2024-02-13ABBridgewayFunds_FYE_12_31_PRO
PROSPECTUS
May
1, 2024
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Share
Class |
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A |
C |
Y |
R6 |
R5 |
Investor |
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American
Beacon AHL Managed Futures Strategy Fund |
AHLAX |
AHLCX |
AHLYX |
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AHLIX |
AHLPX |
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American
Beacon AHL Multi-Alternatives Fund |
AHMAX |
AHMCX |
AHMYX |
AHMRX |
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American
Beacon AHL TargetRisk Fund |
AHTAX |
AHACX |
AHTYX |
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AHTIX |
AHTPX |
This
Prospectus contains important information you should know about investing,
including information about risks. Please read it before you invest
and keep it for future reference.
As
with all mutual funds, the Securities and Exchange Commission and the Commodity
Futures Trading Commission have not approved or disapproved
these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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American
Beacon
AHL
Managed Futures Strategy FundSM
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Investment
Objective
The
Fund’s investment objective is capital
growth.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You
may pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the
tables and examples below. You
may qualify for sales discounts
if you and your eligible family members invest, or agree to invest in the
future, at least $50,000
in all classes of the American Beacon Funds on an aggregated
basis.
More information about these and other discounts is available from your
financial professional and in “Choosing Your Share Class” on page 48
of the Prospectus and “Additional Purchase and Sale Information for A Class
Shares” on page 44 of
the Statement of Additional Information (“SAI”). With
respect to purchases of shares through specific intermediaries, you may find
additional information regarding sales charge discounts and waivers in
Appendix
A to the Fund’s Prospectus entitled “Intermediary Sales Charge Discounts,
Waivers and Other Information.”
Shareholder
Fees
(fees paid directly from your investment)
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Share
Class |
A |
C |
Y |
R5 |
Investor |
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Maximum
sales charge imposed on purchases (as a percentage of offering
price) |
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Maximum
deferred sales charge (as a percentage of the lower of original offering
price or
redemption proceeds) |
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Annual
Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your
investment) |
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Share
Class |
A |
C |
Y |
R5 |
Investor |
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Management
Fees |
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Distribution
and/or Service (12b-1) Fees |
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Other
Expenses2
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Total
Annual Fund Operating Expenses |
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A
contingent deferred sales charge (‘‘CDSC’’) of 0.50% will be charged on
certain purchases of $1,000,000 or more of A Class shares that are
redeemed in whole or part within 18
months of purchase.
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| 2 |
During
the fiscal year ended December
31, 2023,
the Fund paid amounts to American Beacon Advisors, Inc. (the “Manager”)
that were previously waived and/or reimbursed under
a contractual fee waiver/expense reimbursement agreement for the Fund’s A
Class, C Class, Y Class, R5 Class, and Investor Class shares in the amount
of 0.01% for the A Class,
0.03% for the C Class, 0.03% for the Y Class, 0.03% for the R5
Class, and 0.03% for the Investor Class. The Manager can be reimbursed by
the Fund for any contractual
or voluntary fee waivers or expense reimbursements if reimbursement to the
Manager (a) occurs within three years from the date of the Manager’s
waiver/reimbursement
and (b) does not cause the Total Annual Fund Operating Expenses of a class
to exceed the lesser of the contractual percentage limit in effect at the
time of
the waiver/reimbursement or the time of the
recoupment. |
Example
This
Example is intended to help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The Example assumes that
you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that
your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. C Class shares automatically convert to A Class shares 8
years
after purchase, if the conversion is available through your financial
intermediary. This Example reflects your costs as though C Class shares were
held for the
full 10-year period. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
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A |
$756 |
$1,135 |
$1,538 |
$2,659 |
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C |
$358 |
$794 |
$1,355 |
$2,885 |
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Y |
$163 |
$505 |
$871 |
$1,900 |
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R5 |
$154 |
$477 |
$824 |
$1,802 |
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Investor |
$189 |
$585 |
$1,006 |
$2,180
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Assuming
no redemption of shares:
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Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
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C |
$258
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$794
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$1,355
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$2,885
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Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate
higher transaction costs and may result in higher taxes when Fund shares are
held in a taxable account. These costs, which are not reflected in annual
Fund
operating expenses or in the Example, affect the Fund’s performance. Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the
average long-term fair value during a period. The Fund did not invest in any
long-term securities during the most recent fiscal year. As a result, the Fund’s
portfolio
turnover rate for the Fund’s most recent fiscal year is not
provided.
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by implementing a quantitative
trading strategy and systematic investment process designed to capitalize
on
price trends (up and/or down) in a broad range of around
120 global markets by utilizing derivative instruments to seek exposure
to
stock indices, bonds,
currencies,
and interest rates.
As the owner of a “long” position in a derivative instrument, the Fund may
benefit from an increase in the price of the underlying
investment and, as the owner of a “short” position, the Fund may benefit from a
decrease in the price of the underlying
investment.
Prospectus
– Fund Summaries1
The
Fund invests primarily in derivatives, including futures contracts (such as
equity index futures, bond index futures, interest rate futures, treasury
futures, and
non-U.S. currency futures), and foreign currency forward contracts, including
non-deliverable forwards (“NDFs”). The Fund also may invest in swaps, and
other
types of derivative instruments linked to stock indices, currencies, bonds,
interest rates and commodity instruments. The Fund expects that, under
normal
market conditions, the notional value of its derivatives exposure generally will
exceed that of its net assets. In connection with the Fund’s use of derivatives,
which may be used for hedging purposes or for exposure to a market, the Fund may
hold significant amounts of U.S. government securities, including
U.S. Treasury securities and other foreign developed market sovereign short-term
bonds issued by countries such as France, Germany, Japan and other
developed countries, or short-term investments, including a government money
market fund advised by the Manager, with respect to which the Manager
also receives a management fee, cash and time deposits in order to meet
collateral requirements. Additionally, the Fund may invest in bonds and
zero
coupon securities, U.S. and non-U.S. currencies and instruments denominated in
non-U.S. currencies. The Fund’s investments are generally made without
restriction
as to issuer market capitalization, country, currency, or maturity. The Fund may
invest in issuers in the U.S. and foreign developed and emerging markets.
The
Fund seeks to gain exposure to the commodity futures markets by investing up to
25% of its total assets in a wholly-owned subsidiary, which is organized
under
the laws of the Cayman Islands (the “Subsidiary”). Generally, the Subsidiary
invests primarily in commodity futures, but it may also invest in financial
futures
and forwards and swap contracts, fixed income securities, pooled investment
vehicles, including open-end investment companies, and other investments
intended to serve as margin or collateral for the Subsidiary’s derivative
positions. The Fund invests in the Subsidiary in order to gain exposure to
the
commodities markets within the limitations of the federal tax law, rules and
regulations that apply to “regulated investment companies.” Unlike the Fund,
the
Subsidiary may invest without limitation in commodity-linked derivatives,
however, the Subsidiary and the Fund, in the aggregate, comply with applicable
requirements
for derivatives transactions set forth in Rule 18f-4 under the Investment
Company Act of 1940, as amended (the “Investment Company Act”). In addition,
the Fund and the Subsidiary comply with the same fundamental investment
restrictions on an aggregate basis, and the Subsidiary follows the same
compliance
policies and procedures as the Fund to the extent those restrictions, policies
and procedures are applicable to the investment activities of the Subsidiary.
Unlike the Fund, the Subsidiary does not, and will not, seek to qualify as a
“regulated investment company” under Subchapter M of Chapter 1 of Subtitle
A of the Internal Revenue Code of 1986, as amended (“Subchapter M”). The Fund is
the sole shareholder of the Subsidiary and does not expect shares
of the Subsidiary to be offered or sold to other
investors.
The
sub-advisor employs computerized processes to identify investment opportunities
across a wide range of markets around the world. Investment decisions
are executed
via the sub-advisor’s proprietary execution strategy. The investment
decision process is quantitative and primarily directional in nature,
meaning that
investment decisions are driven by mathematical models based on market trends
and other historical relationships. It is underpinned by risk control,
ongoing
research, diversification and the quest for efficiency. The Fund’s holdings may
be frequently adjusted to reflect the sub-advisor’s assessment of changing
risks, which could result in high portfolio turnover. The sub-advisor’s strategy
is designed to provide an excess return with a stable level of volatility
regardless
of market conditions. The sub-advisor seeks to do this by using systematic
algorithms (a mathematical model) to scale positions based on the net
asset
value (“NAV”) of the Fund. The algorithm measures the degree of volatility in a
particular market. As volatilities increase, the algorithm will look to
reduce
exposure. Conversely, it will increase exposure, subject to risk limits, if the
market is calm and volatilities are decreasing. This technique is called
`volatility
scaling’ and can be applied at various levels to achieve a balanced risk
exposure through time, and across different asset classes. Volatility scaling
aims
to achieve a certain target level of volatility which is stable through time.
The Fund has set an annualized volatility target of 10% of its NAV. Volatility
is defined
as the annualized standard deviation of returns. It is important to note that
both the short and long term realized volatility of the Fund can and will
differ
from the targeted volatility and can be dependent on prevailing market
conditions.
The
cornerstone of the sub-advisor’s investment philosophy is that the financial
markets exhibit trends and other inefficiencies. Trends are a manifestation of
serial
correlation in financial markets — the phenomenon whereby past price movements
influence price behavior. Although price trends vary in their intensity,
duration and frequency they typically recur across sectors and markets. Trends
are an attractive focus for active trading styles applied across a range
of
global markets. In implementing its investment program, the Fund may hold
significant cash positions from time to
time.
The
Fund is non-diversified, which means that it is not limited to a percentage of
assets that it may invest in any one
issuer.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective,
and you could lose part or all of your investment in the Fund.
The
Fund is not designed
for investors who need an assured level of current income and is intended to be
a long-term investment. The Fund is not a complete investment
program and may not be appropriate for all investors. Investors should carefully
consider their own investment goals and risk tolerance
before investing in the Fund.
The principal
risks of investing in the Fund listed below are presented in alphabetical order
and not in order of importance
or potential exposure. Among other matters, this presentation is intended to
facilitate your ability to find particular risks and compare them with
the
risks of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it appears.
The
principal
risks of the Subsidiary are listed in this section of the Prospectus as
principal risks of the Fund.
Allocation
Risk
The
allocations among strategies, asset classes and market exposures may be less
than optimal and may adversely affect the Fund’s performance. There can be
no
assurance, particularly during periods of market disruption and stress, that
judgments about allocations will be correct. The Fund’s allocations may be
invested
in strategies, asset classes and market exposures during a period when such
strategies, asset classes and market exposures
underperform.
Asset
Selection Risk
Assets
selected for the Fund may not perform to expectations. This could result in the
Fund’s underperformance compared to other funds with similar investment
objectives.
Commodities
Risk
The
Fund’s investments in commodity-linked derivative instruments may subject the
Fund to greater volatility than investments in traditional securities. The
value
of commodity-linked derivative instruments may be affected by changes in overall
market movements, commodity index volatility, commodity price volatility,
changes in interest rates, or factors affecting a particular industry or
commodity, such as changes in supply and demand, resource availability,
speculation
in the commodities markets, drought, floods, weather, livestock disease,
pandemics, embargoes, tariffs, war, acts of terrorism and international
economic,
political and regulatory developments. The
Fund may invest significantly in a particular sector of the commodities market
(such as oil, metal or agricultural
products). As a result, the Fund may be more susceptible to risks associated
with those sectors.
No active trading market may exist for certain commodities
investments. The Fund’s investments in commodity-related instruments may lead to
losses in excess of the Fund’s investment in such products, as some
commodity-linked derivatives can have the potential for unlimited losses. Such
losses can significantly and adversely affect the net asset value (“NAV”)
per
share of the Fund and, consequently, a shareholder’s interest in the Fund.
Because the Fund’s performance is linked to the performance of potentially
volatile
commodities, investors should be willing to assume the risks of significant
fluctuations in the value of the Fund’s
shares.
2Prospectus
– Fund Summaries
Counterparty
Risk
The
Fund is subject to the risk that a party or participant to a transaction, such
as a broker or a derivative counterparty, will be unwilling or unable to satisfy
its obligation
to make timely principal, interest or settlement payments or to otherwise honor
its obligations to the Fund.
Credit
Risk
The
Fund is subject to the risk that the issuer, guarantor or insurer of an
obligation, or the counterparty to a transaction,
may fail, or become less able or unwilling,
to make timely payment of interest or principal or otherwise honor its
obligations or default completely. Changes in the actual or perceived
creditworthiness
of an issuer, or a downgrade or default affecting any of the Fund’s securities,
could affect the Fund’s performance. Generally, the longer the maturity
and the lower the credit quality of a security, the more sensitive it is to
credit risk.
Crowding/Convergence
Risk
There
is significant competition among quantitatively-focused managers, and the
ability of the sub-advisor to outperform other funds is dependent on its
ability
to employ models that are simultaneously profitable and differentiated from
those employed by other managers. To the extent that the sub-advisor is
not
able to develop sufficiently differentiated models, the Fund’s investment
objective may not be met, irrespective of whether the models are profitable in
an absolute
sense.
Currency
Risk
The
Fund may have exposure to foreign currencies.
Foreign currencies may fluctuate significantly over short periods of time, may
be affected unpredictably by intervention,
or the failure to intervene, of the U.S.
or foreign governments or central banks, and may be affected by currency
controls or political developments
in the U.S. or abroad. Foreign currencies may also decline in value relative to
the U.S. dollar and other currencies and thereby affect the Fund’s investments.
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
the Fund and its service providers as well as the ability of shareholders to
transact in
the Fund’s shares,
and result in financial losses. Cybersecurity incidents
may allow an unauthorized party to gain access to Fund assets, shareholder data,
or proprietary information, or cause the Fund or its service providers,
as well as securities trading venues and their service providers, to suffer data
corruption or lose operational functionality. Cybersecurity incidents
can
result from deliberate attacks or unintentional events. It is not possible for
the Fund or its service providers to identify all of the operational risks that
may affect
the Fund or to develop processes and controls to completely eliminate or
mitigate their occurrence or effects. The Fund cannot control the cybersecurity
plans
and systems of its service providers, its counterparties or the issuers of
securities in which the Fund invests. The
issuers of the Fund’s investments are likely
to be
dependent on computers for their
operations
and require ready access to their
data and the
internet to conduct their business. Thus, cybersecurity incidents
could also affect issuers of the
Fund’s investments,
leading to significant loss of value.
Derivatives
Risk
Derivatives
may involve significant risk. The use of derivative instruments may expose the
Fund to additional risks that it would not be subject to if it invested
directly
in the securities or other instruments underlying those derivatives, including
the high degree of leverage often embedded in such instruments, and potential
material and prolonged deviations between the theoretical value and realizable
value of a derivative. Some derivatives have the potential for unlimited
loss, regardless of the size of the Fund’s initial investment. The use of
derivatives may also increase any adverse effects resulting from the
underperformance
of strategies, asset classes and market exposures to which the Fund has
allocated its assets. Derivatives may at times be highly illiquid, and
the
Fund may not be able to close out or sell a derivative at a particular time or
at an anticipated price. Certain derivatives may be difficult to value, and
valuation
may be more difficult in times of market turmoil. Derivatives may also be more
volatile than other types of investments. The Fund may buy or sell derivatives
not traded on an exchange, which may be subject to heightened liquidity and
valuation risk. Derivative investments can increase portfolio turnover
and
transaction costs. Derivatives also are subject to counterparty risk and credit
risk. As a result, the Fund may not recover its investment or may only obtain
a
limited recovery, and any recovery may be delayed. Not all derivative
transactions require a counterparty to post collateral, which may expose the
Fund to greater
losses in the event of a default by a counterparty. There may be imperfect
correlation between the behavior of a derivative and that of the reference
instrument
underlying the derivative. An abrupt change in the price of a reference
instrument could render a derivative worthless. Derivatives may involve risks
different
from, and possibly greater than, the risks associated with investing directly in
the reference instrument. Suitable derivatives may not be available in all
circumstances,
and there can be no assurance that the Fund will use derivatives to reduce
exposure to other risks when that might have been beneficial. Ongoing
changes to the regulation of the derivatives markets and potential changes in
the regulation of funds using derivative instruments could limit the
Fund’s
ability to pursue its investment strategies. New regulation of derivatives may
make them more costly, or may otherwise adversely affect their liquidity,
value
or performance. In
addition, the Fund’s investments in derivatives are subject to the following
risks:
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Foreign
Currency Forward Contracts Risk.
Foreign currency forward contracts, including non-deliverable forwards
(“NDFs”), are derivative instruments pursuant
to a contract where the parties agree to a fixed price for an agreed
amount of foreign currency at an agreed date or to buy or sell a specific
currency
at a future date at a price set at the time of the contract and include
the risks associated with fluctuations in currency. There are no
limitations on daily
price movements of forward contracts. There can be no assurance that any
strategy used will succeed. Not all forward contracts, including NDFs,
require
a counterparty to post collateral, which may expose the Fund to greater
losses in the event of a default by a counterparty. The use of foreign
currency
forward contracts may expose the Fund to additional risks, such as credit
risk, liquidity risk, and counterparty risk, that it would not be subject
to if it
invested directly in the securities or currencies underlying the foreign
currency forward
contract. |
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Futures
Contracts Risk.
Futures contracts are derivative instruments pursuant to a contract where
the parties agree to a fixed price for an agreed amount of securities
or other underlying assets at an agreed date. The use of such derivative
instruments may expose the Fund to additional risks, such as credit risk,
liquidity
risk, and counterparty risk, that it would not be subject to if it
invested directly in the securities underlying those derivatives. There
can be no assurance
that any strategy used will succeed. There may at times be an imperfect
correlation between the movement in the prices of futures contracts and
the
value of their underlying instruments or indexes. There also can be no
assurance that, at all times, a liquid market will exist for offsetting a
futures contract
that the Fund has previously bought or sold, and this may result in the
inability to close a futures contract when desired. Futures contracts may
experience
potentially dramatic price changes, which will increase the volatility of
the Fund and may involve a small investment of cash (the amount of
initial
and variation margin) relative to the magnitude of the risk assumed (the
potential increase or decrease in the price of the futures contract).
Government
bond futures contracts, such as treasury futures contracts, expose
the Fund to price fluctuations resulting from changes in interest
rates and to potential
losses if interest rates do not move as expected.
Interest
rate futures contracts expose the Fund to price fluctuations
resulting from changes in interest
rates. The Fund could suffer a loss if interest rates rise after the Fund
has purchased an interest rate futures contract or fall after the Fund has
sold an
interest rate futures contract.
Foreign
currency futures contracts expose the Fund to risks associated with
fluctuations in the value of foreign currencies. Foreign
currency futures contracts are similar to foreign currency forward
contracts, except that they are traded on exchanges (and may have margin
requirements)
and are standardized as to contract size and delivery date. The Fund may
use foreign currency futures contracts for the same purposes as
foreign
currency forward contracts, subject to Commodity Futures Trading
Commission (“CFTC”) regulations.
Futures
contracts on bond and equity indices expose
the Fund to volatility in an underlying
index. |
Prospectus
– Fund Summaries3
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Swap
Agreements Risk.
Swap agreements or “swaps” are transactions in which the Fund and a
counterparty agree to pay or receive payments at specified dates
based upon or calculated by reference to changes in specified prices or
rates or the performance of specified securities, indices or other assets
based on
a specified amount (the “notional” amount). Swaps can involve greater
risks than a direct investment in an underlying asset, because swaps
typically include
a certain amount of embedded leverage and as such are subject to leverage
risk. If swaps are used as a hedging strategy, the Fund is subject to the
risk
that the hedging strategy may not eliminate the risk that it is intended
to offset, due to, among other reasons, the occurrence of unexpected price
movements
or the non-occurrence of expected price movements. Swaps also may be
difficult to value. Swaps may be subject to liquidity risk and
counterparty
risk, and swaps that are traded over-the-counter are not subject to
standardized clearing requirements and may involve greater liquidity and
counterparty
risks. |
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets are generally smaller, less developed, less
liquid
and more volatile than the securities markets of the U.S. and other developed
markets. There are also risks of: greater political or economic uncertainties;
an economy’s dependence on revenues from particular commodities or on
international aid or development assistance; currency transfer restrictions;
a limited number of potential buyers for such securities resulting in increased
volatility and limited liquidity for emerging market securities; trading
suspensions
and other restrictions on investment; delays and disruptions in securities
clearing and settlement procedures; and significant limitations on investor
rights and recourse. The governments of emerging market countries may also be
more unstable and more likely to impose capital controls, nationalize
a company or industry, place restrictions on foreign ownership and on
withdrawing sale proceeds of securities from the country, intervene in the
financial
markets, and/or impose burdensome taxes that could adversely affect security
prices. In addition, there may be less publicly available information
about
issuers in emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to accounting,
auditing, financial reporting and recordkeeping standards and requirements
comparable to those to which U.S. companies are
subject.
Foreign
Exposure Risk
Exposure
to non-U.S.
issuers carries potential risks not associated with exposure
to U.S.
issuers. Such risks may include, but are not limited to: (1) currency
exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity,
(4) lack of uniform accounting, auditing and financial reporting standards, (5)
greater
volatility, (6) different government regulation and supervision of foreign stock
exchanges, brokers and listed companies, and (7) delays or
failures in
transaction
payment
and settlement
in some foreign markets. The Fund’s exposure to a foreign issuer may subject the
Fund to regulatory, political, currency, security,
economic and other risks associated with that country. Global economic and
financial markets have become increasingly interconnected and conditions
(including recent volatility,
terrorism, war and political
instability) and events (including natural disasters) in one country, region or
financial market may
adversely impact issuers in a different country, region or financial
market.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, the Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with
significant economic ties to, a single country or geographic region, which could
increase the risk that economic, market, political, business, regulatory,
diplomatic,
social and environmental conditions in that particular country or geographic
region may have a significant impact on the Fund’s performance. Investing
in such a manner could cause the Fund’s performance to be more volatile than the
performance of more geographically diverse funds. A decline in the
economies or financial markets of one country or region may adversely affect the
economies or financial markets of another.
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European
Securities Risk.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product of the countries in the region), the rate of
inflation, the rate at which capital is reinvested into European
economies, the success
of governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries, the monetary exchange rates
between European
countries, and conflict between European countries. The European financial
markets have experienced and may continue to experience volatility
and
adverse trends due to concerns relating to economic downturns; rising
government debt levels and the possible default on government debt;
national unemployment
in several European countries; public health crises; political unrest;
economic sanctions; inflation; energy crises; and war and military
conflict, such
as the Russian invasion of Ukraine. A default or debt restructuring by any
European country could adversely impact holders of that country’s debt and
sellers
of credit default swaps linked to that country’s creditworthiness, which
may be located in other countries. Such a default or debt restructuring
could affect
exposures to European countries. In addition, issuers have faced
difficulties obtaining credit or refinancing existing obligations, and
financial markets have
experienced extreme volatility and declines in asset values and liquidity.
These events have affected the exchange rate of the Euro and may continue
to significantly
affect European
countries. |
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Responses
to financial problems by European governments, central banks, and others,
including austerity measures and other reforms, may not produce the
desired
results, may result in social unrest and may limit future growth and
economic recovery or may have unintended consequences. The Fund makes
investments
in securities of issuers that are domiciled in member states of the
European Union (the “EU”). The economies and markets of European
countries
are often closely connected and interdependent, and events in one country
in Europe can have an adverse impact on other European countries.
One
or more countries may abandon the Euro and/or withdraw from the EU. The
impact of these actions, especially if they occur in a disorderly fashion,
could
be significant and far-reaching. The United Kingdom’s withdrawal from the
EU could be an indication that one or more other countries may withdraw
from
the EU and/or abandon the Euro. These events and actions have affected,
and may in the future affect, the value and exchange rate of the Euro and
may
continue to significantly affect the economies of every country in Europe,
including countries that do not use the Euro and non-EU member
states. |
| |
The
continuing effects on the economies of European countries of the
Russia/Ukraine war and Russia’s response to sanctions imposed by
the U.S., EU, UK and
others, are impossible to predict, but have been and could continue to be
significant. For example, exports in Eastern Europe have been disrupted
for certain
key commodities, pushing commodity prices to record highs. Also, both
wholesale energy prices and energy prices charged to consumers in Europe
have
increased
significantly. |
|
■ |
Japan
Investment Risk.
The Japanese economy may be subject to economic, political and social
instability, which could have an adverse effect on the Japanese
securities held by the Fund. The Japanese economy, which is heavily
dependent upon international trade, may be adversely affected by global
competition,
trade tariffs, other government interventions and protectionist measures,
excessive regulation, changes in international trade agreements, the
economic
conditions of its trading partners, the performance of the global economy,
and regional and global conflicts. Political tensions between Japan and
its
trading partners could adversely affect the economy, especially the export
sector, and destabilize the region as a whole. The domestic Japanese
economy faces
several concerns, including large government deficits, a declining
domestic population and low birth rate, workforce shortages, and
inflation. The Japanese
government’s fiscal and monetary policies may have negative impacts on the
Japanese economy. Japan is also heavily dependent on oil and other
commodity
imports, and higher commodity prices could therefore have a negative
impact on the Japanese economy. Currency fluctuations, which have
been
significant at times, can have a considerable impact on exports and the
overall Japanese economy. The Japanese yen may be affected by currency
volatility
elsewhere in Asia, especially Southeast Asia. Japanese intervention in the
currency markets could cause the value of the yen to fluctuate sharply
and
unpredictably and could cause losses to investors. Natural disasters such
as earthquakes, volcanic eruptions, typhoons or tsunamis, could occur in
Japan and
surrounding areas and may have a significant impact on the business
operations of Japanese companies in the affected regions and Japan’s
economy. These
and other factors could have a negative impact on the Fund’s performance
and increase the volatility of an investment in the
Fund. |
4Prospectus
– Fund Summaries
Hedging
Risk
If
the Fund uses a hedging instrument at the wrong time or judges the market
conditions incorrectly, or the hedged instrument does not correlate to the risk
sought
to be hedged, the hedge might be unsuccessful, reduce the Fund’s return, or
create a loss. In addition, hedges, even when successful in mitigating
risk,
may not prevent the Fund from experiencing losses on its investments. Hedging
instruments may also reduce or eliminate gains that may otherwise have
been
available had the Fund not used the hedging
instruments.
High
Portfolio Turnover Risk
Portfolio
turnover is a measure of the Fund’s trading activity over a one-year period. The
Fund may engage in active and frequent trading, which could increase
the Fund’s transaction costs, have a negative impact on performance, and
generate higher capital gain distributions to shareholders than if the Fund
had
lower portfolio turnover.
Interest
Rate Risk
Generally,
the value of investments with interest rate risk, such as fixed-income
securities or derivatives, will move in the opposite direction as
movements in interest
rates. Factors including central bank monetary policy, rising inflation rates,
and changes in general economic conditions may cause interest rates to
rise,
which could cause the value of the Fund’s investments to decline. Interest
rate
increases, including significant or rapid increases, may result in a decline in
the
value of bonds held by the Fund, lead to heightened volatility in the
fixed-income markets and adversely affect the liquidity of certain fixed-income
investments,
any of which may result
in substantial losses to the Fund. Interest
rate changes may have a more pronounced effect on the market value of
fixed-rate
instruments than on floating-rate instruments. The value of floating rate and
variable securities may decline if their interest rates do not rise as
quickly,
or as much, as general interest rates.
The prices of fixed-income securities or derivatives are also affected by their
durations. Fixed-income securities or derivatives
with longer durations generally have greater sensitivity to changes in interest
rates
than those with shorter durations.
Rising interest rates may cause
the value of the Fund
‘s
investments with longer durations and terms to maturity to decline, which may
adversely affect the value of the Fund. For example,
if a bond has a duration of eight years, a 1% increase in interest rates could
be expected to result in an 8% decrease in the value of the bond. Fluctuations
in interest rates may also affect the liquidity of fixed-income securities and
instruments held by the Fund.
Investment
Risk
An
investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government
agency.
When you sell your shares of the Fund, they could be worth less than what you
paid for them. Therefore, you may lose money by investing
in the Fund.
Leverage
Risk
The
Fund’s use of derivative instruments may have the economic effect of financial
leverage. Financial leverage magnifies the Fund’s exposure to the movements
in prices of an asset or class of assets underlying a derivative instrument and
may result in increased volatility, which means that the Fund will have
the potential for greater losses than if the Fund does not use the derivative
instruments that have a leveraging effect. Leverage may result in losses that
exceed
the amount originally invested and may accelerate the rate of losses. Leverage
tends to magnify, sometimes significantly, the effect of any increase or
decrease
in the Fund’s exposure to an asset or class of assets and may cause the Fund’s
net asset value (“NAV”) per share to be volatile. There can be no assurance
that the Fund’s use of leverage will be
successful.
Liquidity
Risk
The
Fund is susceptible to the risk that certain investments held by the Fund may
have limited marketability, be subject to restrictions on sale, be difficult or
impossible
to purchase or sell at favorable times or prices or become less liquid in
response to market developments or adverse credit events that may affect
issuers
or guarantors of a security. An inability to sell a portfolio position can
adversely affect the Fund’s value or prevent the Fund from being able to take
advantage
of other investment opportunities. Market prices for such instruments may be
volatile. During periods of substantial market volatility, an investment
or even an entire market segment may become illiquid, sometimes abruptly, which
can adversely affect the Fund’s ability to limit losses. The Fund could
lose money if it is unable to dispose of an investment at a time that is most
beneficial to the Fund. The Fund may be required to dispose of investments
at
unfavorable times or prices to satisfy obligations, which may result in losses
or may be costly to the Fund. For
example, liquidity risk may be magnified in rising
interest rate environments in the event of higher
than
normal redemption rates.
Unexpected
redemptions may force the Fund to sell certain investments
at unfavorable prices to meet redemption requests or other cash
needs. Judgment
plays a greater role in pricing illiquid investments than in investments
with more active markets.
Market
Risk
The
Fund is subject to the risk that the securities markets will move down,
sometimes rapidly and unpredictably, based on overall economic conditions and
other
factors, which may negatively affect the Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities,
although
under certain market conditions fixed-income securities may have comparable or
greater price volatility. During a general downturn in the securities
markets,
multiple assets may decline in value simultaneously. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future. The value of a security may decline
due
to adverse issuer-specific conditions, general market conditions unrelated to a
particular issuer, such as changes in interest or inflation rates, or factors
that
affect a particular industry or industries. Changes in the financial condition
of a single issuer or market segment also can impact the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity in equity, credit and
fixed-income
markets, which may disrupt economies and markets and adversely affect the value
of your investment. Changes in value may be temporary or may
last for extended periods.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or
occurrence of
a federal
government shutdown and threats or
the occurrence of a failure
to increase the federal government’s debt limit,
which could result in a default on the government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
|
■ |
Recent
Market Events Risk.
Both U.S. and international markets have experienced significant
volatility in recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in the Fund may be
increased. |
Prospectus
– Fund Summaries5
| |
Although
interest rates were unusually low in recent years in the U.S. and
abroad, in 2022, the Federal Reserve and certain foreign central banks
began to raise
interest rates as part of their efforts to address rising inflation. It is
difficult to accurately predict the pace at which interest rates might
increase or start decreasing,
the timing, frequency or magnitude of any such changes in interest rates,
or when such changes might stop or reverse course. Additionally,
various
economic and political factors could cause the Federal Reserve or another
foreign central bank to change their approach in the future and such
actions
may result in an economic slowdown in the U.S. and abroad. Unexpected
changes in interest rates could lead to significant market volatility or
reduce
liquidity in certain sectors of the market. Deteriorating economic
fundamentals may, in turn, increase the risk of default or insolvency of
particular issuers,
negatively impact market value, cause credit spreads to widen, and reduce
bank balance sheets. Any of these could cause an increase in market
volatility,
reduce liquidity across various markets or decrease confidence in the
markets. Additionally, high public debt in the U.S. and other
countries creates
ongoing systemic and market risks and policymaking
uncertainty. |
| |
In
March 2023, the shutdown of certain financial institutions in
the U.S. and questions regarding the viability of other financial
institutions raised economic concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be
effective in mitigating the effects of financial institution failures on
the economy and restoring public confidence in the U.S. and global banking
systems. |
| |
Some
countries, including the U.S., have in recent years adopted more
protectionist trade policies. Slowing global economic growth; risks
associated with a trade
agreement between the United Kingdom and the European Union; the risks
associated with ongoing trade negotiations with China; and the
possibility
of changes to some international trade agreements; political or economic
dysfunction within some nations, including major producers of oil; and
dramatic
changes in commodity and currency prices could have adverse effects that
cannot be foreseen at the present
time. |
| |
Tensions,
war, or open conflict between nations, such as between Russia and Ukraine,
in the Middle East or in eastern Asia could affect the economies of
many
nations, including the United States. The duration of ongoing hostilities
in the Middle East and between Russia and Ukraine, and any sanctions and
related
events cannot be predicted. Those events present material uncertainty and
risk with respect to markets globally and the performance of the Fund
and
its investments or operations could be negatively
impacted. |
| |
Regulators
in the U.S. have proposed and recently adopted a number of changes
to regulations involving the markets and issuers, some of which apply to
the
Fund. The full effect of various newly-adopted regulations is not
currently known. Additionally, it is not clear whether the proposed
regulations will be adopted.
However, due to the broad scope of the new and proposed regulations,
certain changes could limit the Fund’s ability to pursue its investment
strategies
or make certain investments, or may make it more costly for the Fund to
operate, which may impact
performance. |
| |
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Certain
issuers,
industries and regions may be adversely affected by the impacts of climate
change, including on the demand for and the development of goods and
services
and related production costs, and the impacts of legislation, regulation
and international accords related to climate change, as well as any
indirect consequences
of regulation or business trends driven by climate
change. |
Market
Direction Risk
Since
the Fund will typically hold both long and short positions, an investment in the
Fund will involve market risks associated with different types of investment
decisions than those made for a typical “long only” fund. The Fund’s results
could suffer both when there is a general market advance and the Fund
holds significant “short” positions, and when there is a general market decline
and the Fund holds significant “long”
positions.
Market
Timing Risk
The
Fund is subject to the risk of market timing activities by investors due to the
nature of the Fund’s investments, which requires the Fund, in certain
instances,
to fair value certain of its investments. Some investors may engage in frequent
short-term trading in the Fund to take advantage of any price differentials
that may be reflected in the net asset value (“NAV”) of the Fund’s shares.
Frequent trading by Fund shareholders poses risks to other shareholders
in
the Fund, including (i) the dilution of the Fund’s NAV, (ii) an increase in the
Fund’s expenses, and (iii) interference with the ability to execute efficient
investment
strategies.
Model
and Data/Programming Error Risk
The
success of the sub-advisor’s investment strategy depends largely on the
effectiveness of its quantitative research models and investment programs.
Models (including
quantitative models), data, and investment programs are used to screen potential
investments for the Fund. When models or data prove to be incorrect
or incomplete, any decisions made in reliance thereon expose the Fund to
potential risks and programs may not react as expected to market events,
resulting
in losses for the Fund. Some of the models used by the sub-advisor are
predictive in nature. The use of predictive models has inherent risks. Because
predictive
models are usually constructed based on historical data supplied by third
parties, the success of relying on such models may depend heavily on the
accuracy
and reliability of the supplied historical data. There is no assurance that the
models are complete or accurate, or representative of future market cycles,
nor will they always be beneficial to the Fund if they are accurate.
Additionally, programs may become outdated or experience malfunctions which may
not
be identified by the sub-advisor and therefore may also result in losses to the
Fund. These models and programs may negatively affect Fund performance
for
various other reasons, including human judgment, inaccuracy of historical data
and non-quantitative factors (such as market or trading system dysfunctions,
investor fear or overreaction).
Models
and data are known to have errors, omissions, imperfections and malfunctions
(collectively, “System Events”). The sub-advisor seeks to reduce the
incidence
and impact of System Events, to the extent feasible, through a combination of
internal testing, simulation, real-time monitoring, and use of independent
safeguards in the overall portfolio management process and often in the software
code itself. Despite such testing, monitoring and independent safeguards,
System Events will result in, among other things, the execution of unanticipated
trades, the failure to execute anticipated trades, delays in the execution
of anticipated trades, the failure to properly allocate trades, the failure to
properly gather and organize available data, the failure to take certain
hedging
or risk reducing actions and/or the taking of actions which increase certain
risk(s) - all of which may have materially adverse effects on the Fund.
System
Events in third-party provided data
are generally entirely outside the control of the
sub-advisor.
Non-Diversification
Risk
The
Fund is non-diversified, which means it may focus its investments in the
securities of a comparatively small number of issuers. Investments in securities
of a
limited number of issuers exposes the Fund to greater market risk, price
volatility and potential losses than if assets were diversified among the
securities of a
greater number of issuers.
Obsolescence
Risk
The
sub-advisor
is unlikely to be successful in the deployment of its quantitative,
systematic,
investment strategies unless the assumptions underlying the models
are realistic and either remain realistic and relevant in the future or are
adjusted to account for changes in the overall market environment. If such
assumptions
are inaccurate or become inaccurate and are not promptly adjusted, it is likely
that the
models will not generate profitable trading signals.
If and to
the extent that the models do not reflect certain relevant
factors,
and the sub-advisor does not successfully address such omission through its
testing and evaluation
by
modifying
the models accordingly, major losses may result — all of which will be borne by
the Fund.
There can be no assurance as to the effects (positive
or negative) of any changes including additions, modifications and removal of
the models or investment strategies on the Fund’s
performance.
6Prospectus
– Fund Summaries
Other
Investment Companies Risk
To
the extent that the Fund invests in shares of other registered investment
companies, the Fund will indirectly bear the fees and expenses charged by those
investment
companies in addition to the Fund’s direct fees and expenses. To the extent the
Fund invests in other investment companies that invest in equity securities,
fixed-income securities and/or foreign securities, or that track an index, the
Fund is subject to the risks associated with the underlying investments
held
by the investment company or the index fluctuations to which the investment
company is subject. The Fund will be subject to the risks associated with
investments
in those companies, including but not limited to the
following:
|
■ |
Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market
risk. |
Quantitative
Strategy Risk
The
success of the Fund’s investment strategy may depend in part on the
effectiveness of the sub-advisor’s quantitative tools for screening
securities. These strategies
may incorporate factors that are not predictive of a security’s value. The
quantitative tools may not react as expected to market events, resulting in
losses
for the Fund. Additionally, a previously successful strategy may become outdated
or inaccurate, which may not be identified by the sub-advisor and
therefore
may also result in losses.
Redemption
Risk
The
Fund may experience periods of high levels of redemptions that could cause the
Fund to sell assets at inopportune times or at a loss or depressed value.
Heavy
redemptions could hurt the Fund’s performance. The sale of assets to meet
redemption requests may create net capital gains, which could cause the
Fund
to have to distribute substantial capital gains. Redemption risk is greater to
the extent that one or more investors or intermediaries control a large
percentage
of investments in the Fund. In addition, redemption risk is heightened during
periods of declining or illiquid markets. A
rise in interest rates or other
market developments may cause investors to move out of fixed-income securities
on a large scale.
During periods of heavy redemptions, the Fund may borrow
funds through the interfund credit facility or from a bank line of credit, which
may increase costs.
Risk
Management
Risk
is an essential part of investing. No risk management program can eliminate the
Fund’s exposure to adverse events; at best, it can only reduce the possibility
that the Fund will be affected by such events, and especially those risks that
are not intrinsic to the Fund’s investment program. Measures taken with
the intention of decreasing exposure to identified risks might have the
unintended effect of increasing exposure to other
risks.
Segregated
Assets Risk
In
connection with certain transactions that may give rise to future payment
obligations, the Fund may be required to maintain a segregated amount of, or
otherwise
earmark, cash or liquid securities to cover the obligation. Segregated assets
generally cannot be sold while the position they are covering is outstanding,
unless they are replaced with other assets of equal value. The need to segregate
cash or other liquid securities could limit the Fund’s ability to pursue
other opportunities as they arise.
Short
Position Risk
The
Fund will incur a loss as a result of a short position if the price of the
instrument sold short increases in value between the date of the short sale and
the date
on which an offsetting position is purchased. Short positions may be considered
speculative transactions and involve special risks, including greater
reliance
on the sub-advisor’s ability to accurately anticipate the future value of a
security or instrument. As there is potentially no limit on the amount that the
security
that the Fund is required to purchase may have appreciated, the Fund’s losses
are potentially unlimited in a short position transaction, particularly in
cases
where the Fund is unable to close out its short position. The Fund may invest
the proceeds of a short sale and, therefore, be subject to the effect of
leverage,
in that short selling may amplify changes in the Fund’s NAV since it may
increase the exposure of the Fund to certain markets and may increase
losses
and the volatility of returns.
Sovereign
Debt Risk
Sovereign
debt securities are subject to risk of payment delays or defaults due to, among
other things: (1) country cash flow problems, (2) insufficient foreign
currency
reserves, (3) political considerations, (4) large debt positions relative to the
country’s economy, (5) policies toward foreign lenders or investors, (6) the
failure
to implement economic reforms required by the International Monetary Fund or
other multilateral agencies, or (7) an inability or unwillingness to repay
debts.
A governmental entity that defaults on an obligation may request additional time
in which to repay loans, may request further loans, or may seek to restructure
its obligations to reduce interest rates or outstanding principal. There is no
legal process for collecting sovereign debt that a government does not
pay,
nor are there bankruptcy proceedings through which all or part of the sovereign
debt that a governmental entity has not repaid may be
collected.
Subsidiary
Risk
By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held
by the Subsidiary are generally similar to those that are permitted to be held
by the Fund and are subject to the same risks that apply to similar investments
if held directly by the Fund. The principal risks of the Subsidiary are listed
in this section of the Prospectus as principal risks of the Fund. There can
be
no assurance that the investment objective of the Subsidiary will be achieved or
that, as a result, the investment objective of the Fund will be achieved. The
Subsidiary
is not registered under the Investment Company Act, and, unless otherwise noted
in this Prospectus, is not subject to all the investor protections of
the
Investment Company Act. In addition, 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 described in this Prospectus and the SAI and could
adversely affect the Fund’s performance.
Tax
Risk
To
qualify as a “regulated investment company” under Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”) (“RIC”),
the Fund must, among other requirements, derive at least 90% of its gross income
for each taxable year from “qualifying income,” which is described
in more detail in the “Tax Information” section of the SAI. Income from certain
commodity-linked derivative instruments in which the Fund invests is
not
considered qualifying income. The Fund will therefore restrict its income from
direct investments in those instruments, such as commodity-linked swaps,
to
a maximum of 10% of its gross income for each taxable year. The Fund’s
investment in the Subsidiary is expected to provide the Fund with exposure to
the commodities
markets within the limitations of the federal tax requirements of Subchapter M.
Treasury regulations provide that income inclusions of a RIC from a
controlled foreign corporation (“CFC”), such as the Subsidiary, in which the RIC
invests as part of its business of investing in stocks
and securities, are qualifying
income for the RIC
whether or not the CFC makes distributions to the RIC out of its associated
earnings and profits for the applicable taxable year. See
“Tax Information” in the SAI for further information regarding RIC’s federal
income tax treatment of income from CFCs and commodity-linked instruments.
The federal income tax treatment of the Fund’s commodity-linked investments and
income from the Subsidiary may be materially adversely affected
by future legislation, other Treasury regulations, and/or guidance issued by the
IRS that could affect whether income from such investments is qualifying
income under Subchapter M or otherwise materially affect the character, timing
or recognition, and/or amount of the Fund’s taxable income and/or net
capital gains and, therefore, the distributions the Fund
makes.
Trading
System and Execution of Orders Risk
The
sub-advisor relies extensively on computer programs, systems, technology, data
and models to implement its execution strategies and algorithms. The
sub-advisor’s
investment strategies, trading strategies and algorithms depend on its ability
to establish and maintain an overall market position in a
Prospectus
– Fund Summaries7
combination
of financial instruments selected by the sub-advisor. There is a risk that the
sub-advisor’s proprietary algorithmic trading systems may not be able
to
adequately react to a market event without serious disruption. Further, trading
strategies and algorithms may malfunction, causing severe losses. The
successful
operation of the computer programs, systems, technology, data and models depends
in part on the sub-advisor’s ability to ensure those systems remain
operational and that appropriate disaster recovery procedures are in place.
While the sub-advisor has employed tools to allow for human intervention
to
respond to significant system malfunctions, it cannot be guaranteed that losses
will not occur in such circumstances as unforeseen market events, disruptions
and execution system issues.
U.S.
Government Securities Risk
A
security backed by the U.S. Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of interest and principal
when
held to maturity. The market prices for such securities are not guaranteed and
will fluctuate. U.S. government securities are also subject to credit risk,
interest
rate risk and market risk. The rising U.S. national debt may lead to adverse
impacts on the value of U.S. government securities due to potentially
higher
costs for the U.S. government to obtain new
financing.
U.S.
Treasury Obligations Risk
The
market
value
of U.S. Treasury obligations may vary due to fluctuations
in interest rates. In addition, changes to the financial condition or credit
rating of the
U.S. government may cause the value of the Fund’s investments in obligations
issued by the U.S. Treasury to decline. Certain political events in the U.S.,
such
as a prolonged government shutdown or potential default on the national debt,
may also cause investors to lose confidence in the U.S. government and
may
cause the value of U.S. Treasury obligations to
decline.
Valuation
Risk
Certain
of the Fund’s assets may be valued at a price different from the price at which
they can be sold. This risk may be especially pronounced for investments
that are illiquid or may become illiquid, or securities that trade in relatively
thin markets and/or markets that experience extreme volatility. The valuation
of the Fund’s investments in an accurate and timely manner may be impacted by
technological issues and/or errors by third party service providers,
such
as pricing services or accounting agents.
Volatility
Risk
The
Fund may have investments that appreciate or decrease significantly in value
over short periods of time. This may cause the Fund’s NAV to experience
significant
increases or declines in value over short periods of
time.
Zero
Coupon Securities Risk
Zero-coupon
securities are debt
securities
that do not make periodic interest payments
prior to maturity or a specified redemption date (or cash payment date).
Accordingly, zero coupon securities usually trade at a deep discount from their
face or par value and will be subject to greater fluctuations in market
value
in response to changing interest rates than debt obligations of comparable
maturities that make current distribution of interest in cash.
While interest payments
are not made on such securities, the Fund accrues income with respect to these
securities for federal income tax and accounting purposes. Longer term
zero-coupon bonds are more exposed to interest rate risk than shorter term zero
coupon bonds.
Fund
Performance
The
bar chart and table below provide an indication of risk by showing changes in
the Fund’s performance over time. The bar chart shows how the Fund’s
performance
has varied from year to year. The table shows how the Fund’s average annual
total returns compare to a broad-based market index for the periods
indicated.
The
chart and the table show the performance of the Fund’s Investor Class shares for
all periods. C Class shares automatically convert to A Class shares 8
years
after purchase, if the conversion is available through your financial
intermediary. In the table below, the performance for C Class shares reflects
the conversion
of C Class shares to A Class shares after 8
years.
You
may obtain updated performance information on the Fund’s website at
www.americanbeaconfunds.com.
Past
performance (before and after taxes) is not necessarily
an indication of how the Fund will perform in the
future.
|
| |
|
Calendar
year total returns for Investor Class Shares.
