AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2014
File No. 033-50718
File No. 811-07102
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 175 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 177 /X/
THE ADVISORS' INNER CIRCLE FUND II
(Exact Name of Registrant as Specified in Charter)
101 Federal Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices, Zip Code)
1-800-932-7781
(Registrant's Telephone Number)
Michael Beattie
c/o SEI Corporation
One Freedom Valley Drive
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
Copy to:
Timothy W. Levin, Esquire Dianne M. Descoteaux, Esquire
Morgan, Lewis & Bockius LLP c/o SEI Corporation
1701 Market Street One Freedom Valley Drive
Philadelphia, Pennsylvania 19103 Oaks, Pennsylvania 19456
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It is proposed that this filing become effective (check appropriate box)
/X/ Immediately upon filing pursuant to paragraph (b)
/ / On [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On [date] pursuant to paragraph (a) of Rule 485
THE ADVISORS' INNER CIRCLE FUND II
PROSPECTUS
MARCH 31, 2014
FROST CONSERVATIVE ALLOCATION FUND
(FORMERLY FROST DIVERSIFIED STRATEGIES FUND) (FDSFX)
FROST MODERATE ALLOCATION FUND
(FORMERLY FROST STRATEGIC BALANCED FUND) (FASTX)
CLASS A SHARES
INVESTMENT ADVISER:
FROST INVESTMENT ADVISORS, LLC
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ABOUT THIS PROSPECTUS
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN
EASILY REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT EACH
FUND, PLEASE SEE:
PAGE
FROST CONSERVATIVE ALLOCATION FUND
INVESTMENT OBJECTIVE ...................................... 1
FUND FEES AND EXPENSES .................................... 1
PRINCIPAL INVESTMENT STRATEGIES ........................... 2
PRINCIPAL RISKS ........................................... 3
PERFORMANCE INFORMATION ................................... 7
INVESTMENT ADVISER ........................................ 9
PORTFOLIO MANAGERS ........................................ 9
FROST MODERATE ALLOCATION FUND
INVESTMENT OBJECTIVE ...................................... 10
FUND FEES AND EXPENSES .................................... 10
PRINCIPAL INVESTMENT STRATEGIES ........................... 11
PRINCIPAL RISKS ........................................... 12
PERFORMANCE INFORMATION ................................... 16
INVESTMENT ADVISER ........................................ 18
PORTFOLIO MANAGERS ........................................ 18
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND
SHARES, TAXES AND FINANCIAL INTERMEDIARY COMPENSATION ..... 19
MORE INFORMATION ABOUT RISK .................................... 20
MORE INFORMATION ABOUT FUND INVESTMENTS ........................ 22
INFORMATION ABOUT PORTFOLIO HOLDINGS ........................... 23
INVESTMENT ADVISER ............................................. 23
PORTFOLIO MANAGERS ............................................. 24
PURCHASING, SELLING AND EXCHANGING FUND SHARES ................. 26
SALES CHARGES .................................................. 31
SHAREHOLDER SERVICING ARRANGEMENTS ............................. 35
PAYMENTS TO FINANCIAL INTERMEDIARIES ........................... 35
OTHER POLICIES ................................................. 36
DISTRIBUTION OF FUND SHARES .................................... 38
DIVIDENDS AND DISTRIBUTIONS .................................... 38
TAXES .......................................................... 38
FINANCIAL HIGHLIGHTS ........................................... 41
HOW TO OBTAIN MORE INFORMATION ABOUT THE FUNDS ................. Back Cover
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FROST CONSERVATIVE ALLOCATION FUND
INVESTMENT OBJECTIVE
The Frost Conservative Allocation Fund (the "Fund") seeks total return.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charges discounts if you and your
family invest, or agree to invest in the future, at least $500,000 in Class A
Shares of the Frost Funds. More information about these and other discounts is
available from your financial professional, in the section "Sales Charges" on
page 31 of the Prospectus.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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CLASS A SHARES
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering 3.25%
price)
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Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None(1)
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other
Distributions (as a percentage of offering price) None
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(1) Class A Shares purchased without an initial sales charge may be subject to
a 1.00% contingent deferred sales charge if redeemed within 12 months of
purchase.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
CLASS A SHARES
Management Fees(1) 0.15%
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Distribution (12b-1) Fees 0.25%
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Other Expenses(1) 1.24%
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Acquired Fund Fees and Expenses 0.37%
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Total Annual Fund Operating Expenses(2) 2.01%
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Less Fee Reductions and/or Expense Reimbursements (0.04)%
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Total Annual Fund Operating Expenses after Fee 1.97%
Reductions and/or Expense Reimbursements(2)
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(1) Management Fees have been restated to reflect the current fees associated
with the Fund's current investment strategies. Therefore, the Total Annual
Fund Operating Expenses in this fee table, both before and after fee
reductions and/or expense reimbursements, do not correlate to the expense
ratios in the Fund's Financial Highlights.
(2) Frost Investment Advisors, LLC (the "Adviser") has contractually agreed to
waive fees and reimburse expenses to the extent necessary to keep Total
Annual Fund Operating Expenses (excluding interest, taxes, brokerage
commissions, Acquired Fund Fees and Expenses, and extraordinary expenses
(collectively, "excluded expenses")) from exceeding 1.60% of the Fund's
Class A Shares' average daily net assets until November 30, 2015 (the
"Contractual Expense Limitation"). In addition, if at any point Total
Annual Fund Operating Expenses (not including excluded expenses) are below
the Contractual Expense Limitation, the Adviser may receive from the Fund
the difference between the Total Annual Fund Operating Expenses (not
including excluded expenses) and the Contractual Expense Limitation to
recover all or a portion of its prior fee waivers or expense reimbursements
made during the preceding three-year period during which this agreement (or
any prior agreement) was in place. This agreement may be terminated: (i) by
the Board of Trustees (the "Board") of the Advisors' Inner Circle Fund II
(the "Trust"), for any reason at any time; or (ii) by the Adviser, upon
ninety (90) days' prior written notice to the Trust, effective as of the
close of business on November 30, 2015.
1
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses (including capped expenses for the period
described in the footnote to the fee table) remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$518 $927 $1,365 $2,580
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PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
total annual fund operating expenses or in the example, affect the Fund's
performance. During its most recent fiscal year, the Fund's portfolio turnover
rate was 98% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is designed to provide diversification among different asset classes
by investing its assets in a combination of mutual funds advised by the Adviser
or other investment advisers and exchange traded funds ("ETFs"), collectively
referred to as "Underlying Funds."
The Underlying Funds are selected following a two stage asset allocation
process. The first stage is a strategic asset allocation to determine the
percentage of the Fund's assets to be invested in the general asset classes of
equity Underlying Funds and fixed income Underlying Funds based on the
risk/return potential of the different asset classes and the risk profile of
the Fund. The second stage involves the actual selection of Underlying Funds to
represent the asset classes based on Underlying Fund classifications,
historical risk, performance, and other factors. Within the equity Underlying
Fund allocations, the Adviser seeks to diversify globally (by including
domestic and international Underlying Funds), in terms of market capitalization
(by including large, mid, and small capitalization Underlying Funds), and by
style (by including both growth and value Underlying Funds). Within the fixed
income Underlying Fund allocation, the Adviser includes domestic and
international Underlying Funds with varying degrees of interest rate and credit
exposure. The Underlying Funds may invest in both developed and emerging market
securities and may invest in fixed income securities of any credit quality,
including securities that are rated below investment grade ("high yield" or
"junk" bonds).
Underlying Funds may use derivatives, principally futures contracts, forward
contracts, options and swaps. An Underlying Fund may engage in such
derivatives transactions to gain exposure to, for example, certain securities,
markets or asset classes, to hedge the Underlying Fund's positions in or
exposure to securities, currencies or other instruments, to equitize cash
positions in the Underlying Fund's portfolio, or to enhance the Underlying
Fund's return, which is also known as speculation.
2
The following chart shows the Fund's target asset allocation among the various
asset classes. The Adviser may permit modest deviations from the target asset
allocations listed below. Accordingly, the Fund's actual allocations may differ
from this illustration.
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ASSET CLASS TARGET ASSET ALLOCATION
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Equity Funds 20%-50%
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Fixed Income Funds 50%-80%
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The Adviser periodically reviews the investment strategies and asset mix of the
Underlying Funds and considers whether overall market conditions would favor a
change in the exposure of the Fund to various asset types or geographic
regions. Based on these considerations, the Adviser may make adjustments to
Underlying Fund holdings by adjusting the percentage of individual Underlying
Funds within the Fund, or adding or removing Underlying Funds. The Adviser may
also determine not to change the Underlying Fund allocations, particularly in
response to short-term market movements, if in its opinion the combination of
Underlying Funds is appropriate to meet the Fund's investment objective.
PRINCIPAL RISKS
As with all mutual funds, a shareholder is subject to the risk that his or her
investment could lose money. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT
INSURED OR GUARANTEED BY THE FDIC, OR ANY GOVERNMENT AGENCY. The principal risks
affecting shareholders' investments in the Fund are set forth below.
ASSET ALLOCATION RISK -- The Fund is subject to asset allocation risk, which is
the risk that the Adviser's allocation of the Fund's assets among the various
asset classes and selection of the Underlying Funds will cause the Fund to
underperform other funds with a similar investment objective and/or
underperform the markets in which the Fund invests.
UNDERLYING FUND INVESTMENT RISK -- The value of an investment in the Fund is
based primarily on the prices of the Underlying Funds in which the Fund
invests. In turn, the price of each Underlying Fund is based on the value of
its assets. As a shareholder of an Underlying Fund, the Fund relies on that
Underlying Fund to achieve its investment objective. If the Underlying Fund
fails to achieve its objective, the value of the Fund's investment could
decline, which could adversely affect the Fund's performance. The Fund bears
its own direct expenses in addition to bearing a proportionate share of
expenses charged by the Underlying Funds, which may make owning shares of the
Fund more costly than owning shares of the Underlying Funds directly. Before
investing in the Fund, investors should assess the risks associated with the
Underlying Funds and the types of investments made by those Underlying Funds.
These risks include any combination of the risks described below, although the
Fund's exposure to a particular risk will be proportionate to the Fund's
overall asset allocation and Underlying Fund allocation.
The Fund's investments in ETFs are subject to additional risks. ETFs are pooled
investment vehicles, such as registered investment companies and grantor rusts,
whose shares are listed and traded on U.S. and non-U.S. stock exchanges or
otherwise traded in the over-the-counter market. Because the value of ETF
shares depends on the demand in the market, shares may trade at a discount or
premium to their net asset value and the Adviser may not be able to liquidate
the Fund's holdings at the most optimal time, which could adversely affect the
Fund's performance. Investments in ETFs are also subject to brokerage and other
trading costs, which could result in greater expenses to the Fund.
3
EQUITY RISK -- The risk that stock prices will fall over short or extended
periods of time. Historically, the equity markets have moved in cycles, and the
value of equity securities may fluctuate drastically from day to day.
Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of depositary
receipts, which are traded on exchanges and represent an ownership in a foreign
security, poses additional risks since political and economic events unique to
a country or region will affect those markets and their issuers. These risks
will not necessarily affect the U.S. economy or similar issuers located in the
U.S. In addition, investments in foreign companies are generally denominated in
a foreign currency. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect (positively or negatively) the value of
the investments. These currency movements may occur separately from, and in
response to, events that do not otherwise affect the value of the security in
the issuer's home country. Foreign companies may not be registered with the SEC
and are generally not subject to the regulatory controls imposed on U.S.
issuers and, as a consequence, there is generally less publically available
information about foreign securities than is available about domestic
securities. Income from foreign securities may be reduced by a withholding tax
at the source, which tax would reduce income received from the securities.
Investments in foreign securities are also subject to the risk that the
securities may be difficult to value and/or valued incorrectly. While
depositary receipts provide an alternative to directly purchasing the
underlying foreign securities in their respective national markets and
currencies, investments in depositary receipts continue to be subject to many
of the risks associated with investing directly in foreign securities.
EMERGING MARKET SECURITIES RISK -- Investments in emerging markets securities
are considered speculative and subject to heightened risks in addition to the
general risks of investing in non-U.S. securities. Unlike more established
markets, emerging markets may have governments that are less stable, markets
that are less liquid and economies that are less developed. In addition,
emerging markets securities may be subject to smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and possible
restrictions on repatriation of investment income and capital. Furthermore,
foreign investors may be required to register the proceeds of sales, and future
economic or political crises could lead to price controls, forced mergers,
expropriation or confiscatory taxation, seizure, nationalization or creation of
government monopolies.
FOREIGN CURRENCY RISK -- Because non-U.S. securities are usually denominated in
currencies other than the dollar, the value of the securities may be influenced
by currency exchange rates and exchange control regulations. The currencies of
emerging market countries may experience significant declines against the U.S.
dollar, and devaluation may occur subsequent to investments in these
currencies. Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, negative effects on the economies and securities markets
of certain emerging market countries.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- Small- and mid-capitalization
companies may be more vulnerable to adverse business or economic events than
larger, more established companies. In particular, these small- and mid-sized
companies may pose additional risks, including liquidity risk, because these
companies tend to have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore,
4
small- and mid-cap stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange.
GROWTH INVESTMENT STYLE RISK -- An Underlying Fund may invest in equity
securities of companies that it believes will increase their earnings at a
certain rate that is generally higher than the rate expected for non-growth
companies. If a growth company does not meet these expectations, the price of
its stock may decline significantly, even if it has increased earnings. Many
growth companies do not pay dividends. Companies that pay dividends often have
lower stock price declines during market downturns. Over time, a growth
investing style may go in and out of favor, causing the Underlying Fund to
sometimes underperform other equity funds that use differing investing styles.
VALUE INVESTMENT STYLE RISK -- Value investing focuses on companies with stocks
that appear undervalued in light of factors such as the company's earnings,
book value, revenues or cash flow. If an Underlying Fund's assessment of a
company's value or prospects for exceeding earnings expectations or market
conditions is wrong, the Underlying Fund could suffer losses or produce poor
performance relative to other funds. In addition, "value stocks" can continue
to be undervalued by the market for long periods of time.
PREFERRED STOCK RISK -- Preferred stocks are sensitive to interest rate
changes, and are also subject to equity risk, which is the risk that stock
prices will fall over short or extended periods of time. The rights of
preferred stocks on the distribution of a company's assets in the event of a
liquidation are generally subordinate to the rights associated with a company's
debt securities.
CONVERTIBLE SECURITIES RISK -- The value of a convertible security is
influenced by changes in interest rates (with investment value declining as
interest rates increase and increase as interest rates decline) and the credit
standing of the issuer. The price of a convertible security will also normally
vary in some proportion to changes in the price of the underlying common stock
because of the conversion or exercise feature.
RIGHTS AND WARRANTS RISK -- Investments in rights or warrants involve the risk
of loss of the purchase value of a right or warrant if the right to subscribe
to additional shares is not exercised prior to the right's or warrant's
expiration. Also, the purchase of rights and/or warrants involves the risk that
the effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
CORPORATE FIXED INCOME SECURITIES RISK -- Corporate fixed income securities
respond to economic developments, especially changes in interest rates, as well
as perceptions of the creditworthiness and business prospects of individual
issuers.
U.S. GOVERNMENT SECURITIES RISK -- Although U.S. government securities are
considered to be among the safest investments, they are not guaranteed against
price movements due to changing interest rates. Obligations issued by some
U.S. government agencies are backed by the U.S. Treasury, while others are
backed solely by the ability of the agency to borrow from the U.S. Treasury or
by the government sponsored agency's own resources.
