ck0001040612-20231031
STATEMENT
OF ADDITIONAL INFORMATION
Madison
Funds®
550
Science Drive
Madison,
Wisconsin 53711
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| Ticker
Symbol |
| Fund |
Class
A |
Class
C |
Class
Y |
Class
I |
Class
R6 |
| Madison
Conservative Allocation Fund |
MCNAX |
MCOCX |
N/A |
N/A |
N/A |
| Madison
Moderate Allocation Fund |
MMDAX |
MMDCX |
N/A |
N/A |
N/A |
| Madison
Aggressive Allocation Fund |
MAGSX |
MAACX |
N/A |
N/A |
N/A |
| Madison
Diversified Income Fund |
MBLAX |
MBLCX |
N/A |
N/A |
N/A |
| Madison
Tax-Free Virginia Fund |
N/A |
N/A |
GTVAX |
N/A |
N/A |
| Madison
Tax-Free National Fund |
N/A |
N/A |
GTFHX |
N/A |
N/A |
| Madison
High Quality Bond Fund |
N/A |
N/A |
MIIBX |
MIIRX |
N/A |
| Madison
Core Bond Fund |
MBOAX |
N/A |
MBOYX |
MBOIX |
MBORX |
| Madison
Covered Call & Equity Income Fund |
MENAX |
MENCX |
MENYX |
MENIX |
MENRX |
| Madison
Dividend Income Fund |
MADAX |
N/A |
BHBFX |
MDMIX |
MADRX |
| Madison
Investors Fund |
MNVAX |
N/A |
MINVX |
MIVIX |
MNVRX |
| Madison
Sustainable Equity Fund |
N/A |
N/A |
MFSYX |
MFSIX |
N/A |
| Madison
Mid Cap Fund |
MERAX |
N/A |
GTSGX |
MDCIX |
MMCRX |
| Madison
Small Cap Fund |
MASMX |
N/A |
BVAOX |
MSCIX |
MSCRX |
| Madison
International Stock Fund |
MINAX |
N/A |
MINYX |
N/A |
N/A |
___________________________________________________________________________
N/A
Fund does not offer this share class.
This
is not a prospectus. This statement of additional information (“SAI”) should be
read in conjunction with the currently effective prospectus (the “prospectus”)
for Madison Funds (the “Trust”), which is referred to herein. The prospectus
concisely sets forth information that a prospective investor should know before
investing. For a copy of the Trust’s prospectus dated February 28, 2024, please
call 1-800-877-6089 or write Madison Funds, P.O. Box 219083, Kansas City, MO
64121-9083.
The
audited financial statements for the funds are incorporated herein by reference
to the funds’ most recent annual report, which has been filed with the
Securities and Exchange Commission (the “SEC”) and provided to all shareholders.
For a copy, without charge, of the funds’ most recent annual report to
shareholders, please call the Trust at 1-800-877-6089 or visit our website at
www.madisonfunds.com.
The
date of this SAI is February 28, 2024.
(This
page left intentionally blank.)
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| TABLE
OF CONTENTS |
PAGE |
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GENERAL
INFORMATION................................................................................................. |
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INVESTMENT
PRACTICES............................................................................................... |
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| Illiquid
Securities
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Foreign
Transactions.......................................................................................... |
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Futures
Contracts and Options on Futures
Contracts........................................ |
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Swap
Agreements.............................................................................................. |
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Convertible
Securities......................................................................................... |
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Other Debt
Securities.......................................................................................... |
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Municipal
Securities............................................................................................ |
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Restricted
Securities........................................................................................... |
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Repurchase
Agreements.................................................................................... |
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Exchange-Traded
Funds..................................................................................... |
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Definition
of Market
Capitalization...................................................................... |
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FUND
NAMES.................................................................................................................... |
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INVESTMENT
LIMITATIONS.............................................................................................. |
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PORTFOLIO
TURNOVER.................................................................................................. |
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Trustees and
Officers.......................................................................................... |
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Trustee
Compensation........................................................................................ |
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Board
Qualifications............................................................................................ |
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Board
Committees.............................................................................................. |
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Trustees’
Holdings............................................................................................... |
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PORTFOLIO
MANAGEMENT............................................................................................. |
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PORTFOLIO
MANAGERS.................................................................................................. |
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TRANSFER
AGENT............................................................................................................ |
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CUSTODIAN....................................................................................................................... |
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LENDING
PORTFOLIO
SECURITIES................................................................................ |
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| TABLE
OF CONTENTS |
PAGE |
DISTRIBUTION.................................................................................................................. |
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BROKERAGE..................................................................................................................... |
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CODE OF
ETHICS............................................................................................................. |
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SHARES OF THE
TRUST.................................................................................................. |
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Voting
Rights....................................................................................................... |
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Portfolio
Valuation............................................................................................... |
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Distributions........................................................................................................ |
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Shareholder
Taxation.......................................................................................... |
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| Share
Class
Availability........................................................................................ |
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| Investment
Minimums.......................................................................................... |
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Offering
Price...................................................................................................... |
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Purchase
by
Exchange....................................................................................... |
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Selling
Shares.................................................................................................... |
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| Redemptions
in
Kind.......................................................................................... |
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| Systematic
Withdrawal
Plan............................................................................... |
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| Systematic
Exchange
Plan................................................................................. |
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FINANCIAL
STATEMENTS................................................................................................. |
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Madison
Funds (the "Trust"), is a diversified, open-end management investment company
consisting of separate investment portfolios or funds (each, a “fund” and
collectively, the “funds”), each of which has a different investment objective
and policies. Each fund is a diversified, open-end management investment
company, commonly known as a mutual fund. The funds described in this SAI are as
follows: Conservative
Allocation, Moderate Allocation, Aggressive Allocation and Diversified Income
Funds (collectively, the “Allocation Funds”);Tax-Free Virginia and Tax-Free
National Funds (collectively, the “Tax-Free Funds”); High Quality Bond and Core
Bond Funds (collectively, the “Income Funds”); Income, Covered Call & Equity
Income, Dividend Income, Investors, Sustainable Equity, Mid Cap and Small Cap
Funds (collectively, the “Equity Funds”) and International Stock
Fund.
The
Trust was organized under the laws of the state of Delaware on May 21, 1997 and
is a Delaware statutory trust. As a Delaware statutory trust, the operations of
the Trust are governed by its Amended and Restated Declaration of Trust (the
“Declaration of Trust”) and its Certificate of Trust (the “Certificate”). The
Certificate is on file with the Office of the Secretary of State in Delaware.
Each shareholder agrees to be bound by the Declaration of Trust, as amended from
time to time, upon such shareholder’s initial purchase of shares of beneficial
interest in any one of the funds. Prior to February 2013, the Trust was known as
MEMBERS Mutual Funds.
The
prospectus describes the investment objective and policies of each of the funds.
The following information is provided for those investors wishing to have more
comprehensive information than that contained in the prospectus.
Since
each Allocation
Fund
will invest in shares of other investment companies, except as disclosed in the
prospectus, to the extent that an investment practice noted below describes
specific securities, if an Allocation
Fund
invests in those securities, it does so indirectly, through its investment in
underlying funds.
Lending
Portfolio Securities
Each
fund may lend portfolio securities. Loans will be made only in accordance with
guidelines established by the Board of Trustees of the Trust (the “Board” or the
“Board of Trustees”) and on the request of broker-dealers or institutional
investors deemed qualified, and only when the borrower agrees to maintain cash
or U.S. government securities as collateral with a fund equal at all times to at
least 102% of the value of domestic securities and 105% of the value of
non-domestic securities, based upon the prior days market value for securities
loaned. A fund will continue to receive interest or dividends, in the form of
substitute payments which may not be as beneficial from a tax perspective to the
fund as the actual interest or dividend payment, on the securities loaned and
will, at the same time, earn an agreed-upon amount of interest on the collateral
which will be invested in readily marketable short-term, high quality government
securities. A fund will retain the right to call the loaned securities and may
call loaned voting securities if important shareholder meetings are imminent.
Such security loans will not be made if, as a result, the aggregate of such
loans exceeds 33⅓% of the value of a fund’s assets. The fund may terminate such
loans at any time.
The
primary risk associated with securities lending is loss associated with
investment of cash and non-cash collateral. To mitigate this risk, the funds
will invest collateral only in high quality government securities. A secondary
risk is if the borrower defaults on its obligation to return the securities
loaned because of insolvency or other reasons. To mitigate the risk, loans will
be made only to firms deemed by the funds’ investment adviser, Madison Asset
Management, LLC (“Madison” or the "Investment Adviser"), to be in good financial
standing and will not be made unless, in Madison’s judgment, the consideration
to be earned from such loans would justify the risk. The fund could experience
delays and costs in recovering securities loaned or in gaining access to the
collateral. Under the funds' agreement with State Street Bank and Trust Company,
the fund's securities lending agent, the securities lending agent has provided a
limited indemnification in the event of a borrower default. The funds do not
have a master netting agreement.
Illiquid
Securities
Each
fund may invest in illiquid securities as a non-principal investment strategy up
to 15% of its net assets. In accordance with Rule 22e-4 under the
Investment Company Act of 1940, as amended (the "1940 Act"), the funds are
subject to the guidelines set forth in the Trust’s liquidity risk management
program, and a Fund may not acquire any illiquid investment if, immediately
after the acquisition, the Fund would have invested more than 15% of its net
assets in illiquid investments. The term “illiquid security” is defined as
a security that the Investment Adviser reasonably expects cannot be sold or
disposed of in current market conditions in seven calendar days or less without
the sale or disposition significantly changing the market value of the
security.
Foreign
Transactions
Foreign
Securities.
With the exception of the Tax-Free
Funds,
each fund may invest in foreign securities. Investing in foreign securities is a
principal investment strategy of the International
Stock Fund (refer
to the prospectus for more information). The percentage limitations on each
fund’s investment in foreign securities are set forth in the
prospectus.
Foreign
securities refers to securities that are: (i) issued by companies organized
outside the U.S. or whose principal operations are outside the U.S., or issued
by foreign governments or their agencies or instrumentalities (“foreign
issuers”); (ii) principally traded outside of the U.S.; and/or (iii) quoted or
denominated in a foreign currency (“non-dollar securities”).
Foreign
securities may offer potential benefits that are not available from investments
exclusively in securities of domestic issuers or dollar-denominated securities.
Such benefits may include the opportunity to invest in foreign issuers that
appear to offer better opportunity for long-term capital appreciation, more
income or current earnings than investments in domestic issuers, the opportunity
to invest in foreign countries with economic policies or business cycles
different from those of the U.S. and the opportunity to invest in foreign
securities markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing
in foreign securities involves significant risks that are not typically
associated with investing in U.S. dollar-denominated securities or in securities
of domestic issuers. Such investments may be affected by changes in currency
exchange rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency blockage).
Some foreign stock markets may have
substantially
less volume than, for example, the New York Stock Exchange and securities of
some foreign issuers may be less liquid than securities of comparable domestic
issuers. Commissions and dealer mark-ups on transactions in foreign investments
may be higher than for similar transactions in the U.S. In addition, clearance
and settlement procedures may be different in foreign countries and, in certain
markets, on certain occasions, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
Foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. There
may be less publicly available information about a foreign issuer than about a
domestic one. In addition, there is generally less government regulation of
stock exchanges, brokers, and listed and unlisted issuers in foreign countries
than in the U.S. Furthermore, with respect to certain foreign countries, there
is a possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on dividend or interest payments, limitations on the removal
of funds or other assets of the fund making the investment, or political or
social instability or diplomatic developments which could affect investments in
those countries. Investments in short-term debt obligations issued either by
foreign issuers or foreign financial institutions or by foreign branches of U.S.
financial institutions (collectively, “foreign money market securities”) present
many of the same risks as other foreign investments. In addition, foreign money
market securities present interest rate risks similar to those attendant to an
investment in domestic money market securities.
Investments
in ADRs, EDRs, GDRs and SDRs.
Many securities of foreign issuers are represented by American Depositary
Receipts (“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary
Receipts (“GDRs”) and Swedish Depositary Receipts ("SDRs"). With the exception
of the Tax-Free
Funds,
each fund may invest in ADRs, EDRs, GDRs and SDRs.
ADRs
are receipts typically issued by a U.S. financial institution or trust company
which represent the right to receive securities of foreign issuers deposited in
a domestic bank or a foreign correspondent bank. Prices of ADRs are quoted in
U.S. dollars, and ADRs are traded in the U.S. on exchanges or over-the-counter
and are sponsored and issued by domestic banks. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange or
the NASDAQ Global Market. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
EDRs,
GDRs and SDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs are typically issued in bearer form and are designed for trading
in the European markets. GDRs, including SDRs, are issued either in bearer or
registered form, are designed for trading on a global basis. EDRs and GDRs are
not necessarily quoted in the same currency as the underlying
security.
Depositary
receipts do not eliminate all the risk inherent in investing in the securities
of foreign issuers. To the extent that a fund acquires depositary receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the receipt to issue and service such
depositary receipts, there may be an increased possibility that the fund would
not become aware of and be able to respond to corporate actions such as stock
splits or rights offerings involving the foreign issuer in a timely manner. The
market value of depositary receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the receipts and the underlying are quoted. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
However, by investing in depositary receipts rather than directly in the stock
of foreign issuers, a fund will avoid currency risks during the settlement
period for either purchases or sales.
Investments
in Emerging Markets.
Each fund, except the Tax-Free
Funds,
may invest in securities of issuers located in countries with emerging economies
and/or securities markets, often referred to as “emerging markets.” For this
purpose, emerging markets are those not normally associated with generally
recognized developed markets identified by industry observers such as Standard
and Poor's ("S&P") or Morgan Stanley Capital International ("MSCI").
Political and economic structures in many of these countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Certain of these countries may have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks of foreign investment
generally, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social developments
may affect the values of a fund’s investments in those countries and the
availability to the fund of additional investments in those
countries.
The
small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make investments in such countries illiquid and more volatile than
investments in more developed markets, and the funds may be required to
establish special custody or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
A
fund’s purchase or sale of portfolio securities in certain emerging markets may
be constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on aggregate trading volume by or holdings of a fund, Madison or its affiliates,
a subadviser and its affiliates, and each such person’s respective clients and
other service providers. A fund may not be able to sell securities in
circumstances where price, trading or settlement volume limitations have been
reached.
Foreign
investment in certain emerging securities markets is restricted or controlled to
varying degrees that may limit investment in such countries or increase the
administrative cost of such investments. For example, certain countries may
restrict or prohibit investment opportunities in issuers or industries important
to national interests. Such restrictions may affect the market price, liquidity
and rights of securities that may be purchased by a fund.
Settlement
procedures in emerging markets are frequently less developed and reliable than
those in the U.S. and may involve a fund’s delivery of securities before receipt
of payment for their sale. In addition, significant delays are common in certain
markets in registering the transfer of securities. Settlement or registration
problems may make it more difficult for a fund to value its portfolio assets and
could cause a fund to miss attractive investment opportunities, to have its
assets uninvested or to incur losses due to the failure of a counterparty to pay
for securities that the fund has delivered or due to the fund’s inability to
complete its contractual obligations.
Currently,
there is no market or only a limited market for many management techniques and
instruments with respect to the currencies and securities markets of emerging
market countries. Consequently, there can be no assurance that suitable
instruments for hedging currency and market related risks will be available at
the times when the Investment Adviser of the fund wishes to use
them.
Sovereign
Debt.
The
Core Bond
Fund
may invest in sovereign debt, which may trade at a substantial discount from
face value. The funds may hold and trade sovereign debt of emerging market
countries in appropriate circumstances and participate in debt conversion
programs. Emerging country sovereign debt involves a high degree of risk, is
generally lower-quality debt, and is considered speculative in nature. The
issuer or governmental authorities that control sovereign debt repayment
(“sovereign debtors”) may be unable or unwilling to repay principal or interest
when due in accordance with the terms of the debt. A sovereign debtor’s
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, the extent of
its foreign reserves, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of the debt service burden to the
economy as a whole, the sovereign debtor’s policy towards the International
Monetary Fund (the “IMF”) and the political constraints to which the sovereign
debtor may be subject. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others abroad
to reduce principal and interest arrearage on their debt. The commitment of
these third parties to make such disbursements may be conditioned on the
sovereign debtor’s implementation of economic reforms or economic performance
and the timely service of the debtor’s obligations. The sovereign debtor’s
failure to meet these conditions may cause these third parties to cancel their
commitments to provide funds to the sovereign debtor, which may further impair
the debtor’s ability or willingness to timely service its debts. In certain
instances, the International
Stock Fund
may invest in sovereign debt that is in default as to payments of principal or
interest. Under these circumstances, the funds may incur additional expenses in
connection with any restructuring of the issuer’s obligations or in otherwise
enforcing its rights thereunder.
Supranational
Entities. The
Core
Bond Fund
may invest in securities issued by supranational entities, such as the
International Bank for Reconstruction and Development (commonly called the
“World Bank”), the Asian Development Bank and the Inter-American Development
Bank. The governmental members of these supranational entities are
“stockholders” that typically make capital contributions to support or promote
such entities’ economic reconstruction or development activities and may be
committed to make additional capital contributions if the entity is unable to
repay its borrowings. A supranational entity’s lending activities may be limited
to a percentage of its total capital, reserves and net income. There can be no
assurance that the constituent governments will be able or willing to honor
their commitments to those entities, with the result that the entity may be
unable to pay interest or repay principal on its debt securities, and the fund
may lose money on such investments. Obligations of a supranational entity that
are denominated in foreign currencies will also be subject to the risks
associated with investments in foreign currencies, as described in the section
“Foreign Currency Transactions.”
Foreign
Currency Transactions.
Because investment in foreign issuers will usually involve currencies of foreign
countries, and because each fund, except the Tax-Free
Funds,
may have currency exposure independent of their securities positions, the value
of the assets of these funds, as measured in U.S. dollars, will be affected by
changes in foreign currency exchange rates. An issuer of securities purchased by
a fund may be domiciled in a country other than the country in whose currency
the instrument is denominated or quoted.
Currency
exchange rates may fluctuate significantly over short periods of time causing,
along with other factors, a fund’s net asset value (“NAV”) to fluctuate as well.
They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also can be
affected unpredictably by intervention by U.S. or foreign governments or central
banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The market in forward foreign currency
exchange contracts and other privately negotiated currency instruments offers
less protection against defaults by the other party to such instruments than is
available for currency instruments traded on an exchange. To the extent that a
substantial portion of a fund’s total assets, adjusted to reflect the fund’s net
position after giving effect to currency transactions, is denominated or quoted
in the currencies of foreign countries, the fund will be more susceptible to the
risk of adverse economic and political developments within those
countries.