Year Ended 12/31 |
|
|
Highest
Quarterly Return:
9.59%1st
Quarter 2022
01/01/2015
through 12/31/2023
Lowest
Quarterly Return:
-6.35%2nd
Quarter 2015
01/01/2015
through
12/31/2023 |
8Prospectus
– Fund Summaries
Average
annual total returns
for periods ended December 31, 2023
|
|
|
|
| |
|
|
Inception
Date of
Class |
1
Year |
5
Years |
Since
Inception |
|
Investor
Class |
|
|
|
|
|
Returns
Before Taxes |
|
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
|
Returns
After Taxes on Distributions and Sales of Fund Shares |
|
|
|
|
|
|
|
|
| |
|
|
Inception
Date of
Class |
1
Year |
5
Years |
Since
Inception |
|
Share
Class
(Before Taxes) |
|
|
|
|
|
A |
|
|
|
|
|
C |
|
|
|
|
|
Y |
|
|
|
|
|
R5 |
|
|
|
|
| * |
The
Since Inception performance for C Class shares reflects the conversion of
C Class shares to A Class shares after 8 years. If C Class shares were not
converted to A Class shares
after 8 years, and were instead held for the full period since inception,
performance would have been
3.89%. |
|
|
|
|
| |
|
|
|
1
Year |
5
Years |
Since
Inception |
|
Index
(Reflects no deduction for fees, expenses, or taxes) |
|
|
|
|
|
ICE
BofA US 3-Month Treasury Bill Index |
|
|
|
|
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local income
taxes.
Actual after-tax returns depend on an investor’s tax situation and may differ
from those shown. The
return after taxes on distributions and sale of Fund shares
may exceed the return before taxes due to an assumed tax benefit from any losses
on a sale of Fund shares at the end of the measurement period.
If
you
are a tax-exempt entity or hold your Fund shares through a tax-deferred
arrangement, such as an individual retirement account (“IRA”) or a 401(k) plan,
the
after-tax returns do not apply to your situation.
After-tax
returns are shown only for Investor Class shares of the Fund; after-tax returns
for other share classes
will vary.
Management
The
Manager
The
Fund has retained American Beacon Advisors, Inc. to serve as its
Manager.
Sub-Advisor
The
Fund’s investment sub-advisor is AHL Partners LLP.
Portfolio
Managers
|
|
| |
|
AHL
Partners LLP |
Russell
Korgaonkar
Chief
Investment Officer
Since
Fund Inception (2014) |
Otto
van Hemert
Director
of Core Strategies
Since
2021 |
Purchase
and Sale of Fund Shares
You
may buy or sell shares of the Fund through a retirement plan, an investment
professional, a broker-dealer, or other financial intermediary. You may
purchase
or redeem shares of the Fund on any day the New York Stock Exchange (“NYSE”) is
open, at the Fund’s net asset value (“NAV”) per share next calculated
after your order is received in proper form, subject to any applicable sales
charge. The Manager may, in its sole discretion, allow certain individuals
to
invest directly in the Fund. For more information regarding eligibility to
invest directly please see “About Your Investment - Purchase and Redemption of
Shares.”
Direct mutual fund account shareholders may buy subsequent shares or sell shares
in various ways:
|
|
| |
|
Internet |
www.americanbeaconfunds.com |
|
Phone |
To
reach an American Beacon representative call 1-800-658-5811, option
1
Through
the Automated Voice Response Service call 1-800-658-5811, option 2
(Investor Class only) |
|
Mail |
American
Beacon Funds
P.O.
Box 219643
Kansas
City, MO 64121-9643 |
Overnight
Delivery:
American
Beacon Funds
430
W. 7th Street, Suite 219643
Kansas
City, MO 64105-1407 |
|
|
|
| |
|
|
New
Account |
Existing
Account |
|
Share
Class |
Minimum
Initial Investment Amount |
Purchase/Redemption
Minimum by Check/ACH/Exchange |
Purchase/Redemption
Minimum by Wire |
|
C |
$1,000 |
$50 |
$250 |
|
A,
Investor |
$2,500 |
$50 |
$250 |
|
Y |
$100,000 |
$50 |
None |
|
R5 |
$250,000 |
$50 |
None |
Prospectus
– Fund Summaries9
Tax
Information
Dividends,
capital gains distributions,
and other distributions, if any, that you receive as a result of your
investment in the Fund are subject to federal income tax
and may also be subject to state and local income taxes, unless you are a
tax-exempt entity or your account is tax-deferred, such as an
individual retirement
account (“IRA”) or a 401(k) plan (in which case you may be taxed later, upon the
withdrawal of your investment from such account or plan).
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and the Fund’s distributor, Resolute
Investment
Distributors, Inc., or the Manager may pay the intermediary for the sale of Fund
shares and related services. These payments may create a conflict of
interest by influencing the broker-dealer or other intermediary and your
individual financial professional to recommend the Fund over another investment.
Ask
your individual financial professional or visit your financial intermediary’s
website for more information.
10Prospectus
– Fund Summaries
|
| |
|
American
Beacon
AHL
Multi-Alternatives FundSM
|
|
Investment
Objective
The
Fund’s investment objective is capital
growth.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You
may pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the
tables and examples below. You
may qualify for sales discounts
if you and your eligible family members invest, or agree to invest in the
future, at least $50,000
in all classes of the American Beacon Funds on an aggregated
basis.
More information about these and other discounts is available from your
financial professional and in “Choosing Your Share Class” on page 48
of the Prospectus and “Additional Purchase and Sale Information for A Class
Shares” on page 44 of the Statement of Additional Information
(“SAI”). With
respect to purchases of shares through specific intermediaries, you may find
additional information regarding sales charge discounts and waivers in
Appendix
A to the Fund’s Prospectus entitled “Intermediary Sales Charge Discounts,
Waivers and Other Information.”
Shareholder
Fees
(fees paid directly from your investment)
|
|
|
|
| |
|
Share
Class |
A |
C |
Y |
R6 |
|
Maximum
sales charge imposed on purchases (as a percentage of offering
price) |
|
|
|
|
|
Maximum
deferred sales charge (as a percentage of the lower of original offering
price or redemption
proceeds) |
|
|
|
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your
investment) |
|
Share
Class |
A |
C |
Y |
R6 |
|
Management
Fees |
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
Other
Expenses2
|
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
Fee
Waiver and/or expense reimbursement3
|
|
|
|
|
|
Total
Annual Fund Operating Expenses after fee waiver and/or expense
reimbursement |
|
|
|
|
| 1 |
A
contingent deferred sales charge (‘‘CDSC’’) of 0.50% will be charged on
certain purchases of $1,000,000 or more of A Class shares that are
redeemed in whole or part within 18
months of purchase.
|
| 2 |
Other
Expenses are based on estimated expenses for the current fiscal
year.
|
| 3 |
American
Beacon Advisors, Inc. (the “Manager”) has contractually agreed to waive
fees and/or reimburse expenses of the Fund’s A Class, C Class, Y Class,
and R6 Class shares, as
applicable, through December
31, 2025
to the extent that Total Annual Fund Operating Expenses exceed 1.56% for
the A Class, 2.31% for the C Class, 1.33% for the Y Class,
and 1.23% for the R6 Class (excluding taxes, interest, brokerage
commissions, acquired fund fees and expenses, securities lending fees,
expenses associated with securities
sold short, litigation, and other extraordinary expenses). The contractual
expense reimbursement can be changed or terminated only in the discretion
and with the approval
of a majority of the Fund’s Board of Trustees. The Manager will itself
waive fees and/or reimburse expenses of the Fund to maintain the
contractual expense ratio caps for
each applicable class of shares or make arrangements with other service
providers to do so. The Manager may also, from time to time, voluntarily
waive fees and/or reimburse
expenses of the Fund. The Manager can be reimbursed by the Fund for any
contractual or voluntary fee waivers or expense reimbursements if
reimbursement to the Manager
(a) occurs within three years from the date of the Manager’s
waiver/reimbursement and (b) does not cause the Total Annual Fund
Operating Expenses of a class to exceed
the lesser of the contractual percentage limit in effect at the time of
the waiver/reimbursement or the time of the
recoupment. |
Example
This
Example is intended to help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The Example assumes that
you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that
your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same, except that the Example reflects the fee waiver/expense
reimbursement arrangement
for each share class through December 31, 2025. Although your actual costs
may be higher or lower, based on these assumptions,
your costs would be:
|
|
| |
|
Share
Class |
1
Year |
3
Years |
|
A |
$725 |
$1,101 |
|
C |
$334 |
$785 |
|
Y |
$135 |
$484 |
|
R6 |
$125 |
$453
|
Assuming
no redemption of shares:
|
|
| |
|
Share
Class |
1
Year |
3
Years |
|
C |
$234
|
$785
|
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or ‘’turns over’’ its portfolio). A higher portfolio turnover rate
may indicate
higher transaction costs and may result in higher taxes when Fund shares are
held in a taxable account. These costs, which are not reflected in annual
Fund
operating expenses or in the Example, affect the Fund’s performance. For the
period
from the Fund’s commencement of operations
on August 17, 2023 through the fiscal year ended December 31, 2023, the
Fund’s portfolio turnover rate was 83% of the average value
of
its portfolio.
Prospectus
– Fund Summaries11
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by implementing two investment
strategies, a “Managed Futures Strategy” and a “TargetRisk Strategy.”
The
Fund intends to allocate approximately 50% of its portfolio to each
strategy.
| |
(1)
Managed Futures Strategy.
The sub-advisor’s investment philosophy is that the financial markets
exhibit trends and other inefficiencies. Trends are a manifestation
of serial correlation in financial markets — the phenomenon whereby past
price movements influence price behavior. Although price trends
vary
in intensity, duration, and frequency, they typically recur across sectors
and markets. Trends are an attractive focus for active trading styles
applied across
a range of global markets. The sub-advisor implements a quantitative
trading strategy and systematic investment process designed to capitalize
on price
trends (up and/or down) in a broad range of around 120 global markets by
utilizing derivative instruments to seek exposure to stock indices, bonds,
currencies
and interest rates. The sub-advisor employs computerized processes to
identify investment opportunities across a wide range of markets around
the
world. Investment decisions are executed via the sub-advisor’s proprietary
execution strategy. The investment decision process is quantitative and
primarily
directional in nature, meaning that investment decisions are driven by
mathematical models based on market trends and other historical
relationships.
It is underpinned by risk controls, ongoing research, and diversification
guidelines. As the owner of a “long” position in a derivative instrument,
the Fund may benefit from an increase in the price of the underlying
investment, and as the owner of a “short” position, the Fund may benefit
from
a decrease in the price of the underlying
investment. |
| |
The
Managed Futures Strategy is designed to provide an excess return with a
targeted level of volatility regardless of market conditions. The
sub-advisor seeks
to do this by using systematic algorithms (mathematical models). An
algorithm measures the degree of volatility in a particular market. If the
market is turbulent,
and returns are volatile, the algorithm will reduce exposure. Conversely,
it will increase exposure, subject to risk limits, if the market is calm
and volatilities
are decreasing. This technique is called ‘volatility scaling’ and can be
applied at various levels to achieve a balanced risk exposure through
time, and
across different asset classes. Volatility scaling aims to achieve a
certain target level of volatility which is stable through time. The
Managed Futures Strategy
has set an annualized volatility target of 10% of the Fund’s net asset
value (“NAV”) invested in the strategy. Volatility is defined as the
annualized standard
deviation of returns. It is important to note that both the short and long
term realized volatility of the Fund can and will differ from the targeted
volatility
and can be dependent on prevailing market
conditions. |
| |
(2)
TargetRisk Strategy. The
sub-advisor allocates the Fund’s assets invested in the
TargetRisk Strategy across equities, bonds (including inflation
index-linked bonds),
interest rates, corporate credit, and commodities primarily through
derivative instruments utilizing a proprietary quantitative model. The
TargetRisk Strategy
is designed to provide an excess return with a targeted level of
volatility regardless of market conditions. The sub-advisor seeks to do
this using volatility
scaling as described above. The TargetRisk Strategy has set an annualized
volatility target of 10% of NAV invested in the strategy. In addition to
volatility
scaling, the TargetRisk Strategy utilizes additional systematic overlays
to control downside risk. The first of these is a momentum overlay, which
uses
past price behavior to identify periods when a market is in a downtrend.
The strategy uses this information to scale down positions depending upon
the
strength of that trend, thereby reducing risk in falling markets. The
second overlay is a volatility switching mechanism, which reacts quickly
to spikes in volatility
by using a formula that is designed to minimize market transactions during
periods of low volatility and increase market transactions during
periods
of heightened market volatility. The third overlay uses intraday data to
identify dangerous environments in which fixed income assets no longer act
as
a hedge to equities and other assets. The combination of these overlays
aims to reduce losses and improve risk-adjusted
returns. |
The
Fund invests primarily in derivatives, including futures contracts (including
equity index futures, bond futures, bond index futures, government bond
futures,
such as treasury futures, interest rate futures, and currency futures), foreign
currency forward contracts and non-deliverable forwards (“NDFs”), and
swaps
(including commodity swaps, credit default swaps, and total return swaps), but
also may invest in other types of derivative instruments, including derivative
instruments linked to stock indices, currencies, bonds, interest rates and
commodity instruments. The Fund uses derivative instruments to enhance
total
return, to manage certain investment risks, to substitute for the purchase or
sale of the underlying securities, and for hedging purposes. The Fund
expects
that, under normal market conditions, the notional value of its derivatives
exposure generally will exceed that of its net assets. In order to collateralize
its
derivatives investments, for liquidity purposes, or to earn income, the Fund may
hold significant amounts of U.S. Treasury securities; foreign developed
market
sovereign short-term bonds issued by countries such as France, Germany, Japan,
and the United Kingdom; short-term investments, which may include a
government money market fund advised by the Manager, with respect to which the
Manager also receives a management fee; cash; cash equivalents; and time
deposits. The Fund’s investments in government securities may be zero coupon
securities. The Fund may invest in derivatives instruments that provide
exposure
to below investment grade securities, which are commonly referred to as “junk
bonds” and to issuers in the U.S. and foreign developed and emerging
markets, including sovereign debt. The Fund may invest in U.S. and non-U.S.
currencies and instruments denominated in non-U.S. currencies. The Fund
also may invest in government obligations. The Fund’s investments are generally
made without restriction as to issuer market capitalization, country,
currency,
or maturity. The Fund may hold significant cash positions from time to
time.
The
Fund seeks to gain exposure to the commodity futures markets by investing up to
25% of its total assets in a wholly owned subsidiary, which is organized
under
the laws of the Cayman Islands (the “Subsidiary”). Generally, the Subsidiary
invests primarily in commodity futures and commodity swaps, but it may
also
invest in financial futures and forwards and other types of swap contracts,
fixed income securities, pooled investment vehicles, including open-end
investment
companies, and other investments intended to serve as margin or collateral for
the Subsidiary’s derivative positions. The Fund invests in the Subsidiary
in order to gain exposure to the commodities markets within the limitations of
the federal tax law, rules and regulations that apply to “regulated investment
companies.” Unlike the Fund, the Subsidiary may invest without limitation in
commodity-linked derivatives, however, the Subsidiary and the Fund, in
the aggregate, will comply with applicable requirements for derivatives
transactions set forth in Rule 18f-4 under the Investment Company Act of 1940,
as amended
(the “Investment Company Act”). In addition, the Fund and the Subsidiary comply
with the same fundamental investment restrictions on an aggregate
basis and the Subsidiary follows the same compliance policies and procedures as
the Fund to the extent those restrictions, policies and procedures are
applicable to the investment activities of the Subsidiary. Unlike the Fund, the
Subsidiary does not, and will not, seek to qualify as a “regulated investment
company”
under Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code of
1986, as amended (“Subchapter M”). The Fund is the sole shareholder
of the Subsidiary and does not expect shares of the Subsidiary to be offered or
sold to other investors.
The
Fund’s holdings may be frequently adjusted to reflect the sub-advisor’s
assessment of changing risks, which could result in high portfolio turnover. The
Fund
may have significant exposure to issuers located in, or with economic ties to,
Europe. However, as the sector and geographic composition of the Fund’s
portfolio
changes over time, the Fund’s exposure to Europe may decline, and the Fund’s
exposure to other geographic areas may
increase.
The
Fund is non-diversified, which means that it is not limited to a percentage of
assets that it may invest in any one
issuer.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you
could lose part or all of your investment in the Fund.
The
Fund is not designed
for investors who need an assured level of current income and is intended to be
a long-term investment. The Fund is not a complete investment
program and may not be appropriate for all investors. Investors should carefully
consider their own investment goals and risk tolerance
before investing in the Fund.
The principal risks of investing in the Fund listed below are presented in
alphabetical order and not in order of importance
or potential exposure. Among other matters, this presentation is intended to
facilitate your ability to find particular risks and compare them with
12Prospectus
– Fund Summaries
the
risks of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it appears.
The
principal
risks of the Subsidiary are listed in this section of the Prospectus as
principal risks of the Fund.
Allocation
Risk
The
allocations among strategies, asset classes and market exposures may be less
than optimal and may adversely affect the Fund’s performance. There can be
no
assurance, particularly during periods of market disruption and stress, that
judgments about allocations will be correct. The Fund’s allocations may be
invested
in strategies, asset classes and market exposures during a period when such
strategies, asset classes and market exposures
underperform.
Asset
Selection Risk
Assets
selected for the Fund may not perform to expectations. This could result in the
Fund’s underperformance compared to other funds with similar investment
objectives.
Commodities
Risk
The
Fund’s investments in commodity-linked derivative instruments may subject the
Fund to greater volatility than investments in traditional securities. The
value
of commodity-linked derivative instruments may be affected by changes in overall
market movements, commodity index volatility, commodity price volatility,
changes in interest rates, or factors affecting a particular industry or
commodity, such as changes in supply and demand, resource availability,
speculation
in the commodities markets, drought, floods, weather, livestock disease,
pandemics, embargoes, tariffs, war, acts of terrorism and international
economic,
political and regulatory developments. The
Fund may invest significantly in a particular sector of the commodities market
(such as oil, metal or agricultural
products). As a result, the Fund may be more susceptible to risks associated
with those sectors.
No active trading market may exist for certain commodities
investments. The Fund’s investments in commodity-related instruments may lead to
losses in excess of the Fund’s investment in such products, as some
commodity-linked derivatives can have the potential for unlimited losses. Such
losses can significantly and adversely affect the net asset value (“NAV”)
per
share of the Fund and, consequently, a shareholder’s interest in the Fund.
Because the Fund’s performance is linked to the performance of potentially
volatile
commodities, investors should be willing to assume the risks of significant
fluctuations in the value of the Fund’s
shares.
Counterparty
Risk
The
Fund is subject to the risk that a party or participant to a transaction, such
as a broker or a derivative counterparty, will be unwilling or unable to satisfy
its obligation
to make timely principal, interest or settlement payments or to otherwise honor
its obligations to the Fund.
Credit
Risk
The
Fund is subject to the risk that the issuer, guarantor or insurer of an
obligation, or the counterparty to a transaction, may fail, or become less able
or unwilling,
to make timely payment of interest or principal or otherwise honor its
obligations or default completely. Changes in the actual or perceived
creditworthiness
of an issuer, or a downgrade or default affecting any of the Fund’s securities,
could affect the Fund’s performance. Generally, the longer the maturity
and the lower the credit quality of a security, the more sensitive it is to
credit risk.
Crowding/Convergence
Risk
There
is significant competition among quantitatively-focused managers, and the
ability of the sub-advisor to outperform other funds is dependent on its
ability
to employ models that are simultaneously profitable and differentiated from
those employed by other managers. To the extent that the sub-advisor is
not
able to develop sufficiently differentiated models, the Fund’s investment
objective may not be met, irrespective of whether the models are profitable in
an absolute
sense.
Currency
Risk
The
Fund may have exposure to foreign currencies. Foreign currencies may fluctuate
significantly over short periods of time, may be affected unpredictably by
intervention,
or the failure to intervene, of the U.S. or foreign governments or central
banks, and may be affected by currency controls or political developments
in the U.S. or abroad. Foreign currencies may also decline in value relative to
the U.S. dollar and other currencies and thereby affect the Fund’s investments.
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
the Fund and its service providers as well as the ability of shareholders to
transact in the Fund’s shares, and result in financial losses. Cybersecurity
incidents
may allow an unauthorized party to gain access to Fund assets, shareholder data,
or proprietary information, or cause the Fund or its service providers,
as well as securities trading venues and their service providers, to suffer data
corruption or lose operational functionality. Cybersecurity incidents
can
result from deliberate attacks or unintentional events. It is not possible for
the Fund or its service providers to identify all of the operational risks that
may affect
the Fund or to develop processes and controls to completely eliminate or
mitigate their occurrence or effects. The Fund cannot control the cybersecurity
plans
and systems of its service providers, its counterparties or the issuers of
securities in which the Fund invests. The issuers of the Fund’s investments are
likely
to be dependent on computers for their operations and require ready access to
their data and the internet to conduct their business. Thus, cybersecurity
incidents
could also affect issuers of the Fund’s investments, leading to significant loss
of value.
Derivatives
Risk
Derivatives
may involve significant risk. The use of derivative instruments may expose the
Fund to additional risks that it would not be subject to if it invested
directly
in the securities or other instruments underlying those derivatives, including
the high degree of leverage often embedded in such instruments, and potential
material and prolonged deviations between the theoretical value and realizable
value of a derivative. Some derivatives have the potential for unlimited
loss, regardless of the size of the Fund’s initial investment. The use of
derivatives may also increase any adverse effects resulting from the
underperformance
of strategies, asset classes and market exposures to which the Fund has
allocated its assets. Derivatives may at times be highly illiquid, and
the
Fund may not be able to close out or sell a derivative at a particular time or
at an anticipated price. Certain derivatives may be difficult to value, and
valuation
may be more difficult in times of market turmoil. Derivatives may also be more
volatile than other types of investments. The Fund may buy or sell derivatives
not traded on an exchange, which may be subject to heightened liquidity and
valuation risk. Derivative investments can increase portfolio turnover
and
transaction costs. Derivatives also are subject to counterparty risk and credit
risk. As a result, the Fund may not recover its investment or may only obtain
a
limited recovery, and any recovery may be delayed. Not all derivative
transactions require a counterparty to post collateral, which may expose the
Fund to greater
losses in the event of a default by a counterparty. There may be imperfect
correlation between the behavior of a derivative and that of the reference
instrument
underlying the derivative. An abrupt change in the price of a reference
instrument could render a derivative worthless. Derivatives may involve risks
different
from, and possibly greater than, the risks associated with investing directly in
the reference instrument. Suitable derivatives may not be available in all
circumstances,
and there can be no assurance that the Fund will use derivatives to reduce
exposure to other risks when that might have been beneficial. Ongoing
changes to the regulation of the derivatives markets and potential changes in
the regulation of funds using derivative instruments could limit the
Fund’s
ability to pursue its investment strategies. New regulation of derivatives may
make them more costly, or may otherwise adversely affect their liquidity,
value
or performance. In
addition, the Fund’s investments in derivatives are subject to the following
risks:
|
■ |
Foreign
Currency Forward Contracts Risk.
Foreign currency forward contracts, including non-deliverable forwards
(“NDFs”), are derivative instruments pursuant
to a contract where the parties agree to a fixed price for an agreed
amount of foreign currency at an agreed date or to buy or sell a specific
|
Prospectus
– Fund Summaries13
|
|
currency
at a future date at a price set at the time of the contract and include
the risks associated with fluctuations in currency. There are no
limitations on daily
price movements of forward contracts. There can be no assurance that any
strategy used will succeed. Not all forward contracts, including NDFs,
require
a counterparty to post collateral, which may expose the Fund to greater
losses in the event of a default by a counterparty. The use of foreign
currency
forward contracts may expose the Fund to additional risks, such as credit
risk, liquidity risk, and counterparty risk, that it would not be subject
to if it
invested directly in the securities or currencies underlying the foreign
currency forward
contract. |
|
■ |
Futures
Contracts Risk.
Futures contracts are derivative instruments pursuant to a contract where
the parties agree to a fixed price for an agreed amount of securities
or other underlying assets at an agreed date. The use of such derivative
instruments may expose the Fund to additional risks, such as credit risk,
liquidity
risk, and counterparty risk, that it would not be subject to if it
invested directly in the securities underlying those derivatives. There
can be no assurance
that any strategy used will succeed. There may at times be an imperfect
correlation between the movement in the prices of futures contracts and
the
value of their underlying instruments or indexes. There also can be no
assurance that, at all times, a liquid market will exist for offsetting a
futures contract
that the Fund has previously bought or sold, and this may result in the
inability to close a futures contract when desired. Futures contracts may
experience
potentially dramatic price changes, which will increase the volatility of
the Fund and may involve a small investment of cash (the amount of
initial
and variation margin) relative to the magnitude of the risk assumed (the
potential increase or decrease in the price of the futures contract).
Government
bond futures contracts, such as treasury futures contracts, expose
the Fund to price fluctuations resulting from changes in interest
rates and to potential
losses if interest rates do not move as expected.
Interest
rate futures contracts expose the Fund to price fluctuations
resulting from changes in interest
rates. The Fund could suffer a loss if interest rates rise after the Fund
has purchased an interest rate futures contract or fall after the Fund has
sold an
interest rate futures contract.
Foreign
currency futures contracts expose the Fund to risks associated with
fluctuations in the value of foreign currencies. Foreign
currency futures contracts are similar to foreign currency forward
contracts, except that they are traded on exchanges (and may have margin
requirements)
and are standardized as to contract size and delivery date. The Fund may
use foreign currency futures contracts for the same purposes as
foreign
currency forward contracts, subject to Commodity Futures Trading
Commission (“CFTC”) regulations.
Futures
contracts on bond and equity indices expose
the Fund to volatility in an underlying
index. |
|
■ |
Swap
Agreements Risk.
Swap agreements or “swaps” are transactions in which the Fund and a
counterparty agree to pay or receive payments at specified dates
based upon or calculated by reference to changes in specified prices or
rates or the performance of specified securities, indices or other assets
based on
a specified amount (the “notional” amount). Swaps can involve greater
risks than a direct investment in an underlying asset, because swaps
typically include
a certain amount of embedded leverage and as such are subject to leverage
risk. If swaps are used as a hedging strategy, the Fund is subject to the
risk
that the hedging strategy may not eliminate the risk that it is intended
to offset, due to, among other reasons, the occurrence of unexpected price
movements
or the non-occurrence of expected price movements. Swaps also may be
difficult to value. Swaps may be subject to liquidity risk and
counterparty
risk, and swaps that are traded over-the-counter are not subject to
standardized clearing requirements and may involve greater liquidity and
counterparty
risks. The
Fund may invest in the following types of
swaps: |
|
■ |
Commodities
swaps,
which may be subject to commodities
risk. |
|
■ |
Credit
default swaps,
which may be subject to credit risk and the risks associated with the
purchase and sale of credit
protection. |
|
■ |
Total
return swaps,
which may be subject to credit risk and market risk and, if the underlying
securities are bonds or other debt obligations, interest rate risk. |
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets are generally smaller, less developed, less
liquid
and more volatile than the securities markets of the U.S. and other developed
markets. There are also risks of: greater political or economic uncertainties;
an economy’s dependence on revenues from particular commodities or on
international aid or development assistance; currency transfer restrictions;
a limited number of potential buyers for such securities resulting in increased
volatility and limited liquidity for emerging market securities; trading
suspensions
and other restrictions on investment; delays and disruptions in securities
clearing and settlement procedures; and significant limitations on investor
rights and recourse. The governments of emerging market countries may also be
more unstable and more likely to impose capital controls, nationalize
a company or industry, place restrictions on foreign ownership and on
withdrawing sale proceeds of securities from the country, intervene in the
financial
markets, and/or impose burdensome taxes that could adversely affect security
prices. In addition, there may be less publicly available information
about
issuers in emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to accounting,
auditing, financial reporting and recordkeeping standards and requirements
comparable to those to which U.S. companies are
subject.
Foreign
Exposure Risk
Exposure
to non-U.S. issuers carries potential risks not associated with exposure
to U.S. issuers. Such risks may include, but are not limited to: (1)
currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity,
(4) lack of uniform accounting, auditing and financial reporting standards, (5)
greater
volatility, (6) different government regulation and supervision of foreign stock
exchanges, brokers and listed companies, and (7) delays or failures in
transaction
payment and settlement in some foreign markets. The Fund’s exposure to a foreign
issuer may subject the Fund to regulatory, political, currency, security,
economic and other risks associated with that country. Global economic and
financial markets have become increasingly interconnected and conditions
(including recent volatility, terrorism, war and political instability) and
events (including natural disasters) in one country, region or financial market
may
adversely impact issuers in a different country, region or financial
market.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, the Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with
significant economic ties to, a single country or geographic region, which could
increase the risk that economic, market, political, business, regulatory,
diplomatic,
social and environmental conditions in that particular country or geographic
region may have a significant impact on the Fund’s performance. Investing
in such a manner could cause the Fund’s performance to be more volatile than the
performance of more geographically diverse funds. A decline in the
economies or financial markets of one country or region may adversely affect the
economies or financial markets of another.
|
■ |
European
Securities Risk.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product of the countries in the region), the rate of
inflation, the rate at which capital is reinvested into European
economies, the success
of governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries, the monetary exchange rates
between European
countries, and conflict between European countries. The European financial
markets have experienced and may continue to experience volatility
and
adverse trends due to concerns relating to economic downturns; rising
government debt levels and the possible default on government debt;
national unemployment
in several European countries; public health crises; political unrest;
economic sanctions; inflation; energy crises; and war and military
conflict, such
as the Russian invasion of Ukraine. A default or debt restructuring by any
European country could adversely impact holders of that country’s debt and
sellers
of credit default swaps linked to that country’s creditworthiness, which
may be located in other countries. Such a default or debt restructuring
could affect
exposures to European countries. In addition, issuers have faced
difficulties obtaining credit or refinancing existing obligations, and
financial markets have
experienced extreme volatility and declines in asset values and liquidity.
These events have affected the exchange rate of the Euro and may continue
to significantly
affect European
countries. |
14Prospectus
– Fund Summaries
| |
Responses
to financial problems by European governments, central banks, and others,
including austerity measures and other reforms, may not produce the
desired
results, may result in social unrest and may limit future growth and
economic recovery or may have unintended consequences. The Fund makes
investments
in securities of issuers that are domiciled in member states of the
European Union (the “EU”). The economies and markets of European
countries
are often closely connected and interdependent, and events in one country
in Europe can have an adverse impact on other European countries.
One
or more countries may abandon the Euro and/or withdraw from the EU. The
impact of these actions, especially if they occur in a disorderly fashion,
could
be significant and far-reaching. The United Kingdom’s withdrawal from the
EU could be an indication that one or more other countries may withdraw
from
the EU and/or abandon the Euro. These events and actions have affected,
and may in the future affect, the value and exchange rate of the Euro and
may
continue to significantly affect the economies of every country in Europe,
including countries that do not use the Euro and non-EU member
states. |
| |
The
continuing effects on the economies of European countries of the
Russia/Ukraine war and Russia’s response to sanctions imposed by
the U.S., EU, UK and
others, are impossible to predict, but have been and could continue to be
significant. For example, exports in Eastern Europe have been disrupted
for certain
key commodities, pushing commodity prices to record highs. Also, both
wholesale energy prices and energy prices charged to consumers in Europe
have
increased
significantly. |
Hedging
Risk
If
the Fund uses a hedging instrument at the wrong time or judges the market
conditions incorrectly, or the hedged instrument does not correlate to the risk
sought
to be hedged, the hedge might be unsuccessful, reduce the Fund’s return, or
create a loss. In addition, hedges, even when successful in mitigating
risk,
may not prevent the Fund from experiencing losses on its investments. Hedging
instruments may also reduce or eliminate gains that may otherwise have
been
available had the Fund not used the hedging
instruments.
High
Portfolio Turnover Risk
Portfolio
turnover is a measure of the Fund’s trading activity over a one-year period. A
portfolio turnover rate of 100% would indicate that the Fund sold and
replaced
the entire value of its securities holdings during the period. The Fund may
engage in active and frequent trading and may have a high portfolio turnover
rate, which could increase the Fund’s transaction costs, have a negative impact
on performance, and generate higher capital gain distributions to shareholders
than if the Fund had a lower portfolio turnover
rate.
High-Yield
Securities Risk
Exposure
to high-yield, below investment-grade securities (commonly referred to as “junk
bonds”) generally involves significantly greater risks than an investment
in investment grade securities. High-yield debt securities may fluctuate more
widely in price and yield and may fall in price when the economy is weak
or expected to become weak. These securities also may be difficult to sell at
the time and price the Fund desires. High-yield securities are considered to
be
speculative with respect to an issuer’s ability to pay interest and principal
and carry a greater risk that the issuers of lower-rated securities will default
on the timely
payment of principal and interest. High-yield securities may experience greater
price volatility and less liquidity than investment grade securities. Issuers
of
securities that are in default or have defaulted may fail to resume principal or
interest payments, in which case the Fund may lose its entire
investment.
Inflation
Index-Linked Securities Risk
Unlike
a conventional bond, whose issuer makes regular fixed interest payments and
repays the face value of the bond at maturity, an inflation index-linked
security
provides principal payments and interest payments that vary as the principal
and/or interest are adjusted over time to reflect a rise or a drop in the
reference
inflation-related index. However, there can be no assurance that the inflation
index used will accurately measure the rate of inflation. For inflation
index-linked
debt securities for which repayment of the original principal upon maturity (as
adjusted for inflation) is not guaranteed, the adjusted principal value
of the securities repaid at maturity may be less than the original principal
value. The value of inflation index-linked securities is expected to change in
response
to real interest rates. The price of an inflation index-linked security
generally falls when real interest rates rise and rises when real interest rates
fall. Because
the interest and/or principal payments on an inflation index-linked security are
adjusted periodically for changes in inflation, the income distributed by
the
Fund may be irregular. In periods of deflation, the Fund may have no income at
all from such investments. The principal value of an investment in the
Fund
is not protected or otherwise guaranteed by the value of the Fund’s investments
in inflation index-linked securities.
Interest
Rate Risk
Generally,
the value of investments with interest rate risk, such as fixed-income
securities or derivatives, will move in the opposite direction as movements in
interest
rates. Factors including central bank monetary policy, rising inflation rates,
and changes in general economic conditions may cause interest rates to
rise,
which could cause the value of the Fund’s investments to decline. Interest rate
increases, including significant or rapid increases, may result in a decline in
the
value of bonds held by the Fund, lead to heightened volatility in the
fixed-income markets and adversely affect the liquidity of certain fixed-income
investments,
any of which may result in substantial losses to the Fund. The prices of
fixed-income securities or derivatives are also affected by their durations.
Fixed-income
securities or derivatives with longer durations generally have greater
sensitivity to changes in interest rates than those with shorter durations.
Rising
interest rates may cause the value of the Fund ‘s investments with longer
durations and terms to maturity to decline, which may adversely affect the
value
of the Fund. For example, if a bond has a duration of eight years, a 1% increase
in interest rates could be expected to result in an 8% decrease in the
value
of the bond. Fluctuations
in interest rates may also affect the liquidity of fixed-income securities and
instruments held by the Fund.
Investment
Risk
An
investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government
agency.
When you sell your shares of the Fund, they could be worth less than what you
paid for them. Therefore, you may lose money by investing
in the Fund.
Leverage
Risk
The
Fund’s use of derivative instruments may have the economic effect of financial
leverage. Financial leverage magnifies the Fund’s exposure to the movements
in prices of an asset or class of assets underlying a derivative instrument and
may result in increased volatility, which means that the Fund will have
the potential for greater losses than if the Fund does not use the derivative
instruments that have a leveraging effect. Leverage may result in losses that
exceed
the amount originally invested and may accelerate the rate of losses. Leverage
tends to magnify, sometimes significantly, the effect of any increase or
decrease
in the Fund’s exposure to an asset or class of assets and may cause the Fund’s
net asset value (“NAV”) per share to be volatile. There can be no assurance
that the Fund’s use of leverage will be
successful.
Liquidity
Risk
The
Fund is susceptible to the risk that certain investments held by the Fund may
have limited marketability, be subject to restrictions on sale, be difficult or
impossible
to purchase or sell at favorable times or prices or become less liquid in
response to market developments or adverse credit events that may affect
issuers
or guarantors of a security. An inability to sell a portfolio position can
adversely affect the Fund’s value or prevent the Fund from being able to take
advantage
of other investment opportunities. Market prices for such instruments may be
volatile. During periods of substantial market volatility, an investment
or even an entire market segment may become illiquid, sometimes abruptly, which
can adversely affect the Fund’s ability to limit losses. The Fund could
lose money if it is unable to dispose of an investment at a time that is most
beneficial to the Fund. The Fund may be required to dispose of investments
at
unfavorable times or prices to satisfy obligations, which may result in losses
or may be costly to the Fund. For
example, liquidity risk may be magnified in
Prospectus
– Fund Summaries15
rising
interest rate environments in the event of higher than normal redemption
rates.
Unexpected
redemptions may force the Fund to sell certain investments
at unfavorable prices to meet redemption requests or other cash
needs. Judgment
plays a greater role in pricing illiquid investments than in investments
with more active markets.
Market
Risk
The
Fund is subject to the risk that the securities markets will move down,
sometimes rapidly and unpredictably, based on overall economic conditions and
other
factors, which may negatively affect the Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities,
although
under certain market conditions fixed-income securities may have comparable or
greater price volatility. During a general downturn in the securities
markets,
multiple assets may decline in value simultaneously. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future. The value of a security may decline
due
to adverse issuer-specific conditions, general market conditions unrelated to a
particular issuer, such as changes in interest or inflation rates, or factors
that
affect a particular industry or industries. Changes in the financial condition
of a single issuer or market segment also can impact the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity in equity, credit and
fixed-income
markets, which may disrupt economies and markets and adversely affect the value
of your investment. Changes in value may be temporary or may
last for extended periods.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or occurrence of a federal
government shutdown and threats or the occurrence of a failure to increase the
federal government’s debt limit, which could result in a default on the
government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
|
■ |
Recent
Market Events Risk.
Both U.S. and international markets have experienced significant
volatility in recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in the Fund may be
increased. |
| |
Although
interest rates were unusually low in recent years in the U.S. and
abroad, in 2022, the Federal Reserve and certain foreign central banks
began to raise
interest rates as part of their efforts to address rising inflation. It is
difficult to accurately predict the pace at which interest rates might
increase or start decreasing,
the timing, frequency or magnitude of any such changes in interest rates,
or when such changes might stop or reverse course. Additionally,
various
economic and political factors could cause the Federal Reserve or another
foreign central bank to change their approach in the future and such
actions
may result in an economic slowdown in the U.S. and abroad. Unexpected
changes in interest rates could lead to significant market volatility or
reduce
liquidity in certain sectors of the market. Deteriorating economic
fundamentals may, in turn, increase the risk of default or insolvency of
particular issuers,
negatively impact market value, cause credit spreads to widen, and reduce
bank balance sheets. Any of these could cause an increase in market
volatility,
reduce liquidity across various markets or decrease confidence in the
markets. Additionally, high public debt in the U.S. and other
countries creates
ongoing systemic and market risks and policymaking
uncertainty. |
| |
In
March 2023, the shutdown of certain financial institutions in
the U.S. and questions regarding the viability of other financial
institutions raised economic concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be
effective in mitigating the effects of financial institution failures on
the economy and restoring public confidence in the U.S. and global banking
systems. |
| |
Some
countries, including the U.S., have in recent years adopted more
protectionist trade policies. Slowing global economic growth; risks
associated with a trade
agreement between the United Kingdom and the European Union; the risks
associated with ongoing trade negotiations with China; and the
possibility
of changes to some international trade agreements; political or economic
dysfunction within some nations, including major producers of oil; and
dramatic
changes in commodity and currency prices could have adverse effects that
cannot be foreseen at the present
time. |
| |
Tensions,
war, or open conflict between nations, such as between Russia and Ukraine,
in the Middle East or in eastern Asia could affect the economies of
many
nations, including the United States. The duration of ongoing hostilities
in the Middle East and between Russia and Ukraine, and any sanctions and
related
events cannot be predicted. Those events present material uncertainty and
risk with respect to markets globally and the performance of the Fund
and
its investments or operations could be negatively
impacted. |
| |
Regulators
in the U.S. have proposed and recently adopted a number of changes
to regulations involving the markets and issuers, some of which apply to
the
Fund. The full effect of various newly-adopted regulations is not
currently known. Additionally, it is not clear whether the proposed
regulations will be adopted.
However, due to the broad scope of the new and proposed regulations,
certain changes could limit the Fund’s ability to pursue its investment
strategies
or make certain investments, or may make it more costly for the Fund to
operate, which may impact
performance. |
| |
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Certain
issuers,
industries and regions may be adversely affected by the impacts of climate
change, including on the demand for and the development of goods and
services
and related production costs, and the impacts of legislation, regulation
and international accords related to climate change, as well as any
indirect consequences
of regulation or business trends driven by climate
change. |
Market
Direction Risk
Since
the Fund will typically hold both long and short positions, an investment in the
Fund will involve market risks associated with different types of investment
decisions than those made for a typical “long only” fund. The Fund’s results
could suffer both when there is a general market advance and the Fund
holds significant “short” positions, and when there is a general market decline
and the Fund holds significant “long”
positions.
Market
Timing Risk
The
Fund is subject to the risk of market timing activities by investors due to the
nature of the Fund’s investments, which requires the Fund, in certain
instances,
to fair value certain of its investments. Some investors may engage in frequent
short-term trading in the Fund to take advantage of any price differentials
that may be reflected in the net asset value (“NAV”) of the Fund’s shares.
Frequent trading by Fund shareholders poses risks to other shareholders
in
the Fund, including (i) the dilution of the Fund’s NAV, (ii) an increase in the
Fund’s expenses, and (iii) interference with the ability to execute efficient
investment
strategies.
16Prospectus
– Fund Summaries
Model
and Data/Programming Error Risk
The
success of the sub-advisor’s investment strategy depends largely on the
effectiveness of its quantitative research models and investment programs.
Models (including
quantitative models), data, and investment programs are used to screen potential
investments for the Fund. When models or data prove to be incorrect
or incomplete, any decisions made in reliance thereon expose the Fund to
potential risks and programs may not react as expected to market events,
resulting
in losses for the Fund. Some of the models used by the sub-advisor are
predictive in nature. The use of predictive models has inherent risks. Because
predictive
models are usually constructed based on historical data supplied by third
parties, the success of relying on such models may depend heavily on the
accuracy
and reliability of the supplied historical data. There is no assurance that the
models are complete or accurate, or representative of future market cycles,
nor will they always be beneficial to the Fund if they are accurate.
Additionally, programs may become outdated or experience malfunctions which may
not
be identified by the sub-advisor and therefore may also result in losses to the
Fund. These models and programs may negatively affect Fund performance
for
various other reasons, including human judgment, inaccuracy of historical data
and non-quantitative factors (such as market or trading system dysfunctions,
investor fear or overreaction).
Models
and data are known to have errors, omissions, imperfections and malfunctions
(collectively, “System Events”). The sub-advisor seeks to reduce the
incidence
and impact of System Events, to the extent feasible, through a combination of
internal testing, simulation, real-time monitoring, and use of independent
safeguards in the overall portfolio management process and often in the software
code itself. Despite such testing, monitoring and independent safeguards,
System Events will result in, among other things, the execution of unanticipated
trades, the failure to execute anticipated trades, delays in the execution
of anticipated trades, the failure to properly allocate trades, the failure to
properly gather and organize available data, the failure to take certain
hedging
or risk reducing actions and/or the taking of actions which increase certain
risk(s) - all of which may have materially adverse effects on the Fund.
System
Events in third-party provided data are generally entirely outside the control
of the sub-advisor.
Non-Diversification
Risk
The
Fund is non-diversified, which means it may focus its investments in the
securities of a comparatively small number of issuers. Investments in securities
of a
limited number of issuers exposes the Fund to greater market risk, price
volatility and potential losses than if assets were diversified among the
securities of a
greater number of issuers.
Obsolescence
Risk
The
sub-advisor is unlikely to be successful in the deployment of its quantitative,
systematic, investment strategies unless the assumptions underlying the
models
are realistic and either remain realistic and relevant in the future or are
adjusted to account for changes in the overall market environment. If such
assumptions
are inaccurate or become inaccurate and are not promptly adjusted, it is likely
that the models will not generate profitable trading signals. If and
to
the extent that the models do not reflect certain relevant factors, and the
sub-advisor does not successfully address such omission through its testing and
evaluation
by modifying the models accordingly, major losses may result — all of which will
be borne by the Fund. There can be no assurance as to the effects (positive
or negative) of any changes including additions, modifications and removal of
the models or investment strategies on the Fund’s
performance.
Other
Investment Companies Risk
To
the extent that the Fund invests in shares of other registered investment
companies, the Fund will indirectly bear the fees and expenses charged by those
investment
companies in addition to the Fund’s direct fees and expenses. To the extent the
Fund invests in other investment companies that invest in equity securities,
fixed-income securities and/or foreign securities, or that track an index, the
Fund is subject to the risks associated with the underlying investments
held
by the investment company or the index fluctuations to which the investment
company is subject. The Fund will be subject to the risks associated with
investments
in those companies, including but not limited to the
following:
|
■ |
Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market
risk. |
Quantitative
Strategy Risk
The
success of the Fund’s investment strategy may depend in part on the
effectiveness of the sub-advisor’s quantitative tools for screening
securities. These strategies
may incorporate factors that are not predictive of a security’s value. The
quantitative tools may not react as expected to market events, resulting in
losses
for the Fund. Additionally, a previously successful strategy may become outdated
or inaccurate, which may not be identified by the sub-advisor and
therefore
may also result in losses.
Recently-Organized
Fund Risk
As
a recently-organized fund, the Fund’s current performance and expenses may not
represent how the Fund is expected to, or may, perform in the long term
if
and when it becomes larger and has fully implemented its investment strategies.
Investment positions may have a disproportionate impact (negative or
positive)
on the Fund’s performance. The Fund’s shareholder fees and annual fund operating
expenses may be higher than after it has fully implemented its investment
strategies and attracted sufficient assets to achieve investment and trading
efficiencies. The Fund may also require a period of time before it achieves
a representative portfolio composition. Fund performance may be lower or higher
during this “ramp-up” period, and may also be more volatile, than would
be the case after the Fund is fully invested. Similarly, the Fund’s investment
strategies may require a longer period of time to show returns that are
representative
of the strategies.
Redemption
Risk
The
Fund may experience periods of high levels of redemptions that could cause the
Fund to sell assets at inopportune times or at a loss or depressed value.
Heavy
redemptions could hurt the Fund’s performance. The sale of assets to meet
redemption requests may create net capital gains, which could cause the
Fund
to have to distribute substantial capital gains. Redemption risk is greater to
the extent that one or more investors or intermediaries control a large
percentage
of investments in the Fund. In addition, redemption risk is heightened during
periods of declining or illiquid markets. A
rise in interest rates or other
market developments may cause investors to move out of fixed-income securities
on a large scale.
During periods of heavy redemptions, the Fund may borrow
funds through the interfund credit facility or from a bank line of credit, which
may increase costs.
Risk
Management
Risk
is an essential part of investing. No risk management program can eliminate the
Fund’s exposure to adverse events; at best, it can only reduce the possibility
that the Fund will be affected by such events, and especially those risks that
are not intrinsic to the Fund’s investment program. Measures taken with
the intention of decreasing exposure to identified risks might have the
unintended effect of increasing exposure to other
risks.
Segregated
Assets Risk
In
connection with certain transactions that may give rise to future payment
obligations, the Fund may be required to maintain a segregated amount of, or
otherwise
earmark, cash or liquid securities to cover the obligation. Segregated assets
generally cannot be sold while the position they are covering is outstanding,
unless they are replaced with other assets of equal value. The need to segregate
cash or other liquid securities could limit the Fund’s ability to pursue
other opportunities as they arise.