FOREIGN SOVEREIGN DEBT SECURITIES RISK -- The risks that: (i) the governmental
entity that controls the repayment of sovereign debt may not be willing or able
to repay the principal and/or interest when it becomes due, due to factors such
as debt service burden, political constraints, cash flow problems and other
national economic factors; (ii) governments may default on their
5
debt securities, which may require holders of such securities to participate in
debt rescheduling or additional lending to defaulting governments; and (iii)
there is no bankruptcy proceeding by which defaulted sovereign debt may be
collected in whole or in part.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES RISK -- Payment of principal and
interest on asset-backed securities is dependent largely on the cash flows
generated by the assets backing the securities, and asset-backed securities may
not have the benefit of any security interest in the related assets, which
raises the possibility that recoveries on repossessed collateral may not be
available to support payments on these securities. Asset-backed securities are
also subject to the risk that underlying borrowers will be unable to meet their
obligations. To lessen the effect of failures by obligors on underlying assets
to make payments, the entity administering the pool of assets may agree to
ensure the receipt of payments on the underlying pool occurs in a timely
fashion ("liquidity protection"). In addition, asset-backed securities may
obtain insurance, such as guarantees, policies or letters of credit obtained by
the issuer or sponsor from third parties, for some or all of the assets in the
pool ("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
Mortgage-backed securities are affected by, among other things, interest rate
changes and the possibility of prepayment of the underlying mortgage loans.
Mortgage-backed securities are also subject to the risk that underlying
borrowers will be unable to meet their obligations. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to repay
the loans underlying a mortgage-backed security sooner than expected. If the
prepayment rates increase, an Underlying Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
INTEREST RATE RISK - The value of a debt security is affected by changes in
interest rates. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) to fall.
The concept of duration is useful in assessing the sensitivity of a fixed
income fund to interest rate movements, which are usually the main source of
risk for most fixed-income funds. Duration measures price volatility by
estimating the change in price of a debt security for a 1% change in its yield.
For example, a duration of five years means the price of a debt security will
change about 5% for every 1% change in its yield. Thus, the higher the
duration, the more volatile the security.
Debt securities have a stated maturity date when the issuer must repay the
principal amount of the bond. Some debt securities, known as callable bonds,
may repay the principal earlier than the stated maturity date. Debt securities
are most likely to be called when interest rates are falling because the issuer
can refinance at a lower rate.
CREDIT RISK -- The credit rating or financial condition of an issuer may affect
the value of a debt security. Generally, the lower the quality rating of a
security, the greater the risk that the issuer will fail to pay interest fully
and return principal in a timely manner. If an issuer defaults or becomes
unable to honor its financial obligations, the security may lose some or all of
its value. The issuer of an investment-grade security is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the capacity
of the issuer to pay interest and repay principal.
6
High yield, or "junk," bonds are highly speculative securities that are usually
issued by smaller less credit worthy and/or highly leveraged (indebted)
companies. Compared with investment-grade bonds, high yield bonds carry a
greater degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business conditions of the
corporation issuing these securities influences their price and liquidity more
than changes in interest rates, when compared to investment-grade debt
securities. Insufficient liquidity in the junk bond market may make it more
difficult to dispose of junk bonds and may cause an Underlying Fund to
experience sudden and substantial price declines. A lack of reliable, objective
data or market quotations may make it more difficult to value junk bonds
accurately.
PREPAYMENT AND EXTENSION RISK -- Prepayment and extension risk is the risk that
a loan, bond or other security might be called or otherwise converted, prepaid
or redeemed before maturity. This risk is primarily associated with
corporate-backed, mortgage-backed and asset-backed securities. If a security is
converted, prepaid or redeemed before maturity, particularly during a time of
declining interest rates or spreads, an Underlying Fund may not be able to
invest the proceeds in securities providing as high a level of income,
resulting in a reduced yield to the Underlying Fund. Conversely, as interest
rates rise or spreads widen, the likelihood of prepayment decreases. An
Underlying Fund may be unable to capitalize on securities with higher interest
rates or wider spreads because the Underlying Fund's investments are locked in
at a lower rate for a longer period of time.
DERIVATIVES RISK -- An Underlying Fund's use of futures contracts, forward
contracts, options and swaps is subject to market risk, leverage risk,
correlation risk and liquidity risk. Market risk is the risk that the market
value of an investment may move up and down, sometimes rapidly and
unpredictably. Leverage risk is the risk that the use of leverage may amplify
the effects of market volatility on the Underlying Fund's share price and may
also cause the Underlying Fund to liquidate portfolio positions when it would
not be advantageous to do so in order to satisfy its obligations. Correlation
risk is the risk that changes in the value of the derivative may not correlate
perfectly with the underlying asset, rate or index. Liquidity risk is the risk
that the derivative may be difficult or impossible to sell at the time and the
price that the Underlying Fund would like, which may cause the Underlying Fund
to have to lower the selling price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on the
Underlying Fund's management or performance. An Underlying Fund's use of
forwards and swaps is also subject to credit risk and valuation risk. Credit
risk is described above. Valuation risk is the risk that the derivative may be
difficult to value and/or valued incorrectly. Each of these risks could cause
an Underlying Fund to lose more than the principal amount invested in a
derivative instrument.
MANAGEMENT RISK -- The risk that the investment techniques and risk analyses
applied by the Adviser will not produce the desired results and that
legislative, regulatory, or tax developments may affect the investment
techniques available to the Adviser and the individual portfolio managers in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund by showing how the Fund's average
annual total returns for 1 year and since inception compare with those of a
broad measure of market performance.
Prior to March 31, 2014, the Fund employed a different investment strategy and
was partially managed by a sub-adviser for the period between May 28, 2013 and
March 31, 2014. Therefore, the past performance
7
shown below may have differed had the Fund's current investment strategy been
in effect. The bar chart figures do not include sales charges that may have
been paid when investors bought and sold Class A Shares of the Fund. If sales
charges were included, the returns would be lower. Of course, the Fund's past
performance (before and after taxes) does not necessarily indicate how the Fund
will perform in the future. Updated performance information is available on the
Fund's website at www.frostbank.com or by calling 1-877-71-FROST.
2012 3.66%
2013 13.36%
BEST QUARTER WORST QUARTER
5.84% (3.49)%
(12/31/2013) (06/30/2012)
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AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2013
This table compares the Fund's Class A Shares' average annual total returns
(after applicable sales charges) for the periods ended December 31, 2013 to
those of appropriate broad based indices.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns will depend on an investor's tax
situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
SINCE PERFORMANCE
FROST CONSERVATIVE ALLOCATION FUND 1 YEAR START DATE (1/7/11)
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FUND RETURN BEFORE TAXES 13.36% 2.66%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 9.70% 1.22%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 5.49% 1.06%
AND SALE OF FUND SHARES
MORNINGSTAR CONSERVATIVE ALLOCATION 7.23% N/A
INDEX*
S&P 500 INDEX ("S&P INDEX") (REFLECTS NO 32.39% 15.83%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
MSCI ALL COUNTRY WORLD EX-U.S. INDEX 15.29% 5.43%
("MSCI INDEX") (REFLECTS NO DEDUCTION FOR
FEES, EXPENSES, OR TAXES)*
BARCLAYS U.S. AGGREGATE BOND INDEX (2.02)% 3.28%
("BARCLAYS INDEX") (REFLECTS NO DEDUCTION
FOR FEES, EXPENSES, OR TAXES)*
BARCLAYS GLOBAL EX-U.S. INDEX ("BARCLAYS (3.08)% 2.62%
GLOBAL") (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)*
BLENDED 30/10/51/9 S&P INDEX/MSCI 15.09% 16.61%
INDEX/BARCLAYS INDEX/BARCLAYS GLOBAL
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES, OR
TAXES)*
CBOE S&P 500 BUY/WRITE INDEX (BXM) 13.26% 7.79%
("CBOE INDEX") (REFLECTS NO DEDUCTION FOR
FEES, EXPENSES, OR TAXES)*
HFRI FUND OF FUNDS COMPOSITE INDEX 8.74% 2.42%
("HFRI INDEX") (REFLECTS NO DEDUCTION FOR
FEES, EXPENSES, OR TAXES)*
BOFA MERRILL LYNCH 3-MONTH U.S. TREASURY 0.07% 0.10%
BILL INDEX ("BOFA MERRILL LYNCH INDEX")
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES, OR
TAXES)*
BLENDED 55/40/5 CBOE INDEX/HFRI 10.76% 5.56%
INDEX/BOFA MERRILL LYNCH INDEX (REFLECTS NO
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
|
* As of March 31, 2014, 2014, the Fund's benchmark changed from the Blended
55/40/5 CBOE Index/HFRI Index/BofA Merrill Lynch Index to the Morningstar
Conservative Allocation Index and the Blended 30/10/51/9 S&P Index/MSCI
Index/Barclays Index/Barclays Global in connection with the Fund's strategy
change.
8
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Alan Tarver, CFA, Senior Fund Manager and Regional Portfolio Manager at Frost,
has served on the portfolio team for the Fund since 2014.
Tom L. Stringfellow, CFA, CPA, CFP, CIC, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception in
2011.
Brad Thompson, CFA, Managing Director, Director of Research and Fund Co-Manager
at Frost, has served on the portfolio team for the Fund since its inception in
2011.
R. David Telling, Jr., Fund Co-Manager at Frost, has served on the portfolio
team for the Fund since its inception in 2011.
Justin Hopkins, Research Analyst and Fund Co-Manager at Frost, has served on
the portfolio team for the Fund since 2014.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES, TAXES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARY
COMPENSATION" ON PAGE 19 OF THE PROSPECTUS.
9
FROST MODERATE ALLOCATION FUND
INVESTMENT OBJECTIVE
The Frost Moderate Allocation Fund (the "Fund") seeks total return.
FUND FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold Class A Shares of the Fund. You may qualify for sales charge discounts if
you and your family invest, or agree to invest in the future, at least $500,000
in Class A Shares of the Frost Funds. More information about these and other
discounts is available from your financial professional, in the section "Sales
Charges" on page 31 of this Prospectus.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 3.25%
offering price)
------------------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None(1)
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other None
Distributions (as a percentage of offering price)
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 1.00% contingent deferred sales charge if redeemed within 12 months of
purchase.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
CLASS A SHARES
Management Fees(1) 0.15%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses(1) 1.10%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.29%
-----
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(2) 1.79%
--------------------------------------------------------------------------------
|
(1) Management Fees have been restated to reflect the current fees associated
with the Fund's current investment strategies. Therefore, the Total Annual
Fund Operating Expenses in this fee table do not correlate to the expense
ratios in the Fund's Financial Highlights.
(2) Frost Investment Advisors, LLC (the "Adviser") has contractually agreed to
waive fees and reimburse expenses to the extent necessary to keep Total
Annual Fund Operating Expenses (excluding interest, taxes, brokerage
commissions, Acquired Fund Fees and Expenses, and extraordinary expenses
(collectively, "excluded expenses")) from exceeding 1.60% of the Fund's
Class A Shares' average daily net assets until November 30, 2015 (the
"Contractual Expense Limitation"). In addition, if at any point Total
Annual Fund Operating Expenses (not including excluded expenses) are below
the Contractual Expense Limitation, the Adviser may receive from the Fund
the difference between the Total Annual Fund Operating Expenses (not
including excluded expenses) and the Contractual Expense Limitation to
recover all or a portion of its prior fee waivers or expense reimbursements
made during the preceding three-year period during which this agreement (or
any prior agreement) was in place. This agreement may be terminated: (i) by
the Board of Trustees (the "Board") of the Advisors' Inner Circle Fund II
(the "Trust"), for any reason at any time; or (ii) by the Adviser, upon
ninety (90) days' prior written notice to the Trust, effective as of the
close of business on November 30, 2015.
10
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$501 $870 $1,263 $2,362
--------------------------------------------------------------------------------
|
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
total annual fund operating expenses or in the example, affect the Fund's
performance. During its most recent fiscal year, the Fund's portfolio turnover
rate was 19% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is designed to provide diversification among different asset classes
by investing its assets in a combination of mutual funds advised by the Adviser
or other investment advisers and exchange traded funds ("ETFs"), collectively
referred to as "Underlying Funds."
The Underlying Funds are selected following a two stage asset allocation
process. The first stage is a strategic asset allocation to determine the
percentage of the Fund's assets to be invested in the general asset classes of
equity funds and fixed income funds based on the risk/return potential of the
different asset classes and the risk profile of the Fund. The second stage
involves the actual selection of Underlying Funds to represent the asset
classes based on Underlying Fund classifications, historical risk, performance,
and other factors. Within the equity fund allocations, the Adviser seeks to
diversify globally (by including domestic and international Underlying Funds),
in terms of market capitalization (by including large, mid, and small
capitalization Underlying Funds), and by style (by including both growth and
value Underlying Funds). Within the fixed income Underlying Fund allocation,
the Adviser includes domestic and international Underlying Funds with varying
degrees of interest rate and credit exposure. The Underlying Funds may invest
in both developed and emerging market securities and may invest in fixed income
securities of any credit quality, including securities that are rated below
investment grade ("high yield" or "junk" bonds).
Underlying Funds may use derivatives, principally futures contracts, forward
contracts, options and swaps. An Underlying Fund may engage in such derivatives
transactions to gain exposure to, for example, certain securities, markets or
asset classes, to hedge the Underlying Fund's positions in or exposure to
securities, currencies or other instruments, to equitize cash positions in the
Underlying Fund's portfolio, or to enhance the Underlying Fund's return, which
is also known as speculation.
The following chart shows the Fund's target asset allocation among the various
asset classes. The Adviser may permit modest deviations from the target asset
allocations listed below. Accordingly, the Fund's actual allocations may differ
from this illustration.
11
--------------------------------------------------------------------------------
ASSET CLASS TARGET ASSET ALLOCATION
--------------------------------------------------------------------------------
Equity Funds 40%-70%
--------------------------------------------------------------------------------
Fixed Income Funds 30%-60%
--------------------------------------------------------------------------------
|
The Adviser periodically reviews the investment strategies and asset mix of the
Underlying Funds and considers whether overall market conditions would favor a
change in the exposure of the Fund to various asset types or geographic
regions. Based on these considerations, the Adviser may make adjustments to
Underlying Fund holdings by adjusting the percentage of individual Underlying
Funds within the Fund, or adding or removing Underlying Funds. The Adviser may
also determine not to change the Underlying Fund allocations, particularly in
response to short-term market movements, if in its opinion the combination of
Underlying Funds is appropriate to meet the Fund's investment objective.
PRINCIPAL RISKS
As with all mutual funds, a shareholder is subject to the risk that his or her
investment could lose money.
A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE
FDIC, OR ANY GOVERNMENT AGENCY. The principal risks affecting shareholders'
investments in the Fund are set forth below.
ASSET ALLOCATION RISK -- The Fund is subject to asset allocation risk, which is
the risk that the Adviser's allocation of the Fund's assets among the various
asset classes and selection of the Underlying Funds will cause the Fund to
underperform other funds with a similar investment objective and/or
underperform the markets in which the Fund invests.
UNDERLYING FUND INVESTMENT RISK -- The value of an investment in the Fund is
based primarily on the prices of the Underlying Funds in which the Fund
invests. In turn, the price of each Underlying Fund is based on the value of
its assets. As a shareholder of an Underlying Fund, the Fund relies on that
Underlying Fund to achieve its investment objective. If the Underlying Fund
fails to achieve its objective, the value of the Fund's investment could
decline, which could adversely affect the Fund's performance. The Fund bears
its own direct expenses in addition to bearing a proportionate share of
expenses charged by the Underlying Funds, which may make owning shares of the
Fund more costly than owning shares of the Underlying Funds directly. Before
investing in the Fund, investors should assess the risks associated with the
Underlying Funds and the types of investments made by those Underlying Funds.
These risks include any combination of the risks described below, although the
Fund's exposure to a particular risk will be proportionate to the Fund's
overall asset allocation and Underlying Fund allocation.