In
addition to investing in securities denominated or quoted in a foreign currency,
certain of the funds may engage in a variety of foreign currency management
techniques. These funds may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the fund’s Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at a
later date, based on anticipated changes in the relevant exchange rate. These
funds will incur costs in connection with conversions between various
currencies.
Forward
Foreign Currency Exchange Contracts.
Each fund, except the Tax-Free
Funds,
may also purchase or sell forward foreign currency exchange contracts for
defensive or hedging purposes when the fund’s Investment Adviser anticipates
that the foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the fund’s portfolio. In addition, these funds
may enter into forward foreign currency exchange contracts in order to protect
against anticipated changes in future foreign currency exchange rates and may
engage in cross-hedging by using forward contracts in a currency different from
that in which the hedged security is denominated or quoted if the fund’s
Investment Adviser determines that there is a pattern of correlation between the
two currencies.
These
funds may enter into contracts to purchase foreign currencies to protect against
an anticipated rise in the U.S. dollar price of securities it intends to
purchase. They may enter into contracts to sell foreign currencies to protect
against the decline in value of its foreign currency denominated or quoted
portfolio securities, or a decline in the value of anticipated dividends from
such securities, due to a decline in the value of foreign currencies against the
U.S. dollar. Contracts to sell foreign currency could limit any potential gain
which might be realized by a fund if the value of the hedged currency
increased.
If
a fund enters into a forward foreign currency exchange contract to buy foreign
currency for any purpose, the fund will be required to place cash or liquid
securities in a segregated account with the fund’s custodian in an amount equal
to the value of the fund’s total assets committed to the consummation of the
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the segregated
account so that the value of the account will equal the amount of a fund’s
commitment with respect to the contract.
Forward
contracts are subject to the risk that the counterparty to such contract will
default on its obligations. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a fund of unrealized profits, transaction costs or the benefits of
a currency hedge or force the fund to cover its purchase or sale commitments, if
any, at the current market price.
A
fund will not enter into such transactions unless the credit quality of the
unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the fund’s Investment Adviser.
Forward
foreign currency exchange contract transactions are considered transactions in
derivative securities. The Investment Adviser must obtain the explicit approval
of the Board of Trustees prior to engaging in derivative transactions of this
type.
Options
on Foreign Currencies.
Each fund, except the Tax-Free
Funds,
may also purchase and sell (write) put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign portfolio securities and anticipated dividends on such securities and
against increases in the U.S. dollar cost of foreign securities to be acquired.
These funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received. A fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a fund’s position, the fund may forfeit the entire amount
of the premium plus related transaction costs. In addition, these funds may
purchase call or put options on currency to seek to increase total return when
the fund’s Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
fund’s portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by these funds will be traded on U.S. and foreign exchanges
or over-the-counter. See the “Options on Securities and Securities
Indices–Risks
Associated with Options Transactions” section, below, for a discussion of the
liquidity risks associated with options transactions.
Foreign
currency options are considered derivative securities. The Investment Adviser
must obtain the explicit approval of the Board of Trustees prior to engaging in
derivative transactions of this type.
Special
Risks Associated with Options on Currency.
An exchange traded options position may be closed out only on an options
exchange which provides a secondary market for an option of the same series.
Although a fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that a fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the sale of underlying securities pursuant to the exercise of put options. If a
fund as a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to identify the
underlying currency (or security quoted or denominated in that currency) until
the option expires or it delivers the underlying currency upon
exercise.
There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers’ orders.
The
amount of the premiums which a fund may pay or receive may be adversely affected
as new or existing institutions, including other investment companies, engage in
or increase their option purchasing and writing activities.
Options
on Securities and Securities Indices
Writing
Options.
Each fund may write (sell) covered call and put options on any securities in
which it may invest. A call option written by a fund obligates such fund to sell
specified securities to the holder of the option at a specified price if the
option is exercised at any time before the expiration date. All call options
written by a fund are covered, which means that such fund will effectively own
the securities subject to the option so long as the option is outstanding. It
should be noted that a principal investment strategy of the Covered
Call & Equity Income Fund
is to write covered call put options (see the prospectus for more information).
A fund’s purpose in writing covered call options is to realize greater income
than would be realized on portfolio securities transactions alone. However, a
fund may forgo the opportunity to profit from an increase in the market price of
the underlying security.
A
put option written by a fund would obligate such fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
fund would be covered, which means that such fund would have deposited with its
custodian cash or liquid securities with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for a fund. However, in return for the option premium, a fund
accepts the risk that it will be required to purchase the underlying securities
at a price in excess of the securities’ market value at the time of
purchase.
In
addition, in the Investment Adviser’s discretion, a written call option or put
option may be covered by maintaining cash or liquid securities (either of which
may be denominated in any currency) in a segregated account with the fund’s
custodian, by entering into an offsetting forward contract and/or by purchasing
an offsetting option which, by virtue of its exercise price or otherwise,
reduces a fund’s net exposure on its written option position.
Each
fund may also write and sell covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. A
fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A fund may cover call and put options on a
securities index by maintaining cash or liquid securities with a value equal to
the exercise price in a segregated account with its custodian. Writing and
selling options on securities indices is considered transacting in derivative
securities. Except for the Covered
Call & Equity Income Fund,
the Investment Adviser must obtain the explicit approval of the Board of
Trustees prior to engaging in derivative transactions of this type.
A
fund may terminate its obligations under an exchange-traded call or put option
by purchasing an option identical to the one it has written. Obligations under
over-the-counter options may be terminated only by entering into an offsetting
transaction with the counterparty to such option. Such purchases are referred to
as “closing purchase” transactions.
Purchasing
Options.
Each fund may purchase put and call options on any securities in which it may
invest or options on any securities index based on securities in which it may
invest. A fund would also be able to enter into closing sale transactions in
order to realize gains or minimize losses on options it had
purchased.
A
fund would normally purchase call options in anticipation of an increase in the
market value of securities of the type in which it may invest. The purchase of a
call option would entitle a fund, in return for the premium paid, to purchase
specified securities at a specified price during the option period. A fund would
ordinarily realize a gain if, during the option period, the value of such
securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a fund would realize a loss on the purchase of
the call option.
A
fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio (“protective puts”) or in securities
in which it may invest. The purchase of a put option would entitle a fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a fund’s securities. Put
options may also be purchased by a fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise such a fund would realize no
gain or loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of the underlying portfolio securities.
A
fund would purchase put and call options on securities indices for the same
purpose as it would purchase options on individual securities.
Yield
Curve Options.
The Tax-Free
Funds
and Income
Funds
may enter into options on the yield “spread,” or yield differential between two
securities. Such transactions are referred to as “yield curve” options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments. Accordingly,
a yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease.
These
five (5) funds may purchase or write yield curve options for the same purposes
as other options on securities. For example, a fund may purchase a call option
on the yield spread between two securities if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an adverse
change in the yield between the two securities. A fund may also purchase or
write yield curve options in an effort to increase its current income if, in the
judgment of the Investment Adviser, the fund will be able to profit from
movements in the spread between the yields of the underlying securities. The
trading of yield curve options is subject to all of the risks associated with
the trading of other types of options. In addition, however, such options
present risk of loss even if the yield of one of the underlying securities
remains constant, if the spread moves in a direction or to an extent which was
not anticipated.
Yield
curve options written by the Tax-Free
Funds and Income
Funds
will be “covered.” A call (or put) option is covered if a fund holds another
call (or put) option on the spread between the same two securities and maintains
in a segregated account with its custodian cash or liquid securities sufficient
to cover the fund’s net liability under the two options. Therefore, a fund’s
liability for such a covered option is generally limited to the difference
between the amount of the fund’s liability under the option written by the fund
less the value of the option held by the fund. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter, and because they
have been only recently introduced, established trading markets for these
options have not yet developed.
Yield
curve options are considered derivative securities. The Investment Adviser must
obtain the explicit approval of the Board of Trustees prior to engaging in
derivative transactions of this type.
Risks
Associated with Options Transactions.
There
is no assurance that a liquid secondary market on an options exchange will exist
for any particular exchange-traded option or at any particular time. If a fund
is unable to effect a closing purchase transaction with respect to covered
options it has written, the fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a fund is unable to effect a closing sale
transaction with respect to options it has purchased, it will have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities.
Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Each
fund may purchase and sell both options that are traded on U.S. and foreign
exchanges (however, the Tax-Free
Funds cannot
purchase/sell options traded on foreign exchanges)
and options traded over-the-counter with broker-dealers who make markets in
these options. The ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the funds will treat
purchased over-the counter options and all assets used to cover written
over-the-counter options as illiquid securities, except that with respect to
options written with primary dealers in U.S. Government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the
formula.
Transactions
by a fund in options on securities and stock indices will be subject to
limitations established by each of the exchanges, boards of trade or other
trading facilities governing the maximum number of options in each class which
may be written or purchased by a single investor or group of investors acting in
concert. Thus, the number of options which a fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Investment Adviser. An exchange, board of trade or other trading facility
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions.
The
writing and purchase of options is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. The successful use of protective puts for
hedging purposes depends in part on the Investment Adviser’s ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
Futures
Contracts and Options on Futures Contracts
The
Core
Bond Fund
may purchase and sell futures contracts and purchase and write options on
futures contracts. The fund may purchase and sell futures contracts based on
various securities (such as U.S. Government securities), securities indices,
foreign currencies and other financial instruments and indices. The fund will
engage in futures or related options transactions only for bona fide hedging
purposes as defined below or for purposes of seeking to increase total returns
to the extent permitted by regulations of the Commodity Futures Trading
Commission (the “CFTC”), including applicable registration requirements. All
futures contracts entered into by a fund are traded on U.S. exchanges or boards
of trade that are licensed and regulated by the CFTC or on foreign
exchanges.
Futures
Contracts.
A futures contract may generally be described as an agreement between two
parties to buy and sell particular financial instruments for an agreed price
during a designated month (or to deliver the final cash settlement price, in the
case of a contract relating to an index or otherwise not calling for physical
delivery at the end of trading in the contract).
When
interest rates are rising or securities prices are falling, a fund can seek
through the sale of futures contracts to offset a decline in the value of its
current portfolio securities. When rates are falling or prices are rising, a
fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, a fund can sell futures contracts on a
specified currency to protect against a decline in the value of such currency
and its portfolio securities which are denominated in such currency. Funds can
purchase futures contracts on foreign currency to fix the price in U.S. dollars
of a security denominated in such currency that such fund has acquired or
expects to acquire.
Positions
taken in the futures markets are not normally held to maturity, but are instead
liquidated through offsetting transactions which may result in a profit or a
loss. While a fund’s futures contracts on securities or currency will usually be
liquidated in this manner, it may instead make or take delivery of the
underlying securities or currency whenever it appears economically advantageous
for the fund to do so. A clearing corporation (associated with the exchange on
which futures on a security or currency are traded) guarantees that, if still
open, the sale or purchase will be performed on the settlement
date.
Hedging
Strategies.
Hedging by use of futures contracts seeks to establish more certainty of (than
would otherwise be possible) the effective price, rate of return or currency
exchange rate on securities that the fund owns or proposes to acquire. The fund
may, for example, take a “short” position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices or foreign currency rates that would
adversely affect the U.S. dollar value of the fund’s portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by a fund or securities with characteristics similar to those of the fund’s
portfolio securities. Similarly, the fund may sell futures contracts on a
currency in which its portfolio securities are denominated or in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies.
If,
in the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for the fund’s portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in the
fund’s portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
difference in volatility based on historical patterns and to compensate for it
by having the fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the fund’s securities portfolio. When hedging of this character is successful,
any depreciation in the value of portfolio securities will substantially be
offset by appreciation in the value of the futures position. On the other hand,
any unanticipated appreciation in the value of the fund’s portfolio securities
would be substantially offset by a decline in the value of the futures
position.
On
other occasions, the fund may take a “long” position by purchasing such futures
contracts. This would be done, for example, when the fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently
available.
Options
on Futures Contracts.
The acquisition of put and call options on futures contracts will give the fund
the right (but not the obligation) for a specified price, to sell or to
purchase, respectively, the underlying futures contract at any time during the
option period. As the purchaser of an option on a futures contract, the fund
obtains the benefit of the futures position if prices move in a favorable
direction but limits its risk of loss in the event of an unfavorable price
movement to the loss of the premium and transaction costs.
The
writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the fund’s assets. By writing a call
option, the fund becomes obligated, in exchange for the premium, to sell a
futures contract which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the fund intends to purchase. However, the fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price. Thus,
the loss incurred by the fund in writing options on futures is potentially
unlimited and may exceed the amount of the premium received. The fund will incur
transaction costs in connection with the writing of options on
futures.
The
holder or writer of an option on a futures contract may terminate its position
by selling or purchasing an offsetting option on the same series. There is no
guarantee that such closing transactions can be effected. The fund’s ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
Other
Considerations.
Where permitted, the fund will engage in futures transactions and in related
options transactions for hedging purposes or to seek to increase total return.
The fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the fund or which it expects to purchase.
Except as stated below, each fund’s futures transactions will be entered into
for traditional hedging purposes, that is to say,
futures
contracts will be used to protect against a decline in the price of securities
(or the currency in which they are denominated) that the fund owns, or futures
contracts will be purchased to protect the fund against an increase in the price
of securities (or the currency in which they are denominated) it intends to
purchase. As evidence of this hedging intent, the fund expects that on most of
the occasions on which it takes a long futures or option position (involving the
purchase of a futures contract), the fund will have purchased, or will be in the
process of purchasing equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for a fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
The
CFTC, a federal agency, regulates trading activity in futures contracts and
related options contracts pursuant to the Commodity Exchange Act, as amended
(the “CEA”). The CFTC requires the registration of a commodity pool operator
(“CPO”), which is defined as any person engaged in a business which is of the
nature of an investment trust, syndicate or a similar form of enterprise, and
who, in connection therewith, solicits, accepts or receives from others funds,
securities or property for the purpose of trading in a commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which files a notice of
eligibility. The investment adviser, on behalf of the Core
Bond Fund,
which may invest in futures transactions and related options transactions, has
filed a notice of eligibility claiming exclusion from the status of CPO and,
therefore, is not subject to registration or regulation as a CPO under the CEA.
Prior to engaging in such transactions, should the eligibility for continuing
the claim of exclusion no longer be available, the fund may be subject to
registration or regulation as a CPO if no other exclusion from these
requirements are then available.
As
permitted, the fund will engage in transactions in futures contracts and in
related options transactions only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code of 1986, as amended (the
“Code”), for maintaining its qualification as a regulated investment company for
federal income tax purposes (see the “Distributions and Taxes” section,
below).
Transactions
in futures contracts and options on futures involve brokerage costs, require
margin deposits and, in the case of contracts and options obligating a fund to
purchase securities or currencies, require the fund to segregate with its
custodian cash or liquid securities in an amount equal to the underlying value
of such contracts and options.
While
transactions in futures contracts and options on futures may reduce certain
risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and the
fund may be exposed to risk of loss.
Perfect
correlation between the fund’s futures positions and portfolio positions may be
difficult to achieve. The only futures contracts available to hedge a fund’s
portfolio are various futures on U.S. Government securities, securities indices
and foreign currencies. In addition, it is not possible for a fund to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Swap
Agreements
The
Core
Bond Fund may
enter into interest rate, credit default, index, currency exchange rate and
total return swap agreements for hedging purposes in attempts to obtain a
particular desired return at a lower cost to the fund than if the fund had
invested directly in an instrument that yielded the desired return, and to seek
to increase the fund’s total return. The
funds
may also enter into special interest rate swap arrangements such as caps, floors
and collars for both hedging purposes and to seek to increase total return. The
funds would typically use interest rate swaps to shorten the effective duration
of their portfolios.
Swap
agreements are contracts entered into by institutional investors for periods
ranging from a few weeks to more than one year. In a standard “swap”
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular pre-determined investments or
instruments. The gross returns to be exchanged or “swapped” between the parties
are calculated with respect to a “notional amount” (i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate), in a particular foreign currency, or in a “basket” of securities
representing a particular index. The “notional amount” of the swap agreement is
only a fictive basis on which to calculate the obligations the parties to a swap
agreement have agreed to exchange. A fund’s obligations (or rights) under a swap
agreement are equal only to the amount to be paid or received under the
agreement based on the relative values of the positions held by each party (the
“net amount”). A fund’s obligations under a swap agreement are accrued daily
(offset against any amounts owing to the fund) and any accrued but unpaid net
amounts owed to a swap counterparty are covered by the maintenance of a
segregated assets.
Interest
rate swaps involve the exchange by a fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Credit default swaps involve a contract by
a fund with another party to transfer the credit exposure of a specific
commitment between the parties. Currency swaps involve the exchange by a fund
with another party of their respective rights to make or receive payments in
specified currencies. A total return swap involves an agreement in which one
party makes payments based on a set rate, either fixed or variable, while the
other party makes payments based on the return of an underlying asset, which
includes both the income it generates and any capital gains. The underlying
asset that is used is usually an equities index, loan or a basket of assets. The
purchase of an interest rate cap entitles the purchaser to receive from the
seller of the cap payments of interest on a notional amount equal to the amount
by which a specified index exceeds a stated interest rate. The purchase of an
interest rate floor entitles the purchaser to receive from the seller of the
floor payments of interest on a notional amount equal to the amount by which a
specified index falls below a stated interest rate. An interest rate collar is
the combination of a cap and a floor that preserves a certain return within a
stated range of interest rates. Since interest rate swaps, currency swaps and
interest rate caps, floors and collars are individually negotiated, the funds
expect to achieve an acceptable degree of correlation between their portfolio
investments and their interest rate or currency swap positions entered into for
hedging purposes.
The
funds may only enter into interest rate swaps on a net basis, which means the
two payment streams are netted out, with the fund receiving or paying, as the
case may be, only the net amount of the two payments. Interest rate swaps do not
involve the delivery of securities, or underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that the fund is contractually obligated to
make. If the other party to an interest rate swap defaults, a fund’s risk of
loss consists of the net amount of interest payments that the fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations.
To
the extent the funds engage in such activity, the Trust would maintain in a
segregated account with its custodian, cash or liquid securities equal to the
net amount, if any, of the excess of each fund’s obligations over its
entitlements with respect to swap transactions. The funds will not enter into
swap transactions unless the unsecured commercial paper, senior debt or claims
paying ability of the other party is considered investment grade by the
Investment Adviser. If there is a default by the other party to such a
transaction, the funds will have contractual remedies pursuant to the agreement
related to the transaction.