Prospectus
– Fund Summaries17
Short
Position Risk
The
Fund will incur a loss as a result of a short position if the price of the
instrument sold short increases in value between the date of the short sale and
the date
on which an offsetting position is purchased. Short positions may be considered
speculative transactions and involve special risks, including greater
reliance
on the sub-advisor’s ability to accurately anticipate the future value of a
security or instrument. As there is potentially no limit on the amount that the
security
that the Fund is required to purchase may have appreciated, the Fund’s losses
are potentially unlimited in a short position transaction, particularly in
cases
where the Fund is unable to close out its short position. The Fund may invest
the proceeds of a short sale and, therefore, be subject to the effect of
leverage,
in that short selling may amplify changes in the Fund’s NAV since it may
increase the exposure of the Fund to certain markets and may increase
losses
and the volatility of returns.
Sovereign
Debt Risk
Sovereign
debt securities are subject to risk of payment delays or defaults due to, among
other things: (1) country cash flow problems, (2) insufficient foreign
currency
reserves, (3) political considerations, (4) large debt positions relative to the
country’s economy, (5) policies toward foreign lenders or investors, (6) the
failure
to implement economic reforms required by the International Monetary Fund or
other multilateral agencies, or (7) an inability or unwillingness to repay
debts.
A governmental entity that defaults on an obligation may request additional time
in which to repay loans, may request further loans, or may seek to restructure
its obligations to reduce interest rates or outstanding principal. There is no
legal process for collecting sovereign debt that a government does not
pay,
nor are there bankruptcy proceedings through which all or part of the sovereign
debt that a governmental entity has not repaid may be
collected.
Subsidiary
Risk
By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held
by the Subsidiary are generally similar to those that are permitted to be held
by the Fund and are subject to the same risks that apply to similar investments
if held directly by the Fund. The principal risks of the Subsidiary are listed
in this section of the Prospectus as principal risks of the Fund. There can
be
no assurance that the investment objective of the Subsidiary will be achieved or
that, as a result, the investment objective of the Fund will be achieved. The
Subsidiary
is not registered under the Investment Company Act, and, unless otherwise noted
in this Prospectus, is not subject to all the investor protections of
the
Investment Company Act. In addition, 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 described in this Prospectus and the SAI and could
adversely affect the Fund’s performance.
Tax
Risk
To
qualify as a “regulated investment company” under Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”) (“RIC”),
the Fund must, among other requirements, derive at least 90% of its gross income
for each taxable year from “qualifying income,” which is described
in more detail in the “Tax Information” section of the SAI. Income from certain
commodity-linked derivative instruments in which the Fund invests is
not
considered qualifying income. The Fund will therefore restrict its income from
direct investments in those instruments, such as commodity-linked swaps,
to
a maximum of 10% of its gross income for each taxable year. The Fund’s
investment in the Subsidiary is expected to provide the Fund with exposure to
the commodities
markets within the limitations of the federal tax requirements of Subchapter M.
Treasury regulations provide that income inclusions of a RIC from a
controlled foreign corporation (“CFC”), such as the Subsidiary, in which the RIC
invests as part of its business of investing in stocks and securities, are
qualifying
income for the RIC whether or not the CFC makes distributions to the RIC
out of its associated earnings and profits for the applicable taxable year.
See
“Tax Information” in the SAI for further information regarding RIC’s federal
income tax treatment of income from CFCs and commodity-linked instruments.
The federal income tax treatment of the Fund’s commodity-linked investments and
income from the Subsidiary may be materially adversely affected
by future legislation, other Treasury regulations, and/or guidance issued by the
IRS that could affect whether income from such investments is qualifying
income under Subchapter M or otherwise materially affect the character, timing
or recognition, and/or amount of the Fund’s taxable income and/or net
capital gains and, therefore, the distributions the Fund
makes.
Trading
System and Execution of Orders Risk
The
sub-advisor relies extensively on computer programs, systems, technology, data
and models to implement its execution strategies and algorithms. The
sub-advisor’s
investment strategies, trading strategies and algorithms depend on its ability
to establish and maintain an overall market position in a combination
of financial instruments selected by the sub-advisor. There is a risk that the
sub-advisor’s proprietary algorithmic trading systems may not be able
to
adequately react to a market event without serious disruption. Further, trading
strategies and algorithms may malfunction, causing severe losses. The
successful
operation of the computer programs, systems, technology, data and models depends
in part on the sub-advisor’s ability to ensure those systems remain
operational and that appropriate disaster recovery procedures are in place.
While the sub-advisor has employed tools to allow for human intervention
to
respond to significant system malfunctions, it cannot be guaranteed that losses
will not occur in such circumstances as unforeseen market events, disruptions
and execution system issues.
U.S.
Government Securities Risk
A
security backed by the U.S. Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of interest and principal
when
held to maturity. The market prices for such securities are not guaranteed and
will fluctuate. U.S. government securities are also subject to credit risk,
interest
rate risk and market risk. The rising U.S. national debt may lead to adverse
impacts on the value of U.S. government securities due to potentially
higher
costs for the U.S. government to obtain new
financing.
U.S.
Treasury Obligations Risk
The
market value of U.S. Treasury obligations may vary due to fluctuations in
interest rates. In addition, changes to the financial condition or credit rating
of the
U.S. government may cause the value of the Fund’s investments in obligations
issued by the U.S. Treasury to decline. Certain political events in the U.S.,
such
as a prolonged government shutdown or potential default on the national debt,
may also cause investors to lose confidence in the U.S. government and
may
cause the value of U.S. Treasury obligations to
decline.
Valuation
Risk
Certain
of the Fund’s assets may be valued at a price different from the price at which
they can be sold. This risk may be especially pronounced for investments
that are illiquid or may become illiquid, or securities that trade in relatively
thin markets and/or markets that experience extreme volatility. The valuation
of the Fund’s investments in an accurate and timely manner may be impacted by
technological issues and/or errors by third party service providers,
such
as pricing services or accounting agents.
Volatility
Risk
The
Fund may have investments that appreciate or decrease significantly in value
over short periods of time. This may cause the Fund’s NAV to experience
significant
increases or declines in value over short periods of
time.
Zero
Coupon Securities Risk
Zero-coupon
securities are debt securities that do not make periodic interest payments prior
to maturity or a specified redemption date (or cash payment date).
Accordingly, zero coupon securities usually trade at a deep discount from their
face or par value and will be subject to greater fluctuations in market
value
in response to changing interest rates than debt obligations of comparable
maturities that make current distribution of interest in cash. While interest
18Prospectus
– Fund Summaries
payments
are not made on such securities, the Fund accrues income with respect to these
securities for federal income tax and accounting purposes. Longer term
zero-coupon bonds are more exposed to interest rate risk than shorter term zero
coupon bonds.
Fund
Performance
Performance
information for the Fund is not provided because the Fund has not been in
operation for a full calendar year. Performance information will be available
in the Prospectus after the Fund has been in operation for one full calendar
year. Performance for the Fund can be accessed on the Fund’s website at
www.americanbeaconfunds.com.
Past
performance (before and after taxes) is not necessarily an indication of how the
Fund will perform in the
future.
Management
The
Manager
The
Fund has retained American Beacon Advisors, Inc. to serve as its
Manager.
Sub-Advisor
The
Fund’s investment sub-advisor is AHL Partners LLP.
Portfolio
Managers
|
|
| |
|
AHL
Partners LLP |
Russell
Korgaonkar
Chief
Investment Officer
Since
Fund Inception (2023) |
Otto
van Hemert
Director
of Core Strategies
Since
Fund Inception (2023) |
Purchase
and Sale of Fund Shares
You
may buy or sell shares of the Fund through a retirement plan, an investment
professional, a broker-dealer, or other financial intermediary. You may
purchase
or redeem shares of the Fund on any day the New York Stock Exchange (“NYSE”) is
open, at the Fund’s net asset value (“NAV”) per share next calculated
after your order is received in proper form, subject to any applicable sales
charge. The Manager may, in its sole discretion, allow certain individuals
to
invest directly in the Fund. For more information regarding eligibility to
invest directly please see “About Your Investment - Purchase and Redemption of
Shares.”
|
|
|
| |
|
|
New
Account |
Existing
Account |
|
Share
Class |
Minimum
Initial Investment Amount |
Purchase/Redemption
Minimum by Check/ACH/Exchange |
Purchase/Redemption
Minimum by Wire |
|
C |
$1,000 |
$50 |
$250 |
|
A |
$2,500 |
$50 |
$250 |
|
Y |
$100,000 |
$50 |
None |
|
R6 |
None |
$50 |
None |
Tax
Information
Dividends,
capital gains distributions,
and other distributions, if any, that you receive as a result of your
investment in the Fund are subject to federal income tax
and may also be subject to state and local income taxes, unless you are a
tax-exempt entity or your account is tax-deferred, such as an
individual retirement
account (“IRA”) or a 401(k) plan (in which case you may be taxed later, upon the
withdrawal of your investment from such account or plan).
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and the Fund’s distributor, Resolute
Investment
Distributors, Inc., or the Manager may pay the intermediary for the sale of Fund
shares and related services. These payments may create a conflict of
interest by influencing the broker-dealer or other intermediary and your
individual financial professional to recommend the Fund over another investment.
Ask
your individual financial professional or visit your financial intermediary’s
website for more information.
Prospectus
– Fund Summaries19
|
| |
|
American
Beacon
AHL
TargetRisk FundSM
|
|
Investment
Objective
The
Fund’s investment objective is capital
growth.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund. You
may pay other fees, such as brokerage commissions
and other fees to financial intermediaries, which are not reflected in the
tables and examples below. You
may qualify for sales discounts
if you and your eligible family members invest, or agree to invest in the
future, at least $50,000
in all classes of the American Beacon Funds on an aggregated
basis.
More information about these and other discounts is available from your
financial professional and in “Choosing Your Share Class” on page 48
of the Prospectus and “Additional Purchase and Sale Information for A Class
Shares” on page 44 of
the Statement of Additional Information (“SAI”). With
respect to purchases of shares through specific intermediaries, you may find
additional information regarding sales charge discounts and waivers in
Appendix
A to the Fund’s Prospectus entitled “Intermediary Sales Charge Discounts,
Waivers and Other Information.”
Shareholder
Fees
(fees paid directly from your investment)
|
|
|
|
|
| |
|
Share
Class |
A |
C |
Y |
R5 |
Investor |
|
Maximum
sales charge imposed on purchases (as a percentage of offering
price) |
|
|
|
|
|
|
Maximum
deferred sales charge (as a percentage of the lower of original offering
price or
redemption proceeds) |
|
|
|
|
|
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your
investment) |
|
Share
Class |
A |
C |
Y |
R5 |
Investor |
|
Management
Fees |
|
|
|
|
|
|
Distribution
and/or Service (12b-1) Fees |
|
|
|
|
|
|
Other
Expenses2
|
|
|
|
|
|
|
Interest
and Dividend Expense on Securities Sold Short |
|
|
|
|
|
|
Remainder
of Other Expenses |
|
|
|
|
|
|
Total
Annual Fund Operating Expenses |
|
|
|
|
|
|
Fee
Waiver and/or expense reimbursement3
|
|
|
|
|
|
|
Total
Annual Fund Operating Expenses after fee waiver and/or expense
reimbursement |
|
|
|
|
|
| 1 |
A
contingent deferred sales charge (‘‘CDSC’’) of 0.50% will be charged on
certain purchases of $1,000,000 or more of A Class shares that are
redeemed in whole or part within 18
months of purchase.
|
| 2 |
During
the fiscal year ended December 31, 2023, the Fund paid amounts to American
Beacon Advisors, Inc. (the “Manager”) that were previously waived and/or
reimbursed by the
Manager under a contractual fee waiver/expense reimbursement agreement for
the Fund’s R5 Class shares in the amount of
0.01%. |
| 3 |
The
Manager has contractually agreed to waive fees and/or reimburse expenses
of the Fund’s A Class and R5 Class shares, through December
31, 2025,
to the extent that Total Annual
Fund Operating Expenses exceed 1.44% for the A Class Shares and 1.04% for
the R5 Class shares (excluding taxes, interest, brokerage commissions,
acquired fund fees and
expenses, securities lending fees, expenses associated with securities
sold short, litigation, and other extraordinary expenses). The contractual
expense reimbursement can be
changed or terminated only in the discretion and with the approval of a
majority of the Fund’s Board of Trustees. The Manager will itself waive
fees and/or reimburse expenses
of the Fund to maintain the contractual expense ratio caps for each
applicable class of shares or make arrangements with other service
providers to do so. The Manager
may also, from time to time, voluntarily waive fees and/or reimburse
expenses of the Fund. The Manager can be reimbursed by the Fund for any
contractual or voluntary
fee waivers or expense reimbursements if reimbursement to the Manager (a)
occurs within three years from the date of the Manager’s
waiver/reimbursement and (b) does
not cause the Total Annual Fund Operating Expenses of a class to exceed
the lesser of the contractual percentage limit in effect at the time of
the waiver/reimbursement or the
time of the recoupment. |
Example
This
Example is intended to help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. The Example assumes that
you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that
your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same, except that this Example reflects the fee waiver/expense
reimbursement
arrangement for A Class and R5 Class shares through December 31, 2025. C
Class shares automatically convert to A Class shares 8 years after
purchase, if the conversion is available through your financial intermediary.
This Example reflects your costs as though C Class shares were held for the
full
10-year period. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
|
|
|
|
| |
|
Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
|
A |
$714 |
$1,025 |
$1,366 |
$2,328 |
|
C |
$318 |
$673 |
$1,154 |
$2,483 |
|
Y |
$119 |
$372 |
$644 |
$1,420 |
|
R5 |
$107 |
$346 |
$609 |
$1,362 |
|
Investor |
$144 |
$446 |
$771 |
$1,691
|
Assuming
no redemption of shares:
|
|
|
|
| |
|
Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
|
C |
$218
|
$673
|
$1,154
|
$2,483
|
20Prospectus
– Fund Summaries
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate
higher transaction costs and may result in higher taxes when Fund shares are
held in a taxable account. These costs, which are not reflected in annual
Fund
operating expenses or in the Example, affect the Fund’s performance. During the
most recent fiscal year, the Fund’s portfolio turnover rate was 135%
of the
average value of its portfolio.
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by allocating all or
substantially all of its assets across equities, bonds (including inflation
index-linked bonds),
interest rates, corporate credit, and commodities primarily through derivative
instruments. The Fund implements its strategy by utilizing a proprietary
quantitative
model, which is designed to provide a stable level of volatility regardless of
market conditions.
The
Fund invests primarily in futures (including equity index futures, bond index
futures, interest rate futures, bond futures and government bond futures,
such
as treasury futures), swaps (including commodity swaps, credit default swaps,
and total return swaps) and foreign
currency forward
contracts, but also may
invest in other types of derivative instruments. The Fund uses derivative
instruments to enhance total return, to manage certain investment risks or to
substitute
for the purchase or sale of the underlying securities, and to hedge against
currency exchange rates. The Fund expects that, under normal market conditions,
the notional value of its derivatives exposure generally will exceed that of its
net assets. In connection with the Fund’s use of derivatives, the Fund
also
may hold significant amounts of U.S.
Treasury securities and other foreign developed market sovereign short-term
bonds issued by countries such as France,
Germany, the United Kingdom and other developed countries, or short-term
investments, including a government money market fund advised by the
Manager,
with respect to which the Manager also receives a management fee, cash and time
deposits in order to meet collateral requirements. The Fund may also
invest in zero coupon securities. The Fund’s use of derivatives will have the
economic effect of financial leverage. The Fund’s investments are generally
made
without restriction as to issuer market capitalization, country, currency, or
maturity. The Fund may invest in derivatives instruments that provide
exposure
to below investment grade securities, which are commonly referred to as “junk
bonds” and to issuers in the U.S. and foreign developed and emerging
markets, including sovereign debt. The Fund may invest in non-US currencies,
instruments denominated in non-U.S. currencies, foreign currency forward
contracts, including non-deliverable forwards (“NDFs”), and non-U.S. currency
futures contracts. The Fund also may invest in government
obligations.
The
sub-advisor’s strategy is designed to provide an excess return with a stable
level of volatility regardless of market conditions. The sub-advisor seeks to do
this
by using systematic algorithms (a mathematical model) to scale positions based
on the net asset value (“NAV”) of the Fund. The algorithm measures the
degree
of volatility in a particular market. As volatilities increase, the algorithm
will look to reduce exposure. Conversely, it will increase exposure, subject to
risk
limits, if the market is calm and volatilities are decreasing. This technique is
called ‘volatility scaling’ and can be applied at various levels to achieve a
balanced
risk exposure through time, and across different asset classes. Volatility
scaling aims to achieve a certain target level of volatility which is stable
through
time. The Fund has set an annualized volatility target of 10% of its NAV.
Volatility is defined as the annualized standard deviation of returns. It is
important
to note that both the short and long term realized volatility of the Fund can
and will differ from the targeted volatility and can be dependent on
prevailing
market conditions.
In
addition to the volatility scaling described above, the strategy utilizes
additional systematic overlays to control downside risk. The first of these is a
momentum
overlay, which uses past price behavior to identify periods when a market is in
a downtrend. The strategy uses this information to scale down positions
depending upon the strength of that trend, thereby reducing risk in falling
markets. The second is a volatility switching mechanism, which reacts
quickly
to spikes in volatility by using a formula that is designed to minimize market
transactions during periods of low volatility and increase market transactions
during periods of heightened market volatility in order to maintain the Fund’s
target level of volatility. Volatility switching is used to react more
dynamically
to market events. The third uses intraday data to identify dangerous
environments in which fixed income assets no longer act as a hedge to
equities
and other assets. The combination of these overlays aims to reduce losses and
improve risk-adjusted returns.
The
Fund seeks to gain exposure to the commodity markets by investing up to 25% of
its total assets in a wholly-owned subsidiary, which is organized under
the
laws of the Cayman Islands (the “Subsidiary”). Generally, the Subsidiary invests
primarily in commodity swaps, but it may also invest in financial futures
and
forwards, fixed income securities, pooled investment vehicles, including
open-end investment companies, and other investments intended to serve as
margin
or collateral for the Subsidiary’s derivative positions. The Fund invests in the
Subsidiary in order to gain exposure to the commodities markets within
the
limitations of the federal tax law, rules and regulations that apply to
“regulated investment companies.” Unlike the Fund, the Subsidiary may invest
without
limitation in commodity-linked derivatives; however, the Subsidiary and the
Fund, in the aggregate, comply with applicable requirements for derivatives
transactions set forth in Rule 18f-4 under the Investment Company Act of 1940,
as amended (the “Investment Company Act”). In addition, the Fund
and the Subsidiary comply with the same fundamental investment restrictions on
an aggregate basis, and the Subsidiary follows the same compliance policies
and procedures as the Fund to the extent those restrictions, policies and
procedures are applicable to the investment activities of the Subsidiary. Unlike
the
Fund, the Subsidiary does not, and will not, seek to qualify as a “regulated
investment company” under Subchapter M of Chapter 1 of Subtitle A of the
Internal
Revenue Code of 1986, as amended (“Subchapter M”). The Fund is the sole
shareholder of the Subsidiary and does not expect shares of the Subsidiary
to be offered or sold to other investors.
The
Fund’s holdings may be frequently adjusted to reflect the sub-advisor’s
assessment of changing risks, which could result in high portfolio turnover. The
Fund
may have significant exposure to issuers located in, or with economic ties to,
Europe. However, as the sector and geographic composition of the Fund’s
portfolio
changes over time, the Fund’s exposure to Europe may decline, and the Fund’s
exposure to other geographic areas may
increase.
The
Fund is non-diversified, which means that it is not limited to a percentage of
assets that it may invest in any one
issuer.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective,
and you could lose part or all of your investment in the Fund.
The
Fund is not designed
for investors who need an assured level of current income and is intended to be
a long-term investment. The Fund is not a complete investment
program and may not be appropriate for all investors. Investors should carefully
consider their own investment goals and risk tolerance
before investing in the Fund.
The principal
risks of investing in the Fund listed below are presented in alphabetical order
and not in order of importance
or potential exposure. Among other matters, this presentation is intended to
facilitate your ability to find particular risks and compare them with
the
risks of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it appears.
The
principal
risks of the Subsidiary are listed in this section of the Prospectus as
principal risks of the Fund.
Allocation
Risk
The
allocations among strategies, asset classes and market exposures may be less
than optimal and may adversely affect the Fund’s performance. There can be
no
assurance, particularly during periods of market disruption and stress, that
judgments about allocations will be correct. The Fund’s allocations may be
invested
in strategies, asset classes and market exposures during a period when such
strategies, asset classes and market exposures
underperform.
Prospectus
– Fund Summaries21
Asset
Selection Risk
Assets
selected for the Fund may not perform to expectations. This could result in the
Fund’s underperformance compared to other funds with similar investment
objectives.
Commodities
Risk
The
Fund’s investments in commodity-linked derivative instruments may subject the
Fund to greater volatility than investments in traditional securities. The
value
of commodity-linked derivative instruments may be affected by changes in overall
market movements, commodity index volatility, commodity price volatility,
changes in interest rates, or factors affecting a particular industry or
commodity, such as changes in supply and demand, resource availability,
speculation
in the commodities markets, drought, floods, weather, livestock disease,
pandemics, embargoes, tariffs, war, acts of terrorism and international
economic,
political and regulatory developments. The
Fund may invest significantly in a particular sector of the commodities market
(such as oil, metal or agricultural
products). As a result, the Fund may be more susceptible to risks associated
with those sectors.
No active trading market may exist for certain commodities
investments. The Fund’s investments in commodity-related instruments may lead to
losses in excess of the Fund’s investment in such products, as some
commodity-linked derivatives can have the potential for unlimited losses. Such
losses can significantly and adversely affect the net asset value (“NAV”)
per
share of the Fund and, consequently, a shareholder’s interest in the Fund.
Because the Fund’s performance is linked to the performance of potentially
volatile
commodities, investors should be willing to assume the risks of significant
fluctuations in the value of the Fund’s
shares.
Counterparty
Risk
The
Fund is subject to the risk that a party or participant to a transaction, such
as a broker or a derivative counterparty, will be unwilling or unable to satisfy
its obligation
to make timely principal, interest or settlement payments or to otherwise honor
its obligations to the Fund.
Credit
Risk
The
Fund is subject to the risk that the issuer, guarantor or insurer of an
obligation, or the counterparty to a transaction,
may fail, or become less able or unwilling,
to make timely payment of interest or principal or otherwise honor its
obligations or default completely. Changes in the actual or perceived
creditworthiness
of an issuer, or a downgrade or default affecting any of the Fund’s securities,
could affect the Fund’s performance. Generally, the longer the maturity
and the lower the credit quality of a security, the more sensitive it is to
credit risk.
Crowding/Convergence
Risk
There
is significant competition among quantitatively-focused managers, and the
ability of the sub-advisor to outperform other funds is dependent on its
ability
to employ models that are simultaneously profitable and differentiated from
those employed by other managers. To the extent that the sub-advisor is
not
able to develop sufficiently differentiated models, the Fund’s investment
objective may not be met, irrespective of whether the models are profitable in
an absolute
sense.
Currency
Risk
The
Fund may have exposure to foreign currencies.
Foreign currencies may fluctuate significantly over short periods of time, may
be affected unpredictably by intervention,
or the failure to intervene, of the U.S.
or foreign governments or central banks, and may be affected by currency
controls or political developments
in the U.S. or abroad. Foreign currencies may also decline in value relative to
the U.S. dollar and other currencies and thereby affect the Fund’s investments.
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
the Fund and its service providers as well as the ability of shareholders to
transact in
the Fund’s shares,
and result in financial losses. Cybersecurity incidents
may allow an unauthorized party to gain access to Fund assets, shareholder data,
or proprietary information, or cause the Fund or its service providers,
as well as securities trading venues and their service providers, to suffer data
corruption or lose operational functionality. Cybersecurity incidents
can
result from deliberate attacks or unintentional events. It is not possible for
the Fund or its service providers to identify all of the operational risks that
may affect
the Fund or to develop processes and controls to completely eliminate or
mitigate their occurrence or effects. The Fund cannot control the cybersecurity
plans
and systems of its service providers, its counterparties or the issuers of
securities in which the Fund invests. The
issuers of the Fund’s investments are likely
to be
dependent on computers for their
operations
and require ready access to their
data and the
internet to conduct their business. Thus, cybersecurity incidents
could also affect issuers of the
Fund’s investments,
leading to significant loss of value.
Derivatives
Risk
Derivatives
may involve significant risk. The use of derivative instruments may expose the
Fund to additional risks that it would not be subject to if it invested
directly
in the securities or other instruments underlying those derivatives, including
the high degree of leverage often embedded in such instruments, and potential
material and prolonged deviations between the theoretical value and realizable
value of a derivative. Some derivatives have the potential for unlimited
loss, regardless of the size of the Fund’s initial investment. The use of
derivatives may also increase any adverse effects resulting from the
underperformance
of strategies, asset classes and market exposures to which the Fund has
allocated its assets. Derivatives may at times be highly illiquid, and
the
Fund may not be able to close out or sell a derivative at a particular time or
at an anticipated price. Certain derivatives may be difficult to value, and
valuation
may be more difficult in times of market turmoil. Derivatives may also be more
volatile than other types of investments. The Fund may buy or sell derivatives
not traded on an exchange, which may be subject to heightened liquidity and
valuation risk. Derivative investments can increase portfolio turnover
and
transaction costs. Derivatives also are subject to counterparty risk and credit
risk. As a result, the Fund may not recover its investment or may only obtain
a
limited recovery, and any recovery may be delayed. Not all derivative
transactions require a counterparty to post collateral, which may expose the
Fund to greater
losses in the event of a default by a counterparty. There may be imperfect
correlation between the behavior of a derivative and that of the reference
instrument
underlying the derivative. An abrupt change in the price of a reference
instrument could render a derivative worthless. Derivatives may involve risks
different
from, and possibly greater than, the risks associated with investing directly in
the reference instrument. Suitable derivatives may not be available in all
circumstances,
and there can be no assurance that the Fund will use derivatives to reduce
exposure to other risks when that might have been beneficial. Ongoing
changes to the regulation of the derivatives markets and potential changes in
the regulation of funds using derivative instruments could limit the
Fund’s
ability to pursue its investment strategies. New regulation of derivatives may
make them more costly, or may otherwise adversely affect their liquidity,
value
or performance. In
addition, the Fund’s investments in derivatives are subject to the following
risks:
|
■ |
Foreign
Currency Forward Contracts Risk.
Foreign currency forward contracts, including non-deliverable forwards
(“NDFs”), are derivative instruments pursuant
to a contract where the parties agree to a fixed price for an agreed
amount of foreign currency at an agreed date or to buy or sell a specific
currency
at a future date at a price set at the time of the contract and include
the risks associated with fluctuations in currency. There are no
limitations on daily
price movements of forward contracts. There can be no assurance that any
strategy used will succeed. Not all forward contracts, including NDFs,
require
a counterparty to post collateral, which may expose the Fund to greater
losses in the event of a default by a counterparty. The use of foreign
currency
forward contracts may expose the Fund to additional risks, such as credit
risk, liquidity risk, and counterparty risk, that it would not be subject
to if it
invested directly in the securities or currencies underlying the foreign
currency forward
contract. |
22Prospectus
– Fund Summaries
|
■ |
Futures
Contracts Risk.
Futures contracts are derivative instruments pursuant to a contract where
the parties agree to a fixed price for an agreed amount of securities
or other underlying assets at an agreed date. The use of such derivative
instruments may expose the Fund to additional risks, such as credit risk,
liquidity
risk, and counterparty risk, that it would not be subject to if it
invested directly in the securities underlying those derivatives. There
can be no assurance
that any strategy used will succeed. There may at times be an imperfect
correlation between the movement in the prices of futures contracts and
the
value of their underlying instruments or indexes. There also can be no
assurance that, at all times, a liquid market will exist for offsetting a
futures contract
that the Fund has previously bought or sold, and this may result in the
inability to close a futures contract when desired. Futures contracts may
experience
potentially dramatic price changes, which will increase the volatility of
the Fund and may involve a small investment of cash (the amount of
initial
and variation margin) relative to the magnitude of the risk assumed (the
potential increase or decrease in the price of the futures contract).
Government
bond futures contracts, such as treasury futures contracts, expose
the Fund to price fluctuations resulting from changes in interest
rates and to potential
losses if interest rates do not move as expected.
Interest
rate futures contracts expose the Fund to price fluctuations
resulting from changes in interest
rates. The Fund could suffer a loss if interest rates rise after the Fund
has purchased an interest rate futures contract or fall after the Fund has
sold an
interest rate futures contract.
Foreign
currency futures contracts expose the Fund to risks associated with
fluctuations in the value of foreign currencies. Foreign
currency futures contracts are similar to foreign currency forward
contracts, except that they are traded on exchanges (and may have margin
requirements)
and are standardized as to contract size and delivery date. The Fund may
use foreign currency futures contracts for the same purposes as
foreign
currency forward contracts, subject to Commodity Futures Trading
Commission (“CFTC”) regulations.
Futures
contracts on bond and equity indices expose
the Fund to volatility in an underlying
index. |
|
■ |
Swap
Agreements Risk.
Swap agreements or “swaps” are transactions in which the Fund and a
counterparty agree to pay or receive payments at specified dates
based upon or calculated by reference to changes in specified prices or
rates or the performance of specified securities, indices or other assets
based on
a specified amount (the “notional” amount). Swaps can involve greater
risks than a direct investment in an underlying asset, because swaps
typically include
a certain amount of embedded leverage and as such are subject to leverage
risk. If swaps are used as a hedging strategy, the Fund is subject to the
risk
that the hedging strategy may not eliminate the risk that it is intended
to offset, due to, among other reasons, the occurrence of unexpected price
movements
or the non-occurrence of expected price movements. Swaps also may be
difficult to value. Swaps may be subject to liquidity risk and
counterparty
risk, and swaps that are traded over-the-counter are not subject to
standardized clearing requirements and may involve greater liquidity and
counterparty
risks. The
Fund may invest in the following types of
swaps: |
|
■ |
Commodities
swaps,
which may be subject to commodities
risk. |
|
■ |
Credit
default swaps,
which may be subject to credit risk and the risks associated with the
purchase and sale of credit
protection. |
|
■ |
Total
return swaps,
which may be subject to credit risk and market risk and, if the underlying
securities are bonds or other debt obligations, interest rate risk. |
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets are generally smaller, less developed, less
liquid
and more volatile than the securities markets of the U.S. and other developed
markets. There are also risks of: greater political or economic uncertainties;
an economy’s dependence on revenues from particular commodities or on
international aid or development assistance; currency transfer restrictions;
a limited number of potential buyers for such securities resulting in increased
volatility and limited liquidity for emerging market securities; trading
suspensions
and other restrictions on investment; delays and disruptions in securities
clearing and settlement procedures; and significant limitations on investor
rights and recourse. The governments of emerging market countries may also be
more unstable and more likely to impose capital controls, nationalize
a company or industry, place restrictions on foreign ownership and on
withdrawing sale proceeds of securities from the country, intervene in the
financial
markets, and/or impose burdensome taxes that could adversely affect security
prices. In addition, there may be less publicly available information
about
issuers in emerging markets than would be available about issuers in more
developed capital markets, and such issuers may not be subject to accounting,
auditing, financial reporting and recordkeeping standards and requirements
comparable to those to which U.S. companies are
subject.
Foreign
Exposure Risk
Exposure
to non-U.S.
issuers carries potential risks not associated with exposure
to U.S.
issuers. Such risks may include, but are not limited to: (1) currency
exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity,
(4) lack of uniform accounting, auditing and financial reporting standards, (5)
greater
volatility, (6) different government regulation and supervision of foreign stock
exchanges, brokers and listed companies, and (7) delays or
failures in
transaction
payment
and settlement
in some foreign markets. The Fund’s exposure to a foreign issuer may subject the
Fund to regulatory, political, currency, security,
economic and other risks associated with that country. Global economic and
financial markets have become increasingly interconnected and conditions
(including recent volatility,
terrorism, war and political
instability) and events (including natural disasters) in one country, region or
financial market may
adversely impact issuers in a different country, region or financial
market.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, the Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with
significant economic ties to, a single country or geographic region, which could
increase the risk that economic, market,
political,
business, regulatory, diplomatic,
social and environmental conditions in that particular country or geographic
region may have a significant impact on the Fund’s performance. Investing
in such a manner could cause the Fund’s performance to be more volatile than the
performance of more geographically diverse funds.
A decline in the
economies or financial markets of one country or region may adversely affect the
economies or financial markets of another.
|
■ |
European
Securities Risk.
The Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output
(the gross national product
of the countries in the region),
the rate of inflation, the rate at which capital is reinvested into
European economies, the success
of governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries,
the monetary exchange rates between European
countries,
and conflict between European countries. The European financial markets
have experienced and may continue to experience volatility and
adverse trends due to concerns relating to economic downturns; rising
government debt levels and the possible default on government debt;
national unemployment
in several European countries; public
health crises; political unrest; economic sanctions; inflation; energy
crises; and war and military conflict, such
as the Russian invasion of Ukraine. A default
or debt restructuring by any European country could adversely impact
holders of that country’s debt and sellers
of credit default swaps linked to that country’s creditworthiness, which
may be located in other countries. Such a default or debt restructuring
could affect
exposures to European
countries.
In addition, issuers have faced difficulties obtaining credit or
refinancing existing obligations, and financial markets have
experienced extreme volatility and declines in asset values and liquidity.
These
events have affected the exchange rate of the Euro and may continue to
significantly
affect European countries. |
| |
Responses
to financial problems by European governments, central banks, and others,
including austerity measures and other reforms, may not produce the
desired
results, may result in social unrest and may limit future growth and
economic recovery or may have unintended consequences. The Fund makes
investments
in securities of issuers that are domiciled in member states of the
European Union (the “EU”). The economies and markets of European
countries
are often closely connected and interdependent, and events in one country
in Europe can have an adverse impact on other European countries.
One
or more countries may abandon the Euro and/or withdraw from the EU. The
impact of these actions, especially if they occur in a disorderly fashion,
|
Prospectus
– Fund Summaries23
| |
could
be significant and far-reaching. The United Kingdom’s withdrawal from the
EU could be an indication that one or more other countries may withdraw
from
the EU and/or abandon the Euro. These events and actions have affected,
and may in the future affect, the value and exchange rate of the Euro and
may
continue to significantly affect the economies of every country in Europe,
including countries that do not use the Euro and non-EU member
states. |
| |
The
continuing effects on the economies of European countries of the
Russia/Ukraine war and Russia’s response to sanctions imposed by
the U.S., EU, UK and
others, are impossible to predict, but have been and could continue to be
significant. For example, exports in Eastern Europe have been disrupted
for certain
key commodities, pushing commodity prices to record highs. Also, both
wholesale energy prices and energy prices charged to consumers in Europe
have
increased
significantly. |
Hedging
Risk
If
the Fund uses a hedging instrument at the wrong time or judges the market
conditions incorrectly, or the hedged instrument does not correlate to the risk
sought
to be hedged, the hedge might be unsuccessful, reduce the Fund’s return, or
create a loss. In addition, hedges, even when successful in mitigating
risk,
may not prevent the Fund from experiencing losses on its investments. Hedging
instruments may also reduce or eliminate gains that may otherwise have
been
available had the Fund not used the hedging
instruments.
High
Portfolio Turnover Risk
Portfolio
turnover is a measure of the Fund’s trading activity over a one-year period. A
portfolio turnover rate of 100% would indicate that the Fund sold and
replaced
the entire value of its securities holdings during the period. The Fund may
engage in active and frequent trading and may have a high portfolio turnover
rate, which could increase the Fund’s transaction costs, have a negative impact
on performance, and generate higher capital gain distributions to shareholders
than if the Fund had a lower portfolio turnover
rate.
High-Yield
Securities Risk
Exposure
to high-yield, below investment-grade securities (commonly referred to as “junk
bonds”) generally involves significantly greater risks than an investment
in investment grade securities. High-yield debt securities may fluctuate more
widely in price and yield and may fall in price when the economy is weak
or expected to become weak. These securities also may be difficult to sell at
the time and price the Fund desires. High-yield securities are considered to
be
speculative with respect to an issuer’s ability to pay interest and principal
and carry a greater risk that the issuers of lower-rated securities will default
on the timely
payment of principal and interest. High-yield securities may experience greater
price volatility and less liquidity than investment grade securities. Issuers
of
securities that are in default or have defaulted may fail to resume principal or
interest payments, in which case the Fund may lose its entire
investment.
Inflation
Index-Linked Securities Risk
Unlike
a conventional bond, whose issuer makes regular fixed interest payments and
repays the face value of the bond at maturity, an inflation index-linked
security
provides principal payments and interest payments that vary as the principal
and/or interest are adjusted over time to reflect a rise or a drop in the
reference
inflation-related index. However, there can be no assurance that the inflation
index used will accurately measure the rate of inflation. For inflation
index-linked
debt securities for which repayment of the original principal upon maturity (as
adjusted for inflation) is not guaranteed, the adjusted principal value
of the securities repaid at maturity may be less than the original principal
value. The value of inflation index-linked securities is expected to change in
response
to real interest rates. The price of an inflation index-linked security
generally falls when real interest rates rise and rises when real interest rates
fall. Because
the interest and/or principal payments on an inflation index-linked security are
adjusted periodically for changes in inflation, the income distributed by
the
Fund may be irregular. In periods of deflation, the Fund may have no income at
all from such investments. The principal value of an investment in the
Fund
is not protected or otherwise guaranteed by the value of the Fund’s investments
in inflation index-linked securities.
Interest
Rate Risk
Generally,
the value of investments with interest rate risk, such as fixed-income
securities or derivatives, will move in the opposite direction as
movements in interest
rates. Factors including central bank monetary policy, rising inflation rates,
and changes in general economic conditions may cause interest rates to
rise,
which could cause the value of the Fund’s investments to decline. Interest
rate
increases, including significant or rapid increases, may result in a decline in
the
value of bonds held by the Fund, lead to heightened volatility in the
fixed-income markets and adversely affect the liquidity of certain fixed-income
investments,
any of which may result
in substantial losses to the Fund. Interest
rate changes may have a more pronounced effect on the market value of
fixed-rate
instruments than on floating-rate instruments. The value of floating rate and
variable securities may decline if their interest rates do not rise as
quickly,
or as much, as general interest rates.
The prices of fixed-income securities or derivatives are also affected by their
durations. Fixed-income securities or derivatives
with longer durations generally have greater sensitivity to changes in interest
rates
than those with shorter durations.
Rising interest rates may cause
the value of the Fund
‘s
investments with longer durations and terms to maturity to decline, which may
adversely affect the value of the Fund. For example,
if a bond has a duration of eight years, a 1% increase in interest rates could
be expected to result in an 8% decrease in the value of the bond. Fluctuations
in interest rates may also affect the liquidity of fixed-income securities and
instruments held by the Fund.
Investment
Risk
An
investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government
agency.
When you sell your shares of the Fund, they could be worth less than what you
paid for them. Therefore, you may lose money by investing
in the Fund.
Leverage
Risk
The
Fund’s use of derivative instruments may have the economic effect of financial
leverage. Financial leverage magnifies the Fund’s exposure to the movements
in prices of an asset or class of assets underlying a derivative instrument and
may result in increased volatility, which means that the Fund will have
the potential for greater losses than if the Fund does not use the derivative
instruments that have a leveraging effect. Leverage may result in losses that
exceed
the amount originally invested and may accelerate the rate of losses. Leverage
tends to magnify, sometimes significantly, the effect of any increase or
decrease
in the Fund’s exposure to an asset or class of assets and may cause the Fund’s
net asset value (“NAV”) per share to be volatile. There can be no assurance
that the Fund’s use of leverage will be
successful.
Liquidity
Risk
The
Fund is susceptible to the risk that certain investments held by the Fund may
have limited marketability, be subject to restrictions on sale, be difficult or
impossible
to purchase or sell at favorable times or prices or become less liquid in
response to market developments or adverse credit events that may affect
issuers
or guarantors of a security. An inability to sell a portfolio position can
adversely affect the Fund’s value or prevent the Fund from being able to take
advantage
of other investment opportunities. Market prices for such instruments may be
volatile. During periods of substantial market volatility, an investment
or even an entire market segment may become illiquid, sometimes abruptly, which
can adversely affect the Fund’s ability to limit losses. The Fund could
lose money if it is unable to dispose of an investment at a time that is most
beneficial to the Fund. The Fund may be required to dispose of investments
at
unfavorable times or prices to satisfy obligations, which may result in losses
or may be costly to the Fund. For
example, liquidity risk may be magnified in rising
interest rate environments in the event of higher
than
normal redemption rates.
Unexpected
redemptions may force the Fund to sell certain investments
at unfavorable prices to meet redemption requests or other cash
needs. Judgment
plays a greater role in pricing illiquid investments than in investments
with more active markets.
24Prospectus
– Fund Summaries
Market
Risk
The
Fund is subject to the risk that the securities markets will move down,
sometimes rapidly and unpredictably, based on overall economic conditions and
other
factors, which may negatively affect the Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities,
although
under certain market conditions fixed-income securities may have comparable or
greater price volatility. During a general downturn in the securities
markets,
multiple assets may decline in value simultaneously. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future. The value of a security may decline
due
to adverse issuer-specific conditions, general market conditions unrelated to a
particular issuer, such as changes in interest or inflation rates, or factors
that
affect a particular industry or industries. Changes in the financial condition
of a single issuer or market segment also can impact the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity in equity, credit and
fixed-income
markets, which may disrupt economies and markets and adversely affect the value
of your investment. Changes in value may be temporary or may
last for extended periods.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or
occurrence of
a federal
government shutdown and threats or
the occurrence of a failure
to increase the federal government’s debt limit,
which could result in a default on the government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
|
■ |
Recent
Market Events Risk.
Both U.S. and international markets have experienced significant
volatility in recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in the Fund may be
increased. |
| |
Although
interest rates were unusually low in recent years in the U.S. and
abroad, in 2022, the Federal Reserve and certain foreign central banks
began to raise
interest rates as part of their efforts to address rising inflation. It is
difficult to accurately predict the pace at which interest rates might
increase or start decreasing,
the timing, frequency or magnitude of any such changes in interest rates,
or when such changes might stop or reverse course. Additionally,
various
economic and political factors could cause the Federal Reserve or another
foreign central bank to change their approach in the future and such
actions
may result in an economic slowdown in the U.S. and abroad. Unexpected
changes in interest rates could lead to significant market volatility or
reduce
liquidity in certain sectors of the market. Deteriorating economic
fundamentals may, in turn, increase the risk of default or insolvency of
particular issuers,
negatively impact market value, cause credit spreads to widen, and reduce
bank balance sheets. Any of these could cause an increase in market
volatility,
reduce liquidity across various markets or decrease confidence in the
markets. Additionally, high public debt in the U.S. and other
countries creates
ongoing systemic and market risks and policymaking
uncertainty. |
| |
In
March 2023, the shutdown of certain financial institutions in
the U.S. and questions regarding the viability of other financial
institutions raised economic concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be
effective in mitigating the effects of financial institution failures on
the economy and restoring public confidence in the U.S. and global banking
systems. |
| |
Some
countries, including the U.S., have in recent years adopted more
protectionist trade policies. Slowing global economic growth; risks
associated with a trade
agreement between the United Kingdom and the European Union; the risks
associated with ongoing trade negotiations with China; and the
possibility
of changes to some international trade agreements; political or economic
dysfunction within some nations, including major producers of oil; and
dramatic
changes in commodity and currency prices could have adverse effects that
cannot be foreseen at the present
time. |
| |
Tensions,
war, or open conflict between nations, such as between Russia and Ukraine,
in the Middle East or in eastern Asia could affect the economies of
many
nations, including the United States. The duration of ongoing hostilities
in the Middle East and between Russia and Ukraine, and any sanctions and
related
events cannot be predicted. Those events present material uncertainty and
risk with respect to markets globally and the performance of the Fund
and
its investments or operations could be negatively
impacted. |
| |
Regulators
in the U.S. have proposed and recently adopted a number of changes
to regulations involving the markets and issuers, some of which apply to
the
Fund. The full effect of various newly-adopted regulations is not
currently known. Additionally, it is not clear whether the proposed
regulations will be adopted.
However, due to the broad scope of the new and proposed regulations,
certain changes could limit the Fund’s ability to pursue its investment
strategies
or make certain investments, or may make it more costly for the Fund to
operate, which may impact
performance. |
| |
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Certain
issuers,
industries and regions may be adversely affected by the impacts of climate
change, including on the demand for and the development of goods and
services
and related production costs, and the impacts of legislation, regulation
and international accords related to climate change, as well as any
indirect consequences
of regulation or business trends driven by climate
change. |
Market
Timing Risk
The
Fund is subject to the risk of market timing activities by investors due to the
nature of the Fund’s investments, which requires the Fund, in certain
instances,
to fair value certain of its investments. Some investors may engage in frequent
short-term trading in the Fund to take advantage of any price differentials
that may be reflected in the net asset value (“NAV”) of the Fund’s shares.
Frequent trading by Fund shareholders poses risks to other shareholders
in
the Fund, including (i) the dilution of the Fund’s NAV, (ii) an increase in the
Fund’s expenses, and (iii) interference with the ability to execute efficient
investment
strategies.
Model
and Data/Programming Error Risk
The
success of the sub-advisor’s investment strategy depends largely on the
effectiveness of its quantitative research models and investment programs.
Models (including
quantitative models), data, and investment programs are used to screen potential
investments for the Fund. When models or data prove to be incorrect
or incomplete, any decisions made in reliance thereon expose the Fund to
potential risks and programs may not react as expected to market events,
resulting
in losses for the Fund. Some of the models used by the sub-advisor are
predictive in nature. The use of predictive models has inherent risks. Because
predictive
models are usually constructed based on historical data supplied by third
parties, the success of relying on such models may depend heavily on the
accuracy
and reliability of the supplied historical data. There is no assurance that the
models are complete or accurate, or representative of future market cycles,
nor will they always be beneficial to the Fund if they are accurate.
Additionally, programs may become outdated or experience malfunctions which may
Prospectus
– Fund Summaries25
not
be identified by the sub-advisor and therefore may also result in losses to the
Fund. These models and programs may negatively affect Fund performance
for
various other reasons, including human judgment, inaccuracy of historical data
and non-quantitative factors (such as market or trading system dysfunctions,
investor fear or overreaction).
Models
and data are known to have errors, omissions, imperfections and malfunctions
(collectively, “System Events”). The sub-advisor seeks to reduce the
incidence
and impact of System Events, to the extent feasible, through a combination of
internal testing, simulation, real-time monitoring, and use of independent
safeguards in the overall portfolio management process and often in the software
code itself. Despite such testing, monitoring and independent safeguards,
System Events will result in, among other things, the execution of unanticipated
trades, the failure to execute anticipated trades, delays in the execution
of anticipated trades, the failure to properly allocate trades, the failure to
properly gather and organize available data, the failure to take certain
hedging
or risk reducing actions and/or the taking of actions which increase certain
risk(s) - all of which may have materially adverse effects on the Fund.
System
Events in third-party provided data
are generally entirely outside the control of the
sub-advisor.
Non-Diversification
Risk
The
Fund is non-diversified, which means it may focus its investments in the
securities of a comparatively small number of issuers. Investments in securities
of a
limited number of issuers exposes the Fund to greater market risk, price
volatility and potential losses than if assets were diversified among the
securities of a
greater number of issuers.
Obsolescence
Risk
The
sub-advisor
is unlikely to be successful in the deployment of its quantitative,
systematic,
investment strategies unless the assumptions underlying the models
are realistic and either remain realistic and relevant in the future or are
adjusted to account for changes in the overall market environment. If such
assumptions
are inaccurate or become inaccurate and are not promptly adjusted, it is likely
that the
models will not generate profitable trading signals.