The Fund's investments in ETFs are subject to additional risks. ETFs are pooled
investment vehicles, such as registered investment companies and grantor rusts,
whose shares are listed and traded on U.S. and non-U.S. stock exchanges or
otherwise traded in the over-the-counter market. Because the value of ETF
shares depends on the demand in the market, shares may trade at a discount or
premium to their net asset value and the Adviser may not be able to liquidate
the Fund's holdings at the most optimal time, which could adversely affect the
Fund's performance. Investments in ETFs are also subject to brokerage and other
trading costs, which could result in greater expenses to the Fund.
EQUITY RISK -- The risk that stock prices will fall over short or extended
periods of time. Historically, the equity markets have moved in cycles, and the
value of equity securities may fluctuate drastically from day to day.
Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response.
12
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of depositary
receipts, which are traded on exchanges and represent an ownership in a foreign
security, poses additional risks since political and economic events unique to
a country or region will affect those markets and their issuers. These risks
will not necessarily affect the U.S. economy or similar issuers located in the
U.S. In addition, investments in foreign companies are generally denominated in
a foreign currency. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect (positively or negatively) the value of
the investments. These currency movements may occur separately from, and in
response to, events that do not otherwise affect the value of the security in
the issuer's home country. Foreign companies may not be registered with the SEC
and are generally not subject to the regulatory controls imposed on U.S.
issuers and, as a consequence, there is generally less publically available
information about foreign securities than is available about domestic
securities. Income from foreign securities may be reduced by a withholding tax
at the source, which tax would reduce income received from the securities.
Investments in foreign securities are also subject to the risk that the
securities may be difficult to value and/or valued incorrectly. While
depositary receipts provide an alternative to directly purchasing the
underlying foreign securities in their respective national markets and
currencies, investments in depositary receipts continue to be subject to many
of the risks associated with investing directly in foreign securities.
EMERGING MARKET SECURITIES RISK -- Investments in emerging markets securities
are considered speculative and subject to heightened risks in addition to the
general risks of investing in non-U.S. securities. Unlike more established
markets, emerging markets may have governments that are less stable, markets
that are less liquid and economies that are less developed. In addition,
emerging markets securities may be subject to smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and possible
restrictions on repatriation of investment income and capital. Furthermore,
foreign investors may be required to register the proceeds of sales, and future
economic or political crises could lead to price controls, forced mergers,
expropriation or confiscatory taxation, seizure, nationalization or creation of
government monopolies.
FOREIGN CURRENCY RISK -- Because non-U.S. securities are usually denominated in
currencies other than the dollar, the value of the securities may be influenced
by currency exchange rates and exchange control regulations. The currencies of
emerging market countries may experience significant declines against the U.S.
dollar, and devaluation may occur subsequent to investments in these
currencies. Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, negative effects on the economies and securities markets
of certain emerging market countries.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- Small- and mid-capitalization
companies may be more vulnerable to adverse business or economic events than
larger, more established companies. In particular, these small- and mid-sized
companies may pose additional risks, including liquidity risk, because these
companies tend to have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore, small- and
mid-cap stocks may be more volatile than those of larger companies. These
securities may be traded over-the-counter or listed on an exchange.
GROWTH INVESTMENT STYLE RISK -- An Underlying Fund may invest in equity
securities of companies that it believes will increase their earnings at a
certain rate that is generally higher than the rate expected for non-growth
companies. If a growth company does not meet these
13
expectations, the price of its stock may decline significantly, even if it has
increased earnings. Many growth companies do not pay dividends. Companies that
pay dividends often have lower stock price declines during market downturns.
Over time, a growth investing style may go in and out of favor, causing the
Underlying Fund to sometimes underperform other equity funds that use differing
investing styles.
VALUE INVESTMENT STYLE RISK -- Value investing focuses on companies with stocks
that appear undervalued in light of factors such as the company's earnings,
book value, revenues or cash flow. If an Underlying Fund's assessment of a
company's value or prospects for exceeding earnings expectations or market
conditions is wrong, the Underlying Fund could suffer losses or produce poor
performance relative to other funds. In addition, "value stocks" can continue
to be undervalued by the market for long periods of time.
PREFERRED STOCK RISK -- Preferred stocks are sensitive to interest rate
changes, and are also subject to equity risk, which is the risk that stock
prices will fall over short or extended periods of time. The rights of
preferred stocks on the distribution of a company's assets in the event of a
liquidation are generally subordinate to the rights associated with a company's
debt securities.
CONVERTIBLE SECURITIES RISK -- The value of a convertible security is
influenced by changes in interest rates (with investment value declining as
interest rates increase and increase as interest rates decline) and the credit
standing of the issuer. The price of a convertible security will also normally
vary in some proportion to changes in the price of the underlying common stock
because of the conversion or exercise feature.
RIGHTS AND WARRANTS RISK -- Investments in rights or warrants involve the risk
of loss of the purchase value of a right or warrant if the right to subscribe
to additional shares is not exercised prior to the right's or warrant's
expiration. Also, the purchase of rights and/or warrants involves the risk that
the effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
CORPORATE FIXED INCOME SECURITIES RISK -- Corporate fixed income securities
respond to economic developments, especially changes in interest rates, as well
as perceptions of the creditworthiness and business prospects of individual
issuers.
U.S. GOVERNMENT SECURITIES RISK -- Although U.S. government securities are
considered to be among the safest investments, they are not guaranteed against
price movements due to changing interest rates. Obligations issued by some
U.S. government agencies are backed by the U.S. Treasury, while others are
backed solely by the ability of the agency to borrow from the U.S. Treasury or
by the government sponsored agency's own resources.
FOREIGN SOVEREIGN DEBT SECURITIES RISK -- The risks that: (i) the governmental
entity that controls the repayment of sovereign debt may not be willing or able
to repay the principal and/or interest when it becomes due, due to factors such
as debt service burden, political constraints, cash flow problems and other
national economic factors; (ii) governments may default on their debt
securities, which may require holders of such securities to participate in debt
rescheduling or additional lending to defaulting governments; and (iii) there
is no bankruptcy proceeding by which defaulted sovereign debt may be collected
in whole or in part.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES RISK -- Payment of principal and
interest on asset-backed securities is dependent largely on the cash flows
generated by the assets backing the
14
securities, and asset-backed securities may not have the benefit of any
security interest in the related assets, which raises the possibility that
recoveries on repossessed collateral may not be available to support payments
on these securities. Asset-backed securities are also subject to the risk that
underlying borrowers will be unable to meet their obligations. To lessen the
effect of failures by obligors on underlying assets to make payments, the
entity administering the pool of assets may agree to ensure the receipt of
payments on the underlying pool occurs in a timely fashion ("liquidity
protection"). In addition, asset-backed securities may obtain insurance, such
as guarantees, policies or letters of credit obtained by the issuer or sponsor
from third parties, for some or all of the assets in the pool ("credit
support"). Delinquency or loss more than that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
Mortgage-backed securities are affected by, among other things, interest rate
changes and the possibility of prepayment of the underlying mortgage loans.
Mortgage-backed securities are also subject to the risk that underlying
borrowers will be unable to meet their obligations. In addition, a variety of
economic, geographic, social and other factors, such as the sale of the
underlying property, refinancing or foreclosure, can cause investors to repay
the loans underlying a mortgage-backed security sooner than expected. If the
prepayment rates increase, an Underlying Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
INTEREST RATE RISK - The value of a debt security is affected by changes in
interest rates. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) to fall.
The concept of duration is useful in assessing the sensitivity of a fixed
income fund to interest rate movements, which are usually the main source of
risk for most fixed-income funds. Duration measures price volatility by
estimating the change in price of a debt security for a 1% change in its yield.
For example, a duration of five years means the price of a debt security will
change about 5% for every 1% change in its yield. Thus, the higher the
duration, the more volatile the security.
Debt securities have a stated maturity date when the issuer must repay the
principal amount of the bond. Some debt securities, known as callable bonds,
may repay the principal earlier than the stated maturity date. Debt securities
are most likely to be called when interest rates are falling because the issuer
can refinance at a lower rate.
CREDIT RISK -- The credit rating or financial condition of an issuer may affect
the value of a debt security. Generally, the lower the quality rating of a
security, the greater the risk that the issuer will fail to pay interest fully
and return principal in a timely manner. If an issuer defaults or becomes
unable to honor its financial obligations, the security may lose some or all of
its value. The issuer of an investment-grade security is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the capacity
of the issuer to pay interest and repay principal.
High yield, or "junk," bonds are highly speculative securities that are usually
issued by smaller less credit worthy and/or highly leveraged (indebted)
companies. Compared with investment-grade bonds, high yield bonds carry a
greater degree of risk and are less likely to make payments of interest and
principal. Market developments and the financial and business conditions of the
corporation issuing these securities influences their price and liquidity more
than changes in interest rates, when compared to investment-grade debt
securities. Insufficient liquidity in the
15
junk bond market may make it more difficult to dispose of junk bonds and may
cause an Underlying Fund to experience sudden and substantial price declines. A
lack of reliable, objective data or market quotations may make it more
difficult to value junk bonds accurately.
PREPAYMENT AND EXTENSION RISK -- Prepayment and extension risk is the risk that
a loan, bond or other security might be called or otherwise converted, prepaid
or redeemed before maturity. This risk is primarily associated with
corporate-backed, mortgage-backed and asset-backed securities. If a security is
converted, prepaid or redeemed before maturity, particularly during a time of
declining interest rates or spreads, an Underlying Fund may not be able to
invest the proceeds in securities providing as high a level of income,
resulting in a reduced yield to the Underlying Fund. Conversely, as interest
rates rise or spreads widen, the likelihood of prepayment decreases. An
Underlying Fund may be unable to capitalize on securities with higher interest
rates or wider spreads because the Underlying Fund's investments are locked in
at a lower rate for a longer period of time.
DERIVATIVES RISK -- An Underlying Fund's use of futures contracts, forward
contracts, options and swaps is subject to market risk, leverage risk,
correlation risk and liquidity risk. Market risk is the risk that the market
value of an investment may move up and down, sometimes rapidly and
unpredictably. Leverage risk is the risk that the use of leverage may amplify
the effects of market volatility on the Underlying Fund's share price and may
also cause the Underlying Fund to liquidate portfolio positions when it would
not be advantageous to do so in order to satisfy its obligations. Correlation
risk is the risk that changes in the value of the derivative may not correlate
perfectly with the underlying asset, rate or index. Liquidity risk is the risk
that the derivative may be difficult or impossible to sell at the time and the
price that the Underlying Fund would like, which may cause the Underlying Fund
to have to lower the selling price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on the
Underlying Fund's management or performance. An Underlying Fund's use of
forwards and swaps is also subject to credit risk and valuation risk. Credit
risk is described above. Valuation risk is the risk that the derivative may be
difficult to value and/or valued incorrectly. Each of these risks could cause
an Underlying Fund to lose more than the principal amount invested in a
derivative instrument.
MANAGEMENT RISK -- The risk that the investment techniques and risk analyses
applied by the Adviser will not produce the desired results and that
legislative, regulatory, or tax developments may affect the investment
techniques available to the Adviser and the individual portfolio managers in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
total returns for 1 and 5 years and since inception compare with those of a
broad measure of market performance.
Prior to March 31, 2014, the Fund employed a different investment strategy.
Therefore, the past performance shown below may have differed had the Fund's
current investment strategy been in effect. The Fund commenced operations after
the Institutional Class Shares succeeded to the assets and operations of a
common trust fund that was managed by Frost Bank (the "Predecessor Fund"). The
performance information provided includes the returns of the Predecessor Fund
for periods prior to June 30, 2008 and has been adjusted to reflect the
Distribution (12b-1) fees and, for the performance table, the Maximum Sales
Charge (Load), applicable to Class A Shares. Because the Predecessor Fund was
not a
16
registered mutual fund, it was not subject to the same investment and tax
restrictions as the Fund; if it had been, the Predecessor Fund's performance
may have been lower. Although the Predecessor Fund commenced operations prior
to the periods shown, the earliest date for which its performance can be
calculated applying the relevant performance standards is July 31, 2006
("Performance Start Date").
The bar chart figures do not include sales charges that may have been paid when
investors bought and sold Class A Shares of the Fund. If sales charges were
included, the returns would be lower. Of course, the Fund's past performance
(before and after taxes) does not necessarily indicate how the Fund will
perform in the future. Updated performance information is available on the
Fund's website at
www. frostbank.com or by calling 1-877-71-FROST.
2007 7.41%
2008 (25.01)%
2009 25.13%
2010 10.29%
2011 (2.01)%
2012 11.63%
2013 13.48%
BEST QUARTER WORST QUARTER
13.22% (11.48)%
(06/30/2009) (12/31/2008)
|
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2013
This table compares the Fund's Class A Shares' average annual total returns
(after applicable sales charges) for the periods ended December 31, 2013 to
appropriate broad-based indices. After-tax returns cannot be calculated for
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the since Performance Start Date period.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns will depend on an investor's tax
situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
SINCE PERFORMANCE
START DATE
FROST MODERATE ALLOCATION FUND 1 YEAR 5 YEARS (7/31/06)
FUND RETURN BEFORE TAXES 13.48% 11.37% 5.51%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 9.48% 10.17% N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND 5.77% 8.39% N/A
SALE OF FUND SHARES
MORNINGSTAR MODERATE ALLOCATION INDEX* 16.48% 12.83% N/A
S&P 500 INDEX ("S&P INDEX") (REFLECTS NO 32.39% 17.94% 7.40%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
MSCI ALL COUNTRY WORLD EX-U.S. INDEX 15.29% 12.81% 3.89%
("MSCI INDEX") (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)*
BARCLAYS U.S. AGGREGATE BOND INDEX ("BARCLAYS (2.02)% 4.44% 5.14%
INDEX") (REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)*
BARCLAYS GLOBAL EX-U.S. INDEX ("BARCLAYS (3.08)% 3.51% 4.81%
GLOBAL") (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)*
BLENDED 45/15/34/6 S&P INDEX/MSCI 15.09% 11.95% 6.38%
INDEX/BARCLAYS INDEX/BARCLAYS GLOBAL (REFLECTS
NO DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
BLENDED 48/12/40 S&P INDEX/MSCI 15.64% 12.16% 6.49%
INDEX/BARCLAYS INDEX (REFLECTS NO DEDUCTION FOR
FEES, EXPENSES, OR TAXES)*
|
17
* As of March 31, 2014, the Fund's benchmark changed from the Blended
48/12/40 S&P Index/MSCI Index/Barclays Index to the Morningstar Moderate
Allocation Index and the Blended 45/15/34/6 S&P Index/MSCI Index/Barclays
Index/Barclays Global in connection with the Fund's strategy change.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Alan Tarver, CFA, Senior Fund Manager and Regional Portfolio Manager at Frost,
has served on the portfolio team for the Fund since 2014.
Tom L. Stringfellow, CFA, CPA, CFP, CIC, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception in
2006.
Brad Thompson, CFA, Managing Director, Director of Research and Fund Co-Manager
at Frost, has served on the portfolio team for the Fund since its inception in
2006.
R. David Telling, Jr., Fund Co-Manager at Frost, has served on the portfolio
team for the Fund since 2014.
Justin Hopkins, Research Analyst and Fund Co-Manager at Frost, has served on
the portfolio team for the Fund since its inception in 2006.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES, TAXES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL INTERMEDIARY
COMPENSATION" ON PAGE 19 OF THE PROSPECTUS.
18
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES, TAXES AND
FINANCIAL INTERMEDIARY COMPENSATION
PURCHASE AND SALE OF FUND SHARES
To purchase shares of a Fund for the first time, you must invest at least
$2,500 ($1,500 for individual retirement accounts ("IRAs")). Your subsequent
investments in a Fund must be made in amounts of at least $500. Systematic
planned contributions are required to be at least $100. Each Fund reserves the
right to waive the minimum investment amounts in its sole discretion.