The
use of interest rate, credit default and currency swaps (including caps, floors
and collars) is a highly specialized activity which involves investment
techniques and risks different from those associated with traditional portfolio
securities activities. If the Investment Adviser is incorrect in its forecasts
of market values, interest rates and currency exchange rates, the investment
performance of the funds would be less favorable than it would have been if this
investment technique were not used.
In
as much as swaps are entered into for good faith hedging purposes or are offset
by segregated assets, the Investment Adviser does not believe that swaps
constitute senior securities as defined in the 1940 Act, and, accordingly, will
not treat swaps as being subject to the funds’ borrowing restrictions. The swap
market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid compared with the markets for other similar instruments which
are traded in the interbank market. Nevertheless, the staff of the SEC takes the
position that currency swaps are illiquid investments subject to a fund’s 15%
limitation on such investments.
In
recent years, the SEC and the CFTC have adopted rules creating a new,
comprehensive regulatory framework for swaps transactions. Under the new rules,
certain swaps transactions are required to be executed on a regulated trading
platform and cleared through a derivatives clearing organization. Additionally,
the new rules impose other requirements on the parties entering into swaps
transactions, including requirements relating to posting margin, and reporting
and documenting swaps transactions. Funds engaging in swaps transactions may
incur additional expense as a result of these new regulatory requirements. For
these reasons, the Investment Adviser must obtain the explicit approval of the
Board of Trustees prior to engaging in swap transactions for the Core
Bond Fund.
Certain
Bond Fund Practices
The
Income
Funds
may invest all or a portion of their assets in debt securities. As stated in the
prospectus, the funds will emphasize investment grade securities.
These
funds may also make use of certain derivatives, such as options, to manage risks
and returns, including the risk of fluctuating interest rates. These instruments
will be used to control risk and obtain additional income and not with a view
toward speculation. The funds will invest only in options which are
exchange-traded or sold over-the-counter.
In
the debt securities market, purchases of some issues are occasionally made under
firm (forward) commitment agreements. The purchase of securities under such
agreements can involve risk of loss due to changes in the market rate of
interest between the commitment date and the settlement date. As a matter of
operating policy, no fund will commit itself to forward commitment agreements in
an amount in excess of 25% of total assets and will not engage in such
agreements for leveraging purposes.
Lower-Rated
Corporate Debt Securities
Each
fund, except the Tax-Free
Funds
and High
Quality Bond Fund,
may make certain investments in corporate debt obligations that are unrated or
rated below investment grade (i.e., ratings of BB or lower by Standard &
Poor’s or Ba or lower by Moody’s). Bonds rated BB or Ba or below by Standard
& Poor’s or Moody’s (or comparable unrated securities) are commonly referred
to as “lower-rated” or “high yield” securities, or as “junk bonds,” and are
considered speculative with regard to principal and interest payments. In some
cases, such bonds may be highly speculative with a high probability of default.
As a result, investment in such bonds will entail greater speculative risks than
those associated with investment in investment-grade bonds (i.e., bonds rated
AAA, AA, A or BBB by Standard & Poor’s or Aaa, Aa, A or Baa by Moody’s).
Factors
having an adverse impact on the market value of lower rated securities will have
an adverse effect on a fund’s NAV to the extent it invests in such securities.
In addition, a fund may incur additional expenses to the extent it is required
to seek recovery upon a default in payment of principal or interest on its
portfolio holdings.
The
secondary market for junk bond securities may not be as liquid as the secondary
market for more highly rated securities, a factor which may have an adverse
effect on a fund’s ability to dispose of a particular security when necessary to
meet its liquidity needs. Under adverse market or economic conditions, the
secondary market for junk bond securities could contract further, independent of
any specific adverse changes in the condition of a particular issuer. As a
result, a fund’s Investment Adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating a fund’s NAV.
Since
investors generally perceive that there are greater risks associated with
lower-rated debt securities, the yields and prices of such securities may tend
to fluctuate more than those of higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers’ creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market resulting in greater yield and price volatility.
Another
factor which causes fluctuations in the prices of fixed-income securities is the
supply and demand for similarly rated securities. In addition, the prices of
fixed-income securities fluctuate in response to the general level of interest
rates. Fluctuations in the prices of portfolio securities subsequent to their
acquisition will not affect cash income from such securities but will be
reflected in a fund’s NAV.
Lower-rated
(and comparable non-rated) securities tend to offer higher yields than
higher-rated securities with the same maturities because the historical
financial condition of the issuers of such securities may not have been as
strong as that of other issuers. Since lower rated securities generally involve
greater risks of loss of income and principal than higher-rated securities,
investors should consider carefully the relative risks associated with
investment in securities which carry lower ratings and in comparable non-rated
securities. In addition to the risk of default, there are the related costs of
recovery on defaulted issues. A fund’s Investment Adviser will attempt to reduce
these risks through diversification of these funds’ portfolios and by analysis
of each issuer and its ability to make timely payments of income and principal,
as well as broad economic trends in corporate developments.
Foreign
Government Debt Securities
Each
fund, except the Tax-Free
Funds,
may invest in debt obligations of foreign governments and governmental agencies,
including those of countries with emerging economies and/or securities markets.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of such debt, and the funds may have limited recourse in the event of a default.
Periods of economic uncertainty or market stress may result in the volatility of
market prices of sovereign debt, and in turn the fund’s NAV, to a greater extent
than the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor’s willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor’s policy toward principal
international lenders and the political constraints to which a sovereign debtor
may be subject.
Convertible
Securities
Each
fund may invest in convertible securities. Convertible securities may include
corporate notes or preferred stock but are ordinarily a long-term debt
obligation of the issuer convertible at a stated conversion rate into common
stock of the issuer. As with all debt and income-bearing securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus may
not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer’s capital
structure and are consequently of higher quality and entail less risk than the
issuer’s common stock. In evaluating a convertible security, a fund’s Investment
Adviser gives primary emphasis to the attractiveness of the underlying common
stock. The convertible debt securities in which any other fund may invest are
subject to the same rating criteria as that fund’s investments in
non-convertible debt securities. Convertible debt securities, the market yields
of which are substantially below prevailing yields on non-convertible debt
securities of comparable quality and maturity, are treated as equity securities
for the purposes of a fund’s investment policies or restrictions.
U.S.
Government Securities
Each
fund may purchase U.S. Government securities (subject to certain restrictions
regarding mortgage-backed securities described in the “Mortgage-Backed (Mortgage
Pass-Through) Securities” section, below). U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities.
Certain
U.S. Government securities, including U.S. Treasury bills, notes and bonds, and
Government National Mortgage Association (“Ginnie Mae”) certificates, are backed
by the full faith and credit guarantee of the U.S. Government. Certain other
U.S. Government securities, issued or guaranteed by federal agencies or
government sponsored enterprises, do not have the full faith and credit
guarantee of the U.S. Government, but may be supported by the right of the
issuer to borrow from the U.S. Treasury.
Pass-through
securities that are issued by Ginnie Mae, the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), and the Federal National Mortgage Association
(“Fannie Mae”) are mortgage-backed securities which provide monthly payments
which are, in effect, a “pass-through” of the monthly interest and principal
payments (including any prepayments) made by individual borrowers on the pooled
mortgage loans.
Collateralized
mortgage obligations (“CMOs”) in which a fund may invest are securities that are
collateralized by a portfolio of mortgages or mortgage-backed securities. Each
fund may invest in separately traded principal and interest components of
securities guaranteed or issued by the U.S. Treasury if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program (“STRIPS”).
Each
fund may acquire securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies, authorities or instrumentalities in the form
of custody receipts. Such receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, authorities or instrumentalities. For certain
securities law purposes, custody receipts are not considered obligations of the
U.S. Government.
Other
Debt Securities
Zero
Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation
Bonds.
The Income
Funds
and Diversified
Income Fund
may invest in zero coupon bonds as well as in capital appreciation bonds
(“CABs”), deferred interest and pay-in-kind bonds. Zero coupon, deferred
interest, pay-in-kind and CABs are debt obligations which are issued at a
significant discount from face value. The original discount approximates the
total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance.
Zero
coupon bonds are debt obligations that do not entitle the holder to any periodic
payments of interest prior to maturity or provide for a specified cash payment
date when the bonds begin paying current interest. As a result, zero coupon
bonds are generally issued and traded at a significant
discount
from their face value. The discount approximates the present value amount of
interest the bonds would have accrued and compounded over the period until
maturity. CABs are distinct from traditional zero coupon bonds because the
investment return is considered to be in the form of compounded interest rather
than accreted original issue discount. For this reason, the initial principal
amount of a CAB would be counted against a municipal issuer’s statutory debt
limit, rather than the total par value, as is the case for a traditional zero
coupon bond.
Zero
coupon bonds benefit the issuer by mitigating its initial need for cash to meet
debt service, but generally provide a higher rate of return to compensate
investors for the deferment of cash interest or principal payments. Such
securities are often issued by companies that may not have the capacity to pay
current interest and so may be considered to have more risk than current
interest-bearing securities. In addition, the market price of zero coupon bonds
generally is more volatile than the market prices of securities that provide for
the periodic payment of interest. The market prices of zero coupon bonds are
likely to fluctuate more in response to changes in interest rates than those of
interest-bearing securities having similar maturities and credit
quality.
Zero
coupon bonds carry the additional risk that, unlike securities that provide for
the periodic payment of interest to maturity, the fund will realize no cash
until a specified future payment date unless a portion of such securities is
sold. If the issuer of such securities defaults, the fund may obtain no return
at all on its investment. In addition, the fund’s investment in zero coupon
bonds may require it to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution
requirements.
While
zero coupon bonds do not require the periodic payment of interest, deferred
interest bonds generally provide for a period of delay before the regular
payment of interest begins. Although this period of delay is different for each
deferred interest bond, a typical period is approximately one-third of the
bond’s term to maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities. Such investments
benefit the issuer by mitigating its initial need for cash to meet debt service,
but some also provide a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments experience greater
volatility in market value due to changes in interest rates than debt
obligations which provide for regular payments of interest. A fund will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the fund’s distribution obligations.
Structured
Securities.
The Income
Funds
may invest in structured securities. The value of the principal of and/or
interest on such securities is determined by reference to changes in the value
of specific currencies, interest rates, commodities, indices or other financial
indicators (the “Reference”) or the relative change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the applicable
Reference. The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, may result in the
loss of the fund’s investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, changes in interest rates or the value of the security at maturity
may be a multiple of changes in the value of the Reference. Consequently,
structured securities may entail a greater degree of market risk than other
types of fixed-income securities. Structured securities may also be more
volatile, less liquid and more difficult to accurately price than less complex
fixed-income investments.
Structured
securities are considered transactions in derivative securities. The Investment
Adviser must obtain the explicit approval of the Board of Trustees prior to
engaging in derivative transactions of this type.
Mortgage-Backed
(Mortgage Pass-Through) Securities
The
Income
Funds
may
invest in mortgage-backed, or mortgage pass-through, securities, which are
securities representing interests in “pools” of mortgage loans. Monthly payments
of interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. The average lives of these securities are variable when issued
because their average lives depend on interest rates. The average life of these
securities is likely to be substantially shorter than their stated final
maturity as a result of unscheduled principal prepayments. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium if any has been paid, and the actual yield (or total return) to the
holder of a pass-through security may be different than the quoted yield on such
security. Mortgage prepayments generally increase with falling interest rates
and decrease with rising interest rates. Like other fixed income securities,
when interest rates rise, the value of a mortgage pass-through security
generally will decline; however, when interest rates are declining, the value of
mortgage pass-through securities with prepayment features may not increase as
much as that of other fixed income securities due to increased principal
prepayments.
Interests
in pools of mortgage-related securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a “pass-through” of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. Some mortgage pass-through securities (such as securities
issued by Ginnie Mae), are described as “modified pass-through.” These
securities entitle the holder to receive all interest and principal payments
owned on the mortgages in the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The
principal governmental guarantor of mortgage pass-through securities is Ginnie
Mae, which is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. Ginnie Mae is authorized to guarantee, with
the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by Ginnie
Mae (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of Federal Housing Administration-insured or
Veteran’s Administration (VA)-guaranteed mortgages. These guarantees, however,
do not apply to the market value or yield of mortgage pass-through securities.
Ginnie Mae securities are often purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related
guarantors (i.e., whose guarantees are not backed by the full faith and credit
of the U.S. Government) include Fannie Mae and Freddie Mac. Fannie Mae is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
Fannie Mae purchases conventional residential mortgages (i.e., mortgages not
insured or
guaranteed
by any governmental agency) from a list of approved seller/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions and mortgage bankers.
Pass-through securities issued by Fannie Mae are guaranteed as to timely payment
by Fannie Mae of principal and interest.
Freddie
Mac was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. Freddie Mac issues Participation Certificates (“PCs”) which
represent interest in conventional mortgages (i.e., not federally insured or
guaranteed) from Freddie Mac’s national portfolio. Freddie Mac guarantees timely
payment of interest and ultimate collection of principal regardless of the
status of the underlying mortgage loans.
The
obligations of Fannie Mae and Freddie Mac are not guaranteed by the U.S.
Government. Fannie Mae and Freddie Mac were placed into conservatorship by the
Federal Housing Finance Agency (“FHFA”), an independent regulator, in 2008, and
the FHFA succeeded to all of their rights, titles, powers, and privileges.
Fannie Mae and Freddie Mac remain in conservatorship, and the effect that this
conservatorship will have on the companies’ debt and equity securities is
unclear. The FHFA has the right to transfer or sell any asset or liability of
Fannie Mae or Freddie Mac without any approval, assignment or consent, although
the FHFA has stated that it has no present intention to do so. In addition,
holders of mortgage-backed securities issued by Fannie Mae or Freddie Mac may
not enforce certain rights related to such securities against the FHFA, or the
enforcement of such rights may be delayed, during the conservatorship.
The
U.S. Department of the Treasury has taken steps to capitalize and provide
financing to Fannie Mae and Freddie Mac and has agreed to purchase direct
obligations and residential mortgage-backed securities issued or guaranteed by
them in an effort to ensure their financial stability. However, there can be no
assurance that the U.S. Government will continue to provide financial support to
Fannie Mae and Freddie Mac and the future roles of Fannie Mae and Freddie Mac
could be significantly reduced and the nature of their guarantees could be
eliminated or considerably limited relative to historical measurements. Shortly
after Fannie Mae and Freddie Mac were placed in federal conservatorship, the
Secretary of the U.S. Treasury, noted that the guarantee structure of Fannie Mae
and Freddie Mac required examination and that changes in the structures of the
entities were necessary to reduce risk to the financial system.
The
problems faced by Fannie Mae and Freddie Mac that resulted in their being placed
into federal conservatorship have stirred debate among some federal policy
makers regarding the continued role of the U.S. Government in providing
liquidity for the residential mortgage market. The gradual recovery of the
housing market has made Fannie Mae and Freddie Mac profitable again and
increased the uncertainty about their futures. Proposals to end the
conservatorships have included recapitalization initiatives, the use of
loss-absorbing instruments, and regulatory capital and liquidity requirements to
ensure that Fannie Mae and Freddie Mac can operate in a safe and sound manner
without posing systemic risk to the economy. Furthermore, the existing purchase
agreements with the US. Department of Treasury could be amended and further
credit enhancements could be provided by guarantors chartered by the FHFA and
other sources of first-loss private capital to ensure that payments on
mortgage-backed securities remain supported. However, the success of any such
reforms, whether accomplished through legislation or administrative rulemaking,
depends on a number of political, economic, and other factors, which may or may
not materialize. For example, future presidential or congressional elections may
result in legal and regulatory changes to government-sponsored enterprises’
participation in the mortgage industry being reprioritized, revised, or
abandoned altogether, and new guarantors and other sources of capital may not
enter the secondary market for residential mortgage loans and mortgage-backed
securities if reform efforts fail to reduce Fannie Mae’s and Freddie Mac’s
competitive advantages. Accordingly, no assurances can be given that any
existing credit support by the U.S. Government will continue to remain in place
or that any proposed new credit enhancement proposals will be
implemented.
Under
the FHFA’s “Single Security Initiative,” Fannie Mae and Freddie Mac have entered
into a joint initiative to develop a common securitization platform for the
issuance of Uniform Mortgage-Backed Securities (“UMBS”), which would generally
align the characteristics of Fannie Mae and Freddie Mac mortgage-backed
securities. In June 2019, Fannie Mae and Freddie Mac started to issue UMBS in
place of their current offerings of TBA-eligible mortgage-backed securities. The
initial effects of the issuance of UMBS on the market for mortgage-related
securities have been relatively minimal, however the long-term effects are still
uncertain and the issuance of UMBS could have unanticipated or adverse
effects
Credit
unions, commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of mortgage loans. Such issuers may also be the
originators and/or servicers of the underlying mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of mortgage loans in
these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements.
Other
Securities Related to Mortgages
CMOs
and Multiclass Pass-Through Securities.
The
Income
Funds
may invest a portion of their assets in CMOs, which are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. The
following is a description of CMOs and types of CMOs but is not intended to be
an exhaustive or exclusive list of each type of CMO a fund may invest in.
Typically, CMOs are collateralized by certificates issued by Ginnie Mae, Fannie
Mae or Freddie Mac, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively hereinafter
referred to as “Mortgage Assets”). The funds listed above may also invest a
portion of their assets in multiclass pass-through securities which are equity
interests in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multiclass pass-through
securities. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through securities.
CMOs may be issued by agencies or instrumentalities of the United States
government or by private originators of, or investors in, mortgage loans,
including credit unions, savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. The issuer of a series of CMOs may elect to be treated as a Real
Estate Mortgage Investment Conduit (“REMIC”).
In
a CMO, a series of bonds or certificates are usually issued in multiple classes
with different maturities. Each class of CMOs, often referred to as a “tranche,”
is issued at a specific fixed or floating coupon rate and has a stated maturity
or final distribution date. Principal prepayments on the Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates, resulting in a loss of all
or
a part of the premium if any has been paid. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in innumerable ways. In a common structure,
payments of principal, including any principal pre-payments, on the Mortgage
Assets are applied to the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
Certain CMOs may be stripped (securities which provide only the principal or
interest factor of the underlying security). See the “–Stripped
Mortgage-Backed Securities”
subsection, below, for a discussion of the risks of investing in these stripped
securities and of investing in classes consisting primarily of interest payments
or principal payments.
The
funds listed above may also invest in parallel pay CMOs and Planned Amortization
Class CMOs (“PAC Bonds”). Parallel pay CMOs are structured to provide payments
of principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date, but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.
CMOs
and multiclass pass-through securities are considered derivative securities. The
Investment Adviser must obtain the explicit approval of the Board of Trustees
prior to engaging in derivative transactions of this type.
Stripped
Mortgage-Backed Securities.
