investment
Securities |
|
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American,
European and Global Depositary Receipts |
• |
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Asset-Backed
and Mortgage-Backed Securities3
|
• |
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Bank
Obligations3,4
|
• |
|
Collateralized
Loan Obligations3
|
• |
|
Commodity-linked
Derivative Instruments |
• |
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Convertible
Securities |
• |
|
Corporate
Debt Obligations and Trust Preferred Securities3
|
• |
|
Equity
Investments |
• |
|
Emerging
Country Securities |
• |
|
Fixed
Income Securities3
|
• |
|
Foreign
Government Securities3
|
• |
|
Foreign
Securities |
• |
|
Loan
Participations and Loan Assignments3
|
• |
|
Mortgage-Backed
Securities3
|
|
|
Adjustable
Rate Mortgage Loans |
• |
|
Collateralized
Mortgage Obligations |
• |
|
Fixed
Rate Mortgage Loans |
• |
|
Government
Issued Mortgage-Backed Securities |
• |
|
Multiple
Class Mortgage-Backed Securities |
• |
|
Privately
Issued Mortgage-Backed Securities |
• |
|
Stripped
Mortgage-Backed Securities |
• |
|
Municipal
Securities3
|
• |
|
Non-Investment
Grade Fixed Income Securities3,5
|
• |
|
Real
Estate Investment Trusts (“REITs”) |
• |
|
Structured
Securities (which may include equity linked notes) |
• |
|
Subsidiary
Shares6
|
25 |
|
Temporary
Investments |
• |
|
U.S.
Government Securities3
|
• |
|
Yield
Curve Options and Inverse Floating Rate Securities |
• |
3
Limited
by the amount the Fund invests in fixed income securities.
4
The
Fund may invest in bank obligations issued by U.S. or foreign banks.
5
May
be rated BB+ or lower by Standard & Poor’s, Bal or lower by Moody’s or have
a comparable credit rating by another NRSRO at the time of
investment.
6
The
Fund may invest up to 25% of its total assets in the shares of the
Subsidiary.
17
Description
of the Underlying Funds
|
DESCRIPTION
OF THE UNDERLYING FUNDS |
The
following is a concise description of the investment objectives and practices
for each of the affiliated Underlying Funds that are currently expected to be
used for strategic investment by the Fund as of the date of the Prospectus. The
Fund may also invest in other Underlying Funds not listed below that currently
exist or that may become available for investment in the future at the
discretion of the Investment Adviser without shareholder approval or notice.
Additional information regarding the investment practices of the Underlying
Funds is provided in Appendix A to the Prospectus and in the SAI. The Prospectus
is not an offer to sell and is not soliciting an offer to buy any of the
Underlying Funds. Any capitalized terms used but not defined herein shall have
their respective meanings as defined in each Underlying Fund’s
prospectus.
|
Underlying
Fund |
Investment
Objective(s) |
Principal
Investments |
Duration
or Maturity |
Credit
Quality |
Other
Investments |
|
Core
Fixed Income
Fund |
Total
return consisting of
capital
appreciation and
income. |
At
least 80% of its Net
Assets
in fixed income
securities,
including U.S.
Government
Securities,
Mortgage-Backed
Securities,
corporate debt
securities,
and
asset-backed
securities
(including
collateralized
loan
obligations). |
Target
Duration* =
Bloomberg
U.S. Aggregate
Bond
Index, plus or minus
one
year. |
Minimum
= BBB–/Baa3
(at
time of purchase) |
Foreign
fixed income,
custodial
receipts, TBA
agreements,
reverse
repurchase
agreements,
municipal
and convertible
securities,
foreign
currencies
and repurchase
agreements
collateralized
by
U.S. Government
Securities.
Also invests in
futures,
swaps and other
derivatives. |
|
Dynamic
Municipal
Income
Fund |
A
high level of current
income
that is exempt
from
regular federal
income
tax. |
At
least 80% of its Net
Assets
in Municipal
Securities,
the interest on
which
is exempt from
regular
federal income tax
(i.e.,
excluded from gross
income
for federal income
tax
purposes). |
Expected
Duration* =2 to
8
years. |
Up
to 30% of Net Assets
rated
BB+/Ba1 or below
(at
time of purchase) |
Private
activity bonds and
non-investment
grade
securities. |
|
Emerging
Markets
Credit
Fund |
Total
return consisting of
income
and capital
appreciation. |
At
least 80% of its Net
Assets
in corporate,
quasi-sovereign
and
sovereign
debt securities
and
other instruments of
issuers
in emerging
market
countries. |
Target
Duration* = J.P.
Morgan
Corporate
Emerging
Markets Bond
Index
– Broad Diversified
Index,
plus or minus 2
years. |
The
Fund may invest in
securities
without regard
to
credit rating. |
Equity
and/or equity
related
securities and
corporate,
quasi-sovereign
and
sovereign debt
securities,
other
instruments
of issuers in
developed
market
countries
and agreements
with
respect to these
types
of securities. |
|
Emerging
Markets
Debt
Fund |
A
high level of total return
consisting
of income and
capital
appreciation. |
At
least 80% of its Net
Assets
in sovereign and
corporate
debt securities
and
other instruments of
issuers
in emerging
market
countries. Such
instruments
may include
credit
linked notes and
other
investments with
similar
economic
exposures. |
Target
Duration* = J.P.
Morgan
Emerging Markets
Bond
Index Global
Diversified
Index, plus or
minus
2 years. |
The
Fund may invest in
securities
without regard
to
credit rating. |
All
types of foreign and
emerging
country fixed
income
securities,
including
Brady Bonds and
other
government-issued
debt,
interests in
structured
securities, fixed
and
floating rate, senior
and
subordinated
corporate
debt obligations
(such
as bonds,
debentures,
notes and
commercial
paper), loan
participations
and
repurchase
agreements
with
respect to these
types
of securities.
|
18
Description
of the Underlying Funds
|
Underlying
Fund |
Investment
Objective(s) |
Principal
Investments |
Duration
or Maturity |
Credit
Quality |
Other
Investments |
|
Enhanced
Income
Fund |
Return
in excess of
traditional
money market
products
while
maintaining
an emphasis
on
preservation of capital
and
liquidity. |
Primarily
invests in a
portfolio
U.S. Government
Securities,
including
Mortgage-Backed
Securities,
commercial
paper,
fixed and floating
rate
asset-backed
securities
(including
collateralized
loan
obligations),
high yield
non-investment
grade
fixed
income securities,
sovereign
and corporate
debt
securities, and other
U.S.
dollar denominated
debt
instruments of
emerging
market
countries. |
Target
Duration* = 1 year,
plus
or minus one year. |
Minimum
= BB+/Ba1 (at
time
of purchase) |
Municipal
Securities, U.S.
dollar
denominated
securities
of emerging
markets
countries, foreign
currencies,
TBA
Agreements,
reverse
repurchase
agreements,
futures,
swaps and other
derivatives. |
|
Government
Income
Fund |
A
high level of current
income,
consistent with
safety
of principal. |
At
least 80% of its Net
Assets
in U.S. Government
Securities,
including
Agency
Mortgage-Backed
Securities,
and in
repurchase
agreements
collateralized
by such
securities. |
Target
Duration* =
Bloomberg
U.S.
Government/Mortgage
Index,
plus or minus one
year. |
Minimum
= AAA/Aaa (at
time
of purchase) |
Mortgage-Backed
Securities,
asset-backed
securities,
corporate
securities,
TBA
agreements,
reverse
repurchase
agreements,
futures,
swaps, options on
swaps
and other
derivatives. |
|
High
Yield Fund |
A
high level of current
income
and may also
consider
the potential for
capital
appreciation. |
At
least 80% of its Net
Assets
in high-yield, fixed
income
securities that, at
the
time of purchase, are
non-investment
grade
securities. |
Target
Duration* =
Bloomberg
U.S. High Yield
2%
Issuer Capped Bond
Index,
plus or minus 2.5
years. |
At
least 80% of Net Assets
rated
BB+/Ba1 or below
(at
time of purchase) |
Investment
grade fixed
income
securities,
including
U.S. Government
Securities.
Also invests in
credit
default swap
indices,
total return swaps,
and
other derivatives. |
|
High
Yield Floating
Rate
Fund |
A
high level of current
income. |
At
least 80% of its Net
Assets
in domestic or
foreign
floating rate loans
and
other floating or
variable
rate obligations
rated
below investment
grade. |
Average
Duration* =
Credit
Suisse Leveraged
Loan
Index, plus or minus
one
year. |
At
least 80% of Net Assets
rated
BB+/Ba1 or below
(at
time of purchase) |
Fixed
income securities
regardless
of rating,
including,
fixed rate
corporate
bonds,
government
bonds,
convertible
debt
obligations,
mezzanine
fixed
income investments,
investment
grade floating
or
variable rate
instruments,
preferred
stock,
repurchase
agreements
and cash
securities.
Also invests in
credit
default swap
indices,
forward contracts,
total
return swaps and
other
derivatives. |
|
High
Yield Municipal
Fund |
A
high level of current
income
that is exempt
from
regular federal
income
tax and may also
consider
the potential for
capital
appreciation. |
At
least 80% Net Assets in
Municipal
Securities, the
interest
on which is
exempt
from regular
federal
income tax (i.e.,
excluded
from gross
income
for federal income
tax
purposes). |
Expected
Duration* =
Goldman
Sachs High Yield
Municipal
Fund Composite
Index,
which is comprised
of
the Bloomberg
Municipal
Bond Index
(40%)
and the Bloomberg
Municipal
High Yield Bond
Index
(60%), plus or
minus
2 years. |
Majority
of Total Assets in
BBB/Baa
and BB+/ Ba1 or
below
(at time of
purchase) |
Higher
grade fixed income
securities,
private activity
bonds
and other
investment
companies
(specifically
registered
money
market funds).
|
19
|
Underlying
Fund |
Investment
Objective(s) |
Principal
Investments |
Duration
or Maturity |
Credit
Quality |
Other
Investments |
|
Inflation
Protected
Securities
Fund |
Real
return consistent with
preservation
of capital. |
At
least 80% of its Net
Assets
in IPS of varying
maturities
issues by the
U.S.
Treasury and other
U.S.
and non-U.S.
Government
agencies and
corporations. |
Target
Duration* =
Bloomberg
U.S. Treasury
Inflation-
Protected
Securities
(TIPS) Index,
plus
or minus 2 years. |
N/A |
Fixed
income securities,
including
U.S. Government
Securities,
asset-backed
securities,
mortgage-backed
securities,
corporate
securities,
non- investment
grade
fixed income
securities
and securities
issued
by foreign
corporate
and
governmental
issuers. Also
invests
in other
derivatives,
including
futures
and inflation-
linked
swaps. |
|
Investment
Grade
Credit
Fund |
A
high level of total return
consisting
of capital
appreciation
and income. |
At
least 80% of its Net
Assets
in investment
grade
fixed income
securities. |
Target
Duration* =
Bloomberg
U.S. Credit
Index,
plus or minus one
year. |
Minimum
= BBB–/Baa3
(at
time of purchase) |
Corporate
securities, U.S.
Government
Securities,
Mortgage-
Backed
Securities,
asset- backed
securities
and Municipal
Securities.
Also invests in
futures,
swaps and other
derivatives. |
|
Short
Duration Bond
Fund |
Total
return consisting of
income
and capital
appreciation. |
At
least 80% of its Net
Assets
in U.S. or foreign
fixed
income securities,
including
U.S. Government
Securities,
Mortgage-Backed
Securities,
corporate debt
securities,
collateralized
loan
obligations,asset-backed
securities,high
yield
non-investment
grade
fixed
income securities,
high
yield floating rate
loans
and sovereign and
corporate
debt securities,
and
other instruments of
issuers
in emerging
market
countries. |
Target
Duration*
=Goldman
Sachs Short
Duration
Bond Fund
Composite
Index, which is
comprised
of Bloomberg
U.S.
1-3 Year Corporate
Bond
Index (50%) and
Bloomberg
U.S. 1-3 Year
Government
Bond Index
(50%),
plus or minus 2
years. |
Minimum
= Generally,
BBB–/Baa3
(at time of
purchase) |
Municipal
Securities, TBA
agreements,
reverse
repurchase
agreements,
custodial
receipts,
convertible
securities of
issuers
in default and
affiliated
or unaffiliated
investment
companies.
Also
invests in
futures,swaps
and other
derivatives.
|
20
Description
of the Underlying Funds
|
Underlying
Fund |
Investment
Objective(s) |
Principal
Investments |
Duration
or Maturity |
Credit
Quality |
Other
Investments |
|
Short
Duration
Tax-Free
Fund |
A
high level of current
income,
consistent with
relatively
low volatility of
principal,
that is exempt
from
regular federal
income
tax. |
At
least 80% of its Net
Assets
in Municipal
Securities,
the interest on
which
is exempt from
regular
federal income tax
(i.e.,
excluded from gross
income
for federal income
tax
purposes), and is not a
tax
preference item under
the
federal alternative
minimum
tax. |
Expected
Duration* =
Bloomberg
Municipal
Bond
1-3 Year Blend
Index,
plus or minus 0.5
years. |
Minimum
= BBB/Baa (at
time
of purchase) |
Private
activity bonds,
taxable
investments and
other
investment
companies. |
*
An
Underlying Fund’s duration approximates its price sensitivity to changes in
interest rates.
|
Underlying
Fund |
Investment
Objectives |
Investment
Criteria |
|
Energy
Infrastructure
Fund |
Total
return through
current
income and capital
appreciation. |
At
least 80% of its Net Assets in U.S. and non-U.S. equity or fixed income
securities issued by energy infrastructure
companies,
including master limited partnerships ("MLPs") and "C" corporations
("C-Corps"), including issuers that
(i)
are classified by a third party as operating within the oil and gas
storage and transportation sub-industries; (ii) are
part
of the Fund’s stated benchmark; or (iii) have at least 50% of their
assets, income, sales or profits committed to, or
derived
from, traditional or alternative midstream (energy infrastructure)
businesses, which include businesses that are
engaged
in the treatment, gathering, compression, processing, transportation,
transmission, fractionation, storage,
terminalling,
wholesale marketing, liquefaction/regasification of natural gas, natural
gas liquids, crude oil, refined
products
or other energy sources as well as businesses engaged in owning, storing
and transporting alternative energy
sources,
such as renewables (wind, solar, hydrogen, geothermal, biomass) and
alternative fuels (ethanol, hydrogen,
biodiesel).
The Fund's investments in MLPs will not exceed 25% of the Fund's total
assets (measured at the time of
purchase).
The Fund intends to concentrate its investments in the energy
sector. |
|
Global
Real Estate
Securities
Fund |
Total
return comprised of
long-term
growth of
capital
and dividend
income. |
At
least 80% of its Net Assets in a portfolio of equity investments in
issuers that are engaged in or related to the real
estate
industry (“real estate industry companies”) within and outside the United
States. The Fund expects that a
substantial
portion of its assets will be invested in REITs, REIT-like structures,
real estate operating companies or other
real
estate related investments. The Fund may invest up to 20% of its Net
Assets in issuers that are not real estate
industry
companies and fixed income investments. |
|
MLP
Energy
Infrastructure
Fund |
Total
return through
current
income and capital
appreciation. |
At
least 80% of its Net Assets in U.S. and non-U.S. equity or fixed income
securities issued by energy infrastructure
companies,
including master limited partnerships ("MLPs") and "C" corporations
("C-Corps"), including issuers that
(i)
are classified by a third party as operating within the oil and gas
storage and transportation sub-industries; (ii) are
part
of the Fund’s stated benchmark; or (iii) have at least 50% of their
assets, income, sales or profits committed to, or
derived
from, traditional or alternative midstream (energy infrastructure)
businesses, which include businesses that are
engaged
in the treatment, gathering, compression, processing, transportation,
transmission, fractionation, storage,
terminalling,
wholesale marketing, liquefaction/regasification of natural gas, natural
gas liquids, crude oil, refined
products
or other energy sources as well as businesses engaged in owning, storing
and transporting alternative energy
sources,
such as renewables (wind, solar, hydrogen, geothermal, biomass) and
alternative fuels (ethanol, hydrogen,
biodiesel).
The Fund's investments in MLPs will consist of at least 25% of the Fund's
total assets (measured at the time
of
purchase). The Fund intends to concentrate its investments in the energy
sector. |
21
Risks of
the Fund and the Underlying Funds
Loss
of money is a risk of investing in the Fund. The principal risks of the Fund and
the Underlying Funds are discussed in the Summary section of the Prospectus. The
following section provides additional information on the risks that apply to the
Fund and the Underlying Funds.
The
investment program of the Fund is speculative, entails substantial risks and
includes alternative investment techniques not employed by traditional mutual
funds. The risks applicable to the Fund are presented below in alphabetical
order, and not in the order of importance or potential exposure. The Fund should
not be relied upon as a complete investment program. The Fund’s investment
techniques (if they do not perform as designed) may increase the volatility of
performance and the risk of investment loss, including the loss of the entire
amount that is invested, and there can be no assurance that the investment
objective of the Fund will be achieved. Moreover, certain investment techniques
which the Fund may employ in its investment program can substantially increase
the adverse impact to which the Fund’s investments may be subject. There is no
assurance that the investment processes of the Fund will be successful, that the
techniques utilized therein will be implemented successfully or that they are
adequate for their intended uses, or that the discretionary element of the
investment processes of the Fund will be exercised in a manner that is
successful or that is not adverse to the Fund. These risks may also apply to one
or more Underlying Funds. An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the FDIC or any other governmental agency.
Investors should carefully consider these risks before investing.
Changes in
the particular Underlying Funds in which the Fund may invest, and changes in the
investments of the Underlying Funds, may cause the Fund to be subject to
additional or different risks than the risks listed below.
22
Risks
of the Fund and the Underlying Funds
The
following chart displays the risks that the Fund is exposed to through its
direct investments in securities and other instruments.
|
✓ Principal
Risk
• Additional
Risk |
Tactical
Tilt
Overlay
Fund |
|
Absence
of Regulation |
• |
|
Asset
Allocation |
✓ |
|
Call/Prepayment |
• |
|
Commodity
Sector |
✓ |
|
Counterparty |
✓ |
|
Credit/Default |
✓ |
|
Cybersecurity |
• |
|
Derivatives |
✓ |
|
Dividend
Paying Investments |
✓ |
|
Emerging
Countries |
✓ |
|
Exchange-Traded
Notes |
• |
|
Expenses |
✓ |
|
Extension |
• |
|
Foreign |
✓ |
|
Geographic |
✓ |
|
Initial
Public Offering (“IPO”) |
• |
|
Interest
Rate |
✓ |
|
Investing
in the Underlying Funds |
✓ |
|
Investment
Style |
• |
|
Investments
in Affiliated Underlying Funds |
✓ |
|
Investments
in ETFs |
✓ |
|
Large
Shareholder Transactions |
✓ |
|
Leverage |
✓ |
|
Liquidity |
✓ |
|
Loan-Related
Investments |
✓ |
|
Management |
✓ |
|
Market |
✓ |
|
Mid-Cap
and Small-Cap |
• |
|
Mortgage-Backed
and Other Asset-Backed Securities |
• |
|
Municipal
Securities |
• |
|
NAV |
• |
|
Non-Hedging
Foreign Currency Trading |
✓ |
|
Non-Investment
Grade Fixed Income Securities |
✓ |
|
Portfolio
Turnover |
✓ |
|
Publicly
Traded Partnerships |
• |
|
Real
Estate Industry |
• |
|
REIT |
• |
|
Short
Position |
✓ |
|
Sovereign
Default |
|
|
Economic |
✓ |
|
Political |
✓ |
|
Repayment |
✓ |
|
Stock |
✓ |
|
Subsidiary |
✓ |
|
Swaps |
✓ |
|
Tax |
✓ |
|
Temporary
Investments |
• |
|
U.S.
Government Securities |
✓ |
23
The Fund is
also exposed to the same risks as the Underlying Funds in direct proportion to
the allocation of its assets among the Underlying Funds. The following chart
displays the risks associated with investing in each of the Underlying Funds,
which are also risks of investing in the Fund as a result of its investments in
the Underlying Funds.
|
✓ Principal
Risk
• Additional
Risk |
Core
Fixed
Income
Fund |
Investment
Grade
Credit
Fund |
Enhanced
Income
Fund |
Government
Income
Fund |
Inflation
Protected
Securities
Fund |
Short
Duration
Bond
Fund |
Emerging
Markets
Debt
Fund |
High
Yield
Fund |
High
Yield
Floating
Rate
Fund |
Emerging
Markets
Credit
Fund |
|
Call/Prepayment |
• |
• |
✓ |
✓ |
• |
✓ |
• |
• |
• |
✓ |
|
Collateralized
Loan Obligations
and
Other Collateralized
Debt
Obligations |
✓ |
• |
✓ |
• |
• |
✓ |
• |
• |
• |
• |
|
Conflict
of Interest |
|
|
|
|
|
|
|
|
✓ |
|
|
Counterparty |
• |
|
✓ |
• |
• |
✓ |
✓ |
|
|
✓ |
|
CPIU
Measurement |
|
|
|
|
✓ |
|
|
|
|
|
|
Credit/Default |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Cybersecurity |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
|
Deflation |
|
|
|
|
✓ |
|
|
|
|
|
|
Derivatives |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Distressed
Debt |
|
|
|
|
|
|
• |
• |
• |
• |
|
Emerging
Countries |
✓ |
• |
✓ |
|
• |
✓ |
✓ |
• |
• |
✓ |
|
ESG
Integration |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
|
Extension |
• |
• |
✓ |
• |
• |
✓ |
• |
• |
• |
• |
|
Floating
and Variable Rate
Obligations |
• |
• |
✓ |
• |
• |
✓ |
• |
• |
✓ |
• |
|
Foreign |
✓ |
✓ |
✓ |
|
• |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Geographic |
• |
|
|
|
|
|
• |
|
|
• |
|
Inflation
Protected Securities |
|
|
• |
• |
✓ |
• |
|
|
|
|
|
Interest
Rate |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
• |
✓ |
|
Large
Shareholder Transactions |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Leverage |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
|
Liquidity |
• |
• |
• |
• |
• |
• |
✓ |
✓ |
✓ |
✓ |
|
Loan-Related
Investments |
|
• |
|
|
|
✓ |
• |
✓ |
✓ |
• |
|
Management |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
|
Market |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Mortgage-Backed
and Other
Asset-Backed
Securities |
✓ |
• |
✓ |
✓ |
✓ |
✓ |
|
• |
• |
|
|
Municipal
Securities |
• |
✓ |
✓ |
|
• |
✓ |
• |
• |
|
• |
|
NAV |
• |
• |
• |
• |
• |
• |
• |
• |
• |
• |
|
Non-Diversification |
|
|
|
|
|
|
|
|
|
✓ |
|
Non-Hedging
Foreign Currency
Trading |
• |
• |
• |
|
• |
• |
• |
• |
• |
• |
|
Non-Investment
Grade Fixed
Income
Securities |
|
• |
✓ |
|
• |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Other
Investment Companies |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Portfolio
Turnover Rate |
✓ |
|
|
✓ |
|
|
|
|
|
|
|
Reverse
Repurchase
Agreements |
✓ |
• |
✓ |
✓ |
• |
✓ |
• |
• |
• |
|
|
Sector |
• |
|
|
|
|
|
• |
|
|
• |
|
Short
Position |
✓ |
|
|
|
|
|
|
|
|
|
|
Sovereign
Default |
|
|
|
|
|
|
|
|
|
|
|
Economic |
• |
• |
• |
• |
• |
• |
✓ |
• |
• |
✓ |
|
Political |
• |
• |
• |
• |
• |
• |
✓ |
• |
• |
✓ |
|
Repayment |
• |
• |
• |
• |
• |
• |
✓ |
• |
• |
✓ |
|
Swaps
Risk |
|
• |
|
|
|
|
• |
• |
• |
• |
|
Tax
Consequences |
|
|
|
|
✓ |
|
|
|
|
|
|
Treasury
Inflation Protected
Securities |
• |
|
|
|
|
|
|
|
|
|
|
U.S.
Government Securities |
✓ |
• |
✓ |
✓ |
✓ |
✓ |
• |
• |
• |
• |
24
Risks
of the Fund and the Underlying Funds
|
✓ Principal
Risk
• Additional
Risk |
High
Yield
Municipal
Fund |
Dynamic
Municipal
Income
Fund |
Short
Duration
Tax-Free
Fund |
MLP
Energy
Infrastructure
Fund |
Energy
Infrastructure
Fund |
Global
Real
Estate
Securities
Fund |
|
Call/Prepayment |
• |
• |
• |
|
|
|
|
Commodity
Sector |
|
|
|
• |
• |
|
|
Credit/Default |
✓ |
✓ |
✓ |
✓ |
✓ |
• |
|
Cybersecurity |
• |
• |
• |
• |
• |
• |
|
Derivatives |
• |
• |
• |
✓ |
✓ |
• |
|
Distressed
Debt |
• |
• |
• |
|
|
|
|
Dividend-Paying
Investments |
|
|
|
✓ |
✓ |
✓ |
|
Emerging
Countries |
|
|
|
• |
• |
✓ |
|
Energy
Sector |
|
|
|
✓ |
✓ |
|
|
ESG
Integration |
• |
• |
• |
|
|
• |
|
Extension |
• |
• |
• |
|
|
|
|
Floating
and Variable Rate Obligations |
• |
• |
• |
|
|
|
|
Foreign |
|
|
|
✓ |
✓ |
✓ |
|
Geographic |
|
|
|
|
|
✓ |
|
Geographic
and Sector |
✓ |
✓ |
✓ |
|
|
|
|
Industry
Concentration |
|
|
|
|
|
✓ |
|
Infrastructure
Company |
|
|
|
✓ |
✓ |
|
|
Interest
Rate |
✓ |
✓ |
✓ |
✓ |
✓ |
• |
|
Investment
Style |
|
|
|
✓ |
✓ |
• |
|
IPO |
|
|
|
• |
• |
• |
|
Large
Shareholder Transactions |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Liquidity |
✓ |
✓ |
✓ |
✓ |
✓ |
• |
|
Management |
• |
• |
• |
• |
• |
• |
|
Market |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Master
Limited Partnership |
|
|
|
✓ |
✓ |
• |
|
Mid-Cap
and Small-Cap |
|
|
|
✓ |
✓ |
• |
|
Mortgage
Backed and Other Asset Backed Securities |
|
|
|
|
|
• |
|
Municipal
Securities |
✓ |
✓ |
✓ |
|
|
|
|
Natural
Resources |
|
|
|
• |
• |
|
|
NAV |
• |
• |
• |
• |
• |
• |
|
Non-Diversification |
|
|
|
✓ |
✓ |
|
|
Non-Investment
Grade Fixed Income Securities |
✓ |
✓ |
|
• |
• |
• |
|
Other
Investment Companies |
✓ |
✓ |
✓ |
• |
✓ |
|
|
Portfolio
Turnover Rate Risk |
|
|
|
✓ |
|
|
|
Pre-IPO
Investments |
|
|
|
• |
• |
|
|
Private
Investment in Public Equity |
|
|
|
✓ |
✓ |
• |
|
Real
Estate Industry |
|
|
|
|
|
✓ |
|
REIT |
|
|
|
|
|
✓ |
|
Sovereign
Default |
|
|
|
|
|
• |
|
Special
Purpose Acquisition Companies (“SPACs”) |
|
|
|
✓ |
✓ |
• |
|
State/Territory
Specific |
✓ |
✓ |
✓ |
|
|
|
|
Stock |
|
|
|
✓ |
✓ |
• |
|
Strategy |
|
|
|
✓ |
|
|
|
Tax |
✓ |
✓ |
✓ |
✓ |
✓ |
|
|
U.S.
Government Securities |
• |
• |
• |
• |
• |
• |
25
The
following section provides additional information on the risks that apply to the
Fund and the Underlying Funds. Each risk listed below is followed by a
parenthetical that indicates whether it is a risk of the Fund, of one or more
Underlying Funds, or both.
◼
Absence
of Regulation Risk (The
Fund)—The Fund
engages in OTC transactions, which trade in a dealer network, rather than on an
exchange. In general, there is less governmental regulation and supervision of
transactions in the OTC markets (in which option contracts and certain options
on swaps are generally traded) than of transactions entered into on organized
exchanges.
◼
Asset
Allocation Risk (The
Fund)—The Fund’s
allocations to the various asset classes may cause the Fund to underperform
other funds with a similar investment objective. It is possible that the
Investment Adviser will allocate Fund assets to asset classes that perform
poorly or underperform other investments under various market
conditions.
◼
Call/Prepayment
Risk (The
Fund and one or more Underlying Funds)—An issuer
could exercise its right to pay principal on an obligation held by the
Fund and/or an Underlying Fund (such as a mortgage-backed
security) earlier than expected. This may happen when there is a decline in
interest rates, when credit spreads change, or when an issuer’s credit quality
improves. Under these circumstances, the Fund and/or an Underlying
Fund may be unable to recoup all of its initial investment and will also
suffer from having to reinvest in lower-yielding securities.
◼
Collateralized
Loan Obligations and Other Collateralized Debt Obligations Risk (One
or more Underlying Funds)—The
Underlying Funds may invest in collateralized loan obligations (“CLOs”) and
other similarly structured investments. A CLO is an asset-backed security whose
underlying collateral is a pool of loans, which may include, among others,
domestic and foreign floating rate and fixed rate senior secured loans, senior
unsecured loans, and subordinate corporate loans, including loans that may be
rated below investment grade or equivalent unrated loans. In addition to the
normal risks associated with loan- and credit-related securities discussed
elsewhere in the Prospectus (e.g., interest rate risk and default risk),
investments in CLOs carry additional risks including, but not limited to, the
risk that: (i) distributions from the collateral may not be adequate to make
interest or other payments; (ii) the quality of the collateral may decline in
value or default; (iii) an Underlying Fund may invest in tranches of CLOs that
are subordinate to other tranches; (iv) the structure and complexity of the
transaction and the legal documents could lead to disputes among investors
regarding the characterization of proceeds; and (v) the CLO’s manager may
perform poorly. CLOs may charge management and other administrative fees, which
are in addition to those of an Underlying Fund.
CLOs issue
classes or “tranches” that offer various maturity, risk and yield
characteristics. Losses caused by defaults on underlying assets are borne first
by the holders of subordinate tranches. Tranches are categorized as senior,
mezzanine and subordinated/ equity, according to their degree of risk. If there
are defaults or the CLO’s collateral otherwise underperforms, scheduled payments
to senior tranches take precedence over those of mezzanine tranches, and
scheduled payments to mezzanine tranches take precedence over those of
subordinated/equity tranches. The riskiest portion is the “equity” tranche which
bears the bulk of defaults from the collateral and serves to protect the other,
more senior tranches from default in all but the most severe circumstances.
Because it is partially protected from defaults, a senior tranche from a CLO
trust typically has higher ratings and lower yields than its underlying
collateral and may be rated investment grade. Despite the protection from the
equity and mezzanine tranches, more senior tranches of CLOs can experience
losses due to actual defaults, increased sensitivity to defaults due to
collateral default and disappearance of more subordinate tranches, market
anticipation of defaults, as well as aversion to CLO securities as a class. An
Underlying Fund’s investments in CLOs primarily consist of investment grade
tranches.
Typically,
CLOs are privately offered and sold, and thus, are not registered under the
securities laws. As a result, investments in CLOs may be characterized by an
Underlying Fund as illiquid investments and may have limited independent pricing
transparency. However, an active dealer market may exist for CLOs that qualify
under the Rule 144A “safe harbor” from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers, and such CLOs may be characterized by an Underlying Fund as liquid
investments.
An
Underlying Fund may also invest in collateralized debt obligations (“CDOs”),
which are structured similarly to CLOs, but are backed by pools of assets that
are debt securities (rather than being limited only to loans), typically
including bonds, other structured finance securities (including other
asset-backed securities and other CDOs) and/or synthetic instruments. Like CLOs,
the risks of an investment in a CDO depend largely on the type and quality of
the collateral securities and the tranche of the CDO in which an Underlying Fund
invests. CDOs collateralized by pools of asset-backed securities carry the same
risks as investments in asset-backed securities directly, including losses with
respect to the collateral underlying those asset-backed securities. In addition,
certain CDOs may not hold their underlying collateral directly, but rather, use
derivatives such as swaps to create “synthetic” exposure to the collateral pool.
Such CDOs entail the risks associated with derivative
instruments.
◼
Commodity
Sector Risk (The
Fund)—Exposure to
the commodities markets may subject the Fund to greater volatility than
investments in more traditional securities. The value of commodity-linked
investments may be affected by changes in overall market movements, commodity
index volatility, changes in interest rates, or sectors affecting a particular
industry or commodity, such as drought, floods, weather, livestock disease,
embargoes, tariffs and international economic, business, political and
regulatory developments. The prices of energy, industrial metals, precious
metals, agriculture and livestock sector commodities may fluctuate widely due to
factors such as changes in value, supply and demand and governmental regulatory
policies. The energy sector can be
26
Risks
of the Fund and the Underlying Funds
significantly
affected by changes in the prices and supplies of oil and other energy fuels,
energy conservation, the success of exploration projects, and tax and other
government regulations, policies of the Organization of Petroleum Exporting
Countries (“OPEC”) and relationships among OPEC members and between OPEC and
oil-importing nations. The metals sector can be affected by sharp price
volatility over short periods caused by global economic, financial and political
factors, resource availability, government regulation, economic cycles, changes
in inflation or expectations about inflation in various countries, interest
rates, currency fluctuations, metal sales by governments, central banks or
international agencies, investment speculation and fluctuations in industrial
and commercial supply and demand. Commodity-linked investments are often offered
by companies in the financial services sector, including the banking, brokerage
and insurance sectors. As a result, events affecting issuers in the financial
services sector may cause the Fund’s share value to fluctuate. Although
investments in commodities typically move in different directions than
traditional equity and debt securities, when the value of those traditional
securities is declining due to adverse economic conditions, there is no
guarantee that these investments will perform in that manner, and at certain
times the price movements of commodity-linked investments have been parallel to
those of debt and equity securities.
◼
Conflict
of Interest Risk (One
or more Underlying Funds)—Affiliates
of the Investment Adviser may participate in the primary and secondary market
for loan obligations. Because of limitations imposed by applicable law, the
presence of the Investment Adviser’s affiliates in the loan obligations market
may restrict an Underlying Fund’s ability to acquire some loan obligations or
affect the timing or price of such acquisitions. Also, because the Investment
Adviser may wish to invest in the publicly traded securities of a borrower, it
may not have access to material non-public information regarding the
borrower to which other lenders have access.
◼
Counterparty
Risk (The
Fund and one or more Underlying Funds)—Many of
the protections afforded to cleared transactions, such as the security afforded
by transacting through a clearing house, might not be available in connection
with certain OTC transactions. Therefore, in those instances in which the
Fund and/or an Underlying Fund enters into certain OTC transactions, the
Fund and/or an Underlying Fund will be subject to the risk that its direct
counterparty will not perform its obligations under the transactions and that
the Fund and/or an Underlying Fund will sustain losses. However, recent
regulatory developments require margin on certain uncleared OTC transactions
which may reduce, but not eliminate, this risk.