If you own your shares directly, you may redeem your shares on any day that the
New York Stock Exchange ("NYSE") is open for business (a "Business Day") via
Automated Clearing House (subject to certain account minimums) or by contacting
the Funds directly by mail at: Frost Funds, P.O. Box 219009, Kansas City,
Missouri 64121-9009 (Express Mail Address: Frost Funds, c/o DST Systems, Inc.,
430 West 7th Street, Kansas City, Missouri 64105) or telephone at
1-877-71-FROST.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to redeem your shares.
TAX INFORMATION
The Funds intend to make distributions that may be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred arrangement,
such as a 401(k) plan or individual retirement account, in which case your
distribution will be taxed when withdrawn from the tax-deferred account.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of the Funds through a broker-dealer or other financial
intermediary (such as a bank), each Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's web
site for more information.
19
MORE INFORMATION ABOUT RISK
Investing in each Fund involves risk and there is no guarantee that each Fund
will achieve its goals. The judgments of the Funds' investment managers about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job a
Fund's investment managers do, you could lose money on your investment in a
Fund, just as you could with similar investments.
The value of your investment in a Fund is based on the value of the securities
the Fund holds. These prices change daily due to economic and other events that
affect particular companies and other issuers. These price movements, sometimes
called volatility, may be greater or lesser depending on the types of
securities the Fund owns and the markets in which it trades. The effect on a
Fund of a change in the value of a single security will depend on how widely
the Fund diversifies its holdings.
EQUITY RISK -- Equity securities include common and preferred stocks, rights
and warrants, convertible securities, depositary receipts, as well as shares of
ETFs that attempt to track the price movement of equity indices. Common stock
represents an equity or ownership interest in an issuer. Preferred stock
provides a fixed dividend that is paid before any dividends are paid to common
stock holders, and which takes precedence over common stock in the event of a
liquidation. Like common stock, preferred stocks represent partial ownership in
a company, although preferred stock shareholders do not enjoy any of the voting
rights of common stockholders. Also, unlike common stock, a preferred stock
pays a fixed dividend that does not fluctuate, although the company does not
have to pay this dividend if it lacks the financial ability to do so.
Investments in equity securities in general are subject to market risks that
may cause their prices to fluctuate over time. The value of securities
convertible into equity securities, such as warrants or convertible debt, is
also affected by prevailing interest rates, the credit quality of the issuer
and any call provision. Fluctuations in the value of equity securities in which
a mutual fund invests will cause the fund's net asset value to fluctuate.
FIXED INCOME RISK-- The market values of fixed income investments change in
response to interest rate changes and other factors. During periods of rising
interest rates, the values of outstanding fixed income securities generally
decrease. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. During
periods of falling interest rates, certain debt obligations with high interest
rates may be prepaid (or "called") by the issuer prior to maturity. Declines in
dealer market-making capacity as a result of structural or regulatory changes
could decrease liquidity and/or increase volatility in the fixed income
markets. In response to these events, an Underling Fund's value may fluctuate
and/or the Underlying Fund may experience increased redemptions from
shareholders, which may impact the Underlying Fund's liquidity or force the
Underlying Fund to sell securities into a declining or illiquid market. In
addition to these risks, fixed income securities may be subject to credit risk,
which is the possibility that an issuer will be unable or unwilling to make
timely payments of either principal or interest.
FOREIGN/EMERGING MARKET SECURITY RISK -- Investments in securities of foreign
companies or governments (including direct investments as well as investments
through depositary receipts) can be more volatile than investments in U.S.
companies or governments. Diplomatic, political, or economic developments,
including nationalization or appropriation, could affect investments in foreign
companies. Foreign securities markets generally have less trading volume and
less liquidity than U.S. markets. In addition, the value of securities
denominated in foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Financial statements of foreign issuers are governed by
different accounting, auditing, and financial
20
reporting standards than the financial statements of U.S. issuers and may be
less transparent and uniform than in the U.S. Thus, there may be less
information publicly available about foreign issuers than about most U.S.
issuers. Transaction costs are generally higher than those in the U.S. and
expenses for custodial arrangements of foreign securities may be somewhat
greater than typical expenses for custodial arrangements of similar U.S.
securities. Some foreign governments levy withholding taxes against dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion will reduce the income received from
foreign securities. These risks may be heightened with respect to emerging
market countries since political turmoil and rapid changes in economic
conditions are more likely to occur in these countries.
DERIVATIVES RISK -- An Underlying Fund's use of futures contracts, forward
contracts, options and swaps is subject to derivatives risk. Derivatives are
often more volatile than other investments and may magnify the Underlying
Fund's gains or losses. There are various factors that affect the Underlying
Fund's ability to achieve its objective with derivatives. Successful use of a
derivative depends upon the degree to which prices of the underlying assets
correlate with price movements in the derivatives the Underlying Fund buys or
sells. The Underlying Fund could be negatively affected if the change in market
value of its securities fails to correlate perfectly with the values of the
derivatives it purchased or sold. The lack of a liquid secondary market for a
derivative may prevent the Underlying Fund from closing its derivative
positions and could adversely impact its ability to achieve its objective and
to realize profits or limit losses. Since derivatives may be purchased for a
fraction of their value, a relatively small price movement in a derivative may
result in an immediate and substantial loss or gain to the Underlying Fund.
Derivatives are often more volatile than other investments and the Underlying
Fund may lose more in a derivative than it originally invested in it.
Additionally, some derivative instruments are subject to counterparty risk,
meaning that the party that issues the derivative may experience a significant
credit event and may be unwilling or unable to make timely settlement payments
or otherwise honor its obligations.
FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security or
asset at a specified future time and at a specified price. The risks of futures
include: (i) leverage risk; (ii) correlation risk and (iii) liquidity risk.
Because futures require only a small initial investment in the form of a
deposit or margin, they involve a high degree of leverage. Accordingly, the
fluctuation of the value of futures in relation to the underlying assets upon
which they are based is magnified. Thus, an Underlying Fund may experience
losses that exceed losses experienced by funds that do not use futures
contracts. There may be imperfect correlation, or even no correlation, between
price movements of a futures contract and price movements of investments for
which futures are used as a substitute, or which futures are intended to
hedge.
Lack of correlation (or tracking) may be due to factors unrelated to the value
of the investments being substituted or hedged, such as speculative or other
pressures on the markets in which these instruments are traded. Consequently,
the effectiveness of futures as a security substitute or as a hedging vehicle
will depend, in part, on the degree of correlation between price movements in
the futures and price movements in underlying securities or assets. While
futures contracts are generally liquid instruments, under certain market
conditions they may become illiquid. Futures exchanges may impose daily or
intra-day price change limits and/or limit the volume of trading.
Additionally, government regulation may further reduce liquidity through
similar trading restrictions. As a result, an Underlying Fund may be unable to
close out its futures contracts at a time that is advantageous. The successful
use of futures depends upon a variety of factors, particularly the ability of
the investment adviser to predict movements of the underlying securities
markets, which requires different skills than predicting changes in the prices
of
21
individual securities. There can be no assurance that any particular futures
strategy adopted will succeed.
FORWARD CONTRACTS -- A forward contract involves a negotiated obligation to
purchase or sell a specific security or currency at a future date (with or
without delivery required), which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward contracts are not traded on exchanges; rather, a bank or
dealer will act as agent or as principal in order to make or take future
delivery of a specified lot of a particular security or currency for an
Underlying Fund's account. Risks associated with forwards may include: (i) an
imperfect correlation between the movement in prices of forward contracts and
the securities or currencies underlying them; (ii) an illiquid market for
forwards; (iii) difficulty in obtaining an accurate value for the forwards; and
(iv) the risk that the counterparty to the forward contract will default or
otherwise fail to honor its obligation. Because forwards require only a small
initial investment in the form of a deposit or margin, they involve a high
degree of leverage.
OPTIONS -- Options involve the payment or receipt of a premium by the investor
and the corresponding right or obligation, as the case may be, to either
purchase or sell the underlying security for a specific price at a certain time
or during a certain period. Purchasing options involves the risk that the
underlying instrument will not change price in the manner expected, so that the
investor loses its premium. Selling options involves potentially greater risk
because the investor is exposed to the extent of the actual price movement in
the underlying security rather than only the premium payment received (which
could result in a potentially unlimited loss). Over-the-counter options also
involve counterparty solvency risk.
SWAPS -- In a swap transaction, two parties agree to exchange the returns,
differentials in rates of return or some other amount earned or realized on the
"notional amount" of predetermined investments or instruments, which may be
adjusted for an interest factor. Swaps can involve greater risks than direct
investment in securities, because swaps may be leveraged and are subject to
counterparty risk, credit risk and valuation risk. Swaps may also be considered
illiquid. It may not be possible for an Underlying Fund to liquidate a swap
position at an advantageous time or price, which may result in significant
losses.
MORE INFORMATION ABOUT FUND INVESTMENTS
Each Fund's investment objective of total return may be changed without
shareholder approval. The Frost Conservative Allocation Fund seeks to maintain
a conservative level of risk relative to the Frost Moderate Allocation Fund.
The investments and strategies described in this Prospectus are those that each
Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, each Fund may
invest up to 100% of its assets in money market instruments or other cash
equivalents that would not ordinarily be consistent with its investment
objectives. If a Fund invests in this manner, it may not achieve its investment
objective. The Funds will do so only if the Funds' investment managers believe
that the risk of loss outweighs the opportunity for a Fund to achieve its
investment objective.
This Prospectus describes the Funds' principal investment strategies, and the
Funds will normally invest in the types of investments described in this
Prospectus. In addition to the securities and other investments and strategies
described in this Prospectus, the Funds also may invest, to a lesser extent, in
other securities, use other strategies and engage in other investment practices
that are not part of their
22
principal investment strategies. These investments and strategies, as well as
those described in the Prospectus, are described in detail in the Funds'
Statement of Additional Information ("SAI") (for information on how to obtain a
copy of the SAI, see the back cover of this Prospectus). Of course, there is no
guarantee that the Funds will achieve their investment goals.
The Funds define non-U.S. or foreign securities as securities issued by
companies incorporated outside of the United States that do not maintain a
headquarters or primary operation within the United States.
INFORMATION ABOUT PORTFOLIO HOLDINGS
A description of the Funds' policy and procedures with respect to the
circumstances under which the Funds disclose their portfolio holdings is
available in the SAI.
INVESTMENT ADVISER
Frost Investment Advisors, LLC (the "Adviser"), a Delaware limited liability
company formed in 2007, serves as the investment adviser to the Funds. The
Adviser is a wholly owned non-banking subsidiary of Frost Bank. The Adviser's
principal place of business is located at 100 West Houston Street, 15th Floor,
P.O. Box 2509, San Antonio, Texas, 78299-2509. As of December 31, 2013, the
Adviser had approximately $9.9 billion in assets under management.
The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers the Funds' investment program. The Board supervises
the Adviser and establishes policies that the Adviser must follow in its
management activities.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at the following annual rates based on the average daily net
assets of each Fund:
--------------------------------------------------------------------------------
FUND ADVISORY FEE RATE
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund 0.15%(1)
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 0.15%(1)
--------------------------------------------------------------------------------
|
(1) Prior to March 31, 2014, the Advisory Fee was 0.80% for the Frost
Conservative Allocation Fund and 0.70% for the Frost Moderate Allocation
Fund
The Adviser has contractually agreed to reduce its fees and/or reimburse
expenses to the extent necessary to keep total annual Fund operating expenses
(excluding interest, taxes, brokerage commissions, acquired fund fees and
expenses and extraordinary expenses (collectively, "excluded expenses")) from
exceeding certain levels as set forth below until November 30, 2015
("Contractual Expense Limitation"). This agreement may be terminated: (i) by
the Board, for any reason at any time; or (ii) by the Adviser, upon ninety (90)
days' prior written notice to the Trust, effective as of the close of business
on November 30, 2015.
--------------------------------------------------------------------------------
FUND CONTRACTUAL EXPENSE LIMITATION
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund 1.60%(1)
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 1.60%(2)
--------------------------------------------------------------------------------
|
(1) Prior to March 31, 2014, the Contractual Expense Limitation was 2.00%.
Prior to November 28, 2013, the expense limitation was voluntary.
(2) Prior to March 31, 2014, the expense limitation was voluntary.
23
If at any point total annual Fund operating expenses (not including excluded
expenses) are below the Contractual Expense Limitation, the Adviser may receive
from a Fund the difference between the total annual Fund operating expenses
(not including excluded expenses) and the Contractual Expense Limitation set
forth above to recover all or a portion of its prior fee reductions or expense
reimbursements made during the preceding three-year period during which this
agreement (or any prior agreement) was in place.
For the fiscal year ended July 31, 2013, the Adviser received advisory fees
(after fee reductions) as a percentage of average daily net assets of each Fund
as follows:
--------------------------------------------------------------------------------
FUND ADVISORY FEES PAID
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund 0.51%
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 0.25%
--------------------------------------------------------------------------------
|
A discussion regarding the basis for the Board's approval of the investment
advisory contract with the Adviser will be available in the Funds' Semi-Annual
Report to Shareholders dated January 31, 2014, which will cover the period from
August 1, 2013 to January 31, 2014.
PORTFOLIO MANAGERS
Alan Tarver, CFA, Regional Portfolio Manager at Frost, serves as the Senior
Fund Manager of the Frost Conservative Allocation Fund and Frost Moderate
Allocation Fund. Mr. Tarver is jointly and primarily responsible for the
day-to-day management of the Frost Conservative Allocation Fund and Frost
Moderate Allocation Fund. Mr. Tarver joined Frost Bank, the parent company of
the Adviser, in 2002. He received a bachelor of arts degree in economics from
the University of Texas at Austin, a master's of international management from
Thunderbird and a master's of business administration in finance from Arizona
State University. Mr. Tarver is a holder of the right to use the Chartered
Financial Analyst (CFA[R]) designation and is a member of the CFA institute.
Tom L. Stringfellow, CFA, CFP, CPA, CIC, President and CIO at Frost, serves as
Fund Co-Manager of the Frost Conservative Allocation Fund and Frost Moderate
Allocation Fund. Mr. Stringfellow is jointly and primarily responsible for the
day-to-day management of the Frost Conservative Allocation Fund and Frost
Moderate Allocation Fund. Mr. Stringfellow joined Frost Bank, the parent
company of the Adviser, in 1980. He received a bachelor's of arts degree in
business administration from Southwest Texas State University, a masters of
arts degree in economics from St. Mary's University and a masters of business
administration degree from Texas A&M University - Corpus Christi. Mr.
Stringfellow is a holder of the right to use the Chartered Financial Analyst
(CFA[R]) designation and is a member of the CFA institute.
Brad Thompson, CFA, Managing Director and Director of Research at Frost, serves
as Fund Co-Manager of the Frost Conservative Allocation Fund and Frost Moderate
Allocation Fund. Mr. Thompson is jointly and primarily responsible for the
day-to-day management of the Frost Conservative Allocation Fund and the Frost
Moderate Allocation Fund. Mr. Thompson joined Frost Bank, the parent company of
the Adviser, in 2002. Prior to joining Frost Bank, Mr. Thompson was a senior
analyst with Assante Asset Management in Canada and Assante Global Advisors in
Los Angeles. He received the degrees of master of commerce with honours
(finance), from the University of Melbourne; bachelor of commerce with honours
(finance), and bachelor of commerce and economics from the University of
Tasmania at Hobart, Australia. Mr. Thompson is a holder of the right to use
the Chartered Financial Analyst (CFA[R]) designation and is a member of the CFA
Institute.