The Income
Funds may
invest a portion of their assets in stripped mortgage-backed securities (“SMBS”)
which are derivative multiclass mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks and investment banks.
SMBS
are usually structured with two classes that receive different proportions of
the interest and principal distributions from a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while another class receives most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive an “IO” (the right to receive all of the interest) while the
other class will receive a “PO” (the right to receive all of the principal). The
yield to maturity on an IO is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security’s yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a fund may fail to fully
recoup its initial investment in these securities. The market value of the class
consisting primarily or entirely of principal payments generally is unusually
volatile in response to changes in interest rates.
Stripped
mortgage-backed securities are considered transactions in derivative securities.
The Investment Adviser must obtain the explicit approval of the Board of
Trustees prior to engaging in derivative transactions of this type.
Mortgage
Dollar Rolls.
The
Income Funds may
enter into mortgage “dollar rolls” in which the fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, a fund loses the right to receive principal and interest paid on
the securities sold. However, a fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase as well as from the receipt of any
associated fee income plus interest earned on cash proceeds of the securities
sold until the settlement date for the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of the
mortgage dollar roll, the use of this technique will diminish the investment
performance of a fund. Successful use of mortgage dollar rolls depends upon the
Investment Adviser’s ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. A fund will hold and maintain until the settlement date
segregated cash or liquid assets in an amount equal to the forward purchase
price. For financial reporting and tax purposes, each fund treats mortgage
dollar rolls as two separate transactions; one involving the purchase of a
security and a separate transaction involving a sale. These funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage
dollar rolls are considered transactions in derivative securities. The
Investment Adviser must obtain the explicit approval of the Board of Trustees
prior to engaging in derivative transactions of this type.
Municipal
Securities
With
regard to the Tax-Free
Funds,
Madison’s principal investment strategy is to invest in municipal securities. In
addition, the
Income Funds
may, from time to time, invest in municipal bonds. However, there are many
different kinds of municipal securities and Madison must make various decisions
in its efforts to follow this principal investment strategy. The market for
municipal securities is diverse and constantly changing. The following is
therefore not necessarily a complete description of all types of municipal
securities Madison may purchase for these funds.
•Who
Issues Municipal Securities in General?
The
term “municipal securities” includes a variety of debt obligations that are
issued for public purposes by or on behalf of states, territories and
possessions of the United States, their political subdivisions, the District of
Columbia, Guam, Puerto Rico and other territories. They are also issued by the
duly constituted authorities, agencies, public corporations and other
instrumentalities of these jurisdictions.
•What
are Municipal Securities Used For? Municipal
securities may be used for many public purposes, including constructing public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works and gas and electric
utilities. Municipal securities may also be used to refund outstanding
obligations, to obtain funds to lend to other public institutions and certain
private borrowers or for general operating expenses.
•How
are Municipal Securities Classified by Purpose?
Municipal
securities are usually classified as either “general obligation,” “revenue” or
“industrial development.”
▪.General
Obligation.
General obligation securities are the obligations of an issuer with taxing power
and are payable from the issuer’s general unrestricted revenues. These
securities are backed by the full faith, credit and taxing power of the issuer
for the payment of
principal
and interest. They are not limited to repayment from any particular fund or
revenue source. For example, a bond issued directly by the State of Missouri is
a general obligation bond.
▪.Revenue.
Revenue securities are repayable only from revenues derived from a particular
facility, local agency, special tax, facility user or other specific revenue
source. Certain revenue issues may also be backed by a reserve fund or specific
collateral. Ordinary revenue bonds are used to finance income producing projects
such as public housing, toll roads and bridges. The investor bears the risk that
the project will produce insufficient revenue and have insufficient reserves to
cover debt service on the bonds.
▪.Industrial
Development.
Industrial development securities are revenue obligations backed only by the
agreement of a specific private sector entity to make regular payments to the
public authority in whose name they were issued. Collateral may or may not be
pledged. States or local authorities generally issue industrial development
securities on behalf of private organizations for the purpose of attracting or
assisting local industry. These securities usually have no credit backing from
any public body. Industrial development securities include pollution and
environmental control revenue bonds. Industrial revenue bonds are used to
finance privately-operated facilities for business, manufacturing, housing,
sports and other purposes and are limited to $10 million per issuer, except when
used for certain exempted purposes. Pollution and environmental control revenue
bonds are used to finance air and water pollution control facilities required by
private users. Repayment of revenue bonds issued to finance privately used or
operated facilities is usually dependent entirely on the ability of the private
beneficiary to meet its obligations and on the value of any collateral
pledged.
•How
are Municipal Securities Further Classified? Municipal
securities may be classified according to maturity as “notes” if up to about two
years in term, or as “bonds” if longer in term.
▪.Callable
Bonds.
Callable municipal bonds are municipal bonds that contain a provision in the
bond indenture permitting the issuer to redeem bonds prior to maturity. A bond
indenture is the legal document that contains the important terms of the
security. Callable bonds are generally subject to call during periods of
declining interest rates. If the proceeds of a called bond under such
circumstances are reinvested, the result may be a lower overall yield due to
lower interest rates. If, when purchased, Madison paid a premium for the bond,
some or all of that premium may not be recovered, depending on the call
price.
▪.Notes.
Notes are generally used to meet short-term financing needs and include the
following specific types:
•
Tax
Anticipation Notes.
Normally, these are general obligation issues that are issued to meet cash needs
prior to collecting taxes and generally are payable from specific future tax
revenues.
•
Bond
Anticipation Notes.
Like tax anticipation notes, these also are normally general obligation issues.
They are issued to provide interim financing in anticipation of sales of
long-term bonds and generally are payable from the proceeds of a specific
proposed bond issue.
•
Revenue
Anticipation Notes.
These may be general obligation issues and are issued to provide cash prior to
receipt of expected non-tax revenues from a specific source, such as scheduled
payments due from the federal government.
•
Project
Notes.
Local authorities issue these notes to finance various local redevelopment and
housing projects conducted under sponsorship of the federal government. Project
notes are guaranteed and backed by the full faith and credit of the United
States.
•
Construction
Loan Notes.
These notes provide interim financing for construction projects. They are
frequently issued in connection with federally insured or guaranteed mortgage
financing and may also be insured or guaranteed by the federal
government.
•
Tax-Exempt
Commercial Paper.
These notes (sometimes called “municipal paper”) are similar to conventional
commercial paper, but are tax-free. Municipal paper may be either a general
obligation or a revenue issue, although the latter is more common. These issues
may provide greater flexibility in scheduling maturities than other municipal
notes.
▪Municipal
Lease Obligations.
Municipalities issue municipal lease obligations to finance their obligation to
pay rent on buildings or equipment they use. Madison intends to limit its
investments in such obligations to those that represent liquid securities for
purposes of each fund’s limitation on investments in illiquid securities.
Madison will make daily determinations of the liquidity and appropriate
valuation of each such obligation, basing its decision on all relevant facts
including: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the security; (3) the number of
other potential buyers; (4) the willingness of dealers to make a market in the
security; and (5) the nature of the marketplace. With regard to the nature of
the marketplace, Madison will consider the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer.
A
municipal lease obligation will not be considered liquid unless there is
reasonable assurance that its marketability will be maintained throughout the
time Madison holds the instrument for the funds. Madison must conclude that the
obligation is liquid considering: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee’s general credit; (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality; and (5) Madison’s legal recourse in the event of failure to
appropriate.
•How
Can You Tell the Identity of the Issuer? From
time to time, Madison must make determinations as to the identity of the issuer
of a particular municipal security. Madison will make this determination
considering its understanding of the assets and revenue principally backing the
issue and the most significant source of repayment of principal and interest for
the issue. If the specific securities are backed by assets and revenues that are
independent or separate from the assets and revenues of the jurisdiction or
agency in whose name they were issued, then Madison will normally consider those
securities to have a separate issuer.
•What
are the Risks of Geographic Concentration of Investments?
If
the credit standing of a particular state or type of issuer generally declined,
then a fund could be more adversely affected than if its investments were more
diversified. This risk is greatest in the Tax-Free
Virginia Fund
since it is expected to invest principally in the securities of one
state.
•What
are the Risks of Investing in Various Municipal Securities? Municipal
securities generally are subject to possible default, bankruptcy or insolvency
of the issuer. Principal and interest repayment may be affected by federal,
state and local legislation, referendums, judicial decisions and executive acts.
The tax-exempt status of municipal securities may be affected by future changes
in the tax laws, litigation involving the tax status of the securities and
errors and omissions by issuers and their counsel. Madison will not attempt to
make an independent determination of the present or future tax-exempt status of
municipal securities acquired for the funds.
While
most municipal securities have a readily available market, a variety of factors,
including the scarcity of issues and the fact that tax-free investments are
inappropriate for significant numbers of investors, limit the depth of the
market for these securities. Accordingly, it may be more difficult for the funds
to sell large blocks of municipal securities advantageously than would be the
case with comparable taxable securities.
▪Summary
of the Economy of Virginia (applicable to the Tax-Free
Virginia Fund
only).
Virginia’s general fund revenue collections continue to outperform. Revenues
exceeded budget by $3.0 billion in fiscal 2023, following $1.9 billion positive
variance in fiscal 2022. The December 2023 revenue report shows fiscal 2024
revenues continuing this trend, coming in 7.1% ahead of December 2023 revenue
forecast incorporated in the governor’s budget proposal, primarily due to strong
personal income tax collections. Combined revenue stabilization fund and revenue
reserve fund balances are strong and have grown to $3.8 billion at fiscal 2023
year-end, or more than 15% of revenue, with the fiscal year-end 2024 balance
projected at almost $4.6 billion or more than 18% of revenues. Economic
assumptions forecast a national GDP of only 1.5% in 2024 and 1.4% in 2025 which
will be offset by the large surpluses Virginia has in its reserve fund. Virginia
is expected to follow that trend although per capita personal income tax
collections continue to exceed national levels (103%). The biggest risk factors
to those assumptions are a major recession that significantly increases the
unemployment rate and severely curtails consumer spending behavior. However,
Virginia's proximity to Washington, D.C., and the stable federal employment base
should mitigate many of those economic concerns. In addition, Virginia's own
economic diversity, a sizable military presence, and the defense industry sector
have been important job providers and stabilizing factors for its economy in the
past. .
Virginia’s
non-farm employment continued to grow in fiscal year 2023 at a rate of 2.7%.
This was a modest slowdown from the rapid 3.3% growth rate in fiscal year 2022
and mirrored the national pattern of slowing employment growth. Virginia gained
107,300 jobs in fiscal 2023. This brought total employment to over 4.1 million,
which eclipsed the pre-pandemic high of approximately 4.0 million employed in
fiscal year 2019 and represents the highest fiscal year employment level in
state history. The commonwealth’s unemployment rate inched down to 2.9% in
fiscal year 2023, well below the national rate of 3.6 percent though the gap
between the two has been narrowing. Improvement in the unemployment rate was
relatively small because the labor force grew at a similar rate as employment in
fiscal 2023 as more job seekers flowed back into the labor market.
Personal
income provides an important gauge of the health of Virginia’s economy. It is
also a key determinant of consumer spending, which accounts for nearly 70
percent of GDP at the national level. State personal income increased by 0.8
percent in fiscal 2023. This comes after a 1.6 percent decrease in fiscal year
2022 due to discontinuation of pandemic-related federal transfer payments. In
comparison, real personal income shrank at the national level by 0.3 percent in
fiscal 2023. Wages and salaries, which make up the majority of total personal
income, grew 1.9 percent in fiscal 2023, slightly lower than the average 2.2
percent growth rate during the previous five fiscal years (2018-2022).
Specific
to the state’s economic outlook, Standard & Poor’s believes the commonwealth
will likely continue to demonstrate conservative financial management and make
timely budget adjustments as necessary for structural balance if projected
revenue growth fails to materialize. The commonwealth’s practice of fully
funding pension payments and directing certain deposits to an additional revenue
reserve fund as a continued focus on structural balance should continue to
position Virginia for unexpected economic slowdowns or shortfalls. As such,
Standard & Poor’s has assigned its highest rating of AAA with a stable
outlook. However, if revenue significantly misses projections and budget
management relies heavily on one-time resources or substantial draws on one-time
reserves and liquidity sources with no plan to replenish, the rating could be
adjusted lower.
According
to S&P, Virginia’s general obligation (GO) debt reflects a diverse economy
with a solid cash and liquidity position-especially in regard to managing the
budget during the pandemic. In addition, the commonwealth maintains strong
financial policies and practices throughout its long history of proactive and
conservative financial management. Finally, moderate debt levels are expected to
remain manageable.
Virginia
has a manageable debt burden with low debt service carrying charges due to
extraordinarily low interest rates. As of June 30, 2023, the Virginia
Comprehensive Annual Financial Report ("CAFR") reported total debt of $55.4
billion, an increase of $1.7 billion, or 3.2 percent from the prior fiscal year.
The commonwealth issued new debt in the amount of $4.7 billion which is a
significant decrease from fiscal 2022 ($6.2 billion). Of this new debt, $1.6
billion was for the primary government and $3.1 billion for the component units.
Tax-supported debt represented roughly 46% of total debt, of which 36% is
scheduled to be retired within ten years. Total debt and aggregate tax-supported
debt as a percentage of state GDP was 5.82% and 9.68%, respectively. Debt ratios
are moderate, with overall tax-supported debt per capital of $1,500 and 2.2% of
personal income.
As
of the date of this SAI, bonds representing general obligations of the
Commonwealth of Virginia carry ratings of AAA with a stable outlook by S&P
and Aaa with a stable outlook by Moody’s.
Privately
Arranged Loans and Participations
Madison
may make or acquire participations in privately negotiated loans to municipal
borrowers on behalf of the Tax-Free
Funds.
Frequently, such loans have variable interest rates and may be backed by a bank
letter of credit. In other cases, they may be unsecured. If Madison engages in
this type of investment strategy, Madison will rely on the opinion of tax or
bond counsel to the borrower as to the tax status of these loans. Such
transactions may provide an opportunity to achieve higher tax-free yields than
would be available from municipal securities offered and sold to the general
public.
Privately
arranged loans, however, will generally not be rated by a credit rating agency
and will normally be illiquid. In most cases, Madison will only be able to sell
such loans through a provision requiring repayment following demand by the
funds. Such loans made by the funds will normally have a demand provision
permitting the funds to require repayment within seven days. Participations in
such loans, however, may not have such a demand provision and may not be
otherwise marketable. To the extent these securities are illiquid, they will be
subject to each fund’s limitation on
investments
in illiquid securities. Recovery of an investment in any private loan that is
illiquid and payable on demand may depend on the ability of the municipal
borrower to meet an obligation for full repayment of principal and payment of
accrued interest within the demand period. The demand period is normally seven
days or less (unless Madison determines that a particular loan issue, unlike
most such loans, has a readily available market). If appropriate, Madison will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to honor contractual payment
obligations.
Restricted
Securities
Restricted
securities may be sold only in privately negotiated transactions or in a public
offering with respect to which a registration statement is in effect under the
Securities Act of 1933, as amended. Where registration is required, a fund
may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell a
security and the time a fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a fund might obtain a less favorable price than that
which prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in good faith in accordance with
methodologies approved by the Board.
Repurchase
Agreements
Each
fund may enter into repurchase agreements. In a repurchase agreement, a security
is purchased for a relatively short period (usually not more than seven days)
subject to the obligation to sell it back to the seller at a fixed time and
price plus accrued interest. The funds will enter into repurchase agreements
only with member banks of the Federal Reserve System, U.S. Central Credit Union
and with “primary dealers” in U.S. Government securities. A fund’s Investment
Adviser will continuously monitor the creditworthiness of the parties with whom
the funds enter into repurchase agreements.
The
Trust has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Trust’s
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a fund could experience delays in liquidating
the underlying securities during the period in which the fund seeks to enforce
its rights thereto, possible subnormal levels of income, declines in value of
the underlying securities or lack of access to income during this period and the
expense of enforcing its rights.
Reverse
Repurchase Agreements
Each
fund may also enter into reverse repurchase agreements which involve the sale of
U.S. Government securities held in its portfolio to a bank with an agreement
that the fund will buy back the securities at a fixed future date at a fixed
price plus an agreed amount of “interest” which may be reflected in the
repurchase price. Reverse repurchase agreements are considered to be borrowings
by a fund entering into them. Reverse repurchase agreements involve the risk
that the market value of securities purchased by a fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
fund which it is obligated to repurchase. A fund that has entered into a reverse
repurchase agreement will also continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will
reacquire those securities upon effecting their repurchase. To minimize various
risks associated with reverse repurchase agreements, each fund will establish
and maintain with the Trust’s custodian a separate account consisting of liquid
securities, of any type or maturity, in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. No fund will enter into reverse repurchase agreements and other
borrowings (except from banks as a temporary measure for extraordinary emergency
purposes) in amounts in excess of 30% of the fund’s total assets (including the
amount borrowed) taken at market value. No fund will use leverage to attempt to
increase income. No fund will purchase securities while outstanding borrowings
exceed 5% of the fund’s total assets. Each fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, a fund’s Investment Adviser will monitor
the creditworthiness of the banks involved.
Forward
Commitment and When-Issued Securities
Each
fund may purchase securities on a when-issued or forward commitment basis.
“When-issued” refers to securities whose terms are specified and for which a
market exists, but which have not been issued. Each fund will engage in
when-issued transactions with respect to securities purchased for its portfolio
in order to obtain what is considered to be an advantageous price and yield at
the time of the transaction. For when-issued transactions, no payment is made
until delivery is due, often a month or more after the purchase. In a forward
commitment transaction, a fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When
a fund engages in forward commitment and when-issued transactions, it relies on
the seller to consummate the transaction. The failure of the issuer or seller to
consummate the transaction may result in a fund’s losing the opportunity to
obtain a price and yield considered to be advantageous. The purchase of
securities on a when-issued or forward commitment basis also involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date.
On
the date a fund enters into an agreement to purchase securities on a when-issued
or forward commitment basis, the fund will segregate cash or liquid securities,
of any type or maturity, equal in value to the fund’s commitment. These assets
will be valued daily at market, and additional cash or securities will be
segregated to the extent that the total value of the assets in the account
declines below the amount of the when-issued commitments. Alternatively, a fund
may enter into offsetting contracts for the forward sale of other securities
that it owns.