If and to
the extent that the models do not reflect certain relevant
factors,
and the sub-advisor does not successfully address such omission through its
testing and evaluation
by
modifying
the models accordingly, major losses may result — all of which will be borne by
the Fund.
There can be no assurance as to the effects (positive
or negative) of any changes including additions, modifications and removal of
the models or investment strategies on the Fund’s
performance.
Other
Investment Companies Risk
To
the extent that the Fund invests in shares of other registered investment
companies, the Fund will indirectly bear the fees and expenses charged by those
investment
companies in addition to the Fund’s direct fees and expenses. To the extent the
Fund invests in other investment companies that invest in equity securities,
fixed-income securities and/or foreign securities, or that track an index, the
Fund is subject to the risks associated with the underlying investments
held
by the investment company or the index fluctuations to which the investment
company is subject. The Fund will be subject to the risks associated with
investments
in those companies, including but not limited to the
following:
|
■ |
Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market
risk. |
Quantitative
Strategy Risk
The
success of the Fund’s investment strategy may depend in part on the
effectiveness of the sub-advisor’s quantitative tools for screening
securities. These strategies
may incorporate factors that are not predictive of a security’s value. The
quantitative tools may not react as expected to market events, resulting in
losses
for the Fund. Additionally, a previously successful strategy may become outdated
or inaccurate, which may not be identified by the sub-advisor and
therefore
may also result in losses.
Redemption
Risk
The
Fund may experience periods of high levels of redemptions that could cause the
Fund to sell assets at inopportune times or at a loss or depressed value.
Heavy
redemptions could hurt the Fund’s performance. The sale of assets to meet
redemption requests may create net capital gains, which could cause the
Fund
to have to distribute substantial capital gains. Redemption risk is greater to
the extent that one or more investors or intermediaries control a large
percentage
of investments in the Fund. In addition, redemption risk is heightened during
periods of declining or illiquid markets. A
rise in interest rates or other
market developments may cause investors to move out of fixed-income securities
on a large scale.
During periods of heavy redemptions, the Fund may borrow
funds through the interfund credit facility or from a bank line of credit, which
may increase costs.
Risk
Management
Risk
is an essential part of investing. No risk management program can eliminate the
Fund’s exposure to adverse events; at best, it can only reduce the possibility
that the Fund will be affected by such events, and especially those risks that
are not intrinsic to the Fund’s investment program. Measures taken with
the intention of decreasing exposure to identified risks might have the
unintended effect of increasing exposure to other
risks.
Segregated
Assets Risk
In
connection with certain transactions that may give rise to future payment
obligations, the Fund may be required to maintain a segregated amount of, or
otherwise
earmark, cash or liquid securities to cover the obligation. Segregated assets
generally cannot be sold while the position they are covering is outstanding,
unless they are replaced with other assets of equal value. The need to segregate
cash or other liquid securities could limit the Fund’s ability to pursue
other opportunities as they arise.
Sovereign
Debt Risk
Sovereign
debt securities are subject to risk of payment delays or defaults due to, among
other things: (1) country cash flow problems, (2) insufficient foreign
currency
reserves, (3) political considerations, (4) large debt positions relative to the
country’s economy, (5) policies toward foreign lenders or investors, (6) the
failure
to implement economic reforms required by the International Monetary Fund or
other multilateral agencies, or (7) an inability or unwillingness to repay
debts.
A governmental entity that defaults on an obligation may request additional time
in which to repay loans, may request further loans, or may seek to restructure
its obligations to reduce interest rates or outstanding principal. There is no
legal process for collecting sovereign debt that a government does not
pay,
nor are there bankruptcy proceedings through which all or part of the sovereign
debt that a governmental entity has not repaid may be
collected.
Subsidiary
Risk
By
investing in the Subsidiary, the Fund is indirectly exposed to the risks
associated with the Subsidiary’s investments. The derivatives and other
investments held
by the Subsidiary are generally similar to those that are permitted to be held
by the Fund and are subject to the same risks that apply to similar investments
if held directly by the Fund. The principal risks of the Subsidiary are listed
in this section of the Prospectus as principal risks of the Fund. There can
be
no assurance that the investment objective of the Subsidiary will be achieved or
that, as a result, the investment objective of the Fund will be achieved. The
Subsidiary
is not registered under the Investment Company Act, and, unless otherwise noted
in this Prospectus, is not subject to all the investor protections of
the
Investment Company Act. In addition, 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 described in this Prospectus and the SAI and could
adversely affect the Fund’s performance.
Tax
Risk
To
qualify as a “regulated investment company” under Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”) (“RIC”),
the Fund must, among other requirements, derive at least 90% of its gross income
for each taxable year from “qualifying income,” which is
26Prospectus
– Fund Summaries
described
in more detail in the “Tax Information” section of the SAI. Income from certain
commodity-linked derivative instruments in which the Fund invests is
not
considered qualifying income. The Fund will therefore restrict its income from
direct investments in those instruments, such as commodity-linked swaps,
to
a maximum of 10% of its gross income for each taxable year. The Fund’s
investment in the Subsidiary is expected to provide the Fund with exposure to
the commodities
markets within the limitations of the federal tax requirements of Subchapter M.
Treasury regulations provide that income inclusions of a RIC from a
controlled foreign corporation (“CFC”), such as the Subsidiary, in which the RIC
invests as part of its business of investing in stocks
and securities, are qualifying
income for the RIC
whether or not the CFC makes distributions to the RIC out of its associated
earnings and profits for the applicable taxable year. See
“Tax Information” in the SAI for further information regarding RIC’s federal
income tax treatment of income from CFCs and commodity-linked instruments.
The federal income tax treatment of the Fund’s commodity-linked investments and
income from the Subsidiary may be materially adversely affected
by future legislation, other Treasury regulations, and/or guidance issued by the
IRS that could affect whether income from such investments is qualifying
income under Subchapter M or otherwise materially affect the character, timing
or recognition, and/or amount of the Fund’s taxable income and/or net
capital gains and, therefore, the distributions the Fund
makes.
Trading
System and Execution of Orders Risk
The
sub-advisor relies extensively on computer programs, systems, technology, data
and models to implement its execution strategies and algorithms. The
sub-advisor’s
investment strategies, trading strategies and algorithms depend on its ability
to establish and maintain an overall market position in a combination
of financial instruments selected by the sub-advisor. There is a risk that the
sub-advisor’s proprietary algorithmic trading systems may not be able
to
adequately react to a market event without serious disruption. Further, trading
strategies and algorithms may malfunction, causing severe losses. The
successful
operation of the computer programs, systems, technology, data and models depends
in part on the sub-advisor’s ability to ensure those systems remain
operational and that appropriate disaster recovery procedures are in place.
While the sub-advisor has employed tools to allow for human intervention
to
respond to significant system malfunctions, it cannot be guaranteed that losses
will not occur in such circumstances as unforeseen market events, disruptions
and execution system issues.
U.S.
Government Securities Risk
A
security backed by the U.S. Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of interest and principal
when
held to maturity. The market prices for such securities are not guaranteed and
will fluctuate. U.S. government securities are also subject to credit risk,
interest
rate risk and market risk. The rising U.S. national debt may lead to adverse
impacts on the value of U.S. government securities due to potentially
higher
costs for the U.S. government to obtain new
financing.
U.S.
Treasury Obligations Risk
The
market
value
of U.S. Treasury obligations may vary due to fluctuations
in interest rates. In addition, changes to the financial condition or credit
rating of the
U.S. government may cause the value of the Fund’s investments in obligations
issued by the U.S. Treasury to decline. Certain political events in the U.S.,
such
as a prolonged government shutdown or potential default on the national debt,
may also cause investors to lose confidence in the U.S. government and
may
cause the value of U.S. Treasury obligations to
decline.
Valuation
Risk
Certain
of the Fund’s assets may be valued at a price different from the price at which
they can be sold. This risk may be especially pronounced for investments
that are illiquid or may become illiquid, or securities that trade in relatively
thin markets and/or markets that experience extreme volatility. The valuation
of the Fund’s investments in an accurate and timely manner may be impacted by
technological issues and/or errors by third party service providers,
such
as pricing services or accounting agents.
Volatility
Risk
The
Fund may have investments that appreciate or decrease significantly in value
over short periods of time. This may cause the Fund’s NAV to experience
significant
increases or declines in value over short periods of
time.
Zero
Coupon Securities Risk
Zero-coupon
securities are debt
securities
that do not make periodic interest payments
prior to maturity or a specified redemption date (or cash payment date).
Accordingly, zero coupon securities usually trade at a deep discount from their
face or par value and will be subject to greater fluctuations in market
value
in response to changing interest rates than debt obligations of comparable
maturities that make current distribution of interest in cash.
While interest payments
are not made on such securities, the Fund accrues income with respect to these
securities for federal income tax and accounting purposes. Longer term
zero-coupon bonds are more exposed to interest rate risk than shorter term zero
coupon bonds.
Fund
Performance
The
bar chart and table below provide an indication of risk by showing changes in
the Fund’s performance over time. The bar chart shows how the Fund’s
performance
has varied from year to year. The table shows how the Fund’s average annual
total returns compare to a composite index and the two broad-based
securities market indices that comprise the composite index, for the periods
indicated.
The
chart and the table show the performance of the Fund’s Investor Class shares for
all periods. In
the table below, for the period prior to April 30, 2019, the performance
of the A Class and C Class shares reflects the returns of the Investor Class
shares of the Fund. The newer share classes would have had similar annual
returns to the Investor Class shares because the shares of each class represent
investments in the same portfolio securities. However, as reflected in the
“Fees
and Expenses of the Fund” section of this Fund Summary, the expenses of the
Investor Class shares differ from those of the newer share classes, which
would
affect performance. To the extent that the Investor Class shares had lower
expenses than a newer share class, the performance of the Investor Class
shares
would likely have been higher than the newer share class would have realized
during the same period. The performance of the newer share classes shown
in the table has not been adjusted for differences in operating expenses between
those share classes and the Investor Class shares, but the A Class and
C
Class shares performance has been adjusted for the impact of the maximum
applicable sales charge.
You
may obtain updated performance information on the Fund’s website at
www.americanbeaconfunds.com.
Past
performance (before and after taxes) is not necessarily
an indication of how the Fund will perform in the
future.
Prospectus
– Fund Summaries27
|
| |
|
Calendar
year total returns for Investor Class Shares.
Year Ended 12/31 |
|
|
Highest
Quarterly Return:
12.00%1st
Quarter 2019
01/01/2019
through 12/31/2023
Lowest
Quarterly Return:
-9.83%2nd
Quarter 2022
01/01/2019
through
12/31/2023 |
Average
annual total returns
for periods ended December 31, 2023
|
|
|
|
| |
|
|
Inception
Date of
Class |
1
Year |
5
Years |
Since
Inception |
|
Investor
Class |
|
|
|
|
|
Returns
Before Taxes |
|
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
|
Returns
After Taxes on Distributions and Sales of Fund Shares |
|
|
|
|
|
|
|
|
| |
|
|
Inception
Date of
Class |
1
Year |
5
Years |
Since
Inception
(12/31/2018) |
|
Share
Class
(Before Taxes) |
|
|
|
|
|
A |
|
|
|
|
|
C |
|
|
|
|
|
Y |
|
|
|
|
|
R5 |
|
|
|
|
|
|
|
| |
|
|
1
Year |
5
Years |
Since
Inception
(12/31/2018) |
|
Index
(Reflects no deduction for fees, expenses, or taxes) |
|
|
|
|
60%
MSCI World Index (Hedged to USD) / 40% Bloomberg Global-Aggregate Total
Return Index Value Hedged USD |
|
|
|
|
MSCI
World Index (Hedged to USD) |
|
|
|
|
Bloomberg
Global-Aggregate Total Return Index Value Hedged USD |
|
|
|
After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local income
taxes.
Actual after-tax returns depend on an investor’s tax situation and may differ
from those shown. The
return after taxes on distributions and sale of Fund shares
may exceed the return before taxes due to an assumed tax benefit from any losses
on a sale of Fund shares at the end of the measurement period.
If
you
are a tax-exempt entity or hold your Fund shares through a tax-deferred
arrangement, such as an individual retirement account (“IRA”) or a 401(k) plan,
the
after-tax returns do not apply to your situation.
After-tax
returns are shown only for Investor Class shares of the Fund; after-tax returns
for other share classes
will vary.
Management
The
Manager
The
Fund has retained American Beacon Advisors, Inc. to serve as its
Manager.
Sub-Advisor
The
Fund’s investment sub-advisor is AHL Partners LLP.
Portfolio
Managers
|
|
| |
|
AHL
Partners LLP |
Russell
Korgaonkar
Chief
Investment Officer
Since
Fund Inception (2018) |
Otto
van Hemert
Director
of Core Strategies
Since
2021 |
28Prospectus
– Fund Summaries
Purchase
and Sale of Fund Shares
You
may buy or sell shares of the Fund through a retirement plan, an investment
professional, a broker-dealer, or other financial intermediary. You may
purchase
or redeem shares of the Fund on any day the New York Stock Exchange (“NYSE”) is
open, at the Fund’s net asset value (“NAV”) per share next calculated
after your order is received in proper form, subject to any applicable sales
charge. The Manager may, in its sole discretion, allow certain individuals
to
invest directly in the Fund. For more information regarding eligibility to
invest directly please see “About Your Investment - Purchase and Redemption of
Shares.”
Direct mutual fund account shareholders may buy subsequent shares or sell shares
in various ways:
|
|
| |
|
Internet |
www.americanbeaconfunds.com |
|
Phone |
To
reach an American Beacon representative call 1-800-658-5811, option
1
Through
the Automated Voice Response Service call 1-800-658-5811, option 2
(Investor Class only) |
|
Mail |
American
Beacon Funds
P.O.
Box 219643
Kansas
City, MO 64121-9643 |
Overnight
Delivery:
American
Beacon Funds
430
W. 7th Street, Suite 219643
Kansas
City, MO 64105-1407 |
|
|
|
| |
|
|
New
Account |
Existing
Account |
|
Share
Class |
Minimum
Initial Investment Amount |
Purchase/Redemption
Minimum by Check/ACH/Exchange |
Purchase/Redemption
Minimum by Wire |
|
C |
$1,000 |
$50 |
$250 |
|
A,
Investor |
$2,500 |
$50 |
$250 |
|
Y |
$100,000 |
$50 |
None |
|
R5 |
$250,000 |
$50 |
None |
Tax
Information
Dividends,
capital gains distributions,
and other distributions, if any, that you receive as a result of your
investment in the Fund are subject to federal income tax
and may also be subject to state and local income taxes, unless you are a
tax-exempt entity or your account is tax-deferred, such as an
individual retirement
account (“IRA”) or a 401(k) plan (in which case you may be taxed later, upon the
withdrawal of your investment from such account or plan).
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and the Fund’s distributor, Resolute
Investment
Distributors, Inc., or the Manager may pay the intermediary for the sale of Fund
shares and related services. These payments may create a conflict of
interest by influencing the broker-dealer or other intermediary and your
individual financial professional to recommend the Fund over another investment.
Ask
your individual financial professional or visit your financial intermediary’s
website for more information.
Additional
Information About the Funds
To
help you better understand the Funds, this section provides a detailed
discussion of the Funds’ investment policies, their principal strategies and
principal risks
and performance indices. However, this Prospectus does not describe all of a
Fund’s investment practices. Capitalized
terms that are not otherwise defined
are defined in Appendix B.
For additional information, please see the Funds’ SAI, which is available at
www.americanbeaconfunds.com or by contacting
us via telephone at 1-800-658-5811, by U.S. mail at P.O. Box 219643, Kansas
City, MO 64121-9643, or by e-mail at [email protected].
Additional
Information About Investment Policies and Strategies
Investment
Objectives
The
American Beacon AHL Managed Futures Strategy Fund’s investment objective is
capital growth.
The
American Beacon AHL Multi-Alternatives
Fund’s investment objective is capital growth.
The
American Beacon AHL TargetRisk Fund’s
investment objective is capital growth.
Each
Fund’s investment objective is ‘‘non-fundamental,’’ which means that it may be
changed by the Fund’s
Board without the approval of Fund shareholders.
Temporary
Defensive Policy
Each
Fund may depart from its principal investment strategy by taking temporary
defensive or interim positions in response to adverse market, economic,
political,
or other conditions. During these times, a Fund may not achieve its investment
objective.
Additional
Information About the Management of the Funds
The
Funds have retained American Beacon Advisors, Inc. to serve as their Manager.
The Manager may allocate the assets of each Fund among different sub-advisors.
The Manager provides or oversees the provision of all administrative, investment
advisory and portfolio management services to the Funds. The Manager:
|
■ |
develops
overall investment strategies for each
Fund, |
|
■ |
selects
and changes sub-advisors, |
|
■ |
allocates
assets among sub-advisors, |
|
■ |
monitors
and evaluates the sub-advisor’s investment
performance, |
|
■ |
monitors
the sub-advisor’s compliance with each Fund’s investment objectives,
policies and restrictions, |
|
■ |
oversees
each Fund’s securities lending activities and actions taken by the
securities lending agent to the extent applicable,
and |
|
■ |
directs
the investment of the portion of Fund assets that the sub-advisors
determine should be allocated to short-term
investments. |
Prospectus
– Additional Information About the Funds29
Each
Fund’s assets are currently allocated by the Manager to one sub-advisor, AHL
Partners LLP (“AHL”). AHL has full discretion to purchase and sell
securities for
the Funds in accordance with the Funds’ objectives, policies, restrictions and
more specific strategies provided by the Manager. The Manager oversees the
sub-advisor
but does not reassess individual security selections made by the sub-advisor for
its portfolios.
In
the future, the Manager may allocate a Fund’s assets to a different sub-advisor,
and/or to one or more additional sub-advisors. The Funds operate in a
manager
of managers structure. The Funds and the Manager have received an exemptive
order from the SEC that permits the Funds, subject to certain conditions
and approval by the Board, to hire and replace sub-advisors, and materially
amend agreements with sub-advisors, that are unaffiliated with the Manager
without approval of the shareholders. In the future, the Funds and the Manager
may rely on an SEC staff no-action letter, dated July 9, 2019, that would
permit the Funds to expand their exemptive relief to hire and replace
sub-advisors that are affiliated and unaffiliated with the Manager without
shareholder
approval, subject to approval by the Board and other conditions. The Manager has
ultimate responsibility, subject to oversight by the Board, to oversee
sub-advisors and recommend their hiring, termination and replacement. The SEC
order also exempts the Funds from disclosing the advisory fees paid by
the Funds to individual sub-advisors in a multi-manager fund in various
documents filed with the SEC and provided to shareholders. In the future, the
Funds
may rely on the SEC staff no-action letter to expand their exemptive relief to
individual sub-advisors that are affiliated with the Manager. Under that
no-action
letter, the fees payable to sub-advisors unaffiliated with or partially-owned by
the Manager or its parent company would be aggregated, and fees payable
to sub-advisors that are wholly-owned by the Manager or its parent company, if
any, would be aggregated with fees payable to the Manager. Whenever
a sub-advisor change is proposed in reliance on the order, in order for the
change to be implemented, the Board, including a majority of its “non-interested”
trustees, must approve the change. In addition, the Funds are required to
provide shareholders with certain information regarding any new sub-advisor
within 90 days of the hiring of any new sub-advisor.
Additional
Information About Investments
This
section provides more detailed information regarding certain of the Funds’
principal investment strategies as well as information regarding the Funds’
strategy
with respect to investment of cash balances.
Cash
Management
To
gain market exposure on cash balances held in anticipation of liquidity needs or
to reduce market exposure in anticipation of liquidity needs, a Fund may
utilize
the following investments:
|
■ |
Cash-Equivalent
Securities. A
Fund may invest cash balances in cash-equivalent securities including, for
example, short-term
U.S. Treasury bills and notes, U.S.
government agency issues, corporate obligations (including commercial
paper), and asset-backed securities.
Short-term
U.S. Treasury bills and notes are discussed
below, under “Fixed-Income Instruments.” |
|
■ |
Government
Money Market Funds. A
Fund may invest cash balances in government money market funds that are
registered as investment companies under
the Investment Company Act, including a government money market fund
advised by the Manager, with respect to which the Manager also receives
a
management fee. If a Fund invests in government money market funds, the
Fund becomes a shareholder of that investment company. As a result, Fund
shareholders
will bear their proportionate share of the expenses, including, for
example, advisory and administrative fees of the government money market
funds
in which a Fund invests, such as advisory fees charged by the Manager to
any applicable government money market funds advised by the Manager,
in
addition to the fees and expenses Fund shareholders directly bear in
connection with a Fund’s own operations. Shareholders also would be
exposed to the
risks associated with government money market funds and the portfolio
investments of such government money market funds, including the risk that
a government
money market fund’s yield will be lower than the return that a Fund would
have received from other investments that provide liquidity. Investments
in government money market funds are not insured or guaranteed by the
Federal Deposit Insurance Corporation (FDIC) or any other government
agency. |
Currencies
A Fund
may have exposure to foreign currencies by using various instruments. A Fund may
engage in these transactions in order to hedge or protect against uncertainty
in the level of future foreign exchange rates in the purchase and sale of
securities, or
other derivative positions,
or to shift exposure to foreign currency
fluctuations from one country to another. The instruments in which a Fund may
invest that provide exposure to foreign currencies include the following:
|
■ |
Foreign
Currency-Denominated Securities |
|
■ |
Foreign
Currency Forward Contracts, including Non-Deliverable
Forwards |
|
■ |
Foreign
Currency Futures Contracts |
Derivative
Investments
Derivatives
are financial instruments that have a value that depends upon, or is derived
from, a reference asset, such as one or more underlying securities, pools
of securities, commodities, options, futures, interest rates, credit rating,
volatility measures, indices or currencies. A Fund may invest in the following
derivative
instruments:
|
■ |
Foreign
Currency Forward Contracts. Foreign
currency forward contracts are two-party contracts pursuant to which one
party agrees to pay the counterparty
a fixed price for an agreed-upon amount of foreign currency at an
agreed-upon future date, which may be any fixed number of days from the
date
of the contract agreed upon by the parties. A foreign currency forward
contract may be a non-deliverable forward contract (“NDF“),
which is a forward
contract where there is no physical settlement of the two currencies at
maturity. Rather, on the contract settlement date, a net cash settlement
will be
made by one party to the other based on the difference between the
contracted forward rate and the prevailing spot rate, on an agreed
notional amount. |
|
■ |
Foreign
Currency Futures Contracts.
A foreign currency futures contract is a contract to purchase or sell an
agreed-upon amount of a foreign currency at a specified
future date, at a price agreed upon when the contract is made. A Fund may
have exposure to foreign currencies for investment or hedging purposes
by purchasing or selling futures contracts in non-U.S. currencies. Foreign
currencies may decline in value relative to the U.S. dollar and affect a
Fund’s
investments in securities or derivatives that provide exposure to foreign
(non-U.S.) currencies. Positions in foreign currency futures contracts
must be closed
out through a registered U.S. exchange or foreign board of trade that
provides a secondary market for such contracts. Such secondary markets may
not
exist or may not be accessible at a particular time, which may prevent a
Fund from closing its foreign currency futures position and expose the
Fund to greater
losses. |
|
■ |
Futures
Contracts.
A futures contract is a contract to purchase or sell a particular asset,
or the cash value of an asset, such as a security, commodity, currency
or an index of such assets, at a specified future date, at a price agreed
upon when the contract is made. Under many such contracts, no delivery of
the
actual underlying asset is required. Rather, upon the expiration of the
contract, settlement is made by exchanging cash in an amount equal to the
difference
between the contract price and the closing price of the asset (e.g., a
security or an index) at expiration, net of initial and variation margin
that was
previously paid. An
index futures contract, such as an equity index futures contract or a bond
index futures contract, is based on the value of an
|
30Prospectus
– Additional Information About the Funds
|
|
underlying
index.
An
interest rate futures contract is a contract for the future delivery of an
interest-bearing debt security.
A
government bond futures contract,
such as a Treasury futures contract, is a contract for the future delivery
of a government bond.
A Fund also may have to sell assets at inopportune times
to satisfy its settlement or collateral obligations. The risks associated
with the use of futures contracts also include that there may be an
imperfect correlation
between the changes in market value of the futures contracts and the
assets underlying such contracts, and that there may not be a liquid
secondary
market for a futures contract. |
|
■ |
Swap
Agreements.
A swap is a transaction in which a Fund and a counterparty agree to pay or
receive payments at specified dates based upon or calculated
by reference to changes in specified prices or rates (e.g., interest rates
in the case of interest rate swaps) or the performance of specified
securities,
indices or other assets based on the nominal or face amount of a reference
asset. Payments are usually made on a net basis so that, on any given
day,
the Fund would receive (or pay) only the amount by which its payment under
the swap is less than (or exceeds) the amount of the other party’s
payment.
The terms of the swap transaction are either negotiated by the sub-advisor
and the swap counterparty or established based on terms generally
available
on an exchange or contract market. Nearly any type of derivative,
including forward contracts, can be structured as a
swap. |
|
• |
Commodities
Swaps.
In a commodities swap, a Fund agrees to either pay or receive an
amount equal to the change in the value of a specified, notional
amount
of a commodity index, basket of commodities or individual commodity to or
from a counterparty in exchange for the payment of a fee or the
equivalent
of an interest rate. |
|
• |
Credit
Default Swaps.
In these transactions, a Fund is generally required to pay the par (or
other agreed-upon) value of a referenced debt security to the counterparty
in the event of a default on or downgrade of the debt security and/or a
similar credit event. In return, a Fund receives from the counterparty
a
periodic stream of payments over the term of the swap. If no default
occurs, a Fund keeps the stream of payments and has no payment
obligations. As the
seller, a Fund would effectively add leverage to its portfolio because, in
addition to its net assets, a Fund would be subject to loss on the par (or
other agreed-upon)
value it had undertaken to pay. A credit default swap may also be entered
by a Fund to attempt to hedge against a decline in the value of
debt
securities due to a credit event, such as an issuer’s failure to make
timely payments of interest or principal, bankruptcy or restructuring. As
the buyer of
protection against a credit event, a Fund pays the counterparty a stream
of payments over the term of the swap, regardless of whether a credit
event occurs. |
|
• |
Total
Return Swaps. A
Fund may enter into total return swaps to obtain exposure to a security or
market without owning or taking physical custody of such
security or market. In a total return swap, one party agrees to pay the
other party an amount equal to the total return on a defined underlying
asset or
a non-asset reference during a specified period of time. The underlying
asset might be a security; basket of securities; or a non-asset reference,
such as a
securities index. In return, the other party would make periodic payments
based on a fixed or variable interest rate or the total return from a
different underlying
asset or non-asset reference. |
Fixed-Income
Instruments
A
Fund’s investments in, or exposure to, fixed-income instruments may
include:
|
■ |
Corporate
Debt and Other Fixed-Income Securities. Corporate
debt securities are fixed-income securities issued by businesses to
finance their operations. Corporate
debt securities include bonds, notes, debentures and commercial paper
issued by companies to investors with a promise to repay the principal
amount
invested at maturity, with the primary difference being their maturities
and secured or unsecured status. The broad category of corporate debt
securities
includes debt issued by domestic or foreign companies of all kinds,
including companies of all market capitalizations. Corporate debt may be
rated
investment grade or below investment grade and may carry fixed or floating
rates of interest. Corporate bonds typically carry a set interest or
coupon rate,
while commercial paper is commonly issued at a discount to par with no
coupon. The perceived ability of the company to meet its principal and
interest
payment obligations is referred to as its creditworthiness, and it may be
supplemented by collateral securing the company’s obligations. Because of
the
wide range of types and maturities of corporate debt securities, as well
as the range of creditworthiness of their issuers, corporate debt
securities have widely
varying potentials for return and risk profiles. For example, commercial
paper issued by a large established domestic corporation that is rated
investment
grade may have a modest return on principal, but carries relatively
limited risk. On the other hand, a long-term corporate note issued by a
small foreign
corporation from a developing market country that has not been rated may
have the potential for relatively large returns on principal, but carries
a relatively
high degree of risk. Typically, the values of fixed-income securities
change inversely with prevailing interest rates. In addition, in the event
of bankruptcy,
holders of higher-ranking senior securities may receive amounts otherwise
payable to the holders of more junior
securities. |
|
■ |
High-Yield
Bonds.
High yield, non-investment grade bonds (also known as “junk bonds”) are
low-quality, high-risk corporate bonds that generally offer a high
level of current income. High yield bonds are considered speculative by
rating organizations. For example, Moody’s, S&P Global Ratings and
Fitch, Inc. rate
them below Baa3, BBB- and BBB-, respectively. Please see “Appendix C
Ratings Definitions” in the SAI for an explanation of the ratings applied
to high yield
bonds. High yield bonds are often issued as a result of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, or other
similar events.
They may also be issued by smaller, less creditworthy companies or by
highly leveraged firms, which are generally less able to make scheduled
payments
of interest and principal than more financially stable firms. Because of
their low credit quality, high-yield bonds must pay higher interest to
compensate
investors for the substantial credit risk they assume. Lower-rated
securities are subject to additional risks that may not be present with
investments
in higher-grade securities. Investors should consider carefully their
ability to assume the risks associated with lower-rated securities before
investing
in a Fund. |
|
■ |
Inflation
Index-Linked Securities.
Inflation-indexed securities, also known as inflation-protected
securities, are fixed income instruments structured such that their
interest and principal payments are adjusted to increase and decrease with
changes in official inflation rates. In periods of deflation when the
inflation rate
is declining, the principal value of an inflation-indexed security will be
adjusted downward. This will result in a decrease in the interest
payments. |
|
■ |
Investment
Grade Securities.
Investment grade securities that a Fund may purchase, either as part of
its principal investment strategy or to implement its temporary
defensive policy, include securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as securities
rated in one
of the four highest rating categories by a rating organization rating that
security (such as S&P Global Ratings, Moody’s Investors Service, Inc.,
or Fitch, Inc.)
or comparably rated by the sub-advisor if unrated by a rating
organization. A Fund, at the discretion of the sub-advisor, may retain a
security that has been
downgraded below the initial investment
criteria. |
|
■ |
Sovereign
Debt.
Sovereign debt securities are typically issued or guaranteed by national
governments, in order to finance the issuing country’s growth
and/or
budget. Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan participations.
Investing in foreign
sovereign debt securities will expose the Fund to the direct or indirect
consequences of political, social or economic changes in the countries
that issue
the debt securities. |
|
■ |
U.S.
Government Securities.
U.S. Government securities may include U.S. Treasury securities and
securities backed by the full faith and credit of the United States,
and securities issued by other U.S. government agencies and
instrumentalities which have been established or sponsored by the U.S.
government and
that issue obligations which may not be backed by the full faith and
credit of the U.S. government. U.S. Treasury obligations include Treasury
Bills, Treasury
Notes, and Treasury Bonds. Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury
Bonds generally have initial maturities of greater than ten
years. |
Prospectus
– Additional Information About the Funds31
|
■ |
Zero
Coupon Obligations.
Zero
coupon securities are debt obligations that do not entitle the holder to
any periodic payments of interest either for the entire life
of the obligation or for an initial period after the issuance of the
obligations; the holder generally is entitled to receive the par value of
the security at maturity.
These securities are issued and traded at a discount from their face
amounts. The discount
approximates the total amount
of interest
the security will
accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. The
amount of
the
discount varies depending on such factors as the time remaining until
maturity of the securities, prevailing interest rates, the liquidity of
the security and
the perceived credit quality of the issuer. Upon
maturity, the holder of a zero coupon security is entitled to receive the
par value of the security. These investments
benefit the issuer by mitigating its need for cash to meet debt service,
but also require a higher rate of return to attract investors who are
willing
to defer receipt of cash. Unlike bonds which pay cash interest throughout
the period to maturity, a Fund’s investment in zero coupon
securities will require a
Fund to accrue income without a corresponding receipt of cash. |
Other
Investment Companies
A Fund,
at times, may invest in shares of other investment companies. A
Fund may invest in securities of an investment company advised by the Manager,
with
respect to which the Manager also receives a management fee.
Investments
in the securities of other investment companies may involve duplication of
advisory
fees and certain other expenses. By investing in another investment company, a
Fund becomes a shareholder of that investment company. As a result,
Fund shareholders indirectly will bear a Fund’s proportionate share of the fees
and expenses paid by shareholders of the other investment company, in
addition
to the fees and expenses Fund shareholders directly bear in connection with a
Fund’s own operations. These other fees and expenses, if applicable,
are
reflected as Acquired Fund Fees and Expenses and are included in the Fees and
Expenses Table for a Fund in this Prospectus. Investment in other investment
companies may involve the payment of substantial premiums above the value of
such issuer’s portfolio securities.
|
■ |
Government
Money Market Funds. A
Fund can invest free cash balances in registered open-end investment
companies regulated as government money market
funds under the Investment Company Act to provide liquidity or for
defensive purposes. A Fund could invest in government money market funds
rather
than purchasing individual short-term investments. If a Fund invests in
government money market funds, shareholders will bear their proportionate
share
of the expenses, including for example, advisory and administrative fees,
of the government money market funds in which a Fund invests, including
advisory
fees charged by the Manager to any applicable government money market
funds advised by the Manager. Although a government money market
fund
is designed to be a relatively low risk investment, it is not free of
risk. Despite the short maturities and high credit quality of a government
money market
fund’s investments, increases in interest rates and deteriorations in the
credit quality of the instruments the government money market fund has
purchased
may reduce the government money market fund’s yield and can cause the
price of a government money market security to decrease. In addition,
a
government money market fund is subject to the risk that the value of an
investment may be eroded over time by
inflation. |
Additional
Information About Risks
The
greatest risk of investing in a mutual fund is that its returns will fluctuate
and you could lose money. The following table identifies the risk factors of
each Fund
in light of each Fund’s respective principal investment strategies. These risk
factors are explained following the table. References to “the Fund” and “a
Fund”
in the risk explanations are intended to refer the Fund(s) identified in the
table as having that risk factor. The principal risks of investing in each Fund
listed
below are presented in alphabetical order and not in order of importance or
potential exposure. Among other matters, this presentation is intended to
facilitate
your ability to find particular risks and compare them with the risks of other
funds. Each risk summarized below is considered a “principal risk” of
investing
in a Fund, regardless of the order in which it appears. The
principal risks of a Fund’s Subsidiary are listed in this section of the
Prospectus as principal risks
of the respective Fund.
|
|
|
| |
|
Risk |
American
Beacon AHL
Managed Futures
Strategy Fund |
American
Beacon AHL
Multi-Alternatives
Fund |
American
Beacon AHL
TargetRisk Fund |
|
Allocation
Risk |
X |
X |
X |
|
Asset
Selection Risk |
X |
X |
X |
|
Commodities
Risk |
X |
X |
X |
|
Counterparty
Risk |
X |
X |
X |
|
Credit
Risk |
X |
X |
X |
|
Crowding/Convergence
Risk |
X |
X |
X |
|
Currency
Risk |
X |
X |
X |
|
Cybersecurity
and Operational Risk |
X |
X |
X |
|
Derivatives
Risk |
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
X |
X |
|
|
|
X |
X |
|
|
|
X |
X |
|
|
|
X |
X |
|
Emerging
Markets Risk |
X |
X |
X |
|
Foreign
Exposure Risk |
X |
X |
X |
|
Geographic
Concentration Risk |
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
|
|
|
Hedging
Risk |
X |
X |
X |
|
High
Portfolio Turnover Risk |
X |
X |
X |
32Prospectus
– Additional Information About the Funds
|
|
|
| |
|
Risk |
American
Beacon AHL
Managed Futures
Strategy Fund |
American
Beacon AHL
Multi-Alternatives
Fund |
American
Beacon AHL
TargetRisk Fund |
|
High-Yield
Securities Risk |
|
X |
X |
|
Inflation
Index-Linked Securities Risk |
|
X |
X |
|
Interest
Rate Risk |
X |
X |
X |
|
Investment
Risk |
X |
X |
X |
|
Leverage
Risk |
X |
X |
X |
|
Liquidity
Risk |
X |
X |
X |
|
Market
Risk |
X |
X |
X |
|
|
X |
X |
X |
|
Market
Direction Risk |
X |
X |
|
|
Market
Timing Risk |
X |
X |
X |
|
Model
and Data/Programming Error Risk |
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
X |
X |
|
|
X |
X |
X |
|
Non-Diversification
Risk |
X |
X |
X |
|
Obsolescence
Risk |
X |
X |
X |
|
Other
Investment Companies Risk |
X |
X |
X |
|
|
X |
X |
X |
|
Quantitative
Strategy Risk |
X |
X |
X |
|
Recently-Organized
Fund Risk |
|
X |
|
|
Redemption
Risk |
X |
X |
X |
|
Risk
Management |
X |
X |
X |
|
Segregated
Assets Risk |
X |
X |
X |
|
Short
Position Risk |
X |
X |
|
|
Sovereign
Debt Risk |
X |
X |
X |
|
Subsidiary
Risk |
X |
X |
X |
|
Tax
Risk |
X |
X |
X |
|
Trading
System and Execution of Orders Risk |
X |
X |
X |
|
U.S.
Government Securities Risk |
X |
X |
X |
|
U.S.
Treasury Obligations Risk |
X |
X |
X |
|
Valuation
Risk |
X |
X |
X |
|
Volatility
Risk |
X |
X |
X |
|
Zero
Coupon Securities Risk |
X |
X |
X |
Allocation
Risk
This
is the risk that allocations among strategies, asset classes and market
exposures may be less than optimal and may adversely affect a Fund’s
performance. There
can be no assurance, particularly during periods of market disruption and
stress, that judgments about asset allocation will be correct. Some broad asset
categories
and sub-classes may perform below expectations, or below the securities markets
generally, over short and extended periods. A Fund may be negatively
impacted if market correlations change abruptly or unexpectedly. A Fund’s
allocations may be invested in strategies, asset classes and market exposures
during a period when such strategies, asset classes and market exposures
underperform.
Asset
Selection Risk
Assets
selected for a Fund may not perform to expectations. Judgments about the
attractiveness, value and potential performance of a particular asset class or
individual
security may be incorrect, and there is no guarantee that individual securities
will perform as anticipated. Additionally, asset classes tend to go through
cycles of outperformance and underperformance in comparison to each other and to
the general securities markets. This could result in a Fund’s underperformance
compared to other funds with similar investment objectives.
Commodities
Risk
A Fund’s
investments in commodity-linked derivative instruments may subject a Fund to
greater volatility than investments in traditional securities. The value
of
commodity-linked derivative instruments may be affected by changes in overall
market movements, commodity index volatility, commodity price volatility,
changes
in interest rates, or factors affecting a particular industry or commodity, such
as changes in supply and demand, resource availability, speculation in
the
commodities markets, drought, floods, weather, livestock disease, pandemics,
embargoes, tariffs, war, acts of terrorism and international economic,
political
and regulatory developments. These factors may have a larger impact on commodity
prices and commodity-linked instruments, including futures contracts
and swaps, than on traditional securities. Certain commodities are also subject
to limited pricing flexibility because of supply and demand factors.
Others
are subject to broad price fluctuations as a result of the volatility of the
prices for certain raw materials and the instability of the supplies of other
Prospectus
– Additional Information About the Funds33
materials.
In the commodity markets there are often costs of physical storage associated
with purchasing the underlying commodity. The price of a commodity-linked
derivative will reflect the storage costs of purchasing the physical commodity,
including the time value of money invested in the physical commodity.
To the extent that the storage costs for an underlying commodity change while a
Fund holds a derivative on that commodity, the value of the derivative
may change proportionately. In the commodity futures markets, producers of the
underlying commodity may decide to hedge the price risk of selling
the commodity by selling futures contracts to lock in the price of the commodity
at delivery in the future. In order to induce speculators to purchase
the
other side of the same futures contract, the commodity producer generally must
sell the futures contract at a lower price than the expected future spot
price
of the commodity. Conversely, if most hedgers in the futures market are
purchasing futures contracts to hedge against a rise in prices, then speculators
will
only sell the other side of the futures contract at a higher futures price than
the expected future spot price of the commodity. The changing nature of the
hedgers
and speculators in the commodities markets will influence whether the prices of
commodity-linked derivatives are above or below the expected future
spot price, which can have significant implications for a Fund. No active
trading market may exist for certain commodities investments. A Fund’s
investments
in commodity-related instruments may lead to losses in excess of a Fund’s
investment in such products, as some commodity-linked derivatives can
have
the potential for unlimited losses. Such losses can significantly and adversely
affect the NAV per share of a Fund and, consequently, a shareholder’s
interest
in a Fund. Because a Fund’s performance is linked to the performance of
potentially volatile commodities, investors should be willing to assume the
risks
of significant fluctuations in the value of a Fund’s shares. Additionally,
rulemaking by the CFTC may affect a Fund’s use of commodities to pursue its
investment
strategies or result in an increase in a Fund’s expenses. A Fund
may invest significantly in a particular sector of the commodities market (such
as oil, metal
or agricultural products). As a result, a Fund may be more susceptible to risks
associated with those sectors.
Counterparty
Risk
A Fund
is subject to the risk that a party or participant to a transaction, such as a
broker or derivative counterparty, will be unwilling or unable to satisfy its
obligation
to make timely principal, interest or settlement payments or to otherwise honor
its obligations to a Fund. As a result, a Fund may not recover its
investment
or may only obtain a limited recovery, and any recovery may be delayed. Not all
derivative transactions require a counterparty to post collateral, which
may expose a Fund to greater losses in the event of a default by a
counterparty.
Some
of the markets in which a Fund may effect derivative transactions are OTC
or “interdealer” markets. The participants in such markets are typically not
subject
to credit evaluation and regulatory oversight to the same extent as are members
of a clearing organization. This exposes a Fund to the risk that a
counterparty
will not settle a transaction in accordance with its terms and conditions
because of a credit or liquidity problem with the counterparty. Recent
turbulence
in the financial markets could exacerbate counterparty risk resulting from OTC
derivative transactions.
A Fund
is also subject to the risk that an FCM would default on an obligation set forth
in an agreement between a Fund and the FCM. This risk exists at and
from
the time that a Fund enters into derivatives transactions that are
centrally cleared. In such cases, a clearing organization becomes a Fund’s
counterparty and
the principal counterparty risk is that the clearing organization itself will
default. In addition, the FCM may hold margin posted in connection with those
contracts
and that margin may be re-hypothecated (or re-pledged) by the FCM, and lost, or
its return delayed, due to a default by the FCM or other customer of
the FCM. The FCM may itself file for bankruptcy, which would either delay the
return of, or jeopardize altogether, the assets posted by the FCM as margin
in
response to margin calls relating to cleared positions. If a counterparty fails
to meet its contractual obligations, goes bankrupt, or otherwise experiences a
business
interruption, a Fund could miss investment opportunities or otherwise hold
investments it would prefer to sell, resulting in losses for
a Fund.
Credit
Risk
A
Fund is subject to the risk that the issuer, guarantor or insurer of an
obligation, or the counterparty to a transaction,
may fail, or become less able or unwilling,
to make timely payment of interest or principal or otherwise honor its
obligations or default completely. There are varying degrees of credit risk,
depending
on the financial condition of an issuer, guarantor,
or counterparty, as well as the terms of an obligation, which may be reflected
in the credit rating of
the issuer, guarantor,
or counterparty. The
strategies utilized by the sub-advisor
require accurate and detailed credit analysis of issuers and there can be no
assurance
that its analysis will be accurate or complete. A Fund
may be subject to substantial losses in the event of credit deterioration or
bankruptcy of one or
more issuers in its portfolio. Financial strength and solvency of an issuer are
the primary factors influencing credit risk. In addition, inadequacy of
collateral or
credit enhancement for a debt instrument may affect its credit risk. Credit risk
may change over the life of an instrument and debt obligations which are
rated
by rating agencies may be subject to downgrade. The credit ratings of debt
instruments and investments represent the rating agencies’ opinions regarding
their credit quality, are not a guarantee of future credit performance of such
securities, are not a guarantee of quality and do not protect against a
decline
in the value of a security. Rating agencies attempt to evaluate the safety of
the timely payment of principal and interest (or dividends) and do not
evaluate
the risks of fluctuations in market value. The ratings assigned to securities by
rating agencies do not purport to fully reflect the true risks of an
investment.
A decline in the credit rating of an individual security held by a Fund may have
an adverse impact on its price and may make it difficult for a Fund to
sell it. Rating agencies might not always change their credit rating on an
issuer or security in a timely manner to reflect events that could affect the
issuer’s ability
to make timely payments on its obligations. Changes in the actual or perceived
creditworthiness of an issuer, or a downgrade or default affecting any
of
a Fund’s securities, could affect a Fund’s performance. Generally, the longer
the maturity and the lower the credit quality of a security, the more sensitive
it is
to credit risk.
Crowding/Convergence
Risk
There
is significant competition among quantitatively-focused managers, and the
ability of the sub-advisor to deliver returns that outperform other funds
is dependent
on its ability to employ models that are simultaneously profitable and
differentiated from those employed by other managers. To the extent that
the sub-advisor
is not able to develop sufficiently differentiated models, a Fund’s
investment objective may not be met, irrespective of whether the models are
profitable
in an absolute sense. In addition, to the extent that the models come to
resemble those employed by other managers, there is an increased risk that
a
market disruption may negatively affect predictive models such as those employed
by a Fund, as such a disruption could accelerate reductions in liquidity
or rapid
re-pricing due to simultaneous trading across a number of funds utilizing models
(or similar quantitatively-focused investment strategies) in the marketplace.
Currency
Risk
A
Fund may have exposure to foreign currencies.
Foreign currencies may fluctuate significantly over short periods of time for a
number of reasons, including changes
in interest rates, may be affected unpredictably by intervention, or the failure
to intervene, of the U.S. or foreign governments, central banks, or supranational
entities such as the International Monetary Fund, and may be affected by the
imposition of currency controls or political developments in the U.S.
or abroad. As a result, a Fund’s exposure to foreign currencies may reduce
the returns of a Fund. Foreign currencies may decline in value relative to
the U.S.
dollar and other currencies and thereby affect a Fund’s investments. In
addition, changes in currency exchange rates could adversely impact investment
gains
or add to investment losses. Currency
derivatives may not always work as intended, and in specific cases, a Fund may
be worse off than if it had not used
such instrument(s). In the case of hedging positions, the U.S. dollar or other
currency may decline in value relative to the foreign currency that is being
hedged
and thereby affect a Fund’s investments. There may not always be suitable
hedging instruments available. Even where suitable hedging instruments
are
available, a Fund may choose to not hedge its currency risks.
34Prospectus
– Additional Information About the Funds
Cybersecurity
and Operational Risk
Operational
risks arising from, among other problems, human errors, systems and technology
disruptions or failures, or cybersecurity incidents may negatively impact
a Fund, its service providers, and third-party fund distribution platforms, as
well as the ability of shareholders to transact in
a Fund’s shares,
and result in
financial losses. Cybersecurity incidents may allow an unauthorized party to
gain access to Fund assets, shareholder data, or proprietary information, or
cause
a Fund or its service providers, as well as the securities trading venues and
their service providers, to suffer data corruption or lose operational
functionality.