◼
CPIU
Measurement Risk (One
or more Underlying Funds)—The CPIU
is a measurement of changes in the cost of living, made up of components such as
housing, food, transportation and energy. There can be no assurance that the
CPIU will accurately measure the real rate of inflation in the prices of goods
and services, which may affect the valuation of the Underlying
Fund.
◼
Credit/Default
Risk (The
Fund and one or more Underlying Funds)—An issuer
or guarantor of fixed income securities or instruments held by the Fund and/or
an Underlying Fund (which may have low credit ratings) may default on its
obligation to pay interest and repay principal or default on any other
obligation. The credit quality of the Fund's and/or an Underlying Fund’s
portfolio securities or instruments may meet the Fund’s and/or an
Underlying Fund's credit quality requirements at the time of purchase but then
deteriorate thereafter, and such a deterioration can occur rapidly. In certain
instances, the downgrading or default of a single holding or guarantor of the
Fund’s and/or an Underlying Fund's holdings may impair the Fund’s
and/or an Underlying Fund's liquidity and have the potential to cause
significant NAV deterioration. These risks are heightened in market environments
where interest rates are rising as well as in connection with the Fund’s and/or
an Underlying Fund’s investments in non-investment grade fixed income
securities.
◼
Cybersecurity
Risk
(The Fund and one or more Underlying Funds)—The Fund
and/or an Underlying Fund may be susceptible to operational and information
security risks resulting from cyber-attacks. Cyber-attacks include, among
others, stealing or corrupting confidential information and other data that is
maintained online or digitally for financial gain, denial-of-service attacks on
websites causing operational disruption, and the unauthorized release of
confidential information and other data. Cyber-attacks have the ability to cause
significant disruptions and impact business operations; to result in financial
losses; to prevent shareholders from transacting business; to interfere with the
Fund’s calculation of NAV; and to lead to violations of applicable privacy and
other laws, regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs and/or additional compliance costs. Cyber-attacks
affecting the Fund or its Investment Adviser, custodian, Transfer Agent, or
other third-party service providers may adversely impact the Fund and its
shareholders.
◼
Deflation
Risk (One
or more Underlying Funds)—The
Inflation Protected Securities Fund will be subject to the risk that prices
throughout the economy may decline over time, resulting in “deflation”. If this
occurs, the principal and income of inflation-protected fixed income securities
held by the Fund would likely decline in price, which could result in losses for
the Fund.
◼
Derivatives
Risk (The
Fund and one or more Underlying Funds)—The Fund’s and/or an
Underlying Fund’s use of options, futures, forwards, swaps, options on
swaps, structured securities, and other derivatives and similar instruments
(collectively referred to in this paragraph as “derivatives”) may result in
losses, including due to adverse market movements. Derivatives, which may pose
risks in addition to and greater than those associated with investing directly
in securities, currencies or other assets and instruments, may increase market
exposure and be illiquid or less liquid, volatile, difficult to price and
leveraged so that small changes in the value of the underlying assets or
instruments may produce disproportionate losses to the Fund and/or an
Underlying Fund. Certain
27
derivatives
are also subject to counterparty risk, which is the risk that the other party in
the transaction will not fulfill, or lacks the capacity or authority to fulfill,
its contractual obligations, liquidity risk, which includes the risk that the
Fund will not be able to close its derivatives position when it is advantageous
to do so, and risks arising from margin requirements, which include the risk
that the Fund and/or an Underlying Fund will be required to pay additional
margin or set aside additional collateral to maintain open derivative positions.
Derivatives may be used for both hedging and non-hedging purposes.
The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments, and there is no guarantee that the use of
derivatives will achieve their intended result. If the Investment Adviser is
incorrect in its expectation of the timing or level of fluctuation in securities
prices, interest rates, currency prices or other variables, the use of
derivatives could result in losses, which in some cases may be significant. A
lack of correlation between changes in the value of derivatives and the value of
the portfolio assets (if any) being hedged could also result in losses. In
addition, there is a risk that the performance of the derivatives or other
instruments used by the Investment Adviser to replicate the performance of a
particular asset class may not accurately track the performance of that asset
class. The Fund and/or an Underlying Fund may use derivatives, including futures
and swaps, to implement short positions. Taking short positions involves
leverage of the Fund's and/or Underlying Fund’s assets and presents various
risks. If the value of the instrument or market in which the Fund and/or an
Underlying Fund has taken a short position increases, then the Fund and/ or
Underlying Fund will incur a loss equal to the increase in value from the time
that the short position was entered into plus any premiums and interest paid to
a counterparty. Therefore, taking short positions involves the risk that losses
may be exaggerated, potentially losing more money than the actual cost of the
investment.
The use of
derivatives is also subject to operational and legal risks. Operational risks
generally refer to risks related to potential operational issues, including
documentation issues, settlement issues, system failures, inadequate controls,
and human error. Legal risks generally refer to risks of loss resulting from
insufficient documentation or legality or enforceability of a
contract.
◼
Distressed
Debt Risk (One
or more Underlying Funds)—When an
Underlying Fund invests in obligations of financially troubled companies
(sometimes known as “distressed” securities), there exists the risk that the
transaction involving such debt obligations will be unsuccessful, take
considerable time or will result in a distribution of cash or a new security or
obligation in exchange for the stressed and distressed debt obligations, the
value of which may be less than such Underlying Fund’s purchase price of such
debt obligations. Furthermore, if an anticipated transaction does not occur, an
Underlying Fund may be required to sell its investment at a loss or hold its
investment pending bankruptcy proceedings in the event the issuer files for
bankruptcy.
◼
Dividend-Paying
Investments Risk (The
Fund and one or more Underlying Funds)—The Underlying
Fund’s investments in dividend-paying securities could cause the Underlying
Fund to underperform other funds that invest in similar asset classes but employ
a different investment style. Securities that pay dividends, as a group, can
fall out of favor with the market, causing such securities to underperform
securities that do not pay dividends. Depending upon market conditions and
political and legislative responses to such conditions, dividend-paying
securities that meet the Underlying Fund’s investment criteria may not be
widely available and/or may be highly concentrated in only a few market sectors.
For example, in response to the outbreak of a novel strain of coronavirus (known
as COVID-19), the U.S. Government passed the Coronavirus Aid, Relief and
Economic Security Act in March 2020, which established loan programs for certain
issuers impacted by COVID-19. Among other conditions, borrowers under these loan
programs are generally restricted from paying dividends. The adoption of new
legislation could further limit or restrict the ability of issuers to pay
dividends. To the extent that dividend-paying securities are concentrated in
only a few market sectors, the Underlying Fund may be subject to the risks
of volatile economic cycles and/or conditions or developments that may be
particular to a sector to a greater extent than if its investments were
diversified across different sectors. In addition, issuers that have paid
regular dividends or distributions to shareholders may not continue to do so at
the same level or at all in the future. A sharp rise in interest rates or an
economic downturn could cause an issuer to abruptly reduce or eliminate its
dividend. This may limit the ability of the Underlying Fund to produce
current income.
◼
Emerging
Countries Risk (The
Fund and one or more Underlying Funds)—Investments
in securities of issuers located in, or otherwise economically tied to, emerging
countries are subject to the risks associated with investments in foreign
securities. The securities markets of most emerging countries are less
liquid, developed and efficient, are subject to greater price volatility, and
have smaller market capitalizations. In addition, emerging markets and frontier
countries may have more or less government regulation and generally do not
impose as extensive and frequent accounting, auditing, financial and other
reporting requirements as the securities markets of more developed countries. As
a result, there could be less information available about issuers in emerging
and frontier market countries, which could negatively affect the Investment
Adviser’s ability to evaluate local companies or their potential impact on the
Fund’s performance. Further, investments in securities of issuers located
in certain emerging countries involve the risk of loss resulting from
problems in share registration, settlement or custody, substantial economic,
political and social disruptions and the imposition of sanctions or exchange
controls (including repatriation restrictions). The legal remedies for investors
in emerging and frontier markets may be more limited than the remedies available
in the U.S., and the ability of U.S. authorities (e.g., SEC and
the U.S. Department of Justice) to bring actions against bad actors may be
limited. These risks are not normally associated with investments in more
developed countries. For more information about these risks, see Appendix
A.
28
Risks
of the Fund and the Underlying Funds
◼
Energy
Sector Risk (One
or more Underlying Funds)—The MLP
Energy Infrastructure Fund concentrates its investments in the energy sector,
and will therefore be susceptible to adverse economic, business, social,
political, environmental, regulatory or other occurrences affecting that sector.
The energy sector has historically experienced substantial price volatility. At
times, the performance of these investments may lag the performance of other
sectors or the market as a whole. MLPs, energy infrastructure companies and
other companies operating in the energy sector are subject to specific risks,
including, among others: fluctuations in commodity prices and/or interest rates;
increased governmental or environmental regulation; reduced availability of
natural gas or other commodities for transporting, processing, storing or
delivering; declines in domestic or foreign production; slowdowns in new
construction; extreme weather or other natural disasters; and threats of attack
by terrorists on energy assets. Energy companies can be significantly affected
by the supply of, and demand for, particular energy products (such as oil and
natural gas), which may result in overproduction or underproduction.
Additionally, changes in the regulatory environment for energy companies may
adversely impact their profitability. Over time, depletion of natural gas
reserves and other energy reserves may also affect the profitability of energy
companies.
During
periods of heightened volatility, energy producers that are burdened with debt
may seek bankruptcy relief. Bankruptcy laws may permit the revocation or
renegotiation of contracts between energy producers and MLPs/energy
infrastructure companies, which could have a dramatic impact on the ability of
MLPs/energy infrastructure companies to pay distributions to its investors,
including the MLP Energy Infrastructure Fund, which in turn could impact the
ability of the Underlying Fund to pay dividends and dramatically impact the
value of the Underlying Fund’s investments.
MLPs may
incur environmental costs and liabilities due to the nature of their businesses
and the substances they handle. Changes in existing laws, regulations or
enforcement policies governing the energy sector could significantly increase
the compliance costs of MLPs. Certain MLPs could, from time to time, be held
responsible for implementing remediation measures, the cost of which may not be
recoverable from insurance. The MLP Energy Infrastructure Fund will select its
investments in MLPs from the current small pool of issuers. Demand for
investment opportunities in MLPs that operate energy-related businesses may
exceed supply, which could make it difficult to operate the MLP Energy
Infrastructure Fund.
◼
Exchange-Traded
Notes Risk (The
Fund)—ETNs are
senior, unsecured, unsubordinated debt securities issued by a sponsoring
financial institution. The returns on an ETN are linked to the performance of
particular securities, market indices, or strategies, minus applicable fees.
ETNs are traded on an exchange (e.g., the New
York Stock Exchange) during normal trading hours; however, investors may also
hold an ETN until maturity. At maturity, the issuer of an ETN pays to the
investor a cash amount equal to the principal amount, subject to application of
the relevant securities, index or strategy factor. Similar to other debt
securities, ETNs have a maturity date and are backed only by the credit of the
sponsoring institution. ETNs are subject to credit risk. The value of an ETN may
be influenced by time to maturity, level of supply and demand for the ETN,
volatility and lack of liquidity in underlying assets, changes in the applicable
interest rates, changes in the issuer’s credit rating, and economic, legal,
political or geographic events that affect the underlying assets. When the Fund
invests in ETNs, it will bear its proportionate share of any fees and expenses
borne by the ETN. Although an ETN is a debt security, it is unlike a typical
bond, in that there are no periodic interest payments and principal is not
protected. The timing and character of income and gains from ETNs may be
affected by future legislation.
◼
Expenses
Risk (The
Fund)—Because
the Fund may invest in pooled investment vehicles (including investment
companies, ETFs and money market funds, partnerships and real estate investment
trusts (“REITs”)), the investor will incur not only a proportionate share of the
expenses of the other pooled investment vehicles, partnerships and REITs held by
the Fund (including operating costs and investment management fees), but also
expenses of the Fund.
◼
Extension
Risk (The
Fund and one or more Underlying Funds)—An issuer
could exercise its right to pay principal on an obligation held by the Fund
and/or an Underlying Fund (such as a mortgage-backed security) later than
expected. This may happen when there is a rise in interest rates. Under these
circumstances, the value of the obligation will decrease, and the Fund and/or an
Underlying Fund will also suffer from the inability to reinvest in higher
yielding securities.
◼
Floating
and Variable Rate Obligations Risk (One
or more Underlying Funds)—Floating
rate and variable rate obligations are debt instruments issued by companies or
other entities with interest rates that reset periodically (typically, daily,
monthly, quarterly, or semi-annually) in response to changes in the market rate
of interest on which the interest rate is based. For floating and variable rate
obligations, there may be a lag between an actual change in the underlying
interest rate benchmark and the reset time for an interest payment of such an
obligation, which could harm or benefit the Underlying Fund,
depending on the interest rate environment or other circumstances. In a rising
interest rate environment, for example, a floating or variable rate obligation
that does not reset immediately would prevent the Underlying Fund
from taking full advantage of rising interest rates in a timely manner. However,
in a declining interest rate environment, the Underlying Fund may
benefit from a lag due to an obligation’s interest rate payment not being
immediately impacted by a decline in interest rates.
29
Certain floating and
variable rate obligations have an interest rate floor feature, which prevents
the interest rate payable by the security from dropping below a specified level
as compared to a reference interest rate (the “reference rate”), such as Secured
Overnight Financing Rate (“SOFR”), a term SOFR rate published by CME Group
Benchmark Administration Limited (CBA) calculated using certain derivatives
markets (“Term SOFR”) or another rate determined using SOFR. Such a floor
protects the Underlying Fund from losses resulting from a decrease in
the reference rate below the specified level. However, if the reference rate is
below the floor, there will be a lag between a rise in the reference rate and a
rise in the interest rate payable by the obligation, and the
Underlying Fund may not benefit from increasing interest rates for a
significant amount of time.
Some floating or variable
rate obligations or investments of the Underlying Fund may
have
previously
referenced the London Interbank
Offered Rate
(“LIBOR”). As a result of benchmark reforms, publication of all LIBOR settings
has ceased. Public and private sector actors have worked to establish
alternative reference rates, like SOFR or Term SOFR, to be used in place of
LIBOR. There is no assurance that any such alternative reference rate will be
similar to or produce the same value or economic equivalence as LIBOR or that it
will have the same volume or liquidity as did LIBOR which may affect the value,
volatility, liquidity or return on certain of the Underlying Fund’s
floating and variable rate obligations and investments and result in costs
incurred in connection with changing reference rates used for positions, closing
out positions and entering into new trades. For example, LIBOR was previously
calculated using the average rate at which a selection of large global banks
reported they could borrow from one another and SOFR is a measure of the cost of
borrowing cash overnight, collateralized by the U.S. Treasury securities, and is
based on directly observable U.S. Treasury-backed repurchase transactions.
Certain of the Underlying Fund’s obligations or investments may have
transitioned from LIBOR. The transition from LIBOR to alternative reference
rates may result in operational issues for the Underlying Fund or its
obligations or investments. Any pricing adjustments to the
Underlying Fund’s obligations or investments resulting from use of an
alternative reference rate may also adversely affect the
Underlying Fund’s performance and/or NAV. No assurances can be given
as to the impact of the LIBOR transition (and the timing of any such impact) on
the Underlying Fund and its obligations and
investments.
◼
Foreign
Risk (The
Fund and one or more Underlying Funds)—When the
Fund and/or an Underlying Fund invests in foreign securities, it may be subject
to risk of loss not typically associated with U.S. issuers. Loss may result
because of more or less foreign government regulation; less public information;
less stringent investor protections; less stringent accounting, corporate
governance, financial reporting and disclosure standards; less liquid, developed
or efficient trading markets; greater volatility; and less economic, political
and social stability in the countries in which the Fund and/or an
Underlying Fund invests. Loss may also result from, among other things,
deteriorating economic and business conditions in other countries, including the
United States, regional and global conflicts, the imposition of sanctions,
exchange controls (including repatriation restrictions), foreign taxes,
confiscation of assets and property, trade restrictions (including tariffs),
expropriations and other government restrictions by the United States and other
governments, higher transaction costs, difficulty enforcing contractual
obligations or from problems in share registration, settlement or custody. The
type and severity of sanctions and other similar measures, including counter
sanctions and other retaliatory actions, that may be imposed could vary broadly
in scope, and their impact is impossible to predict. These types of measures may
include, but are not limited to, banning a sanctioned country from global
payment systems that facilitate cross-border payments, restricting the
settlement of securities transactions by certain investors, and freezing the
assets of particular countries, entities, or persons. The imposition of
sanctions and other similar measures could, among other things, cause a decline
in the value and/or liquidity of securities issued by the sanctioned country or
companies located in or economically tied to the sanctioned country, downgrades
in the credit ratings of the sanctioned country or companies located in or
economically tied to the sanctioned country, devaluation of the sanctioned
country’s currency, and increased market volatility and disruption in the
sanctioned country and throughout the world. Sanctions and other similar
measures could limit or prevent the Fund from buying and selling securities (in
the sanctioned country and other markets), significantly delay or prevent the
settlement of securities transactions, and significantly impact the Fund’s
liquidity and performance. The Fund and/or an Underlying Fund, or the Investment
Adviser may determine not to invest in, or may limit its overall investment in,
a particular issuer, country or geographic region due to, among other things,
heightened risks regarding sanctions, repatriation restrictions, confiscation of
assets and property, expropriation or nationalization. Geopolitical
developments in certain countries in which the Fund and/or an Underlying Fund
may invest have caused, or may in the future cause, significant volatility in
financial markets. These and other geopolitical developments, including regional
armed conflict in Europe and elsewhere, could negatively impact the value of the
Fund's and/or an Underlying Fund’s investments.
The Fund's
and/or an Underlying Fund's investments in foreign securities may also be
subject to foreign currency risk, as described above, the risk of negative
foreign currency rate fluctuations, which may cause the value of securities
denominated in such foreign currency (or other instruments through which the
Fund and/or an Underlying Fund may have exposure to foreign currencies) to
decline in value. Currency exchange rates may fluctuate significantly over
short periods of time. Foreign risks will normally be greatest when the
Fund and/or an Underlying Fund invests in securities of issuers located in
emerging countries. For more information about these risks, see Appendix
A.
◼
Geographic
Risk (The
Fund and one or more Underlying Funds)—If the
Fund and/or an Underlying Fund focuses its investments in securities of issuers
located in a particular country or geographic region, the Fund and/or an
Underlying Fund may be subjected,
30
Risks
of the Fund and the Underlying Funds
to a
greater extent than if its investments were less focused, to the risks of
volatile economic cycles and/or conditions and developments that may be
particular to that country or region, such as: adverse securities markets;
adverse exchange rates; adverse social, political, regulatory, economic,
business, environmental or other developments; or natural
disasters.
◼
Geographic
and Sector Risk (One
or more Underlying Funds)—If an
Underlying Fund invests a significant portion of its total assets in securities
of issuers within the same state, geographic region or economic sector, an
adverse economic, business, political, environmental or other development
affecting that state, region or sector may affect the value of
the Underlying Fund’s investments more than if its investments were not so
focused.
◼
Industry
Concentration Risk (One or
more Underlying Funds)—The Global Real Estate Securities Fund concentrates its
investments in the real estate industry, which has historically experienced
substantial price volatility. Concentrating Underlying Fund investments in a
limited number of issuers conducting business in the same industry or group of
industries will subject the Underlying Funds to a greater risk of loss as a
result of adverse economic, business, political, environmental or other
developments than if their investments were diversified across different
industries.
◼
IPO
Risk (The
Fund and one or more Underlying Funds)—The market
value of shares issued in an initial public offering (“IPO”) will fluctuate
considerably due to factors such as the absence of a prior public market,
unseasoned trading, the small number of shares available for trading and limited
information about a company’s business model, quality of management, earnings
growth potential, and other criteria used to evaluate its investment prospects.
The purchase of IPO shares may involve high transaction costs. Investments in
IPO shares, which are subject to market risk and liquidity risk, involve greater
risks than investments in shares of companies that have traded publicly on an
exchange for extended periods of time. When the Fund’s and/or an Underlying
Fund’s asset base is small, a significant portion of the Fund’s and/or an
Underlying Fund’s performance could be attributable to investments in IPOs,
because such investments would have a magnified impact on the Fund and/or an
Underlying Fund. As the Fund’s and/or an Underlying Fund’s assets grow, the
effect of the Fund’s and/or an Underlying Fund’s investments in IPOs on the
Fund’s and/or an Underlying Fund’s performance probably will decline, which
could reduce the Fund’s and/or an Underlying Fund’s
performance.
◼
Inflation
Protected Securities Risk (One
or more Underlying Funds)—The value
of inflation protected securities (“IPS”) generally fluctuates in response
to changes in real interest rates, which are in turn tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in the value of IPS. In
contrast, if nominal interest rates increased at a faster rate than inflation,
real interest rates might rise, leading to a decrease in the value of IPS.
Although the principal value of IPS declines in periods of deflation, holders at
maturity receive no less than the par value of the bond. However, if an
Underlying Fund purchases IPS in the secondary market whose principal values
have been adjusted upward due to inflation since issuance, the Underlying
Fund may experience a loss if there is a subsequent period of
deflation. The U.S. Treasury only began issuing TIPS in 1997, and
corporations began issuing corporate inflation protected securities (“CIPS”)
even more recently. As a result, the market for such securities may be less
developed or liquid, and more volatile, than certain other securities markets.
An increase in the value of IPS held by the Fund represents a taxable event in
the year the increase occurs. Unexpected increases in the value of IPS could
result in the Fund being required to liquidate assets, including when it is not
advantageous to do so, in order to satisfy its distribution requirements as a
regulated investment company.
◼
Infrastructure
Company Risk (One
or more Underlying Funds)—Infrastructure
companies are susceptible to various factors that may negatively impact their
businesses or operations, including costs associated with compliance with and
changes in environmental, governmental and other regulations, rising interest
costs in connection with capital construction and improvement programs,
government budgetary constraints that impact publicly funded projects, the
effects of general economic conditions throughout the world, surplus capacity
and depletion concerns, increased competition from other providers of services,
uncertainties regarding the availability of fuel and other natural resources at
reasonable prices, the effects of energy conservation policies, unfavorable tax
laws or accounting policies and high leverage.
Infrastructure
companies will also be affected by innovations in technology that could render
the way in which a company delivers a product or service obsolete, significant
changes to the number of ultimate end-users of a company’s products,
inexperience with and potential losses resulting from a developing deregulatory
environment, increased susceptibility to terrorist attacks and natural or
man-made disasters and other natural risks (including earthquakes, floods,
lightning, hurricanes, tsunamis and wind). Infrastructure companies also face
operating risks, including the risk of fire, explosions, leaks, mining and
drilling accidents or other catastrophic events.
◼
Interest
Rate Risk (The
Fund and one or more Underlying Funds)—When
interest rates increase, fixed income securities or instruments held by the
Fund and/or an Underlying Fund (which may include inflation protected
securities) will generally decline in value. Long-term fixed income securities
or instruments will normally have more price volatility because of this risk
than short-term fixed income securities or instruments. A wide variety of market
factors can cause interest rates to rise, including central bank monetary
policy, rising inflation and changes in general economic conditions. Changing
interest rates may have unpredictable
31
effects on
the markets, may result in heightened market volatility and may detract from
Fund performance to the extent the Fund is exposed to such interest rates and/or
volatility. In addition, changes in monetary policy may exacerbate the risks
associated with changing interest rates. Funds with longer average portfolio
durations will generally be more sensitive to changes in interest rates than
funds with a shorter average portfolio duration. Fluctuations in interest rates
may also affect the liquidity of fixed income securities and instruments held by
the Fund and/or an Underlying Fund.
It is
difficult to predict the magnitude, timing or direction of interest rate changes
and the impact these changes will have on the markets in which the
Fund and/or an Underlying Fund invests.
◼
Investing
in the Underlying Funds (The
Fund)—The Fund’s
investments are concentrated in one or more of the Underlying Funds (including
ETFs and other registered investment companies) subject to limitations and/or
conditions prescribed by the Investment Company Act or rules, regulations or
exemptive relief thereunder. The Fund’s investment performance is directly
related to the investment performance of the Underlying Funds it holds. The Fund
is subject to the risk factors associated with investments of the Underlying
Funds in direct proportion to the amount of assets allocated to each. The
ability of the Fund to meet its investment objective is directly related to the
ability of the Underlying Funds to meet their objectives as well as the
allocation among those Underlying Funds by the Investment Adviser. The value of
the Underlying Funds’ investments, and the net asset values (“NAV”) of the
shares of both the Fund and the Underlying Funds, will fluctuate in response to
various market and economic factors related to the equity and fixed income
markets, as well as the financial condition and prospects of issuers in which
the Underlying Funds invest. If the Fund has a relative concentration of its
portfolio in a single Underlying Fund, it may be more susceptible to adverse
developments affecting that Underlying Fund and may be more susceptible to
losses because of these developments. There can be no assurance that the
investment objective of the Fund or any Underlying Fund will be achieved. The
risks presented by the investment practices of the Underlying Funds are
discussed in Appendix A and in the SAI.
◼
Investment
Style Risk (The
Fund and one or more Underlying Funds)—Different
investment styles (e.g., “growth,”
“value” or “quantitative”) tend to shift in and out of favor depending upon
market and economic conditions and investor sentiment. The Fund and one or more
Underlying Funds may outperform or underperform other funds that invest in
similar asset classes but employ different investment styles.
◼
Investments
in Affiliated Underlying Funds (The
Fund)—In
managing
the Fund, the Investment Adviser will have the authority to select and
substitute Underlying Funds. The Investment Adviser is subject to conflicts of
interest in allocating Fund assets among the various Underlying Funds both
because the fees payable to it and/or its affiliates by some Underlying Funds
are higher than the fees payable by other Underlying Funds and because the
Investment Adviser and its affiliates are also responsible for managing the
Underlying Funds. The Investment Adviser and/or its affiliates are compensated
by the Fund and by the Underlying Funds for advisory, transfer agency and/or
principal underwriting services provided. The portfolio managers may also be
subject to conflicts of interest in allocating Fund assets among the various
Underlying Funds because the Fund’s portfolio management team may also manage
some of the Underlying Funds. The Board of Trustees (the “Trustees”) and
officers of the Goldman Sachs Trust (the “Trust”) may also have conflicting
interests in fulfilling their fiduciary duties to both the Fund and the
Underlying Funds for which GSAM or its affiliates now or in the future serve as
investment adviser or principal underwriter. Other funds with similar investment
strategies may perform better or worse than the Underlying Funds. In addition,
the Investment Adviser’s authority to allocate investments among affiliated and
unaffiliated investment companies creates conflicts of interest. For example,
investing in affiliated investment companies could cause the Fund to incur
higher fees and may cause the Investment Adviser and/or its affiliates to
receive greater compensation, increase assets under management or support
particular investment strategies or affiliated investment companies. In
selecting actively managed Underlying Funds, the Investment Adviser generally
expects to select affiliated investment companies without considering or
canvassing the universe of unaffiliated investment companies available even
though there may (or may not) be one or more unaffiliated investment companies
that may be a more appropriate addition to the Fund, that investors may regard
as a more attractive investment for the Fund, or that may have higher returns.
To the extent that an investment in an affiliated investment company is not
available, including as the result of capacity constraints, only then will the
Investment Adviser consider unaffiliated investment
companies.
◼
Investments
in ETFs Risk (The
Fund)—The Fund
may also invest directly in affiliated and/or unaffiliated ETFs. The ETFs in
which the Fund may invest are subject to the same risks and may invest
directly in the same securities as those of the Underlying Funds, as described
below under “Investments of the Underlying Funds.” In addition, the Fund’s
investments in these ETFs will be subject to limitations and/or
conditions prescribed by the Investment Company Act or rules,
regulations or exemptive relief thereunder.
◼
Large
Shareholder Transactions Risk (The
Fund and one or more Underlying Funds)—The
Fund and/or an Underlying Fund may experience adverse effects when certain
large shareholders, such as other funds, institutional investors (including
those trading by use of non-discretionary mathematical formulas), financial
intermediaries (who may make investment decisions on behalf of underlying
clients and/or include the Fund and/or an Underlying Fund in their
investment model), individuals, accounts and Goldman Sachs affiliates, purchase
or redeem large amounts of shares of the Fund and/or an Underlying Fund.
Such large shareholder redemptions, which may occur rapidly or unexpectedly, may
cause the Fund and/or an Underlying Fund to sell portfolio
32
Risks
of the Fund and the Underlying Funds
securities
at times when it would not otherwise do so, which may negatively impact the
Fund’s and/or an Underlying Fund's NAV and liquidity. Similarly, large
Fund and/or an Underlying Fund share purchases may adversely affect the
Fund’s and/or an Underlying Fund's performance to the extent that the
Fund and/or an Underlying Fund is delayed in investing new cash or
otherwise maintains a larger cash position than it ordinarily would. These
transactions may also accelerate the realization of taxable income to
shareholders if such sales of investments resulted in gains, and may also
increase transaction costs. In addition, a large redemption could result in the
Fund’s and/or an Underlying Fund's current expenses being allocated over a
smaller asset base, leading to an increase in the Fund’s and/or an
Underlying Fund's expense ratio.
◼
Leverage
Risk (The
Fund and one or more Underlying Funds)—Leverage
creates exposure to potential gains and losses in excess of the initial amount
invested. Borrowing and the use of derivatives may result in leverage and may
increase market exposure and make the Fund and/or an Underlying Fund more
volatile. When the Fund and/or an Underlying Fund uses leverage, the sum of
the Fund's and/or an Underlying Fund’s investment exposures may
significantly exceed the amount of assets invested in the Fund and/or an
Underlying Fund, although these exposures may vary over time. Relatively small
market movements may result in large changes in the value of a leveraged
investment. The use of leverage may cause the Fund and/or an Underlying
Fund to liquidate portfolio positions to satisfy its obligations or to meet
margin/collateral requirements when it may not be advantageous to do so. The use
of leverage by the Fund and/or an Underlying Fund can substantially
increase the Fund's and/or an Underlying Fund’s investment risks and cause
losses to be realized more quickly.
◼
Liquidity
Risk (The
Fund and one or more Underlying Funds)—The Fund and/or an
Underlying Fund may invest in securities or instruments that trade in lower
volumes, that are less liquid than other investments and/or that may become
illiquid or less liquid in response to market developments or adverse investor
perceptions. Investments that are illiquid or that trade in lower volumes may be
more difficult to value. When there is no willing buyer and investments cannot
be readily sold at the desired time or price, the Fund and/or an Underlying
Fund may have to accept a lower price or may not be able to sell the security or
instrument at all. An inability to sell one or more portfolio positions can
adversely affect the Fund's and/or an Underlying Fund's value or prevent
the Fund and/or an Underlying Fund from being able to take advantage of
other investment opportunities.
Illiquidity
can be caused by a drop in overall market trading volume, an inability to find a
willing buyer, or legal restrictions on the securities’ resale. To the extent
that the traditional dealer counterparties that engage in fixed income trading
do not maintain inventories of bonds (which provide an important indication of
their ability to “make markets”) that keep pace with the growth of the bond
markets over time, relatively low levels of dealer inventories could lead to
decreased liquidity and increased volatility in the fixed income markets.
Additionally, market participants other than the Fund and/or an Underlying Fund
may attempt to sell fixed income holdings at the same time as the Fund and/or an
Underlying Fund, which could cause downward pricing pressure and contribute to
decreased liquidity.
Because the
Fund and/or an Underlying Fund may invest in non-investment grade fixed
income securities, small- and mid-capitalization stocks, REITs and/or emerging
country issuers, the Fund and/or an Underlying Fund may be especially
subject to the risk that during certain periods, the liquidity of particular
issuers or industries, or all securities within a particular investment
category, may shrink or disappear suddenly and without warning as a result of
adverse economic, market or political events (including periods of rapid
interest rate changes), or adverse investor perceptions, whether or not
accurate.
Liquidity
risk may also refer to the risk that the Fund and/or an Underlying Fund
will not be able to pay redemption proceeds within the allowable time period
stated in the Prospectus or without significant dilution to remaining investors’
interests because of unusual market conditions, declining prices of the
securities sold, an unusually high volume of redemption requests or other
reasons. While the Fund and/or an Underlying Fund reserves the right to
meet redemption requests through in-kind distributions, the Fund and/or an
Underlying Fund may instead choose to raise cash to meet redemption requests
through sales of portfolio securities or permissible borrowings. If the
Fund and/or an Underlying Fund is forced to sell securities at an
unfavorable time and/or under unfavorable conditions, such sales may adversely
affect the Fund's and/or an Underlying Fund's NAV and dilute remaining
investors’ interests.
Certain
shareholders, including clients or affiliates of the Investment Adviser and/or
other funds managed by the Investment Adviser, may from time to time own or
control a significant percentage of the Fund's and/or an Underlying Fund's
shares. Redemptions by these shareholders of their shares of the
Fund and/or an Underlying Fund may further increase the Fund's and/or
an Underlying Fund's liquidity risk and may impact the Fund's and/or an
Underlying Fund's NAV. These shareholders may include, for
example, institutional investors, funds of funds, discretionary advisory
clients, certain participating insurance companies, accounts or Goldman
Sachs affiliates and other shareholders, whose buy-sell decisions are controlled
by a single decision-maker.
◼
Loan-Related
Investments Risk (The
Fund and one or more Underlying Funds)—In
addition to risks generally associated with debt investments (e.g., interest
rate risk and default risk), loan-related investments such as loan
participations and assignments are subject to other risks. Although a loan
obligation may be fully collateralized at the time of acquisition, the
collateral may decline in value, be or become illiquid or less liquid, or lose
all or substantially all of its value subsequent to investment. Many loan
investments are subject to legal or contractual restrictions on resale and
certain loan investments may be or become illiquid or less
33
liquid and more difficult
to value, particularly in the event of a downgrade of the loan or the borrower.
There is less readily available, reliable information about most loan
investments than is the case for many other types of securities and the
Investment Adviser relies primarily on its own evaluation of a borrower’s credit
quality rather than on any available independent sources. The ability of the
Fund and/or an Underlying Fund to realize full value in the event of the need to
sell a loan investment may be impaired by the lack of an active trading market
for certain loans or adverse market conditions limiting liquidity. Loan
obligations are not traded on an exchange, and purchasers and sellers rely on
certain market makers, such as the administrative agent for the particular loan
obligation, to trade that loan obligation. Substantial increases in
interest rates may cause an increase in loan obligation defaults. The market for
loan obligations may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. Because transactions in many
loans are subject to extended trade settlement periods, the Fund and/or an
Underlying Fund may not receive the proceeds from the sale of a loan for a
period after the sale. As a result, sale proceeds related to the sale of loans
may not be available to make additional investments or to meet the
Fund's and/or an Underlying Fund's redemption obligations for a period
after the sale of the loans, and, as a result, the Fund and/or an
Underlying Fund may have to sell other investments or engage in borrowing
transactions, such as borrowing from a credit facility, if necessary to raise
cash to meet its obligations. During periods of heightened redemption activity
or distressed market conditions, the Fund and/or an Underlying Fund may
seek to obtain expedited trade settlement, which will generally incur additional
costs (although expedited trade settlement will not always be available). The
Fund and/or an Underlying Fund may also hold a larger position in cash and
cash items to limit the impact of extended trade settlement periods, which may
adversely impact the Fund's and/or an Underlying Fund's performance. In
addition, substantial increases in interest rates or deteriorating market
conditions may cause an increase in loan obligation defaults.