24
R. David Telling, Fund Co-Manager at Frost, is jointly and primarily
responsible for the day-to-day management of the Frost Conservative Allocation
Fund and the Frost Moderate Allocation Fund. Mr. Telling joined the Adviser in
2010. Mr. Telling previously worked for Frost Investment Services in 2009.
Prior to joining the Frost organization, Mr. Telling founded and operated
Telling & Company, LLC, a registered investment adviser catering to high net
worth clients. From 1987 to 2007, he was employed by Merrill Lynch where he
served as First Vice President and Portfolio Manager in the Personal Investment
Advisory Service. Mr. Telling received a bachelor's degree in economics from
the University of South Florida, attended the Thomas M. Cooley Law School and
is currently a candidate in the Chartered Alternative Investment Analyst
program.
Justin Hopkins, Research Analyst at Frost, serves as Fund Co-Manager of the
Frost Conservative Allocation Fund and Frost Moderate Allocation Fund. Mr.
Hopkins is jointly and primarily responsible for the day-to-day management of
the Frost Conservative Allocation Fund and the Frost Moderate Allocation Fund.
Mr. Hopkins joined Frost Bank, the parent company of the Adviser, in 2007.
Prior to joining Frost Bank, Mr. Hopkins served as a representative support
specialist at National Financial Partners from 2006 to 2007 and as a mutual
fund analyst, intern, part-time at Frost Bank from 2004 to 2006 and full time
student from 2002 to 2006. He received a bachelor's degree in applied arts and
sciences and a master's degree in business administration from Texas State
University.
The SAI provides additional information about the portfolio managers'
compensation, other accounts managed, and ownership of Fund shares.
25
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange Class A Shares of the Funds.
Class A Shares are for individual and institutional investors.
For information regarding the federal income tax consequences of transactions
in shares of the Funds, including information about cost basis reporting, see
"Taxes."
HOW TO PURCHASE FUND SHARES
All investments must be made by check, wire or ACH. All checks must be made
payable in U.S. dollars and drawn on U.S. financial institutions. The Funds do
not accept purchases made by third-party checks, credit cards, credit card
checks, cash, traveler's checks, money orders or cashier's checks.
The Funds reserve the right to reject any specific purchase order for any
reason. The Funds are not intended for excessive trading by shareholders in
response to short-term market fluctuations. For more information about the
Funds' policy on excessive trading, see "Excessive Trading Policies and
Procedures."
The Funds do not generally accept investments by non-U.S. persons. Non-U.S.
persons may be permitted to invest in the Funds subject to the satisfaction of
enhanced due diligence. Please contact the Funds for more information.
BY MAIL
You can open an account with the Funds by sending a check and your account
application to the address below. You can add to an existing account by sending
the Funds a check and, if possible, the "Invest by Mail" stub that accompanies
your statement. Be sure your check identifies clearly your name, your account
number, the Fund name and the share class.
REGULAR MAIL ADDRESS
Frost Funds
P.O. Box 219009
Kansas City, MO 64121-9009
EXPRESS MAIL ADDRESS
Frost Funds
c/o DST Systems, Inc.
430 West 7th Street
Kansas City, MO 64105
The Funds do not consider the U.S. Postal Service or other independent delivery
services to be their agents. Therefore, deposit in the mail or with such
services of purchase orders does not constitute receipt by a Fund's transfer
agent. The share price used to fill the purchase order is the next price
calculated by a Fund after the Fund's transfer agent receives the order in
proper form at the P.O. Box provided for regular mail delivery or the office
address provided for express mail delivery.
26
BY WIRE
To open an account by wire, call 1-877-71-FROST for details. To add to an
existing account by wire, wire your money using the wiring instructions set
forth below (be sure to include the Fund name, the share class and your account
number).
WIRING INSTRUCTIONS
UMB Bank, N.A.
ABA# 101000695
Frost Funds
DDA Acct. # 9871063178
Ref: Fund name/account number/account name/share class
BY SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions from your account.
You may not open an account via ACH. However, once you have established an
account, you can set up a systematic investment plan by mailing a completed
application to the Funds. These purchases can be made monthly, quarterly,
semi-annually or annually in amounts of at least $100. To cancel or change a
plan, write to the Funds at Frost Funds, P.O. Box 219009, Kansas City, MO
64121-9009 (Express Mail Address: Frost Funds, c/o DST Systems, Inc., 430 West
7(th) Street, Kansas City, MO 64105). Allow up to 15 days to create the plan
and 3 days to cancel or change it.
PURCHASES IN-KIND
Subject to the approval of the Funds, an investor may purchase shares of a Fund
with liquid securities and other assets that are eligible for purchase by the
Fund (consistent with the Fund's investment policies and restrictions) and that
have a value that is readily ascertainable in accordance with the Fund's
valuation policies. These transactions will be effected only if the Adviser
deems the security to be an appropriate investment for that Fund. Assets
purchased by a Fund in such a transaction will be valued in accordance with
procedures adopted by the Funds. The Funds reserve the right to amend or
terminate this practice at any time.
MINIMUM INVESTMENTS
You can open an account with a Fund with a minimum initial investment of $2,500
or a minimum initial investment for IRA accounts of $1,500 for Class A Shares.
Minimum subsequent investments are required to be at least $500. Systematic
planned contributions are required to be at least $100. A Fund reserves the
right to waive the minimum investment amounts in its sole discretion.
HOW TO REDEEM FUND SHARES
The sale price will be the NAV per share next determined after the Funds
receive your request in proper form.
27
BY MAIL
To redeem shares by mail, you may contact the Funds directly at: Frost Funds,
P.O. Box 219009, Kansas City, MO 64121-9009 (Express Mail Address: Frost Funds,
c/o DST Systems, Inc., 430 West 7th Street, Kansas City, MO 64105). Please send
a letter to the Funds signed by all registered parties on the account
specifying:
o The Fund name;
o The share class;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address to which redemption (sale) proceeds should be sent.
The Funds do not consider the U.S. Postal Service or other independent delivery
services to be their agents. Therefore, deposit in the mail or with such
services of sell orders does not constitute receipt by a Fund's transfer agent.
The share price used to fill the sell order is the next price calculated by a
Fund after the Fund's transfer agent receives the order in proper form at the
P.O. Box provided for regular mail delivery or the office address provided for
express mail delivery.
All registered shareholders must sign the letter in the exact name(s) in which
their account is registered and must designate any special capacity in which
they are registered.
Certain redemption requests will require a signature guarantee by an eligible
guarantor institution. Eligible guarantors include commercial banks, savings
and loans, savings banks, trust companies, credit unions, member firms of a
national stock exchange, or any other member or participant of an approved
signature guarantor program. For example, signature guarantees may be required
if your address of record has changed in the last 30 days, you want the
proceeds sent to a bank other than the bank of record on your account, or if
you ask that the proceeds be sent to a different person or address. Please note
that a notary public is not an acceptable provider of a signature guarantee and
that we must be provided with the original guarantee. Signature guarantees are
for the protection of our shareholders. Before it grants a redemption request,
the Funds may require a shareholder to furnish additional legal documents to
insure proper authorization.
Accounts held by a corporation, trust, fiduciary or partnership, may require
additional documentation along with a signature guaranteed letter of
instruction. The Funds participate in the Paperless Legal Program (the
"Program"), which eliminates the need for accompanying paper documentation on
legal securities transfers. Requests received with a Medallion Signature
Guarantee will be reviewed for the proper criteria to meet the guidelines of
the Program and may not require additional documentation. Please contact
Shareholder Services at 1-877-71-FROST for more information.
BY TELEPHONE
You must first establish the telephone redemption privilege (and, if desired,
the wire and/or ACH redemption privilege) by completing the appropriate
sections of the account application. Call 1-877-71-FROST to redeem your shares.
Based on your instructions, the Funds will mail your proceeds to you or send
them to your bank via wire or Automated Clearing House ("ACH").
28
BY SYSTEMATIC WITHDRAWAL PLAN (VIA ACH)
If your account balance is at least $25,000, you may transfer as little as $100
per month from your account to another financial institution through a
Systematic Withdrawal Plan (via ACH). To participate in this service, you must
complete the appropriate sections of the account application and mail it to the
Funds.
EXCHANGING SHARES
At no charge, you may exchange Class A Shares of a Fund for Class A Shares of
another fund in the Frost Funds complex by writing to or calling the Funds. At
no charge, you may also convert Class A shares of a Fund directly to
Institutional Class shares of the same Fund, where offered, by writing to or
calling the Fund, subject to the fees and expenses of Institutional Class
shares, and provided that you meet the eligibility requirements applicable to
investing in Institutional Class shares, as set forth in the Institutional
Class shares prospectus. You may only exchange or convert shares between
accounts with identical registrations (i.e., the same names and addresses).
The exchange privilege is not intended as a vehicle for short-term or excessive
trading. A Fund may suspend or terminate your exchange privilege if you engage
in a pattern of exchanges that is excessive, as determined in the sole
discretion of the Funds. For more information about the Funds' policy on
excessive trading, see "Excessive Trading Policies and Procedures."
TRANSACTION POLICIES
CALCULATING YOUR SHARE PRICE
NAV for one Fund share is the value of that share's portion of the net assets
of that Fund.
You may buy or sell shares of a Fund on any Business Day. Requests to buy and
sell shares of a Fund are processed at the NAV next computed after the Fund
receives and accepts your order. The Funds calculate NAV once each Business Day
as of the close of normal trading on the NYSE (normally, 4:00 p.m. Eastern
Time). To receive the NAV on any given day, a Fund or an authorized institution
must receive your order in proper form (meaning that it is complete and
contains all necessary information, and has all supporting documentation such
as proper Medallion signature guarantees, IRA rollover forms, etc.) before the
close of trading on the NYSE that day. Otherwise, you will receive the NAV that
is calculated at the close of trading on the following Business Day if the NYSE
is open for trading that day. If the NYSE closes early -- such as on days in
advance of certain generally observed holidays -- each Fund reserves the right
to calculate NAV as of the earlier closing time. Shares will not be priced on
days that the NYSE is closed for trading, including nationally observed
holidays. Since securities that are traded on foreign exchanges may trade on
days when the NYSE is closed, the value of the Funds may change on days when
you are unable to purchase or redeem shares.
The Funds calculate their NAV by adding the total value of their assets,
subtracting their liabilities and then dividing the result by the number of
shares outstanding. In calculating NAV, the Funds generally value their
investment portfolios at market price. If market prices are not readily
available or the Funds reasonably believe that they are unreliable, such as in
the case of a security value that has been materially affected by events
occurring after the relevant market closes, the Funds are required to price
those securities at fair value as determined in good faith using methods
approved by the Board. A Fund's determination of a security's fair value price
often involves the consideration of a number of subjective factors, and is
therefore subject to the unavoidable risk that the value that a Fund assigns to
a security may be higher or lower than the security's value would be if a
reliable market quotation for the security was
29
readily available. The respective prospectuses for the Underlying Funds in
which the Funds invest explain the circumstances in which those Funds will use
fair value pricing and the effect of fair value pricing.
Redeemable securities issued by open-end investment companies are valued at the
investment company's applicable NAV.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
In addition to being able to buy and sell Fund shares directly from the Funds
through their transfer agent, you may also buy or sell shares of the Funds
through accounts with financial intermediaries such as brokers and other
institutions that are authorized to place trades in Fund shares for their
customers. When you purchase or sell Fund shares through a financial
intermediary (rather than directly from the Fund), you may have to transmit
your purchase and sale requests to the financial intermediary at an earlier
time for your transaction to become effective that day. This allows the
financial intermediary time to process your requests and transmit them to the
Funds prior to the time the Funds calculate their NAV that day. Your financial
intermediary is responsible for transmitting all purchase and redemption
requests, investment information, documentation and money to the Funds on time.
If your financial intermediary fails to do so, it may be responsible for any
resulting fees or losses. Unless your financial intermediary is an authorized
institution (defined below), orders transmitted by the financial intermediary
and received by the Funds after the time NAV is calculated for a particular day
will receive the following day's NAV.
Certain financial intermediaries, including certain broker-dealers and
shareholder organizations, are authorized to act as agent on behalf of the
Funds with respect to the receipt of purchase and redemption orders for Fund
shares ("authorized institutions"). Authorized institutions are also authorized
to designate other intermediaries to receive purchase and redemption orders on
a Fund's behalf. A Fund will be deemed to have received a purchase or
redemption order when an authorized institution or, if applicable, an
authorized institution's designee, receives the order. Orders will be priced at
a Fund's NAV next computed after they are received by an authorized institution
or an authorized institution's designee. To determine whether your financial
intermediary is an authorized institution or an authorized institution's
designee such that it may act as agent on behalf of a Fund with respect to
purchase and redemption orders for Fund shares, you should contact them
directly.
If you deal directly with a financial intermediary, you will have to follow
their procedures for transacting with the Funds. Your financial intermediary
may charge a fee for your purchase and/or redemption transactions. For more
information about how to purchase or sell Fund shares through a financial
intermediary, you should contact your authorized institution directly.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds can be mailed to your account address, sent to your bank by
ACH transfer or wired to your bank account (may be subject to a $15 fee). Each
Fund will pay for all shares redeemed within seven days after it receives a
redemption request in proper form, meaning that it is complete, contains all
necessary information, and has all supporting documentation (such as proper
Medallion signature guarantees, IRA rollover forms, etc.). A Fund may require
that signatures be guaranteed by a bank or member firm of a national securities
exchange. Medallion signature guarantees are for the protection of
shareholders. Before it grants a redemption request, a Fund may require a
shareholder to furnish additional legal documents to insure proper
authorization. If you redeem shares that were recently purchased by check or
through ACH, you will not receive your redemption proceeds until the check has
cleared or the ACH transaction has been completed, which may take up to 15 days
from the purchase date.
30
SALES CHARGES
FRONT-END SALES CHARGES -- CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after a Fund
receives and accepts your request, plus the front-end sales load. Selling
dealers are normally reallowed 100% of the sales charge by SEI Investments
Distribution Co. (the "Distributor"). The amount of any front-end sales charge
included in your offering price for Class A Shares varies, depending on the
amount of your investment.
------------------------------------------------------------------------------------------------------------------------------------
YOUR SALES CHARGE
YOUR SALES CHARGE AS A PERCENTAGE OF
CLASS A AS A PERCENTAGE OF YOUR NET
SHARES IF YOUR INVESTMENT IS: OFFERING PRICE INVESTMENT
------------------------------------------------------------------------------------------------------------------------------------
Less than $500,000 3.25% 3.36%
------------------------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04%
------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over* None None
------------------------------------------------------------------------------------------------------------------------------------
|
*IF YOU ARE IN A CATEGORY OF INVESTORS WHO MAY PURCHASE FUND SHARES WITHOUT A
FRONT-END SALES CHARGE, YOU MAY BE SUBJECT TO A 1.00% DEFERRED SALES CHARGE IF
YOU REDEEM YOUR SHARES WITHIN 12 MONTHS OF PURCHASE.
You may qualify for reduced sales charges or sales charge waivers. If you
believe that you may qualify for a reduction or waiver of the sales charge, you
should discuss this matter with your broker or other financial intermediary. To
qualify for these reductions or waivers, you or your financial intermediary
must provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment. This information could be used to
aggregate, for example, holdings in retirement accounts, Fund shares owned by
your immediate family members, and holdings in accounts at other brokers or
financial intermediaries. In addition to breakpoint discounts, the following
sections describe other circumstances in which sales charges are waived or
otherwise may be reduced. See "Reduced Sales Charges" below.