Cybersecurity incidents can result from deliberate attacks or unintentional
events. A cybersecurity incident could, among other things, result in
the
loss or theft of shareholder data or funds, shareholders or service providers
being unable to access electronic systems (also known as “denial of services”),
loss
or theft of proprietary information or financial
data, the inability to process Fund transactions, interference with a Fund’s
ability to calculate its NAV, impediments
to trading, physical damage to a computer or network system, or remediation
costs associated with system repairs. The occurrence of any of these
problems could result in a loss of information, violations of applicable privacy
and other laws, regulatory scrutiny, penalties, fines, reputational damage,
additional
compliance requirements, and other consequences, any of which could have a
material adverse effect on a Fund or its shareholders. The Manager, through
its monitoring and oversight of Fund service providers, endeavors to determine
that service providers take appropriate precautions to avoid and mitigate
risks that could lead to such problems. While the Manager has established
business continuity plans and risk management systems seeking to address
these
problems, there are inherent limitations in such plans and systems, and it is
not possible for the Manager, other Fund service providers, or third-party
fund
distribution platforms to identify all of the operational risks that may affect
a Fund or to develop processes and controls to completely eliminate or
mitigate
their occurrence or effects. Recent geopolitical tensions may increase the scale
and sophistication of deliberate attacks, particularly those from nation-states
or from entities with nation-state backing. A Fund cannot control the
cybersecurity plans and systems of its service providers, its counterparties
or
the issuers of securities in which a Fund invests. The
issuers of a Fund’s investments are likely to be
dependent on computers for their
operations
and require
ready access to their
data and the
internet to conduct their business. Thus, cybersecurity incidents could also
affect issuers of a
Fund’s investments,
leading
to significant loss of value.
Derivatives
Risk
Derivatives
are financial instruments that have a value which depends upon, or is derived
from, a reference asset, such as one or more underlying securities, pools
of securities, options, futures, indexes or currencies. A Fund may use
derivatives to enhance total return of its portfolio, to hedge against
fluctuations in interest
rates or currency exchange rates, to change the effective duration of its
portfolio, or to manage certain investment risks or for exposure to a market
as
a substitute for the purchase or sale of the underlying currencies or
securities. A Fund may also hold derivative instruments to obtain economic
exposure to an
issuer without directly holding its securities. Derivatives may involve
significant risk. The use of derivative instruments may expose a Fund to
additional risks that
it would not be subject to if it invested directly in the securities or other
instruments underlying those securities. Derivatives can be highly complex and
their
use within a management strategy can require specialized skills. There can be no
assurance that any strategy used will succeed. If the sub-advisor incorrectly
forecasts stock market values, or the direction of interest rates or currency
exchange rates in utilizing a specific derivatives strategy for a Fund, a
Fund
could lose money. In addition, leverage embedded in a derivative instrument can
expose a Fund to greater risk and increase its costs. Gains or losses in
the
value of a derivative instrument may be magnified and be much greater than the
derivative’s original cost (generally the initial margin deposit). There may
also
be material and prolonged deviations between the theoretical value and
realizable value of a derivative. Some derivatives have the potential for
unlimited loss,
regardless of the size of a Fund’s initial investment, for example, where a Fund
may be called upon to deliver a security it does not own. As a result, a
Fund
could lose more than the amount it invests. The use of derivatives may also
increase any adverse effects resulting from the underperformance of strategies,
asset classes and market exposures to which a Fund has allocated its assets.
Derivatives may at times be illiquid and may be more volatile than other
types of investments. A Fund may not be able to close out or sell a
derivative position at a particular time or at an anticipated price. Certain
derivatives may
also be difficult to value, and valuation may be more difficult in times of
market turmoil.
A
Fund may buy or sell derivatives not traded on organized exchanges. A Fund may
also enter into transactions that are not cleared through clearing organizations.
These types of transactions may be subject to heightened liquidity and valuation
risk. Derivative investments can increase portfolio turnover and transaction
costs. Derivatives also are subject to counterparty risk and credit risk. As a
result, a Fund may not recover its investment or may only obtain a limited
recovery, and any recovery may be delayed. Not all derivative transactions
require a counterparty to post collateral, which may expose a Fund to
greater
losses in the event of a default by a counterparty. Certain derivatives require
a Fund to post margin to secure its future obligation; if a Fund has
insufficient
cash, it may have to sell investments from its portfolio to meet daily variation
margin requirements at a time when it may be disadvantageous to do
so. A Fund’s use of derivatives also may create financial leverage, which may
result in losses that exceed the amount originally invested and accelerate the
rate
of losses. There may be imperfect correlation between the behavior of a
derivative and that of the reference instrument underlying the derivative. An
abrupt
change in the price of a reference instrument could render a derivative
worthless. Derivatives may involve risks different from, and possibly greater
than,
the risks associated with investing directly in the reference instrument.
Suitable derivatives may not be available in all circumstances, and there can be
no assurance
that a Fund will use derivatives to reduce exposure to other risks when that
might have been beneficial. Because the markets for certain derivative
instruments
(including markets located in foreign countries) are relatively new and still
developing, suitable derivatives transactions may not be available in all
circumstances
for risk management or other purposes. Upon the expiration of a particular
contract, the sub-advisor may wish to retain a Fund’s position in the
derivative
instrument by entering into a similar contract, but may be unable to do so if
the counterparty to the original contract is unwilling to enter into the
new
contract and no other suitable counterparty can be found. Although a Fund may
attempt to hedge against certain risks, the hedging instruments may not
perform as expected and could produce losses. Hedging instruments may also
reduce or eliminate gains that may otherwise have been available had a
Fund
not used the hedging instruments. A Fund may not hedge certain risks in
particular situations, even if suitable instruments are available.
A
Fund’s ability to use derivatives may also be limited by certain regulatory and
tax considerations. For example, the CFTC and the designated contract
markets
have established position limits for certain futures contracts, which may
restrict the ability of a Fund, or the Manager or sub-advisor entering trades
on
a Fund’s behalf, to make certain trading decisions. Rule 18f-4 places limits on
the use of derivatives by registered investment companies, such as a Fund. A
fund
that relies on Rule 18f-4 is required to comply with limits on the amount of
leverage-related risk that the fund may obtain, and may also be required to
adopt
and implement a derivatives risk management program and designate a derivatives
risk manager or adopt policies and procedures designed to manage a
fund’s derivatives risks.
Ongoing
changes to the regulation of the derivatives markets and potential changes in
the regulation of funds using derivative instruments could limit a Fund’s
ability to pursue its investment strategies. The extent and impact of such
regulation is not yet fully known and may not be for some time. New regulation
may make derivatives more costly, may limit their availability, may disrupt
markets, or may otherwise adversely affect their value or performance. In
addition
to other changes, these rules provide for central clearing of derivatives that
in the past were traded exclusively over-the-counter and may increase
costs
and margin requirements, but are expected to reduce certain counterparty risks.
A Fund may be subject to the risks associated with investments in derivatives,
including but not limited to the following:
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Foreign
Currency Forward Contracts Risk.
Foreign currency forward contracts, including NDFs, are derivative
instruments pursuant to a contract where the parties
agree to pay a fixed price for an agreed amount of foreign currency at an
agreed date or to buy or sell a specific currency at a future date at a
price set
at the time of the contract. The use of foreign currency forward contracts
may expose a Fund to additional risks, such as credit risk, liquidity
risk, and counterparty
risk, that it would not be subject to if it invested directly in the
securities or currencies underlying the foreign currency forward contract.
|
Prospectus
– Additional Information About the Funds35
|
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Foreign
currency forward transactions, including NDFs, and forward currency
contracts include risks associated with fluctuations in currency, and
other risks inherent
in trading derivatives. There are no limitations on daily price movements
of forward contracts. Not all forward contracts, including NDFs, require a
counterparty
to post collateral, which may expose a Fund to greater losses in the event
of a default by a counterparty. There may at times be an imperfect
correlation
between the price of a forward contract and the underlying currency, which
may increase the volatility of a Fund. A Fund bears the risk of loss
of
the amount expected to be received under a forward contract in the event
of the default or bankruptcy of a counterparty. If such a default occurs,
a Fund
will have contractual remedies pursuant to the forward contract, but such
remedies may be subject to bankruptcy and insolvency laws which could
affect
a Fund’s rights as a creditor. There can be no assurance that any strategy
used will succeed. |
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Futures
Contracts Risk.
Futures contracts are derivative instruments pursuant to a contract where
the parties agree to a fixed price for an agreed amount of securities
or other underlying assets at an agreed date. The use of such derivative
instruments may expose a Fund to additional risks, such as credit risk,
liquidity
risk, and counterparty risk, that it would not be subject to if it
invested directly in the instruments underlying those derivatives. There
can be no assurance
that any strategy used will succeed. There may at times be an imperfect
correlation between the movement in the prices of futures contracts and
the
value of their underlying instruments or index. Futures contracts may
experience dramatic price changes (losses) and imperfect correlations
between the price
of the contract and the underlying security, index or currency, which may
increase the volatility of a Fund. Futures contracts may involve a
small investment
of cash (the amount of initial and variation margin) relative to the
magnitude of the risk assumed (the potential increase or decrease in the
price of
the futures contract). There can be no assurance that, at all times, a
liquid market will exist for offsetting a futures contract that
a Fund has previously bought
or sold and this may result in the inability to close a futures contract
when desired. When a Fund purchases or sells a futures contract, it
is subject to daily
variation margin calls that could be substantial. If a Fund has
insufficient cash to meet daily variation margin requirements, it might
need to sell securities
at a time when such sales are disadvantageous.
Interest
rate and government bond futures contracts, such as treasury futures
contracts, expose a Fund
to price fluctuations resulting from changes in interest rates. A Fund
could suffer a loss if interest rates rise after a Fund has purchased an
interest rate
futures contract or fall after a Fund has sold an interest rate futures
contract. Similarly, government bond futures contracts, such as treasury
futures contracts,
expose a Fund to potential losses if interest rates do not move as
expected.
Futures
contracts on indices
expose a Fund to volatility in the underlying
index.
Foreign
currency futures contracts expose a Fund to risks associated with
fluctuations in the value of foreign
currencies. |
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Swap
Agreements Risk.
Swap agreements or “swaps” are transactions in which a Fund and a
counterparty agree to pay or receive payments at specified dates
based upon or calculated by reference to changes in specified prices or
rates (e.g., interest rates in the case of interest rate swaps) or the
performance of
specified securities, indices or other assets based on a specified amount
(the “notional” amount). Swaps can involve greater risks than a direct
investment
in an underlying asset, because swaps typically include a certain amount
of embedded leverage and as such are subject to leveraging risk. If
swaps
are used as a hedging strategy, a Fund is subject to the risk that the
hedging strategy may not eliminate the risk that it is intended to offset,
due to, among
other reasons, a lack of correlation between the swaps and the portfolio
of assets that the swaps are designed to hedge or replace. Swaps also may
be
difficult to value. Swaps may be subject to liquidity risk and
counterparty risk. The value of swaps may be affected by changes in
overall market movements
and changes in interest rates and currency exchange rates. Some swaps are
now executed through an organized exchange or regulated facility
and
cleared through a regulated clearing organization. A highly liquid
secondary market may not exist for certain swaps, and there can be no
assurance that
one will develop. The use of an organized exchange or market for swap
transactions may result in certain trading and valuation efficiencies for
swaps, however,
this may not always be the case. The absence of an organized exchange or
market for swaps transactions may result in difficulties in trading and
valuation,
especially in the event of market disruptions. Swaps that are traded
over-the-counter also are not subject to standardized clearing
requirements and
the direct oversight of self-regulatory organizations. Swaps may involve
greater liquidity and counterparty risks, including settlement risk, as
well as collateral
risk (i.e., the risk that the swap will not be properly secured with
sufficient collateral), legal risk (i.e., the risk that a swap will not be
legally enforceable
on all of its terms) and operational risk (i.e., the risk of processing
and human errors, inadequate or failed internal or external processes,
failures in
systems and technology errors or malfunctions). A Fund may invest in the
following types of swaps, which may be subject to the risks discussed
above, as well
as the additional risks as described
below: |
|
• |
Commodities
swaps,
which may be subject to commodities risk, including market risk based on
the supply and demand of the underlying
commodity. |
|
• |
Credit
default swaps,
which may be subject to credit risk and the risks associated with the
purchase and sale of credit
protection. |
|
• |
Total
return swaps,
which may be subject to credit risk and market risk and, if the underlying
securities are bonds or other debt obligations, interest rate risk. |
Emerging
Markets Risk
When
investing in emerging markets, the risks of investing in foreign securities are
heightened. Emerging markets have unique risks that are greater than, or
in
addition to, the risks associated with investing in developed markets because
emerging markets are generally smaller, less developed, less liquid and more
volatile
than the securities markets of the U.S. and other developed markets. There are
also risks of: greater political and economic uncertainties; an economy’s
dependence on revenues from particular commodities or on international aid or
development assistance; currency transfer restrictions; a limited number
of potential buyers for such securities, resulting in increased volatility and
limited liquidity for emerging market securities; trading suspensions and
other
restrictions on investment; delays and disruptions in securities clearing and
settlement procedures; and significant limitations on investor rights and
recourse.
The economies and political environments of emerging market countries tend to be
more unstable than those of developed countries, resulting in more
volatile rates of return than the developed markets and substantially greater
risk to investors. The governments of emerging market countries may also
be
more unstable and more likely to impose capital controls, nationalize a company
or industry, place restrictions on foreign ownership and on withdrawing
sale
proceeds of securities from the country, intervene in the financial markets,
and/or impose burdensome taxes that could adversely affect security prices.
Emerging
market countries often have less uniformity in accounting, auditing, financial
reporting and recordkeeping requirements and less reliable clearance
and
settlement, registration, and custodial procedures. In addition, there may be
less publicly available or less reliable information about issuers in emerging
markets
than would be available about issuers in more developed capital markets, which
can impede the sub-advisor’s ability to accurately evaluate foreign securities.
Such issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies
are subject. In certain emerging market countries, fraud and corruption may be
more prevalent than in developed market countries, and investor protections
may be more limited than those in other countries. It may be difficult to obtain
or enforce legal judgments against non-U.S. companies and non-U.S.
persons in foreign jurisdictions, either through the foreign judicial system or
through a private arbitration process. These matters have the potential
to
impact a Fund’s investment objective and performance.
Foreign
Exposure Risk
Exposure
to non-U.S.
issuers carries potential risks not associated with exposure
to
U.S. issuers. Such risks may include, but are not limited to: (1) currency
exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity,
(4) lack of uniform accounting, auditing and financial reporting standards, (5)
greater
volatility; (6) different government regulation and supervision of foreign
banks, stock exchanges, brokers and listed companies, and (7) delays in
transaction
settlement in some foreign markets. There may be very limited oversight of
certain foreign banks or securities depositories that hold foreign securities
and currency, and the laws of certain countries may limit the ability to recover
such assets if a foreign bank, depository, or their agents goes
bankrupt.
Additionally, in certain markets, the Fund may not receive timely payment for
securities or other instruments it has delivered or receive delivery of
securities
paid for and may be subject to increased risk that the counterparty will fail to
make payments or delivery when due or default completely.
To the
36Prospectus
– Additional Information About the Funds
extent
a Fund exposes a significant portion of its assets in securities of a single
country or region, it is more likely to be affected by events or conditions of
that country
or region. A Fund’s exposure to a foreign issuer may subject a Fund to
regulatory, political, currency, security, economic and other risks associated
with
that country. There
may be restrictions on the flow of international capital, including the possible
seizure or nationalization of the securities issued by non-U.S.
issuers held by the Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries
may require advance government notification or authority, and if a deterioration
occurs in a country’s balance of payments, the country could impose
temporary restrictions on foreign capital remittances. The Fund also could be
adversely affected by delays in, or a refusal to grant, any required
governmental
approval for repatriation, as well as by the application to it of other
restrictions on investment. Global
economic and financial markets have become
increasingly interconnected and conditions (including recent
volatility,
terrorism, war and political
instability) and events (including natural disasters) in one
country, region or financial market may adversely impact issuers in a different
country, region or financial market.
Geographic
Concentration Risk
From
time to time, based on market or economic conditions, a Fund may invest a
significant portion of its assets in the securities of issuers located in, or
with significant
economic ties to, a single country or geographic region, which could increase
the risk that economic, political, business, regulatory, diplomatic,
social
and environmental conditions in that particular country or geographic region may
have a significant impact on a Fund’s performance. Investing in such a
manner
could cause a Fund’s performance to be more volatile than the performance
of more geographically diverse funds. The economies and financial markets
of certain countries or regions can be highly interdependent. Therefore, a
decline in the economies or financial markets of one country or region may
adversely
affect the economies or financial markets of another.
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European
Securities Risk. A
Fund’s performance may be affected by political, social and economic
conditions in Europe, such as growth of economic output (the
gross national product
of the countries in the region),
the rate of inflation, the rate at which capital is reinvested into
European economies, the success of
governmental actions to reduce budget deficits, the resource
self-sufficiency of European countries,
interest rates in European countries, monetary exchange
rates between European countries,
and conflict between European countries. Most developed countries in
Western Europe are members of the European
Union (“EU”)
and many are also members of the Economic and Monetary Union (“EMU” or
“Eurozone”). European countries can be significantly affected
by the tight fiscal and monetary controls that the EMU imposes on its
members and with which candidates for EMU membership are required to
comply. |
| |
While
certain EU countries continue to use their own currency, Eurozone
countries use the Euro as their currency. Changes in imports or exports,
changes in governmental
or EU regulations on trade, changes in the exchange rate of the Euro and
the currencies of other EU countries which are not in the Eurozone,
the
threat of default or actual default by one or more EU member states on its
sovereign debt, and/or an economic recession in one or more EU member
states
may have a significant adverse effect on the economies of other EU member
states and their trading partners, including non-EU European countries.
A
breakup of the Eurozone, particularly a disorderly breakup, would pose
special challenges for the financial markets and could lead to exchange
controls and/or
market closures. The economies and markets of European countries are often
closely connected and interdependent, and events in one country in
Europe
can have an adverse impact on other European
countries. |
| |
The
European financial markets have experienced and may continue to experience
volatility and adverse trends due to concerns relating to economic
downturns;
rising government debt levels and the possible default on government debt;
national unemployment in several European countries; public health
crises; political unrest; economic sanctions; inflation; energy crises;
the future of the Euro as a common currency; and war and military
conflict, such as
the Russian invasion of Ukraine. These events have affected the exchange
rate of the Euro and may continue to significantly affect European
countries. Responses
to financial problems by European governments, central banks, and others,
including austerity measures, interest rate rises and other reforms,
may
not produce the desired results, may result in social unrest and may limit
future growth and economic recovery or may have unintended consequences.
Many
European nations are susceptible to economic risks associated with high
levels of debt. Non-governmental issuers, and even certain governments,
have
defaulted on, or been forced to restructure, their debts, and other
issuers have faced difficulties obtaining credit or refinancing existing
obligations. A default
or debt restructuring by any European country could adversely impact
holders of that country’s debt and sellers of credit default swaps linked
to that country’s creditworthiness,
which may be located in other countries. Such a default or debt
restructuring could affect exposures to other European countries
and their companies as well. In addition, issuers have faced difficulties
obtaining credit or refinancing existing obligations, and financial
markets have
experienced extreme volatility and declines in asset values and liquidity.
Furthermore, certain European countries have had to accept assistance from
supranational
agencies such as the International Monetary Fund, the European Stability
Mechanism or others. There can be no assurance that any creditors
or
supranational agencies will continue to intervene or provide further
assistance, and markets may react adversely to any expected reduction in
the financial
support provided by these creditors. |
| |
The
United Kingdom has withdrawn from the EU, and one or more other
countries may withdraw from the EU and/or abandon the Euro. These events
and actions
have affected, and may in the future affect, the value and exchange rate
of the Euro and may continue to significantly affect the economies of
every country
in Europe, including countries that do not use the Euro and non-EU member
states. The impact of these actions, especially if they occur in a
disorderly
fashion, is not clear but could be significant and far
reaching. |
| |
The
national politics of European countries have been unpredictable and
subject to influence by disruptive political groups and ideologies.
European governments
may be subject to change and such countries may experience social and
political unrest. Unanticipated or sudden political or social developments
may result in sudden and significant investment losses. Russia’s war with
Ukraine has negatively impacted European economic activity. The
effects
on the economies of European countries of the Russia/Ukraine war and
Russia’s response to sanctions imposed by the U.S., the EU, UK and
others are
impossible to predict but have been and could continue to be significant
and have a severe adverse impact on the region, including significant
impacts on
the regional, European, and global economies and the markets for certain
securities and commodities, such as oil and natural gas. For example,
exports in
Eastern Europe have been disrupted for certain key commodities, pushing
certain commodity prices to record highs. Also, both wholesale energy
prices and
energy prices charged to consumers in Europe have increased
significantly. |
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Japan
Investment Risk. A
Fund’s investments in the securities of Japanese issuers, mean that the
Fund is susceptible to changes in Japanese economic and political
conditions, the reliability of financial information available concerning
these issuers, and the legal, tax and regulatory environment surrounding
these
issuers. The Japanese economy, which is heavily dependent upon
international trade, may be adversely affected by global competition,
trade tariffs, embargos,
boycotts and other government interventions and protectionist measures,
excessive regulation, changes in international trade agreements,
impacts
of the COVID-19 pandemic, including supply chain issues, the economic
conditions of its trading partners, the performance of the global economy,
and
regional and global conflicts. The domestic Japanese economy faces several
concerns, including large government deficits, a declining domestic
population
and low birth rate, workforce shortages and inflation. Japan also has an
aging workforce and has experienced a significant population decline in
recent
years. Japan’s labor market appears to be undergoing fundamental
structural changes, as a labor market traditionally accustomed to lifetime
employment
adjusts to meet the need for increased labor mobility, which may adversely
affect Japan’s economic competitiveness. Japan’s financial system
faces
several concerns, including extensive cross-ownership by major
corporations, a changing corporate governance structure, and large
government deficits,
each of which may cause a slowdown of the Japanese economy. In addition,
the Japanese economic growth rate could be impacted by Bank of
Japan
monetary policies, rising interest rates, tax increases, budget deficits,
consumer confidence and volatility in the Japanese yen. The Japanese
government
tax and fiscal policies may also have negative impacts on the Japanese
economy. Currency fluctuations, which have been significant at times,
|
Prospectus
– Additional Information About the Funds37
|
|
can
have a considerable impact on exports and the overall Japanese economy.
The Japanese yen may be affected by currency volatility elsewhere in Asia,
especially
Southeast Asia. In addition, the yen has had a history of unpredictable
and volatile movements against the U.S. dollar. Japanese intervention in
the
currency markets could cause the value of the yen to fluctuate sharply and
unpredictably and could cause losses to investors. Japan is located in a
part of
the world that has historically been prone to natural disasters such as
earthquakes, tsunamis, typhoons and volcanic eruptions, which may have a
significant
impact on the business operations of Japanese companies in the affected
regions and Japan’s economy. Japan also faces risks associated with
climate
change and transitioning to a lower-carbon economy. Relations with its
neighbors, particularly China, North Korea, South Korea and Russia, have
at times
been strained due to territorial disputes, historical animosities and
defense concerns. Political tensions between Japan and its trading
partners could adversely
affect the economy, especially the export sector, and destabilize the
region as a whole. Japan is also heavily dependent on oil and other
commodity
imports, and higher commodity prices could therefore have a negative
impact on the Japanese economy. These and other factors could have a
negative
impact on the Fund’s performance and increase the volatility of an
investment in the Fund. |
Hedging
Risk
A Fund
may enter into hedging transactions with the intention of reducing or
controlling risk. It is possible that hedging strategies will not be effective
in controlling
risk, due to unexpected non-correlation (or even positive correlation) between
the hedging instrument and the position being hedged, increasing, rather
than reducing, both risk and losses. To the extent that a Fund enters into
hedging transactions, the hedges will not be static but rather will need to be
continually
adjusted based on the sub-advisor’s assessment of market conditions, as
well as the expected degree of non-correlation between the hedges and
the
portfolio being hedged. The success of a Fund’s hedging strategies will
depend on the sub-advisor’s ability to implement such strategies
efficiently and cost-effectively,
as well as on the accuracy of the sub-advisor’s judgments concerning the
hedging positions to be acquired by a Fund. A counterparty to a
hedging
transaction may be unable to honor its financial obligation to a Fund. In
addition, the sub-advisor may be unable to close the transaction at the
time it
would like or at the price it believes the security is currently worth. A Fund
may not, in general, attempt to hedge all market or other risks inherent in
a Fund’s
investments, and may hedge certain risks only partially, if at all. Certain
risks, either in respect of particular investments or in respect of
a Fund’s overall
portfolio, may not be hedged, particularly if doing so is economically
unattractive. As a result, various directional market risks may remain unhedged.
Gains
or losses from positions in hedging instruments may be much greater than the
instrument’s original cost. If a Fund uses a hedging instrument at the
wrong
time or judges the market conditions incorrectly, or the hedged instrument does
not correlate to the risk sought to be hedged, the hedge might be unsuccessful.
The use of hedges may fail to mitigate risks, reduce a Fund’s return, or
create a loss. In addition, hedges, even when successful in mitigating risk,
may
not prevent a Fund from experiencing losses on its investments. Hedging
instruments may also reduce or eliminate gains that may otherwise have been
available
had a Fund not used the hedging instruments. When hedging is combined with
leverage, a Fund risks losses that are multiplied by the degree of leverage
used.
High
Portfolio Turnover Risk
Portfolio
turnover is a measure of a Fund’s trading activity over a one-year period.
A portfolio turnover rate of 100% would indicate that a Fund sold and
replaced
the entire value of its securities holdings during the period. A Fund may
engage in active and frequent trading and may have a high portfolio turnover
rate, which could increase a Fund’s transaction costs because of increased
broker commissions resulting from such transactions. These costs are not
reflected
in a Fund’s annual operating expenses or in the expense example, but they
can have a negative impact on performance and generate higher capital
gain
distributions to shareholders than if a Fund had a low portfolio turnover
rate. Frequent trading by a Fund could also result in increased realized
net capital
gains, distributions of which are taxable to a Fund’s shareholders when
Fund shares are held in a taxable account (including net short-term capital gain
distributions,
which are taxable to them as ordinary income).
High-Yield
Securities Risk
Exposure
to high-yield securities (commonly referred to as ‘’junk bonds’’) generally
involves significantly greater risks of loss of your money than an investment
in
investment-grade securities. Compared with issuers of investment grade
securities, issuers of high-yield securities are more likely to encounter
financial difficulties
and to be materially affected by these difficulties. High-yield debt securities
may fluctuate more widely in price and yield and may fall in price when
the
economy is weak or expected to become weak. These securities also may be
difficult to sell at the time and price a Fund desires. High-yield
securities are considered
to be speculative with respect to an issuer’s ability to pay interest and
principal and carry a greater risk that issuers of lower-rated securities will
default
on the timely payment of principal or interest. Rising interest rates may
compound these difficulties and reduce an issuer’s ability to repay principal
and interest
obligations. Issuers of lower-rated securities also have a greater risk of
default or bankruptcy. Issuers of securities that are in default or have
defaulted may
fail to resume principal or interest payments, in which case a Fund may
lose its entire investment. Below-investment-grade securities may experience
greater
price volatility and less liquidity than investment-grade
securities.
Lower-rated
securities are subject to certain risks that may not be present with investments
in higher-grade securities. The lower rating of certain high-yielding
corporate
income securities reflects a greater possibility that the financial condition of
the issuer or adverse changes in general economic conditions may impair
the ability of the issuer to pay income and principal. Changes by credit rating
agencies in their ratings of a fixed-income security also may affect the
value
of these investments. However, allocating investments among securities of
different issuers could reduce the risks of owning any such securities
separately.
The prices of these high-yield securities tend to be less sensitive to interest
rate changes than investment-grade investments, but more sensitive to
adverse
economic changes or individual corporate developments. During economic downturns
or periods of rising interest rates, highly leveraged issuers may experience
financial stress that adversely affects their ability to service principal and
interest payment obligations, to meet projected business goals or to
obtain
additional financing, and the markets for their securities may be more volatile.
If an issuer defaults, a Fund may incur additional expenses to seek
recovery.
Additionally, accruals of interest income for a Fund may have to be
adjusted in the event of default. In the event of an issuer’s default,
a Fund may write
off prior income accruals for that issuer, resulting in a reduction in
a Fund’s current dividend payment. Frequently, the higher yields of
high-yielding securities
may not reflect the value of the income stream that holders of such securities
may expect, but rather the risk that such securities may lose a substantial
portion of their value as a result of their issuer’s financial restructuring or
default.
The
credit rating of a security may not accurately reflect the actual credit risk
associated with such a security. The creditworthiness of issuers of these
securities may
be more complex to analyze than that of issuers of investment grade debt
securities, and the overreliance on credit ratings may present additional
risks.
Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of such securities, especially
in
a thinly traded or illiquid market. To the extent a Fund owns or may acquire
illiquid or restricted high-yield securities or unrated securities of comparable
quality,
these securities may involve special registration responsibilities, liabilities,
costs, and liquidity and valuation difficulties.
Inflation
Index-Linked Securities Risk
Unlike
a conventional bond, whose issuer makes regular fixed interest payments and
repays the face value of the bond at maturity, an inflation index-linked
security
provides principal payments and interest payments that vary as the principal
and/or interest are adjusted over time to reflect a rise or a drop in the
reference
inflation-related index. For inflation index-linked debt securities for which
repayment of the original principal upon maturity (as adjusted for inflation)
is not guaranteed, the adjusted principal value of the securities repaid at
maturity may be less than the original principal value. The value of inflation
index-linked
securities is expected to change in response to real interest rates. However,
there can be no assurance that the inflation index used will accurately
measure
the real rate of inflation. The price of an inflation index-linked security
generally falls when real interest rates rise and rises when real interest rates
38Prospectus
– Additional Information About the Funds
fall.
In periods of deflation, a Fund may have no income at all from such
investments. Interest payments on such securities are unpredictable and will
fluctuate as
the principal and interest are adjusted to reflect movements in the
inflation-related index. Any increase in the principal amount of an inflation
index-linked security
will be taxable as ordinary income, even though a Fund will not receive
the increased principal until maturity.
Interest
Rate Risk
Investments
in fixed-income securities or
derivatives
that are influenced by interest rates are subject to interest rate risk.
Generally, the value of investments with
interest rate risk, such as fixed-income securities or
derivatives,
will move in the opposite direction as movements in interest rates. For
example, the value of
a Fund’s fixed-income investments or
derivatives
typically will fall when interest rates rise. Factors including central bank
monetary policy, rising inflation rates,
and changes in general economic conditions may cause interest rates to rise,
which could cause the value of a Fund’s investments to decline. Interest
rate
increases, including significant or rapid increases, may result in a decline in
the value of bonds or
derivatives held
by a Fund, lead to heightened volatility in
the fixed-income markets and adversely affect the liquidity of certain
fixed-income investments, any of which may result in substantial losses to a
Fund. Interest
rate changes may have a more pronounced effect on the market value of fixed-rate
instruments than on floating-rate instruments. The value of floating
rate and variable securities may decline if their interest rates do not rise as
quickly, or as much, as general interest rates. The
prices of fixed-income securities
or
derivatives are
also affected by their durations. Fixed-income securities with longer durations
tend to be more sensitive to changes in interest rates,
usually making them more volatile than fixed-income securities with shorter
durations. Rising interest rates may cause the value of a Fund’s investments
in
investments with longer durations and terms to maturity to decline, which may
adversely affect the value of a Fund. For example, if a bond has a duration
of
eight years, a 1% increase in interest rates could be expected to result in an
8% decrease in the value of the bond. Yields of fixed-income securities will
fluctuate
over time. In
addition, decreases in fixed-income dealer market-making capacity may lead to
lower trading volume, heightened volatility, wider bid-ask
spreads, and less transparent pricing in certain fixed-income markets. A
Fund may not be able to hedge against changes in interest rates or may
choose
not to do so for cost or other reasons. In addition, any hedges may not work as
intended.
Investment
Risk
An
investment in a Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
A Fund should not be relied upon as a complete investment program. The
share price of a Fund fluctuates, which means that when you sell your
shares
of a Fund, they could be worth less than what you paid for them.
Therefore, you may lose money by investing in a Fund.
Leverage
Risk
A
Fund’s use of derivative instruments may have the economic effect of financial
leverage. Financial leverage magnifies the exposure to the movement in
prices
of an asset or class of assets underlying a derivative instrument and may result
in increased volatility, which means that a Fund will have the potential
for
greater losses than if a Fund does not use the derivative instruments that have
a leveraging effect. Leverage may result in losses that exceed the amount
originally
invested and may accelerate the rate of losses. Leverage tends to magnify,
sometimes significantly, the effect of any increase or decrease in a Fund’s
exposure
to an asset or class of assets and may cause a Fund’s NAV per share to be
volatile. The use of leverage may cause a Fund to liquidate portfolio
positions
when it may not be advantageous to do so to satisfy its obligations or to meet
any required asset segregation requirements. In addition, the costs that
a Fund pays to engage in these practices are additional costs borne by a Fund
and could reduce or eliminate any net investment profits. There can be no
assurance
that a Fund’s use of leverage will be successful.
A
Fund may experience leverage risk in connection with investments in derivatives
because its investments
in derivatives may be purchased with a fraction of the assets that would be
needed to purchase the securities directly, so that the remainder of
the
assets may be invested in other investments. Such investments may have the
effect of leveraging a Fund because a Fund may experience gains or losses
not
only on its investments in derivatives, but also on the investments purchased
with the remainder of the assets. If the value of a Fund’s investments in
derivatives
is increasing, this could be offset by declining values of a Fund’s other
investments. Conversely, it is possible that the rise in the value of a Fund’s
non-derivative
investments could be offset by a decline in the value of a Fund’s investments in
derivatives. In either scenario, a Fund may experience losses. In a
market where the value of a Fund’s investments in derivatives is declining and
the value of its other investments is declining, a Fund may experience
substantial
losses.
Liquidity
Risk
A Fund
is susceptible to the risk that certain investments held by a Fund may have
limited marketability, be subject to restrictions on sale, be difficult or
impossible
to purchase or sell at favorable times or prices or become less liquid in
response to market developments or adverse credit events that may affect
issuers
or guarantors of a security. Market prices for such instruments may be volatile.
During periods of substantial market volatility, an investment or even
an
entire market segment may become illiquid, sometimes abruptly, which can
adversely affect a Fund’s ability to limit losses. When there is little or no
active trading
market for specific types of securities, it can become more difficult to
purchase or sell the securities at or near their perceived value. As a result, a
Fund may
have to lower the price on certain securities that it is trying to sell, sell
other securities instead or forgo an investment opportunity, any of which could
have
a negative effect on Fund management or performance. An inability to sell a
portfolio position can adversely affect a Fund’s NAV or prevent a Fund from
being
able to take advantage of other investment opportunities. A Fund could lose
money if it is unable to dispose of an investment at a time that is most
beneficial
to a Fund. Unexpected
redemptions or redemptions by a few large investors in a Fund may force a Fund
to sell certain investments at unfavorable prices
to meet redemption requests or other cash needs and may have a significant
adverse effect on a Fund’s NAV per share and remaining Fund shareholders.
This could negatively affect a Fund’s ability to buy or sell debt securities and
increase the related volatility and trading costs. A Fund may lose money
if it is forced to sell certain investments at unfavorable prices to meet
redemption requests or other cash needs. For
example, liquidity risk may be magnified
in rising interest rate environments in the event of higher
than
normal redemption rates.
Judgment plays a greater role in pricing illiquid investments
than in investments with more active markets.
Market
Risk
A Fund
is subject to the risk that the securities markets will move down, sometimes
rapidly and unpredictably, based on overall economic conditions and other
factors, which may negatively affect a Fund’s performance. Equity securities
generally have greater price volatility than fixed-income securities, although
under
certain market conditions fixed-income securities may have comparable or greater
price volatility. During a general downturn in the securities markets,
multiple
asset classes may decline in value simultaneously. In some cases, traditional
market participants have been less willing to make a market in some types
of debt instruments, which has affected the liquidity of those instruments.
During times of market turmoil, investors tend to look to the safety of
securities
issued or backed by the U.S. Treasury, causing the prices of these securities to
rise and the yields to decline. Reduced liquidity in fixed-income and
credit
markets may negatively affect many issuers worldwide. Prices in many financial
markets have increased significantly over the last decade, but there have
also
been periods of adverse market and financial developments and cyclical change
during that timeframe, which have resulted in unusually high levels of
volatility
in domestic and foreign financial markets that has caused losses for investors
and may occur again in the future, particularly if markets enter a period
of
uncertainty or economic weakness. Periods of unusually high volatility in the
financial markets and restrictive credit conditions, sometimes limited to a
particular
sector or geographic region, continue to recur. The value of a security may
decline due to adverse issuer-specific conditions or general market conditions
unrelated to a particular issuer, such as real or perceived adverse
geopolitical, regulatory, market, economic or other developments that may cause
broad
changes in market value, changes in the general outlook for corporate earnings,
changes in interest, currency or inflation rates, lack of liquidity in the
markets,
public perceptions concerning these developments or adverse market sentiment
generally. The value of a security may also decline due to factors
Prospectus
– Additional Information About the Funds39
that
affect a particular industry or industries, such as tariffs, labor shortages or
increased production costs and competitive conditions within an industry.
Changes
in the financial condition of a single issuer or market segment also can impact
the market as a whole.
Geopolitical
and other events, including war, terrorism, economic uncertainty, trade
disputes, pandemics, public health crises, natural disasters and related
events
have led, and in the future may continue to lead, to instability in world
economies and markets generally and reduced liquidity, which may adversely
affect
the value of your investment. Such market disruptions have caused, and may
continue to cause, broad changes in market value, negative public perceptions
concerning these developments, a reduction in the willingness and ability of
some lenders to extend credit, difficulties for some borrowers in obtaining
financing on attractive terms, if at all, and adverse investor sentiment or
publicity. Changes in value may be temporary or may last for extended
periods.
Adverse market events may also lead to increased shareholder redemptions, which
could cause a Fund to sell investments at an inopportune time to meet
redemption requests by shareholders and may increase a Fund’s portfolio
turnover, which could increase the costs that a Fund incurs and lower a Fund’s
performance.
Even when securities markets perform well, there is no assurance that the
investments held by a Fund will increase in value along with the broader
market.
Policy
changes by the U.S. government and/or Federal Reserve and political events
within the U.S. and abroad, such as changes in the U.S. presidential
administration
and Congress, the U.S. government’s inability at times to agree on a long-term
budget and deficit reduction plan, the threat or
occurrence of
a federal
government shutdown and threats or
the occurrence of a failure
to increase the federal government’s debt limit,
which could result in a default on the government’s
obligations, may affect investor and consumer confidence and may adversely
impact financial markets and the broader economy, perhaps suddenly
and to a significant degree. The severity or duration of adverse economic
conditions may also be affected by policy changes made by governments
or
quasi-governmental organizations. Global economies and financial markets are
becoming increasingly interconnected, which increases the possibility of
many
markets being affected by events in a single country or events affecting a
single or small number of issuers.
Markets
and market participants are increasingly reliant upon both publicly available
and proprietary information data systems. Data imprecision, software or
other
technology malfunctions, programming inaccuracies, unauthorized use or access,
and similar circumstances may impair the performance of these systems
and may have an adverse impact upon a single issuer, a group of issuers, or the
market at large. In certain cases, an exchange or market may close or
issue
trading halts on either specific securities or even the entire market, which may
result in a Fund being, among other things, unable to buy or sell certain
securities
or financial instruments or accurately price its investments. These fluctuations
in securities prices could be a sustained trend or a drastic movement.
The
financial markets generally move in cycles, with periods of rising prices
followed by periods of declining prices. The value of your investment may
reflect these
fluctuations.
|
■ |
Recent
Market Events Risk.
Both U.S. and international markets have experienced significant
volatility in recent months and years. As a result of such volatility,
investment returns may fluctuate significantly. Moreover, the risks
discussed herein associated with an investment in a Fund may be increased.
Deteriorating
economic fundamentals may increase the risk of default or insolvency of
particular issuers, negatively impact market value, increase market
volatility,
cause credit spreads to widen, reduce bank balance sheets and cause
unexpected changes in interest rates. Any of these could cause an increase
in
market volatility, reduce liquidity across various sectors or markets or
decrease confidence in the markets. Historical patterns of correlation
among asset classes
may break down in unanticipated ways during times of high volatility,
disrupting investment programs and potentially causing
losses. |
| |
Although
interest rates were unusually low in recent years in the U.S. and
abroad, in 2022, the U.S. Federal Reserve and certain foreign central
banks began to
raise interest rates as part of their efforts to address rising inflation.
In addition, ongoing inflation pressures could continue to cause an
increase in interest
rates and/or negatively impact issuers. It is difficult to accurately
predict the pace at which interest rates might increase or start
decreasing, the timing,
frequency or magnitude of any such changes in interest rates, or when such
changes might stop or reverse course. Additionally, various economic
and
political factors, such as rising inflation rates, could cause the Federal
Reserve or other foreign banks to change their approach in the future as
such actions
may result in an economic slowdown both in the U.S. and abroad. Unexpected
changes in interest rates could lead to significant market volatility or
reduce
liquidity in certain sectors of the market. Also, regulators have
expressed concern that rate increases may cause investors to sell fixed
income securities
faster than the market can absorb them, contributing to price volatility.
Over the longer term, rising interest rates may present a greater risk
than has
historically been the case due to the prior period of relatively low rates
and the effect of government fiscal and monetary policy initiatives and
potential market
reaction to those initiatives, or their alteration or cessation. It is
difficult to predict the impact on various markets of significant rate
increases or other
significant policy changes. |
| |
In
March 2023, the shutdown of certain financial institutions in
the U.S. and questions regarding the viability of other financial
institutions raised economic concerns
over disruption in the U.S. and global banking systems. There can be no
certainty that the actions taken by the U.S. or foreign governments will
be
effective in mitigating the effects of financial institution failures on
the economy and restoring public confidence in the U.S. and global banking
systems. |
| |
Some
countries, including the U.S., have in recent years adopted more
protectionist trade policies. Slowing global economic growth; the rise in
protectionist trade
policies; changes to international trade agreements; risks associated with
the trade agreement between the United Kingdom and the European Union
and
the risks associated with ongoing trade negotiations with China; political
or economic dysfunction within some nations, including major producers of
oil;
and dramatic changes in commodity and currency prices could have adverse
effects that cannot be foreseen at the present time. Tensions, war
or open conflict
between nations, such as between Russia and Ukraine, in the Middle East or
in eastern Asia could affect the economies of many nations, including
the
United States. The duration of ongoing hostilities and any sanctions and
related events cannot be predicted. Those events present material
uncertainty and
risk with respect to markets globally and the performance of a Fund and
its investments or operations could be negatively
impacted. |
| |
Regulators
in the U.S. have proposed and recently adopted a number of changes to
regulations involving the markets and issuers, some of which apply to a
Fund.
The full effect of various newly-adopted regulations is not currently
known. Additionally, it is not clear whether the proposed regulations will
be adopted.
However, due to the broad scope of the new and proposed regulations,
certain changes could limit a Fund’s ability to pursue its investment
strategies
or make certain investments, or may make it more costly for a Fund to
operate, which may impact performance. Further, advancements in
technology
may also adversely impact market movements and liquidity and may affect
the overall performance of a Fund. For example, the advanced development
and increased regulation of artificial intelligence may impact the economy
and the performance of a Fund. As artificial intelligence is used
more
widely, the value of a Fund’s holdings may be impacted, which could impact
the overall performance of a Fund. |
| |
High
public debt in the U.S. and other countries creates ongoing systemic and
market risks and policymaking uncertainty. There is no assurance that the
U.S.
Congress will act to raise the nation’s debt ceiling; a failure to do so
could cause market turmoil and substantial investment risks that cannot
now be fully
predicted. Unexpected political, regulatory and diplomatic events within
the U.S. and abroad may affect investor and consumer confidence and may
adversely
impact financial markets and the broader
economy. |
| |
Certain
illnesses spread rapidly and have the potential to significantly and
adversely affect the global economy. The impact of epidemics and/or
pandemics that
may arise in the future could negatively affect the economies of many
nations, individual companies and the global securities and commodities
markets,
including their liquidity, in ways that cannot necessarily be foreseen at
the present time and could last for an extended period of time. China’s
economy,
which has been sustained through debt-financed spending on housing and
infrastructure, appears to be experiencing a significant slowdown and
growing
at a lower rate than prior years. Due to the size of China’s economy, such
a slowdown could impact financial markets and the broader economy.
|
40Prospectus
– Additional Information About the Funds
| |
Economists
and others have expressed increasing concern about the potential effects
of global climate change on property and security values. Impacts
from
climate change may include significant risks to global financial assets
and economic growth. A rise in sea levels, an increase in powerful
windstorms and/or
a climate-driven increase in sea levels or flooding could cause coastal
properties to lose value or become unmarketable altogether. Certain
issuers, industries
and regions may be adversely affected by the impacts of climate change,
including on the demand for and the development of goods and services
and related production costs, and the impacts of legislation, regulation
and international accords related to climate change, as well as any
indirect consequences
of regulation or business trends driven by climate change. Regulatory
changes and divestment movements tied to concerns about climate
change
could adversely affect the value of certain land and the viability of
industries whose activities or products are seen as accelerating climate
change. Losses
related to climate change could adversely affect, among others, corporate
issuers and mortgage lenders, the value of mortgage-backed securities,
the
bonds of municipalities that depend on tax or other revenues and tourist
dollars generated by affected properties, and insurers of the property
and/or of corporate,
municipal or mortgage-backed securities. |
Market
Direction Risk
Since
a Fund will typically hold both long and short positions, an investment in
a Fund will involve market risks associated with different types of
investment decisions
than those made for a typical “long only” fund. A Fund’s results could
suffer both when there is a general market advance and a Fund holds
significant
“short” positions, and when there is a general market decline and a Fund
holds significant “long” positions. In recent years, markets have shown
considerable
volatility from day to day and even in intra-day trading.
Market
Timing
Risk
A
Fund is subject to the risk of market timing activities by investors due to the
nature of its investments, which requires a Fund in certain instances to fair
value
certain of its investments. Some investors may engage in frequent short-term
trading in a Fund to take advantage of any price differentials that may be
reflected
in the NAV of a Fund’s shares. Frequent trading by Fund shareholders poses risks
to other shareholders in a Fund, including (i) the dilution of a Fund’s
NAV,
(ii) an increase in a Fund’s expenses, and (iii) interference with the ability
to execute efficient investment strategies. While the Manager monitors trading
in
a Fund, there is no guarantee that it can detect all market timing
activities.
Model
and Data/Programming Error Risk
The sub-advisor
relies heavily on proprietary mathematical quantitative models (each, a “Model”
and collectively “Models”) and data developed both by the sub-advisor
and those supplied by third parties (collectively, “Data”) rather than granting
trade-by-trade discretion to the
sub-advisor’s investment professionals.
In combination, Models and Data are used to construct investment decisions, to
value both
current and
potential investments (including, without
limitation, for trading purposes), to provide risk management insights and to
assist in hedging a Fund’s investments. Models and Data are known to
have
errors, omissions, imperfections and malfunctions (collectively, “System
Events”). System Events in third-party Data are generally entirely outside of
the control
of the sub-advisor. The sub-advisor seeks to reduce the incidence
and impact of System Events, to the extent feasible, through a combination of
internal
testing, simulation, real-time monitoring, and use of independent safeguards in
the overall portfolio management process and often in the software code
itself. Despite such testing, monitoring and independent safeguards, System
Events may result in, among other things, the execution of unanticipated
trades,
the failure to execute anticipated trades, delays to the execution of
anticipated trades, the failure to properly allocate trades, the failure to
properly gather
and organize available data, the failure to take certain hedging or risk
reducing actions and/or the taking of actions which increase certain risk(s) —
all of
which may negatively impact a Fund and/or its returns. A Fund will bear the
risks associated with the reliance on Models and Data including that
a Fund will
bear all losses related to System Events unless otherwise determined
by the sub-advisor in accordance with its internal policies or as
may be required by applicable
law.
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Data
Risk.