Affiliates
of the Investment Adviser may participate in the primary and secondary market
for loans. Because of limitations imposed by applicable law, the presence of
such affiliates in the loan markets may restrict the Fund's and/or an
Underlying Fund's ability to acquire certain loans, affect the timing of such
acquisition, or affect the price at which the loan is acquired.
With respect to loan
participations, the Fund and/or an Underlying Fund may not always have
direct recourse against a borrower if the borrower fails to pay scheduled
principal and/or interest; may be subject to greater delays, expenses and risks
than if the Fund and/or an Underlying Fund had purchased a direct
obligation of the borrower; and may be regarded as the creditor of the agent
lender or counterparty (rather than the borrower), subjecting the
Fund and/or an Underlying Fund to the creditworthiness of that lender as
well and the ability of the lender to enforce appropriate credit remedies
against the borrower. Investors in loans, such as the Fund and/or an
Underlying Fund, may not be entitled to rely on the anti-fraud protections of
the federal securities laws, although they may be entitled to certain
contractual remedies.
Senior loans hold the most
senior position in the capital structure of a business entity, and are typically
secured with specific collateral and have a claim on the assets of the borrower
that is senior to that held by subordinated debt holders and stockholders of the
borrower. Nevertheless, senior loans may become subordinated to other debt
holders and creditors. Senior loans are usually rated below investment grade.
Because second lien loans are subordinated or unsecured and thus lower in
priority of payment to senior loans, they are subject to the additional risk
that the cash flow of the borrower and property securing the loan or debt, if
any, may be insufficient to meet scheduled payments after giving effect to the
senior secured obligations of the borrower. This risk is generally higher for
subordinated unsecured loans or debt, which are not backed by a security
interest in any specific collateral. Second lien loans generally have greater
price volatility than senior loans and may be less liquid. Generally, loans have
the benefit of restrictive covenants that limit the ability of the borrower to
further encumber its assets,
impose other
obligations and/or release or transfer the specific collateral securing the
loan. To the extent a loan does not have certain covenants (or has less
restrictive covenants), an investment in the loan will be particularly sensitive
to the risks associated with loan investments. In
addition,
to the extent
a loan is modified or restructured, an investment in the loan may be materially
and adversely affected. Under these circumstances, the Fund and/or an Underlying
Fund may incur expenses enforcing or defending its claims against the borrower
and/or other debt holders and creditors.
◼
Management
Risk (The
Fund and one or more Underlying Funds)— There is no guarantee
that the Investment Adviser will make effective decisions with respect to the
implementation of Tactical Tilts within the Fund. Some tilt strategies used by
the Investment Adviser may fail to produce the intended results. The Investment
Adviser may generate tilt strategies using proprietary quantitative models and
factors. Investments selected using quantitative inputs may perform differently
than expected as a result of, among other things, the market exposures and
trading strategies used in the models, the weight placed on each market exposure
or trading strategy, changes from a market exposure’s or trading strategy’s
historical trends, the speed that market conditions change and technical and
other issues in the construction,
implementation
and maintenance of the models (including, for example, data
problems,
unauthorized
changes and/or software issues). The
use of
proprietary quantitative models could be adversely impacted by unforeseeable
software or hardware malfunction and other technological failures, power loss,
software bugs, malicious code such as “worms,” viruses or system crashes or
various other events or circumstances within or beyond the control of the
Investment Adviser. Certain of these events or circumstances may be difficult to
detect.
34
Risks
of the Fund and the Underlying Funds
There is no
guarantee that the Investment Adviser’s use of the quantitative inputs will
result in effective investment decisions. The Fund may allocate assets to an
asset class that underperforms other asset classes. The Investment Adviser’s
attempts to modulate the level of risk in the Fund when market conditions are
stressed may not be successful. Additionally, commonality of holdings across
quantitative money managers may amplify losses.
Models
used by the
Investment Adviser
may also be
predictive in nature and have inherent risks. Models that have been formulated
on the basis of past market data may not correctly forecast future price
movements, sentiments, trends and themes, among other things. For example,
models may not be reliable if unusual or disruptive events cause market
movements, the nature or size of which are inconsistent with the historical
performance of individual markets and their relationship to one another or to
other macroeconomic events. Models may also use artificial intelligence
techniques, such as natural language processing and machine learning, which
could be less transparent or interpretable and could produce unexpected results,
which can result in losses. Models also rely heavily on data,
including
non-traditional (or alternative) data, that may be licensed from a variety of
sources, and the functionality of the models depends, in part, on the
accuracy,
reliability
and completeness of,
and continued
access to, voluminous data inputs. There
is no
guarantee that the Investment Adviser’s use of the quantitative inputs will
result in effective investment decisions. Additionally, commonality of holdings
across quantitative money managers may amplify losses.
With respect to the
Underlying Funds, a strategy used by an investment adviser may fail to produce
the intended results. There is no guarantee that the use of various techniques
will result in effective investment decisions for an Underlying
Fund.
◼
Market
Risk (The
Fund and one or more Underlying Funds)—The value
of the securities in which the Fund and/or an Underlying
Fund invests may go up or down in response to the prospects of individual
companies, particular sectors or governments and/or general economic conditions
throughout the world. Price changes may be temporary or last for extended
periods. The Fund's and/or an Underlying Fund’s investments may be
overweighted from time to time in one or more sectors or countries, which will
increase the Fund's exposure to risk of loss from adverse developments affecting
those sectors or countries.
Global
economies and financial markets are becoming increasingly interconnected, and
conditions and events in one country, region or financial market may adversely
impact issuers in a different country, region or financial market. Furthermore,
local, regional and global events such as war, military conflict, acts of
terrorism, social unrest, natural disasters, recessions, inflation, rapid
interest rate changes, supply chain disruptions, sanctions, the spread of
infectious illness or other public health threats could also adversely impact
issuers, markets and economies, including in ways that cannot necessarily be
foreseen. The Fund and/or an Underlying Fund could be negatively
impacted if the value of a portfolio holding were harmed by such political or
economic conditions or events. In addition, governmental and quasi-governmental
organizations have taken a number of unprecedented actions designed to support
the markets. Such conditions, events and actions may result in greater market
risk.
◼
Master
Limited Partnership Risk (One
or more Underlying Funds)— An
Underlying Fund’s investments in securities of an MLP involve risks that differ
from investments in common stock, including risks related to limited control and
limited rights to vote on matters affecting the MLP, risks related to potential
conflicts of interest between the MLP and the MLP’s general partner, cash flow
risks, dilution risks and risks related to the general partner’s right to
require unit-holders to sell their common units at an undesirable time or price,
resulting from regulatory changes or other reasons. Certain MLP securities may
trade in lower volumes due to their smaller capitalizations. Accordingly, those
MLPs may be subject to more abrupt or erratic price movements and may lack
sufficient market liquidity to enable the Fund to effect sales at an
advantageous time or without a substantial drop in price. Investment in those
MLPs may restrict the Fund’s ability to take advantage of other investment
opportunities. MLPs are generally considered interest-rate sensitive
investments. During periods of interest rate volatility, these investments may
not provide attractive returns.
To the extent a
distribution received by an Underlying Fund from an MLP is treated as a return
of capital, the Underlying Fund’s adjusted tax basis in the interests of
the MLP may be reduced, which will result in an increase in an amount of income
or gain (or decrease in the amount of loss) that will be recognized by the
Underlying Fund for tax purposes upon the sale of any such interests or
upon subsequent distributions in respect of such interests. Furthermore, any
return of capital distribution received from the MLP may require an Underlying
Fund to restate the character of its distributions and amend any shareholder tax
reporting previously issued. Moreover, a portion of any gain or loss recognized
by the Fund on a disposition of an MLP equity security (or by an MLP on a
disposition of an underlying asset) may be separately computed and treated as
ordinary income or loss under the Internal Revenue Code of 1986, as amended (the
“Code”),
to the extent
attributable to assets of the MLP that give rise to depreciation recapture,
intangible drilling and development cost recapture,
or other
“unrealized receivables” or “inventory items” under the Code. Any such gain may
exceed net taxable gain realized on the disposition and will be recognized even
if there is a net taxable loss on the sale. The Fund’s net capital losses may
only be used to offset capital gains and therefore cannot be used to offset
gains that are treated as ordinary income.
Thus, the Fund
could recognize both gain that is treated as ordinary income and a capital loss
on a disposition of an MLP equity security
(or on an
MLP’s disposition of an underlying asset) and would not be able to use the
capital loss to offset
that
gain.
35
MLPs are generally treated
as partnerships for U.S. federal income tax purposes. Partnerships do not pay
U.S. federal income tax at the partnership level. Rather, each partner is
allocated a share of the partnership’s income, gains, losses, deductions and
expenses. A change in current tax law, or a change in the underlying business
mix of a given MLP, could result in an MLP being treated as a corporation for
U.S. federal income tax purposes, which could result in a reduction of the value
of an Underlying Fund's investment in the MLP and lower income to the
Fund.
Individuals
and certain other noncorporate entities are generally eligible for a 20%
deduction with respect to taxable income from MLPs through 2025. Currently,
there is not a regulatory mechanism for regulated investment companies such as
the Fund to pass through the 20% deduction to shareholders. As a result, in
comparison, investors investing directly in MLPs would generally be eligible for
the 20% deduction for such taxable income from these investments which investors
investing in MLPs held indirectly if any through the Fund would not be eligible
for the 20% deduction for their share of such taxable income.
◼
MLP
Tax Risk
(One or more Underlying Funds)—Tax risks
associated with investments in the MLP Energy Infrastructure Fund include but
are not limited to the following:
MLP
Tax Risk Generally. Much of
the benefit that the MLP Energy Infrastructure Fund may derive from its
investment in equity securities of MLPs is a result of MLPs generally being
treated as partnerships for U.S. federal income tax purposes. Partnerships do
not pay U.S. federal income tax at the partnership level. Rather, each partner
is allocated a share of the partnership’s income, gains, losses, deductions and
expenses. A change in current tax law or a change in the underlying business mix
of a given MLP could result in an MLP being treated as a corporation for U.S.
federal income tax purposes, which would result in the MLP being required to pay
U.S. federal income tax (as well as state and local income taxes) on its taxable
income. The classification of an MLP as a corporation for U.S. federal income
tax purposes would have the effect of reducing the amount of cash available for
distribution by the MLP. If any MLP in which the MLP Energy Infrastructure Fund
invests were treated as a corporation for U.S. federal income tax purposes, it
could result in a reduction of the value of the Fund’s investment in the MLP and
lower income to the Fund.
Fund
Structure Risk. Unlike
traditional mutual funds that are structured as regulated investment companies
for U.S. federal income tax purposes, the MLP Energy Infrastructure Fund will be
taxable as a regular corporation, or “C” corporation, for U.S. federal income
tax purposes. This means the Fund generally will be subject to U.S. federal
income tax on its taxable income at the rates applicable to corporations
(currently a maximum rate of 21%), and will also be subject to state and local
income taxes.
Tax
Estimation/NAV Risk. In
calculating the MLP Energy Infrastructure Fund’s NAV, the Fund will, among other
things, account for its current taxes and deferred tax liability and/or asset
balances. The MLP Energy Infrastructure Fund will accrue a deferred income tax
liability balance, at the then effective statutory U.S. federal income tax rate
(currently 21%) plus an estimated state and local income tax rate, for its
future tax liability associated with the capital appreciation of its investments
and the distributions received by the Fund on interests of MLPs considered to be
return of capital and for any net operating gains. Any deferred tax liability
balance will reduce the MLP Energy Infrastructure Fund’s NAV. The MLP Energy
Infrastructure Fund may also accrue a deferred tax asset balance, which reflects
an estimate of the Fund’s future tax benefit associated with net operating
losses and unrealized losses. Any deferred tax asset balance will increase the
MLP Energy Infrastructure Fund’s NAV. To the extent the MLP Energy
Infrastructure Fund has a deferred tax asset balance, consideration is given as
to whether or not a valuation allowance, which would offset the value of some or
all of the deferred tax asset balance, is required. The MLP Energy
Infrastructure Fund will rely to some extent on information provided by MLPs,
which may not be provided to the Fund on a timely basis, to estimate current
taxes and deferred tax liability and/or asset balances for purposes of financial
statement reporting and determining its NAV. The daily estimate of the MLP
Energy Infrastructure Fund’s current taxes and deferred tax liability and/or
asset balances used to calculate the Fund’s NAV could vary significantly from
the Fund’s actual tax liability or benefit, and, as a result, the determination
of the Fund’s actual tax liability or benefit may have a material impact on the
Fund’s NAV. From time to time, the MLP Energy Infrastructure Fund may modify its
estimates or assumptions regarding its current taxes and deferred tax liability
and/or asset balances as new information becomes available, which modifications
in estimates or assumptions may have a material impact on the Fund’s NAV.
Shareholders who redeem their shares at a NAV that is based on estimates of the
MLP Energy Infrastructure Fund’s current taxes and deferred tax liability and/or
asset balances may benefit at the expense of remaining shareholders (or
remaining shareholders may benefit at the expense of redeeming shareholders) if
the estimates are later revised or ultimately differ from the MLP Energy
Infrastructure Fund’s actual current taxes and tax liability and/or asset
balances.
◼
Mid-Cap
and Small-Cap Risk (The
Fund and one or more Underlying Funds)—The
securities of mid-capitalization and small-capitalization companies involve
greater risks than those associated with larger, more established companies and
may be subject to more abrupt or erratic price movements. Securities of such
issuers may lack sufficient market liquidity to enable the Fund and/or an
Underlying Fund to effect sales at an advantageous time or without a substantial
drop in price. Both mid-capitalization and small-capitalization companies often
have narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the Fund's and/or an Underlying Fund's portfolio.
Generally, the smaller the company size, the greater these risks
become.
36
Risks
of the Fund and the Underlying Funds
◼
Mortgage-Backed
and Other Asset-Backed Securities Risk (The
Fund and one or more Underlying Funds)—Mortgage-related
and other asset-backed securities are subject to credit/default, interest rate
and certain additional risks. Generally, rising interest rates tend to extend
the duration of fixed rate mortgage-backed securities, making them more
sensitive to changes in interest rates. As a result, in a period of rising
interest rates, if the Fund and/or an Underlying Fund holds mortgage-backed
securities, it may exhibit additional volatility. This is known as extension
risk. In addition, adjustable and fixed rate mortgage-backed securities are
subject to prepayment risk. When interest rates decline, borrowers may pay off
their mortgages sooner than expected. This can reduce the returns of the
Fund and/or an Underlying Fund because the Fund and/or an Underlying
Fund may have to reinvest that money at the lower prevailing interest rates. Due
to these risks, asset-backed securities may become more volatile in certain
interest rate environments.
The
Fund’s and/or an Underlying Fund's investments in other asset-backed
securities are subject to risks similar to those associated with mortgage-backed
securities, as well as additional risks associated with the nature of the assets
and the servicing of those assets. Asset-backed securities may not have the
benefit of a security interest in collateral comparable to that of mortgage
assets, resulting in additional credit risk.
The
Fund and/or an Underlying Fund may invest in mortgage-backed securities
issued by the U.S. Government (see “U.S. Government Securities Risk”). To the
extent that the Fund and/or an Underlying Fund invests in mortgage-backed
securities offered by non-governmental issuers, such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers, the Fund and/or an Underlying
Fund may be subject to additional risks. Timely payment of interest and
principal of non-governmental issuers are supported by various forms of private
insurance or guarantees, including individual loan, title, pool and hazard
insurance purchased by the issuer. There can be no assurance that the private
insurers can meet their obligations under the policies. An unexpectedly high
rate of defaults on the mortgages held by a mortgage pool may adversely affect
the value of a mortgage-backed security and could result in losses to the
Fund and/or an Underlying Fund. The risk of such defaults is generally
higher in the case of mortgage pools that include subprime mortgages or during
periods of rising interest rates. Subprime mortgages refer to loans made to
borrowers with weakened credit histories or with a lower capacity to make timely
payments on their mortgages.
The values
of, and income generated by, commercial mortgage-backed securities (“CMBS”) may
be adversely affected by changing interest rates and other developments
impacting the commercial real estate market, such as population shifts and other
demographic changes, increasing vacancies (potentially for extended periods) and
reduced demand for commercial and office space as well as maintenance or tenant
improvement costs and costs to convert properties for other uses. These
developments could result from, among other things, changing tastes and
preferences (such as for remote work arrangements) as well as cultural,
technological, global or local economic and market developments. In addition,
changing interest rate environments and associated changes in lending standards
and higher refinancing rates may adversely affect the commercial real estate and
CMBS markets. The occurrence of any of the foregoing developments would likely
increase default risk for the properties and loans underlying these investments
as well as impact the value of, and income generated by, these investments.
These developments could also result in reduced liquidity for CMBS and other
real estate-related investments.
◼
Municipal
Securities Risk (The
Fund and one or more Underlying Funds)—Municipal
securities are subject to call/prepayment risk, credit/default risk,
extension risk, interest rate risk and certain additional risks. The Fund and/or
an Underlying Fund may be more sensitive to adverse economic, business or
political developments if it invests a substantial portion of its assets in the
debt securities of similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, or
in particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds). While interest earned on
municipal securities is generally not subject to federal tax, any interest
earned on taxable municipal securities is fully taxable at the federal level and
may be subject to tax at the state level. Specific risks are associated with
different types of municipal securities. With respect to general obligation
bonds, the full faith, credit and taxing power of the municipality that issues a
general obligation bond secures payment of interest and repayment of principal.
Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base. Certain of the
municipalities in which the Fund and/or an Underlying Fund invests may
experience significant financial difficulties, which may lead to bankruptcy or
default.
With
respect to revenue bonds, payments of interest and principal are made only from
the revenues generated by a particular facility, class of facilities or the
proceeds of a special tax, or other revenue source, and depends on the money
earned by that source. Private activity bonds are issued by municipalities and
other public authorities to finance development of industrial facilities for use
by a private enterprise. The private enterprise pays the principal and interest
on the bond, and the issuer does not pledge its full faith, credit and taxing
power for repayment. If the private enterprise defaults on its payments, the
Fund and/or an Underlying Fund may not receive any income or get its money
back from the investment. Moral obligation bonds are generally issued by special
purpose public authorities of a state or municipality. If the issuer is unable
to meet its obligations, repayment of these bonds becomes a moral commitment,
but not a legal obligation, of the state or municipality. Municipal notes are
shorter term municipal debt obligations. They may provide interim financing in
anticipation of, and are secured by, tax collection, bond sales or revenue
37
receipts.
If there is a shortfall in the anticipated proceeds, the notes may not be fully
repaid and the Fund and/or an Underlying Fund may lose money. In a
municipal lease obligation, the issuer agrees to make payments when due on the
lease obligation. The issuer will generally appropriate municipal funds for that
purpose, but is not obligated to do so. Although the issuer does not pledge its
unlimited taxing power for payment of the lease obligation, the lease obligation
is secured by the leased property. However, if the issuer does not fulfill its
payment obligation it may be difficult to sell the property and the proceeds of
a sale may not cover the Fund’s and/or an Underlying Fund’s
loss.
◼
Natural
Resources Risk (One
or more Underlying Funds)—The MLP
Energy Infrastructure Fund may invest in MLPs and companies principally engaged
in owning or developing non-energy natural resources (including timber and
minerals) and industrial materials, or supplying goods or services to such
companies. The MLP Energy Infrastructure Fund’s investments in natural
resources issuers (including MLPs) will be subject to the risk that prices of
these investments may fluctuate widely in response to the level and volatility
of commodity prices; exchange rates; import controls; domestic and global
competition; environmental regulation and liability for environmental damage;
mandated expenditures for safety or pollution control; the success of
exploration projects; depletion of resources; tax policies; and other
governmental regulation. Investments in natural resources issuers can be
significantly affected by changes in the supply of or demand for natural
resources. The value of investments in natural resources issuers may be
adversely affected by a change in inflation.
◼
NAV
Risk (The
Fund and one or more Underlying Funds)—The
NAV of the Fund and/or an Underlying Fund and the value of your
investment will fluctuate.
◼
Non-Diversification
Risk (One
or more Underlying Funds)—The
Emerging Markets Debt Fund, Emerging Markets Credit Fund, and MLP Energy
Infrastructure Fund are non-diversified, meaning that they are permitted
to invest a larger percentage of their assets in one or more issuers or in fewer
issuers than diversified mutual funds. Thus, the Emerging Markets
Debt Fund, Emerging Markets Credit Fund, and MLP Energy Infrastructure
Fund may be more susceptible to adverse developments affecting any single
issuer held in their portfolios , and may be more susceptible to
greater losses because of these developments.
◼
Non-Hedging
Foreign Currency Trading Risk (The
Fund and one or more Underlying Funds)—The
Fund and/or an Underlying Fund may engage in forward foreign currency
transactions for both hedging and non-hedging purposes. The Fund’s Investment
Adviser may purchase or sell foreign currencies through the use of forward
contracts based on the Investment Adviser’s judgment regarding the direction of
the market for a particular foreign currency or currencies. In pursuing this
strategy, the Investment Adviser seeks to profit from anticipated movements in
currency rates by establishing “long” and/or “short” positions in forward
contracts on various foreign currencies. Foreign exchange rates can be extremely
volatile and a variance in the degree of volatility of the market or in the
direction of the market from the Investment Adviser’s expectations may produce
significant losses to the Fund and/or an Underlying Fund. Some of the
transactions may also be subject to interest rate risk.
◼
Non-Investment
Grade Fixed Income Securities Risk (The
Fund and one or more Underlying Funds)—Non-investment
grade fixed income securities and unrated securities of comparable credit
quality (commonly known as “junk bonds”) are considered speculative and are
subject to the increased risk of an issuer’s inability to meet principal and
interest payment obligations. These securities may be subject to greater price
volatility due to such factors as specific issuer developments, interest rate
sensitivity, negative perceptions of the junk bond markets generally and less
liquidity.
◼
Other
Investment Companies Risk (One
or more Underlying Funds)—By
investing in other investment companies (including exchange-traded funds
(“ETFs”)) indirectly through the MLP Energy Infrastructure Fund, investors will
incur a proportionate share of the expenses of the other investment companies
held by the Fund (including operating costs and investment management fees) in
addition to the fees and expenses regularly borne the Fund. In addition, the MLP
Energy Infrastructure Fund will be affected by the investment policies,
practices and performance of such investment companies in direct proportion to
the amount of assets the Fund invests therein.
◼
Portfolio
Turnover Rate Risk (The
Fund and one or more Underlying Funds)—The Fund
and/or an Underlying Fund may engage in active and frequent trading of
portfolio securities to pursue their principal investment strategies. A high
rate of portfolio turnover may involve correspondingly greater expenses which
must be borne by the Fund and/or an Underlying Fund and its shareholders,
and is also likely to result in short-term capital gains taxable to
shareholders.
◼
Pre-IPO
Investments Risk (One
or more Underlying Funds)—The MLP
Energy Infrastructure Fund may invest in privately held companies, including
companies that may issue shares in IPOs. Investments in pre-IPO shares involve
greater risks than investments in shares of companies that have traded publicly
on an exchange for extended periods of time. Investments in these companies are
less liquid and difficult to value, and there is significantly less information
available about these companies’ business models, quality of management,
earnings growth potential, and other criteria used to evaluate their investment
prospects. Although there is a potential the pre-IPO shares that the MLP
Energy Infrastructure Fund buys may increase in value if the company does issue
shares in an IPO, IPOs are risky and volatile and may cause the value of the
Fund’s investments to decrease significantly. Moreover, because pre-IPO shares
are generally not freely or publicly tradeable, the MLP Energy
Infrastructure Fund may not have access to purchase or the ability to sell these
shares in the amounts or at the prices the Fund desires. The companies
38
Risks
of the Fund and the Underlying Funds
that
the MLP Energy Infrastructure Fund anticipates holding successful IPOs may
not ever issue shares in an IPO and a liquid market for their shares may never
develop, which may negatively affect the price at which the Fund can sell these
shares and make it more difficult to sell these shares, which could also
adversely affect the Fund’s liquidity.
◼
Private
Investment in Public Equities Risk (One
or more Underlying Funds)—The MLP
Energy Infrastructure Fund may make private investments in public equities
(“PIPE”). PIPE transactions typically involve the purchase of securities
directly from a publicly traded company or its affiliates in a private placement
transaction, typically at a discount to the market price of the company’s common
stock. In a PIPE transaction, the MLP Energy Infrastructure Fund may bear
the price risk from the time of pricing until the time of closing. Equity issued
in this manner is often subject to transfer restrictions and is therefore
relatively less liquid than equity issued through a registered public offering.
In a PIPE transaction, the MLP Energy Infrastructure Fund may bear the
price risk from the time of pricing until the time of closing. The MLP Energy
Infrastructure Fund may be subject to lock-up agreements that prohibit transfers
for a fixed period of time. In addition, because the sale of the securities in a
PIPE transaction is not registered under the Securities Act, the securities are
“restricted” and cannot be immediately resold by the investors into the public
markets. The MLP Energy Infrastructure Fund may enter into a registration
rights agreement with the issuer pursuant to which the issuer commits to file a
resale registration statement allowing the Fund to publicly resell its
securities. Accordingly, PIPE securities may be deemed illiquid. However, the
ability of the MLP Energy Infrastructure Fund to freely transfer the shares
is conditioned upon, among other things, the SEC’s preparedness to declare the
resale registration statement effective covering the resale, from time to time,
of the shares sold in the private financing and the issuer’s right to suspend
the MLP Energy Infrastructure Fund’s use of the resale registration
statement if the issuer is pursuing a transaction or some other material
non-public event is occurring. Accordingly, PIPE securities may be subject to
risks associated with illiquid investments.
◼
Publicly
Traded Partnerships (“PTP”) Risk (The
Fund)—The PTPs
in which the Fund intends to invest are limited partnerships, the interests (or
“units”) in which are traded on public exchanges, just like ETFs. The Fund will
invest primarily in PTPs that are commodity pools. In addition to the risks
associated with the underlying assets and exposures within a PTP (which in the
case of the Fund’s expected PTP investments, include derivatives and commodity
sector risks), risks of investments in PTPs may include, among others,
dependence upon specialized skills of the PTP’s manager, potential lack of
liquidity, and limitations on voting and distribution rights.
◼
Real
Estate Industry Risk (The
Fund and one or more Underlying Funds)—The Fund
is subject to certain risks associated with real estate in general. These risks
include, among others: possible declines in the value of (or income generated
by) real estate; risks related to general and local economic conditions;
fluctuations in occupancy levels and demand for properties or real
estate-related services; changes in the availability or terms of mortgages and
other financing that may render the sale or refinancing of properties difficult
or unattractive; variations in rental income, neighborhood values or the appeal
of property to tenants; limits on rents; interest rates; overbuilding; extended
vacancies of properties; increases in competition, property taxes and operating
expenses; and changes in zoning laws. In addition, real estate industry
companies that hold mortgages may be affected by the quality of any credit
extended. Real estate values or income generated by real estate may be adversely
affected by many additional factors, including: the over-supply of and reduced
demand for real estate rentals and sales; demographic trends, such as population
shifts or changing tastes and preferences (such as for remote work
arrangements); the attractiveness, type and location of the property; increased
maintenance or tenant improvement costs and costs to convert properties for
other uses; and the financial condition of tenants, buyers and sellers, and the
inability to re-lease space on attractive terms or to obtain mortgage financing
on a timely basis or at all. Real estate industry companies are dependent upon
management skill, may not be diversified, and are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. Real estate industry
companies whose underlying properties are concentrated in a particular industry
or geographic region are also subject to risks affecting such industries and
regions. The real estate industry is particularly sensitive to economic
downturns, and companies in the real estate industry may be highly leveraged
and, thus, subject to increased risks for investors. The values of securities of
companies in the real estate industry may go through cycles of relative
under-performance and out-performance in comparison to equity securities markets
in general.
◼
REIT
Risk (The
Fund and one or more Underlying Funds)—Investing
in REITs involves certain unique risks in addition to those risks associated
with investing in the real estate industry in general. REITs whose underlying
properties are concentrated in a particular industry or geographic region are
also subject to risks affecting such industries and regions. The securities of
REITs involve greater risks than those associated with larger, more established
companies and may be subject to more abrupt or erratic price movements because
of interest rate changes, economic conditions and other factors. For example,
the value of these securities may decline when interest rates rise and will also
be affected by the real estate market and by the management or development of
the underlying properties. The underlying properties may be subject to mortgage
loans, which may also be subject to the risks of default. REITs may also
fail to qualify for tax free pass-through of income or may fail to maintain
their exemptions from investment company registration. Securities of such
issuers may lack sufficient market liquidity to enable the Fund to
effect sales at an advantageous time or without a substantial drop in
price.
39
Individuals
and certain other noncorporate entities are generally eligible for a 20%
deduction with respect to ordinary dividends received from REITs (“qualified
REIT dividends”). Applicable Treasury Regulations permit a regulated investment
company (such as the Fund) to pass through to its shareholders qualified REIT
dividends eligible for the 20% deduction.
◼
Reverse
Repurchase Agreements Risk (One
or more Underlying Funds)—Reverse
repurchase agreements involve the sale of securities held by an Underlying Fund
subject to an agreement to repurchase them at a mutually agreed upon date and
price (including interest). An Underlying Fund may enter these transactions when
the Investment Adviser expects that the return to be earned from the investment
of the transaction proceeds to be greater than the interest expense of the
transaction. Reverse repurchase agreements may also be entered into as a
temporary measure for emergency purposes or to meet redemption
requests.
Reverse
repurchase agreements are a form of secured borrowing and subject an Underlying
Fund to the risks associated with leverage, including exposure to potential
gains and losses in excess of the amount invested. If the securities held by an
Underlying Fund decline in value while these transactions are outstanding, the
NAV of an Underlying Fund’s outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addition,
reverse repurchase agreements involve the risk that the investment return earned
by an Underlying Fund (from the investment of the proceeds) will be less than
the interest expense of the transaction, that the market value of the securities
sold by an Underlying Fund will decline below the price an Underlying Fund is
obligated to pay to repurchase the securities, and that the other party may fail
to return the securities in a timely manner or at all.
When an
Underlying Fund enters into a reverse repurchase agreement, it is subject to the
risk that the buyer under the agreement may file for bankruptcy, become
insolvent or otherwise default on its obligations to an Underlying Fund. In the
event of a default by the counterparty, there may be delays, costs and risks of
loss involved in an Underlying Fund’s exercising its rights under the agreement,
or those rights may be limited by other contractual agreements or obligations or
by applicable law. Such an insolvency may result in a loss equal to the amount
by which the value of the securities or other assets sold by an Underlying Fund
exceeds the repurchase price payable by an Underlying Fund; if the value of the
purchased securities or other assets increases during such a delay, that loss
may also be increased. An Underlying Fund could lose money if it is unable to
recover the securities or if the value of investments made by an Underlying Fund
using the proceeds of the transaction is less than the value of
securities.
◼
Sector
Risk (One
or more Underlying Funds)—To the
extent an Underlying Fund focuses its investments in securities of issuers in
one or more sectors (such as the financial services or telecommunications
sectors), an Underlying Fund will be subject to a greater extent than if its
investments were diversified across different sectors, to the risks of volatile
economic cycles and/or conditions and developments that may be particular to
that sector, such as: adverse economic, business, political, environmental or
other developments.
◼
Short Position
Risk (The
Fund and one or more Underlying Funds)—The
Fund and/or an Underlying Fund may use derivatives, including options,
futures and swaps, to implement short positions, and may engage in short
selling. Taking short positions and short selling involve leverage of the
Fund’s and/or an Underlying Fund’s assets and presents various risks. If
the value of the instrument or market in which the Fund and/or an
Underlying Fund has taken a short position increases, then the Fund and/or
an Underlying Fund will incur a loss equal to the increase in value from the
time that the short position was entered into plus any premiums and interest
paid to a third party. Therefore, taking short positions involves the risk that
losses may be exaggerated, potentially losing more money than the actual cost of
the investment. Also, there is the risk that the counterparty to a short
transaction may fail to honor its contract terms, causing a loss to the
Fund and/or an Underlying Fund.
In order to
sell an instrument short, the Fund and/or an Underlying Fund must first
borrow the instrument from a lender, such as a broker or other institution. The
Fund and/or an Underlying Fund may not always be able to borrow an
instrument at a particular time or at an acceptable price. Thus, there is risk
that the Fund and/or an Underlying Fund may be unable to implement its
investment strategy due to the lack of available instruments or for other
reasons.
After
selling a borrowed instrument, the Fund and/or an Underlying Fund is then
obligated to “cover” the short sale by purchasing and returning the instrument
to the lender on a later date. The Fund and/or an Underlying Fund cannot
guarantee that the instrument necessary to cover a short position will be
available for purchase at the time the Fund and/or an Underlying Fund
wishes to close a short position or, if available, that the instrument will be
available at an acceptable price. If the borrowed instrument has appreciated in
value, the Fund and/or an Underlying Fund will be required to pay more for
the replacement instrument than the amount it received for selling the
instrument short. Moreover, purchasing an instrument to cover a short position
can itself cause the price of the instrument to rise further, thereby
exacerbating the loss. The potential loss on a short sale is unlimited because
the loss increases as the price of the instrument sold short increases and the
price may rise indefinitely. To the extent the Fund and/or an Underlying
Fund uses the proceeds it receives from a short position to take additional long
positions, the risks associated with the short position, including leverage
risks, may be heightened, because doing so increases the exposure of the
Fund and/or an Underlying Fund to the markets and therefore could magnify
changes to the Fund’s and/or an Underlying Fund’s NAV. If the price of a
40
Risks
of the Fund and the Underlying Funds
borrowed
instrument declines before the short position is covered, the Fund and/or
an Underlying Fund may realize a gain. The Fund’s and/or an Underlying
Fund’s gain on a short sale, before transaction and other costs, is generally
limited to the difference between the price at which it sold the borrowed
instrument and the price it paid to purchase the instrument to return to the
lender.
While the
Fund and/or an Underlying Fund has an open short position, it is subject to
the risk that the instrument’s lender will terminate the loan at a time when the
Fund and/or an Underlying Fund is unable to borrow the same instrument from
another lender. If this happens, the Fund and/or an Underlying Fund may be
required to buy the replacement instrument immediately at the instrument’s then
current market price or “buy in” by paying the lender an amount equal to the
cost of purchasing the instrument to close out the short position.