WAIVER OF FRONT-END SALES CHARGE -- CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
o through reinvestment of dividends and distributions;
o through an asset allocation account advised by the Adviser or one of its
affiliates;
o by persons repurchasing shares they redeemed within the last 90 days (see
"Repurchase of Class A Shares");
o by investors who purchase shares with redemption proceeds (but only to the
extent of such redemption proceeds) from another investment company within
90 days of such redemption, provided that the investors paid either a
front-end or contingent deferred sales charge on the original shares
redeemed;
o by employees, and members of their immediate family, of the Adviser and
its affiliates;
o by retirees of the Adviser and its affiliates;
o by employees and retirees of the SEI Investments Global Funds Services
(the "Administrator") or the Distributor;
o by Trustees and officers of Trust;
o by persons reinvesting distributions from qualified employee benefit
retirement plans and rollovers from individual retirement accounts ("IRAs")
previously with the Adviser;
o by persons investing an amount less than or equal to the value of an
account distribution when an account for which a bank affiliated with the
Adviser acted in a fiduciary, administrative, custodial or investment
advisory capacity is closed; or
o through dealers, retirement plans, asset allocation programs and financial
institutions that, under their dealer agreements with the Distributor or
otherwise, do not receive any portion of the front-end sales charge.
31
REPURCHASE OF CLASS A SHARES
You may repurchase any amount of Class A Shares of any Fund at NAV (without the
normal front-end sales charge), up to the limit of the value of any amount of
Class A Shares (other than those which were purchased with reinvested dividends
and distributions) that you redeemed within the past 90 days. In effect, this
allows you to reacquire shares that you may have had to redeem, without
repaying the front-end sales charge. To exercise this privilege, the Fund must
receive your purchase order within 90 days of your redemption. In addition, you
must notify the Fund when you send in your purchase order that you are
repurchasing shares. Certain tax rules may limit your ability to recognize a
loss on the redemption of your Class A Shares, and you should consult your tax
advisor if recognizing such a loss is important to you.
REDUCED SALES CHARGE -- CLASS A SHARES
In addition to the above described reductions in front-end sales charges for
purchases over a certain dollar size, you may also be eligible to participate
in one or more of the programs described below to lower your initial sales
charge. To be eligible to participate in these programs, you must inform your
broker-dealer or financial advisor at the time you purchase shares that you
would like to participate in one or more of the programs and provide
information necessary to determine your eligibility to participate, including
the account number(s) and names in which your accounts are registered at the
time of purchase. In addition, a Fund or its agent may request account
statements if it is unable to verify your account information.
RIGHTS OF ACCUMULATION
In calculating the appropriate sales charge rate, this right allows you to add
the value of the Class A Shares of all the Frost Funds you already own to the
amount that you are currently purchasing. The value of your current purchases
will be combined with the current value of Class A Shares of all other Frost
Funds you purchased previously that are currently held for (i) your account,
(ii) your spouse's account, (iii) a joint account with your spouse, or (iv)
your minor children's trust or custodial accounts. A fiduciary purchasing
shares for the same fiduciary account, trust or estate may also use this right
of accumulation. If your investment qualifies for a reduced sales load due to
accumulation of purchases, you must notify DST Systems, Inc. (the "Transfer
Agent") at the time of purchase of the existence of other accounts and/or
holdings eligible to be aggregated to reduce or eliminate the sales load. You
may be required to provide records, such as account statements, regarding the
Fund shares held by you or related accounts at a Fund or at other financial
intermediaries in order to verify your eligibility for a breakpoint discount.
You will receive the reduced sales load only on the additional purchases and
not retroactively on previous purchases. The Funds may amend or terminate this
right of accumulation at any time.
LETTER OF INTENT
You may purchase Class A Shares of one or more Frost Funds at the sales charge
rate applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase
Class A Shares of one or more Frost Funds over a 13-month period and receive
the same sales charge as if you had purchased all the shares at the same time.
Each Fund will only consider the value of Class A Shares sold subject to a
sales charge. As a result, shares of the Class A Shares purchased with
dividends or distributions will not be included in the calculation. To be
entitled to a reduced sales charge on the purchase of Class A Shares based on
shares you intend to purchase over the
32
13-month period, you must send a Fund a Letter of Intent. In calculating the
total amount of purchases, you may include in your Letter purchases made up to
90 days before the date of the Letter. The 13-month period begins on the date
of the first purchase, including those purchases made in the 90-day period
before the date of the Letter. Please note that the purchase price of these
prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
a Fund to hold in escrow 5% of the total amount you intend to purchase. If you
do not complete the total intended purchase of Class A Shares at the end of the
13-month period, the Funds' Transfer Agent will redeem the necessary portion of
the escrowed shares to make up the difference between the reduced rate sales
charge (based on the amount you intended to purchase) and the sales charge that
would normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE
When calculating the appropriate sales charge rate, a Fund will combine
purchases of Class A Shares (that are subject to a sales charge) of all Frost
Funds made on the same day by you, your spouse and your minor children (under
age 21). This combination also applies to Class A Shares you purchase with a
Letter of Intent.
PURCHASERS QUALIFYING FOR REDUCTIONS IN FRONT-END SALES CHARGES
Only certain persons or groups are eligible for the reductions in initial sales
charges described in the preceding section. These qualified purchasers include
the following:
INDIVIDUALS
o an individual, his or her spouse, or children residing in the same
household;
o any trust established exclusively for the benefit of an individual;
TRUSTEES AND FIDUCIARIES
o a trustee or fiduciary purchasing for a single trust, estate or fiduciary
account; and
OTHER GROUPS
o any organized group of persons, whether or not incorporated, purchasing
Fund shares, provided that (i) the organization has been in existence for
at least six months; and (ii) the organization has some purpose other than
the purchase at a discount of redeemable securities of a registered
investment company.
Investors or dealers seeking to qualify orders for a reduced front-end sales
charge must identify such orders at the time of purchase and, if necessary,
support their qualification for the reduced charge with appropriate
documentation. Appropriate documentation includes, without limitation, account
statements regarding shares of a Fund held in all accounts (E.G., retirement
accounts) by the investor, and, if applicable, his or her spouse and children
residing in the same household, including accounts at broker-dealers or other
financial intermediaries different than the broker-dealer of record for the
current purchase of Fund shares. The Distributor reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing, to the
reduced initial sales charge. No person or entity may distribute shares of the
Funds without payment of the applicable sales charge other than to persons or
entities who qualify for a reduction in the sales charge as provided herein.
33
CONTINGENT DEFERRED SALES CHARGES (CDSC) -- CLASS A SHARES
You will not pay a front-end sales charge if you purchase $1,000,000 or more of
Class A Shares. However, you may pay a CDSC of 1.00% on any shares you sell
within 12 months after your purchase. The CDSC will be based on the lesser of
(1) the NAV of the shares at the time of purchase or (2) the NAV of the shares
next calculated after the Fund receives your redemption request. The sales
charge does not apply to shares you purchase through reinvestment of dividends
or distributions. So, you never pay a deferred sales charge on any increase in
your investment above the initial offering price. This sales charge does not
apply to exchanges of Class A Shares of one fund for Class A Shares of another
fund in the Frost Funds complex.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is
paid a servicing fee as long as you hold your shares. Your securities dealer or
servicing agent may receive different levels of compensation depending on which
class of shares you buy. The Distributor may pay dealers up to 1% on
investments of $1,000,000 or more in Class A Shares. From time to time, some
financial institutions, including brokerage firms affiliated with the Adviser
or the Distributor, may be reallowed up to the entire sales charge. Firms that
receive a reallowance of the entire sales charge may be considered underwriters
for the purpose of federal securities law.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source
available to it. Under any such program, the Distributor may provide cash or
non-cash compensation as recognition for past sales or encouragement for future
sales that may include the following: merchandise, travel expenses, prizes,
meals and lodgings, and gifts that do not exceed $100 per year, per
individual.
REDEMPTIONS IN-KIND
The Funds generally pay sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise and for the protection
of the Funds' remaining shareholders, the Funds might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would have to pay
transaction costs to sell the securities distributed to you, as well as taxes
on any capital gains from the sale as with any redemption. In addition, you
would continue to be subject to the risks of any market fluctuation in the
value of the securities you receive in kind until they are sold.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $1,000 because of redemptions, you may be
required to sell your shares. The Funds will provide you at least 30 days'
written notice to give you time to add to your account and avoid the need to
sell your shares.
34
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Funds may suspend your right to sell your shares during times when trading
on the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in the SAI.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Funds have certain safeguards
and procedures to confirm the identity of callers and the authenticity of
instructions, the Funds are not responsible for any losses or costs incurred by
following telephone instructions they reasonably believe to be genuine. If you
or your financial intermediary transact with the Funds over the telephone, you
will generally bear the risk of any loss.
SHAREHOLDER SERVICING ARRANGEMENTS
The Funds may compensate financial intermediaries for providing a variety of
services to shareholders. Financial intermediaries include affiliated or
unaffiliated brokers, dealers, banks (including bank trust departments), trust
companies, registered investment advisers, financial planners, retirement plan
administrators, insurance companies, and any other institution having a
service, administration, or any similar arrangement with the Funds, their
service providers or their respective affiliates. This section and the
following section briefly describe how financial intermediaries may be paid for
providing these services.
The Funds generally pay financial intermediaries a fee that is based on the
assets of the Funds that are attributable to investments by customers of the
financial intermediary. The services for which financial intermediaries are
compensated may include record-keeping, transaction processing for
shareholders' accounts and other shareholder services. In addition to these
payments, your financial intermediary may charge you account fees, transaction
fees for buying or redeeming shares of a Fund, or other fees for servicing your
account. Your financial intermediary should provide a schedule of its fees and
services to you upon request. The Funds do not pay these service fees on shares
purchased directly. In addition to payments made directly to financial
intermediaries by the Funds, the Adviser or their affiliates may, at their own
expense, pay financial intermediaries for these and other services to Fund
shareholders, as described in the section below.
PAYMENTS TO FINANCIAL INTERMEDIARIES
From time to time, the Adviser and/or its affiliates, at their discretion, may
make payments to certain affiliated or unaffiliated financial intermediaries to
compensate them for the costs associated with distribution, marketing,
administration and shareholder servicing support for the Funds. These payments
may be in addition to any Rule 12b-1 fees that are reflected in the fee table
sections of this Prospectus. These payments are sometimes characterized as
"revenue sharing" payments and are made out of the Adviser's and/or its
affiliates' own legitimate profits or other resources, and are not paid by the
Funds. A financial intermediary may provide these services with respect to Fund
shares sold or held through programs such as retirement plans, qualified
tuition programs, fund supermarkets, fee-based advisory or wrap fee programs,
bank trust programs, and insurance (E.G., individual or group annuity)
programs. In addition, financial intermediaries may receive payments for making
shares of the Funds available to their customers or registered representatives,
including providing the Funds with "shelf space," placing them on a preferred
or recommended fund list, or promoting the Funds in certain sales programs that
are sponsored by financial intermediaries. To the extent permitted by the U.S.
Securities and Exchange Commission ("SEC") and Financial Industry Regulatory
Authority ("FINRA") rules and other applicable
35
laws and regulations, the Adviser and/or its affiliates may pay or allow other
promotional incentives or payments to financial intermediaries. For more
information please see "Payments to Financial Intermediaries" in the Funds'
SAI.
The level of payments to individual financial intermediaries varies in any
given year and may be negotiated on the basis of sales of Fund shares, the
amount of Fund assets serviced by the financial intermediary or the quality of
the financial intermediary's relationship with the Adviser and/or its
affiliates. These payments may be more or less than the payments received by
the financial intermediaries from other mutual funds and may influence a
financial intermediary to favor the sales of certain funds or share classes
over others. In certain instances, the payments could be significant and may
cause a conflict of interest for your financial intermediary. Any such payments
will not change the net asset value or price of a Fund's shares. Please contact
your financial intermediary for information about any payments it may receive
in connection with the sale of Fund shares or the provision of services to Fund
shareholders, as well as information about any fees and/or commissions it
charges.
OTHER POLICIES
EXCESSIVE TRADING POLICIES AND PROCEDURES
The Funds are intended for long-term investment purposes only and discourage
shareholders from engaging in "market timing" or other types of excessive
short-term trading. This frequent trading into and out of a Fund may present
risks to the Fund's long-term shareholders, all of which could adversely affect
shareholder returns. The risks posed by frequent trading include interfering
with the efficient implementation of a Fund's investment strategies, triggering
the recognition of taxable gains and losses on the sale of Fund investments,
requiring the Fund to maintain higher cash balances to meet redemption
requests, and experiencing increased transaction costs.
In addition, because the Funds indirectly invest in foreign securities traded
primarily on markets that close prior to the time the Funds determine their
NAV, the risks posed by frequent trading may have a greater potential to dilute
the value of Fund shares held by long-term shareholders than Funds investing
exclusively in U.S. securities. In instances where a significant event that
affects the value of one or more foreign securities held by a Fund takes place
after the close of the primary foreign market, but before the time that the
Fund determines its NAV, certain investors may seek to take advantage of the
fact that there will be a delay in the adjustment of the market price for a
security caused by this event until the foreign market reopens (sometimes
referred to as "price" or "time zone" arbitrage). Shareholders who attempt this
type of arbitrage may dilute the value of their Fund's shares if the price of
the Fund's foreign securities do not reflect their fair value. Although the
Funds have procedures designed to determine the fair value of foreign
securities for purposes of calculating their NAV when such an event has
occurred, fair value pricing, because it involves judgments which are
inherently subjective, may not always eliminate the risk of price arbitrage.
For more information on how the Funds use fair value pricing, see "Calculating
Your Share Price."
The Funds' service providers will take steps reasonably designed to detect and
deter frequent trading by shareholders pursuant to the Funds' policies and
procedures described in this Prospectus and approved by the Board. For purposes
of applying these policies, the Funds' service providers may consider the
trading history of accounts under common ownership or control. The Funds'
policies and procedures include the following:
o Shareholders are restricted from making more than five "round trips,"
including exchanges into or out of a Fund, per calendar year. If a
shareholder exceeds this amount, the Fund and/or its service providers may,
at their discretion, reject any additional purchase or exchange orders. The
36
Funds define a round trip as a purchase or exchange into a Fund by a
shareholder, followed by a subsequent redemption out of the Fund, of an
amount the Adviser reasonably believes would be harmful or disruptive to
the Fund.
o The Funds reserve the right to reject any purchase or exchange request by
any investor or group of investors for any reason without prior notice,
including, in particular, if a Fund or its Adviser/Sub-Adviser reasonably
believes that the trading activity would be harmful or disruptive to the
Fund.
The Funds and/or their service providers seek to apply these policies to the
best of their abilities uniformly and in a manner they believe is consistent
with the interests of the Funds' long-term shareholders. The Funds do not
knowingly accommodate frequent purchases and redemptions by Fund shareholders.
Although these policies are designed to deter frequent trading, none of these
measures alone nor all of them taken together eliminate the possibility that
frequent trading in the Funds will occur. Systematic purchases and redemptions
are exempt from these policies.
Financial intermediaries (such as investment advisers and broker-dealers) often
establish omnibus accounts in the Funds for their customers through which
transactions are placed. In accordance with Rule 22c-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Funds have entered into
information sharing agreements with certain financial intermediaries. Under
these agreements, a financial intermediary is obligated to: (1) enforce during
the term of the agreement, the Funds' market-timing policy; (2) furnish the
Funds, upon their request, with information regarding customer trading
activities in shares of the Funds; and (3) enforce the Funds' market-timing
policy with respect to customers identified by the Funds as having engaged in
market timing. When information regarding transactions in the Funds' shares is
requested by a Fund and such information is in the possession of a person that
is itself a financial intermediary to a financial intermediary (an "indirect
intermediary"), any financial intermediary with whom the Funds have an
information sharing agreement is obligated to obtain transaction information
from the indirect intermediary or, if directed by the Funds, to restrict or
prohibit the indirect intermediary from purchasing shares of the Funds on
behalf of other persons. Please contact your financial intermediary for more
information.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.
What this means to you: When you open an account, the Funds will ask your name,
address, date of birth, and other information that will allow the Funds to
identify you. This information is subject to verification to ensure the
identity of all persons opening a mutual fund account.
The Funds are required by law to reject your new account application if the
required identifying information is not provided.
In certain instances, the Funds are required to collect documents to fulfill
their legal obligation. Documents provided in connection with your application
will be used solely to establish and verify a customer's identity.