Real
Estate Investment Trusts
Each
fund, except the Tax-Free
Funds,
may
invest in shares of real estate investment trusts (“REITs”). REITs are pooled
investment vehicles that invest primarily in income-producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest primarily in real property and earn rental income from leasing
those properties. They also may realize gains or losses from the sale of
properties. Equity REITs generally exercise some degree of control over
the operational aspects of their real estate investments, lease terms and
property maintenance and repair. Mortgage REITs invest primarily in
mortgages and similar real estate interests and receive interest payments from
the owners of the mortgaged properties and are paid interest by the owners of
the financed properties. Hybrid REITs invest both in real property and in
mortgages. A REIT generally is not taxed on income distributed to its
shareholders if it complies with certain federal income tax requirements
relating primarily to its organization, ownership, assets and income and,
further,
if it distributes at least 90% its taxable income to its shareholders each
year. Consequently, REITs tend to focus on income-producing real estate
investments.
The
funds’ investments in REITs may be adversely affected by deteriorations of the
real estate rental market, in the case of REITs that primarily own real estate,
or by deteriorations in the creditworthiness of property owners and changes in
interest rates in the case of REITs that primarily hold mortgages. Equity
and mortgage REITs also are dependent upon specialized management skills, may
not be diversified in their holdings and are subject to the risks of financing
projects. REITs also may be subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. Under certain circumstances, a
REIT may fail to qualify for the special tax treatment available to REITs, which
would subject the REIT to federal income taxes at the REIT level and adversely
affect the value of its securities.
In
general, qualified REIT dividends that an investor receives directly from a REIT
are automatically eligible for the 20% qualified business income deduction
available under Section 199A of the Code. Additionally, a dividend or part of a
dividend paid by a regulated investment company and reported as a “Section 199A
Dividend” is treated by the recipient as a qualified REIT dividend for purposes
of the 20% qualified business income deduction.
Exchange-Traded
Funds
Each
fund may invest in exchange-traded funds (“ETFs”), which are shares of
publicly-traded unit investment trusts, open-end funds, or depositary receipts
that seek to track the performance and dividend yield of specific indexes or
companies in related industries. These indexes may be either broad-based, sector
or international. ETF shareholders are generally subject to the same risks as
holders of the underlying securities they are designed to track.
ETFs
are also subject to certain additional risks, including (i) the risk that their
prices may not correlate perfectly with changes in the prices of the underlying
securities they are designed to track, and (ii) the risk of possible trading
halts due to market conditions or other reasons, based on the policies of the
exchange upon which an ETF trades. In addition, an exchange-traded sector fund
may be adversely affected by the performance of that specific sector or group of
industries on which it is based. The fund would bear, along with other
shareholders of an ETF, its pro rata portion of the ETF’s expenses, including
management fees. Accordingly, in addition to bearing their proportionate share
of the fund’s expenses (i.e., management fees and operating expenses),
shareholders of the fund may also indirectly bear similar expenses of an
ETF.
Shares
of Other Investment Companies
Each
fund, other than the Allocation
Funds,
may invest up to 10% of its assets in shares of other investment companies. Each
fund, other than the Allocation
Funds, and
Diversified Income Fund,
complies with the general statutory limits for such investments prescribed by
the 1940 Act. The statutory limits are that immediately after any investment:
(i) not more than 5% of a fund's total assets are invested in the securities of
any one investment company; (ii) not more than 10% of a fund's total assets are
invested in the aggregate in securities of investment companies as a group;
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the fund; and (iv) not more than 10% of the outstanding
voting stock of any one investment company will be owned in the aggregate by the
fund and other investment companies advised by Madison, or any of its
affiliates. Notwithstanding the foregoing, each fund may invest in shares of
money market funds in excess of the above described statutory limitations, in
accordance with the exemption contained in Rule 12d1-1 under the 1940
Act.
Rule
12d1-4 of the 1940 Act provides an exemption from Section 12(d)(1) that allows a
fund to invest all of its assets in other registered funds, including ETFs, if
the fund satisfies certain conditions specified in the Rule, including, among
other conditions, that the fund and its advisory group will not control
(individually or in the aggregate) an acquired fund (e.g., hold more than 25% of
the outstanding voting securities of an acquired fund that is a registered
open-end management investment company). However, such control and other
conditions under Rule 12d1-4 do not apply if
either
the acquiring fund is in the same group of investment companies as the acquired
fund, or the acquiring fund's subadviser or an affiliate is the
acquired
fund's
adviser.
Because the Allocation
Funds
and the Diversified
Income Fund
are structured as funds-of-funds, they rely on Rule 12d1-4 to implement their
investment strategies.
As
a shareholder of another investment company, a fund would bear, along with other
shareholders, its pro rata portion of the expenses of such other investment
company, including investment management fees, general fund expenses, trading,
custodial and interest expenses and distribution/shareholder servicing fees (if
any). These expenses would be in addition to the advisory and other expenses
that a fund bears directly in connection with its own operations and may
represent a duplication of fees to shareholders of the fund.
Temporary
Defensive Positions
Although
each fund expects to pursue its investment objective utilizing its principal
investment strategies regardless of market conditions, each fund may invest up
to 100% in money market securities as a defensive tactic in abnormal market
conditions (with regard to the Tax-Free
Funds,
the funds may invest up to 100% in tax-free money market securities for this
purpose).
With
regard to the Tax-Free
Funds,
under normal market conditions, Madison does not intend to invest in any taxable
securities on behalf of the funds. Madison may decide, however, that
extraordinary conditions require it to purchase taxable investments. The
“taxable investments” that Madison may purchase for the funds are limited to the
following U.S. dollar denominated investments: (i) U.S. Government securities;
(ii) obligations of banks having total assets of $750 million or more; (iii)
commercial paper and other investment grade corporate debt securities; and (iv)
repurchase agreements involving any of the foregoing securities or municipal
securities. Maturities of taxable investments may exceed one year in
extraordinary circumstances when Madison has determined to invest more than 20%
of a fund’s assets in taxable securities.
To
the extent any fund engages in a temporary defensive position in this manner, it
would not be invested in accordance with its stated investment
objectives.
Definition
of Market Capitalization
Market
capitalization is the value of a corporation determined by multiplying total
outstanding shares by the current market price. Total outstanding shares include
common stock, non-restricted exchangeable shares and partnership
units/membership interests where applicable. Exchangeable shares are shares
which may be exchanged at any time, at the holder’s option, on a one-for-one
basis for common stock. Membership or partnership units/interests represent an
economic interest in a limited liability company or limited partnership. Market
capitalization does not include preferred or convertible preferred stock,
participating preferred stock, restricted or redeemable shares, warrants, rights
or trust receipts.
Types
of Investment Risk
Active
or Frequent Trading Risk.
The risk of the realization and distribution to shareholders of higher capital
gains as compared to a series with less active trading policies. Frequent
trading also increases transaction costs, which could detract from the
performance.
Asset
Allocation Risk.
The risk that the selection of the underlying funds and the allocation of the
fund’s assets among the various asset classes and market segments will cause the
fund to underperform other funds with a similar investment
objective.
Call
Risk. The
risk that the issuer of a security will retire or redeem (“call”) the security
with a higher rate of interest before the scheduled maturity date when interest
rates have declined.
Correlation
Risk.
The risk that changes in the value of a hedging instrument or hedging technique
will not match those of the asset being hedged (hedging is the use of one
investment to offset the possible adverse effects of another
investment).
Counterparty
Risk.
The risk that the counterparty under an agreement will not live up to its
obligations.
Credit
Risk.
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise not honor a financial obligation.
Currency
Risk. The
risk that fluctuations in the exchange rates between the U.S. dollar and foreign
currencies may negatively affect the U.S. dollar value of an
investment.
Cybersecurity
Risk. The
risks associated with computer systems, networks and devices to carry out
routine business operations. These systems, networks and devices employ a
variety of protections that are designed to prevent cyberattacks. Despite the
various cyber protections utilized by the funds, the Investment Adviser, a
subadviser to the funds, and other service providers, their systems, networks,
or devices could potentially be breached. The funds, their shareholders, and the
Investment Adviser could be negatively impacted as a result of a cybersecurity
breach. The funds cannot control the cybersecurity plans and systems put in
place by service providers or any other third parties whose operations may
affect the funds.
Default
Risk. It
is possible that unexpected events could cause the issuer to be unable to pay
either principal or interest on its bond. This could cause the bond to go into
default and lose value. Some federal agency securities are not backed by the
full faith and credit of the United States, so in the event of default, a fund
would have to look to the agency issuing the bond for ultimate
repayment.
Derivatives
Risk. The
risk that loss may result from investments in options, forwards, futures, swaps
and other derivatives instruments. These instruments may be illiquid, difficult
to price and leveraged so that small changes in the value of the underlying
instruments may produce disproportionate losses to the fund. Derivatives are
also subject to counterparty risk, which is the risk that the other party to the
transaction will not fulfill its contractual obligations.
Depository
Receipt Risk. Depository
receipts, such as ADRs, and global depository receipts ("GDRs"), may be issued
in sponsored or un-sponsored programs. In a sponsored program, a security issuer
has made arrangements to have its securities traded in the form of depository
receipts. In an un-sponsored program, the issuer may not be directly involved in
the creation of the program. Depository receipts involve many of the same risks
as direct investments in foreign securities. These risks include, but are not
limited to. fluctuations in currency exchange rates, which are affected by
international balances of payments and other financial conditions; government
interventions; and speculation. With respect to certain foreign countries, there
is the possibility of expropriation or nationalization of assets, confiscatory
taxation, political and social upheaval, and economic instability. Investments
in depository receipts that are traded over the counter may also be subject to
liquidity risk.
Equity
Risk.
Equity risk is the risk that securities held will fluctuate in value due to
general market or economic conditions, perceptions regarding the industries in
which the issuers of securities held by a fund participate, and the
circumstances and performance of companies whose securities a fund holds. In
addition, while broad market measures of common stocks have historically
generated higher average returns than fixed income securities, common stocks
have also experienced significantly more volatility in those
returns.
ETF
Risks.
The main risks of investing in ETFs are the same as investing in a portfolio of
equity securities comprising the index on which the ETF is based, although lack
of liquidity in an ETF could result in it being more volatile than the
securities comprising the index. Additionally, the market prices of ETFs will
fluctuate in accordance with both changes in the market value of their
underlying portfolio securities and due to supply and demand for the instruments
on the exchanges on which they are traded (which may result in their trading at
a discount or premium to their net asset values). Index-based ETF investments
may not replicate exactly the performance of their specific index because of
transaction costs and because of the temporary unavailability of certain
component securities of the index.
Extension
Risk.
The risk that an unexpected rise in prevailing interest rates will extend the
life of an outstanding mortgage-backed security by reducing the expected number
of mortgage prepayments, typically reducing the security’s value.
Foreign
Security Risk.
Investments in foreign securities involve risks relating to currency
fluctuations and to political, social, and economic developments abroad, as well
as risks resulting from differences between the regulations to which U.S. and
foreign issuers and markets are subject. The investment markets of emerging
countries are generally more volatile than markets of developed countries with
more mature economies.
Geopolitical
and Economic Risk. Geopolitical
events may cause market disruptions. For example, the United Kingdom (UK)
withdrew from the European Union (EU) on January 31, 2020, following a June 2016
referendum referred to as “Brexit.” There is significant market uncertainty
regarding Brexit’s longer term ramifications, and the range of possible
political, regulatory, economic and market outcomes are difficult to predict.
The uncertainty surrounding the UK’s economy may continue to be a source of
instability and cause considerable disruption in securities markets,
including
increased volatility and illiquidity, as well as currency fluctuations in the
British pound’s exchange rate against the U.S. dollar. In addition,
uncertainties regarding the war between Russia and Ukraine, and the expanding
conflict in the Middle East, have contributed to market volatility.
Growth
Investing Risk.
The risk that stocks with growth characteristics can experience sharp price
declines as a result of earnings disappointments, even small ones. Investments
in stocks with growth characteristics, will typically experience greater
volatility over time than stocks with value characteristics.
Hedging
Risk. When
a fund hedges an asset it holds (typically by using a derivative contract or
derivative security), any gain or loss generated by the hedge should be
substantially offset by losses or gains on the hedged asset. Hedging is a useful
way to reduce or eliminate risk of loss, but it will also reduce or eliminate
the potential for investment gains.
Information
Risk.
The risk that key information about a security or market is inaccurate or
unavailable.
Interest
Rate Risk.
The risk of declines in market value of an income bearing investment due to
changes in prevailing interest rates. With fixed-rate securities, a rise in
interest rates typically causes a decline in market values, while a fall in
interest rates typically causes an increase in market values.
Interest
Rate Policy Risk.
Federal Reserve policy changes may expose fixed-income and related markets to
heightened volatility and may reduce liquidity for certain fund investments,
which could cause the value of a fund’s investments and share price to decline.
Until recently, interest rates were historically low, but the Federal Reserve
has recently increased interest rates quickly and significantly in an effort to
combat inflation. As interest rates rise, the value of fixed-income investments
will generally decrease. A fund that invests in derivatives tied to fixed-income
markets may be more substantially exposed to these risks than a fund that does
not invest in derivatives.
Large
Cap Risk. Large
capitalization companies may fall out of favor with investors based on market
and economic conditions. In addition, larger companies may not be able to attain
the high growth rates of successful smaller companies and may be less capable of
responding quickly to competitive challenges and industry changes. As a result,
the Fund’s value may not rise as much as, or may fall more than, the value of
funds that focus on companies with smaller market capitalizations.
Leverage
Risk.
The risks associated with securities or investment practices that enhance return
(or loss) without increasing the amount of investment, such as buying securities
on margin or using certain derivative contracts or derivative securities. A
fund’s gain or loss on a leveraged position may be greater than the actual
market gain or loss in the underlying security or instrument. A fund may also
incur additional costs in taking a leveraged position (such as interest on
borrowings) that may not be incurred in taking a non-leveraged
position.
Liquidity
Risk.
The risk that certain securities or other investments may be difficult or
impossible to sell at the time the fund would like to sell them or at the price
the fund values them.
Litigation
Risk.
The funds may be subject to third-party litigation, which could give rise to
legal liability. These matters involving the funds may arise from their
activities and investments and could have a materially adverse effect on the
funds, including the expense of defending against claims and paying any amounts
pursuant to settlements or judgments. There can be no guarantee that these
matters will not arise in the normal course of business. If the funds were to be
found liable in any suit or proceeding, any associated damages and/or penalties
could have a materially adverse effect on the funds’ finances, in addition to
being materially damaging to their reputation.
Management
Risk.
The risk that a strategy used by a fund’s Investment Adviser may fail to produce
the intended result. This risk is common to all mutual funds.
Market
Risk.
The risk that the market value of a security may move up and down, sometimes
rapidly and unpredictably, due to factors that have nothing to do with the
issuer. This risk is common to all stocks and bonds and the mutual funds that
invest in them.
Mid
Cap Risk.
Investments in midsize companies may entail greater risks than investments in
larger, more established companies. Midsize companies tend to have narrower
product lines, fewer financial resources. and a more limited trading market for
their securities, as compared to larger companies. They may also experience
greater price volatility than securities of larger capitalization companies
because growth prospects for these companies may be less certain and the market
for such securities may be smaller. Some midsize companies may not have
established financial histories; may have limited product lines, markets, or
financial resources; may depend on a few key personnel for management; and may
be susceptible to losses and risks of bankruptcy.
Mortgage-Backed
Securities Risk.
The risk that mortgage holders prepay principal during a period of falling
interest rates, a
fund
could be exposed to prepayment risk. In that case, a fund would have to reinvest
the proceeds at a lower interest rate. The security itself may not increase in
value with the corresponding drop in rates since the prepayment acts to shorten
the maturity of the security.
Natural
Event Risk.
The risk of losses attributable to natural disasters, crop failures and similar
events.
Non-Investment
Grade Security Risk.
Issuers of non-investment grade securities (i.e.,
“junk”
bonds)
are
typically in weak financial health and their ability to pay interest and
principal is uncertain. Compared to issuers of investment-grade bonds, they are
more likely to encounter financial difficulties and to be materially affected by
these difficulties when they do encounter them. “Junk” bond markets may react
strongly to adverse news about an issuer or the economy, or to the perception or
expectation of adverse news.
Opportunity
Risk.
The risk of missing out on an investment opportunity because the assets
necessary to take advantage of it are committed to less advantageous
investments.
Political
Risk.
The risk of losses directly attributable to government actions or political
events of any sort, including military actions and/or expropriation of
assets.
Prepayment
Risk.
The risk that an unexpected fall in prevailing interest rates will shorten the
life of an outstanding mortgage-backed security by increasing the expected
number of mortgage prepayments, thereby reducing the security’s
return.
Real
Estate Investment Trusts ("REITs") Risk. REITs
pool investors’ funds for investment primarily in real estate properties or real
estate-related loans. REITs generally derive their income from rents on the
underlying properties or interest on the underlying loans, and their value is
impacted by changes in the value of the underlying property or changes in
interest rates affecting the underlying loans owned by the REITs. REITs are more
susceptible to risks associated with the ownership of real estate and the real
estate industry in general. These risks can include, but are not limited,
fluctuations in the value of underlying properties; defaults by borrowers or
tenants; market saturation; changes in general and local economic conditions;
decreases in market rates for rents; increases in competition, property taxes,
capital expenditures or operating expenses; and other economic, political or
regulatory occurrences affecting the real estate industry. In addition, REITs
depend upon specialized management skills, may not be diversified (which may
increase the price volatility of REITs), may have less trading volume and
liquidity, and may be subject to more abrupt or erratic price movements than the
overall securities market. REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). REITs are subject to the risk of
failing to qualify for favorable tax treatment under the Code.
Small
Cap Risk. Investments
in small capitalization companies may entail greater risks than investments in
larger, more established companies. Small companies tend to have narrower
product lines, fewer financial resources and a more limited trading market for
their securities, as compared to larger companies. The securities of smaller
companies also experience greater price volatility than securities of larger
capitalization companies. During certain periods, the liquidity of the
securities of small cap companies may shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions. This liquidity risk could translate into losses for a fund
if it has to sell illiquid securities at a disadvantageous time. The costs of
purchasing or selling securities of small capitalization companies are often
greater than those of more widely traded securities. Securities of smaller
capitalization companies can also be difficult to value.
Speculation
Risk. Speculation
is the assumption of risk in anticipation of gain but recognizing a
higher-than-average possibility of loss. To the extent that a derivative
contract or derivative security is used speculatively (i.e., not used as a
hedge), a fund is directly exposed to the risks of that derivative contract or
security. Gains or losses from speculative positions in a derivative contract or
security may be substantially greater than the derivative contract or security’s
original cost.
Sustainable
Investment Risk.