Short sales
also involve other costs. The Fund and/or an Underlying Fund must normally
repay to the lender an amount equal to any dividends or interest that accrues
while a loan is outstanding. In addition, to borrow an instrument, the
Fund and/or an Underlying Fund may be required to pay a premium. The
Fund and/or an Underlying Fund also will incur transaction costs in
effecting short sales. The amount of any ultimate gain for the Fund and/or
an Underlying Fund resulting from a short sale will be decreased, and the amount
of any ultimate loss will be increased, by the amount of premiums, dividends,
interest or expenses the Fund and/or an Underlying Fund may be required to
pay in connection with the short sale.
Until the
Fund and/or an Underlying Fund replaces a borrowed instrument, the
Fund and/or an Underlying Fund may be required to maintain short sale
proceeds with the lending broker as collateral. Moreover, the Fund and/or
an Underlying Fund will be required to make margin payments to the lender during
the term of the borrowing if the value of the security it borrowed (and sold
short) increases. Thus, short sales involve credit exposure to the broker that
executes the short sales. In the event of the bankruptcy or other similar
insolvency with respect to a broker with whom the Fund and/or an Underlying
Fund has an open short position, the Fund and/or an Underlying Fund may be
unable to recover, or delayed in recovering, any margin or other collateral held
with or for the lending broker.
◼
Sovereign
Default Risk (The
Fund and one or more Underlying Funds)—The issuer
of non-U.S. sovereign debt held by the Fund and/or an Underlying Fund or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay the principal or interest when due. This may result
from political or social factors, the general economic environment of a country
or levels of borrowing rates, foreign debt, or foreign currency exchange
rates.
◼
Economic
Risk—The risks
associated with the general economic environment of a country. These can
encompass, among other things, low quality and growth rate of Gross Domestic
Product (“GDP”), high inflation or deflation, high government deficits as a
percentage of GDP, weak financial sector, overvalued exchange rate, and high
current account deficits as a percentage of GDP.
◼
Political
Risk—The risks
associated with the general political and social environment of a country. These
factors may include among other things government instability, poor
socioeconomic conditions, corruption, lack of law and order, lack of democratic
accountability, poor quality of the bureaucracy, internal and external conflict,
the imposition of international sanctions, and religious and ethnic tensions.
High political risk can impede the economic welfare of a country.
◼
Repayment
Risk—A country
may be unable to pay its external debt obligations in the immediate future.
Repayment risk factors may include but are not limited to high foreign debt as a
percentage of GDP, high borrowing rates (which may increase in market
environments where interest rates are rising), high foreign debt service as a
percentage of exports, low foreign exchange reserves as a percentage of
short-term debt or exports, and an unsustainable exchange rate
structure.
◼
Special
Purpose Acquisition Companies Risk (One
or more Underlying Funds)—The Underlying
Fund may invest in stock, warrants, and other securities of SPACs. A SPAC is
typically a publicly traded company that raises funds through
an IPO for the purpose of acquiring or merging with another company to
be identified subsequent to the SPAC’s IPO. Because SPACs and similar entities
are in essence blank check companies without operating history or ongoing
business other than seeking acquisitions, the value of their securities is
particularly dependent on the ability of the entity’s management to identify and
complete a profitable acquisition. An investment in a SPAC is subject to a
variety of risks, including that (i) prior to any acquisition or merger, a
SPAC’s assets are typically invested in U.S. government securities, money market
funds and similar investments whose returns or yields may be significantly lower
than those of the Underlying Fund’s other investments; (ii)
the Underlying Fund generally will not receive significant income from its
investments in SPACs (both prior to and after any acquisition or merger) and,
therefore, the Underlying Fund’s investments in SPACs will not
significantly contribute to the Underlying Fund’s distributions to
shareholders; (iii) attractive acquisition or merger targets may become scarce
if the number of SPACs seeking to acquire operating businesses increases; (iv)
an attractive acquisition or merger target may not be identified at all, in
which case the SPAC will be required to return any remaining monies to
shareholders (unless such shareholders approve alternative arrangements), and
the Underlying Fund may be subject to opportunity costs to the extent that
alternative investments would have produced higher returns; (v) if an
acquisition or merger target is identified, the Underlying Fund may elect
not to participate in, or vote to approve, the proposed transaction or
the Underlying Fund may be required to divest its interests in the SPAC,
due to regulatory or other considerations, in which case the Underlying
Fund may not reap any resulting benefits; (vi) an acquisition or merger once
effected may prove unsuccessful and an investment in the SPAC may lose value;
(vii) an investment in a SPAC may be diluted by additional,
41
later
offerings of securities by the SPAC or by other investors exercising existing
rights to purchase securities of the SPAC; (viii) a significant portion of the
funds raised by the SPAC may be expended during the search for a target
acquisition or merger; (ix) only a thinly traded market for shares of or
interests in a SPAC may develop, or there may be no market at all, leaving
the Underlying Fund unable to sell its interest in a SPAC or to sell its
interest only at a lower price; and (x) the values of investments in SPACs may
be highly volatile and may depreciate significantly over time. In addition,
the Underlying Fund may obtain certain private rights and other interests
issued by a SPAC (commonly referred to as “founder shares”), which may be
subject to forfeiture or expire worthless and which generally have more limited
liquidity than SPAC shares issued in an IPO.
◼
State/Territory
Specific Risk (One
or more Underlying Funds)—The Underlying
Fund’s investments in municipal obligations of issuers located in a particular
state or U.S. territory may be adversely affected by political, economic and
regulatory developments within that state or U.S. territory. Such developments
may affect the financial condition of a state’s or territory’s political
subdivisions, agencies, instrumentalities and public authorities and heighten
the risks associated with investing in bonds issued by such parties, which
could, in turn, adversely affect the Underlying Fund’s income, NAV,
liquidity, and/or ability to preserve or realize capital
appreciation.
◼
Stock
Risk (The
Fund and one or more Underlying Funds)—Stock
prices have historically risen and fallen in periodic cycles. U.S.and foreign
stock markets have experienced periods of substantial price volatility in the
past and may do so again in the future. Stock prices may fluctuate from time to
time in response to the activities of individual companies and in response to
general market and economic conditions. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments, and the stock prices of such companies may suffer a decline in
response.
◼
Strategy
Risk (One
or more Underlying Funds)—The MLP
Energy Infrastructure Fund’s strategy of investing primarily in MLPs, resulting
in its being taxed as a corporation, or a “C” corporation, rather than as a
regulated investment company for U.S. federal income tax purposes, is a
relatively new investment strategy for funds. This strategy involves complicated
accounting, tax and valuation issues. Volatility in the NAV may be experienced
because of the use of estimates at various times during a given year that may
result in unexpected and potentially significant consequences for the MLP Energy
Infrastructure Fund and its shareholders. To the extent that accounting, tax or
valuation practices change, there could be a material adverse consequence on the
MLP Energy Infrastructure Fund and its shareholders.
◼
Subsidiary
Risk (The
Fund)—The Fund
may invest through the Subsidiary and is therefore indirectly exposed to the
risks associated with the Subsidiary’s investments. The derivatives and other
investments held by the Subsidiary are subject to the same risks that apply to
similar investments if held directly by the Fund. There can be no assurance that
the investment objectives of the Subsidiary will be achieved. The Subsidiary is
not registered under the Investment Company Act, and is not subject to all
the investor protections of the Investment Company Act. Changes in the laws of
the United States and/or the Cayman Islands could result in the inability of the
Fund and/or the Subsidiary to operate as intended and could adversely affect the
Fund.
◼
Swaps
Risk (The
Fund
and one
or more Underlying Funds)—The use of swaps is a
highly specialized activity which involves investment techniques, risk analyses
and tax planning different from those associated with ordinary portfolio
securities transactions. The Fund's and/or Underlying Fund’s transactions in
swaps may be significant. These transactions can result in sizeable realized and
unrealized capital gains and losses relative to the gains and losses from the
Fund's and/or Underlying Fund’s direct investments in securities and short
sales.
Transactions in swaps can
involve greater risks than if the
Fund and/or an
Underlying Fund had invested in securities directly since, in addition to
general market risks, swaps may be leveraged and subject to illiquidity risk,
counterparty risk, credit risk and pricing risk. Regulators also may impose
limits on an entity’s or group of entities’ positions in certain swaps. However,
certain risks are reduced (but not eliminated) if the
Fund and/or an
Underlying Fund invests in cleared swaps, which are transacted through an FCM
and cleared through a clearinghouse that serves as a central counterparty.
Because uncleared, bilateral swap agreements are two-party contracts and because
they may have terms of greater than seven days, these swaps may be considered to
be illiquid. Moreover, the
Fund and/or an
Underlying Fund bears the risk of loss of the amount expected to be received
under a swap in the event of the default or bankruptcy of a swap counterparty.
Many swaps are complex and valued subjectively. Swaps and other derivatives may
also be subject to pricing or “basis” risk, which exists when the price of a
particular derivative diverges from the price of corresponding cash market
instruments. Under certain market conditions it may not be economically feasible
to initiate a transaction or liquidate a position in time to avoid a loss or
take advantage of an opportunity. If a swap transaction is particularly large or
if the relevant market is illiquid, it may not be possible to initiate a
transaction or liquidate a position at an advantageous time or price, which may
result in significant losses.
The value of swaps can be
very volatile, and a variance in the degree of volatility or in the direction of
securities prices from the expectations of the Fund’s and/or Underlying Fund's
Investment Adviser may produce significant losses in the
Fund's and/or
Underlying Fund’s investments in swaps. In addition, a perfect correlation
between a swap and a security position may be impossible to achieve. As a
result, the Investment Adviser’s use of swaps may not be effective in fulfilling
the Investment Adviser’s investment strategies and may contribute to losses that
would not have been incurred otherwise.
42
Risks
of the Fund and the Underlying Funds
◼
Tax
Risk (The
Fund)—The Fund
will seek to gain exposure to the commodity markets primarily through
investments in the Subsidiary. Historically, the IRS issued private letter
rulings in which the IRS specifically concluded that income and gains from
investments in commodity index-linked structured notes (the “Notes Rulings”) or
a wholly-owned foreign subsidiary that invests in commodity-linked instruments
are “qualifying income” for purposes of compliance with Subchapter M of the
Code. However, the Fund has not received such a private letter ruling, and is
not able to rely on private letter rulings issued to other taxpayers. The IRS
issued a revenue procedure, which states that the IRS will not in the future
issue private letter rulings that would require a determination of whether an
asset (such as a commodity index-linked note) is a “security” under the
Investment Company Act. In connection with issuing such revenue procedure, the
IRS has revoked the Note Rulings on a prospective basis. In light of the
revocation of the Note Rulings, the Fund intends to limit its investments in
commodity index-linked structured notes. Applicable Treasury regulations treat
the Fund’s income inclusion with respect to a subsidiary as qualifying income
either if (A) there is a current distribution out of the earnings and profits of
a subsidiary that are attributable to such income inclusion or (ii) such
inclusion is derived with respect to the Fund’s business of investing in stock,
securities, or currencies. In reliance on an opinion of counsel, the Fund may
gain exposure to the commodity markets through investments in the Subsidiary.
The tax treatment of the Fund’s investments in the Subsidiary could affect
whether income derived from such investment is “qualifying income” under
Subchapter M of Code, or otherwise affect the character, timing and/or amount of
the Fund’s taxable income or any gains and distributions made by the Fund. If
the IRS were to successfully assert that the Fund’s income from such investments
was not “qualifying income,” the Fund may fail to qualify as a RIC under
Subchapter M of the Code if over 10% of its gross income was derived from these
investments. If the Fund failed to qualify as a RIC, it would be subject to
federal and state income tax on all of its taxable income at regular corporate
tax rates with no deduction for any distributions paid to shareholders, which
would significantly adversely affect the returns to, and could cause substantial
losses for, Fund shareholders.
◼
Tax
Risk
(One or more Underlying Funds)—The
Underlying Funds may be adversely impacted by changes in tax rates and policies.
Because interest income from Municipal Securities is normally not subject to
regular federal income taxation, the attractiveness of Municipal Securities in
relation to other investment alternatives is affected by changes in federal and
state income tax rates or changes in the tax-exempt status of interest income
from Municipal Securities. Any proposed or actual changes in such rates or
exempt status, therefore, can significantly affect the demand for and supply,
liquidity and marketability of Municipal Securities. This could in turn affect
an Underlying Fund’s net asset value and ability to acquire and dispose of
Municipal Securities at desirable yield and price levels. Additionally, these
Underlying Funds would not be a suitable investment for IRAs, other tax-exempt
or tax-deferred accounts or for other investors who are not sensitive to the
federal, state or local income tax consequences of their
investments.
◼
Tax
Consequences Risk (One
or more Underlying Funds)—An
Underlying Fund will be subject to the risk that adjustments for inflation to
the principal amount of an inflation indexed bond may give rise to original
issue discount, which will be includable in the Underlying Fund’s gross
income.
◼
Temporary
Investments Risk (The
Fund)—The Fund
may invest its assets in high-quality, short-term debt obligations (including
commercial paper, certificates of deposit, bankers’ acceptances, repurchase
agreements, debt obligations backed by the full faith and credit of the U.S.
government and demand and time deposits of domestic and foreign banks and
savings and loan associations) to maintain liquidity, to meet shareholder
redemptions and for other short-term cash needs. Also, there may be times when,
in the opinion of the Investment Adviser, abnormal market or economic conditions
warrant that, for temporary defensive purposes, the Fund may invest without
limitation in short-term obligations. When the Fund’s assets are invested in
such investments, the Fund may not be achieving its investment
objective.
◼
Treasury
Inflation Protected Securities Risk (One
or more Underlying Funds)—The value of TIPS
generally fluctuates in response to inflationary concerns. As inflationary
expectations increase, TIPS will become more attractive, because they protect
future interest payments against inflation. Conversely, as inflationary concerns
decrease, TIPS will become less attractive and less valuable. However, repayment
of the face value upon maturity is guaranteed by the U.S. government, even
during periods of deflation that cause the principal value of TIPS to decline.
Nevertheless, if the Underlying Fund purchases TIPS in the secondary
market, where principal values have been adjusted upward due to inflation since
issuance, the Underlying Fund may
experience a loss if there is a subsequent period of deflation. If inflation is
lower than expected during the period the Underlying Fund
holds a TIPS, the Underlying Fund may earn less on the security than on a
conventional bond.
◼
U.S.
Government Securities Risk (The
Fund and one or more Underlying Funds)—The U.S.
government may not provide financial support to U.S. government agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. U.S. Government Securities issued by those agencies, instrumentalities
and sponsored enterprises, including those issued by Fannie Mae, Freddie Mac and
the Federal Home Loan Banks, are neither issued nor guaranteed by the U.S.
Treasury and, therefore, are not backed by the full faith and credit of the
United States. The maximum potential liability of the issuers of some U.S.
Government Securities held by the Fund and/or an Underlying Fund may
greatly exceed their current resources, including any legal right to support
from the U.S. Treasury. It is possible that issuers of U.S. Government
Securities will not have the funds to meet their payment obligations in the
future. Fannie Mae and Freddie Mac have been operating under conservatorship,
with the Federal
43
Housing
Finance Agency (“FHFA”) acting as their conservator, since September 2008. The
entities are dependent upon the continued support of the U.S. Department of the
Treasury and FHFA in order to continue their business operations. These factors,
among others, could affect the future status and role of Fannie Mae and Freddie
Mac and the value of their securities and the securities which they guarantee.
Additionally, the U.S. government and its agencies and instrumentalities do not
guarantee the market values of their securities, which may
fluctuate.
44
Service
Providers
|
INVESTMENT
ADVISERS |
|
Investment
Adviser |
Fund |
|
Goldman
Sachs Asset Management, L.P. (“GSAM”)
200
West Street
New
York, NY 10282 |
Tactical
Tilt Overlay Fund |
GSAM also
serves as investment adviser to each Underlying Fund that the Fund is invested
in as of the date of the Prospectus.
GSAM has been registered as
an investment adviser with the SEC since 1990 and is an indirect, wholly-owned
subsidiary of The Goldman Sachs Group, Inc. and an affiliate of Goldman Sachs.
Founded in 1869, The Goldman Sachs Group, Inc. is a publicly-held financial
holding company and a leading global investment banking, securities and
investment management firm. GSAM also serves as an investment adviser to each
Underlying Fund. As of September 30, 2024, GSAM, including its investment
advisory affiliates, had assets under supervision of approximately $2.79
trillion.
Under a
Management Agreement with the Fund, the Investment Adviser, subject to the
general supervision of the Trustees, provides advice as to the Fund’s investment
transactions, including determinations concerning changes to the Underlying
Funds and securities in which the Fund may invest.
While the
Investment Adviser is ultimately responsible for the management of the Fund, it
is able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser has access to the
research and certain proprietary technical models developed by Goldman Sachs
(subject to legal, internal, regulatory and Chinese Wall restrictions), and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among Underlying Funds and securities in which the Fund may directly
invest.
The
Investment Adviser also performs the following additional services for the Fund
(to the extent not performed by others pursuant to agreements with the
Fund):
◼
Supervises
all non-advisory operations of the Fund
◼
Provides
personnel to perform necessary executive, administrative and clerical services
to the Fund
◼
Arranges
for the preparation of all required tax returns, reports to shareholders,
prospectuses and statements of additional information and other reports filed
with the SEC and other regulatory authorities
◼
Maintains
the records of the Fund
◼
Provides
office space and all necessary office equipment and services
An
investment in the Fund may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. The use of certain investment strategies
that involve manual or additional processing, such as over-the-counter
derivatives, increases these risks. Although the Fund attempts to minimize such
failures through controls and oversight, it is not possible to identify all of
the operational risks that may affect the Fund or to develop processes and
controls that completely eliminate or mitigate the occurrence of such failures.
The Fund and its shareholders could be negatively impacted as a
result.
From time
to time, Goldman Sachs or its affiliates may invest “seed” capital in the Fund.
These investments are generally intended to enable the Fund to commence
investment operations and achieve sufficient scale. Goldman Sachs and its
affiliates may hedge the exposure of the seed capital invested in the Fund by,
among other things, taking an offsetting position in the benchmark of the
Fund.
45
|
MANAGEMENT
FEES AND OTHER EXPENSES |
As
compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and payable
monthly, at the annual rates listed below (as a percentage of the Fund’s average
daily net assets):
|
Fund |
Contractual
Management
Fee
Annual
Rate |
Average
Daily
Net
Assets |
Actual
Rate
for
the
Period
Ended
August
31, 2024* |
|
Tactical
Tilt Overlay Fund |
0.75% |
First $2
Billion |
0.64% |
|
|
0.68% |
Next $3
Billion |
|
|
|
0.64% |
Next $3
Billion |
|
|
|
0.62% |
Over $8
Billion |
|
*
The
Actual Rate, which reflects the combined management fees paid to GSAM by the
Fund and the Subsidiary, may not correlate to the Contractual Management Fee
Annual Rate as a result of management fee waivers that may be in effect from
time to time.
The Investment Adviser has
agreed to waive a portion of its management fee payable by the Fund in an
amount equal to any management fees it earns as an investment adviser to any of
the affiliated funds in which the Fund invests, except those management
fees it earns from the Fund’s investments of cash collateral received in
connection with securities lending transactions in affiliated funds. The
management fee waiver arrangement with respect to affiliated fund fees will
remain in effect through at least December 29, 2025, and prior to such date the
Investment Adviser may not terminate these arrangements without the approval of
the Board of Trustees. The management fee waiver with respect to affiliated fund
fees may be modified or terminated by the Investment Adviser at its discretion
and without shareholder approval after such date, although the Investment
Adviser does not presently intend to do so. In addition to the management fee
waiver described above, the Investment Adviser (or the investment adviser of an
Underlying Fund) may waive an additional portion of its management fee, from
time to time, and may discontinue or modify any such waivers in the future,
consistent with the terms of any fee waiver arrangements that may be in
place.
A discussion regarding the
basis for the Board of Trustees’ approval of the Management Agreement for the
Fund is available in the Fund’s Form
N-CSR dated
August 31, 2024.
As
discussed in the Summary section and in “Investment Management Approach,” the
Fund seeks to gain exposure to the commodity markets by investing in the
Subsidiary. The Subsidiary has entered into a separate contract with the
Investment Adviser whereby the Investment Adviser provides investment advisory
and other services to the Subsidiary. In consideration of these services, the
Subsidiary pays the Investment Adviser a management fee at the annual rate of
0.42% of its average daily net assets. The Investment Adviser has contractually
agreed to waive the advisory fees it receives from the Fund in an amount equal
to the advisory fee paid to the Investment Adviser by the Subsidiary. These
waivers may not be discontinued by the Investment Adviser as long as its
contract with the Subsidiary is in place. The Subsidiary also pays certain other
expenses, including service and custody fees. The Investment Adviser has agreed
to reduce or limit the Subsidiary’s expenses (excluding management fees) to
0.004% of the Subsidiary’s average daily net assets.
The Investment Adviser has
agreed to reduce or limit “Other Expenses” (excluding acquired (underlying) fund
fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage
fees, expenses of shareholder meetings, litigation and indemnification, and
extraordinary expenses) equal on an annualized basis to 0.164% of the Fund’s
average daily net assets, through at least December 29, 2025, and prior to such
date, the Investment Adviser may not terminate the arrangement without the
approval of the Board of Trustees. The expense limitations may be modified or
terminated by the Investment Adviser at its discretion and without shareholder
approval after such date, although the Investment Adviser does not presently
intend to do so. The Fund’s “Other Expenses” may be further reduced by any
custody and transfer agency fee credits received by the Fund.
|
UNDERLYING
FUND FEES |
In
addition, the Fund, as a shareholder in the Underlying Funds, will indirectly
bear a proportionate share of any investment management fees and other expenses
paid by the Underlying Funds. The following chart shows the total net operating
expense ratios (management fee plus other operating expenses) of Institutional
and/or Class R6 Shares of each Underlying Fund in which the Fund may invest
after applicable fee waivers and expense limitations. In addition, the following
chart shows the contractual investment management fees payable to the Investment
Adviser or its affiliates by the Underlying Funds (in each case as an annualized
percentage
46
Service
Providers
of an
Underlying Fund’s average daily net assets). Absent fee waivers and/or expense
reimbursements, which may be discontinued at any time, consistent with the terms
of any such arrangements, the total operating expense ratios of certain
Underlying Funds would be higher. The figures below are from the most recent
prospectuses of the respective Underlying Funds.
|
Underlying
Fund |
Average
Daily
Net
Assets |
Management
Fee
Annual
Rate |
Total
Net
Operating
Expense
Ratio* |
|
Core
Fixed Income Fund |
First
$1 Billion |
0.40% |
0.38% |
|
|
Next $1
Billion |
0.36% |
|
|
|
Next $3
Billion |
0.34% |
|
|
|
Next $3
Billion |
0.33% |
|
|
|
Over $8
Billion |
0.32% |
|
|
Dynamic
Municipal Income Fund |
First
$1 Billion |
0.40% |
0.39% |
|
|
Next $1
Billion |
0.36% |
|
|
|
Next $6
Billion |
0.34% |
|
|
|
Next $8
Billion |
0.33% |
|
|
Emerging
Markets Debt Fund |
First
$2 Billion |
0.80% |
0.84% |
|
|
Next $3
Billion |
0.72% |
|
|
|
Next $3
Billion |
0.68% |
|
|
|
Over $8
Billion |
0.67% |
|
|
Energy
Infrastructure Fund |
First
$1 Billion |
1.00% |
1.10% |
|
|
Next $1
Billion |
0.90% |
|
|
|
Next $3
Billion |
0.86% |
|
|
|
Next $3
Billion |
0.84% |
|
|
|
Over $8
Billion |
0.82% |
|
|
Enhanced
Income Fund |
First
$1 Billion |
0.25% |
0.34% |
|
|
Next $1
Billion |
0.23% |
|
|
|
Over $2
Billion |
0.22% |
|
|
Global
Real Estate Securities Fund |
First
$1 Billion |
0.93% |
0.94% |
|
|
Next $1
Billion |
0.84% |
|
|
|
Next $3
Billion |
0.80% |
|
|
|
Next $3
Billion |
0.78% |
|
|
|
Over $8
Billion |
0.76% |
|
|
Government
Income Fund |
First
$1 Billion |
0.53% |
0.50% |
|
|
Next $1
Billion |
0.48% |
|
|
|
Next $3
Billion |
0.45% |
|
|
|
Over $5
Billion |
0.44% |
|
|
High
Yield Floating Rate Fund |
First
$1 Billion |
0.60% |
0.76% |
|
|
Next $1
Billion |
0.54% |
|
|
|
Next $3
Billion |
0.51% |
|
|
|
Next $3
Billion |
0.50% |
|
|
|
Over $8
Billion |
0.49% |
|
|
High
Yield Fund |
First
$2 Billion |
0.70% |
0.68% |
|
|
Next $3
Billion |
0.63% |
|
|
|
Next $3
Billion |
0.60% |
|
|
|
Over $8
Billion |
0.59% |
|
|
High
Yield Municipal Fund |
First
$2 Billion |
0.55% |
0.53% |
|
|
Next $3
Billion |
0.50% |
|
|
|
Next $3
Billion |
0.48% |
|
|
|
Over $8
Billion |
0.47% |
|
|
Inflation
Protected Securities Fund |
First
$1 Billion |
0.26% |
0.34% |
|
|
Next $1
Billion |
0.23% |
|
|
|
Next $6
Billion |
0.22% |
|
|
|
Over $8
Billion |
0.21% |
|
|
Investment
Grade Credit Fund |
First
$1 Billion |
0.34% |
0.83% |
|
|
Next $1
Billion |
0.31% |
|
|
|
Next $3
Billion |
0.29% |
|
|
|
Next $3
Billion |
0.28% |
|
47
|
Underlying
Fund |
Average
Daily
Net
Assets |
Management
Fee
Annual
Rate |
Total
Net
Operating
Expense
Ratio* |
|
|
Over $8
Billion |
0.28% |
|
|
Emerging
Markets Credit Fund |
First
$2 Billion |
0.80% |
0.83% |
|
|
Next $3
Billion |
0.72% |
|
|
|
Next $3
Billion |
0.68% |
|
|
|
Over $8
Billion |
0.67% |
|
|
MLP
Energy Infrastructure Fund |
First
$1 Billion |
1.00% |
2.07% |
|
|
Next $1
Billion |
0.90% |
|
|
|
Next $3
Billion |
0.86% |
|
|
|
Next $3
Billion |
0.84% |
|
|
|
Over $8
Billion |
0.82% |
|
|
Short
Duration Bond |
First
$1 Billion |
0.40% |
0.34% |
|
|
Next $1
Billion |
0.36% |
|
|
|
Next $3
Billion |
0.34% |
|
|
|
Next $3
Billion |
0.33% |
|
|
|
Over $8
Billion |
0.32% |
|
|
Short
Duration Tax-Free Fund |
First
$1 Billion |
0.39% |
0.39% |
|
|
Next $1
Billion |
0.35% |
|
|
|
Next $6
Billion |
0.33% |
|
|
|
Over $8
Billion |
0.32% |
|
*
As
disclosed in the Underlying Fund’s most recent publicly available prospectus, as
supplemented as of the date of the Prospectus.
|
FUND
MANAGERS |
Multi-Asset
Solutions Team
The
individuals jointly and primarily responsible for the day-to-day management of
the Fund are listed below. The Fund’s portfolio managers' individual
responsibilities may differ and may include, among other things, security
selection, asset allocation, risk budgeting and general oversight of the
management of the portfolio.
|
Name
and Title |
Fund
Responsibility |
Years
Primarily
Responsible |
Five
Year Employment History |
|
Sergey
Kraytman,
Managing
Director |
Portfolio
Manager—
Tactical
Tilt Overlay |
Since
2014 |
Mr.
Kraytman joined the Investment Adviser in 1999. He is Head of
Trading
within the Multi-Asset Solutions (MAS) team. |
|
David
Hale, CFA
Vice
President |
Portfolio
Manager—
Tactical
Tilt Overlay |
Since
2015 |
Mr.
Hale joined the Investment Adviser in 2009. He is a senior
portfolio
manager within the Multi-Asset Solutions (MAS)
team. |
|
Siwen
Wu,
Vice
President |
Portfolio
Manager—
Tactical
Tilt Overlay |
Since
2019 |
Mr.
Wu joined the Investment Adviser in 2014. He is a senior
portfolio
manager within the Multi-Asset Solutions (MAS)
team. |
For
information about portfolio manager compensation, other accounts managed by a
portfolio manager and portfolio manager ownership of securities in the Fund, see
the SAI.
|
DISTRIBUTOR
AND TRANSFER AGENT |
Goldman
Sachs, 200 West Street, New York, NY 10282, serves as the exclusive distributor
(the “Distributor”) of the Fund’s shares. Goldman Sachs, 71 South Wacker Drive,
Suite 1200, Chicago, IL 60606, also serves as the Fund’s transfer agent (the
“Transfer Agent”) and, as such, performs various shareholder servicing
functions.
For its
transfer agency services, Goldman Sachs is entitled to receive a transfer agency
fee equal, on an annualized basis, to 0.03% of average daily net assets with
respect to Class P Shares.
From time
to time, Goldman Sachs or any of its affiliates may purchase and hold shares of
the Underlying Funds or Fund. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
48
Service
Providers
|
ACTIVITIES
OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER
ACCOUNTS
MANAGED BY GOLDMAN SACHS |
The involvement of the
Investment Adviser, Goldman Sachs and their affiliates in the management of, or
their interest in, other accounts and other activities of Goldman Sachs will
present conflicts of interest with respect to the Fund or an Underlying Fund and
will, under certain circumstances, limit the Fund’s or an Underlying Fund’s
investment activities. Goldman Sachs is a worldwide, full service investment
banking, broker dealer, asset management and financial services organization and
a major participant in global financial markets that provides a wide range of
financial services to a substantial and diversified client base that includes
corporations, financial institutions, governments and individuals. As such, it
acts as a broker-dealer, investment adviser, investment banker, underwriter,
research provider, administrator, financier, adviser, market maker, trader,
prime broker, derivatives dealer, clearing agent, lender, counterparty, agent,
principal, distributor, investor or in other commercial capacities for accounts
or companies (including Fund portfolio companies) or affiliated or unaffiliated
investment funds (including pooled investment vehicles and private funds) in
which one or more accounts, including the Fund, invest. In those and other
capacities, Goldman Sachs and its affiliates advise and deal with clients and
third parties in all markets and transactions and purchase, sell, hold and
recommend a broad array of investments, including securities, derivatives,
loans, commodities, currencies, credit default swaps, indices, baskets and other
financial instruments and products for their own accounts or for the accounts of
their customers and have other direct and indirect interests in the global fixed
income, currency, commodity, equities, bank loans and other markets and the
securities and issuers in which the Fund and the Underlying Funds directly and
indirectly invest. Thus, it is expected that the Fund and the Underlying Funds
will have multiple business relationships with and will invest in, engage in
transactions with, make voting decisions with respect to, or obtain services
from entities for which Goldman Sachs and its affiliates perform or seek to
perform investment banking or other services. The Investment Adviser and/or
certain of its affiliates are the managers of the Goldman Sachs Funds (as
defined below). The Investment Adviser and its affiliates earn fees from this
and other relationships with the Fund. Although management fees paid by the Fund
or an Underlying Fund to the Investment Adviser and certain other fees paid to
the Investment Adviser’s affiliates are based on asset levels, the fees are not
directly contingent on Fund performance, and the Investment Adviser and its
affiliates will still receive significant compensation from the Fund even if
shareholders lose money. Goldman Sachs and its affiliates engage in proprietary
trading and advise accounts and funds which have investment objectives similar
to those of the Fund and the Underlying Funds and/or which engage in and compete
for transactions in the same types of securities, currencies and instruments as
the Fund. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for the
benefit of the management of the Fund and the Underlying Funds. The results of
the Fund’s or an Underlying Fund’s investment activities, therefore, will likely
differ from those of Goldman Sachs, its affiliates, and other accounts managed
by Goldman Sachs, and it is possible that the Fund or an Underlying Fund could
sustain losses during periods in which Goldman Sachs and its affiliates and
other accounts achieve significant profits on their trading for proprietary or
other accounts. In addition, the Fund and the Underlying Funds may enter into
transactions in which Goldman Sachs and its affiliates or their other clients
have an adverse interest. For example, the Fund may take a long position in a
security at the same time that Goldman Sachs and its affiliates or other
accounts managed by the Investment Adviser or its affiliates take a short
position in the same security (or vice versa). These and other transactions
undertaken by Goldman Sachs, its affiliates or Goldman Sachs-advised clients
may, individually or in the aggregate, adversely impact the Fund and the
Underlying Funds. Transactions by one or more Goldman Sachs-advised clients or
the Investment Adviser may have the effect of diluting or otherwise
disadvantaging the values, prices or investment strategies of the Fund and the
Underlying Funds. The Fund’s or an Underlying Fund’s activities will, under
certain circumstances, be limited because of regulatory restrictions applicable
to Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. As a global financial services firm, Goldman
Sachs and its affiliates also provide a wide range of investment banking and
financial services to issuers of securities and investors in securities. Goldman
Sachs, its affiliates and others associated with it are expected to create
markets or specialize in, have positions in and/or effect transactions in,
securities of issuers held by the Fund and the Underlying Funds, and will likely
also perform or seek to perform investment banking and financial services for
one or more of those issuers. Goldman Sachs and its affiliates are expected to
have business relationships with and purchase or distribute or sell services or
products from or to distributors, consultants or others who recommend the Fund
and the Underlying Funds or who engage in transactions with or for the Fund and
the Underlying Funds. For more information about conflicts of interest, see the
section titled “Potential Conflicts of Interest” in the SAI.
The Fund
will, from time to time, make brokerage and other payments to Goldman Sachs and
its affiliates in connection with the Fund’s portfolio investment transactions,
in accordance with applicable law.
An
Underlying Fund’s Board of Trustees may approve a securities lending program
where an affiliate of the Investment Adviser or State Street is retained to
serve as a securities lending agent for the Underlying Fund to the extent that
the Underlying Fund engages in the securities lending program. For these
services, the lending agent would receive a fee from the Underlying Fund,
including a fee based on the returns earned on the Underlying Fund’s investment
of the cash received as collateral for the loaned securities. The Board of
Trustees periodically reviews reports on portfolio securities loan transactions
for which an affiliated lending agent has acted as the leading agent. In
addition, an Underlying Fund may make brokerage and other payments to Goldman
Sachs and its affiliates in connection with the Underlying Fund’s portfolio
investment transactions, in accordance with applicable
law.
49
Distributions
The Fund
pays distributions from its investment income and from net realized capital
gains. You may choose to have distributions paid in:
◼
Cash
◼
Additional
shares of the same class of the same Fund
◼
Shares of
the same or an equivalent class of another fund managed by the Investment
Adviser and/or certain of its advisory affiliates (each, a “Goldman Sachs
Fund”). Special restrictions may apply. See the SAI.