Attempts to collect the missing information required on the application will be
performed by either contacting you or, if applicable, your broker. If this
information is unable to be obtained within a reasonable timeframe established
in the sole discretion of the Funds, your application will be rejected.
37
Upon receipt of your application in proper form (or upon receipt of all
identifying information required on the application), your investment will be
accepted and your order will be processed at the next-determined NAV per
share.
However, each Fund reserves the right to close or liquidate your account at the
NAV next determined and remit proceeds to you via check if it is unable to
verify your identity. Attempts to verify your identity will be performed within
a reasonable timeframe established in the sole discretion of the Fund. Further,
each Fund reserves the right to hold your proceeds until your original check
clears the bank, which may take up to 15 days from the date of purchase. In
such an instance, you may be subject to a gain or loss on Fund shares and will
be subject to corresponding tax implications. You will not be entitled to
recover any sales charges paid in connection with your purchase of Fund
Shares.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the Funds' overall
obligation to deter money laundering under federal law. The Funds have adopted
an anti-money laundering compliance program designed to prevent the Funds from
being used for money laundering or the financing of illegal activities. In this
regard, the Funds reserve the right to: (i) refuse, cancel or rescind any
purchase or exchange order; (ii) freeze any account and/or suspend account
services; or (iii) involuntarily close your account in cases of threatening
conduct or suspected fraudulent or illegal activity. These actions will be
taken when, in the sole discretion of Fund management, they are deemed to be in
the best interest of a Fund or in cases when a Fund is requested or compelled
to do so by governmental or law enforcement authority. If your account is
closed at the request of governmental or law enforcement authority, you may not
receive proceeds of the redemption if the Funds are required to withhold such
proceeds.
DISTRIBUTION OF FUND SHARES
The Funds have adopted a distribution plan for Class A Shares that allows the
Funds to pay distribution fees for the sale and distribution of their shares,
and for distributor services provided to shareholders. Because these fees are
paid out of the Funds' assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. The maximum annual distribution fee for Class A Shares
of each Fund is 0.25% .
DIVIDENDS AND DISTRIBUTIONS
Normally, the Funds each distribute their net investment income, if any,
quarterly and make distributions of their net realized capital gains, if any,
at least annually. If you own Fund shares on a Fund's record date, you will be
entitled to receive the distribution.
Each Fund will automatically reinvest dividends and distributions in additional
shares of the Fund, unless you elect on your account application to receive
them in cash. To elect cash payment, you must notify the Fund in writing prior
to the date of the distribution. Your election will be effective for dividends
and distributions paid after the Fund receives your written notice. To cancel
your election, simply send the Fund written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. The following is a summary of the
federal income tax consequences of investing in the Funds. This summary does
not apply to shares held in an individual retirement account or other tax-
38
qualified plan, which are not subject to current tax. Transactions relating to
shares held in such accounts may, however, be taxable at some time in the
future. This summary is based on current tax laws, which may change.
Each Fund intends to qualify as a regulated investment company ("RIC") as
defined in Section 851 of the Internal Revenue Code of 1986, as amended. The
Funds may make investments into one or more exchange traded products, such as
ETFs and ETNs, swaps or other investments that may raise questions regarding
the qualification of the income from such investments as qualifying income
under the RIC qualification tests. The Funds intend to monitor their
investments to ensure that it will satisfy the qualification tests as a RIC,
including the qualifying income test. See the SAI for more information
regarding the RIC qualification tests.
Each Fund will distribute substantially all of its net investment income and
its net realized capital gains, if any. The dividends and distributions you
receive, whether in cash or reinvested in additional shares of the Funds may be
subject to federal, state, and local taxation, depending upon your tax
situation. Income distributions, including distributions of net short-term
capital gains but excluding distributions of qualified dividend income, are
generally taxable at ordinary income tax rates. Capital gains distributions and
distributions that are designated by the Funds as qualified dividend income are
generally taxable at the rates applicable to long-term capital gains.
Distributions received by a Fund from an investment in another fund taxable as
a RIC may be treated as qualified dividend income only to the extent the
dividend distributions are attributable to qualified dividend income received
and designated as such by the other fund. Once a year the Funds will send you
a statement showing the types and total amount of distributions you received
during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying a dividend" and should be
avoided by taxable investors. Call 1-877-71-FROST to find out when a Fund
expects to make a distribution to shareholders.
Each sale of shares of a Fund may be a taxable event. For tax purposes, an
exchange of your Fund shares for shares of a different fund is the same as a
sale. A sale may result in a capital gain or loss to you. For tax purposes, an
exchange of your Fund shares for shares of a different Fund is the same as a
sale. The gain or loss generally will be treated as short term if you held the
shares 12 months or less, long term if you held the shares for longer.
Effective beginning January 1, 2013, U.S. individuals with income exceeding
$200,000 ($250,000 if married and filing jointly) are subject to a new 3.8%
Medicare contribution tax on their "net investment income," including interest,
dividends, and capital gains (including capital gains realized on the sale or
exchange of shares of a Fund).
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Funds. Investment in Government
National Mortgage Association ("Ginnie Mae") or Federal National Mortgage
Association ("Fannie Mae") securities, banker's acceptances, commercial paper,
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for such tax-free treatment. The rules on exclusion of this
income are different for corporate shareholders.
The Funds (or their administrative agent) must report to the Internal Revenue
Service ("IRS") and furnish to Fund shareholders cost basis information for
Fund shares purchased on or after January 1, 2012, and sold on or after that
date. In addition to reporting the gross proceeds from the sale of Fund shares,
a Fund
39
is also required to report the cost basis information for such shares and
indicate whether these shares had a short-term or long-term holding period. For
each sale of Fund shares, a Fund will permit shareholders to elect from among
several IRS-accepted cost basis methods, including the average basis method. In
the absence of an election, a Fund will use the average basis method as the
default cost basis method. The cost basis method elected by a Fund shareholder
(or the cost basis method applied by default) for each sale of Fund shares may
not be changed after the settlement date of each such sale of Fund shares. Fund
shareholders should consult with their tax advisors to determine the best
IRS-accepted cost basis method for their tax situation and to obtain more
information about how cost basis reporting applies to them.
To the extent that a Fund invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the Fund
received from sources in foreign countries. A Fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow shareholders
to offset some of their U.S. federal income tax. Foreign tax credits, if any,
received by a Fund as a result of an investment in another RIC (including an
ETF which is taxable as a RIC) will not be passed through to you unless such
Fund qualifies as a "qualified fund of funds" in which at least 50% of the
value of the Fund's total assets (at the close of each quarter of the Fund's
taxable year) is represented by interests in other RICs. A Fund will notify
you if it makes such an election and provide you with the information necessary
to reflect foreign taxes paid on your income tax return.
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
40
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about each Fund. The
information is intended to help you understand each Fund's financial performance
for the past five fiscal years or the period of a Fund's operations. Some of
this information reflects financial information for a single Class A share. The
total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. The information provided below has been audited by Ernst &
Young LLP, independent registered public accounting firm for the Funds. The
financial statements and the unqualified opinion of Ernst & Young LLP are
included in the 2013 Annual Report of the Funds, which is available upon request
by calling 1-877-71-FROST.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
-----------------------------------------------------------------------------------------------------------------------
NET
REALIZED AND
NET ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT GAINS (LOSSES) ON TOTAL FROM NET FROM TOTAL NET ASSET
BEGINNING INCOME INVESTMENTS FROM INVESTMENT REALIZED DIVIDENDS & VALUE, END
OF PERIOD (LOSS)(1) OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------
CONSERVATIVE ALLOCATION FUND
-----------------------------------------------------------------------------------------------------------------------
2013 $ 9.20 $(0.04) $ 0.87 $ 0.83 $ (0.04)^ $ -- $ (0.04) $ 9.99
2012 9.82 0.03 (0.43) (0.40) (0.02) (0.20) (0.22) 9.20
2011 (a) 10.00 (0.01) (0.17) (0.18) -- -- -- 9.82
-----------------------------------------------------------------------------------------------------------------------
MODERATE ALLOCATION FUND
-----------------------------------------------------------------------------------------------------------------------
2013 $10.54 $0.16 $0.98 $1.14 $(0.21) $ -- $ (0.21) $11.47
2012 10.48 0.16 0.07 0.23 (0.17) -- (0.17) 10.54
2011 9.54 0.14 1.01 1.15 (0.21) -- (0.21) 10.48
2010 8.67 0.13 0.88 1.01 (0.14) -- (0.14) 9.54
2009 9.76 0.28 (1.09) (0.81) (0.28) -- (0.28) 8.67
-----------------------------------------------------------------------------------------------------------------------
|
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS RATIO OF NET
RATIO OF (EXCLUDING INVESTMENT
NET ASSETS EXPENSES WAIVERS INCOME (LOSS) PORTFOLIO
TOTAL END OF PERIOD TO AVERAGE AND FEES PAID TO AVERAGE TURNOVER
RETURN+ (000) NET ASSETS INDIRECTLY) NET ASSETS RATE
-------------------------------------------------------------------------------------------
CONSERVATIVE ALLOCATION FUND
-------------------------------------------------------------------------------------------
2013 9.04%++ $ 5,131 2.00% 2.29% (0.43)% 98%
2012 (4.08) 11,548 1.84 1.84 0.01 150
2011 (a) (1.80)++ 17,163 2.00* 2.27* (0.10)* 91**
-------------------------------------------------------------------------------------------
MODERATE ALLOCATION FUND
-------------------------------------------------------------------------------------------
2013 10.90%++ $ 6,889 1.60% 2.05% 1.46% 19%
2012 2.23++ 7,302 1.60 2.02 1.61 18
2011 12.07++ 7,428 1.60 1.70 1.35 21
2010 11.63++ 10,775 1.50 1.56 1.40 38
2009 (7.88)++ 6,540 1.45 1.50 3.50 33
-------------------------------------------------------------------------------------------
|
* ANNUALIZED.
** NOT ANNUALIZED.
+ TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. TOTAL
RETURN FIGURES DO NOT INCLUDE APPLICABLE SALES LOADS.
++ TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN WAIVED
AND ASSUMED BY THE ADVISER DURING THE PERIOD.
(A) COMMENCED OPERATIONS ON JANUARY 7, 2011.
(1) PER SHARE DATA CALCULATED USING THE AVERAGE SHARES METHOD.
^ INCLUDES A RETURN OF CAPITAL LESS THAN $0.01 PER SHARE.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
41
THE ADVISORS' INNER CIRCLE FUND II
FROST FUNDS
INVESTMENT ADVISER
Frost Investment Advisors, LLC
100 West Houston Street, 15th Floor
P.O. Box 2509
San Antonio, Texas 78299-2509
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
MORE INFORMATION ABOUT THE FUNDS IS AVAILABLE, WITHOUT CHARGE, THROUGH THE
FOLLOWING:
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI, dated March 31, 2014,
includes detailed information about the Funds and The Advisors' Inner Circle
Fund II. The SAI is on file with the SEC and is incorporated by reference into
this Prospectus. This means that the SAI, for legal purposes, is a part of this
Prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS: These reports contain information from the
Funds' portfolio managers about investment strategies, recent market conditions
and trends and their impact on Fund performance. The reports also contain more
information about the Funds' holdings and detailed financial information about
the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: 1-877-71-FROST (1-877-713-7678)
BY MAIL: Frost Funds
P.O. Box 219009
Kansas City, MO 64121-9009
BY INTERNET: www.frostbank.com
FROM THE SEC: You can also obtain the SAI, as well as other information about
The Advisors' Inner Circle Fund II, from the EDGAR Database on the SEC's
website at: HTTP://WWW.SEC.GOV. You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information on the operation of
the Public Reference Room, call 202-551-8090). You may request documents by
mail from the SEC, upon payment of a duplicating fee, by writing to: U.S.
Securities and Exchange Commission, Public Reference Section, Washington, DC
20549-1520. You may also obtain this information, upon payment of a
duplicating fee, by e-mailing the SEC at the following address:
PUBLICINFO@SEC.GOV.
THE ADVISORS' INNER CIRCLE FUND II'S INVESTMENT COMPANY ACT REGISTRATION NUMBER
IS 811-07102.
FIA-PS-011-0100
THE ADVISORS' INNER CIRCLE FUND II
PROSPECTUS
MARCH 31, 2014
FROST MODERATE ALLOCATION FUND
(FORMERLY THE FROST STRATEGIC BALANCED FUND) (FIBTX)
INSTITUTIONAL CLASS SHARES
INVESTMENT ADVISER:
FROST INVESTMENT ADVISORS, LLC
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ABOUT THIS PROSPECTUS
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN
EASILY REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT THE
FUND, PLEASE SEE:
PAGE
FROST MODERATE ALLOCATION FUND
INVESTMENT OBJECTIVE ........................................ 1
FUND FEES AND EXPENSES ...................................... 1
PRINCIPAL INVESTMENT STRATEGIES ............................. 2
PRINCIPAL RISKS ............................................. 3
PERFORMANCE INFORMATION ..................................... 7
INVESTMENT ADVISER .......................................... 9
PORTFOLIO MANAGERS .......................................... 9
PURCHASE AND SALE OF FUND SHARES ............................ 9
TAX INFORMATION ............................................. 9
PAYMENTS TO BROKER-DEALERS AND OTHER
FINANCIAL INTERMEDIARIES .................................... 10
MORE INFORMATION ABOUT RISK ...................................... 11
MORE INFORMATION ABOUT FUND INVESTMENTS .......................... 13
INFORMATION ABOUT PORTFOLIO HOLDINGS ............................. 14
INVESTMENT ADVISER ............................................... 14
PORTFOLIO MANAGERS ............................................... 15
PURCHASING, SELLING AND EXCHANGING FUND SHARES ................... 16
SHAREHOLDER SERVICING ARRANGEMENTS ............................... 21
PAYMENTS TO FINANCIAL INTERMEDIARIES ............................. 21
OTHER POLICIES ................................................... 22
DIVIDENDS AND DISTRIBUTIONS ...................................... 24
TAXES ............................................................ 24
FINANCIAL HIGHLIGHTS ............................................. 27
HOW TO OBTAIN MORE INFORMATION ABOUT THE FUND .................... Back Cover
|
Institutional Class Shares of the Frost Moderate Allocation Fund are currently
closed to new investors.
i
FROST MODERATE ALLOCATION FUND
INVESTMENT OBJECTIVE
The Frost Moderate Allocation Fund (the "Fund") seeks total return.
FUND FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you buy and
hold Institutional Class Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
INSTITUTIONAL CLASS SHARES
Management Fees(1) 0.15%
--------------------------------------------------------------------------------
Other Expenses(1) 1.10%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.29%
-----
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(2) 1.44%
--------------------------------------------------------------------------------
|
(1) Management Fees have been restated to reflect the current fees associated
with the Fund's current investment strategies. Therefore, the Total Annual
Fund Operating Expenses in this fee table do not correlate to the expense
ratios in the Fund's Financial Highlights.
(2) Frost Investment Advisors, LLC (the "Adviser") has contractually agreed to
waive fees and reimburse expenses to the extent necessary to keep Total
Annual Fund Operating Expenses (excluding interest, taxes, brokerage
commissions, Acquired Fund Fees and Expenses, and extraordinary expenses
(collectively, "excluded expenses")) from exceeding 1.35% of the Fund's
Institutional Class Shares' average daily net assets until November 30,
2015 (the "Contractual Expense Limitation"). In addition, if at any point
Total Annual Fund Operating Expenses (not including excluded expenses) are
below the Contractual Expense Limitation, the Adviser may receive from the
Fund the difference between the Total Annual Fund Operating Expenses (not
including excluded expenses) and the Contractual Expense Limitation to
recover all or a portion of its prior fee waivers or expense reimbursements
made during the preceding three-year period during which this agreement (or
any prior agreement) was in place. This agreement may be terminated: (i) by
the Board of Trustees (the "Board") of the Advisors' Inner Circle Fund II
(the "Trust"), for any reason at any time; or (ii) by the Adviser, upon
ninety (90) days' prior written notice to the Trust, effective as of the
close of business on November 30, 2015.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$157 $486 $839 $1,834
--------------------------------------------------------------------------------
|
1
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
total annual fund operating expenses or in the example, affect the Fund's
performance. During its most recent fiscal year, the Fund's portfolio turnover
rate was 19% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is designed to provide diversification among different asset classes
by investing its assets in a combination of mutual funds advised by the Adviser
or other investment advisers and exchange traded funds ("ETFs"), collectively
referred to as "Underlying Funds."