Sustainable investing involves investing in companies that embed sustainability
in their overall strategy and demonstrate adherence to sustainable business
practices. In pursuing such a strategy, a fund may be overweight or underweight
in certain industries, or sectors relative to its benchmark index, which may
cause the fund's performance to be sensitive to developments affecting those
sectors. In addition, since sustainable investing takes into consideration
factors beyond traditional financial analysis, the investment opportunities for
a fund may be limited at times. As such, a fund may forgo opportunities to gain
exposure to certain companies, industries or sectors, and it may choose to sell
a security when it might otherwise be disadvantageous to do so. Sustainability
related information provided by issuers and third parties, upon which the
portfolio managers may rely, continues to develop, and may be incomplete,
inaccurate, use different methodologies, or be applied differently across
companies and industries. Madison’s framework of sustainable investing will vary
from other managers. Further, the regulatory landscape for sustainable investing
in the United States is still developing and future rules and regulations may
require a fund to modify or alter its investment process. Similarly, government
policies incentivizing companies to engage in sustainable practices may fall out
of favor, which could potentially limit a fund’s investment universe. There is
also a risk that the companies identified through the investment process may
fail to adhere to sustainable business practices, which may result in a fund
selling a security when it might otherwise be disadvantageous to do
so.
Underlying
Funds Risk.
The risk that investment performance and its ability to achieve its investment
goal are directly related to the performance of the underlying funds in which a
fund invests. Each underlying fund’s performance, in turn, depends on the
particular securities in which that underlying fund invests and the expenses of
that underlying fund. Accordingly, the fund is subject to the risks of the
underlying funds in direct proportion to the allocation of its assets among the
underlying funds.
Valuation
Risk.
The risk that a fund could not sell a security or other portfolio investment for
the market value or fair value established for it at any time. Similarly, the
risk that the fair valuation of securities or other portfolio investments may
result in greater fluctuation in their value from one day to the next than would
be the case if the market values were available.
Value
Investing Risk.
The risk that “value” stocks are subject to the risk that their perceived
intrinsic values may never be realized by the market, and to the risk that,
although the stock is believed to be undervalued, it is appropriately priced or
overpriced due to unanticipated problems associated with the issuer or
industry.
The
Tax-Free
Funds,
Income
Funds,
Dividend
Income, Sustainable Equity, Mid Cap, Small Cap and
International Stock Funds have
names that suggest a focus on a particular industry, group of industries or type
of investment. In accordance with the provisions of Rule 35d-1 of the 1940 Act
as currently in effect, each of these funds will, under normal circumstances,
invest at least 80% of its assets in the particular industry, group of
industries, or type of investment of the type suggested by its name (the “80%
policy”). For this purpose, “assets” means net assets plus the amount of any
borrowings for investment purposes. In addition, in appropriate circumstances,
synthetic investments may be included in the 80% basket if they have economic
characteristics similar to the other investments included in the basket. Bonds
that are subject to the federal alternative minimum tax are not considered
“tax-free” for purposes of the requirement of the Tax-Free
Funds
to invest at least 80% of their assets in securities that generate tax-exempt
income.
Except
as provided below with regard to the Tax-Free
Funds,
a fund’s 80% policy is not a “fundamental” one, which means that it may be
changed without the vote of a majority of the fund’s outstanding shares as
defined in the 1940 Act. Accordingly, the names of these funds may be changed at
any time by a vote of the Board of Trustees. As required by Rule 35d-1,
shareholders of funds subject to Rule 35d-1 will receive a 60-day written notice
of any change to the investment policy describing the type of investment that
the name suggests.
With
regard to the Tax-Free
Funds,
the funds’ 80% policy is, in fact, a “fundamental” one, which means that it may
not be changed without the vote of a majority of the respective fund’s
outstanding shares as defined in the 1940 Act.
The
Trust has adopted the following restrictions and policies relating to the
investment of assets and the activities of each fund. The policies listed below
are fundamental and may not be changed for a fund without the approval of the
holders of a majority of the outstanding votes of that fund (which for this
purpose and under the 1940 Act means the lesser of (i) sixty-seven percent (67%)
of the outstanding votes attributable to shares represented at a meeting at
which more than fifty percent (50%) of the outstanding votes attributable to
shares are represented or (ii) more than fifty percent (50%) of the outstanding
votes attributable to shares). Except as noted below, none of the funds within
the Trust may:
1.with
respect to 75% of the fund’s total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies or instrumentalities), if (i) such
purchase would cause more than 5% of the fund’s total assets taken at market
value to be invested in the securities of such issuer or (ii) such purchase
would at the time result in more than 10% of the outstanding voting securities
of such issuer being held by the fund;
2.invest
25% or more of its total assets in the securities of one or more issuers
conducting their principal business activities in the same industry (excluding
the U.S. Government or any of its agencies or instrumentalities); provided that
each Allocation
Fund
may invest more than 25% of its assets in any one underlying affiliated
fund;
3.borrow
money, except that it may (a) borrow from any lender for temporary purposes in
amounts not in excess of 5% of its total assets and (b) borrow from banks in any
amount for any purpose, provided that immediately after borrowing from a bank
the fund’s aggregate borrowings from any source do not exceed 33 1/3% of the
fund’s total assets (including the amount borrowed). If, after borrowing from a
bank, a fund’s aggregate borrowings later exceed 33 1/3% of the fund’s total
assets, the fund will, within three days after exceeding such limit (not
including Sundays or holidays), reduce the amount of its borrowings to meet the
limitation. A fund may make additional investments while it has borrowings
outstanding. A fund may make other borrowings to the extent permitted by
applicable law;
4.make
loans, except through (a) the purchase of debt obligations in accordance with
the fund’s investment objective and policies, (b) repurchase agreements with
banks, brokers, dealers and other financial institutions, and (c) loans of
securities as permitted by applicable law;
5.underwrite
securities issued by others, except to the extent that the sale of portfolio
securities by the fund may be deemed to be an underwriting;
6.purchase,
hold or deal in real estate, although a fund may purchase and sell securities
that are secured by real estate or interests therein, securities of real estate
investment trusts and mortgage-related securities and may hold and sell real
estate acquired by a fund as a result of the ownership of
securities;
7.invest
in commodities or commodity contracts, except that the fund may invest in
currency, and financial instruments and contracts that are commodities or
commodity contracts; or
8.issue
senior securities to the extent such issuance would violate applicable
law.
With
regard to fundamental policy 2 above, as it relates to the Allocation
Funds,
Madison looks through to the assets held by affiliated underlying funds for
purposes of the industry concentration limit, and for unaffiliated underlying
funds, Madison applies the test the same way based on what Madison knows about
the underlying fund.
With
regard to fundamental policy 8 above, Section
18(f) of the 1940 Act prohibits an investment company from issuing a “senior
security” except under certain circumstances. A “senior security” is any
security or obligation that creates a priority over any other class to a
distribution of assets or payment of a dividend. Permissible “senior securities”
include, among other things, a borrowing from a bank where the fund maintains an
asset coverage ratio of at least 300% while the borrowing is
outstanding.
In
addition to the fundamental policies listed above, the investment objective of
each fund is a fundamental policy that cannot be changed without the approval of
a majority of the fund’s outstanding voting securities.
The
following restrictions are not fundamental policies and may be changed without
the approval of the shareholders in the affected fund:
1.no
fund will sell securities short or maintain a short position, except for short
sales against the box;
2.no
fund will purchase illiquid securities if more than 15% of the total assets of
the fund, taken at market value, would be invested in such
securities;
3.with
regard to the fundamental policy on industry concentration as it relates to the
Tax-Free
Funds,
(i) in addition to U.S. Government securities, obligations which provide income
exempt from federal income taxes are also excluded for purposes of the 25%
limitation; (ii) the general obligations of governmental units are not
considered related to any industry;1
and (iii) industrial revenue obligations are classified by the industry of the
private user;
4.with
regard to the Tax-Free
Funds and
the Core
Bond,
and High
Quality Bond Funds,
no
such fund will invest more than 5% of the value of its total assets (determined
as of the date of purchase) in the securities of any one issuer (other than
securities issued or guaranteed by the United States Government or any of its
agencies or instrumentalities and excluding bank deposits), and Madison will not
purchase, on behalf of any such fund, any securities when, as a result, more
than 10% of the voting securities of the issuer would be held by the fund. For
purposes of these restrictions, the issuer is deemed to be the specific legal
entity having ultimate responsibility for payment of the obligations evidenced
by the security and whose assets and revenues principally back the security;
5.with
regard to the Tax-Free
Funds,
to the extent either of the funds invest in fixed income securities, only
investment grade fixed income securities shall be purchased, with the lowest
rated securities purchased by the Tax-Free
Virginia Fund
being those rated BBB or Baa;
6.with
regard to the High
Quality Bond Fund,
only investment grade securities shall be purchased; and
7.with
regard to the Core
Bond Fund,
at least 65% of the fund’s assets must be invested in investment grade
securities.
_________________________________
1However,
revenue obligations backed by particular projects are considered related to the
industry classifications of the associated projects.
Except
for the limitations on borrowing from banks, if the above percentage
restrictions, or any restrictions elsewhere in this SAI or in the prospectus
covering fund shares, are adhered to at the time of investment, a later increase
or decrease in such percentage resulting from a change in values of securities
or amount of net assets will not be considered a violation of any of the
foregoing restrictions.
Notwithstanding
the foregoing investment limitations, the underlying funds in which the
Allocation
Funds
may invest may have adopted certain investment restrictions that may be more or
less restrictive than those listed above, thereby permitting an
Allocation Fund
to engage indirectly in investment strategies that may be prohibited under the
investment limitations listed above. The investment restrictions of each
underlying fund are set forth in the prospectus and SAI for that underlying
fund.
Each
fund will trade securities held by it whenever, in the Investment Adviser’s
view, changes are appropriate to achieve the stated investment objectives. The
Investment Adviser does not anticipate that unusual portfolio turnover will be
required and intends to keep such turnover to moderate levels consistent with
the objectives of each fund. Although the Investment Adviser makes no
assurances, it is expected that the annual portfolio turnover rate for each fund
will be generally less than 100%. This would mean that normally less than 100%
of the securities held by the fund would be replaced in any one
year.
For
each of the two fiscal years ended October 31, portfolio turnover for each fund
was as follows:
|
|
|
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|
|
|
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|
|
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|
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|
|
|
|
|
|
|
| |
| Fund |
2023 |
2022 |
| Fund |
2023 |
2022 |
| Conservative
Allocation¹ |
53% |
84% |
|
Covered
Call & Equity Income |
102% |
99% |
| Moderate
Allocation¹ |
67% |
95% |
| Dividend
Income |
26% |
33% |
| Aggressive
Allocation¹ |
71% |
99% |
| Investors |
22% |
18% |
|
Diversified
Income2 |
118% |
32% |
|
Sustainable
Equity Fund |
34% |
12% |
| Tax-Free
Virginia |
15% |
17% |
| Mid
Cap |
10% |
24% |
| Tax-Free
National |
16% |
10% |
| Small
Cap |
39% |
41% |
| High
Quality Bond |
45% |
23% |
|
International
Stock |
22% |
31% |
| Core
Bond |
30% |
21% |
|
|
| |
1
Turnover
for 2023 was lower than 2022 due to lesser amounts of asset allocation changes
made in the portfolio compared to a more volatile market in 2022;
2
Turnover
for 2023 was higher than 2022 due to a change in the fund's principal investment
strategies on July 31, 2023.
Trustees
and Officers
The
Trust is governed by the Board of Trustees. The Board has the duties and
responsibilities set forth under the applicable laws of the State of Delaware,
including but not limited to the management and supervision of the funds.
The
Board of Trustees, from time to time, may include individuals who may be deemed
to be affiliated persons of Madison. At all times, however, a majority of Board
members will not be affiliated with Madison or the funds (collectively referred
to herein as the “Independent Trustees”). Effective February 2024, the Board of
Trustees revised its retirement policy such that under the current policy, a
Board member must retire at the end of the calendar year in which he or she
attains the age of seventy-six (76), subject to extension by unanimous vote of
the remaining Board members of the Trust (including any interested Trustees).
The
funds do not hold annual shareholder meetings, but may hold special meetings for
such purposes as electing or removing Board members, changing fundamental
policies, approving certain management contracts, approving or amending a 12b-1
plan, or as otherwise required by the 1940 Act or the Declaration of
Trust.
The
address of each Trustee and officer is 550 Science Drive, Madison, Wisconsin
53711.
Independent
Trustees
|
|
|
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|
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|
|
|
|
|
|
|
|
| |
Name
and
Age |
Position(s)
Held, First Elected and Term of Office1 |
Principal
Occupation(s) During Past Five Years |
Portfolios
Overseen in Fund Complex by Trustee2 |
Other
Directorships
Held by Trustee |
|
Scott
C. Jones
61 |
Trustee,
since
2019; Indefinite term |
Managing
Director, Carne Global Financial Services (US) LLC (a provider of
independent governance and distribution support for the asset management
industry), Chicago, IL, 2013 - Present
Managing
Director, Park Agency, Inc., (a family investment office), Chicago, IL,
2020 - Present
|
16 |
Madison
Covered Call & Equity Strategy Fund ("MCN"), 2021 -
Present
XAI
Octagon Floating Rate & Alternative Income Term Trust, 2017 - Present;
Manager
Directed Portfolios (open-end fund family, 9 portfolios), 2016 - Present
and Lead Independent Trustee since 2017;
Guestlogix
Inc. (a provider of ancillary-focused technology to the travel industry),
2015 - 2016 |
|
Steven
P. Riege
69 |
Trustee,
since
2005; Indefinite term |
Ovation
Leadership (management consulting), Milwaukee, WI, Owner/President, 2001 –
Present
Robert
W. Baird & Company (financial services), Milwaukee, WI, Senior Vice
President-Marketing and Vice President-Human Resources, 1986 –
2001 |
34 |
Ultra
Series Fund ("USF") (14), 2005 – Present;
MCN,
2015 - Present
Madison
ETFs Trust ("Madison ETFs") (4), June 2023 – Present |
|
Richard
E. Struthers
71 |
Trustee,
since
2004; Indefinite term |
Clearwater
Capital Management (investment advisory firm), Naples, FL, Chair and Chief
Executive Officer, 1998 – Present
Park
Nicollet Health Services, Minneapolis, MN, Chairman, Finance and
Investment Committee, 2006 – 2012 |
34 |
USF
(14), 2004 – Present;
MCN,
2017 - Present
Madison
ETFs (4), June 2023 – Present
|
1
Board terms are indefinite, subject to the Board's retirement
policy.
2
As
of the date of this SAI, the "Fund Complex" consists of Madison Funds with 15
portfolios, the Ultra Series Fund with 14 portfolios, the Madison Covered Call
& Equity Strategy Fund (closed end fund), and the Madison ETFs Trust with 4
active portfolios for a grand total of 34 separate portfolios in the Fund
Complex. Not every Trustee is a member of the Board of Trustees of every fund in
the Fund Complex, as noted above. References to the “Fund Complex” in this SAI
have the meaning disclosed in this footnote.
Interested
Trustees and Officers
|
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|
|
|
|
|
|
|
|
|
|
|
| |
|
Name
and
Age |
Position(s)
Held, Length of Time Served and Term of Office2 |
Principal
Occupation(s) During Past Five Years |
Portfolios
Overseen in Fund Complex by Trustee3 |
Other
Directorships Held by Trustee |
|
Jill
A. Friedow1
59 |
Trustee,
since
2023;
Indefinite term
Vice
President,
2023
– Present |
Madison
Investment Holdings, Inc. (“MIH”), Madison Investment Advisors, LLC
(“MIA”), and Madison Asset Management, LLC (“Madison”), Chief Technology
Officer & Director of Operations, 2019-Present; Vice President &
Director of Operations, 2010 - 2019; Vice President & Operations
Manager, 2003-2010; Operations Manager, 1999-2003
USF
(14), Vice President, 2023 – Present; MCN, Vice President, 2023 –
Present |
30 |
USF
(14), 2023 – Present;
MCN,
2023 – Present |
|
Patrick
F. Ryan
44 |
President,
2020
- Present |
MIH,
MIA and Madison, Head of Multi-Asset Solutions and Portfolio Manager, 2018
– Present; Co-Head of Multi-Asset Solutions and Portfolio Manager, 2016 –
2017
USF
(14) and MCN, President, March 2020 - Present;
Madison
ETFs (4), President, June 2023 – Present |
N/A |
N/A |
|
Greg
D. Hoppe
54 |
Vice
President,
2020
– Present;
Chief
Financial Officer, 2019 - Present;
Treasurer,
2009 – 2019 |
MIH
and MIA, Vice President, 1999 - Present; Madison, Vice President, 2009 -
Present
USF
(14), Vice President, 2020 – Present; Chief Financial Officer, 2019 –
Present; Treasurer, 2009 – 2019; MCN, Vice President, 2020 – Present;
Chief Financial Officer, 2019 – Present; Treasurer, 2012 - 2019; Madison
ETFs (4), Chief Financial Officer, Vice President, Treasurer, June 2023 –
Present; Madison Strategic Sector Premium Fund, Treasurer, 2009 -
2018 |
N/A |
N/A |
|
Holly
S. Baggot
62 |
Secretary,
1999 - Present;
Assistant
Treasurer,
1999
– 2007 and 2009 – Present; Treasurer, 2008
Anti-Money
Laundering Officer, 2019-2020 and 2022 - Present |
MIH
and MIA, Vice President, 2010 - Present; Madison, Vice President, 2009 -
Present; MFD Distributor, LLC (“MFD”) (an affiliated brokerage firm of
Madison), Vice President, 2012 - Present
USF
(14), Secretary, 1999 - Present and Assistant Treasurer, 2009 - Present;
MCN, Secretary and Assistant Treasurer, 2012 - Present; Madison ETFs (4),
Secretary and Assistant Treasurer, June 2023 – Present; USF and MCN,
Anti-Money Laundering Officer, 2019 - 2020; Madison Strategic Sector
Premium Fund, Secretary and Assistant Treasurer, 2010 -
2018 |
N/A |
N/A |
|
Steve
J. Fredricks
53 |
Chief
Compliance Officer and Assistant Secretary, 2018 – Present |
MIH,
MIA and Madison, Chief Legal Officer, 2020 - Present and Chief Compliance
Officer, 2018 – Present
USF
(14) and MCN, Chief Compliance Officer and Assistant Secretary, 2018 -
Present; Madison ETFs (4), Chief Compliance Officer and Assistant
Secretary, June 2023 - Present; Madison Strategic Sector Premium Fund,
Chief Compliance Officer during 2018.