You may
indicate your election on your account application. Any changes may be submitted
in writing, or via telephone, in some instances, to the Transfer Agent (either
directly or through your intermediary) at any time before the record date for a
particular distribution. If you do not indicate any choice, your distributions
will be reinvested automatically in the Fund. If cash distributions are elected
with respect to the Fund’s distributions from net investment income, then cash
distributions must also be elected with respect to the net short-term capital
gains component, if any, of the Fund’s distributions.
The
election to reinvest distributions in additional shares will not affect the tax
treatment of such distributions, which will be treated as received by you and
then used to purchase the shares.
Distributions
from net investment income and distributions from net capital gains, if any, are
normally declared and paid as follows:
|
|
Investment
Income
Distributions |
Capital
Gains
Distributions |
|
Fund |
Declared
and Paid |
Declared
and Paid |
|
Tactical
Tilt Overlay Fund |
Annually |
Annually |
In
addition, the Fund may occasionally make a distribution at a time when it is not
normally made.
From time to time portion
of the Fund’s distributions may constitute a return of capital for tax purposes,
and/or may include amounts in excess of the Fund’s net investment income for the
period calculated in accordance with generally accepted accounting principles
(“GAAP”).
When you
purchase shares of the Fund, part of the NAV per share may be represented by
undistributed income and/or realized gains that have previously been earned by
the Fund. Therefore, subsequent distributions on such shares from such income
and/or realized gains may be taxable to you even if the NAV of the shares is, as
a result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
50
Shareholder
Guide
The
following section will provide you with answers to some of the most frequently
asked questions regarding buying and selling the Fund’s shares.
|
Important
Notice: |
|
Class
P Shares generally are available to the following
investors: |
|
◼Clients
of the Goldman Sachs Private Wealth Management business unit (“GS PWM”)
that custody their positions at
Goldman
Sachs & Co. LLC (“Goldman Sachs”); |
|
◼Clients
of The Goldman Sachs Trust Company, N.A. or The Goldman Sachs Trust
Company of Delaware (collectively, the
“Trust
Companies”) that custody their positions at Goldman
Sachs; |
|
◼Clients
of The Ayco Company, L.P. (“Ayco”) that either custody their positions at
Goldman Sachs or with certain
intermediaries
that are authorized to offer Class P Shares (“Authorized Institutions”)
(such clients of GS PWM, the Trust
Companies,
and Ayco are collectively referred to herein as “GS
Clients”); |
|
◼Members
of the Investment Strategy Group (“ISG”) Tactical Asset Allocation Team;
or |
|
◼Other
investors at the discretion of Goldman Sachs Trust’s (the “Trust”)
officers. |
|
You
may only purchase Class P Shares in accordance with the eligibility
criteria described above. If you are a GS Client and
propose
to transfer your shares to another institution for any reason, or if you
are no longer a GS Client, you may be required to
redeem
your shares of the Fund, or at the discretion of the Trust’s officers, you
may be able hold Class P Shares through another
institution,
which must be an Authorized Institution and the basis on which you hold
such Class P Shares may be limited to hold
and
redeem only. If available in such circumstances, in the alternative you
may be able to choose to exchange your shares of the
Fund
for a different share class offered by the Fund or another Goldman Sachs
Fund, which may be offered in another
Prospectus.
There is no guarantee that a different share class offered by the Fund
will be available to clients of the institution to
which
you intend to transfer your shares or that an option to exchange will be
made available. Moreover, the shares you receive
in
any exchange are subject to different (and possibly higher) fees and
expenses (which affect performance). Information
regarding
these other share classes may be obtained from the institution to which
you intend to transfer your shares or from the
Transfer
Agent by calling the number on the back cover of the
Prospectus. |
|
A
redemption is a taxable transaction for federal income tax purposes, and
may also be subject to state and local taxes. You
should
consult your tax adviser concerning the potential tax consequences of
investing in Class P Shares. None of the Trust, the
Investment
Adviser, Goldman Sachs, the Trust Companies, Ayco or an Authorized
Institution will be responsible for any loss in
an
investor’s account or tax liability resulting from a redemption or
exchange of Class P Shares. For more information about
exchanges,
please see “How to Sell Shares—Can I Exchange My Investment From One
Goldman Sachs Fund To Another
Goldman
Sachs Fund.” |
|
How
to Buy Shares |
Shares
Offering
Shares of
the Fund are continuously offered through Goldman Sachs, acting in its capacity
as the Fund’s distributor (the “Distributor”). The Fund and the Distributor will
have the sole right to accept orders to purchase shares and reserve the right to
reject any purchase order in whole or in part.
Shares of
the Fund are not eligible for purchase by registered investment companies or
business development companies to the extent such acquisition is in reliance on
Rule 12d1-4 under the Investment Company Act.
How Can I Purchase
Shares Of The Fund?
If you are
a GS Client, you may purchase shares of the Fund through Goldman Sachs, the
Trust Companies, Ayco, or an Authorized Institution. Goldman Sachs, the Trust
Companies, Ayco, and Authorized Institutions have been authorized by the Trust
to accept purchase, redemption or exchange orders on behalf of the Fund for GS
Clients. In order to make an initial investment in the Fund you must furnish to
Goldman Sachs, the Trust Companies, Ayco or your Authorized Institution the
information in the account application.
To open an
account, contact Goldman Sachs, the Trust Companies, Ayco or your Authorized
Institution. Goldman Sachs, the Trust Companies, Ayco, and Authorized
Institutions will normally give order instructions on behalf of GS Clients to
Goldman Sachs, acting in its capacity as the Fund’s transfer agent (the
“Transfer Agent”). Goldman Sachs, the Trust Companies, Ayco, or your Authorized
51
Institution,
as applicable, is responsible for transmitting accepted orders and payments to
the Transfer Agent within the time period agreed upon by them and will set times
by which orders and payments must be received by them from GS Clients. The
Trust, Transfer Agent, Investment Adviser and their affiliates will not be
responsible for any loss in connection with orders that are not transmitted to
the Transfer Agent on a timely basis.
The Fund
will be deemed to have received an order for purchase, redemption or exchange of
Fund shares when the order is accepted in “proper form” by any of the Transfer
Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized Institution, as
applicable, on a business day, and the order will be priced at the Fund’s
current NAV per share next determined after acceptance by any of the Transfer
Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized Institution, as
applicable. Proper form generally means that specific trade details and customer
identifying information must be received by the Transfer Agent at the time an
order is submitted. Goldman Sachs, the Trust Companies, Ayco and Authorized
Institutions may have different requirements regarding what constitutes proper
form for trade instructions. Please contact Goldman Sachs, the Trust Companies,
Ayco or your Authorized Institution for more information.
What Is My Minimum
Investment In The Fund?
No minimum
amount is required for initial purchases or additional investments in Class P
Shares.
What Should I Know
When I Purchase Shares?
All
recordkeeping, transaction processing and payments of distributions relating to
your account will be performed by Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution, as applicable, and not by the Fund and its Transfer
Agent. Since the Fund will have no record of your transactions, you should
contact Goldman Sachs, the Trust Companies, Ayco, or your Authorized
Institution, as applicable, to purchase, redeem or exchange shares, to make
changes in or give instructions concerning your account or to obtain information
about your account. If you transfer your shares, the Trust reserves the right to
redeem your shares. The Trust, the Investment Adviser, Goldman Sachs, the Trust
Companies, Ayco and an Authorized Institution will not be responsible for any
loss in an investor’s account or tax liability resulting from a
redemption.
Goldman
Sachs, the Trust Companies, Ayco, and Authorized Institutions that invest in
shares on behalf of GS Clients may charge fees directly to the GS Clients’
accounts in connection with their investments. You should contact Goldman Sachs,
the Trust Companies, Ayco, or your Authorized Institution for information
regarding such charges, as these fees, if any, may affect the return that GS
Clients realize with respect to their investments.
The
Investment Adviser, Distributor and/or their affiliates may make payments or
provide services to Authorized Institutions to promote the sale, distribution
and/or servicing of shares of the Funds and other Goldman Sachs Funds. These
payments are made out of the Investment Adviser’s, Distributor’s and/or their
affiliates’ own assets, and are not an additional charge to the Funds. Such
payments are intended to compensate Authorized Institutions for, among other
things: marketing shares of the Funds and other Goldman Sachs Funds, which may
consist of payments relating to the Funds’ inclusion on preferred or recommended
fund lists or in certain sales programs sponsored by Authorized Institutions;
access to Authorized Institutions’ registered representatives, advisors or
salespersons, including at conferences and other meetings; assistance in
training and education of personnel; marketing support; the provision of
analytical or other data to the Investment Adviser or its affiliates relating to
sales of shares of the Funds and other Goldman Sachs Funds; the support or
purchase of technology platforms/software; and/or other specified services
intended to assist in the distribution and marketing of the Funds and other
Goldman Sachs Funds, including provision of consultative services to the
Investment Adviser or its affiliates relating to marketing and/or sale of shares
of the Funds and other Goldman Sachs Funds. The payments may also, to the extent
permitted by applicable regulations, sponsor various trainings and educational
programs. The payments by the Investment Adviser, Distributor and/or their
affiliates, which are in addition to the fees paid for these services by the
Funds, may also compensate Authorized Institutions for sub-accounting,
sub-transfer agency, administrative and/or shareholder processing services.
These additional payments may exceed amounts earned on these assets by the
Investment Adviser, Distributor and/or their affiliates for the performance of
these or similar services. The amount of these additional payments is normally
not expected to exceed 0.50% (annualized) of the amount sold or invested through
Authorized Institutions. In addition, certain Authorized Institutions may have
access to certain services from the Investment Adviser, Distributor and/or their
affiliates, including research reports, economic analysis, and portfolio
analysis, portfolio construction and similar tools and software. In certain
cases, Authorized Institutions may not pay for these products or services or may
only pay for a portion of the total cost of these products or services. Please
refer to the “Payments to Others (Including Intermediaries)” section of the SAI
for more information about these payments and services.
The
payments made by the Investment Adviser, Distributor and/or their affiliates and
the services provided by each of Goldman Sachs, the Trust Companies, Ayco, or an
Authorized Institution may differ. The presence of these payments, receipt of
these services and the basis on which Goldman Sachs, the Trust Companies, Ayco,
or an Authorized Institution compensates its registered representatives,
52
Shareholder
Guide
advisors or
salespersons may create an incentive for a particular registered representative,
advisor or salesperson to highlight, feature or recommend Funds based, at least
in part, on the level of compensation paid. You should contact Goldman Sachs,
the Trust Companies, Ayco, or your Authorized Institution for more information
about the payments it receives and any potential conflicts of
interest.
What Else Should I
Know About Share Purchases?
The Trust
reserves the right to:
◼
Require
Goldman Sachs, the Trust Companies, Ayco, or an Authorized Institution to refuse
to open an account if you fail to (i) provide a taxpayer identification number,
a Social Security Number or other government-issued identification (e.g., for an
individual, a driver’s license or passport) or (ii) certify that such number or
other information is correct (if required to do so under applicable
law).
◼
Reject or
restrict any purchase or exchange order by a particular purchaser (or group of
related purchasers) for any reason in its discretion. Without limiting the
foregoing, the Trust may reject or restrict purchase and exchange orders by a
particular purchaser (or group of related purchasers) when a pattern of frequent
purchases, sales or exchanges of shares of the Fund is evident, or if purchases,
sales or exchanges are, or a subsequent redemption might be, of a size that
would disrupt the management of the Fund.
◼
Close the
Fund to new investors from time to time and reopen any such Fund whenever it is
deemed appropriate by the Investment Adviser.
◼
Provide
for, modify or waive the minimum investment requirements.
◼
Modify the
manner in which shares are offered.
Shares of
the Fund are only registered for sale in the United States and certain of its
territories. Generally, shares of the Fund will only be offered or sold to “U.S.
persons” and all offerings or other solicitation activities will be conducted
within the United States, in accordance with the rules and regulations of the
Securities Act of 1933, as amended (“Securities Act”).
The Fund
may allow you to purchase shares through Goldman Sachs, the Trust Companies,
Ayco or an Authorized Institution with securities instead of cash if consistent
with the Fund’s investment policies and operations and approved by the
Investment Adviser.
Notwithstanding
the foregoing, the Trust, Goldman Sachs, the Trust Companies, Ayco and any
Authorized Institution reserve the right to reject or restrict purchase or
exchange requests from any investor. The Trust, Goldman Sachs, the Trust
Companies and Ayco will not be liable for any loss resulting from rejected
purchase or exchange orders.
Please be
advised that abandoned or unclaimed property laws for certain states (to which
your account may be subject) require financial organizations to transfer
(escheat) unclaimed property (including shares of the Fund) to the appropriate
state if no activity occurs in an account for a period of time specified by
state law. For IRA accounts escheated to a state under these abandoned property
laws, the escheatment will generally be treated as a taxable distribution to
you; federal and any applicable state income tax will be withheld. This may
apply to your Roth IRA as well.
Customer
Identification Program. Federal
law requires the Fund to obtain, verify and record identifying information for
certain investors, which will be reviewed solely for customer identification
purposes, which may include the name, residential or business street address,
date of birth (for an individual), Social Security Number or taxpayer
identification number or other information, for each investor who opens an
account directly with the Fund. Applications without the required information
may not be accepted by the Fund. Throughout the life of your account, the Fund
may request updated identifying information in accordance with their Customer
Identification Program. After accepting an application, to the extent permitted
by applicable law or their Customer Identification Program, the Fund reserves
the right to: (i) place limits on transactions in any account until the identity
of the investor is verified; (ii) refuse an investment in the Fund; or (iii)
involuntarily redeem an investor’s shares and close an account in the event that
the Fund is unable to verify an investor’s identity or are unable to obtain all
required information. The Fund and its agents will not be responsible for any
loss or tax liability in an investor’s account resulting from the investor’s
delay in providing all required information or from closing an account and
redeeming an investor’s shares pursuant to their Customer Identification
Program.
How Are Shares
Priced?
The price
you pay when you buy shares is the Fund’s next-determined NAV per share after
any of the Transfer Agent, Goldman Sachs, the Trust Companies, Ayco or an
Authorized Institution, as applicable, has received and accepted your order in
proper form. The price you receive when you sell shares is the Fund’s
next-determined NAV per share after any of the Transfer Agent, Goldman Sachs,
the Trust Companies, Ayco or an Authorized Institution, as applicable, has
received and accepted your order in proper form. Each class generally calculates
its NAV as follows:
|
NAV
= |
(Value
of Assets of the Class)
–
(Liabilities of the Class) |
|
|
Number
of Outstanding Shares of the
Class |
53
The Fund’s
investments for which market quotations are readily available are valued at
market value on the basis of quotations provided by pricing services or
securities dealers. If accurate quotations are not readily available, if the
Fund’s fund accounting agent is unable for other reasons to facilitate pricing
of individual securities or calculate the Fund’s NAV, or if the Investment
Adviser believes that such quotations do not accurately reflect fair value, the
fair value of the Fund’s investments may be determined in good faith under
valuation procedures established by the Board of Trustees. Thus, such pricing
may be based on subjective judgments and it is possible that the prices
resulting from such valuation procedures may differ materially from the value
realized on a sale. Cases where there is no clear indication of the value of the
Fund’s investments include, among others, situations where a security or other
asset or liability does not have a price source or a price is
unavailable.
Equity
securities listed on an exchange are generally valued at the last available sale
price on the exchange on which they are principally traded. To the extent the
Fund or an Underlying Fund invests in foreign equity securities, “fair value”
prices will be provided by an independent third-party pricing (fair value)
service in accordance with the fair value procedures approved by the Board of
Trustees. Fair value prices are used because many foreign markets operate at
times that do not coincide with those of the major U.S. markets. Events that
could affect the values of foreign portfolio holdings may occur between the
close of the foreign market and the time of determining the NAV, and would not
otherwise be reflected in the NAV.
Fixed
income securities are generally valued on the basis of prices (including
evaluated prices) and quotations provided by pricing services or securities
dealers. Pricing services may use matrix pricing or valuation models, which
utilize certain inputs and assumptions, including, but not limited to, yield or
price with respect to comparable fixed income securities, to determine current
value. Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots may trade at
lower prices than institutional round lots.
Investments
in other open-end registered investment companies (if any), excluding
investments in ETFs, are valued based on the NAV of those open-end registered
investment companies (which may use fair value pricing as discussed in their
prospectuses). Investments in ETFs will generally be valued at the last sale
price or official closing price on the exchange on which they are principally
traded.
In
addition, the Investment Adviser, consistent with its procedures and applicable
regulatory guidance, may (but need not) determine to make an adjustment to the
previous closing prices of either domestic or foreign securities in light of
significant events, to reflect what it believes to be the fair value of the
securities at the time of determining the Fund’s NAV. Significant events that
could affect a large number of securities in a particular market may include,
but are not limited to: situations relating to one or more single issuers in a
market sector; significant fluctuations in U.S. or foreign markets; market
dislocations; market disruptions or unscheduled market closings; equipment
failures; natural or man made disasters or acts of God; armed conflicts;
governmental actions or other developments; as well as the same or similar
events which may affect specific issuers or the securities markets even though
not tied directly to the securities markets. Other significant events that could
relate to a single issuer may include, but are not limited to: corporate actions
such as reorganizations, mergers and buy-outs; corporate announcements,
including those relating to earnings, products and regulatory news; significant
litigation; ratings downgrades; bankruptcies; and trading limits or
suspensions.
One effect
of using an independent third-party pricing (fair value) service and fair
valuation may be to reduce stale pricing arbitrage opportunities presented by
the pricing of Fund shares. However, it involves the risk that the values used
by the Fund to price its investments may be different from those used by other
investment companies and investors to price the same investments.
Please note
the following with respect to the price at which your transactions are
processed:
◼
NAV per
share of each share class is generally calculated by the Fund’s fund accounting
agent on each business day as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) or such other times as the New
York Stock Exchange or NASDAQ market may officially close. Fund shares will
generally not be priced on any day the New York Stock Exchange is
closed.
◼
The Trust
reserves the right to reprocess purchase (including dividend reinvestments),
redemption and exchange transactions that were processed at a NAV that is
subsequently adjusted, and to recover amounts from (or distribute amounts to)
shareholders accordingly based on the official closing NAV, as
adjusted.
◼
The Trust
reserves the right to advance the time by which purchase and redemption orders
must be received for same business day credit as otherwise permitted by the
SEC.
Consistent
with industry practice, investment transactions not settling on the same day are
recorded and factored into the Fund’s NAV on the business day following trade
date (T+1). The use of T+1 accounting generally does not, but may, result in a
NAV that differs materially from the NAV that would result if all transactions
were reflected on their trade dates.
54
Shareholder
Guide
Note:
The time at which transactions and shares are priced and the time by which
orders must be received may be changed in case of an emergency or if regular
trading on the New York Stock Exchange is stopped at a time other than its
regularly scheduled closing time. In the event the New York Stock Exchange does
not open for business, the Trust may, but is not required to, open the Fund for
purchase, redemption and exchange transactions if the Federal Reserve wire
payment system is open. To learn whether the Fund is open for business during
this situation, please call the appropriate phone number located on the back
cover of the Prospectus.
Foreign
securities may trade in their local markets on days the Fund is closed. As a
result, if the Fund holds an Underlying Fund that holds foreign securities, its
NAV may be impacted on days when investors may not purchase or redeem Fund
shares.
The Fund
relies on various sources to calculate its NAV. The ability of the Fund’s fund
accounting agent to calculate the NAV per share of each share class of the Fund
is subject to operational risks associated with processing or human errors,
systems or technology failures, cyber attacks and errors caused by third party
service providers, data sources, or trading counterparties. Such failures may
result in delays in the calculation of the Fund’s NAV and/or the inability to
calculate NAV over extended time periods. The Fund may be unable to recover any
losses associated with such failures. In addition, if the third party service
providers and/or data sources upon which the Fund directly or indirectly relies
to calculate its NAV or price individual securities are unavailable or otherwise
unable to calculate the NAV correctly, it may be necessary for alternative
procedures to be utilized to price the securities at the time of determining the
Fund’s NAV.
|
How
to Sell Shares |
How Can I Sell Shares
Of The Funds?
Generally,
shares may be sold (redeemed) only through Goldman Sachs, the Trust Companies,
Ayco, or an Authorized Institution. Goldman Sachs, the Trust Companies, Ayco and
Authorized Institutions will normally give redemption instructions on behalf of
GS Clients to the Transfer Agent. On any business day the Fund is open, the Fund
will generally redeem its shares upon request at their next-determined NAV per
share after any of the Transfer Agent, Goldman Sachs, the Trust Companies, Ayco
or an Authorized Institution, as applicable, has received and accepted a
redemption order in proper form, as described under “How To Buy Shares—How Can I
Purchase Shares Of The Fund?” above. Redemptions may be requested by electronic
trading platform, in writing or by telephone (unless Goldman Sachs, the Trust
Companies, Ayco, or an Authorized Institution opts out of the telephone
redemption privilege on the account application). You should contact Goldman
Sachs, the Trust Companies, Ayco or your Authorized Institution, to discuss
redemptions and redemption proceeds. The Fund may transfer redemption proceeds
to an account with Goldman Sachs, the Trust Companies, Ayco, or your Authorized
Institution. In the alternative, Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution may request that redemption proceeds be sent to you
by check or wire (if the wire instructions are designated in the current records
of the Transfer Agent).
When Do I Need A
Medallion Signature Guarantee To Redeem Shares?
Generally,
a redemption request must be in writing and signed by an authorized person with
a Medallion signature guarantee if:
◼
You would
like the redemption proceeds sent to an address that is not your address of
record; or
◼
You would
like the redemption proceeds sent to a domestic bank account that is not
designated in the current records of the Transfer Agent.
A Medallion
signature guarantee must be obtained from a bank, brokerage firm or other
financial intermediary that is a member of an approved Medallion Guarantee
Program or that is otherwise approved by the Trust. A notary public cannot
provide a Medallion signature guarantee. The written request may be confirmed by
telephone with both the requesting party and the designated Authorized
Institution to verify instructions. Additional documentation may be
required.
What Do I Need To
Know About Telephone Redemption Requests?
The Trust
and Goldman Sachs will not be liable for any loss or tax liability you may incur
in the event that the Trust accepts unauthorized telephone redemption requests
that the Trust reasonably believes to be genuine. The Trust may accept telephone
redemption instructions from any person identifying himself or herself as the
owner of an account or the owner’s registered representative where the owner has
not declined in writing to use this service. Goldman Sachs, the Trust Companies,
Ayco, or your Authorized Institution may submit redemption requests by telephone
on your behalf. Thus, you risk possible losses if a telephone redemption is not
authorized by you.
In an
effort to prevent unauthorized or fraudulent redemption and exchange requests by
telephone, the Transfer Agent and SS&C Global Investor & Distribution
Solutions, Inc. (“SS&C”) each employ reasonable procedures specified by the
Trust to confirm that such instructions are genuine. The following general
policies are currently in effect:
◼
Telephone
requests are recorded.
55
◼
Proceeds of
telephone redemption requests will be sent to your address of record or
authorized account designated in the current records of the Transfer Agent
(unless you provide written instructions and a Medallion signature guarantee
indicating another address or account).
◼
For the
30-day period following a change of address, telephone redemptions will only be
filled by a wire transfer to the authorized account designated in the current
records of the Transfer Agent (see immediately preceding bullet point). In order
to receive the redemption by check during this time period, the redemption
request must be in the form of a written, Medallion signature guaranteed
letter.
◼
The
telephone redemption option does not apply to Shares held in an account
maintained and serviced by your Authorized Institution. If your shares are held
in an account with an Authorized Institution, you should contact your registered
representative of record, who may make telephone redemptions on your
behalf.
◼
The
telephone redemption option may be modified or terminated at any time without
prior notice.
Note:
It may be difficult to make telephone redemptions in times of unusual economic
or market conditions.
How Are Redemption
Proceeds Paid?
By
Wire: You may
arrange for your redemption proceeds to be paid as federal funds to an account
with Goldman Sachs, the Trust Companies, Ayco, or your Authorized Institution or
to a domestic bank account designated in the current records of the Transfer
Agent. In addition, redemption proceeds may be transmitted through an electronic
trading platform to an account with Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution. The following general policies govern wiring
redemption proceeds:
◼
Redemption proceeds will
normally be paid in federal funds, within one business day (or such other times
in accordance with the requirements of Goldman Sachs, the Trust Companies, Ayco,
or your Authorized Institution) following receipt of a properly executed wire
transfer redemption request. In certain circumstances, however (such as unusual
market conditions or in cases of very large redemptions or excessive trading),
it may take up to seven days to pay redemption proceeds.
◼
Redemption
requests may only be postponed or suspended for longer than seven days as
permitted under Section 22(e) of the Investment Company Act of 1940 (the
“Investment Company Act”) if (i) the New York Stock Exchange is closed for
trading or trading is restricted; (ii) an emergency exists which makes the
disposal of securities owned by the Fund or the fair determination of the value
of the Fund’s net assets not reasonably practicable; or (iii) the SEC, by order
or regulation, permits the suspension of the right of redemption.
◼
If you are
selling shares you recently paid for by check, the Fund will pay you when your
check has cleared, which may take up to 15 days.
◼
If the
Federal Reserve Bank is closed on the day that the redemption proceeds would
ordinarily be wired, wiring the redemption proceeds may be delayed until the
Federal Reserve Bank reopens.
◼
To change
the bank wiring instructions designated in the current records of the Transfer
Agent, you must send written instructions signed by an authorized person
designated in the current records of the Transfer Agent. A Medallion signature
guarantee may be required if you are requesting a redemption in conjunction with
the change.
◼
None of the
Trust, the Investment Adviser or the Transfer Agent assumes any responsibility
for the performance of your bank, Goldman Sachs, the Trust Companies, Ayco, or
Authorized Institution in the transfer process. If a problem with such
performance arises, you should deal directly with your bank, Goldman Sachs, the
Trust Companies, Ayco, or Authorized Institution.
By
Check: You may elect to receive
your redemption proceeds by check. Redemption proceeds paid by check will
normally be mailed to the address of record within one business day (or such
other times in accordance with the requirements of your Authorized Institution)
following receipt of a properly executed redemption request, except in certain
circumstances (such as those set forth above with respect to wire transfer
redemption requests). If you are selling shares you recently paid for by check,
the Fund will pay you when your check has cleared, which may take up to 15
days.
What Else Do I Need
To Know About Redemptions?
The
following generally applies to redemption requests:
◼
Additional
documentation may be required when deemed appropriate by the Transfer Agent. A
redemption request will not be in proper form until such additional
documentation has been received.
◼
Goldman
Sachs, the Trust Companies, Ayco and Authorized Institutions are responsible for
the timely transmittal of redemption requests by GS Clients to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests,
Goldman Sachs, the Trust Companies, Ayco and Authorized Institutions may set
times by which they must receive redemption requests. Goldman Sachs, the Trust
Companies, Ayco or Authorized Institutions may also require additional
documentation from you.
◼
As
disclosed above, if you are an GS Client and propose to transfer your shares to
another institution for any reason, you may be required to either redeem your
shares of the Fund or if available, you may be able to choose to exchange your
shares of the Fund for a different share class offered by the Fund, which may be
offered in another Prospectus.
56
Shareholder
Guide
The Trust
reserves the right to:
◼
Redeem your
shares in the event any of Goldman Sachs, the Trust Companies, Ayco or your
Authorized Institution is no longer authorized to offer Class P
Shares.
◼
Subject to
applicable law, redeem your shares in other circumstances determined by the
Board of Trustees to be in the best interest of the Trust.
◼
Redeem your
shares in the case of actual or suspected threatening conduct or actual or
suspected fraudulent, suspicious or illegal activity by you or any other
individual associated with your account.
◼
Pay
redemptions by a distribution in-kind of securities (instead of cash). If you
receive redemption proceeds in-kind, you should expect to incur transaction
costs upon the disposition of those securities. In addition, if you receive
redemption proceeds inkind, you will be subject to market gains or losses upon
the disposition of those securities.
◼
Reinvest
any amounts (e.g., dividends, distributions or redemption proceeds) which you
have elected to receive by check should your check remain uncashed for more than
180 days. No interest will accrue on amounts represented by uncashed checks.
Your check will be reinvested in your account at the NAV on the day of the
reinvestment. When reinvested, those amounts are subject to the risk of loss
like any Fund investment. If you elect to receive distributions in cash and a
check remains uncashed for more than 180 days, your cash election may be changed
automatically to reinvest and your future dividend and capital gains
distributions will be reinvested in the Fund at the NAV as of the date of
payment of the distribution. This provision may not apply to certain retirement
or qualified accounts, accounts with a non-U.S. address or closed accounts. Your
participation in a systematic withdrawal program may be terminated if a check
remains uncashed.
◼
Charge an
additional fee in the event a redemption is made via wire transfer.
◼
Terminate
your account if you are no longer a GS Client, or otherwise no longer
eligible to invest in Class P Shares of the Fund.
The Fund
typically expects to meet redemption requests by using holdings of cash or cash
equivalents and/or proceeds from the sale of portfolio holdings. In addition,
under stressed market conditions, as well as for other temporary or emergency
purposes, the Fund may distribute redemption proceeds in-kind (instead of cash),
access a line of credit or overdraft facility, or borrow through other sources
to meet redemption requests.
None of the
Trust, the Investment Adviser, Goldman Sachs, the Trust Companies, Ayco or an
Authorized Institution will be responsible for any loss in an investor’s account
or tax liability resulting from an involuntary redemption.
Can I Exchange My
Investment From One Goldman Sachs Fund To Another Goldman Sachs
Fund?
You may
exchange your shares at NAV at the time of exchange for Class P Shares of
another Goldman Sachs Fund. The exchange privilege may be materially modified or
withdrawn at any time upon 60 days’ written notice. You should contact Goldman
Sachs, the Trust Companies, Ayco or your Authorized Institution to arrange for
the exchange of your shares for Class P Shares of another Goldman Sachs Fund. If
you propose to transfer your Class P Shares to another institution for any
reason, you may be required to either redeem your shares of the Fund or if
available, you may be able to choose to exchange your shares of the Fund for a
different share class offered by the Fund or another Goldman Sachs Fund, which
may be offered in another Prospectus. For more information, please see “How to
Sell Shares—What Else Do I Need to Know About Redemptions?” The shares you
receive in any exchange are subject to different (and possibly higher) fees and
expenses (which affect performance).
You should
keep in mind the following factors when making or considering an
exchange:
◼
You should
obtain and carefully read the prospectus of the Goldman Sachs Fund you are
acquiring before making an exchange. You should be aware that not all Goldman
Sachs Funds may offer all share classes.
◼
Currently,
the Fund does not impose any charge for exchanges, although the Fund may impose
a charge in the future.
◼
All
exchanges which represent an initial investment in a Goldman Sachs Fund must
satisfy the minimum initial investment requirement of that Fund. This
requirement may be waived at the discretion of the Trust. Exchanges into a
Goldman Sachs Fund need not meet the traditional minimum investment requirement
for that Fund if the entire balance of the original Fund account is
exchanged.
◼
Exchanges
are available only in states where exchanges may be legally made.
◼
It may be
difficult to make telephone exchanges in times of unusual economic or market
conditions.
◼
Goldman
Sachs and SS&C may use reasonable procedures described above in “How To Sell
Shares—What Do I Need To Know About Telephone Redemption Requests?” in an effort
to prevent unauthorized or fraudulent telephone exchange requests.
◼
Normally, a
telephone exchange will be made only to an identically registered
account.
◼
Exchanges
into Goldman Sachs Funds or certain share classes of Goldman Sachs Funds that
are closed to new investors may be restricted.
For federal
income tax purposes, an exchange from one Goldman Sachs Fund to another is
treated as a redemption of the shares surrendered in the exchange, on which you
may be subject to tax, followed by a purchase of shares received in the
exchange. You should consult your tax adviser concerning the tax consequences of
an exchange.
57
|
Shareholder
Services |
Can My Distributions
From A Fund Be Invested In Other Goldman Sachs Funds?
You may
elect to cross-reinvest distributions paid by a Goldman Sachs Fund in shares of
the same class of other Goldman Sachs Funds.
◼
Shares will
be purchased at NAV.
◼
You may
elect cross-reinvestment into an identically registered account or a similarly
registered account provided that at least one name on the account is registered
identically.
◼
You cannot
make cross-reinvestments into a Goldman Sachs Fund unless that Fund’s minimum
initial investment requirement is met.
◼
You should
obtain and read the prospectus of the Goldman Sachs Fund into which
distributions are invested.
◼
An exchange
is considered a redemption and a purchase and therefore may be a taxable
transaction.
What Types Of Reports
Will I Be Sent Regarding My Investment?
Intermediaries
are responsible for providing any communication from the Fund to shareholders,
including but not limited to, prospectuses, prospectus supplements, proxy
materials and notices regarding the source of dividend payments under Section 19
of the Investment Company Act. They may charge additional fees not described in
the Prospectus to their customers for such services.
You will be
provided with a printed confirmation of each transaction in your account and a
monthly account statement.
You will also receive an
annual shareholder report and a semi-annual shareholder report. If you have
consented to the delivery of a single copy of shareholder reports, prospectuses
and other information to all shareholders who share the same mailing address
with your account, you may revoke your consent at any time by contacting your
Intermediary or Goldman Sachs Funds at the appropriate phone number or address
found on the back cover of the Prospectus. The Fund will begin sending
individual copies to you within 30 days after receipt of your revocation. If
your account is held through an Intermediary, please contact your Intermediary
to revoke your consent.
|
Restrictions
on Excessive Trading
Practices |
Policies
and Procedures on Excessive Trading Practices. In
accordance with the policy adopted by the Board of Trustees, the Trust
discourages frequent purchases and redemptions of Fund shares and does not
permit market timing or other excessive trading practices. Purchases and
exchanges should be made with a view to longer-term investment purposes only
that are consistent with the investment policies and practices of the Fund.
Excessive, short-term (market timing) trading practices may disrupt portfolio
management strategies, increase brokerage and administrative costs, harm Fund
performance and result in dilution in the value of Fund shares held by
longer-term shareholders. The Trust and Goldman Sachs reserve the right to
reject or restrict purchase or exchange requests from any investor. The Trust
and Goldman Sachs will not be liable for any loss resulting from rejected
purchase or exchange orders. To minimize harm to the Trust and its shareholders
(or Goldman Sachs), the Trust (or Goldman Sachs) will exercise this right if, in
the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive
trading or if an investor’s trading, in the judgment of the Trust (or Goldman
Sachs), has been or may be disruptive to the Fund. In making this judgment,
trades executed in multiple accounts under common ownership or control may be
considered together to the extent they can be identified. No waivers of the
provisions of the policy established to detect and deter market timing and other
excessive trading activity are permitted that would harm the Trust or its
shareholders or would subordinate the interests of the Trust or its shareholders
to those of Goldman Sachs or any affiliated person or associated person of
Goldman Sachs.