The investment strategies of a Fund are highly reliant on the gathering,
cleaning, culling,
and performance of analysis of large amounts of Data. Accordingly,
Models rely heavily on appropriate Data inputs. However, it is not
possible or practicable to factor all relevant, available Data into
forecasts and/or
trading decisions of the Models, particularly with regard to the more
newly established financial instruments in which a Fund may invest. The
sub-advisor
will use its discretion to determine what Data to gather with respect to
each investment strategy and what subset of that Data the Models
will
take
into account to produce forecasts that may have an impact on ultimate
investment decisions. In addition, due to the automated nature of Data
gathering,
the volume and depth of Data available, the complexity and often manual
nature of Data cleaning, and the fact that a
substantial majority of Data
comes from third-party sources, it is inevitable that not all desired
and/or relevant Data will be available to, or processed by, the
sub-advisor at all times.
Irrespective of the merit, value and/or strength of a particular Model, it
will not perform as designed if incorrect Data is fed into it, which may
lead to a
System Event, potentially subjecting a Fund to a loss. Further, even if
Data is input correctly, “model prices” anticipated by the Data through
the Models may
differ substantially from market prices, especially for securities with
complex characteristics, such as derivatives. Where incorrect or
incomplete Data is available,
the sub-advisor may, and often will, continue to generate forecasts and
make investment decisions based on the Data available to it. Additionally,
the
sub-advisor may determine that certain available Data, while potentially
useful in generating forecasts and/or making investment decisions, is not
cost effective
to gather due to, among other factors, the technology costs or third-party
vendor costs and, in such cases, the sub-advisor will not utilize such
Data.
The sub-advisor has full discretion to select the Data it utilizes. The
sub-advisor may elect to use or may refrain from using any specific Data
or type of Data
in generating forecasts or making trading decisions with respect to the
Models. The Data utilized in generating forecasts or making decisions
underlying
the Models may not be (i) the most accurate data available or (ii) free of
errors. Shareholders should assume that the Data set used in connection
with
the Models is limited and should understand that the foregoing risks
associated with gathering, cleaning, culling,
and analyzing large amounts of Data are
an inherent part of investing with a quantitative, process-driven,
systematic adviser such as the sub-advisor. When Models and Data prove to
be incorrect,
misleading,
or incomplete, any decisions made in reliance thereon expose a Fund to
potential losses and such losses may be compounded over time.
For example, by relying on Models and Data, the sub-advisor may be induced
to buy certain investments at prices that are too high, to sell certain
other
investments at prices that are too low, or to miss favorable opportunities
altogether. Similarly, any hedging based on faulty Models and Data may
prove
to be unsuccessful and any valuations of a Fund’s investments that are
based on valuation Models may prove to be
incorrect. |
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Error
Detection Risk.
Errors in Models and Data are often extremely difficult to detect, and, in
the case of Models, the difficulty of detecting System Events may
be exacerbated by the lack of design documents or specifications.
Regardless of how difficult their detection appears in retrospect, some
System Events may
go undetected for long periods of time and some may never be detected.
Finally, the sub-advisor may detect certain System Events that it chooses,
in its
sole discretion, not to address or fix, and the use of third-party
software may also lead to System Events known to the sub-advisor that it
chooses, in its sole
discretion, not to address or fix. The degradation or impact caused by
these System Events can compound over time. When a System Event is
detected, the
sub-advisor generally will not perform a materiality analysis on the
potential impact of a System Event. The sub-advisor believes that the
testing and monitoring
performed on its models may enable the sub-advisor to identify and address
those System Events that a prudent person managing a quantitative,
systematic,
and computerized investment program would identify and address by
correcting the underlying issue(s) giving rise to the System Events;
however, there is no guarantee of the success of such processes.
Shareholders should assume that the System Events and their ensuing risks
and impact
are an inherent part of investing with a process-driven, systematic
investment manager such as the sub-advisor. Accordingly, the sub-advisor
does not
expect to disclose discovered System Events to a Fund or to
shareholders. |
Prospectus
– Additional Information About the Funds41
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Model
Error Risk.
Models may incorrectly forecast future behavior, leading to potential
losses on a cash flow and/or a mark-to-market basis. Furthermore, in
unforeseen
or certain low-probability scenarios (often involving a market event or
disruption of some kind), Models may produce unexpected results which
may
or may not be System Events. |
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Programming
Risk.
The research and modelling processes engaged in by the sub-advisor on
behalf of a Fund are extremely complex and involve the use of financial,
economic, econometric,
and statistical theories, research,
and modelling; the results of this investment approach must then be
translated into computer
code. Although the sub-advisor seeks to hire individuals skilled in each
of these functions and to provide appropriate levels of oversight and
employ
other mitigating measures and processes, the complexity of the individual
tasks, the difficulty of integrating such tasks, and the limited ability
to perform
“real world” testing of the end product, even with simulations and similar
methodologies, raise the chances that Model code may contain one or
more
coding errors, thus potentially resulting in a System Event and further,
one or more of such coding errors could adversely affect a Fund’s
investment performance. |
Non-Diversification
Risk
When
a Fund is non-diversified, it may invest a high percentage of its assets in a
limited number of issuers. When a Fund invests in a relatively small
number of issuers,
it may be more susceptible to risks associated with a single economic, political
or regulatory occurrence than a more diversified portfolio might be.
Some
of those issuers also may present substantial credit or other risks. When
a Fund is non-diversified, its NAV and total return may also fluctuate
more or be subject
to declines in weaker markets than a diversified mutual fund. Investments in
securities of a limited number of issuers exposes a Fund to greater market
risk,
price volatility and potential losses than if assets were diversified among the
securities of a greater number of issuers.
Obsolescence
Risk
The
sub-advisor
is unlikely to be successful in its quantitative,
systematic
trading strategies unless the assumptions underlying the Models
are realistic and either
remain realistic and relevant in the future or are adjusted to account for
changes in the overall market environment. If such assumptions are inaccurate
or
become inaccurate and are not promptly adjusted, it is likely that the
Models will not generate profitable trading signals.
If and to the extent that the Models
do not reflect certain relevant
factors,
and the
sub-advisor does not successfully address such omission through its testing and
evaluation by
modifying the
Models
accordingly, major losses may result — all of which will be borne by
a Fund.
There can be no assurance as to the effects (positive or negative) of
any
changes including additions, modifications and removal of the Models or
investment strategies on the Fund’s performance.
Other
Investment Companies Risk
To
the extent that a Fund invests in shares of other registered investment
companies, a Fund will indirectly bear the fees and expenses, including,
for example, advisory
and administrative fees, charged by those investment companies in addition to
a Fund’s direct fees and expenses. If a Fund invests in other investment
companies, a Fund may receive distributions of taxable gains from portfolio
transactions by that investment company and may recognize taxable gains
from transactions in shares of that investment company, which could be taxable
to a Fund’s shareholders when distributed to them. A Fund must rely on
the
investment company in which it invests to achieve its investment objective. If
the investment company fails to achieve its investment objective, the value of
a Fund’s
investment may decline, adversely affecting a Fund’s performance. To the
extent a Fund invests in other investment companies that invest in equity
securities,
fixed-income securities and/or foreign securities, or that track an index,
a Fund is subject to the risks associated with the underlying investments
held
by the investment company or the index fluctuations to which the investment
company is subject. A Fund will be subject to the risks associated with
investments
in those companies, including but not limited to the following:
|
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Government
Money Market Funds Risk.
Investments in government money market funds are subject to interest rate
risk, credit risk, and market risk. Although
a government money market fund seeks to preserve the value of a fund’s
investment at $1.00 per share, at times, the share price of government
money
market funds may fall below the $1.00 share price, especially during
periods of high redemption pressures, illiquid markets, and/or significant
market
volatility. |
Quantitative
Strategy Risk
The
success of a Fund’s investment strategy may depend in part on the
effectiveness of the sub-advisor’s quantitative tools for screening
securities. Securities selected
using quantitative analysis can react differently to issuer, political, market,
and economic developments than the market as a whole or securities selected
using only fundamental analysis, which could adversely affect their value. As a
result, a portfolio of securities selected using quantitative analysis may
underperform
the market as a whole or a portfolio of securities selected using a different
investment approach, such as fundamental analysis. The sub-advisor’s
quantitative tools may use factors that may not be predictive of a security’s
value, and any changes over time in the factors that affect a security’s
value may not be reflected in the quantitative model. The quantitative tools may
not react as expected to market events, resulting in losses for a Fund.
Data for some companies, particularly for non-U.S. companies, may be less
available and/or less current than data for other companies. There may also
be
errors in the computer code for the quantitative model or in the model itself,
or issues relating to the computer systems used to screen securities.
The sub-advisor’s
stock selection can be adversely affected if it relies on insufficient,
erroneous or outdated data or flawed models or computer systems. Additionally,
a previously successful strategy may become outdated or inaccurate, which may
not be identified by the sub-advisor and therefore may also result
in losses.
Recently-Organized
Fund Risk
As
a recently-organized fund, a Fund’s performance and expenses may not represent
how it is expected to, or may, perform in the long term if and when it
becomes
larger and has fully implemented its investment strategies. Investment positions
may have a disproportionate impact (negative or positive) on a Fund’s
performance. A Fund’s shareholder fees and annual fund operating expenses may
also be higher than after it has fully implemented its investment strategies
and attracted sufficient assets to achieve investment and trading efficiencies.
A Fund may also require a period of time before it achieves a representative
portfolio composition. Fund performance may be lower or higher and may also be
more volatile, during this ramp-up period. Similarly, a Fund’s investment
strategies may require a longer period of time to show returns that are
representative of the strategies. A Fund has a limited performance history
for
investors to evaluate and may not attract sufficient assets to achieve
investment and trading efficiencies. If the Fund were to fail to successfully
implement its
investment strategies or achieve its investment objectives, performance may be
negatively impacted, and any resulting liquidation could create negative
transaction
costs for a Fund and adverse federal income tax consequences for
investors.
Redemption
Risk
A Fund
may experience periods of heavy redemptions that could cause a Fund to sell
assets at inopportune times or at a loss or a depressed value. Heavy
redemptions,
whether by a few large investors or many smaller investors, could hurt a Fund’s
performance. Redemption risk is greater to the extent that one or
more investors or intermediaries control a large percentage of investments in a
Fund, have short investment horizons, or have unpredictable cash flow
needs.
The risk of loss is also greater if redemption requests are frequent, occur in
times of overall market turmoil or declining prices for the securities sold, or
when
the securities a Fund wishes to sell are illiquid. The
ability or willingness of dealers and other institutional investors to buy or
hold fixed-income securities or
otherwise to “make a market” in debt securities may also be reduced. These
factors, along with an inability to find a ready buyer, or legal restrictions on
a security’s
resale, may result in decreased liquidity and increased volatility in the
fixed-income markets, and heightened redemption risk.
Certain securities that were
liquid when purchased may later become illiquid, particularly in times of
overall economic distress. Redemption
risk is heightened if a
Fund invests in emerging
market securities, which are generally less liquid than the securities of U.S.
and other developed markets.
During periods of heavy redemptions, a
42Prospectus
– Additional Information About the Funds
Fund
may borrow funds through the interfund credit facility, or from a bank line of
credit, which may increase costs. The sale of assets to meet redemption
requests
may create net capital gains or losses, which could cause a Fund to have to
distribute substantial capital gains.
Risk
Management
The
Funds’ sub-advisor undertakes certain analyses with the intention of identifying
particular types of risks and reducing a Fund’s exposure to them.
However,
risk is an essential part of investing, and the degree of return an investor
might expect is often tied to the degree of risk the investor is willing to
accept.
By its very nature, risk involves exposure to the possibility of adverse events.
Accordingly, no risk management program can eliminate a Fund’s
exposure
to such events; at best, it can only reduce the possibility that a Fund
will be affected by adverse events, and especially those risks that are not
intrinsic
to a Fund’s investment program. While the prospectus describes material
risk factors associated with a Fund’s investment program, there is no
assurance
that, as a particular situation unfolds in the markets, the portfolio managers
will be able to identify all of the risks that might affect a Fund, rate
their
probability or potential magnitude correctly, or take appropriate measures to
reduce a Fund’s exposure to them. Measures taken with the intention of
decreasing
exposure to identified risks might have the unintended effect of increasing
exposure to other risks.
Segregated
Assets Risk
In
connection with certain transactions that may give rise to future payment
obligations, a
Fund
may be required to maintain a segregated amount of, or otherwise
earmark, cash or liquid securities to cover the position. Segregated or
earmarked securities generally
cannot
be sold while the position or transaction
they are covering is outstanding, unless they are replaced with other securities
of equal value. There is the possibility that the segregation or earmarking
of a large percentage of a Fund’s
assets may, in some circumstances, limit a Fund’s
ability to take advantage of investment opportunities or meet redemption
requests. In addition, the need to segregate cash or other liquid securities
could limit a Fund’s
ability to pursue other opportunities as they arise.
Short
Position Risk
A Fund’s
short positions are speculative transactions and are subject to special
risks.
A Fund
may enter into a short position through a forward commitment, a
futures
contract, or a swap agreement.
If the price of the security or derivative has increased during the time a Fund
holds the short position, then a Fund will incur
a loss equal to the increase in price from the time that the short position was
entered into plus any premiums and interest paid to the third party.
Therefore,
short positions involve the risk that losses may be exaggerated, and that a Fund
may lose more money than the actual cost of the investment. A Fund
‘s losses are potentially unlimited in a short position, particularly in cases
where a Fund is unable to close out its short position, because the price
appreciation
of the security that a Fund is required to purchase is unlimited. There can be
no assurance that the securities necessary to cover the short position
will
be available for purchase by a Fund. In addition, purchasing securities to close
out the short position can itself cause the price of the relevant securities to
rise
further, thereby increasing any loss incurred by a Fund. Furthermore, a Fund may
be forced to close out a short position prematurely if a counterparty from
which
a Fund borrowed securities demands their return, resulting in a loss on what
might otherwise have been a profitable position. Short positions also
include
greater reliance on the sub-advisor’s ability to accurately anticipate the
future value of a security or instrument. A Fund may invest the proceeds of a
short
sale, and therefore, be subject to the effect of leverage, in that short selling
amplifies changes in a Fund’s NAV since it increases the exposure of a Fund
to
the market and may increase losses and the volatility of returns. If such
instruments are traded over-the-counter, there is the risk that the counterparty
may fail
to honor its contract terms, causing a loss to a Fund.
Sovereign
Debt Risk
An
investment in sovereign debt obligations involves special risks not present in
corporate debt obligations. Sovereign debt securities are issued or guaranteed
by
a sovereign government. The issuer of the sovereign debt that controls the
repayment of the debt may be unable or unwilling to repay principal or interest
when
due, and a Fund may have limited recourse in the event of a default. In
addition, these investments are subject to risk of payment delays or defaults
due to,
among other things: (1) country cash flow problems, (2) insufficient foreign
currency reserves, (3) political considerations, (4) large debt positions
relative to the
country’s economy, (5) policies toward foreign lenders or investors, (6) the
failure to implement economic reforms required by the International Monetary
Fund
or other multilateral agencies, or (7) an inability or unwillingness to repay
debts. A governmental entity that defaults on an obligation may request
additional
time in which to repay loans, may request to receive further loans, or may seek
to restructure its obligations to reduce interest rates or outstanding
principal.
There is no legal process for collecting sovereign debt that a government does
not pay nor are there bankruptcy proceedings through which all or part
of the sovereign debt that a governmental entity has not repaid may be
collected.
Subsidiary
Risk
By
investing in a Subsidiary, a Fund is indirectly exposed to the risks associated
with a Subsidiary’s investments. The derivatives and other investments held by a
Subsidiary
are generally similar to those that are permitted to be held by a respective
Fund and are subject to the same risks that apply to similar investments if
held
directly by a Fund. The principal risks of a Subsidiary are listed in the
Prospectus as principal risks of its respective Fund. There can be no assurance
that the
investment objective of a Subsidiary will be achieved or that, as a result, the
investment objective of a Fund will be achieved. The Subsidiaries are not
registered
under the Investment Company Act, and, unless otherwise noted in this
Prospectus, are not subject to all the investor protections of the Investment
Company
Act. However, a Fund wholly owns and controls its respective Subsidiary, and a
Fund and its respective Subsidiary are both managed by the Manager
and the sub-advisor pursuant to separate agreements, making it unlikely that a
Subsidiary will act
contrary to the interests of its respective Fund and a
Fund’s shareholders. The Board of Trustees has oversight responsibility for the
investment activities of the
Fund, including its investment in its respective Subsidiary,
and a Fund’s role as sole shareholder of its respective Subsidiary. Changes in
the laws of the United States and/or the Cayman Islands, under which
the
Fund and its Subsidiary,
respectively, are organized, could result in the inability of a Fund and/or its
respective Subsidiary to operate as described in this Prospectus
and could negatively affect a Fund and its respective shareholders. For example,
the Cayman Islands government has undertaken not to impose any
income, corporate or capital gains tax, estate duty, inheritance tax, gift tax
or withholding tax on a subsidiary.
If Cayman Islands law changes such that a Subsidiary
must pay Cayman Islands taxes, Fund shareholders would likely suffer decreased
investment returns. Rulemaking by the CFTC or other regulatory initiatives
may affect a Fund’s ability to use its respective Subsidiary to pursue its
investment strategies. As of the date of this Prospectus, the potential impact
of
these initiatives on a Fund is uncertain.
Tax
Risk
To
qualify as a “regulated investment company” under Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”) (“RIC”),
a Fund must, among other requirements, derive at least 90% of its gross income
for each taxable year from “qualifying income,” which is described in
more detail in the “Tax Information” section of the SAI. Income from certain
commodity-linked derivative instruments in which a Fund invests is not
considered
qualifying income. A Fund will therefore restrict its income from direct
investments in those instruments, such as commodity-linked swaps, to a
maximum
of 10% of its gross income for each taxable year. A Fund’s investment in the
respective Subsidiary is expected to provide a Fund with exposure to
the
commodities markets within the limitations of the federal tax requirements of
Subchapter M. Treasury regulations provide that income inclusions of a RIC
from
a controlled foreign corporation (“CFC”), such as the Subsidiary,
in which the RIC invests as part of its business of investing in stock and
securities, are qualifying
income for the RIC whether or not the CFC makes distributions to the RIC out of
its associated earnings and profits for the applicable taxable year.
See
“Tax Information” in the SAI for further information regarding RIC’s federal
income tax treatment of income from CFCs and commodity-linked instruments.
The federal income tax treatment of a Fund’s commodity-linked investments and
income from a Subsidiary may be materially adversely affected
Prospectus
– Additional Information About the Funds43
by
future legislation, other Treasury regulations, and/or guidance issued by the
IRS that could affect whether income from such investments is qualifying
income
under Subchapter M or otherwise materially affect the character, timing or
recognition, and/or amount of a Fund’s taxable income and/or net capital
gains
and, therefore, the distributions a Fund makes.
Trading
System and Execution of Orders Risk
The
sub-advisor relies extensively on computer programs, systems, technology, data
and models to implement its execution strategies and algorithms. The
sub-advisor’s
investment strategies, trading strategies and algorithms depend on its ability
to establish and maintain an overall market position in a combination
of financial instruments selected by the sub-advisor. There is a risk that the
sub-advisor’s proprietary algorithmic trading systems may not be able
to
adequately react to a market event without serious disruption. Further, trading
strategies and algorithms may malfunction, causing severe losses. The
successful
operation of the computer programs, systems, technology, data and models depends
in part on the sub-advisor’s ability to ensure those systems remain
operational and that appropriate disaster recovery procedures are in place. This
operation could be severely compromised by software or hardware malfunctions,
viruses, glitches, connectivity loss, system crashes or various other system
incidents, in particular where multiple systems contribute to the execution
of the sub-advisor’s strategies and algorithms. While the sub-advisor has
employed tools to allow for human intervention to respond to significant
system
malfunctions, it cannot be guaranteed that losses will not occur in such
circumstances as unforeseen market events, disruptions,
and execution system issues.
Orders
may not be executed in a timely and efficient manner due to various
circumstances, including trading volume surges or systems failures attributable
to the
sub-advisor, the sub-advisor’s counterparties, brokers, dealers,
agents,
or other service providers. In such event, the sub-advisor might only be able to
acquire
or dispose of some, but not all, of the components of such position, or if the
overall position were to need adjustment, the sub-advisor might not be
able
to make such adjustment. As a result, a Fund would not be able to achieve the
market position selected by the sub-advisor, which may result in a
loss.
U.S.
Government Securities Risk
A
security backed by the U.S. Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of coupons
and the face value
at maturity, not its current market price.
The market prices for such securities are not guaranteed and will
fluctuate
with changes in interest rates and the
credit rating of the U.S. government.
Additionally, circumstances could arise that would prevent the payment of
interest or principal. This could result in losses
to a
Fund.
U.S. Government securities are subject to credit risk, interest rate risk and
market risk. The rising U.S. national debt may lead to adverse impacts
on the value of U.S. government securities due to potentially higher costs for
the U.S. government to obtain new financing.
It is possible that the U.S. government
will not have the funds to meet its payment obligations in the
future.
U.S.
Treasury Obligations Risk
Securities
issued or guaranteed by the U.S. Treasury are backed by the “full faith and
credit” of the United States; however, the U.S. government guarantees
the
securities only as to the stated
interest rate and face value at maturity, not its current market
price
and the market prices of such securities may fluctuate. The
market
value
of U.S. Treasury obligations may vary due to fluctuations
in interest rates. In addition, changes to the financial condition or credit
rating of the U.S.
government may cause the market
value
of a
Fund’s investments in obligations issued by the U.S. Treasury to decline.
Certain political events in the U.S.,
such as a prolonged government shutdown, the U.S. government’s inability at
times to agree on a long-term budget and deficit reduction plan, and
threats
not to increase the federal government’s debt limit, which may result in a
potential default on the national debt, may also cause investors to lose
confidence
in the U.S. government and may cause the value of U.S. Treasury obligations to
decline. Because U.S. Treasury securities trade actively outside the
United
States, their prices may also rise and fall as changes in global economic
conditions affect the demand for these securities.
The total public debt of the U.S.
as a percent of GDP has grown rapidly in recent years. Although high debt levels
do not necessarily indicate or cause economic problems, they have the
potential
to create systemic risks if sound debt management practices are not
implemented.
Valuation
Risk
This
is the risk that a security may be valued at a price different from the price at
which it can be sold. This risk may be especially pronounced for investments
that
may be illiquid or may become illiquid and for securities that trade in
relatively thin markets and/or markets that experience extreme volatility. The
valuation
of a Fund’s investments in an accurate and timely manner may be impacted by
technological issues and/or errors by third party service providers,
such
as pricing services or accounting agents. If market conditions make it difficult
to value certain investments, SEC rules and applicable accounting protocols
may
require the valuation of these investments using more subjective methods, such
as fair-value methodologies. Using fair value methodologies to price
investments
may result in a value that is different from an investment’s most recent closing
price and from the prices used by others for the same investment. Investors
who purchase or redeem Fund shares on days when a Fund is holding fair-valued
securities may receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received if the securities had not been fair
valued or a different valuation methodology had been used. The value
of
foreign securities, certain fixed-income securities and currencies, as
applicable, may be materially affected by events after the close of the markets
on which they
are traded, but before a Fund determines its NAV.
Volatility
Risk
A Fund
may have investments that appreciate or decrease significantly in value over
short periods of time. This may cause a Fund’s NAV to experience
significant
increases or declines in value over short periods of time. Volatility can
disrupt historical or theoretical pricing relationships, causing what should
otherwise
be comparatively low risk positions to incur losses. On the other hand, the lack
of volatility can also result in losses for many of a Fund’s strategies
that
are effectively “long” volatility. In periods of trendless and/or stagnant
markets, a Fund’s strategies may have materially diminished prospects for
profitability.
The majority of the investment strategies that are employed by a Fund rely for
their profitability on market volatility contributing to the pricing
inefficiencies
that they are designed to identify. Because a Fund may use some derivatives that
involve economic leverage, this economic leverage will increase the
volatility of a derivative instrument, as they may increase or decrease in value
more quickly than the reference asset.
Zero
Coupon Securities Risk
Zero
coupon securities are debt
securities
that do not make periodic interest payments
prior to maturity or a specified redemption date (or cash payment date).
Unlike bonds which pay cash interest throughout the period to maturity, a Fund
will realize no cash until the cash payment or maturity date unless a
portion
of such securities are sold and, if the issuer defaults, the Fund may obtain no
return at all on its investment.
Accordingly, zero coupon securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations in market value in response to changing interest rates
than
debt obligations of comparable maturities and
credit qualities that
make current distribution of interest in cash. While
interest payments are not made on such
securities, a Fund accrues income with respect to these securities for federal
income tax and accounting purposes. To maintain its qualification for
pass-through
treatment under the federal tax laws, a Fund is required to distribute income to
its shareholders and, consequently, may have to dispose of other,
more liquid portfolio securities under disadvantageous circumstances in order to
generate the cash to satisfy distributions of income accrued on
zero coupon
securities.
The required distributions may result in an increase in a Fund’s exposure to
zero coupon securities.
Additional
Information About Performance Indices
The
annual total return of each Fund is compared to one or more broad-based market
index(es). Set forth below is additional information regarding the index
to
which each Fund’s performance is compared.
44Prospectus
– Additional Information About the Funds
American
Beacon AHL Managed Futures Strategy Fund
The
Fund’s annual total return is compared to the ICE BofA US 3-Month Treasury Bill
Index. The ICE BofA US 3-Month Treasury Bill Index is designed to measure
the total return on cash, including price and interest income, based on
short-term government Treasury Bills of about 90-day maturity. AHL uses
an
index
agnostic approach to investing. Thus, exposure to individual investments, use of
instruments, volatility and tracking error will differ and as a result
performance
of the Fund is expected to vary significantly from that of the ICE BofA US
3-Month Treasury Bill Index.
American
Beacon AHL Multi-Alternatives Fund
The
Fund’s annual total return will be compared to the ICE BofA US 3-Month Treasury
Bill Index. The ICE BofA US 3-Month Treasury Bill Index is designed to
measure
the total return on cash, including price and interest income, based on
short-term government Treasury Bills of about 90-day maturity. AHL uses an
index
agnostic approach to investing. Thus, exposure to individual investments, use of
instruments, volatility and tracking error will differ and as a result
performance
of the Fund is expected to vary significantly from that of the ICE BofA US
3-Month Treasury Bill Index.
American
Beacon AHL TargetRisk Fund
The
Fund’s annual total return is compared to the AHL TargetRisk Fund’s
composite index, which combines the returns of the MSCI World Index Hedged to
U.S.
Dollars (USD) and the Bloomberg Global-Aggregate Total Return Index
Value
Hedged USD
in a 60%/40% proportion. Set forth below is additional information
regarding the indices that comprise the
AHL TargetRisk Fund’s composite index to which the Fund’s performance is
compared.
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■ |
The
MSCI World Index Hedged to USD represents a close estimation of the
performance that can be achieved by hedging the currency exposures of its
parent
index, the MSCI World Index, to the USD, the “home” currency for the
hedged index. The index is 100% hedged to the USD by selling each foreign
currency
forward at the one-month forward weight. The parent index is composed of
large- and mid-cap stocks across 23 Developed Markets (DM) countries
and its local performance is calculated in 13 different currencies,
including the Euro. |
|
■ |
The
Bloomberg Global-Aggregate Total Return Index Value
Hedged
USD
is a flagship measure of global investment grade debt from twenty-four
local currency
markets. This multi-currency benchmark includes treasury,
government-related, corporate and securitized fixed-rate bonds from both
developed and
emerging markets issuers. |
Notice Regarding Index
Data
“Bloomberg®“
and the Bloomberg indices listed herein (the “Indices”) are service marks of
Bloomberg Finance L.P. and its affiliates, including Bloomberg Index
Services Limited (“BISL”), the administrator of the index (collectively,
“Bloomberg”), and have been licensed for use for certain purposes by the
distributor
hereof (the “Licensee”).
The
financial products named herein (the “Products”) are not sponsored, endorsed,
sold or promoted by Bloomberg. Bloomberg does not make any representation
or warranty, express or implied, to the owners of or counterparties to the
Products or any member of the public regarding the advisability of investing
in securities or commodities generally or in the Product particularly. The only
relationship of Bloomberg to Licensee is the licensing of certain trademarks,
trade names and service marks and of the Indices, which are determined, composed
and calculated by BISL without regard to Licensee or the Products.
Bloomberg has no obligation to take the needs of Licensee or the owners of the
Products into consideration in determining, composing or calculating
the Indices. Bloomberg is not responsible for and has not participated in the
determination of the timing, price, or quantities of the Products to be
issued.
Bloomberg shall not have any obligation or liability, including, without
limitation, to customers of the Products, in connection with the administration,
marketing
or trading of the Products.
BLOOMBERG
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR ANY
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LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. BLOOMBERG DOES NOT
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OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDICES OR ANY
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OR ANY DATA OR VALUES RELATING THERETO—WHETHER ARISING FROM THEIR NEGLIGENCE OR
OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY
THEREOF.
THE
ICE BOFA US 3-MONTH TREASURY BILL INDEX (THE “INDEX”) IS A PRODUCT OF ICE DATA
INDICES,
LLC (“ICE DATA”) AND
IS USED WITH PERMISSION. ICE®
IS A REGISTERED TRADEMARK OF ICE DATA OR ITS AFFILIATES AND BOFA® IS A
REGISTERED TRADEMARK OF BANK OF AMERICA CORPORATION LICENSED
BY BANK OF AMERICA CORPORATION AND ITS AFFILIATES (“BOFA”) AND MAY NOT BE USED
WITHOUT BOFA’S PRIOR WRITTEN APPROVAL.
ICE DATA,
ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DISCLAIM ANY AND ALL
WARRANTIES AND REPRESENTATIONS, EXPRESS
AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, INCLUDING THE
INDICES,
INDEX DATA AND ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM. NEITHER
ICE DATA, ITS
AFFILIATES NOR
THEIR RESPECTIVE THIRD
PARTY SUPPLIERS
SHALL BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY,
ACCURACY, TIMELINESS OR COMPLETENESS
OF THE INDICES OR THE INDEX DATA OR ANY COMPONENT THEREOF,
AND
THE INDICES AND INDEX DATA AND ALL COMPONENTS THEREOF
ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK. INCLUSION
OF A SECURITY WITHIN AN INDEX IS NOT A RECOMMENDATION
BY ICE DATA TO BUY, SELL, OR HOLD SUCH SECURITY, NOR IS IT CONSIDERED TO BE
INVESTMENT ADVICE. ICE DATA,
ITS AFFILIATES AND
THEIR RESPECTIVE THIRD PARTY SUPPLIERS DO NOT SPONSOR, ENDORSE, OR RECOMMEND
AMERICAN BEACON FUNDS, OR ANY OF ITS PRODUCTS OR
SERVICES.
Certain
information contained herein (the “Information”) is sourced from/copyright of
MSCI Inc., MSCI ESG Research LLC, or their affiliates (“MSCI”), or information
providers (together the “MSCI Parties”) and may have been used to calculate
scores, signals, or other indicators. The Information is for internal
use
only and may not be reproduced or disseminated in whole or part without prior
written permission. The Information may not be used for, nor does it
constitute,
an offer to buy or sell, or a promotion or recommendation of, any security,
financial instrument or product, trading strategy, or index, nor should it
be
taken as an indication or guarantee of any future performance. Some funds may be
based on or linked to MSCI indexes, and MSCI may be compensated based
on the fund’s assets under management or other measures. MSCI has established an
information barrier between index research and certain Information.
None of the Information in and of itself can be used to determine which
securities to buy or sell or when to buy or sell them. The Information is
provided
“as is” and the user assumes the entire risk of any use it may make or permit to
be made of the Information. No MSCI Party warrants or guarantees the
originality, accuracy and/or completeness of the Information and each expressly
disclaims all express or implied warranties. No MSCI Party shall have any
liability
for any errors or omissions in connection with any Information herein, or any
liability for any direct, indirect, special, punitive, consequential or any
other
damages (including lost profits) even if notified of the possibility of such
damages.
Prospectus
– Additional Information About the Funds45
Fund
Management
The
Manager
AMERICAN
BEACON ADVISORS, INC. (the “Manager”)
serves as the Manager and administrator of the Funds. The Manager, located at
220 East Las Colinas
Boulevard, Suite 1200, Irving, Texas 75039, is an indirect wholly-owned
subsidiary of
Resolute Topco,
Inc. (“Topco”),
which is owned primarily by various
institutional investment funds that are managed by financial institutions and
other investment advisory firms. No owner of Topco owns 25% or more of
the outstanding equity or voting interests of Topco.
The
Manager was organized in 1986 to provide investment management, advisory, and
administrative services. The Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. The Manager is also
registered with the CFTC as a CPO under the Commodity Exchange Act and
serves as the CPO with respect to the Funds. The Manager is exempt from
registration as a commodity trading advisor under CFTC
Regulation 4.14(a)(4) with
respect to the Funds.
Normally,
under CFTC regulations, if a registered investment company, such as
the American Beacon AHL Multi-Alternatives Fund, has less than a
three-year operating
history, the Manager is required to show the performance of all accounts and
pools managed by the Manager that have investment objectives, policies,
and strategies substantially similar to the Fund. The Manager is not providing
such performance as the Manager does not have any such accounts or pools.
For
the fiscal year ended December 31, 2023,
each Fund identified below paid aggregate management fees to the Manager and
investment advisory fees to its
sub-advisor(s) as a percentage of each Fund’s average daily net assets,
net of any waivers and recoupments of the management and sub-advisory fees, as
follows:
|
| |
|
American
Beacon Fund |
Aggregate
Management and Investment Advisory Fees |
|
American
Beacon AHL Managed Futures Strategy Fund |
1.35% |
|
American
Beacon AHL TargetRisk Fund |
0.90% |
American
Beacon AHL Multi-Alternatives Fund
The
Fund’s Management Agreement with the Manager (the “Management Agreement”)
provides for the Fund to pay the Manager an annualized management
fee based on a percentage of the Fund’s average daily net assets that is
calculated and accrued daily according to the following schedule:
|
| |
|
First
$5 billion |
0.35% |
|
Next
$5 billion |
0.325% |
|
Next
$10 billion |
0.30% |
|
Over
$20 billion |
0.275% |
As
compensation for services provided by the Manager in connection with securities
lending activities conducted by a Fund, the lending Fund pays to the
Manager,
with respect to cash collateral posted by borrowers, a fee of 10% of the net
monthly investment
income (the income
earned in the form of interest, dividends
and realized capital gains from
the investment of cash collateral, plus
any negative rebate fees paid by borrowers, less the rebate
amount paid to borrowers
as
well as
related expenses) and,
with respect to collateral
other than cash, a fee up to 10% of loan
fees
and demand premiums paid by borrowers.
The
SEC has granted exemptive relief that permits a Fund to invest cash collateral
received from securities lending transactions in shares of one or more
private
or registered investment companies managed by the Manager.
As
of the date of this Prospectus, the Funds do not intend to engage in securities
lending activities.
For
the American Beacon AHL Managed Futures Strategy Fund and American Beacon AHL
TargetRisk Fund, a
discussion of the Board’s consideration and approval
of the Management Agreement between each Fund
and the Manager and the Investment Advisory Agreements among the Trust, on
behalf of each
Fund,
the sub-advisor,
and
the Manager,
is available in those Funds’ Annual Shareholder Report for the period ended
December 31, 2023. A discussion of the Board’s
consideration and approval of the renewal of the Management Agreement and
Investment Advisory Agreement previously in effect for the Funds
is available
in the
Funds’ Semi-Annual Shareholder Report for the period ended June 30, 2023.
For
the American Beacon AHL Multi-Alternatives Fund, a discussion of the Board’s
consideration and approval of the Management Agreement between the Fund
and the Manager and the Investment Advisory Agreement among the Trust, on behalf
of the Fund, the sub-advisor and the Manager is available in the Fund’s
Annual Shareholder Report for the fiscal year ended December 31, 2023. That
report also includes a discussion of the Board’s consideration and approval
of a Management Agreement and Investment Advisory Agreement previously in effect
for the Fund.
The
Manager has contractually agreed to waive fees and/or reimburse expenses of the
following Funds and share classes to the extent that Total Annual Fund
Operating
Expenses exceed a percentage of that class’s average daily net assets (excluding
taxes, interest, brokerage commissions, acquired fund fees and expenses,
securities lending fees, expenses associated with securities sold short,
litigation, and other extraordinary expenses) through December
31, 2025
as follows:
|
|
|
|
|
|
| |
|
American
Beacon Fund |
A
Class |
C
Class |
Y
Class |
R5
Class |
R6
Class |
Investor
Class |
|
American
Beacon AHL Managed Futures Strategy Fund |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
American
Beacon AHL Multi-Alternatives Fund |
1.56% |
2.31% |
1.33% |
N/A |
1.23% |
N/A |
|
American
Beacon AHL TargetRisk Fund |
1.44% |
N/A |
N/A |
1.04% |
N/A |
N/A |
The
contractual expense reimbursement and
fee waiver by the Manager can
be changed or terminated only in the discretion and with the approval of a
majority
of a Fund’s Board of Trustees. The Manager will itself waive fees and/or
reimburse expenses of a Fund to maintain the contractual expense ratio caps
for
each applicable class of shares or make arrangements with other service
providers to do so. The Manager may also, from time to time, voluntarily waive
fees
and/or reimburse expenses of a Fund. The Board has approved a policy whereby the
Manager may seek repayment for any contractual or voluntary fee waivers
or expense reimbursements if reimbursement to the Manager (a) occurs within
three years from the date of the Manager’s waiver/reimbursement and (b)
does not cause the Total Annual Fund Operating Expenses of a class to exceed the
lesser of the contractual percentage limit in effect at the time of the
waiver/reimbursement
or the time of recoupment.
46Prospectus
– Fund Management
The
Sub-Advisor
Set
forth below is a brief description of the sub-advisor and its portfolio
management team who have joint and primary responsibility for the day-to-day
management
of the Funds. The Funds’ SAI provides additional information about the
sub-advisor’s portfolio management team, including other accounts they
manage,
their ownership in the Funds and their compensation.
AHL
PARTNERS LLP (“AHL”),
is located at 2 Swan Lane, London, United Kingdom EC4R 3AD. AHL is an investment
management firm. The firm managed approximately
$60.3
billion
in assets as of December
31, 2023. AHL is authorized and regulated by the FCA and SEC in the conduct of
its regulated activities. AHL
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940, as amended. AHL is also registered as a “commodity pool
operator”
and “commodity trading advisor” with the CFTC and is a member of the National
Futures Association. AHL serves as sub-advisor to the American Beacon
AHL Managed Futures Strategy Fund, American Beacon AHL Multi-Alternatives
Fund, and American Beacon AHL TargetRisk Fund
(collectively “the Funds”).
Russell
Korgaonkar
is Chief Investment Officer of Man AHL, with overall responsibility for
investment and research. He is also a member of Man AHL’s management
and investment committees, and a member of the Man Group executive committee. He
was previously Director of Investment Strategies of Man AHL,
responsible for Man AHL’s Liquid Strategies unit, which creates and runs
scalable systematic strategies, as well as the Institutional Solutions business.
Mr. Korgaonkar
joined the firm in 2001 as a researcher and later portfolio manager focused on
systematic cash equity strategies, before becoming Head of Portfolio
Management in 2011. Mr. Korgaonkar holds a BA/MA (First Class) in Physics from
the University of Oxford.
Otto
van
Hemert
is Director of Core Strategies and a member of Man AHL’s management and
investment committees. He was previously Head of Macro Research
at Man AHL. Prior to joining Man AHL in 2015, Mr. van Hemert ran a systematic
global macro fund at IMC for more than three years. Before that, he headed
Fixed Income Arbitrage, Credit, and Volatility strategies at AQR, and was on the
Finance Faculty at the New York University Stern School of Business,
where
he published papers in leading academic finance journals. Mr. van Hemert holds a
PhD in Economics, and Master’s Degrees in Mathematics and Economics.
The
Subsidiaries
The
American Beacon AHL Managed Futures Strategy Fund,
the American Beacon AHL Multi-Alternatives Fund
and the American Beacon AHL TargetRisk Fund each
may invest up to 25% of the value of its total assets in its respective
Subsidiary. Each Subsidiary is organized under the laws of the Cayman
Islands
and is overseen
by its own board of directors. Each Fund is the sole shareholder of its
respective Subsidiary. It is not currently expected that shares of the
Subsidiaries will
be sold or offered to other investors. If, at any time, a Subsidiary proposes to
offer or sell its shares to any investor other than its respective Fund,
shareholders
of the affected Fund will receive 60 days’ prior notice of such offer or
sale.
As
with the Funds, the Manager and the sub-advisor are responsible for the
Subsidiaries’ day-to-day business pursuant to separate agreements with each
Subsidiary.
Under these agreements, the Manager and the sub-advisor provide the Subsidiaries
with the same type of management services, under the same terms,
as are provided to the Funds. The Manager, the sub-advisor and the Funds’
auditors receive no compensation for the services they provide to the
Subsidiaries.
The Subsidiaries have also entered into a separate contract for the provision of
custody services with the same service provider that provides those
services to the Funds.
The
Funds’ principal investment strategies and principal risks reflect the aggregate
principal investment strategies and principal risks of the Funds and the
Subsidiaries.
Each Subsidiary will be managed pursuant to compliance policies and procedures
that are the same, in all material respects, as the policies and procedures
adopted by the Fund. As a result, when managing and advising the Subsidiaries,
the Manager and the sub-advisor are subject to the same investment
policies and restrictions that apply to the management of the Funds, and, in
particular, to applicable Investment Company Act requirements relating
to transactions with affiliates, custody, portfolio leverage, liquidity,
brokerage, and the timing and method of the valuation of each Subsidiary’s
portfolio
investments. These policies and restrictions are described in detail in the
Funds’ SAI. The Funds’ Chief Compliance Officer oversees implementation of
each
Subsidiary’s policies and procedures, and makes periodic reports to the Funds’
Board regarding each Subsidiary’s compliance with its policies and procedures.
To the extent a Subsidiary invests in commodity-linked derivative instruments,
it will comply with the same regulatory requirements that are applicable
to the Funds’ transactions in derivatives.
The
financial statements of each Subsidiary are consolidated for financial reporting
purposes with the Funds’ financial statements, which are included in the
Funds’
Annual and Semi-Annual Shareholder Reports. Those reports are distributed to
shareholders, and copies of the reports are provided without charge upon
request as indicated on the back cover of this Prospectus. Please refer to the
SAI for additional information about the organization and management of
the
Subsidiaries.
Valuation
of Shares
The
price of each Fund’s shares is based on its NAV. Each Fund’s NAV per
share is computed by adding total assets, subtracting all of a Fund’s
liabilities, and dividing
the result by the total number of shares outstanding.
The
NAV per share of each class of a Fund’s shares is determined based on a pro rata
allocation of a Fund’s investment income, expenses and total capital
gains
and losses. A Fund’s NAV per share is determined each business day as of the
regular close of trading on the NYSE, which is typically 4:00 p.m. Eastern
Time.
However, if trading on the NYSE closes at a time other than 4:00 p.m. Eastern
Time, a Fund’s NAV per share typically would still be determined as of the
regular
close of trading on the NYSE. The Funds do not price their shares on days that
the NYSE is closed. Foreign exchanges may permit trading in foreign securities
on days when a Fund is not open for business, which may result in the value of a
Fund’s portfolio investments being affected at a time when you are unable
to buy or sell shares.
Equity
securities and certain derivative instruments that are traded on an exchange are
valued based on market value. Certain derivative instruments (other than
short-term securities) usually are valued on the basis of prices provided by a
pricing service. The price of debt securities generally is determined using
pricing
services or quotes obtained from broker/dealers who may consider a number of
inputs and factors, such as comparable characteristics, yield curve,
credit
spreads, estimated default rates, coupon rates, underlying collateral and
estimated cash flow. Investments in other mutual funds are valued at the
closing
NAV per share of the mutual funds on the day of valuation. Equity securities,
including shares of closed-end funds and
ETFs, are
valued at the last sale price
or official closing price.
The
valuation of securities traded on foreign markets and certain fixed-income
securities will generally be based on prices determined as of the earlier
closing time
of the markets on which they primarily trade, unless a significant event has
occurred. When a Fund holds securities or other assets that are denominated
in
a foreign currency, the exchange rates as of 4:00 p.m. Eastern Time will
normally be used.
Rule
2a-5 under the Investment Company Act establishes
requirements for determining fair value in good faith for purposes of the
Investment Company Act, including
related oversight and reporting requirements. The rule also defines when market
quotations are “readily available” for purposes of the Investment Company
Act, the threshold for determining whether a Fund must fair value a
security.
Prospectus
– Fund Management47
Among
other things, Rule 2a-5
permits a
Fund’s board to designate the Fund’s primary investment adviser as “valuation
designee” to perform the Fund’s fair value
determinations subject to board oversight and certain reporting and other
requirements intended to ensure that the registered investment company’s
board
receives the information it needs to oversee the investment adviser’s fair value
determinations. The Board has designated the Manager as valuation designee
under Rule
2a-5
to perform fair value functions in accordance with the requirements of
Rule
2a-5.
Securities
may be valued at fair value, as determined in good faith and pursuant to the
Manager’s procedures. For example, fair value pricing will be used when
market quotations are not readily available or reliable, as determined by the
Manager, such as for fixed-income securities and when: (i) trading for a
security
is restricted or stopped; (ii) a security’s trading market is closed (other than
customary closings); or (iii) a security has been de-listed from a national
exchange.
A security with limited market liquidity may require fair value pricing if the
Manager determines that the available price does not reflect the security’s
true market value. In addition, if a significant event that the Manager
determines to affect the value of one or more securities held by a Fund occurs
after
the close of a related exchange but before the determination of a Fund’s NAV per
share, fair value pricing may be used on the affected security or securities.
Securities of small-capitalization companies are also more likely to require a
fair value determination using these procedures because they are more
thinly
traded and less liquid than the securities of larger capitalization companies.
Securities may be fair valued as a result of significant events occurring after
the
close of the foreign markets in which a
Fund invests. In addition, the Funds may invest in illiquid securities requiring
these procedures.
Attempts
to determine the fair value of securities introduce an element of subjectivity
to the pricing of securities. As a result, the price of a security determined
through fair valuation techniques may differ from the price quoted or published
by other sources and may not accurately reflect the market value of
the security when trading resumes. If a reliable market quotation becomes
available for a security formerly valued through fair valuation techniques, the
Manager
compares the new market quotation to the fair value price to evaluate the
effectiveness of the Funds’ fair valuation procedures. You may view a
Fund’s
most recent NAV per share at www.americanbeaconfunds.com by clicking on ‘‘Quick
Links’’ and then ‘‘Daily NAVs.’’
About
Your Investment
Choosing
Your Share Class
Each
Fund offers various classes of shares. Each share class of a Fund represents an
investment in the same portfolio of securities for that Fund, but each class
has
its own expense structure and combination of purchase restrictions, sales
charges, and ongoing fees, allowing you to choose the class that best fits your
situation.
Factors
you should consider when choosing a class of shares include:
|
■ |
How
long you expect to own the shares; |
|
■ |
How
much you intend to invest; |
|
■ |
Total
expenses associated with owning shares of each
class; |
|
■ |
Whether
you qualify for any reduction or waiver of sales
charges; |
|
■ |
Whether
you plan to take any distributions in the near future;
and |
|
■ |
Availability
of share classes. |
Each
investor’s financial considerations are different. You should speak with your
financial professional to help you decide which share class is best for
you.