Jackson
National Asset Management, LLC, Senior Vice President and Chief Compliance
Officer, 2005 - 2018 |
N/A |
N/A |
|
Terri
A. Wilhelm
54 |
Assistant
Secretary,
November 2022 – Present |
MIH,
MIA and Madison, Senior Compliance Analyst,
September
2022 – Present
USF
(14) and MCN, Assistant Secretary, 2022 – Present; Madison ETFs (4),
Assistant Secretary, June 2023 – Present
State
of Wisconsin Investment Board, Senior Paralegal, 2017 –
2022 |
N/A |
N/A |
1
"Interested person" as defined in the 1940 Act. Considered an interested Trustee
because of the position held with Madison.
2
Board terms are subject to the Board's retirement policy. In addition, officers
are elected by the Board of Trustees annually.
3
As
of the date of this SAI, the "Fund Complex" consists of Madison Funds with 15
portfolios, the Ultra Series Fund with 14 portfolios, the Madison Covered Call
& Equity Strategy Fund (closed end fund), and the Madison ETFs Trust with 4
active portfolios for a grand total of 34 separate portfolios in the Fund
Complex. References to the “Fund Complex” in this SAI have the meaning disclosed
in this footnote.
Trustee
Compensation
During
the fiscal year ended October 31, 2023, the Trustees were compensated as
follows:
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| Trustee
Name |
Aggregate
Compensation from Trust |
Total
Compensation Fund Complex1 |
| Scott
C. Jones |
$62,000 |
$74,000 |
| Steven
P. Riege |
$66,900 |
$123,000 |
| Richard
E. Struthers |
$62,000 |
$115,000 |
|
Jill
Friedow2 |
None |
None |
1
The
Trust consists of 15 separate portfolios, and the “Fund Complex” consists of 34
separate portfolios, as described in more detail above. Not
every Trustee is a member of the Board of Trustees of every fund in the Fund
Complex, as noted above.
2
Non-compensated interested Trustee.
The
Fund Complex does not have any sort of pension or retirement plans for the
benefit of Trustees. However, as an employee of Madison, Ms. Friedow
participates in a profit sharing plan sponsored by Madison for the benefit of
its employees. No part of such plan is secured or funded by the Fund Complex.
There have been no arrangements or understandings between any Trustee or officer
and any other person(s) pursuant to which (s)he was selected as a Trustee or
officer.
Board
Qualifications
The
members of the Board of Trustees each have experience that led fund management
to the conclusion that each should serve as a member of the Board, both at the
time of the person’s appointment and continuing as of the date of this SAI. Ms.
Friedow, the sole member of the Board who is considered an “interested person”
under the 1940 Act, has significant management and leadership experience in the
asset management industry and currently serves as Chief Technology Officer and
Head of Operations for Madison and its affiliated companies. Regarding the
Independent Trustees, all three have substantial experience operating and
overseeing a business, whether it be the management consulting business (for Mr.
Riege), and the investment management business (for Mr. Struthers and Mr.
Jones). As a result of this experience, each has unique perspectives regarding
the operation and management of the funds and the Board of Trustees’ oversight
function. They use this collective experience to oversee the funds for the
benefit of fund shareholders. Moreover, each of the Independent Trustees has
served as a trustee of one or more mutual funds for many years. They bring
substantial and material experience and expertise to their roles as Trustees of
the funds.
Board
Committees
The
Board of Trustees has established two standing committees to help manage the
funds, an Audit Committee and a Nominating and Governance Committee. Each such
Committee is currently comprised of Messrs. Jones, Riege and Struthers,
constituting all of the Trust’s Independent Trustees. The Chair of the
Nominating and Governance Committee is Mr. Riege, and the Chair of the Audit
Committee is Mr. Struthers.
Audit
Committee.
The Audit Committee is responsible for reviewing the results of each audit of
the funds by the funds’ independent registered public accounting firm and for
recommending the selection of independent auditors for the coming year. The
Audit Committee meets at least quarterly and more often as necessary. The
Committee met four times during the funds’ last fiscal year.
Nominating
and Governance Committee.
The Nominating and Governance Committee is responsible for nominating trustees
and officers to fill vacancies, for evaluating their qualifications. The
Nominating and Governance Committee is also responsible for periodically
reviewing the effectiveness of the Board of Trustees and its committees. Like
the Audit Committee, the Nominating and Governance Committee meets at least
quarterly and more often as necessary. The Nominating and Governance Committee
met four times during the funds’ last fiscal year. The Nominating and Governance
Committee may consider candidates for the Board submitted by shareholders if a
vacancy were to exist. Shareholders who wish to recommend a nominee may do so by
submitting the appropriate information about the candidate to the Secretary of
the Trust at the following address: 550 Science Drive, Madison, Wisconsin 53711.
Leadership
Structure of the Board
The
Board of Trustees is relatively small (with four members, as noted in the tables
above) and operates in a collegial atmosphere. Although no member is
formally charged with acting as Chair, Mr. Ryan, the President of the Trust,
generally acts as the Chairperson during meetings. All
Board members are expected to provide their input into establishing the Board’s
meeting agenda. Likewise, each Board of Trustees meeting contains a
standing agenda item for any Board member to raise new or additional items he or
she believes is important in connection with fund governance. The Board of
Trustees has charged
Mr. Riege with acting as the Lead Independent Trustee for purposes of
communicating with Madison, the
Trust's Chief Compliance Officer, counsel to the Independent Trustees and Trust
counsel on matters relating to the Board as a whole. The Independent
Trustees often meet in executive session without representatives of Madison
present (including meetings with counsel, the Chief Compliance Officer and the
independent registered public accountant).
As
adviser to each series of the Trust, Madison is responsible for the overall risk
management for the funds, including supervising their affiliated and third-party
service providers and identifying and mitigating possible events that could
impact the funds’ business, operations or performance. Risks to the funds
include investment, legal, compliance and regulatory risks, as well as the risk
of operational failure or lack of business continuity. The Board of Trustees
oversees risk management of the funds’ investment programs through the Audit
Committee and through oversight by the Board itself. The Trust's Chief
Compliance Officer, who reports to the Independent Trustees, provides the
Board of Trustees with quarterly updates and a comprehensive annual report
regarding the processes and controls in place to address regulatory, compliance,
legal and operational risk. The Board of Trustees exercises its oversight
in conjunction with Madison, the Chief Compliance Officer, fund counsel and
counsel to the Independent Trustees by requesting reports and presentations at
regular intervals throughout the year. Additionally, the Audit Committee
receives periodic reports from the funds’ independent accountants. The Board’s
committee structure requires an Independent Trustee to serve as Chair of the
Nominating and Governance and the Audit Committees.
Given
the small size of the Board of Trustees, its committee structure led by
Independent Trustees, the openness of Board meetings to active input by all
Board members, its utilization of executive sessions, the role of the Lead
Independent Trustee and its quarterly focus on compliance and risk management,
the Board of Trustees has determined that its current leadership structure is
adequate for the protection of fund investors.
Trustees’
Holdings
Trustees’
holdings in the Fund Complex as of December 31, 2023, was as
follows:
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| Name
of Trustee |
Fund |
Dollar
Range of Equity Securities in the Trust1,2 |
Aggregate
Dollar Range of Equity Securities in Fund Complex2 |
| Scott
C. Jones |
None |
None |
None |
| Steven
P. Riege |
Aggressive
Allocation
Mid
Cap
Small
Cap |
$1
- $10,000
$1
- $10,000
$10,001
- $50,000 |
$10,001
- $50,000 |
| Richard
E. Struthers |
Covered
Call & Equity Strategy Fund
International
Stock |
$10,001
- $50,000
$50,001
- $100,000 |
$50,001
- $100,000 |
|
Jill
Friedow |
Core
Bond
Covered
Call & Equity Income
Investors |
Over
$100,000
Over
$100,000
Over
$100,000 |
Over
$100,000 |
1
Dollar
ranges are as follows: none; $1–$10,000; $10,001-$50,000; $50,001-$100,000; and
over $100,000.
2
The
Trust consists of 15 separate portfolios, and the “Fund Complex” consists of 34
separate portfolios, as described in more detail above. Not every Trustee is
a
member
of the Board of Trustees of every fund in the Fund Complex, as noted
above.
Furthermore,
as of December 31, 2023, neither the Independent Trustees, nor members of their
immediate families, owned securities beneficially, or of record, in the Adviser,
MFD Distributor, LLC (the “Distributor”), or any of their affiliates. During the
two most recently completed calendar years, neither the Independent Trustees nor
members of their immediate families, had a direct or indirect interest, the
value of which exceeds $120,000 in (i) the Adviser, the Distributor or any of
their affiliates; (ii) any transaction or relationship in which such entity, the
Funds, the Trust, any officer of the Trust, the Adviser, the Distributor, or any
of their affiliates was a party; or (iii) any other relationship related to
payments for property or services to the Funds, the Trust, any officer of the
Trust, the Adviser, the Distributor, or any of their affiliates.
|
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| |
| SALES
LOAD WAIVERS FOR CERTAIN AFFILIATED PERSONS OF THE
TRUST |
Class
A shares may be offered without front-end sales charges to individuals (and
their “immediate family,” as described in the prospectus) who, within the past
twelve months, were (i) trustees, directors, officers, or employees of CMFG Life
Insurance Company or its subsidiaries and affiliates (collectively referred to
herein as “CMFG Life”); (ii) trustees, directors, officers or employees of MIH
and/or its subsidiaries or affiliated companies; (iii) members of the Board of
Trustees of the Trust or of the board of trustees of the Ultra Series Fund; and
(iv) any trust, pension, profit sharing or other benefit plan which beneficially
owns shares for these persons. Board members of the Trust and the Ultra Series
Fund are offered Class A shares without front-end sales charges as an incentive
for them to invest in the funds for which they serve as Trustees.
|
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| CONTROL
PERSONS AND PRINCIPAL HOLDERS OF THE TRUST’S
SECURITIES |
Based
upon their investments, the Allocation Funds of the Madison Funds and the Ultra
Series Fund, an affiliated investment company which is managed by the same
investment adviser as the Trust, may own in aggregate more than 25% of certain
fund's Class R6 shares, as indicated in the charts below, and may be deemed to
control such share class of such funds.
In
addition, Madison owns 85.70% of the shares (initial seed capital) of the Class
Y shares of the Sustainable Equity Fund of the date of this SAI, and is
therefore deemed a control person of the respective share class of the fund.
Madison is a Wisconsin limited liability company and the investment adviser to
the Trust. Until their ownership is diluted by the sale of shares to other
shareholders or the redemption of their investments, these shareholders may each
be able to significantly influence the outcome of any shareholder vote of such
funds and or such share classes of such funds.
The
following tables set forth 5% or more beneficial ownership (unless otherwise
stated) of shares of each class of each fund, if applicable, as of January 31,
2024.
Class
A shares
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| |
| Shareholder |
Cons
Alloc |
Mod
Alloc |
Agg
Alloc |
Core
Bond |
Diversified
Income |
Cov
Call & Eq Inc |
Dividend
Income |
Investors |
Mid
Cap |
Small
Cap |
Int’l
Stock |
| LPL
Financial, San Diego, CA* |
42.93% |
27.03% |
16.48% |
34.41% |
34.01% |
50.72% |
26.74% |
29.49% |
25.08% |
27.88% |
26.05% |
| Pershing
LLC, Jersey City, NJ* |
|
|
| 5.30% |
5.83% |
11.64% |
6.05% |
|
|
| |
| First
Community Credit Union, Retirement Health Funding Program, Chesterfield,
MO |
|
|
| 7.42% |
|
|
|
|
|
| |
| First
South Financial Credit Union, 457(B) Plan, Bartlett, TN |
|
|
|
|
|
|
|
|
| 7.20% |
|
| UMB
Bank NA Cust IRA FBO Kenneth L. Dotson, Sterling, VA |
|
|
|
|
|
|
|
|
| 5.32% |
|
*
Represents ownership of record rather than beneficial ownership.
Class
C shares
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
| |
| Shareholder |
Con
Alloc |
Mod
Alloc |
Agg
Alloc |
Diversified
Income |
Cov
Call & Eq Inc |
Dividend
Income |
| LPL
Financial, San Diego, CA* |
46.13% |
56.11% |
38.33% |
30.85% |
25.00% |
26.74% |
| Pershing
LLC, Jersey City, NJ* |
38.54% |
10.03% |
35.65% |
62.13% |
38.48% |
6.05% |
| RBC
Capital Markets LLC, Mutual Fund Omnibus Processing, Minneapolis,
MN* |
|
|
|
| 6.15% |
|
*Represents
ownership of record rather than beneficial ownership.
Class
Y shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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| |
| Shareholder |
Tax-Free
Nat'l |
Tax-Free
VA |
Core
Bond |
High
Quality
Bond |
Dividend
Income |
Cov
Call & Eq Inc |
Investors |
Sustainable
Equity |
Mid
Cap |
Small
Cap |
Int’l
Stock |
| Charles
Schwab & Co – Special Custodial Account for Benefit of Customers, San
Francisco, CA* |
6.18% |
6.03% |
23.24% |
16.10% |
41.51% |
42.96% |
23.70% |
14.30% |
33.63% |
28.32% |
12.80% |
| National
Financial Services LLC Exclusive Benefit of our Customers, New York,
NY* |
|
| 6.55% |
7.01% |
24.37% |
26.53% |
6.00% |
| 26.42% |
9.44% |
|
|
Morgan
Stanley Smith Barney, Jersey City, NJ* |
|
|
|
|
|
|
|
| 8.53% |
| |
|
UBS
WM USA, Weekawken, NJ |
|
|
|
|
|
|
|
|
|
| 8.53% |
| Richard
E. Struthers, Naples, FL |
|
|
|
|
|
|
|
|
|
| 13.23% |
| Pershing
LLC, Jersey City, NJ* |
|
|
|
| 8.54% |
18.39% |
|
| 9.66% |
| |
| RBC
Capital Markets LLC Mutual Fund Omnibus Processing Accounts, Minneapolis,
MN* |
|
|
|
|
|
|
|
|
| 22.71% |
|
| John
H Rys Sr & Virginia M Rys JTWROS POA John H Rys Jr, Kansas City,
MO |
12.56% |
|
|
|
|
|
|
|
|
| |
| Wayne
G Johns, Alexandria, VA |
| 31.32% |
|
|
|
|
|
|
|
| |
| Matrix
Trust Company Cust. FBO Monterey CU 457(B) Plan, Denver, CO |
|
|
|
|
|
|
|
|
|
| 7.02% |
| Matrix
Trust Company Cust. FBO Tarrant County CU 457(B) Plan, Denver,
CO |
|
|
|
|
|
|
|
|
|
| 9.62% |
| Matrix
Trust Company Cust. FBO Community First Credit Union 457(B) Plan, Denver,
CO |
|
|
|
|
|
|
|
|
|
| 5.35% |
| Dapp
Associates LLC, Pensacola, FL |
|
|
|
|
|
|
|
|
|
| 7.39% |
| Ingrid
Gunther & Claudia Buchinsky & Nina Hassin JTWROS, Reseda,
CA |
|
| 10.12% |
|
|
|
|
|
|
| |
| Madison
Asset Management, LLC, Madison, WI |
|
|
|
|
|
|
| 85.70% |
|
| |
*Represents
ownership of record rather than beneficial ownership.
Class
I shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Shareholder |
High
Quality |
Core
Bond |
Dividend
Income |
Cov
Call & Eq Inc |
Investors |
Sustainable
Equity |
Mid
Cap |
Small
Cap |
| Charles
Schwab & Co – Special Custodial Account for Benefit of Customers, San
Francisco, CA* |
39.20% |
| 80.56% |
26.39% |
| 47.28% |
9.87% |
|
| Morgan
Stanley Smith Barney, Jersey City, NJ* |
6.43% |
|
|
| 26.99% |
| 21.23% |
|
| RBC
Capital Markets LLC, Mutual Fund Omnibus Processing, Minneapolis,
MN* |
13.88% |
|
| 6.77% |
18.77% |
| 23.49% |
|
| Wells
Fargo Clearing Services LLC, Special Custody Acct for the Exclusive
Benefit of Customers, St. Louis, MO* |
|
|
|
| 20.25% |
| 8.59% |
43.69% |
| Pershing
LLC, Jersey City, NJ* |
|
|
| 5.18% |
|
| 7.41% |
|
| LPL
Financial Omnibus Customer Account, San Diego, CA* |
| 45.48% |
10.55% |
26.60% |
22.14% |
| 9.87% |
26.29% |
|
American
Enterprise Investment SVC, Minneapolis, MN |
|
|
|
|
|
| 7.86% |
|
| Outrider
Foundation, Inc, Madison, WI |
|
|
|
|
| 36.22% |
| |
| Sarah
G Stevens TTEE &, Kathleen Burgess TTEE, Burgess Grandchildrens
Irrevocable Education Trust, Waunakee, WI |
|
|
|
|
| 6.17% |
| |
| Maril
& Co FBO, c/o Reliance Trust Company, Milwaukee, WI |
| 5.50% |
|
|
|
|
| |
| National
Financial Services Exclusive Benefit of our Customers, New York,
NY |
| 44.80% |
5.23% |
33.67% |
| 10.33% |
7.24% |
19.56 |
|
First
Community Credit Union, Retirement Health Finding Program, Chesterfield,
MO |
7.10% |
|
|
|
|
|
| |
|
SEI
Private Trust Company, Oaks, PA |
38.37% |
|
|
|
|
|
| |
*Represents
ownership of record rather than beneficial ownership.
Class
R6 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Shareholder |
Core
Bond |
Dividend
Income |
Cov
Call & Eq Inc |
Investors |
Mid
Cap |
Small
Cap |
| Madison
Conservative Allocation Fund, Madison, WI |
13.57% |
|
| 5.99% |
| |
| Madison
Moderate Allocation Fund, Madison, WI |
19.20% |
|
| 18.86% |
| |
| Madison
Aggressive Allocation Fund, Madison, WI |
5.29% |
|
| 12.53% |
| |
| Ultra
Series Conservative Allocation Fund, Madison, WI |
33.25% |
21.28% |
| 13.23% |
| |
| Ultra
Series Moderate Allocation Fund, Madison, WI |
22.97% |
34.71% |
| 22.93% |
| |
| Ultra
Series Aggressive Allocation Fund, Madison, WI |
| 13.99% |
| 9.30% |
| |
| Charles
Schwab & Co – Special Custodial Account for Benefit of Customers, San
Francisco, CA* |
| 30.02% |
48.32% |
8.38% |
13.01% |
100.00% |
| Saxon
& Co., FBO 40400904099990, Cleveland, OH |
|
|
|
| 22.07% |
|
| Saxon
& Co., FBO 40400907499991, Cleveland, OH |
|
|
|
| 7.05% |
|
| Wells
Fargo Bank NA FBO Omnibus Cash Account for Benefit of Customers,
Minneapolis, MN* |
|
|
|
| 27.09% |
|
| Matrix
Trust Co. FBO NW Priority CU 457(b) Plan, Denver, CO |
|
| 10.49% |
|
| |
| Matrix
Trust Co. Area Educational Credit Union, Denver, CO |
|
| 13.77% |
|
| |
|
Merrill
Lynch, Pierce, Fenner & Smith, Jacksonville, FL |
|
|
|
| 5.55% |
|
*Represents
ownership of record rather than beneficial ownership.