As a
deterrent to excessive trading, many foreign equity securities held by the
Underlying Funds are priced by an independent pricing service using fair
valuation. For more information on fair valuation, please see “How To Buy
Shares—How Are Shares Priced?”
Pursuant to
the policy adopted by the Board of Trustees of the Trust, Goldman Sachs has
developed criteria that it uses to identify trading activity that may be
excessive. Excessive trading activity in the Fund is measured by the number of
“round trip” transactions in a shareholder’s account. A “round trip” includes a
purchase or exchange into the Fund followed or preceded by a redemption or
exchange out of the same Fund. If the Fund detects that a shareholder has
completed two or more round trip transactions in a single Fund within a rolling
90-day period, the Fund may reject or restrict subsequent purchase or exchange
orders by that shareholder permanently. In addition, the Fund may, in its sole
discretion, permanently reject or restrict purchase or exchange orders by a
shareholder if the Fund detects other trading activity that is deemed to be
disruptive to the management of the Fund or otherwise harmful to the Fund. For
purposes of these transaction surveillance procedures, the Fund may consider
trading activity in multiple accounts under common ownership, control, or
influence. A shareholder that has been restricted from participation in the Fund
pursuant to this policy will be allowed to apply for re-entry after one year. A
shareholder applying for re-entry must provide assurances acceptable to the Fund
that the shareholder will not engage in excessive trading activities in the
future.
58
Shareholder
Guide
Goldman
Sachs may modify its surveillance procedures and criteria from time to time
without prior notice regarding the detection of excessive trading or to address
specific circumstances. Goldman Sachs will apply the criteria in a manner that,
in Goldman Sachs’ judgment, will be uniform.
Fund shares
may be held through omnibus arrangements maintained by Goldman Sachs, the Trust
Companies, Ayco or Authorized Institutions. Omnibus accounts include multiple
investors and such accounts typically provide the Fund with a net purchase or
redemption request on any given day where the purchases and redemptions of Fund
shares by the investors are netted against one another. The identity of
individual investors whose purchase and redemption orders are aggregated are
ordinarily not tracked by the Fund on a regular basis. Goldman Sachs, the Trust
Companies, Ayco or an Authorized Institution may not have the capability or may
not be willing to apply the Fund’s market timing policies. While Goldman Sachs,
the Trust Companies and Ayco may monitor share turnover at the omnibus account
level, the Fund’s ability to monitor and detect market timing by shareholders in
these omnibus accounts may be limited in certain circumstances, and certain
Authorized Institutions may charge the Fund a fee for providing certain
shareholder financial information requested as part of the Fund’s surveillance
process. The netting effect makes it more difficult to identify, locate and
eliminate market timing activities. In addition, those investors who engage in
market timing and other excessive trading activities may employ a variety of
techniques to avoid detection. There can be no assurance that the Fund, Goldman
Sachs, the Trust Companies and Ayco will be able to identify all those who trade
excessively or employ a market timing strategy, and curtail their trading in
every instance. If necessary, the Trust may prohibit additional purchases of
Fund shares by an Authorized Institution or by certain clients of the Authorized
Institution. Authorized Institutions may also monitor trading activities by
their clients in the Fund. The criteria used by Authorized Institutions to
monitor for excessive trading may differ from the criteria used by the Fund. If
an Authorized Institution fails to cooperate in the implementation or
enforcement of the Trust’s excessive trading policies, the Trust may take
certain actions including terminating the relationship.
59
Taxation
As with any
investment, you should consider how your investment in the Fund will be taxed.
The tax information below is provided as general information. More tax
information is available in the SAI. You should consult your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund. Except as otherwise noted, the tax information provided assumes that you
are a U.S. citizen or resident.
Unless your
investment is through an Employee Benefit Plan or other tax-advantaged account,
you should carefully consider the possible tax consequences of Fund
distributions and the sale of your Fund shares.
|
DISTRIBUTIONS |
The Fund
contemplates declaring as dividends each year all or substantially all of its
taxable income. Distributions you receive from the Fund are generally subject to
federal income tax, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund shares or
receive them in cash. For federal tax purposes, the Fund’s distributions
attributable to net investment income and short-term capital gains of the Fund
or an Underlying Fund are taxable to you as ordinary income, while distributions
of long-term capital gains are taxable to you as long-term capital gains, no
matter how long you have owned your Fund shares.
Under current provisions of
the Code, the maximum individual rate applicable to long-term capital gains is
15% or 20%, depending on whether the individual's income exceeds certain
threshold amounts. Fund distributions to non-corporate shareholders attributable
to dividends received by the Fund directly, or indirectly through an Underlying
Fund, from U.S. and certain foreign corporations will generally be taxed at the
preferential rate described above, as long as certain other requirements are
met. For these lower rates to apply, the non-corporate shareholder must own
their Fund shares for at least 61 days during the 121-day period beginning 60
days before the Fund’s ex-dividend date. The amount of the Fund’s distributions
that would otherwise qualify for this favorable tax treatment will be reduced as
a result of the Fund’s or an Underlying Fund’s securities lending activities or
high portfolio turnover rate and may also be reduced as a result of certain
derivative transactions entered into by the Fund or an Underlying
Fund.
A percentage of the Fund’s
dividends paid to corporate shareholders may be eligible for the corporate
dividends received deduction. This percentage may, however, be reduced as a
result of the Fund’s securities lending activities or by a high portfolio
turnover rate.
The Fund's
income or loss each year from writing index call options will, generally, be
treated as short-term capital gain or loss. Distributions in excess of the
Fund’s current and accumulated earnings and profits are treated as a tax-free
return of your investment to the extent of your basis in the shares, and
generally as capital gain thereafter. A return of capital, which for tax
purposes is treated as a return of your investment, reduces your basis in
shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of shares. A distribution will reduce the Fund’s NAV per share and
may be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
The Fund’s
(or Underlying Fund’s) transactions in derivatives (such as futures contracts
and swaps) will be subject to special tax rules, the effect of which may be to
accelerate income to the Fund (or Underlying Fund), defer losses to the Fund (or
Underlying Fund), cause adjustments in the holding periods of the Fund’s (or
Underlying Fund’s) securities and convert short-term capital losses into
long-term capital losses. These rules could therefore affect the amount, timing
and character of distributions to you. The Fund’s (or Underlying Fund’s) use of
derivatives may result in the Fund realizing more short-term capital gains and
ordinary income subject to tax at ordinary income tax rates than it would if the
Fund (or Underlying Fund) did not use derivatives.
Although distributions are
generally treated as taxable to you in the year they are paid, distributions
declared in October, November or December but paid in January are taxable as if
they were paid in December. The character and tax status of all distributions
will be available to shareholders after the close of each calendar
year.
Because of
the Fund's practice of selling call and put options on various reference
securities, the possibility exists that an overlap between the Fund's equity
investments and the securities referenced in such options, if substantial
enough, might cause a deferral of the Fund's recognition of losses for tax
purposes or a reduction in the amount of the Fund's distributions that qualify
for the favorable tax rate applicable to dividends. The Fund intends to manage
its investments in a manner designed to avoid these adverse tax results to the
extent reasonably practicable, but there is no assurance that the Fund will
accomplish this objective at all times.
60
Taxation
The Fund
(or an Underlying Fund) may be subject to foreign withholding or other foreign
taxes on income or gain from certain foreign securities. In general, the Fund
(or the applicable Underlying Fund) may deduct these taxes in computing its
taxable income.
The Fund’s
investments in Underlying Funds could affect the amount, timing and character of
distributions to shareholders, as compared to a fund that only invests directly
in stocks, securities or other investments.
If you buy
shares of the Fund before it makes a distribution, the distribution will be
taxable to you even though it may actually be a return of a portion of your
investment. This is known as “buying into a dividend.”
|
SALES
AND EXCHANGES |
Your sale
of Fund shares is a taxable transaction for federal income tax purposes, and may
also be subject to state and local taxes. For tax purposes, the exchange of your
Fund shares for shares of a different Goldman Sachs Fund is the same as a sale.
When you sell your shares, you will generally recognize a capital gain or loss
in an amount equal to the difference between your adjusted tax basis in the
shares and the amount received. Generally, this capital gain or loss is
long-term or short-term depending on whether your holding period for the shares
exceeds one year, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gain dividends that were received on the shares. Additionally, any loss
realized on a sale, exchange or redemption of shares of the Fund may be
disallowed under “wash sale” rules to the extent the shares disposed of are
replaced with other shares of the Fund within a period of 61 days beginning 30
days before and ending 30 days after the date of disposition (such as pursuant
to a dividend reinvestment in shares of the Fund). If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.
|
OTHER
INFORMATION |
When you
open your account, you should provide your Social Security or taxpayer
identification number on your account application. By law, the Fund must
withhold 24% of your taxable distributions and any redemption proceeds if you do
not provide your correct Social Security or taxpayer identification number, or
certify that it is correct, or if the IRS instructs the Fund to do
so.
The Fund is
required to report to you and the IRS annually on Form 1099-B not only the gross
proceeds of Fund shares you sell or redeem but also for shares purchased on or
after January 1, 2012, their cost basis. Cost
basis will be calculated using the Fund’s default method of average cost, unless
you instruct the Fund to use a different methodology. If you
would like to use the average cost method of calculation, no action is required.
To elect an alternative method, you should contact Goldman Sachs Funds at the
address or phone number on the back cover of the Prospectus. Contact your
representative at GS PWM with respect to reporting of cost basis and available
elections for your account.
You should
carefully review the cost basis information provided by the Fund and make any
additional basis, holding period or other adjustments that are required when
reporting these amounts on your federal income tax returns.
Non-U.S.
investors will generally be subject to U.S. withholding tax with respect to
dividends received from the Fund and may be subject to estate tax with respect
to their Fund shares. However, withholding is generally not required on properly
designated distributions to non-U.S. investors of long-term capital gains.
Designated distributions of certain qualified interest income and short-term
capital gains paid to non-U.S. investors are generally not subject to
withholding. Although this designation will generally be made by the Fund for
distributions of long-term and short-term capital gains, the Fund does not
anticipate making any qualified interest income designations. Therefore, all
distributions of interest income will generally be subject to withholding when
paid to non-U.S. investors. More information about U.S. taxation and non-U.S.
investors is included in the SAI.
The Fund is
required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends
made to certain non-U.S. entities that fail to comply (or be deemed compliant)
with extensive reporting and withholding requirements designed to inform the
U.S. Department of the Treasury of U.S.-owned foreign investment accounts.
Shareholders may be requested to provide additional information to enable the
Fund to determine whether withholding is required.
The Fund
will seek to gain exposure to the commodity markets primarily through
investments in the Subsidiary. Historically, the IRS issued private letter
rulings in which the IRS specifically concluded that income and gains from
investments in commodity index-linked structured notes (the “Notes Rulings”) or
a wholly-owned foreign subsidiary that invests in commodity-linked instruments
are “qualifying income” for purposes of compliance with Subchapter M of the
Code. However, the Fund has not received such a private letter ruling, and is
not able to rely on private letter rulings issued to other taxpayers. The IRS
issued a revenue procedure, which states that the IRS will not in the future
issue private letter rulings that would require a determination of whether an
asset (such as a commodity index-linked note) is a “security” under the
Investment Company Act. In connection with issuing such revenue procedure, the
IRS has revoked the Note Rulings on a prospective basis. In light of the
revocation of the Note Rulings, the Fund intends to limit its investments in
commodity index-linked structured notes.
61
Applicable
Treasury regulations treat the Fund’s income inclusion with respect to a
subsidiary as qualifying income either if (A) there is a current distribution
out of the earnings and profits of a subsidiary that are attributable to such
income inclusion or (ii) such inclusion is derived with respect to the Fund’s
business of investing in stock, securities, or currencies.
In reliance
on an opinion of counsel, the Fund may gain exposure to the commodity markets
through investments in the Subsidiary.
The tax
treatment of the Fund’s investments in the Subsidiary could affect whether
income derived from such investment is “qualifying income” under Subchapter M of
Code, or otherwise affect the character, timing and/or amount of the Fund’s
taxable income or any gains and distributions made by the Fund. If the IRS were
to successfully assert that the Fund’s income from such investments was not
“qualifying income,” the Fund may fail to qualify as a RIC under Subchapter M of
the Code if over 10% of its gross income was derived from these investments. If
the Fund failed to qualify as a RIC, it would be subject to federal and state
income tax on all of its taxable income at regular corporate tax rates with no
deduction for any distributions paid to shareholders, which would significantly
adversely affect the returns to, and could cause substantial losses for, Fund
shareholders.
62
Appendix
A
Additional
Information on the Fund and Underlying Funds
This
Appendix provides further information on certain types of investments and
techniques that may be used by the Fund and/ or the Underlying Funds, including
their associated risks. The following description applies generally to the
Underlying Funds and to the Fund, to the extent that the Fund invests in
securities and other financial instruments, including derivative instruments
(such as swaps, forward currency contracts and futures contracts), other than
the Underlying Funds. Additional information is provided in the SAI, which is
available upon request, and in the prospectuses of the Underlying
Funds.
The Fund
will invest in common stocks and other equity investments, including preferred
stocks, interests in REITs, convertible debt obligations, convertible preferred
stocks, equity interests in trusts, partnerships, joint ventures, limited
liability companies and similar enterprises, other investment companies
(including ETFs), warrants, stock purchase rights and synthetic and derivative
instruments (such as swaps and futures contracts) that have economic
characteristics similar to equity securities (“equity investments”). The Fund
will also invest in fixed income securities, including senior and subordinated
corporate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations and preferred stock. The Fund can also make substantial
investments in futures contracts, swaps and other derivatives. The Fund may also
implement Tactical Tilts by investing in one or more of the various Underlying
Funds.
|
A.
General Risks of the Underlying Funds and
Securities |
The Fund
will be subject to the risks associated with common stocks and other equity
investments. In general, the values of equity investments fluctuate in response
to the activities of individual companies and in response to general market and
economic conditions. Accordingly, the values of the equity investments that the
Fund holds may decline over short or extended periods. The stock markets tend to
be cyclical, with periods when stock prices generally rise and periods when
prices generally decline. In recent years, stock markets have experienced
substantial price volatility.
The Fund
and one or more Underlying Funds will be subject to the risks associated with
fixed income securities. These risks include interest rate risk, credit/default
risk and call/extension risk. In general, interest rate risk involves the risk
that when interest rates decline, the market value of fixed income securities
tends to increase (although many mortgage-related securities will have less
potential than other debt securities for capital appreciation during periods of
declining rates). Conversely, when interest rates increase, the market value of
fixed income securities tends to decline. Credit/default risk involves the risk
that the issuer or guarantor could default on its obligations, and the Fund
and/or an Underlying Fund will not recover its investment. Call risk and
extension risk are normally present in asset-backed securities. For example,
borrowers have the option to prepay their loans. Therefore, the duration of an
asset-backed security can either shorten (call risk) or lengthen (extension
risk). In general, if interest rates on new loans fall sufficiently below the
interest rates on existing outstanding loans, the rate of prepayment would be
expected to increase. Conversely, if loan interest rates rise above the interest
rates on existing outstanding loans, the rate of prepayment would be expected to
decrease. In either case, a change in the prepayment rate can result in losses
to investors.
The Fund
and certain Underlying Funds will invest in non-investment grade fixed income
securities (commonly referred to as “junk bonds”), which are rated below
investment grade (or determined to be of comparable credit quality, if not
rated) at the time of purchase and are therefore considered speculative. Because
non-investment grade fixed income securities are issued by issuers with low
credit ratings, they pose a greater risk of default than investment grade
securities.
A rising
interest rate environment could cause the value of the Fund’s fixed income
securities to decrease, and fixed income markets to experience increased
volatility in addition to heightened levels of liquidity risk. Additionally,
decreases in the value of fixed income securities could lead to increased
shareholder redemptions, which could impair the Fund’s ability to achieve its
investment objective. The risks associated with increasing interest rates are
heightened given that interest rates are near historic lows, but may be expected
to increase in the future with unpredictable effects on the markets and the
Fund’s and/or an Underlying Fund’s investments.
To the
extent the Fund and one or more Underlying Funds invest in pooled investment
vehicles (including investment companies and ETFs), partnerships and REITs, the
Fund and/or Underlying Fund will be affected by the investment policies,
practices and performances of such entities in direct proportion to the amount
of assets the Fund and/or Underlying Fund invests therein.
The Fund
and one or more Underlying Funds may use derivative instruments, including
financial futures contracts and swap transactions, as well as other types of
derivatives. The Fund’s and/or an Underlying Fund’s investments in derivative
instruments, including financial futures contracts and swaps, may be
significant.
63
The Fund
and one or more Underlying Funds may, from time to time, enter into arrangements
with certain brokers or other counterparties that require the segregation of
collateral. For operational, cost or other reasons, when setting up arrangements
relating to the execution/clearing of trades, the Fund and/or an Underlying Fund
may choose to select a segregation model which may not be the most protective
option available in the case of a default by a broker or
counterparty.
The Fund
and one or more Underlying Funds’ investment adviser(s) will not consider the
portfolio turnover rate a limiting factor in making investment decisions for the
Fund and/or an Underlying Fund. A high rate of portfolio turnover (100% or more)
involves correspondingly greater expenses which must be borne by the Fund and/or
an Underlying Fund and its shareholders and is also likely to result in higher
short-term capital gains taxable to certain shareholders. The portfolio turnover
rate is calculated by dividing the lesser of the dollar amount of sales or
purchases of portfolio securities by the average monthly value of the Fund
and/or an Underlying Fund’s portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. See “Financial Highlights”
in Appendix B for a statement of the Fund’s historical turnover
rates.
|
B.
Other Risks of the Fund and the Underlying
Funds |
Risks
of Investing in Mid-Capitalization and Small-Capitalization Companies and
REITs
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may, to the extent consistent with their investment
policies, invest in mid- and small capitalization companies and REITs.
Investments in mid- and small capitalization companies and REITs involve greater
risk and portfolio price volatility than investments in larger capitalization
stocks. Among the reasons for the greater price volatility of these investments
are the less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Mid- and small capitalization
companies may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain periods
the liquidity of particular issuers or industries, or all securities in
particular investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions, whether or not accurate. Because of the lack of sufficient
market liquidity, the Fund and/or an Underlying Fund may incur losses because
they will be required to effect sales at a disadvantageous time and only then at
a substantial drop in price. Mid- and small capitalization companies and REITs
include “unseasoned” issuers that do not have an established financial history;
often have limited product lines, markets or financial resources; may depend on
or use a few key personnel for management; and may be susceptible to losses and
risks of bankruptcy. Mid- and small capitalization companies may be operating at
a loss or have significant variations in operating results; may be engaged in a
rapidly changing business with products subject to a substantial risk of
obsolescence; may require substantial additional capital to support their
operations, to finance expansion or to maintain their competitive position; and
may have substantial borrowings or may otherwise have a weak financial
condition. In addition, these companies may face intense competition, including
competition from companies with greater financial resources, more extensive
development, manufacturing, marketing, and other capabilities, and a larger
number of qualified managerial and technical personnel. Transaction costs for
these investments are often higher than those for larger capitalization
companies. Investments in mid- and small capitalization companies and REITs may
be more difficult to price precisely than other types of securities because of
their characteristics and lower trading volumes.
Downgraded
Securities
(The
Fund and one or more Underlying Funds). After
its purchase, a portfolio security may be assigned a lower rating or cease to be
rated, which may affect the market value and liquidity of the security. If this
occurs, the Fund and/or an Underlying Fund may continue to hold the security if
its investment adviser believes it is in the best interest of the Fund and/or an
Underlying Fund and their shareholders.
Credit/Default
Risks
(The
Fund and one or more Underlying Funds). Debt
securities purchased by the Fund and/or an Underlying Fund may include
securities (including zero coupon bonds) issued by the U.S. government (and its
agencies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Some of these fixed
income securities are described in the next section below. Further information
is provided in the SAI, which is available upon request.
Certain
Underlying Funds also have credit rating requirements for the securities they
buy, which are applied at the time of purchase. For the purpose of determining
compliance with any credit rating requirement, an Underlying Fund assigns a
security, at the time of purchase, the highest rating by an NRSRO if the
security is rated by more than one NRSRO. For this purpose, an Underlying Fund
relies only on the ratings of the following NRSROs: Standard & Poor’s,
Moody’s and Fitch, Inc. Unrated securities may be purchased by an Underlying
Fund if they are determined by the Investment Adviser to be of a credit quality
consistent with the Underlying Fund’s credit rating requirements.
A security
satisfies an Underlying Fund’s minimum rating requirement regardless of its
relative ranking (for example, plus or minus) within a designated major rating
category (for example, BBB- or Baa3). If a security satisfies an Underlying
Fund’s minimum rating requirement at the time of purchase and is subsequently
downgraded below such rating, the Underlying Fund will not be required to
dispose of the security. If a downgrade occurs, the Underlying Fund’s investment
adviser will consider what action, including the sale of the security, is in the
best interest of the Underlying Fund and its shareholders.
64
Appendix
A
Debt
securities rated BBB- or higher by Standard & Poor’s or Baa3 or higher by
Moody’s or having a comparable credit rating by another NRSRO (or, if unrated,
determined by the Underlying Fund’s investment adviser to be of comparable
credit quality) are considered “investment grade.” Securities rated BBB- or Baa3
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their issuers’
capacity to pay interest and repay principal.
The Fund
and/or certain Underlying Funds may invest in fixed income securities rated BB+
or Ba1 or below (or comparable unrated securities) which are commonly known as
“junk bonds.” Junk bonds are considered speculative and may be questionable as
to principal and interest payments.
In some
cases, junk bonds may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. As a result, investment in such
bonds will present greater speculative risks than those associated with
investment in investment grade bonds. Also, to the extent that the rating
assigned to a security in the Fund and/or an Underlying Fund’s portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected.
Risks
of Foreign Investments
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may make foreign investments. Foreign investments
involve special risks that are not typically associated with U.S. dollar
denominated or quoted securities of U.S. issuers. Foreign investments may be
affected by changes in currency rates, changes in foreign or U.S. laws or
restrictions applicable to such investments and changes in exchange control
regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e.,
weakening of the currency against the U.S. dollar) in which a portfolio security
is quoted or denominated relative to the U.S. dollar would reduce the value of
the portfolio security. In addition, if the currency in which the Fund and/or an
Underlying Fund receives dividends, interest or other payments declines in value
against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Fund and/or an Underlying Fund
may have to sell portfolio securities to obtain sufficient cash to pay such
dividends.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. International trade barriers or
economic sanctions against foreign countries, organizations, entities and/or
individuals may adversely affect the Fund and/or an Underlying Fund’s foreign
holdings or exposures. Certain foreign markets may rely heavily on particular
industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, organizations, entities and/or individuals, changes in
international trading patterns, trade barriers, and other protectionist or
retaliatory measures. International trade barriers or economic sanctions against
foreign countries, organizations, entities and/or individuals may adversely
affect the Fund and/or an Underlying Fund’s foreign holdings or exposures. The
type and severity and other similar measures, including counter sanctions and
other retaliatory actions, that may be imposed could vary broadly in scope, and
their impact is impossible to predict. These types of measures may include, but
are not limited to, banning a sanctioned country from global payment systems
that facilitate cross-border payments, restricting the settlement of securities
transactions by certain investors, and freezing the assets of particular
countries, entities, or persons. The imposition of sanctions and other similar
measures could, among other things, cause a decline in the value and/or
liquidity or securities issued by the sanctioned country, downgrades in the
credit ratings of the sanctioned country or companies located in or economically
tied to the sanctioned country, devaluation of the sanctioned country’s
currency, and increased market volatility and disruption in the sanctioned
country and throughout the world. Sanctions and other similar measures could
limit or prevent the Fund from buying and selling securities (in the sanctioned
country and other markets), significantly delay or prevent the settlement of
securities transactions, and significantly impact the Fund’s liquidity and
performance.
Brokerage
commissions, custodial services and other costs relating to investment in
international securities markets generally are more expensive than in the United
States. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. issuers. There may be
less publicly available information about a foreign issuer than about a U.S.
issuer. In addition, there is generally less government regulation of foreign
markets, companies and securities dealers than in the United States, and the
legal remedies for investors may be more limited than the remedies available in
the United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some cases,
capital gains distributions), limitations on the removal of funds or other
assets from such countries, and risks of political or social instability or
diplomatic developments which could adversely affect investments in those
countries.
65
Certain
foreign investments may become less liquid in response to social, political or
market developments or adverse investor perceptions, or become illiquid after
purchase by Fund and/or an Underlying Fund, particularly during periods of
market turmoil. Certain foreign investments may become illiquid when, for
instance, there are few, if any, interested buyers and sellers or when dealers
are unwilling to make a market for certain securities. When the Fund and/or an
Underlying Fund holds illiquid investments, its portfolio may be harder to
value, especially in changing markets.
If the Fund
and/or an Underlying Fund focuses its investments in one or a few countries and
currencies, the Fund and/or an Underlying Fund may be subjected to greater risks
than if an Underlying Fund’s assets were not geographically focused.
Investments
in foreign securities may take the form of sponsored and unsponsored American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). The Fund
and certain Underlying Funds may also invest in European Depositary Receipts
(“EDRs”) or other similar instruments representing securities of foreign
issuers. ADRs, GDRs and EDRs represent the right to receive securities of
foreign issuers deposited in a bank or other depository. ADRs and certain GDRs
are traded in the United States. GDRs may be traded in either the United States
or in foreign markets. EDRs are traded primarily outside the United States.
Prices of ADRs are quoted in U.S. dollars. EDRs and GDRs are not necessarily
quoted in the same currency as the underlying security.
Foreign
Custody Risk
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund that invests in foreign securities may hold such
securities and cash with foreign banks, agents, and securities depositories
appointed by the Fund’s and/or an Underlying Fund’s custodian (each a “Foreign
Custodian”). Some Foreign Custodians may be recently organized or new to the
foreign custody business. In some countries, Foreign Custodians may be subject
to little or no regulatory oversight over or independent evaluation of their
operations. Further, the laws of certain countries may place limitations on the
Fund’s and/or an Underlying Fund’s ability to recover its assets if a Foreign
Custodian enters bankruptcy. Investments in emerging markets may be subject to
even greater custody risks than investments in more developed markets. Custody
services in emerging market countries are very often undeveloped and may be
considerably less well regulated than in more developed countries, and thus may
not afford the same level of investor protection as would apply in developed
countries.
Risks
of Sovereign Debt
(The
Fund and one or more Underlying Funds).
Investment in sovereign debt obligations by the Fund and/or an Underlying Fund
involves risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the Underlying Fund may have limited
recourse to compel payment in the event of a default. Periods of economic
uncertainty may result in the volatility of market prices of sovereign debt, and
in turn the Fund’s and/or an Underlying Fund’s NAV, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers.
A sovereign
debtor’s willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency 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, the sovereign debtor’s policy toward
international lenders, and the political constraint to which a sovereign debtor
may be subject.
Risks
of Emerging Countries
(The
Fund and one or more Underlying Funds). The Fund
and one or more Underlying Funds may invest in securities of issuers located in,
or otherwise economically tied to, emerging countries. The risks of foreign
investment are heightened when the issuer is located in an emerging country.
Emerging countries are generally located in Africa, Asia, the Middle East,
Eastern and Central Europe, and Central and South America. The Fund’s or an
Underlying Fund’s purchase and sale of portfolio securities in certain emerging
countries may be constrained by limitations relating to daily changes in the
prices of listed securities, periodic trading or settlement volume and/or
limitations on aggregate holdings of foreign investors. Such limitations may be
computed based on the aggregate trading volume by or holdings of the Fund and/or
an Underlying Fund, the Fund’s and/or an Underlying Fund’s investment adviser,
its affiliates and their respective clients and other service providers. The
Fund and/or an Underlying Fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached.
Foreign
investment in the securities markets of certain emerging countries is restricted
or controlled to varying degrees which may limit investment in such countries or
increase the administrative costs of such investments. For example, certain
Asian countries require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage of
an issuer’s outstanding securities or a specific class of securities which may
have less advantageous terms (including price) than securities of the issuer
available for purchase by nationals. In addition, certain countries may restrict
or prohibit investment opportunities in issuers or industries deemed important
to national interests. Such restrictions may affect the market price, liquidity
and rights of securities that may be purchased by the Fund and/or an Underlying
Fund. The repatriation of investment income, capital or the proceeds of
securities sales from certain emerging countries is subject to restrictions such
as the need for governmental consents, which may make it difficult for the Fund
or an Underlying Fund to invest in such emerging countries. The Fund or an
Underlying Fund could be adversely affected by delays in, or refusal to grant,
any required governmental approval for such repatriation. In situations where a
country restricts direct investment in securities (which may occur in certain
Asian and other countries), the Fund and/or an Underlying Fund may invest in
such countries through other investment funds in such countries.
66
Appendix
A
Emerging
market countries may have more or less government regulation and generally do
not impose as extensive and frequent accounting, auditing, financial and other
reporting requirements as the securities markets of more developed countries.
The degree of cooperation between issuers in emerging and frontier market
countries with foreign and U.S. financial regulators may vary significantly.
Accordingly, regulators may not have sufficient access to audit and oversee
issuers, and there could be less information available about issuers in certain
emerging market countries. As a result, the Investment Adviser’s ability to
evaluate local companies or their potential impact on the Fund’s or an
Underlying Fund’s performance could be inhibited.
Many
emerging countries have experienced currency devaluations and substantial (and,
in some cases, extremely high) rates of inflation. Other emerging countries have
experienced economic recessions. These circumstances have had a negative effect
on the economies and securities markets of such emerging countries. Economies in
emerging countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be affected
adversely by the economies of their trading partners, trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Many
emerging countries are subject to a substantial degree of economic, political
and social instability. Governments of some emerging countries are authoritarian
in nature or have been installed or removed as a result of military coups, while
governments in other emerging countries have periodically used force to suppress
civil dissent. Disparities of wealth, the pace and success of democratization,
and ethnic, religious and racial disaffection, among other factors, have also
led to social unrest, violence and/or labor unrest in some emerging countries.
Unanticipated political or social developments may result in sudden and
significant investment losses. Investing in emerging countries involves greater
risk of loss due to expropriation, nationalization, confiscation of assets and
property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. As an example, in the past some Eastern
European governments have expropriated substantial amounts of private property,
and many claims of the property owners have never been fully settled. There is
no assurance that similar expropriations will not occur in other
countries.
The Fund
and/or Underlying Fund’s investments in emerging countries may also be subject
to withholding or other taxes, which may be significant and may reduce the
return to the Fund and/or an Underlying Fund from an investment in issuers in
such countries.
Settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve an Underlying Fund’s delivery of
securities before receipt of payment for their sale. In addition, significant
delays may occur in certain markets in registering the transfer of securities.
Settlement or registration problems may make it more difficult for the Fund
and/or an Underlying Fund to value its portfolio securities and could cause the
Fund and/or an Underlying Fund to miss attractive investment opportunities, to
have a portion of its assets uninvested or to incur losses due to the failure of
a counterparty to pay for securities the Fund and/or an Underlying Fund has
delivered or the Fund and/or an Underlying Fund’s inability to complete its
contractual obligations because of theft or other reasons.
The
creditworthiness of the local securities firms used by the Fund and/or an
Underlying Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund and/or an Underlying Fund may be subject to a greater risk of loss if a
securities firm defaults in the performance of its responsibilities.
The small
size and inexperience of the securities markets in certain emerging countries
and the limited volume of trading in securities in those countries may make the
Fund and/or an Underlying Fund’s investments in such countries less liquid and
more volatile than investments in countries with more developed securities
markets (such as the United States, Japan and most Western European countries).
The Fund and/or an Underlying Fund’s investments in emerging countries are
subject to the risk that the liquidity of a particular investment, or
investments generally, in such countries will shrink or disappear suddenly and
without warning as a result of adverse economic, market or political conditions,
or adverse investor perceptions, whether or not accurate. Because of the lack of
sufficient market liquidity, the Fund and/or an Underlying Fund may incur losses
because it will be required to effect sales at a disadvantageous time and then
only at a substantial drop in price. Investments in emerging countries may be
more difficult to value precisely because of the characteristics discussed above
and lower trading volumes.
The Fund’s
and/or an Underlying Fund’s use of foreign currency management techniques in
emerging countries may be limited. The Fund’s and/or an Underlying Fund’s
investment advisers anticipate that a significant portion of the Fund’s and/ or
an Underlying Fund’s currency exposure in emerging countries may not be covered
by those techniques.
Risks
of Writing Index and Related ETF Call Options
(The
Fund and one or more Underlying Funds). When the
Fund and/or an Underlying Fund writes (sells) index options, respectively, or
related ETF call options, they forego the opportunity to benefit from an
increase in the value of the respective index or related ETF above the exercise
price (plus the premium received) of the option, but they continue to bear the
risk of a decline in the value of the respective index or related ETF. As the
seller of the respective indexes or related ETF call options, the Fund and/or an
Underlying Fund receives cash (the “premium”) from the purchaser. Depending upon
the type of call option, the purchaser of an index or related ETF call option
either (i) has the right to any appreciation in the value of the index or
related ETF over a fixed price (the “exercise price”) on a certain date in the
future (the “expiration date”) or (ii) has the right to any appreciation in the
value of the index or related ETF over the exercise price at any time prior to
the expiration of the option. If the purchaser does not exercise the option, the
Fund and/or an Underlying Fund retains the premium. If the purchaser exercises
the
67
option, the
Fund and/or an Underlying Fund pays the purchaser the difference between the
price of the index or related ETF and the exercise price of the option. The
premium, the exercise price and the market value of the index or related ETF
determine the gain or loss realized by the Fund and/or an Underlying Fund as the
seller of the index or related ETF call option. The Fund and/or an Underlying
Fund can also repurchase the call option prior to the expiration date, ending
their obligation. In this case, the cost of entering into closing purchase
transactions will determine the gain or loss realized by the Fund and/or an
Underlying Fund.
There is no
assurance that a liquid market will be available at all times for the Fund
and/or an Underlying Fund to write call options or to enter into closing
purchase transactions. In addition, the premiums the Fund and/or an Underlying
Fund receives for writing call options may decrease as a result of a number of
factors, including a reduction in interest rates generally, a decline in stock
market volumes or a decrease in the price volatility of the underlying
securities. For more information see “Fund Securities and Techniques—Options on
Securities, Securities Indices and Foreign Currencies.”