A
Class Charges and Waivers
The
table below shows the amount of sales charges you will pay on purchases of A
Class shares of the Funds both as a percentage of offering price and as a
percentage
of the amount you invest. The sales charge differs depending upon the amount you
invest and may be reduced or eliminated for larger purchases as
indicated below. If you invest more, the sales charge will be
lower.
Any
applicable sales charge will be deducted directly from your investment. Because
of rounding of the calculation in determining the sales charges, you may
pay
more or less than what is shown in the table below. Shares acquired through
reinvestment of dividends or other distributions are not subject to a
front-end
sales charge. You may qualify for a reduced sales charge or the sales charge may
be waived as described below in ‘‘A Class Sales Charge Reductions and
Waivers.’’
A
Class Shares
|
|
|
| |
|
Amount
of Sale/Account Value |
As
a % of Offering Price |
As
a % of Investment |
Dealer
Commission as a % of Offering
Price |
|
Less
than $50,000 |
5.75% |
6.10% |
5.00% |
|
$50,000
but less than $100,000 |
4.75% |
4.99% |
4.00% |
|
$100,000
but less than $250,000 |
3.75% |
3.90% |
3.00% |
|
$250,000
but less than $500,000 |
2.75% |
2.83% |
2.05% |
|
$500,000
but less than $1 million |
2.00% |
2.04% |
1.50% |
|
$1
million and above |
0.00% |
0.00%†
|
‡
|
| † |
No
initial sales charge applies on purchases of $1,000,000 or more. A CDSC of
0.50% of the offering price will be charged on purchases of $1,000,000 or
more that are redeemed
in whole or in part within eighteen (18) months of
purchase. |
| ‡ |
See
“Dealer Concessions on A Class Purchases Without a Front-End Sales
Charge.” |
The
Distributor retains any portion of the commissions that are not paid to
financial intermediaries to solely pay distribution-related expenses. This
information is
available, free of charge, on the Funds’ website. Please visit
www.americanbeaconfunds.com. You may also call 1-800-658-5811 or consult with
your financial
professional.
A
Class Sales Charge Reductions and Waivers
A
shareholder may qualify for a waiver or reduction in sales charges under certain
circumstances. To receive a waiver or reduction in your A Class sales charge,
you
must advise the Funds’ transfer agent, your broker-dealer or other financial
intermediary of your eligibility at the time of purchase. If you, or your
financial intermediary,
do not let the Funds’ transfer agent know that you are eligible for a reduction,
you may not receive a sales charge discount to which you are otherwise
entitled. This information is available, free of charge, on the Funds’ website.
Please visit www.americanbeaconfunds.com. You may also call 1-800-658-5811
or consult with your financial professional.
48Prospectus
– About Your Investment
Waiver
of Sales Charges
There
is no sales charge if you invest $1 million or more in A Class shares of the
Funds.
Sales
charges also may be waived for certain shareholders or transactions, such
as:
|
■ |
The
Manager or its affiliates; |
|
■ |
Present
and former directors, trustees, officers, employees of the Manager, the
Manager’s parent company, and the American Beacon Funds (and their
‘‘immediate
family’’ as defined in the SAI), and retirement plans established by them
for their employees; |
|
■ |
Registered
representatives or employees of intermediaries that have selling
agreements with the Funds; |
|
■ |
Shares
acquired through merger or acquisition; |
|
■ |
Insurance
company separate accounts; |
|
■ |
Employer-sponsored
retirement plans; |
|
■ |
Dividend
reinvestment programs; |
|
■ |
Purchases
through certain fee-based programs under which investors pay advisory fees
that may be offered through selected registered investment advisers,
broker-dealers,
and other financial intermediaries; |
|
■ |
Shareholders
that purchase a Fund through a financial intermediary that offers our A
Class shares uniformly on a ‘‘no load’’ (or reduced load) basis to you
and
all similarly situated customers of the intermediary in accordance with
the intermediary’s prescribed fee schedule for purchases of fund
shares; |
|
■ |
Mutual
fund shares exchanged from an existing position in the same fund as part
of a share class conversion instituted by an intermediary;
and |
|
■ |
Reinvestment
of proceeds within 90 days of a redemption from A Class account (see
Redemption Policies for more
information). |
The
availability of A Class shares sales charge waivers may depend upon the
policies, procedures, and trading platform of your financial
intermediary.
Reduced
Sales Charges
Under
a “Rights of Accumulation Program,” a “Letter of Intent” or through “Concurrent
Purchases” you may be eligible to buy A Class shares of the Funds at
the reduced sales charge rates that would apply to a larger purchase. Each Fund
reserves the right to modify or to cease offering these programs at any
time.
This
information is available, free of charge, on the Funds’ website. Please visit
www.americanbeaconfunds.com. You may also call 1-800-658-5811 or consult
with
your financial professional.
Dealer
Concessions on A Class Purchases Without a Front-End Sales
Charge
Brokers
who initiate and are responsible for purchases of $1,000,000 or more of A Class
shares of a Fund may receive a dealer concession from the Funds’
Distributor
of 0.50% of the offering price. If a client or broker is unable to provide
account verification on purchases of $1,000,000 or more, the dealer concession
will be forfeited by the broker and front-end sales loads will apply. Dealer
concessions will not be paid on shares purchased by exchange or shares
that
were previously subject to a front-end sales charge or dealer concession. Dealer
concessions will be paid only on eligible purchases where the applicability
of
the CDSC can be monitored. Purchases eligible for sales charge waivers as
described under ‘‘A Class Sales Charge Reductions and Waivers’’ are not eligible
for
dealer concessions on purchases of $1,000,000 or more.
Rights
of Accumulation Program
Under
the Rights of Accumulation Program, you may qualify for a reduced sales charge
for A Class shares by aggregating all of your investments held in certain
accounts (‘’Qualified Accounts’’). The following Qualified Accounts holding any
share class of the American Beacon Funds may be grouped together to qualify
for the reduced sales charge under the Rights of Accumulation Program or Letter
of Intent:
|
■ |
Accounts
owned by you, your spouse or your minor children under the age of 21,
including trust or other fiduciary accounts in which you, your spouse or
your
minor children are the beneficiary; |
|
■ |
IRAs,
including traditional, Roth, SEP and SIMPLE IRAs;
and |
|
■ |
Coverdell
Education Savings Accounts or qualified 529
plans. |
A
fiduciary can apply a right of accumulation to all shares purchased for a trust,
estate or other fiduciary account that has multiple accounts.
You
must notify your financial intermediary, or the Funds’ transfer agent, in
the case of shares held directly with a Fund, at the time of purchase that a
purchase
qualifies for a reduced sales charge under the Rights of Accumulation Program.
In addition, you must provide either a list of account numbers or copies
of account statements verifying your qualification. You may combine the
historical cost or current market value, as of the day prior to your additional
American
Beacon Funds’ purchase (whichever is higher) of your existing American Beacon
Funds mutual fund with the amount of your current purchase in order
to take advantage of the reduced sales charge. Historical cost is the price you
actually paid for the shares you own, plus your reinvested dividends and
other
distributions. If you are using historical cost to qualify for a reduced sales
charge, you should retain any records to substantiate your historical costs
since the
Fund, its transfer agent or your financial intermediary may not maintain this
information.
If
your shares are held through financial intermediaries and/or in a retirement
account (such as a 401(k) or employee benefit plan), you may combine the
current
market value of your existing American Beacon Funds mutual fund investment with
the amount of your current purchase in order to take advantage of
the reduced sales charge. You or your financial intermediary must notify the
Funds’ transfer agent at the time of purchase that a purchase qualifies for a
reduced
sales charge and provide copies of account statements dated within three months
of your current purchase verifying your qualification.
Upon
receipt of the above referenced supporting documentation, the financial
intermediary or the Funds’ transfer agent will calculate the combined value of
all
of your Qualified Accounts to determine if the current purchase is eligible for
a reduced sales charge. Purchases made for nominee or street name accounts
(securities
held in the name of a dealer or another nominee such as a bank trust department
instead of the customer) may not be aggregated with purchases for
other accounts and may not be aggregated with other nominee or street name
accounts unless otherwise qualified as described above.
Letter
of Intent
If
you plan to invest at least $50,000 (excluding any reinvestment of dividends and
other distributions) during the next 13 months in any class of a Fund, you
may
qualify for a reduced sales charge for purchases of A Class shares by completing
the Letter of Intent section of your account application.
A
Letter of Intent indicates your intent to purchase at least $50,000 in any class
of the American Beacon Funds over the next 13 months in exchange for a
reduced
A Class sales charge indicated on the above tables. The minimum initial
investment under a Letter of Intent is $2,500. You are not obligated to
purchase
additional shares if you complete a Letter of Intent. However, if you do not buy
enough shares to qualify for the projected level of sales charge by
Prospectus
– About Your Investment49
the
end of the 13-month period (or when you sell your shares, if earlier), your
sales charge will be recalculated to reflect your actual purchase level. During
the term
of the Letter of Intent, shares representing 5% of your intended purchase will
be held in escrow. If you do not purchase enough shares during the 13-month
period to qualify for the projected reduced sales charge, the additional sales
charge will be deducted from your account. If you have purchased shares
of any American Beacon mutual fund within 90 days prior to signing a Letter of
Intent, they may be included as part of your intended purchase, however,
previous purchase transactions will not be recalculated with the proposed new
breakpoint. You must provide either a list of account numbers or copies
of account statements verifying your purchases within the past 90
days.
Concurrent
Purchases
You
may combine simultaneous purchases in shares of any of the American Beacon Funds
to qualify for a reduced charge.
CDSC
— A Class Shares
Unless
a waiver applies, investors who purchase $1,000,000 or more of A Class shares
of a Fund (and, thus, pay no initial sales charge) will be subject to a
0.50%
CDSC if those shares are redeemed within 18 months after they are purchased. The
CDSC does not apply if you are otherwise eligible to purchase A Class
shares without an initial sales charge or are eligible for one of the waivers
described herein or in the SAI.
CDSC
— C Class Shares
If
you redeem C Class shares within 12 months of purchase, you may be charged a
CDSC of 1%. The CDSC generally will be deducted from your redemption
proceeds.
In some circumstances, you may be eligible for one of the waivers described
herein or in the SAI. You must advise the transfer agent of your eligibility
for a waiver when you place your redemption request.
How
CDSCs will be Calculated
The
amount of the CDSC will be based on the market value of the redeemed shares at
the time of the redemption or the original purchase price, whichever is
lower.
Because of the rounding of the calculation in determining the CDSC, you may pay
more or less than the indicated rate. Your CDSC holding period is based
upon the date of your purchase. The CDSCs will be deducted from the proceeds of
your redemption, not from amounts remaining in your account. A CDSC
is not imposed on any increase in NAV per share over the initial purchase price
or shares you received through the reinvestment of dividends or other
distributions.
To
keep your CDSC as low as possible, each time you place a request to sell shares,
the Funds will redeem your shares in the following order:
|
■ |
shares
acquired by the reinvestment of dividends or other
distributions; |
|
■ |
other
shares that are not subject to the CDSC; |
|
■ |
shares
held the longest during the holding
period. |
Waiver
of CDSCs — A and C Class Shares
A
shareholder may qualify for a CDSC waiver under certain circumstances. To have
your CDSC waived, you must advise the Funds’ transfer agent, your broker-dealer
or other financial intermediary of your eligibility at the time of redemption.
If you or your financial intermediary do not let the Funds’ transfer
agent
know that you are eligible for a waiver, you may not receive a waiver to which
might otherwise be otherwise entitled.
The
CDSC may be waived if:
|
■ |
The
redemption is due to a shareholder’s death or post-purchase
disability; |
|
■ |
The
redemption is from a systematic withdrawal plan and represents no more
than 10% of your annual account value; |
|
■ |
The
redemption is a benefit payment made from a qualified retirement plan,
unless the redemption is due to the termination of the plan or the
transfer of the
plan to another financial institution; |
|
■ |
The
redemption is for a “required minimum distribution” from a traditional IRA
as determined by the Internal Revenue
Service; |
|
■ |
The
redemption is due to involuntary redemptions by a Fund as a result of your
account not meeting the minimum balance requirements, the termination
and
liquidation of a Fund, or other actions; |
|
■ |
The
redemption is from accounts for which the broker-dealer of record has
entered into a written agreement with the Distributor (or Manager)
allowing this waiver; |
|
■ |
The
redemption is to return excess contributions made to a retirement plan;
or |
|
■ |
The
redemption is to return contributions made due to a mistake of
fact. |
The
SAI contains further details about the CDSC and the conditions for waiving the
CDSC.
Information
regarding CDSC waivers for A and C Class shares is available, free of charge, on
the Funds’ website. Please visit www.americanbeaconfunds.com. You
may also call 1-800-658-5811 or consult with your financial
professional.
Sales
Charge Waivers and Reductions Available Through Certain Financial
Intermediaries
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from a Fund or through a financial
intermediary.
Different intermediaries may impose different sales charges (including potential
reductions in or waivers of sales charges). Such intermediary-specific
sales charge variations are described in Appendix A to this Prospectus, entitled
“Intermediary Sales Charge Discounts, Waivers and Other Information.”
Appendix A is incorporated herein by reference (is legally a part of this
Prospectus).
In
all instances, it is the purchaser’s responsibility to notify the Funds or the
purchaser’s financial intermediary at the time of purchase of any relationship
or other
facts qualifying the purchaser for sales charge waivers or discounts. For
waivers and discounts not available through a particular intermediary,
shareholders
may have to purchase Fund shares through another intermediary to receive these
waivers or discounts. This information is available, free of charge,
on the Funds’ website. Please visit www.americanbeaconfunds.com. You may also
call 1-800-658-5811 or consult with your financial professional.
Conversion
of C Class Shares to A Class Shares
C
Class shares convert automatically into A Class shares eight (8) years after the
initial date of purchase or, if you acquired your C Class shares through an
exchange
or conversion from another share class, eight (8) years after the date you
acquired your C Class shares, provided the conversion is available through
your
financial intermediary. When C Class shares that you acquired through a purchase
or exchange convert to A Class shares, any other C Class shares that
you
purchased with reinvested dividends and distributions also will convert into A
Class shares on a pro rata basis. A different holding period may also apply
50Prospectus
– About Your Investment
depending
on your intermediary. Certain financial intermediaries may not make this
conversion available to their clients. Please see “Appendix A—Intermediary
Sales Charge Discounts, Waivers and Other Information” in this Prospectus, or
contact your financial intermediary for additional information.
Purchase
and Redemption of Shares
Eligibility
The
A Class, C Class, Y Class, R5 Class, and Investor Class shares offered in this
Prospectus are available to eligible investors who meet the minimum initial
investment.
R6 Class shares are available only to participating 401(k) plans, 457 plans,
employer-sponsored 403(b) plans, profit-sharing and money purchase pension
plans, defined benefit plans, non-qualified deferred compensation plans, health
savings plans, health savings accounts and funded welfare benefit plans
(e.g., Voluntary Employees’ Beneficiary Association (VEBA) and Other
Post-Employment Benefits (OPEB) plans). R6 Class shares generally are available
only
to retirement plans where plan level or omnibus accounts are held on the books
of a Fund; however, a Fund reserves the right in its sole discretion to
waive
this requirement. Generally, R6 Class shares are not available to retail
non-retirement accounts, Traditional and Roth IRAs, Coverdell Education Savings
Accounts,
SEPs, SARSEPs, SIMPLE IRAs and individual 403(b) plans. American Beacon Funds do
not accept accounts registered to foreign individuals or entities,
including foreign correspondent accounts. The Funds do not conduct operations
and are not offered for purchase outside of the United States.
Subject
to your eligibility, as described below, you may invest in a Fund directly
or through
intermediary organizations, such as broker-dealers, insurance companies,
plan sponsors, third party administrators, and retirement plans. As described
below, the Manager may allow certain individuals to invest directly in
a
Fund in its sole discretion.
If
you invest
directly with a Fund, the fees and policies with respect to a
Fund’s shares that are outlined in this Prospectus are set by each Fund. The
Manager and
the Funds are not responsible for determining the suitability of the Funds or a
share class for any investor.
Because
in most cases it is more advantageous for investors using an intermediary to
purchase A Class shares than C Class shares for amounts of $1,000,000
or
more, the Funds will decline a request to purchase C Class shares for $1,000,000
or more.
If
you invest through a financial intermediary, most of the information you will
need for managing your investment will come from your financial intermediary.
This
includes information on how to buy, sell and exchange shares of the Funds. If
you establish an account through a financial intermediary, the investment
minimums
described in this section may not apply. Investors investing in a Fund through a
financial intermediary should consult with their financial intermediary
to ensure they obtain any proper “breakpoint” discount and all information
regarding the differences between available share classes. Your broker-dealer
or financial intermediary also may charge fees that are in addition to those
described in this Prospectus. Please contact your intermediary for information
regarding investment minimums, how to purchase and redeem shares and applicable
fees.
Minimum
Investment Amount by Share Class
|
|
|
| |
|
|
New
Account |
Existing
Account |
|
|
Share
Class |
Minimum
Initial Investment Amount |
Purchase/Redemption
Minimum by check/ACH/Exchange |
Purchase/Redemption
Minimum by Wire |
|
C |
$1,000 |
$50 |
$
250 |
|
A,
Investor |
$2,500 |
$50 |
$
250 |
|
Y |
$100,000 |
$50 |
None |
|
R6 |
None |
$50 |
None |
|
R5 |
$250,000 |
$50 |
None |
The
Manager may allow a reasonable period of time after opening an account for a Y
Class or R5 Class investor to meet the initial investment requirement. In
addition,
for investors such as trust companies and financial advisors
who make investments for a group of clients, the minimum initial investment can
be met through
aggregated purchase orders for more than one client.
R6
Class shares can only be purchased through a participating retirement plan. R6
Class shares are available only to participating 401(k) plans, 457 plans,
employer-sponsored
403(b) plans, profit-sharing and money purchase pension plans, defined benefit
plans, non-qualified deferred compensation plans, health savings
plans, health savings accounts and funded welfare benefit plans (e.g., Voluntary
Employees’ Beneficiary Association (VEBA) and Other Post-Employment
Benefits (OPEB) plans). R6 Class shares generally are available only to
retirement plans where plan level or omnibus accounts are held on the
books
of a Fund; however, a Fund reserves the right in its sole discretion to waive
this requirement. Generally, R6 Class shares are not available to retail
non-retirement
accounts, Traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs,
SARSEPs, SIMPLE IRAs and individual 403(b) plans.
Opening
an Account
You
may open an account through a retirement plan, an investment professional, a
broker-dealer, or other financial intermediary. Please contact your financial
intermediary
for more information on how to open an account. Shares you purchase through your
broker-dealer will normally be held in your account with that
firm.
Direct
mutual fund accounts are not available to new shareholders. Existing direct
mutual fund account shareholders may continue to buy or sell shares through
their existing direct mutual fund accounts, but will not be able to open new
direct mutual fund accounts. The Manager may allow the following individuals
or entities to open new direct mutual fund accounts in its sole discretion: (1)
corporate accounts, (2) employees of the Manager, or its direct parent
company,
Resolute Investment Managers, Inc., and its affiliates and subsidiaries, (3)
employees of a sub-advisor to a fund in the American Beacon Funds Complex,
(4) members of the Board, and
(5)
members of the Manager’s Board of Directors.
To
help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify,
and record
information that identifies each person who opens an account. When you open an
account, you will be asked for information that will allow the Funds
or
your financial institution to identify you. Non-public corporations and other
entities may be required to provide articles of incorporation, trust or
partnership agreements,
and taxpayer identification numbers on the account or other documentation. The
Funds are required by law to reject your new account application
if the required identifying information is not provided.
A
Fund reserves the right to liquidate a shareholder’s account at the current
day’s NAV per share and remit proceeds via check if a Fund or a financial
institution
is unable to verify the shareholder’s identity within three days of account
opening.
Prospectus
– About Your Investment51
Purchase
Policies
Shares
of the Funds are offered and purchase orders are typically accepted until 4:00
p.m. Eastern Time or the close of the NYSE (whichever comes first) on
each
day on which the NYSE is open for business. If a purchase order is received by a
Fund in good order prior to the Fund’s deadline, the purchase price will
be
the NAV per share next determined on that day, plus any applicable sales
charges. A purchase order is considered to be received in good order when it
complies
with all of a Fund’s applicable policies. If a purchase order is received in
good order after the applicable deadline, the purchase price will be the NAV
per
share of the following day that a Fund is open for business, plus any applicable
sales charges. Shares of a Fund will only be issued against full payment,
as described
more fully in this Prospectus and SAI.
The
Funds have authorized certain third party financial intermediaries, such as
broker-dealers, insurance companies, third party administrators and trust
companies,
to receive purchase and redemption orders on behalf of the Funds and to
designate other intermediaries to receive purchase and redemption orders
on behalf of the Funds. A Fund is deemed to have received such orders when they
are received by the financial intermediaries or their designees. Thus,
an
order to purchase or sell Fund shares will be priced at a Fund’s next determined
NAV per share after receipt by the financial intermediary or its designee. It
is
the responsibility of your broker-dealer or financial intermediary to transmit
orders that will be received by the Funds in proper form and in a timely
manner. The
Funds are not responsible for the failure of a broker-dealer or financial
intermediary to transmit a purchase order in proper form and in a timely
manner.
Fund
shares may be purchased only in U.S. States and Territories in which they can be
legally sold. Prospective investors should inquire as to whether shares of
a
Fund are available for offer and sale in their jurisdiction. Each Fund reserves
the right to refuse purchases if, in the judgment of the Funds, the transaction
would
adversely affect the Funds and their shareholders. Each Fund has the right to
reject any purchase order or cease offering any or all classes of shares at
any
time. Each Fund reserves the right to require payment by wire. Checks to
purchase shares are accepted subject to collection at full face value in U.S.
funds and
must be drawn in U.S. dollars on a U.S. bank. The Funds will not accept
‘‘starter’’ checks, credit card checks, money orders, cashier’s checks, or third
party checks.
If
your payment is not received and collected, your purchase may be canceled and
you could be liable for any losses or fees the Funds or the Manager has
incurred.
Under applicable anti-money laundering regulations and other federal
regulations, purchase orders may be suspended, restricted or canceled and
the
monies may be withheld.
Please
refer to the section titled ‘‘Frequent Trading and Market Timing’’ for
information on the Funds’ policies regarding frequent purchases, redemptions,
and exchanges.
Redemption
Policies
If
you purchased shares of a Fund through your financial intermediary, please
contact your broker-dealer or other financial intermediary to sell shares of a
Fund.
A sale or redemption of your shares is generally taxable to you. See
“Distributions and Taxes - Taxes.”
The
redemption price will be the NAV per share next determined after a redemption
request is received in good order, minus any applicable CDSC. In order to
receive
the redemption price calculated on a particular business day, redemption
requests must be received in good order by 4:00 p.m. Eastern Time or by the
close
of the NYSE (whichever comes first).
Wire
proceeds from redemption requests received in good order by 4:00 p.m. Eastern
Time or by the close of the NYSE (whichever comes first) generally are
transmitted
to shareholders on the next day the Funds are open for business. In any event,
proceeds from a redemption request will typically be transmitted to a
shareholder by no later than seven days after the receipt of a redemption
request in good order. Delivery of proceeds from shares purchased by check, ACH,
or
pre-authorized automatic investment may be delayed until the funds have cleared,
which may take up to ten days.
You
may, within 90 days of redemption, reinvest all or part of the proceeds of your
redemption of A or C Class shares of a Fund, without incurring any applicable
additional sales charge, in the same class of another American Beacon Fund, by
sending a written request and a check to your financial intermediary
or directly to the Funds. Reinvestment must be into the same account from which
you redeemed the shares or received the distribution. Proceeds from
a redemption and all dividend payments and other distributions will be
reinvested in the same share class from which the original redemption or
distribution
was made. Reinvestment will be at the NAV per share next calculated after the
Funds receive your request. You must notify the Funds and your financial
intermediary at the time of investment if you decide to exercise this
privilege.
The
Funds reserve the right to suspend redemptions or postpone the date of payment
for more than seven days (i) when the NYSE is closed (other than for
customary
weekend and holiday closings); (ii) when trading on the NYSE is restricted;
(iii) when the SEC determines that an emergency exists so that disposal
of
a Fund’s investments or determination of its NAV per share is not reasonably
practicable; or (iv) by order of the SEC for protection of the Funds’
shareholders.
Although
the Funds intend to redeem shares by paying out available cash, cash generated
by selling portfolio holdings (including cash equivalent portfolio holdings),
or funds borrowed through the interfund credit facility, or from a bank line of
credit, in stressed market conditions and other appropriate circumstances,
the Funds reserve the right to pay the redemption price in whole or in part by
borrowing funds from external parties or distributing securities or
other assets held by the Funds. To the extent that a Fund redeems its shares in
this manner, the shareholder assumes the risk of a subsequent change in the
market
value of those securities, the cost of liquidating the securities and the
possibility of a lack of a liquid market for those securities.
Please
refer to the section titled ‘‘Frequent Trading and Market Timing’’ for
information on the Funds’ policies regarding frequent purchases, redemptions,
and exchanges.
Exchange
Policies
If
you purchased shares of the Funds through your financial intermediary, please
contact your financial intermediary to determine if you may take advantage
of
the exchange policies described in this section and for the intermediary’s
policies to effect an exchange.
Shares
of any class of a Fund may be exchanged for shares of the same class of another
American Beacon Fund under certain limited circumstances. Since an exchange
involves a concurrent redemption and purchase, please review the sections titled
“Redemption Policies” and “Purchase Policies” for additional limitations
that apply to redemptions and purchases. There is no front-end sales charge on
exchanges between A Class shares of a Fund for A Class shares of another
fund. Shares otherwise subject to a CDSC will not be charged a CDSC in an
exchange to shares of another fund that has a CDSC. However, shares exchanged
between funds that impose a CDSC will be charged a CDSC if redeemed within 12
months or 18 months, as applicable, of the purchase of the initial
shares.
Before
exchanging shares, shareholders should consider how the exchange may affect any
CDSC that might be imposed on the subsequent redemption of remaining
shares.
If
shares of a Fund were purchased by check, a shareholder must have owned those
shares for at least ten days prior to exchanging out of a Fund and into
another
fund.
52Prospectus
– About Your Investment
The
eligibility and minimum investment requirement must be met for the class into
which the shareholder is exchanging. Fund shares may be acquired through
exchange only in U.S. states and Territories in which they can be legally sold.
Each Fund reserves the right to charge a fee and to modify or terminate
the
exchange privilege at any time. Each Fund reserves the right to refuse exchange
requests if, in the judgment of a Fund, the transaction would adversely
affect
a Fund and its shareholders. Please refer to the section titled “Frequent
Trading and Market Timing” for information on the Funds’ policies regarding
frequent
purchases, redemptions, and exchanges.
Shares
of any class of a Fund may be converted to shares of another class of the same
Fund under certain limited circumstances. For federal income tax purposes,
the conversion of shares of one share class of a Fund to shares of a different
share class of the same Fund will not result in the realization of a
capital
gain or loss. However, an exchange of shares of one Fund for shares of a
different American Beacon Fund generally is considered a redemption and a
concurrent
purchase, respectively, and thus may result in the realization of a capital gain
or loss for those purposes.
How
to Purchase, Redeem or Exchange Shares
If
your account is through a broker-dealer or other financial intermediary, please
contact them directly to purchase, redeem or exchange shares of a Fund.
Your
broker-dealer or financial intermediary can help you open a new account, review
your financial needs and formulate long-term investment goals and objectives.
Your broker dealer or financial intermediary will transmit your request to a
Fund and may charge you a fee for this service. A Fund will not accept a
purchase
order of $1,000,000 or more for C Class shares if the purchase is known to be on
behalf of a single investor (not including dealer “street name” or omnibus
accounts). Dealers, other financial intermediaries or fiduciaries purchasing
shares for their customers are responsible for determining the suitability of
a
particular share class for an investor. You should include the following
information with any order:
| |
•
Your name/account registration |
| |
•
Type of transaction requested |
| |
•
Fund name(s) and fund number(s) |
| |
•
Dollar amount or number of shares |
Transactions
for direct shareholders are conducted through:
|
|
| |
|
Internet |
www.americanbeaconfunds.com |
|
Phone |
To
reach an American Beacon representative call 1-800-658-5811, option
1
Through
the Automated Voice Response Service call 1-800-658-5811, option 2
(Investor Class Only) |
|
Mail |
American
Beacon Funds
PO
Box 219643
Kansas
City, MO 64121-9643 |
Overnight
Delivery:
American
Beacon Funds
430
W. 7th Street, Suite 219643
Kansas
City, MO 64105-1407 |
Purchases
by Wire:
Send
a bank wire to State Street Bank and Trust Co. with these
instructions:
|
■ |
ABA#
0110-0002-8; AC-9905-342-3, |
|
■ |
Attn:
American Beacon Funds, |
|
■ |
the
fund name and fund number, and |
|
■ |
shareholder
account number and registration. |
|
|
|
| |
|
|
New
Account |
Existing
Account |
|
Share
Class |
Minimum
Initial Investment Amount |
Purchase/Redemption
Minimum by check/ACH/Exchange |
Purchase/Redemption
Minimum by Wire |
|
C |
$1,000 |
$50 |
$
250 |
|
A,
Investor |
$2,500 |
$50 |
$
250 |
|
Y |
$100,000 |
$50 |
None |
|
R6 |
None |
$50 |
None |
|
R5 |
$250,000 |
$50 |
None |
Redemption
proceeds will be mailed to the account of record or transmitted to commercial
bank designated on the account application form.
Supporting
documents may be required for redemptions by estates, trusts, guardianships,
custodians, corporations, and welfare, pension and profit sharing plans.
Redemption requests must also include authorized signature(s) of all persons
required to sign for the account. Call 1-800-658-5811 for
instructions.
To
protect the Funds and your account from fraud, a Medallion signature guarantee
is required for redemption orders:
|
■ |
with
a request to send the proceeds to an address or commercial bank account
other than the address or commercial bank account designated on the
account
application, or |
|
■ |
for
an account whose address has changed within the last 30 days if proceeds
are sent by check. |
The
Funds only accept Medallion signature guarantees, which may be obtained at
participating banks, broker-dealers and credit unions. A notary public
cannot
provide a signature guarantee. Call 1-800-658-5811 for instructions and further
assistance.
Payments
to Financial Intermediaries
For
certain share classes, each Fund and/or the Manager (and/or the Manager’s
affiliates), at their own expense, may pay compensation to financial
intermediaries
for shareholder-related services and, if applicable, distribution-related
services, including administrative, sub-transfer agency type, recordkeeping
and shareholder communication services. For example, compensation may be paid to
make Fund shares available to sales representatives and/or
customers of a fund supermarket platform or similar program sponsor or for
services provided in connection with such fund supermarket platforms and
programs.
Prospectus
– About Your Investment53
The
amount of compensation paid to different financial intermediaries may differ.
The compensation paid to a financial intermediary may be based on a variety
of factors, including average assets under management in accounts distributed
and/or serviced by the financial intermediary, gross sales by the financial
intermediary and/or the number of accounts serviced by the financial
intermediary that invest in a Fund. To the extent that a Fund pays
any such compensation,
it is designed to compensate the financial intermediary for providing services
that would otherwise be provided by the Manager, a Fund, or its
transfer
agent. To the extent the Manager or its affiliates pay such compensation, it
would likely include amounts from that party’s own resources and constitute
what is sometimes referred to as ‘‘revenue sharing.’’
Compensation
received by a financial intermediary from a Fund, the Manager or an
affiliate of the Manager may include payments for marketing and/or
training
expenses incurred by the financial intermediary, including expenses incurred by
the financial intermediary in educating (itself and) its salespersons with
respect
to Fund shares. For example, such compensation may include reimbursements for
expenses incurred in attending educational seminars regarding a
Fund,
including travel and lodging expenses. It may also cover costs incurred by
financial intermediaries in connection with their efforts to sell Fund shares,
including
costs incurred compensating (registered) sales representatives and preparing,
printing, and distributing sales literature.
Any
compensation received by a financial intermediary, whether from a Fund or
the Manager and/or its affiliates, and the prospect of receiving it may
provide the
financial intermediary with an incentive to recommend the shares of a
Fund, or a certain class of shares of a Fund, over other potential
investments. Similarly,
the compensation may cause financial intermediaries to elevate the prominence
of a Fund within its organization by, for example, placing it on a list
of
preferred funds. You can contact your financial intermediary for details about
any such payments it receives from the Manager, its affiliates and/or the
Funds,
or any other fees, expenses, or commissions your financial intermediary may
charge you in addition to those disclosed in this Prospectus.
A
Fund will not make any of the payments described in this section with respect to
its R6 Class shares.
Additional
Payments with Respect to Y Class Shares
Y
Class shares may also be available on brokerage platforms of firms that have
agreements with a Fund’s distributor to offer such shares solely when acting as
an
agent for the investor. An investor transacting in Y Class shares in these
programs may be required to pay a commission and/or other forms of compensation
to the broker. Shares of a Fund are available in other share classes that have
different fees and expenses.
General
Policies
If
a shareholder’s account balance falls below the following minimum levels, the
shareholder may be asked to increase the balance.
|
| |
|
Share
Class |
Account
Balance |
|
C |
$
1,000 |
|
A,
Investor |
$
2,500 |
|
Y |
$25,000 |
|
R6 |
$0 |
|
R5 |
$75,000 |
If
the account balance remains below the applicable minimum account balance after
45 days, each Fund reserves the right, upon 30 days’ advance written
notice,
to close the account and send the proceeds to the shareholder. Each Fund
reserves the authority to modify minimum account balances in its
discretion.
A
traditional IRA or Roth IRA invested directly will be charged an annual
maintenance fee of $15.00 by the Custodian.
An
ACH privilege allows electronic transfer from a checking or savings account into
a direct account with the Funds. The ACH privilege may not be used for
initial
purchases but may be used for subsequent purchases and redemptions. Purchases of
Fund shares by ACH are subject to a limit of $2,000 per Fund per day.
The Funds reserve the right to waive such limit in their sole
discretion.
ACH
privileges must be requested on the account application, or may be established
on an existing account by submitting a request in writing to the Funds.
Validated
signatures from all shareholders of record for the account are required on the
written request. See details below regarding signature validations. Such
privileges apply unless and until the Funds receive written instructions from
all shareholders of record canceling such privileges. Changes of bank account
information
must also be made in writing with validated signatures. The Funds reserve the
right to amend, suspend or discontinue the ACH privilege at any time
without prior notice. The ACH privilege does not apply to shares held in broker
“street name” accounts or in other omnibus accounts.
When
a signature validation is called for, a Medallion signature guarantee or SVP
stamp may be required. A Medallion signature guarantee is intended to
provide
signature validation for transactions considered financial in nature, and an SVP
stamp is intended to provide signature validation for transactions non-financial
in nature. A Medallion signature guarantee or SVP stamp may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency,
savings association or other financial institution which is participating in a
Medallion program or SVP recognized by the Securities Transfer Association.
The Funds may reject a Medallion signature guarantee or SVP stamp. Shareholders
should call 1-800-658-5811 for additional details regarding a Fund’s
signature guarantee requirements.
The
following policies apply to instructions you may provide to the Funds by
telephone:
|
■ |
The
Funds, their officers, trustees, employees, or agents are not responsible
for the authenticity of instructions provided by telephone, nor for any
loss, liability,
cost or expense incurred for acting on
them. |
|
■ |
The
Funds employ procedures reasonably designed to confirm that instructions
communicated by telephone are
genuine. |
|
■ |
Due
to the volume of calls or other unusual circumstances, telephone
redemptions may be difficult to implement during certain time
periods. |
The
Funds reserve the right to:
|
■ |
liquidate
a shareholder’s account at the current day’s NAV per share and remit
proceeds via check if the Funds or a financial institution is unable to
verify the shareholder’s
identity within three business days of account
opening, |
|
■ |
seek
reimbursement from the shareholder for any related loss incurred by a Fund
if payment for the purchase of Fund shares by check does not clear the
shareholder’s
bank, and |
|
■ |
reject
a purchase order and seek reimbursement from the shareholder for any
related loss incurred by a Fund if funds are not received by the
applicable wire deadline. |
A
shareholder will not be required to pay a CDSC when the registration for A Class
or C Class shares is transferred to the name of another person or entity.
The
transfer may occur by absolute assignment, gift or bequest, as long as it does
not involve, directly or indirectly, a public sale of the shares. When A Class
or
C Class shares are transferred, any applicable CDSC will continue to apply to
the transferred shares and will be calculated as if the transferee had acquired
the
shares in the same manner and at the same time as the transferring
shareholder.
54Prospectus
– About Your Investment
Escheatment
Please
be advised that certain state escheatment laws may require a Fund to turn over
your mutual fund account to the state listed in your account registration
as abandoned property unless you contact the Funds. Many states have added
‘‘inactivity’’ or the absence of customer-initiated
contact
as a component
of their rules and guidelines for the escheatment of unclaimed property. These
states consider property to be abandoned when there is no shareholder-initiated
activity
on an account for at least three (3) to five (5) years.
Depending
on the laws in your jurisdiction, customer-initiated contact might be achieved
by one of the following methods:
|
■ |
Send
a letter to American Beacon Funds via the United States Post
Office. |
|
■ |
Speak
to a Customer Service Representative on the phone after you go through a
security verification process. For
residents of certain states, contact cannot
be made by phone but must be in writing or through the Funds’ secure web
application. |
|
■ |
Access
your account through the Funds’ secure web
application. |
|
■ |
Cashing
checks that are received and are made payable to the owner of the
account. |
The
Funds, the Manager, and the transfer agent will not be liable to shareholders or
their representatives for good faith compliance with escheatment laws. To
learn
more about the escheatment rules for your particular state, please contact your
attorney or State Treasurer’s and/or Controller’s Offices. Unless you hold
your
shares directly with a Fund, you should contact your broker-dealer, retirement
plan, or other third party, intermediary regarding applicable state escheatment
laws.
Shareholders
that reside in the state of Texas may designate a representative to receive
escheatment notifications by completing and submitting a designation
form
that can be found on the website of the Texas Comptroller. While the designated
representative does not have any rights to claim or access the shareholder’s
account or assets, the escheatment period will cease if the representative
communicates knowledge of the shareholder’s location and confirms that
the shareholder has not abandoned his or her property. If a shareholder
designates a representative to receive escheatment notifications, any
escheatment
notices will be delivered both to the shareholder and the designated
representative. The completed designation form may be mailed to the below
address.
Contact
information:
| |
American
Beacon Funds
P.O.
Box 219643
Kansas
City, MO 64121-9643
1-800-658-5811
www.americanbeaconfunds.com |
Frequent
Trading and Market Timing
Frequent
trading by Fund shareholders poses risks to other shareholders in that Fund,
including (i) the dilution of a Fund’s NAV per share, (ii) an increase in a
Fund’s
expenses, and (iii) interference with the portfolio manager’s ability to execute
efficient investment strategies. Frequent, short-term trading of Fund
shares
in an attempt to profit from day-to-day fluctuations in a Fund’s NAV is known as
market timing.
The
Funds’ Board has adopted policies and procedures intended to discourage frequent
trading and market timing. Shareholders may transact one ‘‘round trip’’
in a Fund in any rolling 90-day period. A ‘‘round trip’’ is defined as two
transactions, each in an opposite direction. A round trip may involve either (i)
a purchase
or exchange into a Fund followed by a redemption or exchange out of a Fund or
(ii) a redemption or exchange out of a Fund followed by a purchase or
exchange into a Fund. If the Manager detects that a shareholder has exceeded one
round trip in a Fund in any rolling 90-day period, the Manager, without
prior
notice to the shareholder, may prohibit the shareholder from making further
purchases of that Fund. In general, each Fund reserves the right to reject
any
purchase order, terminate the exchange privilege, or liquidate the account of
any shareholder that the Manager determines has engaged in frequent trading
or market timing, regardless of whether the shareholder’s activity violates any
policy stated in this Prospectus. Additionally, the Manager may in its
discretion,
reject any purchase or exchange into a Fund from any individual investor,
institutional investor, or group whose trading activity could disrupt the
management
of a Fund or dilute the value of the Funds’ shares, including collective trading
(e.g. following the advice of an investment newsletter). Such investors
may be barred from future purchases of American Beacon Funds.
The
round-trip limit does not apply to the following transaction
types:
|
■ |
shares
acquired through the reinvestment of dividends and other
distributions; |
|
■ |
systematic
purchases and redemptions; |
|
■ |
shares
redeemed to return excess IRA contributions;
or |
|
■ |
certain
transactions made within a retirement or employee benefit plan, such as
payroll contributions, minimum required distributions, loans, and hardship
withdrawals,
or other transactions that are initiated by a party other than the plan
participant. |
Financial
intermediaries that offer Fund shares, such as broker-dealers, third party
administrators of retirement plans, and trust companies, will be asked to
enforce
the Funds’ policies to discourage frequent trading and market timing by
investors. However, certain intermediaries that offer Fund shares have
informed
the Funds that they are currently unable to enforce the Funds’ policies on an
automated basis. In those instances, the Manager will monitor trading
activity
of the intermediary in an attempt to detect patterns of activity that indicate
frequent trading or market timing by underlying investors. In some cases,
intermediaries
that offer Fund shares have their own policies to deter frequent trading and
market timing that differ from the Funds’ policies. A Fund may defer
to an intermediary’s policies. For more information, please contact the
financial intermediary through which you invest in the Funds.
The
Manager monitors trading activity in the Funds to attempt to identify
shareholders engaged in frequent trading or market timing. The Manager may
exclude
transactions below a certain dollar amount from monitoring and may change that
dollar amount from time to time. The ability of the Manager to detect
frequent trading and market timing activity by investors who own shares through
an intermediary is dependent upon the intermediary’s provision of information
necessary to identify transactions by the underlying investors. The Funds have
entered into agreements with the intermediaries that service the Funds’
investors, pursuant to which the intermediaries agree to provide information on
investor transactions to the Funds and to act on the Funds’ instructions
to
restrict transactions by investors who the Manager has identified as having
violated the Funds’ policies and procedures to deter frequent trading and
market
timing.
Wrap
programs offered by certain intermediaries may be designated ‘‘Qualified Wrap
Programs’’ by a Fund based on specific criteria established by the Funds
and
a certification by the intermediary that the criteria have been met. A Qualified
Wrap Program is a wrap program whose sponsoring intermediary: (i) certifies
that it has investment discretion over $50 million or more in client assets
invested in mutual funds at the time of the certification; (ii) certifies that
it directs
transactions in accounts participating in the wrap program(s) in concert with
changes in a model portfolio; (iii) provides the Manager a description of
the
wrap program(s); and (iv) managed by an intermediary that agrees to provide the
Manager sufficient information to identify individual accounts in the
Prospectus
– About Your Investment55
intermediary’s
wrap program(s). For purposes of applying the round-trip limit, transactions
initiated by clients invested in a Qualified Wrap Program will not be
matched
to transactions initiated by the intermediary sponsoring the Qualified Wrap
Program. For example, a client’s purchase of a Fund followed within 90
days
by the intermediary’s redemption of the same Fund would not be considered a
round trip. However, transactions initiated by a Qualified Wrap Program
client
are subject to the round-trip limit and will be matched to determine if the
client has exceeded the round-trip limit. In addition, the Manager will monitor
transactions
initiated by Qualified Wrap Program intermediaries to determine whether any
intermediary has engaged in frequent trading or market timing. If the
Manager determines that an intermediary has engaged in activity that is harmful
to a Fund, the Manager will revoke the intermediary’s Qualified Wrap
Program
status. Upon termination of status as a Qualified Wrap Program, all account
transactions will be matched for purposes of testing compliance with a
Fund’s
frequent trading and market timing policies.
Each
Fund reserves the right to modify the frequent trading and market timing
policies and procedures and grant or eliminate waivers to such policies and
procedures
at any time without advance notice to shareholders. There can be no assurance
that the Funds’ policies and procedures to deter frequent trading and
market timing will have the intended effect or that the Manager will be able to
detect frequent trading and market timing.
Distributions
and Taxes
Each
Fund distributes most or all of its net earnings and realized gains, if any,
each taxable year in the form of dividends from net investment income
(“dividends”),
distributions of realized net capital gains (“capital gains distributions”) and
net gains from foreign currency transactions (sometimes referred to below
collectively as “other distributions”) (and dividends, capital gains
distributions, and other distributions are sometimes referred to below
collectively as “distributions”).
Different tax treatment applies to different types of distributions (as
described in the table under “Taxes”).
The
Funds do not have a fixed dividend rate nor do they guarantee that they will pay
any distributions in any particular period. Distributions paid by a Fund
with
respect to each class of shares are calculated in the same manner and at the
same time, but dividends on different classes of shares may be different as a
result
of the services and/or fees applicable to certain classes of shares.
Distributions are paid as follows:
|
|
| |
|
American
Beacon Fund |
Dividends
Paid |
Other
Distributions Paid |
|
American
Beacon AHL Managed Futures Strategy Fund |
Annually |
Annually |
|
American
Beacon AHL Multi-Alternatives Fund |
Annually |
Annually |
|
American
Beacon AHL TargetRisk Fund |
Annually |
Annually |
Options
for Receiving Dividends and Other Distributions
When
you open your Fund account, you can specify on your application how you want to
receive distributions. To change that option, you must notify the transfer
agent. Unless you instruct otherwise in your account application,
distributions payable to you by a Fund will be reinvested in
additional shares of the distributing
class of that Fund. There are four payment options
available:
|
■ |
Reinvest
All Distributions. You can elect to reinvest all distributions by a Fund
in additional shares of the distributing class of that
Fund. |
|
■ |
Reinvest
Only Some Distributions. You can elect to reinvest some types of
distributions by a Fund in additional shares of the distributing class of
that Fund while
receiving the other types of distributions by that Fund by check or having
them sent directly to your bank account by ACH (“in
cash”). |
|
■ |
Receive
All Distributions in Cash. You can elect to receive all distributions in
cash. |
|
■ |
Reinvest
Your Distributions in shares of another American Beacon Fund. You can
reinvest all of your distributions by a Fund on a particular class of
shares in shares
of the same class of another American Beacon Fund that is available for
exchanges. You must have an existing account in the same share class of
the selected
fund. |
Distributions
of Fund income are generally taxable to you regardless of the manner in which
received or reinvested.
If
you invest directly with the Funds, any election to receive distributions
payable by check will only apply to distributions totaling $10.00 or more. Any
distribution
by a Fund totaling less than $10.00 will be reinvested in shares of the
distributing class of that Fund and will not be paid to you by
check.
If
you elect to receive a distribution by check and the U.S. Postal Service cannot
deliver your check, or if your check remains uncashed for at least six months,
each
Fund reserves the right to reinvest the amount of your check, and to reinvest
all subsequent distributions, in shares of the distributing class of that Fund
at
the NAV per share on the day of the reinvestment. Interest will not accrue on
amounts represented by uncashed distribution or redemption checks.
Shareholders
investing in a Fund through a financial intermediary should discuss their
options for receiving distributions with the intermediary.