As
of January 31, 2024 the Trust’s trustees and officers, as a group, owned less
than one percent of the outstanding voting securities of each fund.
The
investment adviser to the Trust, Madison Asset Management, LLC (“Madison”), is a
registered investment adviser located at 550 Science Drive, Madison, WI 53711.
Madison is owned by Madison Investment Holdings, Inc. (“MIH”), 550 Science
Drive, Madison, WI 53711. Madison shares investment personnel with Madison
Investment Advisors, LLC, a wholly owned subsidiary of Madison. MIH was founded
in 1974 and currently operates primarily as a holding company. In addition to
Madison, the other firm under the MIH umbrella is Madison Investment Advisors,
LLC (a registered investment adviser providing portfolio management services to
wrap accounts and separately managed accounts), located in Madison, WI, which
includes an insurance asset management division, Madison Scottsdale, located in
Scottsdale, AZ, and an international equity team located in Toronto, Canada.
Investment
Advisory Agreement. Madison
has entered into an Investment Advisory Agreement with the Trust that requires
Madison to provide continuous professional investment management of the
investments of the Trust, including establishing an investment program complying
with the investment objectives, policies, and restrictions of each fund. As
compensation for its services under the Investment Advisory Agreement, each fund
pays Madison on a monthly basis, a management fee computed at an annualized
percentage rate of the average daily value of the net assets of each
fund.
During
each of the three fiscal years ended October 31, the Trust paid the following
investment advisory fees to Madison:
|
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|
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|
|
|
| |
| Fund |
Management
Fee1 |
2023 |
2022 |
2021 |
| Conservative
Allocation |
0.20% |
$97,497 |
$119,655 |
$138,570 |
| Moderate
Allocation |
0.20% |
199,084 |
236,874 |
272,445 |
| Aggressive
Allocation |
0.20% |
107,507 |
121,354 |
135,605 |
| Diversified
Income |
0.20%4 |
847,363 |
1,144,444 |
1,151,679 |
| Tax-Free
Virginia |
0.50% |
89,802 |
96,631 |
104,663 |
| Tax-Free
National |
0.40% |
71,414 |
76,041 |
91,223 |
| High
Quality Bond |
0.30%2 |
219,199 |
279,160 |
459,325 |
| Core
Bond |
0.39%3 |
749,077 |
712,367 |
735,447 |
| Covered
Call & Equity Income |
0.85% |
1,709,571 |
895,715 |
747,149 |
| Dividend
Income |
0.70% |
1,814,581 |
2,141,670 |
2,281,752 |
| Investors |
0.70% |
2,330,567 |
2,477,112 |
2,726,327 |
|
Sustainable
Equity5 |
0.70% |
61,364 |
42,013 |
N/A |
| Mid
Cap |
0.75%6 |
5,561,690 |
5,072,519 |
4,927,974 |
| Small
Cap |
0.89%7 |
1,592,625 |
2,001,394 |
2,610,559 |
| International
Stock |
1.05% |
138,768 |
151,479 |
191,990 |
1 Except
for the Conservative Allocation Fund, Moderate Allocation Fund, Aggressive
Allocation Fund, Tax-Free Funds, High Quality Bond Fund and Covered Call &
Equity Income Fund, each fund’s investment advisory fee will be reduced by 0.05%
on assets exceeding $500 million, and by another 0.05% on assets exceeding $1
billion.
2
For the period August 7, 2020 to February 27, 2021, Madison voluntary waived
0.10% of its 0.30% annual
management fee, and on February 28, 2021, Madison contractually agreed to the
0.10% waiver until at least February 27, 2022. Fees waived in fiscal years ended
2021 and 2022 were $153,108 and $34,413, respectively. Madison does not have the
right to recoup any waived fees. The fee waiver was discontinued effective
February 28, 2022.
3
Effective February 28, 2021, the annual management fee was reduced from 0.50% to
0.39%.
4 Effective
July 31, 2023, the management fee was reduced from 0.65% to 0.20%.
5
Fees paid for 2021 are not provided, because the fund commenced investment
operations on January 3, 2022.
6
Due
to investment advisory fee breakpoints, for the fiscal year ended October 31,
2023, the effective management fee was 0.73% and for the fiscal years ended
October 31, 2022 and October 31, 2021, the effective management fee rate was
0.74%.
7
Effective February 28, 2021, the management fee was reduced from 1.00% to
0.89%.
The
Investment Advisory Agreement was last approved by the Board of Trustees in
September 2023, and by the shareholders of each fund in November 2023 (for all
but the Covered Call & Equity Income Fund) and January 2024 (for the Covered
Call & Equity Income Fund). The Investment Advisory Agreement has an
effective date of December 1, 2023 (for all but the Covered Call & Equity
Income Fund) and January 29, 2024 (for the Covered Call & Equity Income
Fund), and an initial term of two years. After the initial term, the agreement
may continue in effect for additional periods of one year, so long as such
continuation is approved at least annually by the Board of Trustees, including a
majority of the Independent Trustees.
In
connection with the Board’s most recent approval of the Investment Advisory
Agreement, the Board also approved an Operating Expense Limitation Agreement
dated as of December 1, 2023, by and between the Trust, on behalf of each fund,
and Madison, pursuant to which Madison contractually agreed to waive its
management fees and/or reimburse expenses of each fund to the extent necessary
to limit each class of each fund’s total operating expenses to the levels
specified in the then-currently effective prospectus for the Funds (exclusive of
certain fees and expenses), for a period of no less than two years. The specific
expense limits for each fund and share class, as well as the date upon which the
agreement will terminate for each fund, is set forth below.
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
Share
Class |
Operating
Expense Limitation as a Percentage of Average Daily Net Assets1 |
Date
upon which Agreement will Termination |
| Conservative
Allocation |
Class
A |
0.70% |
11/30/2025 |
| Class
C |
1.45% |
|
Moderate
Allocation |
Class
A |
0.70% |
11/30/2025 |
| Class
C |
1.45% |
|
Aggressive
Allocation |
Class
A |
0.70% |
11/30/2025 |
| Class
C |
1.45% |
|
Tax-Free
Virginia |
Class
Y |
0.85% |
11/30/2025 |
|
Tax-Free
National |
Class
Y |
0.75% |
11/30/2025 |
|
High
Quality Bond |
Class
Y |
0.49% |
11/30/2025 |
| Class
I |
0.40% |
|
Core
Bond |
Class
A |
0.84% |
11/30/2025 |
| Class
Y |
0.59% |
| Class
I |
0.49% |
| Class
R6 |
0.41% |
|
Covered
Call & Equity Income |
Class
A |
1.25% |
1/28/2026 |
| Class
C |
2.00% |
| Class
Y |
1.00% |
| Class
I |
0.95% |
| Class
R6 |
0.87% |
|
Dividend
Income |
Class
A |
1.15% |
11/30/2025 |
| Class
Y |
0.90% |
| Class
I |
0.80% |
| Class
R6 |
0.72% |
|
Investors |
Class
A |
1.15% |
11/30/2025 |
| Class
Y |
0.90% |
| Class
I |
0.80% |
| Class
R6 |
0.72% |
|
Sustainable
Equity |
Class
Y |
0.90% |
11/30/2025 |
| Class
I |
0.80% |
|
Mid
Cap |
Class
A |
1.40% |
11/30/2025 |
| Class
Y |
0.95% |
| Class
I |
0.85% |
| Class
R6 |
0.77% |
|
Small
Cap |
Class
A |
1.34% |
11/30/2025 |
| Class
Y |
1.09% |
| Class
I |
0.99% |
| Class
R6 |
0.91% |
|
International
Stock |
Class
A |
1.60% |
11/30/2025 |
| Class
Y |
1.35% |
1
For
purposes of the Operating Expense Limitation Agreement, the term “operating
expenses” is defined to include all expenses necessary or appropriate for the
operation of the Funds and each of their share classes, including the Adviser’s
investment management fee described in the Investment Advisory Agreement and the
service fee described in the Administrative Services Agreement (described
below), but does not include any front-end or contingent deferred loads, taxes,
leverage (i.e., any expenses incurred in connection with borrowings made by a
Fund), interest (including interest incurred in connection with bank and custody
overdrafts), brokerage commissions and other transactional expenses, dividends
or interest on short positions, acquired fund fees and expenses, extraordinary
expenses such as litigation, or other expenses that are “excluded expenses”
under the Administrative Services Agreement (described below). “Excluded
expenses” include Rule 12b-1 distribution and service fees and Independent
Trustee compensation, as described in more detail below, under the heading
“Administrative Services Agreement.”
Administrative
Services Agreement.
In addition to the management fee, the Investment Adviser is entitled to receive
an administrative services fee from each fund pursuant to the terms of a
separate Administrative Services Agreement. Under this agreement, Madison
provides or arranges for each fund to have all of the necessary operational and
support services it needs for a fee. Such services include:
•Handling
bookkeeping and portfolio accounting for the Trust.
•Handling
telephone inquiries, cash withdrawals and other customer service functions
(including monitoring wire transfers).
•Providing
appropriate supplies, equipment and ancillary services necessary to conduct the
Trust’s affairs.
•Arranging
for and paying the custodian, fund transfer agent, fund accountant and fund
administrator.
•Arranging
for and paying the Trust’s independent registered public accountants, legal
counsel and outside counsel to the Independent Trustees.
•Registering
the Trust and its shares with the SEC and notifying any applicable state
securities commissions of the sale of such shares in their jurisdiction.
•Printing
and distributing prospectus and periodic financial reports to current
shareholders.
•Paying
for trade association memberships.
•Preparing
shareholder reports, proxy materials and holding shareholder meetings.
•Arranging
for the payment of the Independent Trustees’ meeting fees (which are direct fund
expenses) and out-of-pocket expenses.
Madison
provides all these services for a annual fee calculated as a percentage of each
fund’s average daily net assets. This fee is reviewed and approved at least
annually by the Board of Trustees and is compared with the fees paid by other
mutual funds of similar size and investment objective to determine if it is
reasonable. The Board of Trustees considers the reasonableness of administrative
services fees when it considers the compensation paid to the Investment Adviser
under the Investment Advisory Agreement. As compensation for its services under
the Administrative Services Agreement, each fund pays Madison on a monthly
basis, an administrative services fee computed at an annualized percentage rate
of the average daily value of the net assets of each fund.
During
each of the last three fiscal years ended October 31, the Trust paid the
following administrative service fees to Madison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Fund |
Administrative
Services Fee6 |
2023 |
2022 |
2021 |
| Conservative
Allocation |
0.25% |
$121,871 |
$149,569 |
$173,213 |
| Moderate
Allocation |
0.25% |
248,855 |
296,093 |
340,557 |
| Aggressive
Allocation |
0.25% |
134,382 |
151,693 |
169,507 |
| Diversified
Income |
0.20% |
312,232 |
352,137 |
354,363 |
| Tax-Free
Virginia |
0.35% |
62,861 |
67,642 |
73,264 |
| Tax-Free
National |
0.35% |
62,487 |
66,536 |
79,821 |
| High
Quality Bond |
0.19%2 |
125,168 |
173,431 |
290,906 |
| Core
Bond |
0.20%1,2,3 |
153,170 |
179,576 |
241,689 |
| Covered
Call & Equity Income |
0.15%1,2 |
239,471 |
152,836 |
130,944 |
| Dividend
Income |
0.20%1,2 |
440,973 |
524,049 |
594,122 |
| Investors |
0.20%1,2 |
475,889 |
501,845 |
552,995 |
|
Sustainable
Equity Fund5 |
0.20%2 |
8,859 |
6,076 |
N/A |
| Mid
Cap |
0.40%1,2 |
1,140,524 |
1,080,135 |
1,080,673 |
| Small
Cap |
0.20%1,2,4 |
344,367 |
431,868 |
595,725 |
| International
Stock |
0.30% |
39,648 |
43,280 |
54,854 |
1
The annual administrative services fee for the fund's Class R6 share is
0.02%.
2
The annual administrative services fee for the fund's Class I shares is
0.10%.
3
Effective February 28, 2021, the annual administrative services fee for the
fund's Class A and Y shares was increased from 0.15% to 0.20%.
4 Effective
February 28, 2021, the Board of Trustees approved the termination of Madison's
contractual agreement to waive 0.04% of the fund's 0.25% annual administrative
services
fee which commenced August 31, 2019 and was set to expire on August 31, 2021,
and the annual administrative services fee was reduced from 0.25% to 0.20%. Fees
waived in fiscal year 2021 were $35,536. Madison does not have the right to
recoup any waived fees.
5
Fees
paid in 2021 are not provided, because the fund commenced investment operations
on January 3, 2022.
6
The same fee rate applies to all share classes of each fund, except as otherwise
noted.
The
Trust remains responsible for (i) transaction-related expenses including, but
not limited to, brokerage commissions paid in connection with fund transactions,
interest or fees in connection with fund indebtedness or taxes paid in
connection with portfolio securities held, (ii) Rule 12b-1 distribution and
service fees disclosed in the prospectus of the Trust, (iii) acquired fund fees,
if any, and (iv) any extraordinary or non-recurring expenses it
incurs
and (iv) the Independent Trustee compensation, including Lead Independent
Trustee compensation.
Subadvisers
Madison
may manage the assets of all of the funds using a “manager of managers” approach
under which Madison may manage some or all of the funds’ assets and may allocate
some or all of the funds’ assets among one or more specialist subadvisers.
Madison selects subadvisers based on a continuing quantitative and qualitative
evaluation of their abilities in managing assets pursuant to a particular
investment style. While superior performance is the ultimate goal, short-term
performance by itself will not be a significant factor in selecting or
terminating subadvisers, and Madison does not expect frequent changes in
subadvisers. Madison compensates subadvisers out of its own assets.
Madison
monitors the performance of each subadviser to the extent it deems
appropriate to achieve a fund’s investment objective, reallocates fund assets
among its own portfolio management team and individual subadvisers or recommends
to the Board of Trustees that a fund employ or terminate particular
subadvisers.The Trust and Madison received an exemptive order from the SEC that
permits the Board to appoint or change unaffiliated subadvisers without
shareholder approval. If there is a new appointment or change in unaffiliated
subadviser, you will receive an “information statement” within 90 days after the
date of the change. The statement will provide you with relevant information
about the reason for the change and information about any new
subadviser.
With
regard to the funds discussed in this SAI, Madison does not currently use a
subadviser.
Compensation.
Madison
believes portfolio managers should receive compensation for the performance of
the funds they manage, their individual effort, and the overall profitability of
the firm. As members of the investment teams, portfolio managers receive a base
salary, are included in the investment team’s incentive compensation plan (ICP),
and have the potential for equity ownership in the firm. The amount of firm
equity any portfolio manager may acquire is at the discretion of the Board of
Directors of Madison Investment Holdings, Inc. which considers a variety of
factors including, for example, seniority, responsibility, and longevity.
With
regard to ICP, portfolio managers receive up to 25% of the annual revenue of
their respective investment strategy. Eighty percent (80%) of the ICP pool is
paid to the investment team that manages each respective investment strategy and
20% is subjective, based largely on performance against benchmark, with
consideration given to team dynamics within each respective investment
strategy.
The
intention of the 25% revenue model is to focus our portfolio managers on
delivering consistent performance which in turn drives long-term assets under
management and revenue growth for the firm. Madison believes that taking a
long-term approach better aligns the interests of shareholders of the funds, our
clients, the investment teams, and our firm.
There
is no difference in the way the firm compensates portfolio managers for managing
a mutual fund or a private client account (or any other type of account).
Instead, compensation is based on the entire employment relationship, not on the
performance of any single account or type of account.
Other
Accounts Managed (as of December 31, 2023):
Patrick
Ryan – Allocation
Funds,
including Diversified Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
8 |
$576,582,948 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
893 |
$742,696,500 |
0 |
$0 |
Stuart
Dybdahl – Allocation
Funds,
including Diversified Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
8 |
$576,582,948 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
893 |
$742,696,500 |
0 |
$0 |
Michael
Peters – Tax-Free Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
696 |
$795,990,531 |
0 |
$0 |
Jeffrey
Matthias – Tax-Free Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
7 |
$196,346,515 |
0 |
$0 |
Chris
Nisbet – High Quality Bond
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
1 |
$79,384,697 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
1,190 |
$867,991,861 |
0 |
$0 |
Allen
Olson – Core Bond Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
4 |
$198,372,155 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
643 |
$345,528,301 |
0 |
$0 |
Mike
Sanders – High Quality Bond
and
Core Bond
Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
5 |
$277,756,852 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
5,598 |
$7,022,821,996 |
0 |
$0 |
John
Brown – Dividend Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
3 |
$306,154,695 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
101 |
$164,497,042 |
0 |
$0 |
Drew
Justman – Covered Call & Equity Income
and
Dividend Income Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
5 |
$537,474,855 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
134 |
$203,498,525 |
0 |
$0 |
Ray
DiBernardo – Covered Call & Equity Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
2 |
$231,320,161 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
0 |
$0 |
0 |
$0 |
Joe
Maginot – Investors Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
1 |
$198,349,694 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
749 |
$3,856,327,057 |
0 |
$0 |
Richard
Eisinger – Investors
and Mid
Cap Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
2 |
$351,960,628 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
2,671 |
$7,590,216,350 |
0 |
$0 |
Haruki
Toyama - Investors
and Mid
Cap Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
2 |
$351,960,628 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
1,030 |
$2,397,733,627 |
0 |
$0 |
Maya
Bittar – Sustainable Equity Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
493 |
$626,739,498 |
0 |
$0 |
Dave
Geisler – Sustainable Equity Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
361 |
$537,306,606 |
0 |
$0 |
Andy
Romanowich – Mid Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
1 |
$153,610,934 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
1027 |
$2,396,795,854 |
0 |
$0 |
Aaron
Garcia – Small Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
4 |
$27,102,376 |
0 |
$0 |
Faraz
Farzam – Small Cap Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Types
of Accounts |
Number
of Other Accounts Managed |
Total
Assets in Accounts |
Accounts
with Performance-Based Advisory Fees |
Total
Assets in Accounts with Performance-Based Advisory Fees |
| Registered
Investment Companies |
0 |
$0 |
0 |
$0 |
| Other
Pooled Investment Vehicles |
0 |
$0 |
0 |
$0 |
| Other
Accounts |
4 |
$27,102,376 |
0 |
$0 |
Thomas
Tibbles – International Stock Fund