Risks
of Derivative Investments
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may, to the extent consistent with their respective
investment policies, invest in derivative instruments, including without
limitation, options, futures, options on futures, swaps, interest rate caps,
floors and collars, structured securities and forward contracts and other
derivatives relating to foreign currency transactions. Derivatives may be used
for both hedging and nonhedging purposes (that is, to seek to increase total
return), although suitable derivative instruments may not always be available to
an investment adviser for these purposes. Losses from derivative instruments can
result from a lack of correlation between changes in the value of derivative
instruments and the portfolio assets (if any) being hedged, the potential
illiquidity of the markets for derivative instruments, the failure of the
counterparty to perform its contractual obligations, or the risks related to
leverage factors associated with such transactions. Derivatives are also subject
to risks arising from margin requirements, which include the risk that the Fund
and/or an Underlying Fund will be required to pay additional margin or set aside
additional collateral to maintain open derivative positions and the risk of loss
by the Fund and/or an Underlying Fund of margin deposits in the event of the
bankruptcy or other similar insolvency with respect to a broker or counterparty
with whom the Fund and/or an Underlying Fund has an open derivative position.
Losses may also arise if the Fund and/or Underlying Fund receives cash
collateral under the transactions and some or all of that collateral is invested
in the market. To the extent that cash collateral is so invested, such
collateral will be subject to market depreciation or appreciation, and the Fund
and/or Underlying Fund may be responsible for any loss that might result from
its investment of the counterparty’s cash collateral. If cash collateral is not
invested, the Fund may be exposed to additional risk of loss in the event of the
insolvency of its custodian holding such collateral. The use of these management
techniques also involves the risk of loss if the investment adviser is incorrect
in its expectation of the timing or level of fluctuations in securities prices,
interest rates, or currency prices or other variables. Derivative instruments
may be harder to value, subject to greater volatility and more likely subject to
changes in tax treatment than other investments. For these reasons, the
Investment Adviser’s attempts to hedge portfolio risks through the use of
derivative instruments may not be successful, and the investment adviser may
choose not to hedge portfolio risks. Using derivatives for nonhedging purposes
is considered a speculative practice and presents greater risk of loss than
derivatives used for hedging purposes.
Derivative
mortgage-backed securities (such as principal-only (“POs”), interest-only
(“IOs”) or inverse floating rate securities) are particularly exposed to call
and extension risks. Small changes in mortgage prepayments can significantly
impact the cash flow and the market value of these securities. In general, the
risk of faster than anticipated prepayments adversely affects IOs, super
floaters and premium priced mortgage-backed securities. The risk of slower than
anticipated prepayments generally adversely affects POs, floating-rate
securities subject to interest rate caps, support tranches and discount priced
mortgage-backed securities. In addition, particular derivative instruments may
be leveraged such that their exposure (i.e., price
sensitivity) to interest rate and/or prepayment risk is magnified.
Some
floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject to
the risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest
rates.
Risks
of Structured Investment Vehicles
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in structured investment vehicles (“SIVs”).
SIVs are legal entities that are sponsored by banks, broker-dealers or other
financial firms specifically created for the purpose of issuing particular
securities or instruments. SIVs are often leveraged and securities issued by
SIVs may have differing credit preferences. Investments in SIVs present
counterparty risks, although they may be subject to a guarantee or other
financial support by the sponsoring entity. Investments in SIVs may be more
volatile, less liquid and more difficult to price accurately than other types of
investments.
Risks
of Equity Swap Transactions
(The
Fund). The Fund
participates in equity swap transactions. In a standard “swap” transaction, two
parties agree to exchange the returns, differentials in rates of return or some
other amount earned or realized on a particular predetermined asset (or group of
assets) which may be adjusted for transaction costs, interest payments,
dividends paid on the reference asset or other factors. The gross returns to be
exchanged or “swapped” between the parties are generally calculated with respect
to a “notional amount,” for example, the increase or decrease in value of a
particular dollar amount invested in the asset.
68
Appendix
A
Equity
swaps may be structured in different ways. For example, when the Fund takes a
long position, a counterparty may agree to pay the Fund the amount, if any, by
which the notional amount of the equity swap would have increased in value had
it been invested in a particular stock (or group of stocks, including custom
baskets), plus the dividends that would have been received on the stock. In
these cases, the Fund may agree to pay to the counterparty interest on the
notional amount of the equity swap plus the amount, if any, by which that
notional amount would have decreased in value had it been invested in such stock
(or group of stocks, including custom baskets). Therefore, in this case the
return to the Fund on the equity swap should be the gain or loss on the notional
amount plus dividends on the stock less the interest paid by the Fund on the
notional amount. In other cases, when the Fund takes a short position, a
counterparty may agree to pay the Fund the amount, if any, by which the notional
amount of the equity swap would have decreased in value had the Fund sold a
particular stock (or group of stocks, including custom baskets) short, less the
dividend expense that the Fund would have paid on the stock (or group of stocks,
including custom baskets), as adjusted for interest payments or other economic
factors.
Under an
equity swap, payments may be made at the conclusion of the equity swap or
periodically during its term. Sometimes, however, the investment adviser of the
Fund may be able to terminate a swap contract prior to its term, subject to any
potential termination fee that is in addition to the Fund’s accrued obligations
under the swap.
Equity
swaps are derivatives and their value can be very volatile. To the extent that
the investment adviser of the Fund does not accurately analyze and predict
future market trends, the values of assets or economic factors, or the
creditworthiness of the counterparty, the Fund may suffer a loss, which may be
substantial.
Risks
of Short Positions
(The
Fund). The Fund
may engage in short selling. In these transactions, the Fund sells an instrument
it does not own in anticipation of a decline in the market value of the
instrument, then must borrow the security to make delivery to the buyer. The
Fund is obligated to replace the instrument borrowed by purchasing it at the
market price at the time of replacement. The value at such time may be more or
less than the value at which the instrument was sold by the Fund, which may
result in a loss or gain, respectively. Unlike purchasing an instrument like a
stock, where potential losses are limited to the purchase price and there is no
upside limit on potential gain, short sales involve no cap on maximum losses,
while gains are limited to the value of the stock at the time of the short
sale.
The Fund
may, during the term of any short sale, withdraw the cash proceeds of such short
sale and use these cash proceeds to purchase additional securities or for any
other purposes. Because cash proceeds are assets of the Fund which are typically
used to satisfy the collateral requirements for the short sale, the reinvestment
of these cash proceeds may require the Fund to post as collateral other
securities that it owns. If the Fund reinvests the cash proceeds, the Fund might
be required to post an amount greater than its net assets (but less than its
total assets) as collateral. For these or other reasons, the Fund might be
required to liquidate long and short positions at times that may be
disadvantageous to the Fund.
The Fund
and certain of the Underlying Funds may make short sales against the box, in
which the Fund and/or an Underlying Fund enters into a short sale of an
instrument which it owns or has the right to obtain at no additional
cost.
The SEC and
financial industry regulatory authorities in other countries have imposed
temporary prohibitions and restrictions on certain types of short sale
transactions. These prohibitions and restrictions, or the imposition of other
regulatory requirements on short selling in the future, could inhibit the
ability of the Investment Adviser to sell securities on behalf of the
Fund.
Risks
of Illiquid Investments
(The
Fund and one or more Underlying Funds). The Fund
and each Underlying Fund may not acquire any “illiquid investment” if,
immediately after the acquisition, the Fund or Underlying Fund would have
invested more than 15% of their net assets in illiquid investments that are
assets. An “illiquid investment” is an investment that the Fund or an Underlying
Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. In determining
whether an investment is an illiquid investment, the Investment Adviser will
take into account actual or estimated daily transaction volume of an investment,
group of related investments or asset class and other relevant market, trading,
and investment-specific considerations. In addition, in determining the
liquidity of an investment, the Investment Adviser must determine whether
trading varying portions of a position in a particular portfolio investment or
asset class, in sizes that the Fund and/or an Underlying Fund would reasonably
anticipate trading, is reasonably expected to significantly affect its
liquidity, and if so, the Fund and/or an Underlying Fund must take this
determination into account when classifying the liquidity of that investment or
asset class.
Investments
purchased by the Fund and/or an Underlying Fund that are liquid at the time of
purchase may subsequently become illiquid. If one or more investments in the
Fund and/or an Underlying Fund’s portfolio become illiquid, the Fund and/or
Underlying Fund may exceed the 15% limitation in illiquid investments. In the
event that changes in the portfolio or other external events cause the Fund
and/or Underlying Fund to exceed this limit, the Fund and/or an Underlying Fund
must take steps to bring its illiquid investments to or below 15% of its net
assets within a reasonable period of time. This requirement would not force the
Fund and/or Underlying Fund to liquidate any portfolio instrument where the Fund
and/or an Underlying Fund would suffer a loss on the sale of that
instrument.
69
In cases
where no clear indication of the value of the Fund and/or an Underlying Fund’s
portfolio instruments is available, the portfolio securities will be valued at
their fair value according to the valuation procedures approved by the Board of
Trustees. These cases include, among others, situations where a security or
other asset or liability does not have a price source, or the secondary markets
on which an investment has previously been traded are no longer viable, due to
its lack of liquidity. For more information on fair valuation, please see “How
To Buy Shares—How Are Shares Priced?”
Temporary
Investment Risks
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may, for temporary defensive purposes (and to the
extent it is permitted to invest in the following), invest up to 100% of its
total assets in:
◼
U.S.
Government Securities
◼
Commercial
paper rated at least A-2 by Standard & Poor’s; P-2 by Moody’s or having a
comparable credit rating by another NRSRO (or, if unrated, determined by the
Investment Adviser to be of comparable credit quality)
◼
Certificates
of deposit
◼
Bankers’
acceptances
◼
Repurchase
agreements
◼
Non-convertible
preferred stocks and non-convertible corporate bonds with a remaining maturity
of less than one year
◼
ETFs
◼
Other
investment companies
◼
Cash
items
When the
Fund or an Underlying Fund’s assets are invested in such instruments, the Fund
and/or an Underlying Fund may not be achieving its investment
objective.
|
C.
Investment Securities and
Techniques |
This
section provides further information on certain types of securities and
investment techniques that may be used by the Fund and/or an Underlying Fund,
including their associated risks.
The Fund
and/or an Underlying Fund may purchase other types of securities or instruments
similar to those described in this section if otherwise consistent with the
Fund’s and/or an Underlying Fund’s investment objective and policies. Further
information is provided in the SAI, which is available upon request.
The
Investment Adviser is subject to registration and regulation as a “commodity
pool operator” (“CPO”) under the Commodity Exchange Act (“CEA”) with respect to
its service as investment adviser to the Fund. The Investment Adviser is exempt
from certain CFTC recordkeeping, reporting and disclosure requirements under
CFTC Rule 4.7 with respect to the Subsidiary.
U.S.
Government Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in U.S. Government Securities. U.S.
Government Securities include U.S. Treasury obligations and obligations issued
or guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities may be supported by (i) the full faith
and credit of the U.S. Treasury; (ii) the right of the issuer to borrow from the
U.S. Treasury; (iii) the discretionary authority of the U.S. government to
purchase certain obligations of the issuer; or (iv) only the credit of the
issuer. U.S. Government Securities also include Treasury receipts, zero coupon
bonds and other stripped U.S. Government Securities, where the interest and
principal components are traded independently. U.S. Government Securities may
also include Treasury inflation-protected securities whose principal value is
periodically adjusted according to the rate of inflation.
U.S.
Treasury Obligations include, among other things, the separately traded
principal and interest components of securities guaranteed or issued by the U.S.
Treasury if such components are traded independently under the Separate Trading
of Registered Interest and Principal of Securities program
(“STRIPS”).
U.S.
Government Securities are deemed to include (i) securities for which the payment
of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (ii)
participations in loans made to foreign governments or their agencies that are
so guaranteed. Certain of these participations may be regarded as
illiquid.
U.S.
Treasury Securities have historically involved little risk of loss of principal
if held to maturity. However, no assurance can be given that the U.S. government
will be able or willing to repay the principal or interest when due or provide
financial support to U.S. government agencies, authorities, instrumentalities or
sponsored enterprises that issue U.S. Government Securities if it is not
obligated to do so by law.
Custodial
Receipts and Trust Certificates
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in custodial receipts and trust
certificates representing interests in securities held by a custodian or
trustee. The securities so held may include U.S. Government Securities,
Municipal Securities or other types of securities in which the Fund and/or an
Underlying Fund may invest. The custodial receipts or trust certificates may
evidence ownership of future interest payments, principal payments or
70
Appendix
A
both on the
underlying securities, or, in some cases, the payment obligation of a third
party that has entered into an interest rate swap or other arrangement with the
custodian or trustee. For certain securities laws purposes, custodial receipts
and trust certificates may not be considered obligations of the U.S. government
or other issuer of the securities held by the custodian or trustee. If for tax
purposes the Fund and/or an Underlying Fund is not considered to be the owner of
the underlying securities held in the custodial or trust account, the Fund
and/or an Underlying Fund may suffer adverse tax consequences. As a holder of
custodial receipts and trust certificates, the Fund and/or an Underlying Fund
will bear its proportionate share of the fees and expenses charged to the
custodial account or trust. The Fund and/or an Underlying Fund may also invest
in separately issued interests in custodial receipts and trust
certificates.
Mortgage-Backed
Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in securities that represent direct or
indirect participations in, or are collateralized by and payable from, mortgage
loans secured by real property (“Mortgage-Backed Securities”). Mortgage-Backed
Securities can be backed by either fixed rate mortgage loans or adjustable rate
mortgage loans, and may be issued by either a governmental or non-governmental
entity. The value of some Mortgage-Backed Securities may be particularly
sensitive to changes in prevailing interest rates. The value of these securities
may also fluctuate in response to the market’s perception of the
creditworthiness of the issuers. Early repayment of principal on Mortgage-Backed
or asset-backed Securities may expose the Fund and/or an Underlying Fund to the
risk of earning a lower rate of return upon reinvestment of
principal.
The Fund
and/or certain Underlying Funds may invest in privately-issued mortgage
pass-through securities that represent interests in pools of mortgage loans that
are issued by trusts formed by originators of and institutional investors in
mortgage loans (or represent interests in custodial arrangements administered by
such institutions). These originators and institutions include commercial banks,
savings and loans associations, credit unions, savings banks, mortgage bankers,
insurance companies, investment banks or special purpose subsidiaries of the
foregoing. 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. These mortgage-backed securities
typically do not have the same credit standing as U.S. government guaranteed
mortgage-backed securities.
Privately-issued
mortgage pass-through securities generally offer a higher yield than similar
securities issued by a government entity because of the absence of any direct or
indirect government or agency payment guarantees. However, 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 guarantee that private guarantors or insurers, if any, will meet their
obligations. Mortgage-backed securities without insurance or guarantees may also
be purchased by the Fund and/or an Underlying Fund if they have the required
rating from an NRSRO. Mortgage-backed 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.
Mortgage-backed
securities may include multiple class securities, including collateralized
mortgage obligations (“CMOs”) and Real Estate Mortgage Investment Conduit
(“REMIC”) pass-through or participation certificates. A REMIC is a CMO that
qualifies for special tax treatment under the Code and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. CMOs provide an investor with a specified interest in the cash flow
from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs
are issued in multiple classes each with a specified fixed or floating interest
rate and a final scheduled distribution date. In many cases, payments of
principal are applied to the CMO classes in the order of their respective stated
maturities, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in
full.
Sometimes,
however, CMO classes are “parallel pay,” i.e., payments of principal are made to
two or more classes concurrently. In some cases, CMOs may have the
characteristics of a stripped mortgage-backed security whose price can be highly
volatile. CMOs may exhibit more or less price volatility and interest rate risk
than other types of Mortgage-Backed Securities, and under certain interest rate
and payment scenarios, the Fund and/or an Underlying Fund may fail to recoup
fully its investment in certain of these securities regardless of their credit
quality.
Mortgage-Backed
Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives substantially all of
the interest payments and the other that receives substantially all of the
principal payments from a pool of mortgage loans. The market value of SMBS
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped. Throughout 2008, the market for
mortgage-backed securities began experiencing substantially, often dramatically,
lower valuations and greatly reduced liquidity. Markets for other asset-backed
securities have also been affected. These
71
instruments
are increasingly subject to liquidity constraints, price volatility, credit
downgrades and unexpected increases in default rates and, therefore, may be more
difficult to value and more difficult to dispose of than previously. These
events may have an adverse effect on the Fund and/or an Underlying Fund to the
extent they invest in mortgage-backed or other fixed income securities or
instruments affected by the volatility in the fixed income markets.
Asset-Backed
and Receivables-Backed Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in asset-backed and receivables-backed
securities whose principal and interest payments are collateralized by pools of
assets such as auto loans, credit card receivables, leases, mortgages,
installment contracts and personal property. Asset-backed securities may also
include home equity line of credit loans and other second-lien mortgages.
Asset-backed and receivables-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed and
receivables-backed securities can be expected to accelerate. Accordingly, the
Fund’s and/or an Underlying Fund’s ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time. In addition, securities that are backed by credit card,
automobile and similar types of receivables generally do not have the benefit of
a security interest in collateral that is comparable in quality to mortgage
assets. Some asset-backed securities have only a subordinated claim or security
interest in collateral. If the issuer of an asset-backed security defaults on
its payment obligation, there is the possibility that, in some cases, the Fund
and/or an Underlying Fund will be unable to possess and sell the underlying
collateral and that the Fund’s and/or an Underlying Fund’s recoveries on
repossessed collateral may not be available to support payments on the
securities. In the event of a default, the Fund and/or an Underlying Fund may
suffer a loss if it cannot sell collateral quickly and receive the amount it is
owed. The value of some asset-backed securities may be particularly sensitive to
changes in the prevailing interest rates. There is no guarantee that private
guarantors or insurers of an asset-backed security, if any, will meet their
obligation. Asset-backed securities may also be subject to increased volatility
and may become illiquid and more difficult to value even where there is no
default or threat of default due to the market’s perception of the
creditworthiness of the issuer and market conditions impacting asset-backed
securities more generally.
Municipal
Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in securities and instruments issued by
state and local government issuers (“Municipal Securities”). Municipal
Securities in which the Fund and/or an Underlying Fund may invest consist of
bonds, notes, commercial paper and other instruments (including participation
interests in such securities) issued by or on behalf of the states, territories
and possessions of the United States (including the District of Columbia) and
their political subdivisions, agencies or instrumentalities. Such securities may
pay fixed, variable or floating rates of interest.
Municipal
Securities include both “general” and “revenue” bonds and may be issued to
obtain funds for various purposes. General obligations are secured by the
issuer’s pledge of its full faith, credit and taxing power. Revenue obligations
are payable only from the revenues derived from a particular facility or class
of facilities. Such securities may pay fixed, variable or floating rates of
interest.
Municipal
Securities are often issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. Municipal Securities in which the Fund and/or an Underlying Fund may
invest include private activity bonds, pre-refunded Municipal Securities and
auction rate securities. Dividends paid by the Fund and/or an Underlying Fund
based on investments in private activity bonds will be subject to alternative
minimum tax.
The
obligations of the issuer to pay the principal of and interest on a Municipal
Security are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the Federal Bankruptcy
Act, and laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest or imposing other
constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due the principal of or interest on a
municipal security may be materially affected.
In
addition, Municipal Securities include municipal leases, certificates of
participation and “moral obligation” bonds. A municipal lease is an obligation
issued by a state or local government to acquire equipment or facilities.
Certificates of participation represent interests in municipal leases or other
instruments, such as installment purchase agreements. Moral obligation bonds are
supported by a moral commitment but not a legal obligation of a state or local
government. Municipal leases, certificates of participation and moral obligation
bonds frequently involve special risks not normally associated with general
obligation or revenue bonds. In particular, these instruments permit
governmental issuers to acquire property and equipment without meeting
constitutional and statutory requirements for the issuance of debt. If, however,
the governmental issuer does not periodically appropriate money to enable it to
meet its payment
72
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A
obligations
under these instruments, it cannot be legally compelled to do so. If a default
occurs, it is likely that the Fund and/or an Underlying Fund would be unable to
obtain another acceptable source of payment. Some municipal leases, certificates
of participation and moral obligation bonds may be illiquid. Municipalities
continue to experience difficulties in the current economic and political
environment.
Municipal
Securities may also be in the form of a tender option bond, which is a Municipal
Security (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term, tax-exempt rates. The bond is typically
issued with the agreement of a third party, such as a bank, broker-dealer or
other financial institution, which grants the security holders the option, at
periodic intervals, to tender their securities to the institution. After payment
of a fee to the financial institution that provides this option, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term, tax-exempt rate. An institution may not be obligated to
accept tendered bonds in the event of certain defaults or a significant
downgrading in the credit rating assigned to the issuer of the bond. The tender
option will be taken into account in determining the maturity of the tender
option bonds and the Fund’s and/or an Underlying Fund’s duration. There is risk
that the Fund and/or an Underlying Fund will not be considered the owner of a
tender option bond for federal income tax purposes, and thus will not be
entitled to treat such interest as exempt from federal income tax. Certain
tender option bonds may be illiquid.
Municipal
Securities may be backed by letters of credit or other forms of credit
enhancement issued by domestic or foreign banks or by other financial
institutions. The deterioration of the credit quality of these banks and
financial institutions could, therefore, cause a loss to the Fund and/or an
Underlying Fund that invests in such Municipal Securities. Letters of credit and
other obligations of foreign banks and financial institutions may involve risks
in addition to those of domestic obligations because of less publicly available
financial and other information, less securities regulation, potential
imposition of foreign withholding and other taxes, war, expropriation or other
adverse governmental actions. Foreign banks and their foreign branches are not
regulated by U.S. banking authorities, and are generally not bound by the
accounting, auditing and financial reporting standards applicable to U.S.
banks.
The Fund
and/or an Underlying Fund may invest in Municipal Securities issued by
municipalities, including U.S. territories, commonwealths and possessions, that
may be, or may become, subject to significant financial difficulties. Factors
contributing to such difficulties may include: lower property tax collections as
a result of lower home values, lower sales tax revenue as a result of reduced
consumer spending, lower income tax revenue as a result of higher unemployment
rates, and budgetary constraints of local, state and federal governments upon
which issuers of municipal securities may be relying for funding. Such
securities may be considered below investment grade or may be subject to future
credit downgrades due to concerns over potential default, insolvency or
bankruptcy on the part of their issuers or any credit support provider. During
the recent economic downturn, several municipalities have, in fact, filed for
bankruptcy protection or have indicated that they may seek bankruptcy protection
in the future. A credit downgrade or other adverse news about an issuer or any
credit support provider could impact the market value and liquidity of the
securities and consequently could negatively affect the performance of the Fund
and/or an Underlying Fund that holds such securities.
Brady
Bonds and Similar Instruments
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in debt obligations commonly referred to as
“Brady Bonds.” Brady Bonds are created through the exchange of existing
commercial bank loans to foreign borrowers for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the “Brady Plan”).
Brady Bonds
involve various risk factors including the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds. There can be no assurance that Brady Bonds in which the Fund and/or an
Underlying Fund may invest will not be subject to restructuring arrangements or
to requests for new credit, which may cause the Fund and/or an Underlying Fund
to suffer a loss of interest or principal on its holdings.
In
addition, the Fund and/or an Underlying Fund may invest in other interests
issued by entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by emerging country issuers.
These types of restructuring involve the deposit with or purchase by an entity
of specific instruments and the issuance by that entity of one or more classes
of securities backed by, or representing interests in, the underlying
instruments. Certain issuers of such structured securities may be deemed to be
“investment companies” as defined in the Investment Company Act. As a result,
the Fund’s and/or an Underlying Fund’s investment in such securities may be
limited by certain investment restrictions contained in the Investment Company
Act.
Corporate
Debt Obligations; Bank Obligations; Trust Preferred Securities; Convertible
Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in corporate debt obligations, trust
preferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures, commercial paper and other obligations of U.S.
or foreign corporations to pay interest and repay principal. In addition, the
Fund and certain Underlying Funds may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation, time
deposits, bankers’ acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by governmental regulations. Banks are
subject to extensive but different governmental regulations which may limit both
the amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under
73
prevailing
money market conditions. General economic conditions as well as exposure to
credit losses arising from possible financial difficulties of borrowers play an
important part in the operation of this industry. A trust preferred security is
a long dated bond (for example, 30 years) with preferred features. The preferred
features are that payment of interest can be deferred for a specified period
without initiating a default event. The securities are generally senior in claim
to standard preferred stock but junior to other bondholders. The Fund and
certain Underlying Funds may also invest in other short-term obligations issued
or guaranteed by U.S. corporations, non-U.S. corporations or other
entities.
Convertible
securities are preferred stock or debt obligations that are convertible into
common stock. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. Convertible
securities have both equity and fixed income risk characteristics. Like all
fixed income securities, the value of convertible securities is susceptible to
the risk of market losses attributable to changes in interest rates. Generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, when
the market price of the common stock underlying a convertible security exceeds
the conversion price of the convertible security, the convertible security tends
to reflect the market price of the underlying common stock. As the market price
of the underlying common stock declines, the convertible security, like a fixed
income security, tends to trade increasingly on a yield basis, and thus may not
decline in price to the same extent as the underlying common stock.
Zero
Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation
Bonds
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in zero coupon, deferred interest,
pay-in-kind and capital appreciation bonds. These bonds are issued at a discount
from their face value because interest payments are typically postponed until
maturity. Pay-in-kind securities are securities that have interest payable by
the delivery of additional securities. The market prices of these securities
generally are more volatile than the market prices of interest-bearing
securities and are likely to respond to a greater degree to changes in interest
rates than interest-bearing securities having similar maturities and credit
quality.
Duration
(The
Fund and one or more Underlying Funds). The
duration of the Fund and/or an Underlying Fund approximates its price
sensitivity to changes in interest rates. For example, suppose that interest
rates in one day fall by one percent which, in turn, causes yields on every bond
in the market to fall by the same amount. In this example, the price of a bond
with a duration of three years may be expected to rise approximately three
percent and the price of a bond with a five year duration may be expected to
rise approximately five percent. The converse is also true. Suppose interest
rates in one day rise by one percent which, in turn, causes yields on every bond
in the market to rise by the same amount. In this second example, the price of a
bond with a duration of three years may be expected to fall approximately three
percent and the price of a bond with a five year duration may be expected to
fall approximately five percent. The longer the duration of a bond, the more
sensitive the bond’s price is to changes in interest rates. Maturity measures
the time until final payment is due; it takes no account of the pattern of a
security’s cash flows over time. In calculating maturity, the Fund and/or an
Underlying Fund may determine the maturity of a variable or floating rate
obligation according to its interest rate reset date, or the date principal can
be recovered on demand, rather than the date of ultimate maturity. Similarly, to
the extent that a fixed income obligation has a call, refunding, or redemption
provision, the date on which the instrument is expected to be called, refunded
or redeemed may be considered to be its maturity date. There is no guarantee
that the expected call, refund or redemption will occur, and the Fund’s and/or
an Underlying Fund’s average maturity may lengthen beyond the investment
adviser’s expectations should the expected call, refund or redemption not occur.
In computing portfolio duration, the Fund and/or an Underlying Fund will
estimate the duration of obligations that are subject to prepayment or
redemption by the issuer, taking into account the influence of interest rates on
prepayments and coupon flows. This method of computing duration is known as
“option-adjusted” duration. The investment adviser of the Fund and/or an
Underlying Fund may use futures contracts, options on futures contracts and
swaps to manage the Underlying Fund’s target duration. The Fund and/or an
Underlying Fund will not be limited as to its maximum weighted average portfolio
maturity or the maximum stated maturity with respect to individual securities
unless otherwise noted.
The
investment adviser of an Underlying Fund may use derivative instruments, among
other things, to manage the duration of the Fund’s and/or an Underlying Fund’s
investment portfolio. These derivative instruments include financial futures
contracts and swap transactions, as well as other types of derivatives, and can
be used to shorten and lengthen the duration of the Fund and/or an Underlying
Fund. The Fund’s and/or an Underlying Fund’s investments in derivative
instruments, including financial futures contracts and swaps, can be
significant. These transactions can result in sizeable realized and unrealized
capital gains and losses relative to the gains and losses from an Underlying
Fund’s investments in bonds and other securities. Short-term and long-term
realized capital gains distributions paid by the Fund and/or an Underlying Fund
are taxable to its shareholders.
Interest
rates, fixed income securities prices, the prices of futures and other
derivatives, and currency exchange rates can be volatile, and a variance in the
degree of volatility or in the direction of the market from the Fund’s and/or an
Underlying Fund’s investment adviser’s expectations may produce significant
losses in the Fund’s and/or an Underlying Fund’s investments in derivatives. In
addition, a perfect correlation between a derivatives position and a fixed
income security position is generally impossible to achieve. As a result, the
Fund’s and/or an Underlying Fund’s investment adviser’s use of derivatives may
not be effective in fulfilling the Underlying Fund’s investment adviser’s
investment strategies and may contribute to losses that would not have been
incurred otherwise.
74
Appendix
A
Financial
futures contracts used by the Fund and/or an Underlying Fund may include
interest rate futures contracts. Further information is included in the
Prospectus regarding futures contracts, swaps and other derivative instruments
used by the Fund and/or an Underlying Fund, including information on the risks
presented by these instruments and other purposes for which they may be used by
the Fund and/or an Underlying Fund.
Floating
and Variable Rate Obligations
(The
Fund and one or more Underlying Funds). Floating
rate and variable rate obligations are debt instruments issued by companies or
other entities with interest rates that reset periodically (typically, daily,
monthly, quarterly, or semi-annually) in response to changes in the market rate
of interest on which the interest rate is based. The Fund and/or an Underlying
Fund may purchase floating and variable rate obligations. The value of these
obligations is generally more stable than that of a fixed rate obligation in
response to changes in interest rate levels. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend, and letters of
credit, which will ordinarily be irrevocable both of which may be issued by
domestic banks or foreign banks. The Fund and/or an Underlying Fund may purchase
variable or floating rate obligations from the issuers or may purchase
certificates of participation, a type of floating or variable rate obligation,
which are interests in a pool of debt obligations held by a bank or other
financial institutions.
For
floating and variable rate obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an
interest payment of such an obligation, which could harm or benefit the Fund
and/or an Underlying Fund, depending on the interest rate environment or other
circumstances. In a rising interest rate environment, for example, a floating or
variable rate obligation that does not reset immediately would prevent the Fund
and/or an Underlying Fund from taking full advantage of rising interest rates in
a timely manner. However, in a declining interest rate environment, the Fund
and/or an Underlying Fund may benefit from a lag due to an obligation’s interest
rate payment not being immediately impacted by a decline in interest
rates.
Certain
floating and variable rate obligations have an interest rate floor feature,
which prevents the interest rate payable by the security from dropping below a
specified level as compared to a reference interest rate (the “reference rate”),
such as SOFR, Term SOFR or another rate determined using SOFR. Such a floor
protects the Fund and/or an Underlying Fund from losses resulting from a
decrease in the reference rate below the specified level. However, if the
reference rate is below the floor, there will be a lag between a rise in the
reference rate and a rise in the interest rate payable by the obligation, and
the Fund and/or an Underlying Fund may not benefit from increasing interest
rates for a significant amount of time.
Foreign
Currency Transactions
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may, to the extent consistent with their investment
policies, purchase or sell foreign currencies on a cash basis or through forward
contracts. A forward contract involves an obligation to purchase or sell a
specific currency at a future date at a price set at the time of the contract.
The Fund and/or an Underlying Fund may engage in foreign currency transactions
for hedging purposes and to seek to protect against anticipated changes in
future foreign currency exchange rates. In addition, the Fund and/or an
Underlying Fund may enter into foreign currency transactions to seek a closer
correlation between the Fund’s and/or an Underlying Fund’s overall currency
exposures and the currency exposures of the Fund’s and/or an Underlying Fund’s
performance benchmark. The Fund and/or an Underlying Fund may also enter into
such transactions to seek to increase total return, which presents additional
risk.
The Fund
and/or an Underlying Fund may also engage in cross-hedging by using forward
contracts in a currency different from that in which the hedged security is
denominated or quoted. The Fund and/or an Underlying Fund may hold foreign
currency received in connection with investments in foreign securities when, in
the judgment of the investment adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the
investment adviser may anticipate the foreign currency to appreciate against the
U.S. dollar).
The Fund
and/or an Underlying Fund may, from time to time, engage in non-deliverable
forward transactions to manage currency risk or to gain exposure to a currency
without purchasing securities denominated in that currency. A non-deliverable
forward is a transaction that represents an agreement between the Fund and/or an
Underlying Fund and a counterparty (usually a commercial bank) to pay the other
party the amount that it would cost based on current market rates as of the
termination date to buy or sell a specified (notional) amount of a particular
currency at an agreed upon foreign exchange rate on an agreed upon future date.
If the counterparty defaults, the Fund and/or an Underlying Fund will have
contractual remedies pursuant to the agreement related to the transaction, but
the Fund and/or an Underlying Fund may be delayed or prevented from obtaining
payments owed to it pursuant to non-deliverable forward transactions. Such
non-deliverable forward transactions will be settled in cash.
Currency
exchange rates may fluctuate significantly over short periods of time, causing,
along with other factors, the Fund’s and/or an Underlying Fund’s NAV to
fluctuate. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure to
intervene, or by currency controls or political developments in the United
States or abroad.
Certain
forward foreign currency exchange contracts and other currency transactions are
not exchange traded or cleared. The market in such forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange.
75
Such
contracts are subject to the risk that the counterparty to the contract will
default on its obligations. Because these contracts are not guaranteed by an
exchange or clearinghouse, a default on a contract would deprive the Fund and/or
an Underlying Fund of unrealized profits, transaction costs, or the benefits of
a currency hedge, or could force the Fund and/or an Underlying Fund to cover its
purchase or sale commitments, if any, at the current market price.
The Fund
and certain Underlying Funds are not required to post cash collateral with its
counterparties in certain foreign currency transactions. Accordingly, may remain
more fully invested (and more of the Underlying Fund’s assets may be subject to
investment and market risk) than if it were required to post cash collateral
with its counterparties (which is the case with certain transactions). Where the
Fund’s and certain Underlying Funds’ counterparties are not required to post
cash collateral with the Fund and/or an Underlying Fund, the Fund and/or an
Underlying Fund will be subject to additional counterparty risk.
Non-Investment
Grade Fixed Income Securities
(The
Fund and one or more Underlying Funds).
Non-investment grade fixed income securities and unrated securities of
comparable credit quality (commonly referred to as “junk bonds”) are considered
speculative. In some cases, these obligations may be highly speculative and have
poor prospects for reaching investment grade standing. Non-investment grade
fixed income securities are subject to the increased risk of an issuer’s
inability to meet principal and interest obligations. These securities, also
referred to as high yield securities, may be subject to greater price volatility
due to such factors as specific issuer developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less
liquidity.
Non-investment
grade fixed income securities are often issued in connection with a corporate
reorganization or restructuring or as part of a merger, acquisition, takeover or
similar event. They are also issued by less established companies seeking to
expand. Such issuers are often highly leveraged and generally less able than
more established or less leveraged entities to make scheduled payments of
principal and interest in the event of adverse developments or business
conditions. Non-investment grade securities are also issued by governmental
bodies that may have difficulty in making all scheduled interest and principal
payments.