Taxes
Fund
distributions are taxable to shareholders other than tax-qualified retirement
plans and accounts and other tax-exempt investors. However, the portion of
a
Fund’s dividends derived from its investments in U.S. Government obligations, if
any, is generally exempt from state and local income taxes. Fund dividends,
except
those that are “qualified dividend income” (as described below), are subject to
federal income tax at the rates for ordinary income contained in the
Internal
Revenue Code. The following table outlines the typical status of transactions in
taxable accounts:
|
| |
|
Type
of Transaction |
Federal
Tax Status |
|
Dividends
from net investment income* |
Ordinary
income** |
|
Distributions
of the excess of net short-term capital gain over net long-term capital
loss* |
Ordinary
income |
|
Distributions
of net gains from certain foreign currency transactions* |
Ordinary
income |
|
Distributions
of the excess of net long-term capital gain over net short-term capital
loss
(“net capital gain”)* |
Long-term
capital gains |
|
Redemptions
or exchanges of shares owned for more than one year |
Long-term
capital gains or losses |
|
Redemptions
or exchanges of shares owned for one year or less |
Net
gains are taxed at the same rate as ordinary income; net losses
are
subject to special rules |
| * |
Whether
reinvested or taken in cash. |
| ** |
Except
for dividends that are attributable to ‘‘qualified dividend income,’’ if
any. |
56Prospectus
– About Your Investment
To
the extent distributions are attributable to net capital gain that a Fund
recognizes they are subject to a 15% maximum federal income tax rate for
individual
and certain other non-corporate shareholders (each, an ‘‘individual’’) (20% for
individuals with taxable income exceeding certain thresholds, which are
indexed for inflation annually), regardless of how long the shareholder held his
or her Fund shares. A portion of the dividends a Fund pays to individuals
may
be ‘‘qualified dividend income’’ (‘‘QDI’’) and thus eligible for the
preferential rates, mentioned above, that apply to net capital gain. QDI
is the aggregate of
dividends a Fund receives on shares of most domestic corporations (excluding
most distributions from REITs) and certain foreign corporations with respect
to
which a Fund satisfies certain holding period and other restrictions. To be
eligible for those rates, a shareholder must meet similar restrictions with
respect to
his or her Fund shares.
A
portion of the dividends a Fund pays may also be eligible for the
dividends-received deduction allowed to corporations (“DRD”), subject to similar
holding period
and other restrictions, but the eligible portion may not exceed the aggregate
dividends the Fund receives from domestic corporations only.
None
of the Funds expects a substantial part of its dividends to qualify as QDI or be
eligible for the DRD.
A
shareholder may realize a taxable gain or loss when redeeming or exchanging
shares. That gain or loss is treated as a short-term or long-term capital gain
or loss,
depending on how long the redeemed or exchanged shares were held. Any capital
gain an individual shareholder recognizes on a redemption or exchange
of Fund shares that have been held for more than one year will qualify for the
15% and 20% tax rates mentioned above.
A
shareholder who wants to use an acceptable basis determination method with
respect to Fund shares other than the average basis method (the Fund’s
default
method) must elect to do so in writing, which may be electronic. A Fund, or its
administrative agent, must report to the Internal Revenue Service (“IRS”)
and furnish to its shareholders the basis information for dispositions of Fund
shares. See “Tax Information” in the SAI for a description of the rules
regarding
that election and a Fund’s reporting obligation.
An
individual must pay a 3.8% tax on the lesser of (1) the individual’s ‘‘net
investment income,’’ which generally includes distributions a Fund pays and net
gains
realized on the redemption or exchange of Fund shares, or (2) the excess of the
individual’s ‘‘modified adjusted gross income’’ over a threshold amount
($250,000
for married persons filing jointly and $200,000 for single taxpayers). This tax
is in addition to any other taxes due on that income. A similar tax applies
to estates and trusts. Shareholders should consult their own tax advisers
regarding the effect, if any, this tax may have on their investment in Fund
shares.
Each
year, the Funds’ shareholders will receive tax information regarding Fund
distributions and dispositions of Fund shares to assist them in preparing their
income
tax returns.
The
foregoing is only a summary of some of the important federal income tax
considerations that may affect Fund shareholders, who should consult their tax
advisers
regarding specific questions as to the effect of federal, state and local income
taxes on an investment in the Fund.
Additional
Information
The
Funds’ Board oversees generally the operations of the Funds. The Trust enters
into contractual arrangements with various parties, including among others,
the
Funds’ manager, sub-advisor(s), custodian, transfer agent, and accountants, who
provide services to the Funds. Shareholders are not parties to any such
contractual
arrangements, and those contractual arrangements are not intended to create in
any shareholder any right to enforce them directly against the service
providers or to seek any remedy under them directly against the service
providers.
This
Prospectus provides information concerning the Funds that you should consider in
determining whether to purchase Fund shares. Neither this Prospectus
nor
the SAI is intended, or should be read, to be or create an agreement or contract
between the Trust or the Funds and any investor, or to create any rights
in
any shareholder or other person other than any rights under federal or state law
that may not be waived. Nothing in this Prospectus, the SAI or the Funds’
reports
to shareholders is intended to provide investment advice and should not be
construed as investment advice.
Distribution
and Service Plans
The
Funds have adopted separate Distribution Plans for their A Class and C Class
shares in accordance with Rule 12b-1 under the Investment Company Act,
which
allows the A Class and C Class shares to pay distribution and other fees for the
sale of Fund shares and for other services provided to shareholders.
Each
Plan also authorizes the use of any fees received by the Manager in accordance
with the Management Agreement, and any fees received by the sub-advisor
pursuant to its Investment Advisory Agreement, to be used for the sale and
distribution of Fund shares. The Plans provide that the A Class shares
of
a Fund will pay up to 0.25% per annum of the average daily net assets
attributable to the A Class. The C Class shares of a Fund will pay up to
1.00% per annum
of the average daily net assets attributable to the C Class, to the Manager (or
another entity approved by the Board). Because these fees are paid out
of
a Fund’s A Class and C Class assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other
types of sales charges.
The
Funds have also adopted a shareholder services plan for their A Class, C Class,
and Investor Class shares for certain non-distribution shareholder services
provided
by financial intermediaries. The shareholder services plan authorizes annual
payment of up to 0.25% of the average daily net assets attributable to
the
A Class and C Class shares, and up to 0.375% of the average daily net assets
attributable to the Investor Class shares. In addition, the Funds may
reimburse
the Manager for certain non-distribution shareholder services provided by
financial intermediaries attributable to Y Class and R5 Class shares of the
Funds.
R6 Class shares will not reimburse the Manager for non-distribution shareholder
services provided by financial intermediaries.
Portfolio
Holdings
A
complete list of each Fund’s holdings is made available on the Funds’
website on a quarterly basis approximately sixty days after the end of each
calendar quarter
and remains available for six months thereafter. A list of each Fund’s ten
largest holdings is made available on the Fund’s website on a quarterly basis.
The
ten largest holdings of each Fund are generally posted to the website
approximately fifteen days after the end of each calendar quarter and remain
available
until the next quarter. To access the holdings information, go to
www.americanbeaconfunds.com. A Fund’s ten largest holdings may also be
accessed
by selecting a particular Fund’s fact sheet.
A
description of each Fund’s policies and procedures regarding the
disclosure of portfolio holdings is available in the Fund’s SAI, which you may
access on the Funds’
website at www.americanbeaconfunds.com or call 1-800-658-5811 to request a free
copy.
Delivery
of Documents
Summary
prospectuses, Annual Shareholder Reports and Semi-Annual Shareholder Reports
(“Shareholder Reports”) are available online at www.americanbeaconfunds.com/reports.
If you are interested in electronic delivery of the Funds’ summary prospectuses,
please go to www.americanbeaconfunds.com
and click on ‘‘Quick Links’’ and then ‘‘Register for E-Delivery.’’ You can also
request to receive paper Shareholder Reports by calling
1-866-345-5954 with the unique ID number that is provided in the notification
you receive, or you may directly inform your financial intermediary of
your
wish.
Prospectus
– Additional Information57
To
reduce expenses, your financial institution may mail only one copy of the
summary prospectus and Shareholder Reports to those addresses shared by two
or
more accounts. If you wish to receive individual copies of these documents,
please contact your financial institution. Delivery of individual copies will
commence
thirty days after receiving your request.
Financial
Highlights
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for the past five fiscal years or, if shorter, the period
of a Fund’s
operations, as applicable. Certain information reflects financial results for a
single Fund share. The total returns in each Fund’s tables represent the rate
that
an investor would have earned (or lost) on an investment in a Fund (assuming
reinvestment of all dividends and other distributions).
The
information
in the
financial highlights for the fiscal years
ended December 31, 2022 and
December 31, 2023
has been derived from the Funds’ financial statements
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report, along with the Funds’ financial statements,
is included in the Funds’ Annual Shareholder Report, which you may obtain upon
request. The information for the fiscal years ended December 31
2019, December 31, 2020, and December 31, 2021 was audited by the Funds’ prior
independent registered public accounting firm.
58Prospectus
– Additional Information
|
|
|
|
|
| |
|
American
Beacon AHL Managed Futures Strategy FundSM
|
|
|
A
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$89,278,134 |
$195,971,375 |
$9,680,124 |
$4,653,583 |
$4,229,124 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rateD
|
|
|
|
|
|
| A |
Per
share amounts have been calculated using the average shares
method. |
| B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
| C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman Managed
Futures Strategy Fund, Ltd. |
| D |
Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the average long-term fair value during the period. The Fund did not
invest in any long-term securities
during the reporting period. |
Prospectus
– Additional Information59
|
|
|
|
|
| |
|
American
Beacon AHL Managed Futures Strategy FundSM
|
|
|
C
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$31,340,562 |
$34,906,077 |
$15,052,491 |
$9,482,185 |
$6,352,147 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements |
|
|
|
|
|
|
Portfolio
turnover rateD
|
|
|
|
|
|
| A |
Per
share amounts have been calculated using the average shares
method. |
| B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
| C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman Managed
Futures Strategy Fund, Ltd. |
| D |
Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the average long-term fair value during the period. The Fund did not
invest in any long-term securities
during the reporting period. |
60Prospectus
– Additional Information
|
|
|
|
|
| |
|
American
Beacon AHL Managed Futures Strategy FundSM
|
|
|
Y
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$2,239,856,084 |
$2,650,349,111 |
$1,608,801,856 |
$888,669,539 |
$634,005,786 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rateD
|
|
|
|
|
|
| A |
Per
share amounts have been calculated using the average shares
method. |
| B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
| C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman Managed
Futures Strategy Fund, Ltd. |
| D |
Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the average long-term fair value during the period. The Fund did not
invest in any long-term securities
during the reporting period. |
Prospectus
– Additional Information61
|
|
|
|
|
| |
|
American
Beacon AHL Managed Futures Strategy FundSM
|
|
|
R5
ClassA
|
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnC
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$735,326,328 |
$693,916,735 |
$473,334,156 |
$195,920,482 |
$347,611,671 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsD
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsD
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rateE
|
|
|
|
|
|
| A |
Prior
to February 28, 2020, the R5 Class was known as Institutional
Class. |
| B |
Per
share amounts have been calculated using the average shares
method. |
| C |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
| D |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman Managed
Futures Strategy Fund, Ltd. |
| E |
Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the average long-term fair value during the period. The Fund did not
invest in any long-term securities
during the reporting period. |
62Prospectus
– Additional Information
|
|
|
|
|
| |
|
American
Beacon AHL Managed Futures Strategy FundSM
|
|
|
Investor
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$44,699,687 |
$66,007,099 |
$37,408,089 |
$31,217,881 |
$18,716,672 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rateD
|
|
|
|
|
|
| A |
Per
share amounts have been calculated using the average shares
method. |
| B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
| C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman Managed
Futures Strategy Fund, Ltd. |
| D |
Portfolio
turnover is based on the lesser of long-term purchases or sales divided by
the average long-term fair value during the period. The Fund did not
invest in any long-term securities
during the reporting period. |
Prospectus
– Additional Information63
|
| |
|
American
Beacon AHL Multi-Alternatives FundSM
|
|
|
A
Class |
|
For
a share outstanding throughout the period: |
August
17, 2023A
to
December 31, 2023 |
|
Net
asset value, beginning of period |
|
|
Income
from investment operations: |
|
|
Net
investment income |
|
|
Net
gains on investments (both realized and unrealized)
|
|
|
Total
income from investment operations |
|
|
Less
distributions: |
|
|
Dividends
from net investment income |
|
|
Distributions
from net realized gains |
|
|
Total
distributions |
|
|
Net
asset value, end of period |
|
|
Total
returnB
|
|
|
Ratios
and supplemental data: |
|
|
Net
assets, end of period |
$103,423 |
|
Ratios
to average net assets: |
|
|
Expenses,
before reimbursements and/or recoupmentsE
|
|
|
Expenses,
net of reimbursements and/or recoupmentsE
|
|
|
Net
investment (loss), before expense reimbursements and/or
recoupments |
|
|
Net
investment income, net of reimbursements and/or recoupments
|
|
|
Portfolio
turnover rate |
|
|
| |
|
A |
Commencement
of operations. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Not
annualized. |
|
D |
Annualized. |
|
E |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon AHL
Multi-Alternatives Cayman Fund. |
|
F |
Includes
non-recurring organization and offering
costs. |
64Prospectus
– Additional Information
|
| |
|
American
Beacon AHL Multi-Alternatives FundSM
|
|
|
C
Class |
|
For
a share outstanding throughout the period: |
August
17, 2023A
to
December 31, 2023 |
|
Net
asset value, beginning of period |
|
|
Income
from investment operations: |
|
|
Net
investment income |
|
|
Net
gains on investments (both realized and unrealized)
|
|
|
Total
income from investment operations |
|
|
Less
distributions: |
|
|
Dividends
from net investment income |
|
|
Distributions
from net realized gains |
|
|
Total
distributions |
|
|
Net
asset value, end of period |
|
|
Total
returnB
|
|
|
Ratios
and supplemental data: |
|
|
Net
assets, end of period |
$103,135 |
|
Ratios
to average net assets: |
|
|
Expenses,
before reimbursements and/or recoupmentsE
|
|
|
Expenses,
net of reimbursements and/or recoupmentsE
|
|
|
Net
investment (loss), before expense reimbursements and/or
recoupments |
|
|
Net
investment income, net of reimbursements and/or recoupments
|
|
|
Portfolio
turnover rate |
|
|
| |
|
A |
Commencement
of operations. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Not
annualized. |
|
D |
Annualized. |
|
E |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon AHL
Multi-Alternatives Cayman Fund. |
|
F |
Includes
non-recurring organization and offering
costs. |
Prospectus
– Additional Information65
|
| |
|
American
Beacon AHL Multi-Alternatives FundSM
|
|
|
Y
Class |
|
For
a share outstanding throughout the period: |
August
17, 2023A
to
December 31, 2023 |
|
Net
asset value, beginning of period |
|
|
Income
from investment operations: |
|
|
Net
investment income |
|
|
Net
gains on investments (both realized and unrealized)
|
|
|
Total
income from investment operations |
|
|
Less
distributions: |
|
|
Dividends
from net investment income |
|
|
Distributions
from net realized gains |
|
|
Total
distributions |
|
|
Net
asset value, end of period |
|
|
Total
returnB
|
|
|
Ratios
and supplemental data: |
|
|
Net
assets, end of period |
$6,800,010 |
|
Ratios
to average net assets: |
|
|
Expenses,
before reimbursements and/or recoupmentsE
|
|
|
Expenses,
net of reimbursements and/or recoupmentsE
|
|
|
Net
investment (loss), before expense reimbursements and/or
recoupments |
|
|
Net
investment income, net of reimbursements and/or recoupments
|
|
|
Portfolio
turnover rate |
|
|
| |
|
A |
Commencement
of operations. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Not
annualized. |
|
D |
Annualized. |
|
E |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon AHL
Multi-Alternatives Cayman Fund. |
|
F |
Includes
non-recurring organization and offering
costs. |
66Prospectus
– Additional Information
|
| |
|
American
Beacon AHL Multi-Alternatives FundSM
|
|
|
R6
Class |
|
For
a share outstanding throughout the period: |
August
17, 2023A
to
December 31, 2023 |
|
Net
asset value, beginning of period |
|
|
Income
from investment operations: |
|
|
Net
investment income |
|
|
Net
gains on investments (both realized and unrealized)
|
|
|
Total
income from investment operations |
|
|
Less
distributions: |
|
|
Dividends
from net investment income |
|
|
Distributions
from net realized gains |
|
|
Total
distributions |
|
|
Net
asset value, end of period |
|
|
Total
returnB
|
|
|
Ratios
and supplemental data: |
|
|
Net
assets, end of period |
$20,707,713 |
|
Ratios
to average net assets: |
|
|
Expenses,
before reimbursements and/or recoupmentsE
|
|
|
Expenses,
net of reimbursements and/or recoupmentsE
|
|
|
Net
investment (loss), before expense reimbursements and/or
recoupments |
|
|
Net
investment income, net of reimbursements and/or recoupments
|
|
|
Portfolio
turnover rate |
|
|
| |
|
A |
Commencement
of operations. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Not
annualized. |
|
D |
Annualized. |
|
E |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon AHL
Multi-Alternatives Cayman Fund. |
|
F |
Includes
non-recurring organization and offering
costs. |
Prospectus
– Additional Information67
|
|
|
|
|
| |
|
American
Beacon AHL TargetRisk FundSM
|
|
|
A
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019A
|
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnD
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$2,745,472 |
$3,656,374 |
$5,381,597 |
$4,007,021 |
$1,469,217 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsG
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsG
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rate |
|
|
|
|
|
|
| |
|
A |
Commenced
operations on April 30, 2019. |
|
B |
Per
share amounts have been calculated using the average shares
method. |
|
C |
Amount
represents less than $0.01 per share. |
|
D |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
E |
Not
annualized. |
|
F |
Annualized. |
|
G |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman TargetRisk
Company, Ltd. |
68Prospectus
– Additional Information
|
|
|
|
|
| |
|
American
Beacon AHL TargetRisk FundSM
|
|
|
C
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019A
|
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnC
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$8,944,023 |
$11,650,636 |
$20,623,659 |
$14,969,947 |
$5,702,552 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsF
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsF
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements |
|
|
|
|
|
|
Portfolio
turnover rate |
|
|
|
|
|
|
| |
|
A |
Commenced
operations on April 30, 2019. |
|
B |
Per
share amounts have been calculated using the average shares
method. |
|
C |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
D |
Not
annualized. |
|
E |
Annualized. |
|
F |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman TargetRisk
Company, Ltd. |
Prospectus
– Additional Information69
|
|
|
|
|
| |
|
American
Beacon AHL TargetRisk FundSM
|
|
|
Y
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$230,217,307 |
$340,103,816 |
$756,225,072 |
$665,119,502 |
$118,366,001 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rate |
|
|
|
|
|
|
| |
|
A |
Per
share amounts have been calculated using the average shares
method. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman TargetRisk
Company, Ltd. |
70Prospectus
– Additional Information
|
|
|
|
|
| |
|
American
Beacon AHL TargetRisk FundSM
|
|
|
R5
ClassA
|
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnC
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$24,839,297 |
$69,246,839 |
$116,339,052 |
$95,337,373 |
$12,692,260 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsD
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsD
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rate |
|
|
|
|
|
|
| |
|
A |
Prior
to February 28, 2020, the R5 Class was known as Institutional
Class. |
|
B |
Per
share amounts have been calculated using the average shares
method. |
|
C |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
D |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman TargetRisk
Company, Ltd. |
|
E |
Includes
non-operating expenses consisting of dividends and interest expense from
securities sold short. The Expenses, net of reimbursements, excluding
non-operating expenses is
1.04% and 1.04% for the year ended December 31, 2023 and December 31,
2022, respectively. |
Prospectus
– Additional Information71
|
|
|
|
|
| |
|
American
Beacon AHL TargetRisk FundSM
|
|
|
Investor
Class |
|
For
a share outstanding throughout the period: |
Year
Ended December
31, 2023 |
Year
Ended December
31, 2022 |
Year
Ended December
31, 2021 |
Year
Ended December
31, 2020 |
Year
Ended December
31, 2019 |
|
Net
asset value, beginning of period |
|
|
|
|
|
|
Income
(loss) from investment operations: |
|
|
|
|
|
|
Net
investment income (loss) |
|
|
|
|
|
|
Net
gains (losses) on investments (both realized and unrealized)
|
|
|
|
|
|
|
Total
income (loss) from investment operations |
|
|
|
|
|
|
Less
distributions: |
|
|
|
|
|
|
Dividends
from net investment income |
|
|
|
|
|
|
Distributions
from net realized gains |
|
|
|
|
|
|
Total
distributions |
|
|
|
|
|
|
Net
asset value, end of period |
|
|
|
|
|
|
Total
returnB
|
|
|
|
|
|
|
Ratios
and supplemental data: |
|
|
|
|
|
|
Net
assets, end of period |
$7,227,795 |
$11,271,945 |
$18,344,072 |
$16,012,197 |
$8,469,551 |
|
Ratios
to average net assets: |
|
|
|
|
|
|
Expenses,
before reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Expenses,
net of reimbursements and/or recoupmentsC
|
|
|
|
|
|
|
Net
investment income (loss), before expense reimbursements
and/or recoupments |
|
|
|
|
|
|
Net
investment income (loss), net of reimbursements and/or
recoupments |
|
|
|
|
|
|
Portfolio
turnover rate |
|
|
|
|
|
|
| |
|
A |
Per
share amounts have been calculated using the average shares
method. |
|
B |
Based
on net asset value, which does not reflect the sales charge, redemption
fee, or contingent deferred sales charge, if applicable. May include
adjustments in accordance with
U.S. GAAP and as such, the net asset value for reporting purposes and the
returns based upon those net asset values may differ from the net asset
value and returns for shareholder
transactions. |
|
C |
Please
refer to the Expense Reimbursement Plan in Note 2 of the Notes to the
Financial Statements in the Annual Shareholder Report for information
related to the voluntary fees
waived and expenses reimbursed at the American Beacon Cayman TargetRisk
Company, Ltd. |
72Prospectus
– Additional Information
Additional
Information
Additional
information about the Funds is found in the documents listed below. Request a
free copy of these documents by calling 1-800-658-5811
or you may access them on the Funds’ website at
www.americanbeaconfunds.com.
Annual
Shareholder Report/Semi-Annual Shareholder Report
The Funds’
Annual and Semi-Annual Shareholder Reports and Form N-CSR include additional
information about each Fund’s
investments. The Annual and Semi-Annual Shareholder Reports also
include a discussion by the Manager of market conditions and investment
strategies that significantly affected a Fund’s performance.
The Form N-CSR includes each Fund’s annual and semi-annual financial statements
as well as the report of the Funds’ independent registered public accounting
firm in the annual financial statements.
SAI
The
SAI contains more details about the Funds and their investment policies. The SAI
is incorporated in this Prospectus by reference (it is legally
part of this Prospectus). A current SAI is on file with the SEC.
Appendix
A to the Prospectus – Intermediary Sales Charge Discounts, Waivers and Other
Information
Appendix
A contains more information about specific sales charge discounts and waivers
available for shareholders who purchase Fund shares
through a specific financial intermediary. Appendix A is incorporated herein by
reference (is legally a part of this Prospectus).
To
obtain more information about the Funds or to request a copy of the documents
listed above:
|
| |
|
By
Telephone: |
Call
1-800-658-5811 |
|
By
Mail: |
American
Beacon Funds
P.O.
Box 219643
Kansas
City, MO 64121-9643 |
|
By
E-mail: |
|
|
On
the Internet: |
|
The
SAI and other information about the Funds are available on the EDGAR Database on
the SEC’s Internet site at www.sec.gov. Copies of this
information may be obtained, after paying a duplicating fee, by electronic mail
to [email protected], or by writing to the SEC’s Public Reference
Section, 100 F Street, NE, Washington, D.C. 20549-1520. The SAI and other
information about the Funds may also be reviewed and
copied at the SEC’s Public Reference Room. Information on the operation of the
SEC’s Public Reference Room may be obtained by calling
the SEC at (202) 551-8090.
|
| |
|
American
Beacon is a registered service mark of American Beacon Advisors, Inc. The
American Beacon Funds, American
Beacon AHL Managed Futures Strategy Fund, American Beacon AHL
Multi-Alternatives Fund and American
Beacon AHL TargetRisk Fund are service marks of American Beacon Advisors,
Inc. |
|
SEC
File Number 811-04984
Appendix
A
INTERMEDIARY
SALES CHARGE DISCOUNTS, WAIVERS AND OTHER INFORMATION
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from a Fund or through a financial
intermediary.
Specific intermediaries may have different policies and procedures regarding the
availability of front-end sales load waivers or CDSC waivers, which
are discussed below. In all instances, it is the purchaser’s responsibility to
notify a Fund or the purchaser’s financial intermediary at the time of purchase
of
any relationship or other facts qualifying the purchaser for sales charge
waivers or discounts. For waivers and discounts not available through a
particular intermediary,
shareholders will have to purchase Fund shares directly from a Fund or through
another intermediary to receive any applicable waivers or discounts.
Please see the section entitled “Choosing Your Share Class” for more information
on sales charges and waivers available for different classes.
The
information in this Appendix is part of, and incorporated into, the Funds’
prospectus.
Appendix
A: Ameriprise Financial
Class
A Shares Front-End Sales Charge Waivers Available at Ameriprise
Financial:
The
following information applies to Class A shares purchases if you have an account
with or otherwise purchase Fund shares through Ameriprise
Financial:
Shareholders
purchasing Fund shares through an Ameriprise Financial brokerage account are
eligible for the following front-end sales charge waivers, which may
differ from those disclosed elsewhere in this Fund’s prospectus or
SAI:
|
■ |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and
defined benefit plans). For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs or
SAR-SEPs. |
|
■ |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same Fund (but not any
other
fund within the same fund family). |
|
■ |
Shares
exchanged from Class C shares of the same fund in the month of or
following the 7-year anniversary of the purchase date. To the extent that
this prospectus
elsewhere provides for a waiver with respect to exchanges of Class C
shares or conversion of Class C shares following a shorter holding period,
that
waiver will apply. |
|
■ |
Employees
and registered representatives of Ameriprise Financial or its affiliates
and their immediate family members. |
|
■ |
Shares
purchased by or through qualified accounts (including IRAs, Coverdell
Education Savings Accounts, 401(k)s, 403(b) TSCAs subject to ERISA and
defined
benefit plans) that are held by a covered family member, defined as an
Ameriprise financial advisor and/or the advisor’s spouse, advisor’s lineal
ascendant
(mother, father, grandmother, grandfather, great grandmother, great
grandfather), advisor’s lineal descendant (son, step-son, daughter,
step-daughter,
grandson, granddaughter, great grandson, great granddaughter) or any
spouse of a covered family member who is a lineal
descendant. |
|
■ |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption,
(2) the redemption and purchase occur in the same account, and (3)
redeemed shares were subject to a front-end or deferred sales load (i.e.
Rights
of Reinstatement). |
Appendix
A: Baird
Effective
June 15, 2020, shareholders purchasing fund shares through a Baird platform or
account will only be eligible for the following sales charge waivers
(front-end
sales charge waivers and CDSC waivers) and discounts, which may differ from
those disclosed elsewhere in this prospectus or the SAI.
Front-End
Sales Charge Waivers on Investors A-shares Available at Baird
|
■ |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing share of the same
fund |
|
■ |
Shares
purchased by employees and registers representatives of Baird or its
affiliate and their family members as designated by
Baird |
|
■ |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption,
(2) the redemption and purchase occur in the same accounts, and (3)
redeemed shares were subject to a front-end or deferred sales charge
(known
as rights of reinstatement) |
|
■ |
A
shareholder in the Fund’s Investor C shares will have their share
converted at net asset value to Investor A shares of the fund if the
shares are no longer subject
to CDSC and the conversion is in line with the policies and procedures of
Baird |
|
■ |
Employer-sponsored
retirement plans or charitable accounts in a transactional brokerage
account at Baird, including 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit sharing and money purchase pension plans and defined
benefit plans. For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs or
SAR-SEPs |
CDSC
Waivers on Investor A and C shares Available at Baird
|
■ |
Shares
sold due to death or disability of the
shareholder |
|
■ |
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
Prospectus |
|
■ |
Shares
bought due to returns of excess contributions from an IRA
Account |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching age 72 as described in the Fund’s
prospectus |
|
■ |
Shares
sold to pay Baird fees but only if the transaction is initiated by
Baird |
|
■ |
Shares
acquired through a right of reinstatement |
Front-End
Sales Charge Discounts Available at Baird: Breakpoints and/or Rights of
Accumulations
|
■ |
Breakpoints
as described in this prospectus |
|
■ |
Rights
of accumulation which entitles shareholders to breakpoint discounts will
be automatically calculated based on the aggregated holding of fund family
assets
held by accounts within the purchaser’s household at Baird. Eligible fund
family assets not held at Baird may be included in the rights of
accumulations
calculation only if the shareholder notifies his or her financial advisor
about such assets |
|
■ |
Letters
of Intent (LOI) allow for breakpoint discounts based on anticipated
purchases within a fund family through Baird, over a 13-month period of
time |
Appendix
A: J.P.
Morgan Securities LLC
If
you purchase or hold fund shares through an applicable J.P. Morgan Securities
LLC brokerage account, you will be eligible for the following sales charge
waivers
(front-end sales charge waivers and contingent deferred sales charge (“CDSC”),
or back-end sales charge, waivers), share class conversion policy and
discounts,
which may differ from those disclosed elsewhere in this fund’s prospectus or
Statement of Additional Information (“SAI”).
Front-end
sales charge waivers on Class A shares available at J.P. Morgan Securities
LLC
|
■ |
Shares
exchanged from Class C (i.e., level-load) shares that are no longer
subject to a CDSC and are exchanged into Class A shares of the same fund
pursuant
to J.P. Morgan Securities LLC’s share class exchange
policy. |
|
■ |
Qualified
employer-sponsored defined contribution and defined benefit retirement
plans, nonqualified deferred compensation plans, other employee
benefit
plans and trusts used to fund those plans. For purposes of this provision,
such plans do not include SEP IRAs, SIMPLE IRAs, SAR-SEPs or
501(c)(3) accounts. |
|
■ |
Shares
of funds purchased through J.P. Morgan Securities LLC Self-Directed
Investing accounts. |
|
■ |
Shares
purchased through rights of
reinstatement. |
|
■ |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any
other
fund within the fund family). |
|
■ |
Shares
purchased by employees and registered representatives of J.P. Morgan
Securities LLC or its affiliates and their spouse or financial dependent
as defined
by J.P. Morgan Securities LLC. |
Class
C to Class A share conversion
|
■ |
A
shareholder in the fund’s Class C shares will have their shares
converted by J.P. Morgan Securities LLC to Class A shares (or the
appropriate share class) of the
same fund if the shares are no longer subject to a CDSC and the conversion
is consistent with J.P. Morgan Securities LLC’s policies and
procedures. |
CDSC
waivers on Class A and C shares available at J.P. Morgan Securities
LLC
|
■ |
Shares
sold upon the death or disability of the
shareholder. |
|
■ |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s
prospectus. |
|
■ |
Shares
purchased in connection with a return of excess contributions from an IRA
account. |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts pursuant to the Internal Revenue
Code. |
|
■ |
Shares
acquired through a right of
reinstatement. |
Front-end
load discounts available at J.P. Morgan Securities LLC: breakpoints, rights of
accumulation & letters of intent
|
■ |
Breakpoints
as described in the prospectus. |
|
■ |
Rights
of Accumulation (“ROA”) which entitle shareholders to breakpoint discounts
as described in the fund’s prospectus will be automatically calculated
based
on the aggregated holding of fund family assets held by accounts within
the purchaser’s household at J.P. Morgan Securities LLC. Eligible fund
family assets
not held at J.P. Morgan Securities LLC (including 529 program holdings,
where applicable) may be included in the ROA calculation only if the
shareholder
notifies their financial advisor about such
assets. |
|
■ |
Letters
of Intent (“LOI”) which allow for breakpoint discounts based on
anticipated purchases within a fund family, through J.P. Morgan Securities
LLC, over a
13-month period of time (if applicable). |
Appendix
A: Janney
Montgomery Scott
Effective
May 1, 2020, if you purchase fund shares through a Janney Montgomery Scott LLC
(“Janney”) brokerage account, you will be eligible for the following
load waivers (front-end sales charge waivers and contingent deferred sales
charge (“CDSC”), or back-end sales charge, waivers) and discounts, which
may differ from those disclosed elsewhere in this fund’s Prospectus or
SAI.
Front-end
sales charge* waivers on Class A shares available at Janney
|
■ |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any
other
fund within the fund family). |
|
■ |
Shares
purchased by employees and registered representatives of Janney or its
affiliates and their family members as designated by
Janney. |
|
■ |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within ninety (90) days following the
redemption,
(2) the redemption and purchase occur in the same account, and (3)
redeemed shares were subject to a front-end or deferred sales load (i.e.,
right
of reinstatement). |
|
■ |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and
defined benefit plans). For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh
plans. |
|
■ |
Shares
acquired through a right of
reinstatement. |
|
■ |
Class
C shares that are no longer subject to a contingent deferred sales charge
and are converted to Class A shares of the same fund pursuant to Janney’s
policies
and procedures. |
CDSC
waivers on Class A and C shares available at Janney
|
■ |
Shares
sold upon the death or disability of the
shareholder. |
|
■ |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s
Prospectus. |
|
■ |
Shares
purchased in connection with a return of excess contributions from an IRA
account. |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and other
retirement accounts due to the shareholder reaching age 70½ as described
in the fund’s
Prospectus. |
|
■ |
Shares
sold to pay Janney fees but only if the transaction is initiated by
Janney. |
|
■ |
Shares
acquired through a right of
reinstatement. |
|
■ |
Shares
exchanged into the same share class of a different
fund. |
Front-end
sales charge* discounts available at Janney: breakpoints, rights of
accumulation, and/or letters of intent
|
■ |
Breakpoints
as described in the fund’s Prospectus. |
|
■ |
Rights
of accumulation (“ROA”), which entitle shareholders to breakpoint
discounts, will be automatically calculated based on the aggregated
holding of fund
family assets held by accounts within the purchaser’s household at Janney.
Eligible fund family assets not held at Janney may be included in the ROA
calculation
only if the shareholder notifies his or her financial advisor about such
assets. |
|
■ |
Letters
of intent which allow for breakpoint discounts based on anticipated
purchases within a fund family, over a 13-month time period. Eligible fund
family
assets not held at Janney Montgomery Scott may be included in the
calculation of letters of intent only if the shareholder notifies his or
her financial advisor
about such assets. |
*Also
referred to as an “initial sales charge.”
Appendix
A: Merrill Lynch
Purchases
or sales of front-end (i.e. Class A) or level-load (i.e., Class C) mutual
fund
shares through a Merrill platform
or account will be eligible only for the following
sales
load
waivers (front-end,
contingent deferred, or back-end waivers)
and discounts, which differ
from those disclosed elsewhere in this
Fund’s prospectus.
Purchasers will have to buy mutual fund shares directly from the mutual fund
company or through another intermediary to be eligible for waivers or
discounts not listed below.
It
is the client’s responsibility to notify Merrill at the time of purchase or sale
of any relationship or other facts that qualify the transaction for a waiver or
discount.
A Merrill representative may ask for reasonable documentation of such facts and
Merrill may condition the granting of a waiver or discount on the timely
receipt of such documentation.
Additional
information on waivers and discounts is available in the Merrill Sales Load
Waiver and Discounts Supplement (the “Merrill SLWD Supplement”) and in
the Mutual Fund Investing at Merrill pamphlet at ml.com/funds. Clients are
encouraged to review these documents and speak with their financial advisor to
determine
whether a transaction is eligible for a waiver or discount.
Front-end
Load
Waivers Available
at Merrill
|
■ |
Shares
of mutual funds available for purchase by employer-sponsored
retirement, deferred compensation,
and employee benefit plans (including health savings
accounts) and trusts used to fund those plans
provided the
shares are not held in a commission-based brokerage account and shares are
held for the
benefit of the plan.
For purposes of this provision, employer-sponsored retirement plans do not
include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans
|
|
■ |
Shares
purchased through a Merrill investment
advisory program |
|
■ |
Brokerage
class shares exchanged from advisory class shares
due to the holdings moving from a Merrill investment
advisory program to a Merrill brokerage
account
|
|
■ |
Shares
purchased
through the Merrill Edge Self-Directed platform
|
|
■ |
Shares
purchased through the
systematic reinvestment
of capital gains distributions and dividend reinvestment when purchasing
shares of the same mutual
fund
in the same account |
|
■ |
Shares
exchanged from level-load
shares to front-end load
shares of the same mutual
fund in accordance with the description in the Merrill SLWD Supplement |
|
■ |
Shares
purchased by eligible employees of Merrill
or its affiliates and their family members
who purchase shares in accounts within the employee’s Merrill Household
(as defined in the Merrill SLWD
Supplement) |
|
■ |
Shares
purchased by eligible persons associated with the fund as defined in this
prospectus (e.g. the fund’s officers or
trustees) |
|
■ |
Shares
purchased from the proceeds of a
mutual fund redemption in front-end load shares provided (1) the
repurchase is in a mutual fund
within the same fund
family;
(2)
the repurchase occurs within 90 calendar
days
from
the redemption
trade date,
and
(3)
the redemption and purchase occur in the same account
(known as Rights of Reinstatement). Automated transactions (i.e.
systematic purchases and withdrawals) and purchases made after shares are
automatically
sold to pay Merrill’s
account maintenance fees are not eligible for Rights
of Reinstatement |
Contingent
Deferred Sales Charge (“CDSC”) Waivers on Front-end, Back-end, and Level Load
Shares Available at Merrill
|
■ |
Shares
sold due to the client’s death or disability (as defined by Internal
Revenue Code Section 22I(3)) |
|
■ |
Shares
sold pursuant
to
a systematic withdrawal program
subject to Merrill’s maximum systematic withdrawal limits
as described in the Merrill
SLWD Supplement |
|
■ |
Shares
sold due to return
of excess contributions from an IRA account |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due
to the investor reaching the qualified age based on applicable
IRS
regulation |
|
■ |
Front-end
or level-load shares held in commission-based, non-taxable
retirement brokerage accounts
(e.g.
traditional, Roth, rollover, SEP IRAs, Simple IRAs, SAR-SEPs
or Keogh plans) that are transferred to fee-based
accounts or platforms and
exchanged for a lower cost share class of the same mutual fund
|
Front-end
Load
Discounts Available at Merrill:
Breakpoints, Rights of Accumulation & Letters of Intent
|
■ |
Breakpoint
discounts,
as described in this prospectus,
where the sales load is at or below the maximum sales load that Merrill
permits to be assessed to a front-end
load purchase, as described in the Merrill SLWD
Supplement |
|
■ |
Rights
of Accumulation (ROA),
as described in the Merrill
SLWD Supplement, which entitle clients to breakpoint discounts
based on the aggregated holdings
of mutual
fund
family assets held in
accounts in their Merrill Household |
|
■ |
Letters
of Intent (LOI),
which allow for breakpoint discounts on
eligible new purchases based
on anticipated future
eligible purchases
within a fund family
at Merrill,
in accounts within your Merrill Household, as further described in the
Merrill SLWD Supplement |
Appendix
A: Morgan Stanley
Effective
July 1, 2018, shareholders purchasing Fund shares through a Morgan Stanley
Wealth Management transactional brokerage account will be eligible only
for the following front-end sales charge waivers with respect to Class A shares,
which may differ from and may be more limited than those disclosed elsewhere
in this Fund’s Prospectus or SAI.
Front-end
Sales Charge Waivers on Class A Shares available at Morgan Stanley Wealth
Management
|
■ |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and
defined benefit plans). For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh
plans |
|
■ |
Morgan
Stanley employee and employee-related accounts according to Morgan
Stanley’s account linking rules |
|
■ |
Shares
purchased through reinvestment of dividends and capital gains
distributions when purchasing shares of the same
fund |
|
■ |
Shares
purchased through a Morgan Stanley self-directed brokerage
account |
|
■ |
Class
C (i.e., level-load) shares that are no longer subject to a contingent
deferred sales charge and are converted to Class A shares of the same fund
pursuant
to Morgan Stanley Wealth Management’s share class conversion
program |
|
■ |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (i) the repurchase occurs within 90 days following the
redemption,
(ii) the redemption and purchase occur in the same account, and (iii)
redeemed shares were subject to a front-end or deferred sales
charge. |
Appendix
A: Oppenheimer & Co. Inc. (“OPCO”)
Effective
February 26, 2020, shareholders purchasing Fund shares through an OPCO platform
or account are eligible only for the following load waivers (front-end
sales charge waivers and contingent deferred, or back-end, sales charge waivers)
and discounts, which may differ from those disclosed elsewhere in this
Fund’s prospectus or SAI.
Front-end
Sales Load Waivers on Class A Shares available at OPCO
|
■ |
Employer-sponsored
retirement, deferred compensation and employee benefit plans (including
health savings accounts) and trusts used to fund those plans, provided
that the shares are not held in a commission-based brokerage account and
shares are held for the benefit of the
plan |
|
■ |
Shares
purchased by or through a 529 Plan |
|
■ |
Shares
purchased through an OPCO affiliated investment advisory
program |
|
■ |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any
other
fund within the fund family) |
|
■ |
Shares
purchased form the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption,
(2) the redemption and purchase occur in the same amount, and (3) redeemed
shares were subject to a front-end or deferred sales load (known
as Rights of Restatement). |
|
■ |
A
shareholder in the Fund’s Class C shares will have their shares converted
at net asset value to Class A shares (or the appropriate share class) of
the Fund if the
shares are no longer subject to a CDSC and the conversion is in line with
the policies and procedures of OPCO |
|
■ |
Employees
and registered representatives of OPCO or its affiliates and their family
members |
|
■ |
Directors
or Trustees of the Fund, and employees of the Fund’s investment adviser or
any of its affiliates, as described in this
prospectus |
CDSC
Waivers on A, B and C Shares available at OPCO
|
■ |
Death
or disability of the shareholder |
|
■ |
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
prospectus |
|
■ |
Return
of excess contributions from an IRA
Account |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching age 70½ as described in the
prospectus |
|
■ |
Shares
sold to pay OPCO fees but only if the transaction is initiated by
OPCO |
|
■ |
Shares
acquired through a right of reinstatement |
Front-end
load Discounts Available at OPCO: Breakpoints, Rights of Accumulation &
Letters of Intent
|
■ |
Breakpoints
as described in this prospectus. |
|
■ |
Rights
of Accumulation (ROA) which entitle shareholders to breakpoint discounts
will be automatically calculated based on the aggregated holding of fund
family
assets held by accounts within the purchaser’s household at OPCO. Eligible
fund family assets not held at OPCO may be included in the ROA
calculation
only if the shareholder notifies his or her financial advisor about such
assets. |
Appendix
A: Raymond James
Shareholders
purchasing Fund shares through a Raymond James platform or account, or through
an introducing broker-dealer or independent registered investment
adviser for which Raymond James provides trade execution, clearance, and/or
custody services, will be eligible only for the following load waivers
(front-end
sales charge waivers and contingent deferred, or back-end, sales charge waivers)
and discounts, which may differ from those disclosed elsewhere in this
Fund’s prospectus or SAI.
Front-end
Sales Charge Waivers on Class A Shares available at Raymond
James
|
■ |
Shares
purchased in an investment advisory
program. |
|
■ |
Shares
purchased within the same fund family through a systematic reinvestment of
capital gains and dividend distributions. |
|
■ |
Employees
and registered representatives of Raymond James or its affiliates and
their family members as designated by Raymond
James. |
|
■ |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption,
(2) the redemption and purchase occur in the same account, and (3)
redeemed shares were subject to a front-end or deferred sales load
(known
as Rights of Reinstatement). |
|
■ |
A
shareholder in the Fund’s Class C shares will have their shares converted
at net asset value to Class A shares (or the appropriate share class) of
the Fund if the
shares are no longer subject to a CDSC and the conversion is in line with
the policies and procedures of Raymond
James. |
CDSC
Waivers on Classes A and C shares available at Raymond
James
|
■ |
Death
or disability of the shareholder. |
|
■ |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s
prospectus. |
|
■ |
Return
of excess contributions from an IRA
Account. |
|
■ |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable
IRS regulations as described in the fund’s
prospectus. |
|
■ |
Shares
sold to pay Raymond James fees but only if the transaction is initiated by
Raymond James. |
|
■ |
Shares
acquired through a right of
reinstatement. |
Front-end
load discounts available at Raymond James: breakpoints, rights of accumulation,
and/or letters of intent
|
■ |
Breakpoints
as described in this Prospectus. |
|
■ |
Rights
of accumulation which entitle shareholders to breakpoint discounts will be
automatically calculated based on the aggregated holding of fund family
assets
held by accounts within the purchaser’s household at Raymond James.
Eligible fund family assets not held at Raymond James may be included in
the calculation
of rights of accumulation only if the shareholder notifies his or her
financial advisor about such assets. |
|
■ |
Letters
of intent which allow for breakpoint discounts based on anticipated
purchases within a fund family, over a 13-month time period. Eligible fund
family
assets not held at Raymond James may be included in the calculation of
letters of intent only if the shareholder notifies his or her financial
advisor about
such assets. |
Appendix
A: Wells Fargo
Effective
June 30, 2020, C Class shares will convert automatically into A Class shares on
the 25th day of the month (or, if the 25th is not a business day, the
next
business day thereafter) following the eighth anniversary of the month on which
the purchase order was accepted, provided that the Fund or the financial
intermediary through which a shareholder purchased C Class shares has records
verifying that the C Class shares have been held for at least eight years.
The first conversion of C Class to A Class shares under this new policy would
take place on July 25, 2020 for all C Class shares that were held for more
than
eight years as of June 30, 2020.
Appendix
B
GLOSSARY
|
|
| |
|
ACH |
Automated
Clearing House |
|
Advisers
Act |
Investment
Advisers Act of 1940, as amended |
|
American
Beacon or Manager |
American
Beacon Advisors, Inc. |
|
Beacon
Funds or Trust |
American
Beacon Funds |
|
Board |
Board
of Trustees |
|
Brexit |
The
United Kingdom’s departure from the European Union |
|
Capital
Gains Distributions |
Distributions
of realized net capital gains |
|
CDSC |
Contingent
Deferred Sales Charge |
|
CFTC |
Commodity
Futures Trading Commission |
|
CPO |
Commodity
Pool Operator |
|
Denial
of Services |
A
cybersecurity incident that results in shareholders or service providers
being unable to access electronic
systems |
|
Distributor |
Resolute
Investment Distributors, Inc. |
|
Dividends |
Distributions
from the Fund’s net investment income |
|
DRD |
Dividends-received
deduction |
|
EU |
European
Union |
|
FCA |
UK
Financial Conduct Authority |
|
FHLB |
Federal
Home Loan Bank |
|
Forwards |
Forward
Currency Contracts |
|
GNMA |
Government
National Mortgage Association |
|
Internal
Revenue Code |
Internal
Revenue Code of 1986, as amended |
|
Investment
Company Act |
Investment
Company Act of 1940, as amended |
|
IRA |
Individual
Retirement Account |
|
IRS |
Internal
Revenue Service |
|
Junk
Bonds |
High
yield, non-investment grade bonds |
|
LIBOR |
ICE
LIBOR |
|
|
LOI |
Letter
of Intent |
|
Management
Agreement |
The
Fund’s Management Agreement with the Manager |
|
Model |
Proprietary
Mathematical Quantitative Model |
|
Moody’s |
Moody’s
Investors Service, Inc. |
|
NAV |
Fund’s
net asset value |
|
NDF |
Non-deliverable
foreign currency forward contract |
|
NYSE |
New
York Stock Exchange |
|
Other
Distributions |
Distributions
of net gains from foreign currency transactions |
|
OTC |
Over-the-Counter |
|
QDI |
Qualified
Dividend Income |
|
REIT |
Real
Estate Investment Trust |
|
RIC |
Regulated
Investment Company |
|
SAI |
Statement
of Additional Information |
|
SEC |
Securities
and Exchange Commission |
|
State
Street |
State
Street Bank and Trust Company |
|
SVP |
Signature
Validation Program |
|
UGMA |
Uniform
Gifts to Minors Act |
|
UK |
United
Kingdom |
|
UTMA |
Uniform
Transfers to Minors Act |