The market
value of non-investment grade fixed income securities tends to reflect
individual corporate or municipal developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, the Fund’s and/or an Underlying Fund’s
ability to achieve its investment objectives may depend to a greater extent on
the investment adviser’s judgment concerning the creditworthiness of issuers
than funds which invest in higher-rated securities. Issuers of non-investment
grade fixed income securities may not be able to make use of other methods of
financing and their ability to service debt obligations may be affected more
adversely than issuers of higher-rated securities by economic downturns,
specific corporate or financial developments or the issuer’s inability to meet
specific projected business forecasts. Negative publicity about the junk bond
market and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such
securities.
A holder’s
risk of loss from default is significantly greater for non-investment grade
fixed income securities than is the case for holders of other debt securities
because such non-investment grade securities are generally unsecured and are
often subordinated to the rights of other creditors of the issuers of such
securities. Investment by the Fund and/or an Underlying Fund in defaulted
securities poses additional risk of loss should nonpayment of principal and
interest continue in respect of such securities. Even if such securities are
held to maturity, recovery by the Fund and/or an Underlying Fund of its initial
investment and any anticipated income or appreciation is uncertain.
The
secondary market for non-investment grade fixed income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed income
securities is generally lower and the secondary market for such securities could
shrink or disappear suddenly and without warning as a result of adverse market
or economic conditions, independent of any specific adverse changes in the
condition of a particular issuer. The lack of sufficient market liquidity may
cause the Fund and/or an Underlying Fund to incur losses because it will be
required to effect sales at a disadvantageous time and then only at a
substantial drop in price. These factors may have an adverse effect on the
market price and the Fund’s and/or an Underlying Fund’s ability to dispose of
particular portfolio investments. A less liquid secondary market also may make
it more difficult for the Fund and/or an Underlying Fund to obtain precise
valuations of the high yield securities in its portfolio.
Credit
ratings issued by credit rating agencies are designed to evaluate the safety of
principal and interest payments of rated securities. They do not, however,
evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
Loan-Related
Investments
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in loan-related investments such as loan
participations and assignments. A loan participation is an interest in a loan to
a U.S. or foreign company or other borrower (the “borrower”) which is
administered and sold by a financial intermediary. The Fund and/or an Underlying
Fund may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan interests may take the form of
76
Appendix
A
a direct or
co-lending relationship with the borrower, an assignment of an interest in the
loan by a co-lender or another participant, or a participation in the seller’s
share of the loan. When the Fund and/or an Underlying Fund acts as co-lender in
connection with a loan interest or when it acquires certain interests, the Fund
and/or an Underlying Fund will have direct recourse against the borrower if the
borrower fails to pay scheduled principal and interest. In cases where the Fund
and/ or an Underlying Fund lacks direct recourse, it will look to an agent for
the lenders (the “agent lender”) to enforce appropriate credit remedies against
the borrower. In these cases, the Fund and/or an Underlying Fund may be subject
to delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower.
An
assignment typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the
debt obligation; however, the purchaser’s rights can be more restricted than
those of the assigning institution, and, in any event, the Fund and/or an
Underlying Fund may not be able to unilaterally enforce all rights and remedies
under the loan and with regard to any associated collateral. A participation
typically results in a contractual relationship only with the institution
participating out the interest, not with the borrower. In purchasing
participations, the Fund and/or an Underlying Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
against the borrower, and the Fund and/or an Underlying Fund may not directly
benefit from the collateral supporting the debt obligation in which it has
purchased the participation. As a result, the Fund and/or an Underlying Fund
will be exposed to the credit risk of both the borrower and the institution
selling the participation. Investors in loans, such as the Fund and/or an
Underlying Fund, may not be entitled to rely on the anti-fraud protections of
the federal securities laws, although they may be entitled to certain
contractual remedies.
The market
for loan obligations may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. Because transactions in many
loans are subject to extended trade settlement periods, the Fund and/or an
Underlying Fund may not receive the proceeds from the sale of a loan for a
period after the sale. As a result, sale proceeds related to the sale of loans
may not be available to make additional investments or to meet the Fund’s and/or
an Underlying Fund’s redemption obligations for a period after the sale of the
loans, and, as a result, the Fund and/or an Underlying Fund may have to sell
other investments or engage in borrowing transactions, such as borrowing from
its credit facility, if necessary to raise cash to meet its obligations. During
periods of heightened redemption activity or distressed market conditions, the
Fund and/or an Underlying Fund may seek to obtain expedited trade settlement,
which will generally incur additional costs (although expedited trade settlement
will not always be available).
Senior loans hold the most
senior position in the capital structure of a borrower, are typically secured
with specific collateral and have a claim on the assets of the borrower that is
senior to that held by subordinated debt holders and stockholders of the
borrower. The proceeds of senior loans primarily are used to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases,
refinancings and to finance internal growth and for other corporate purposes.
Senior loans typically have a stated term of between five and nine years, and
have rates of interest which typically are redetermined daily, monthly,
quarterly or semi-annually by reference to a base lending rate, plus a premium
or credit spread. Longer interest rate reset periods generally increase
fluctuations in the Fund’s and/or an Underlying Fund’s net asset value as a
result of changes in market interest rates. As a result, as short-term interest
rates increase, interest payable to the Fund and/or an Underlying Fund from its
investments in senior loans should increase, and as short-term interest rates
decrease, interest payable to the Fund and/or an Underlying Fund from its
investments in senior loans should decrease. Although senior loans hold the most
senior position in the capital structure of a borrower, senior loans may become
subordinated to other debt holders and creditors (including, under certain
circumstances, upon the consent from less than 100% of the holders of the senior
loans). Senior loans that are subordinated to other debt holders and creditors
will be subject to the risks generally associated with investments in second
lien and more junior loans. Second lien loans have the same characteristics as
senior loans except that such loans are subordinated or unsecured and thus lower
in priority of payment to senior loans. Accordingly, the risks associated with
second lien loans are higher than the risk of loans with first priority over the
collateral. In the event of default on a second lien loan, the first priority
lien holder has first claim to the underlying collateral of the loan. It is
possible that no collateral value would remain for the second priority lien
holder and therefore result in a loss of investment to the Fund and/or an
Underlying Fund. Second lien loans typically have adjustable floating rate
interest payments. Generally, loans have the benefit of restrictive covenants
that limit the ability of the borrower to further encumber its
assets,
impose other
obligations and/or release or transfer the specific collateral securing the
loan. To the extent a loan does not have certain covenants (or has less
restrictive covenants), an investment in the loan will be particularly sensitive
to the risks associated with loan investments. In
addition,
to the extent
a loan is modified or restructured (including, under certain circumstances,
without the consent of, or upon the consent from less than 100% of, the holders
of the loan), an investment in the loan may be materially and adversely
affected. Under these circumstances, the Fund and/or an Underlying Fund may
incur expenses enforcing or defending its claims against the borrower and/or
other debt holders and creditors.
Preferred
Stock, Warrants and Stock Purchase Rights
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in preferred stock, warrants and stock
purchase rights (or “rights”). Preferred stocks are securities that represent an
ownership interest providing the holder with claims on the issuer’s earnings and
assets before common stock owners but after bond owners. Unlike debt securities,
the obligations of an issuer of preferred stock, including dividend and other
payment obligations, may not typically be accelerated by the holders of such
preferred stock on the occurrence of an event of default or other non-compliance
by the issuer of the preferred stock.
77
Warrants
and other rights are options to buy a stated number of shares of common stock at
a specified price at any time during the life of the warrant or right. The
holders of warrants and rights have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
REITs
(The
Fund and one or more Underlying Fund). The Fund
and/or an Underlying Fund may invest in REITs from time to time. REITS are
pooled investment vehicles that invest primarily in either real estate or real
estate related loans. The value of a REIT is affected by changes in the value of
the properties owned by the REIT or securing mortgage loans held by the REIT.
REITs are dependent upon the ability of the REITs’ managers, and are subject to
heavy cash flow dependency, default by borrowers and the qualification of the
REITs under applicable regulatory requirements for favorable federal income tax
treatment. REITs are also subject to risks generally associated with investments
in real estate including possible declines in the value of real estate, general
and local economic conditions, environmental problems and changes in interest
rates. To the extent that assets underlying a REIT are concentrated
geographically, by property type or in certain other respects, these risks may
be heightened. An investment in REITs by the Fund and/or an Underlying Fund
involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs whose underlying
properties are concentrated in a particular industry or geographic region are
also subject to risks affecting such industries and regions. The securities of
REITs involve greater risks than those associated with larger, more established
companies and may be subject to more abrupt or erratic price movements because
of interest rate changes, economic conditions and other factors. Securities of
such issuers may lack sufficient market liquidity to enable the Fund and/or an
Underlying Fund to effect sales at an advantageous time or without a substantial
drop in price. The Fund and/or an Underlying Fund will indirectly bear their
proportionate share of any expenses, including management fees, paid by a REIT
in which it invests.
Other
Investment Companies
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in securities of other investment
companies, including ETFs, such as iSharesSM, and money
market funds, subject to statutory limitations prescribed by the Investment
Company Act or rules, regulations or exemptive relief thereunder. These
statutory limitations include in certain circumstances a prohibition on
acquiring more than 3% of the voting shares of any other investment company, and
a prohibition on investing more than 5% of total assets in securities of any one
investment company or more than 10% of total assets in securities of all
investment companies.
Subject to
applicable law and/or pursuant to an exemptive rule adopted by the SEC or an
exemptive order obtained from the SEC, an Underlying Fund may invest in other
investment companies (including ETFs and money market funds) or business
development companies beyond the statutory limits described above, provided that
certain conditions are met. Rule 12d1-4 under the Investment Company Act
generally prohibits an Underlying Fund in a fund of funds arrangement relying on
that rule from purchasing or otherwise acquiring the securities of an investment
company or a private fund if, after such purchase or acquisition, the aggregate
value of the Underlying Fund’s investments in such investment companies and
private funds would exceed 10% of the value of its total assets, subject to
limited exceptions (including for investments in money market funds). Some of
those investment companies may be funds for which the Investment Adviser or any
of its affiliates serves as investment adviser, administrator or
distributor.
The use of
ETFs is generally intended to help the Fund and/or an Underlying Fund match the
total return of the particular market segments or indices represented by those
ETFs, although that may not be the result. Most ETFs are passively managed
investment companies whose shares are purchased and sold on a securities
exchange. An ETF generally represents a portfolio of securities designed to
track a particular market segment or index. An investment in an ETF generally
presents the same primary risks as an investment in a conventional fund
(i.e., one that
is not exchange-traded) that has the same investment objectives, strategies and
policies. In addition, an ETF may fail to accurately track the market segment or
index that underlies its investment objective. The price of an ETF can
fluctuate, and the Fund and/or an Underlying Fund could lose money investing in
an ETF. Moreover, ETFs are subject to the following risks that do not apply to
conventional funds: (i) the market price of the ETF’s shares may trade at a
premium or a discount to their NAV; (ii) an active trading market for an ETF’s
shares may not develop or be maintained; and (iii) there is no assurance that
the requirements of the exchange necessary to maintain the listing of an ETF
will continue to be met or remain unchanged.
The Fund
and/or an Underlying Fund will indirectly bear its proportionate share of any
management fees and other expenses paid by such other investment companies, in
addition to the fees and expenses borne by the Fund and/or an Underlying Fund.
Although the Fund and/or an Underlying Fund do not expect to do so in the
foreseeable future, the Fund and/or an Underlying Fund is authorized to invest
substantially all of its assets in a single open-end investment company or
series thereof that has substantially the same investment objective, policies
and fundamental restrictions as the Fund and/or an Underlying Fund.
Unseasoned
Companies
(The
Fund and one or more Underlying Fund). The Fund
and/or an Underlying Fund may invest in companies which (together with their
predecessors) have operated less than three years. The securities of such
companies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments in
unseasoned companies are more speculative and entail greater risk than do
investments in companies with an established operating record.
78
Appendix
A
Options
on Securities, Securities Indices and Foreign Currencies
(The
Fund and one or more Underlying Funds). A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer (seller) of the option the obligation to sell, the
underlying instrument during the option period. The Fund and/or an Underlying
Fund may write (sell) call and put options and purchase put and call options on
any securities in which the Fund and/or an Underlying Fund may invest or on any
securities index consisting of securities in which it may invest. The Fund and
certain Underlying Funds may also, to the extent consistent with their
investment policies, purchase and sell (write) put and call options on foreign
currencies.
The writing
and purchase of options is a highly specialized activity which involves special
investment risks. Options may be used for either hedging or cross-hedging
purposes, or to seek to increase total return (which presents additional risk).
The successful use of options depends in part on the ability of an investment
adviser to anticipate future price fluctuations and the degree of correlation
between the options and securities (or currency) markets. If an investment
adviser is incorrect in its expectation of changes in market prices or
determination of the correlation between the instruments or indices on which
options are written and purchased and the instruments in the Fund’s and/or an
Underlying Fund’s investment portfolio, the Fund and/or an Underlying Fund may
incur losses that it would not otherwise incur. The use of options can also
increase the Fund’s and/or an Underlying Fund’s transaction costs. Options
written or purchased by the Fund and/or an Underlying Fund may be traded on
either U.S. or foreign exchanges or over-the-counter. Foreign and
over-the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Yield
Curve Options
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may enter into options on the yield “spread” or
differential between two securities. Such transactions are referred to as “yield
curve” options. In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities rather than
the prices of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
The trading
of yield curve options is subject to all of the risks associated with the
trading of other types of options. In addition, however, such options present a
risk of loss even if the yield of one of the underlying securities remains
constant, or if the spread moves in a direction or to an extent which was not
anticipated.
Futures
Contracts and Options and Swaps on Futures Contracts
(The
Fund and one or more Underlying Funds). Futures
contracts are standardized, exchange-traded contracts that provide for the sale
or purchase of a specified financial instrument or currency at a future time at
a specified price. An option on a futures contract gives the purchaser the right
(and the writer of the option the obligation) to assume a position in a futures
contract at a specified exercise price within a specified period of time. A swap
on a futures contract provides an investor with the ability to gain economic
exposure to a particular futures market. A futures contract may be based on
particular securities, foreign currencies, securities indices and other
financial instruments and indices. Certain Underlying Funds and the Fund may
engage in futures transactions on U.S. and (in the case of certain Underlying
Funds and the Fund) foreign exchanges.
Certain
Underlying Funds and the Fund may, to the extent consistent with their
investment policies, purchase and sell futures contracts, purchase and write
call and put options on futures contracts, and enter into swaps on futures
contracts, in order to seek to increase total return or to hedge against changes
in interest rates, securities prices or currency exchange rates, or to otherwise
manage its term structure, sector selection and duration in accordance with its
investment objective and policies. An Underlying Fund or Fund may also enter
into closing purchase and sale transactions with respect to such contracts and
options.
Futures
contracts and related options and swaps present the following risks:
◼
While an
Underlying Fund or the Fund may benefit from the use of futures and options and
swaps on futures, unanticipated changes in interest rates, securities prices or
currency exchange rates may result in a poorer overall performance than if the
Underlying Fund or Fund had not entered into any futures contracts, options
transactions or swaps.
◼
Because
perfect correlation between a futures position and a portfolio position that is
intended to be protected is impossible to achieve, the desired protection may
not be obtained and an Underlying Fund or the Fund may be exposed to additional
risk of loss.
◼
The loss
incurred by an Underlying Fund or the Fund in entering into futures contracts
and in writing call options and entering into swaps on futures is potentially
unlimited and may exceed the amount of the premium received.
◼
Futures
markets are highly volatile and the use of futures may increase the volatility
of an Underlying Fund’s or Fund’s NAV.
◼
As a result
of the low margin deposits normally required in futures trading, a relatively
small price movement in a futures contract may result in substantial losses to
an Underlying Fund or the Fund.
◼
Futures
contracts and options and swaps on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
◼
Foreign
exchanges may not provide the same protection as U.S. exchanges.
79
Interest
Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps, Total Return Swaps,
Equity Swaps, Index Swaps, Options on Swaps and Interest Rate Caps, Floors and
Collars
(The
Fund and one or more Underlying Funds). To the
extent consistent with their investment policies, the Fund and/or an Underlying
Fund may enter into some or all of the following swap transactions and option
agreements, including interest rate caps, floors and collars. Interest rate
swaps involve the exchange by the Fund and/or an Underlying Fund with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed-rate payments for floating rate payments. Mortgage swaps are
similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. Credit swaps (also referred to as credit default
swaps) involve the receipt of floating or fixed rate payments in exchange for
assuming potential credit losses on an underlying security or pool of
securities. Credit swaps give one party to a transaction (the buyer of the
credit swap) the right to dispose of or acquire an asset (or group of assets or
exposure to the performance of an index), or the right to receive a payment from
the other party, upon the occurrence of specified credit events. Credit swaps
may also be structured based on the debt of a basket of issuers, rather than a
single issuer, and may be customized with respect to the default event that
triggers purchase or other factors (for example, the Nth default within a
basket, or defaults by a particular combination of issuers within the basket,
may trigger a payment obligation). Currency swaps involve the exchange of the
parties’ respective rights to make or receive payments in specified currencies.
Total return swaps give a party the right to receive the appreciation in the
value of a specified security, index or other instrument in return for a fee
paid to the counterparty, which will typically be based on agreed upon interest
rate. If the underlying asset in a total return swap declines in value over the
term of the swap, the party may also be required to pay the dollar value of that
decline to the counterparty. Equity swaps allow the parties to a swap agreement
to exchange the dividend income or other components of return on an equity
investment (for example, a group of equity securities, including custom baskets,
or an index) for another payment stream. An equity swap may be used by the Fund
and/or an Underlying Fund 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. Index swaps
allow the Fund and/or an Underlying Fund to receive one or more payments based
off the return, performance or volatility of an index or of certain securities
which comprise the index.
The Fund
and certain Underlying Funds may also purchase and write (sell) options
contracts on swaps, commonly referred to as swaptions. A swaption is an option
to enter into a swap agreement. Like other types of options, the buyer of a
swaption pays a non-refundable premium for the option and obtains the right, but
not the obligation, to enter into an underlying swap or to modify the terms of
an existing swap on agreed-upon terms. The seller of a swaption, in exchange for
the premium, becomes obligated (if the option is exercised) to enter into or
modify an underlying swap on agreed-upon terms, which generally entails a
greater risk of loss than the Fund and/or an Underlying Fund incurs in buying a
swaption. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payment 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 the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
The Fund
and certain Underlying Funds may enter into the transactions described above for
hedging purposes or to seek to increase total return. As an example, when the
Fund and/or an Underlying Fund is the buyer of a credit default swap (commonly
known as buying protection), it may make periodic payments to the seller of the
credit default swap to obtain protection against a credit default on a specified
underlying asset (or group of assets). If a default occurs, the seller of the
credit default swap may be required to pay the Fund and/or an Underlying Fund
the notional amount of the credit default swap on a specified security (or group
of securities). On the other hand, when the Fund and/or an Underlying Fund is a
seller of a credit default swap, in addition to the credit exposure the Fund
and/or an Underlying Fund has on the other assets held in its portfolio, the
Fund and/or an Underlying Fund is also subject to the credit exposure on the
notional amount of the swap since, in the event of a credit default, the Fund
and/or an Underlying Fund may be required to pay the notional amount of the
credit default swap on a specified security (or group of securities) to the
buyer of the credit default swap. The Fund and/or an Underlying Fund will be the
seller of a credit default swap only when the credit of the underlying asset is
deemed by its investment adviser to meet the Fund’s and/or an Underlying Fund’s
minimum credit criteria at the time the swap is first entered into.
The use of
interest rate, mortgage, credit, currency, total return, equity and index swaps,
options on swaps, and interest rate caps, floors and collars, is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If an
investment adviser is incorrect in its forecasts of market values, interest
rates and currency exchange rates or in its evaluation of the creditworthiness
of swap counterparties and issuers of the underlying assets, the investment
performance of the Fund and/or an Underlying Fund would be less favorable than
it would have been if these investment techniques were not used.
Currently,
certain standardized swap transactions are subject to mandatory central clearing
and exchange trading. Although central clearing and exchange trading is expected
to decrease counterparty risk and increase liquidity compared to bilaterally
negotiated swaps, central clearing and exchange trading does not eliminate
counterparty risk or illiquidity risk entirely. Depending on the size of the
Fund and/or an Underlying Fund and other factors, the margin required under the
rules of a clearinghouse and by a clearing
80
Appendix
A
member may
be in excess of the collateral required to be posted by the Fund and/or an
Underlying Fund to support its obligations under a similar bilateral, uncleared
swap. However, certain applicable regulators have adopted rules imposing certain
margin requirements, including minimums, on uncleared swaps which may result in
the Fund and/or an Underlying Fund and its counterparties posting higher amounts
for uncleared swaps.
Structured
Securities and Inverse Floaters
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may invest in structured securities. Structured
securities are securities whose value is determined by reference to changes in
the value of specific currencies, securities, interest rates, commodities,
indices or other financial indicators (the “Reference”) or the relative change
in two or more References. Investments in structured securities may provide
exposure to certain securities or markets in situations where regulatory or
other restrictions prevent direct investments in such issuers or
markets.
The
interest rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in the
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference, effectively leveraging the Fund’s and/or
an Underlying Fund’s investments so that small changes in the value of the
Reference may result in disproportionate gains or losses to the Fund and/or an
Underlying Fund. Consequently, structured securities may present a greater
degree of market risk than many types of securities and may be more volatile,
less liquid and more difficult to price accurately than less complex securities.
Structured securities are also subject to the risk that the issuer of the
structured securities may fail to perform its contractual obligations. Certain
issuers of structured products may be deemed to be investment companies as
defined in the Investment Company Act. As a result, the Fund’s and/or an
Underlying Fund’s investments in structured securities may be subject to the
limits applicable to investments in other investment companies.
Structured
securities are considered hybrid instruments because they are derivative
instruments the value of which depends on, or is derived from or linked to, the
value of an underlying asset, interest rate index or commodity. Commodity-linked
notes are hybrid instruments because the principal and/or interest payments on
those notes is linked to the value of the individual commodities, futures
contracts or the performance of one or more commodity indices.
Structured
securities include, but are not limited to, equity linked notes. An equity
linked note is a note whose performance is tied to a single stock, a stock index
or a basket of stocks. Equity linked notes combine the principal protection
normally associated with fixed income investments with the potential for capital
appreciation normally associated with equity investments. Upon the maturity of
the note, the holder generally receives a return of principal based on the
capital appreciation of the linked securities. Depending on the terms of the
note, equity linked notes may also have a “cap” or “floor” on the maximum
principal amount to be repaid to holders, irrespective of the performance of the
underlying linked securities. For example, a note may guarantee the repayment of
the original principal amount invested (even if the underlying linked securities
have negative performance during the note’s term), but may cap the maximum
payment at maturity at a certain percentage of the issuance price or the return
of the underlying linked securities. Alternatively, the note may not guarantee a
full return on the original principal, but may offer a greater participation in
any capital appreciation of the underlying linked securities. The terms of an
equity linked note may also provide for periodic interest payments to holders at
either a fixed or floating rate. The secondary market for equity linked notes
may be limited, and the lack of liquidity in the secondary market may make these
securities difficult to dispose of and to value. Equity linked notes will be
considered equity securities for purposes of the Fund’s and/or an Underlying
Fund’s investment objective and policies.
Structured
securities may also include inverse floating rate debt securities (“inverse
floaters”). The interest rate on inverse floaters resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
Structured
securities may also include credit linked notes. Credit linked notes are
securities with embedded credit default swaps. An investor holding a credit
linked note generally receives a fixed or floating coupon and the note’s par
value upon maturity, unless the referred credit defaults or declares bankruptcy,
in which case the investor receives the amount recovered. In effect, investors
holding credit linked notes receive a higher yield in exchange for assuming the
risk of a specified credit event.
When-Issued
Securities and Forward Commitments
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may purchase when-issued securities and make contracts
to purchase or sell securities for a fixed price at a future date beyond
customary settlement time. When-issued securities are securities that have been
authorized, but not yet issued. When-issued securities are purchased in order to
secure what is considered to be an advantageous price or yield to the Fund
and/or an Underlying Fund at the time of entering into the transaction. A
forward commitment involves the entering into a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settlement
period.
81
The
purchase of securities on a when-issued or forward commitment basis involves a
risk of loss if the value of the security to be purchased declines before the
settlement date. Conversely, the sale of securities on a forward commitment
basis involves the risk that the value of the securities sold may increase
before the settlement date. Although the Fund and/or an Underlying Fund will
generally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, the Fund and/or an
Underlying Fund may dispose of when-issued securities or forward commitments
prior to settlement if its investment adviser deems it appropriate.
Repurchase
Agreements
(The
Fund and one or more Underlying Funds).
Repurchase agreements involve the purchase of securities subject to the seller’s
agreement to repurchase them at a mutually agreed upon date and price. The Fund
and/or an Underlying Fund may enter into repurchase agreements with
counterparties approved by the Investment Adviser pursuant to procedures
approved by the Board of Trustees that furnish collateral at least equal in
value or market price to the amount of their repurchase obligation. The
collateral may consist of any type of security in which the Fund and/or an
Underlying Fund is eligible to invest directly or, if an Underlying Fund is
subject to minimum credit quality requirements, any type of security, including
non-investment grade securities, provided the repurchase agreement counterparty
satisfies those minimum credit quality requirements. Repurchase agreements
involving obligations other than U.S. Government Securities may be subject to
additional risks.
If the
other party or “seller” defaults, the Fund and/or an Underlying Fund might
suffer a loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund and/or an Underlying Fund are
less than the repurchase price and the Underlying Fund’s costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event of
bankruptcy of the seller, the Fund and/or an Underlying Fund could suffer
additional losses if a court determines that the Fund’s and/or an Underlying
Fund’s interest in the collateral is not enforceable. Certain Underlying Funds,
together with other registered investment companies having advisory agreements
with the Investment Adviser or any of its affiliates, may transfer uninvested
cash balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Lending
of Fund Securities
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may engage in securities lending. Securities lending
involves the lending of securities owned by the Fund and/or an Underlying Fund
to financial institutions such as certain broker-dealers, including, as
permitted by the SEC, Goldman Sachs. The borrowers are required to secure their
loans continuously with cash, cash equivalents, U.S. Government Securities or
letters of credit in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested by the Fund and/or an
Underlying Fund in short-term investments, including registered and unregistered
investment pools managed by the Investment Adviser, or its affiliates or the
Fund’s custodian and from which the Investment Adviser or its affiliates may
receive fees. To the extent that cash collateral is so invested, such collateral
will be subject to market depreciation or appreciation, and the Fund and/or an
Underlying Fund will be responsible for any loss that might result from its
investment of the borrowers’ collateral. If an investment adviser determines to
make securities loans, the value of the securities loaned may not exceed
33 1∕3% of the
value of the total assets of the Fund and/or an Underlying Fund (including the
loan collateral). Loan collateral (including any investment of the collateral)
is not subject to the percentage limitations described elsewhere in the
Prospectus or non-fundamental investment policies applicable to the Fund and/or
an Underlying Fund regarding investments in fixed income securities and cash
equivalents.
The Fund
and/or an Underlying Fund may lend its securities to increase its income. The
Fund and/or an Underlying Fund may, however, experience delay in the recovery of
its securities or incur a loss if the institution with which it has engaged in a
portfolio loan transaction becomes insolvent breaches its agreement with the
Fund, an Underlying Fund or an agent.
Short
Sales Against-the-Box
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may make short sales against-the-box. A short sale
against-the-box means that at all times when a short position is open the Fund
and/or an Underlying Fund will own an equal amount of securities sold short, or
securities convertible into or exchangeable for, without the payment of any
further consideration, an equal amount of the securities of the same issuer as
the securities sold short.
Mortgage
Dollar Rolls
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may enter into “mortgage dollar rolls.” In mortgage
dollar rolls, the Fund and/or an Underlying Fund sells securities for delivery
in the current month and simultaneously contracts with the same counterparty to
repurchase substantially similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, the
Fund and/or an Underlying Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund and/or an Underlying Fund
benefits to the extent of any difference between (i) the price received for the
securities sold and (ii) the lower forward price for the future purchase and/or
fee income plus the interest earned on the cash proceeds of the securities sold.
Unless the benefits of a mortgage dollar roll exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the roll, the use of this technique
will diminish the Fund and/or an Underlying Fund’s performance.
Successful
use of mortgage dollar rolls depends upon an investment adviser’s ability to
predict correctly interest rates and mortgage prepayments. If the investment
adviser is incorrect in its prediction, the Fund and/or an Underlying Fund may
experience a loss. The Fund and Underlying Funds do not currently intend to
enter into mortgage dollar rolls for financing and do not treat them as
borrowings.
82
Appendix
A
Borrowings
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund can borrow money from banks and other financial
institutions in amounts not exceeding one-third of their total assets (including
the amount borrowed or received) for temporary or emergency
purposes.
Borrowings
involve leveraging. If the securities held by the Fund and/or an Underlying Fund
decline in value while these transactions are outstanding, the NAV of the Fund’s
and/or an Underlying Fund’s outstanding shares will decline in value by
proportionately more than the decline in value of securities.
Reverse
Repurchase Agreements
(The
Fund and one or more Underlying Funds). The Fund
and/or an Underlying Fund may borrow money by entering into transactions called
reverse repurchase agreements. Under these arrangements, the Fund and/or an
Underlying Fund will sell portfolio securities to dealers in U.S. Government
Securities or members of the Federal Reserve System, with an agreement to
repurchase the security on an agreed date, price and interest payment. In the
case of the Fund and certain Underlying Funds, these reverse repurchase
agreements may involve foreign government securities. Reverse repurchase
agreements involve the possible risk that the value of portfolio securities the
Fund and/or an Underlying Fund relinquishes may decline below the price the Fund
and/or an Underlying Fund must pay when the transaction closes. Borrowings may
magnify the potential for gain or loss on amounts invested resulting in an
increase in the speculative character of the Fund’s and/or an Underlying Fund’s
outstanding shares.
Equity
Investments.
(The
Fund and one or more Underlying Funds). After
its purchase, a portfolio investment (such as a convertible debt obligation) may
convert to an equity security. Alternatively, the Fund and/or an Underlying Fund
may acquire equity securities in connection with a restructuring event related
to one or more of its investments. If this occurs, the Fund and/or Underlying
Fund may continue to hold the investment if the Investment Adviser believes it
is in the best interest of the Fund or Underlying Fund and its
shareholders.
83
Appendix
B
Financial
Highlights
The financial highlights
tables are intended to help you understand the Fund's financial performance for
the past five years (or less if the Fund has been in operation for less
than five years). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). The information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the Fund's Form N-CSR dated August 31,
2024.
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|
Tactical
Tilt Overlay Fund | |||||||||
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Class
P Shares | |||||||||
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Year
Ended August 31, | |||||||||
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2024 |
2023 |
2022 |
2021 |
2020 | |||||
|
Per
Share Data |
|
|
|
|
| |||||
|
Net
asset value, beginning of year |
$10.46 |
$10.17 |
$10.33 |
$9.91 |
$9.66 | |||||
|
Net
investment income (loss)(a) |
0.47 |
0.38 |
0.04 |
(0.01
) |
0.08 | |||||
|
Net
realized and unrealized gain |
0.23 |
—
(b) |
0.01 |
0.92 |
0.28 | |||||
|
Total
from investment operations |
0.70 |
0.38 |
0.05 |
0.91 |
0.36 | |||||
|
Distributions
to shareholders from net investment income |
(0.57
) |
(0.09
) |
(0.21
) |
(0.49
) |
(0.11
) | |||||
|
Net
asset value, end of year |
$10.59 |
$10.46 |
$10.17 |
$10.33 |
$9.91 | |||||
|
Total
return(c) |
6.86
% |
3.75
% |
0.49
% |
9.47
% |
3.79
% | |||||
|
Net
assets, end of year (in 000s) |
$4,064,931 |
$4,080,082 |
$3,951,830 |
$3,037,227 |
$2,291,061 | |||||
|
Ratio
of net expenses to average net assets(d) |
0.72
% |
0.70
% |
0.67
% |
0.69
% |
0.72
% | |||||
|
Ratio
of total expenses to average net assets(d) |
0.76
% |
0.76
% |
0.76
% |
0.77
% |
0.78
% | |||||
|
Ratio
of net investment income (loss) to average net
assets |
4.51
% |
3.67
% |
0.37
% |
(0.08
)% |
0.78
% | |||||
|
Portfolio
turnover rate(e) |
41
% |
150
% |
61
% |
60
% |
70
% | |||||
|
(a) |
Calculated
based on the average shares outstanding
methodology. |
|
(b) |
Amount
is less than $0.005 per share. |
|
(c) |
Assumes
investment at the NAV at the beginning of the year, reinvestment of all
dividends and distributions, a complete redemption of the investment at
the
NAV
at the end of the year and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into
account.
Returns do not reflect the impact of taxes to shareholders relating to
Fund distributions or the redemption of Fund
shares. |
|
(d) |
Expense
ratios exclude the expenses of the Affiliated Underlying Funds in
which the Fund invests. |
|
(e) |
The
Fund's portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term
investments
and
certain derivatives. If such transactions were included, the Fund's
portfolio turnover rate may be
higher. |
84
Tactical
Tilt Overlay Fund Prospectus (Class P
Shares)
|
FOR
MORE INFORMATION |
Annual/Semi-Annual
Report
Additional information
about the Fund’s investments is or will be available in the Fund’s annual and
semi-annual reports to shareholders and in Form N-CSR. In the Fund’s annual
report you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund’s performance during the last
fiscal year. In
Form
N-CSR, you
will find the Fund’s annual and semi-annual financial statements.
Statement of
Additional Information
Additional
information about the Fund and its policies is also available in the Fund’s SAI.
The SAI is incorporated by reference into the Prospectus (i.e., is legally
considered part of the Prospectus).
The Fund’s annual and
semi-annual reports to shareholders, SAI and other information such as the
Fund’s financial statements are available free upon request by calling Goldman
Sachs Funds at 1-800-621-2550. You can also access and download the annual and
semi-annual reports,
SAI and other
information such as the Fund’s financial statements free of charge, at the
Fund’s website:
dfinview.com/GoldmanSachs.
From time to time, certain
announcements and other information regarding the Fund may be found at
am.gs.com for individual investors and advisers.
am.gs.com for individual investors and advisers.
To request other
information and for shareholder inquiries:
|
◼ By
telephone: |
1-800-621-2550 |
|
◼ By
mail: |
Goldman
Sachs Funds
71
South Wacker Drive, Suite 1200
Chicago,
IL 60606 |
|
◼ On
the Internet: |
SEC
EDGAR database –
http://www.sec.gov |
Other information about the
Fund is available on the EDGAR Database on the SEC’s website at
http://www.sec.gov. You may obtain copies of this information, after paying a
duplicating fee, by electronic request at the following e-mail address:
[email protected].
The
Fund's investment company registration number is 811-05349.
GSAM®
is a registered service mark of Goldman Sachs & Co. LLC.
TACTPRO-24P