The Underlying Funds are selected following a two stage asset allocation
process. The first stage is a strategic asset allocation to determine the
percentage of the Fund's assets to be invested in the general asset classes of
equity Underlying Funds and fixed income Underlying Funds based on the
risk/return potential of the different asset classes and the risk profile of
the Fund. The second stage involves the actual selection of Underlying Funds to
represent the asset classes based on Underlying Fund classifications,
historical risk, performance, and other factors. Within the equity Underlying
Fund allocations, the Adviser seeks to diversify globally (by including
domestic and international Underlying Funds), in terms of market capitalization
(by including large, mid, and small capitalization Underlying Funds), and by
style (by including both growth and value Underlying Funds). Within the fixed
income Underlying Fund allocation, the Adviser includes domestic and
international Underlying Funds with varying degrees of interest rate and credit
exposure. The Underlying Funds may invest in both developed and emerging market
securities and may invest in fixed income securities of any credit quality,
including securities that are rated below investment grade ("high yield" or
"junk" bonds).
Underlying Funds may use derivatives, principally futures contracts, forward
contracts, options and swaps. An Underlying Fund may engage in such derivatives
transactions to gain exposure to, for example, certain securities, markets or
asset classes, to hedge the Underlying Fund's positions in or exposure to
securities, currencies or other instruments, to equitize cash positions in the
Underlying Fund's portfolio, or to enhance the Underlying Fund's return, which
is also known as speculation.
The following chart shows the Fund's target asset allocation among the various
asset classes. The Adviser may permit modest deviations from the target asset
allocations listed below. Accordingly, the Fund's actual allocations may differ
from this illustration.
--------------------------------------------------------------------------------
ASSET CLASS TARGET ASSET ALLOCATION
--------------------------------------------------------------------------------
Equity Funds 40%-70%
--------------------------------------------------------------------------------
Fixed Income Funds 30%-60%
--------------------------------------------------------------------------------
|
The Adviser periodically reviews the investment strategies and asset mix of the
Underlying Funds and considers whether overall market conditions would favor a
change in the exposure of the Fund to various asset types or geographic
regions. Based on these considerations, the Adviser may make adjustments to
Underlying Fund holdings by adjusting the percentage of individual Underlying
Funds within the Fund, or adding or removing Underlying Funds. The Adviser may
also determine not to change the Underlying Fund allocations, particularly in
response to short-term market movements, if in its opinion the combination of
Underlying Funds is appropriate to meet the Fund's investment objective.
2
PRINCIPAL RISKS
As with all mutual funds, a shareholder is subject to the risk that his or her
investment could lose money.
A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE
FDIC, OR ANY GOVERNMENT AGENCY. The principal risks affecting shareholders'
investments in the Fund are set forth below.
ASSET ALLOCATION RISK -- The Fund is subject to asset allocation risk, which is
the risk that the Adviser's allocation of the Fund's assets among the various
asset classes and selection of the Underlying Funds will cause the Fund to
underperform other funds with a similar investment objective and/or
underperform the markets in which the Fund invests.
UNDERLYING FUND INVESTMENT RISK -- The value of an investment in the Fund is
based primarily on the prices of the Underlying Funds in which the Fund
invests. In turn, the price of each Underlying Fund is based on the value of
its assets. As a shareholder of an Underlying Fund, the Fund relies on that
Underlying Fund to achieve its investment objective. If the Underlying Fund
fails to achieve its objective, the value of the Fund's investment could
decline, which could adversely affect the Fund's performance. The Fund bears
its own direct expenses in addition to bearing a proportionate share of
expenses charged by the Underlying Funds, which may make owning shares of the
Fund more costly than owning shares of the Underlying Funds directly. Before
investing in the Fund, investors should assess the risks associated with the
Underlying Funds and the types of investments made by those Underlying Funds.
These risks include any combination of the risks described below, although the
Fund's exposure to a particular risk will be proportionate to the Fund's
overall asset allocation and Underlying Fund allocation.
The Fund's investments in ETFs are subject to additional risks. ETFs are pooled
investment vehicles, such as registered investment companies and grantor rusts,
whose shares are listed and traded on U.S. and non-U.S. stock exchanges or
otherwise traded in the over-the-counter market. Because the value of ETF
shares depends on the demand in the market, shares may trade at a discount or
premium to their net asset value and the Adviser may not be able to liquidate
the Fund's holdings at the most optimal time, which could adversely affect the
Fund's performance. Investments in ETFs are also subject to brokerage and other
trading costs, which could result in greater expenses to the Fund.
EQUITY RISK -- The risk that stock prices will fall over short or extended
periods of time. Historically, the equity markets have moved in cycles, and
the value of equity securities may fluctuate drastically from day to day.
Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of
depositary receipts, which are traded on exchanges and represent an
ownership in a foreign security, poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These risks will not necessarily affect the U.S. economy or
similar issuers located in the U.S. In addition, investments in foreign
companies are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may
affect (positively or negatively) the value of the investments. These
currency movements may occur separately from, and in response to, events
that do not otherwise affect the value of the security in the issuer's home
country. Foreign companies may not be registered with the SEC and are
generally not subject to the regulatory controls imposed on U.S. issuers
and, as a consequence, there is generally less publically available
information about foreign securities than is available about
3
domestic securities. Income from foreign securities may be reduced by a
withholding tax at the source, which tax would reduce income received from
the securities. Investments in foreign securities are also subject to the
risk that the securities may be difficult to value and/or valued
incorrectly. While depositary receipts provide an alternative to directly
purchasing the underlying foreign securities in their respective national
markets and currencies, investments in depositary receipts continue to be
subject to many of the risks associated with investing directly in foreign
securities.
EMERGING MARKET SECURITIES RISK -- Investments in emerging markets
securities are considered speculative and subject to heightened risks in
addition to the general risks of investing in non-U.S. securities. Unlike
more established markets, emerging markets may have governments that are
less stable, markets that are less liquid and economies that are less
developed. In addition, emerging markets securities may be subject to
smaller market capitalization of securities markets, which may suffer
periods of relative illiquidity; significant price volatility; restrictions
on foreign investment; and possible restrictions on repatriation of
investment income and capital. Furthermore, foreign investors may be
required to register the proceeds of sales, and future economic or
political crises could lead to price controls, forced mergers,
expropriation or confiscatory taxation, seizure, nationalization or
creation of government monopolies.
FOREIGN CURRENCY RISK -- Because non-U.S. securities are usually
denominated in currencies other than the dollar, the value of the
securities may be influenced by currency exchange rates and exchange
control regulations. The currencies of emerging market countries may
experience significant declines against the U.S. dollar, and devaluation
may occur subsequent to investments in these currencies. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain
emerging market countries.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- Small- and mid-capitalization
companies may be more vulnerable to adverse business or economic events
than larger, more established companies. In particular, these small- and
mid-sized companies may pose additional risks, including liquidity risk,
because these companies tend to have limited product lines, markets and
financial resources, and may depend upon a relatively small management
group. Therefore, small- and mid-cap stocks may be more volatile than those
of larger companies. These securities may be traded over-the-counter or
listed on an exchange.
GROWTH INVESTMENT STYLE RISK -- An Underlying Fund may invest in equity
securities of companies that it believes will increase their earnings at a
certain rate that is generally higher than the rate expected for non-growth
companies. If a growth company does not meet these expectations, the price
of its stock may decline significantly, even if it has increased earnings.
Many growth companies do not pay dividends. Companies that pay dividends
often have lower stock price declines during market downturns. Over time, a
growth investing style may go in and out of favor, causing the Underlying
Fund to sometimes underperform other equity funds that use differing
investing styles.
VALUE INVESTMENT STYLE RISK -- Value investing focuses on companies with
stocks that appear undervalued in light of factors such as the company's
earnings, book value, revenues or cash flow. If an Underlying Fund's
assessment of a company's value or prospects for exceeding earnings
expectations or market conditions is wrong, the Underlying Fund could
suffer losses or produce poor performance relative to other funds. In
addition, "value stocks" can continue to be undervalued by the market for
long periods of time.
4
PREFERRED STOCK RISK -- Preferred stocks are sensitive to interest rate
changes, and are also subject to equity risk, which is the risk that stock
prices will fall over short or extended periods of time. The rights of
preferred stocks on the distribution of a company's assets in the event of
a liquidation are generally subordinate to the rights associated with a
company's debt securities.
CONVERTIBLE SECURITIES RISK -- The value of a convertible security is
influenced by changes in interest rates (with investment value declining as
interest rates increase and increase as interest rates decline) and the
credit standing of the issuer. The price of a convertible security will
also normally vary in some proportion to changes in the price of the
underlying common stock because of the conversion or exercise feature.
RIGHTS AND WARRANTS RISK -- Investments in rights or warrants involve the
risk of loss of the purchase value of a right or warrant if the right to
subscribe to additional shares is not exercised prior to the right's or
warrant's expiration. Also, the purchase of rights and/or warrants involves
the risk that the effective price paid for the right and/or warrant added
to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in
the level of the underlying security.
CORPORATE FIXED INCOME SECURITIES RISK -- Corporate fixed income securities
respond to economic developments, especially changes in interest rates, as
well as perceptions of the creditworthiness and business prospects of
individual issuers.
U.S. GOVERNMENT SECURITIES RISK -- Although U.S. government securities are
considered to be among the safest investments, they are not guaranteed
against price movements due to changing interest rates. Obligations issued
by some U.S. government agencies are backed by the U.S. Treasury, while
others are backed solely by the ability of the agency to borrow from the
U.S. Treasury or by the government sponsored agency's own resources.
FOREIGN SOVEREIGN DEBT SECURITIES RISK -- The risks that: (i) the
governmental entity that controls the repayment of sovereign debt may not
be willing or able to repay the principal and/or interest when it becomes
due, due to factors such as debt service burden, political constraints,
cash flow problems and other national economic factors; (ii) governments
may default on their debt securities, which may require holders of such
securities to participate in debt rescheduling or additional lending to
defaulting governments; and (iii) there is no bankruptcy proceeding by
which defaulted sovereign debt may be collected in whole or in part.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES RISK -- Payment of principal
and interest on asset-backed securities is dependent largely on the cash
flows generated by the assets backing the securities, and asset-backed
securities may not have the benefit of any security interest in the related
assets, which raises the possibility that recoveries on repossessed
collateral may not be available to support payments on these securities.
Asset-backed securities are also subject to the risk that underlying
borrowers will be unable to meet their obligations. To lessen the effect of
failures by obligors on underlying assets to make payments, the entity
administering the pool of assets may agree to ensure the receipt of
payments on the underlying pool occurs in a timely fashion ("liquidity
protection"). In addition, asset-backed securities may obtain insurance,
such as guarantees, policies or letters of credit obtained by the issuer or
sponsor from third parties, for some or all of the assets in the pool
("credit support"). Delinquency or loss more than that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
5
Mortgage-backed securities are affected by, among other things, interest
rate changes and the possibility of prepayment of the underlying mortgage
loans. Mortgage-backed securities are also subject to the risk that
underlying borrowers will be unable to meet their obligations. In addition,
a variety of economic, geographic, social and other factors, such as the
sale of the underlying property, refinancing or foreclosure, can cause
investors to repay the loans underlying a mortgage-backed security sooner
than expected. If the prepayment rates increase, an Underlying Fund may
have to reinvest its principal at a rate of interest that is lower than the
rate on existing mortgage-backed securities.
INTEREST RATE RISK - The value of a debt security is affected by changes in
interest rates. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities) to fall.
The concept of duration is useful in assessing the sensitivity of a fixed
income fund to interest rate movements, which are usually the main source
of risk for most fixed-income funds. Duration measures price volatility by
estimating the change in price of a debt security for a 1% change in its
yield. For example, a duration of five years means the price of a debt
security will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
Debt securities have a stated maturity date when the issuer must repay the
principal amount of the bond. Some debt securities, known as callable
bonds, may repay the principal earlier than the stated maturity date. Debt
securities are most likely to be called when interest rates are falling
because the issuer can refinance at a lower rate.
CREDIT RISK -- The credit rating or financial condition of an issuer may
affect the value of a debt security. Generally, the lower the quality
rating of a security, the greater the risk that the issuer will fail to pay
interest fully and return principal in a timely manner. If an issuer
defaults or becomes unable to honor its financial obligations, the security
may lose some or all of its value. The issuer of an investment-grade
security is more likely to pay interest and repay principal than an issuer
of a lower rated bond. Adverse economic conditions or changing
circumstances, however, may weaken the capacity of the issuer to pay
interest and repay principal.
High yield, or "junk," bonds are highly speculative securities that are
usually issued by smaller less credit worthy and/or highly leveraged
(indebted) companies. Compared with investment-grade bonds, high yield
bonds carry a greater degree of risk and are less likely to make payments
of interest and principal. Market developments and the financial and
business conditions of the corporation issuing these securities influences
their price and liquidity more than changes in interest rates, when
compared to investment-grade debt securities. Insufficient liquidity in the
junk bond market may make it more difficult to dispose of junk bonds and
may cause an Underlying Fund to experience sudden and substantial price
declines. A lack of reliable, objective data or market quotations may make
it more difficult to value junk bonds accurately.
PREPAYMENT AND EXTENSION RISK -- Prepayment and extension risk is the risk
that a loan, bond or other security might be called or otherwise converted,
prepaid or redeemed before maturity. This risk is primarily associated with
corporate-backed, mortgage-backed and asset-backed securities. If a
security is converted, prepaid or redeemed before maturity, particularly
during a time of declining interest rates or spreads, an Underlying Fund
may not be able to invest the proceeds in securities providing as high a
level of income, resulting in a reduced yield to the Underlying Fund.
Conversely, as interest rates rise or spreads widen, the likelihood of
prepayment decreases. An Underlying Fund may be unable to capitalize on
securities with higher
6
interest rates or wider spreads because the Underlying Fund's investments
are locked in at a lower rate for a longer period of time.
DERIVATIVES RISK -- An Underlying Fund's use of futures contracts, forward
contracts, options and swaps is subject to market risk, leverage risk,
correlation risk and liquidity risk. Market risk is the risk that the
market value of an investment may move up and down, sometimes rapidly and
unpredictably. Leverage risk is the risk that the use of leverage may
amplify the effects of market volatility on the Underlying Fund's share
price and may also cause the Underlying Fund to liquidate portfolio
positions when it would not be advantageous to do so in order to satisfy
its obligations. Correlation risk is the risk that changes in the value of
the derivative may not correlate perfectly with the underlying asset, rate
or index. Liquidity risk is the risk that the derivative may be difficult
or impossible to sell at the time and the price that the Underlying Fund
would like, which may cause the Underlying Fund to have to lower the
selling price, sell other securities instead or forego an investment
opportunity, any of which could have a negative effect on the Underlying
Fund's management or performance. An Underlying Fund's use of forwards and
swaps is also subject to credit risk and valuation risk. Credit risk is
described above. Valuation risk is the risk that the derivative may be
difficult to value and/or valued incorrectly. Each of these risks could
cause an Underlying Fund to lose more than the principal amount invested in
a derivative instrument.
MANAGEMENT RISK -- The risk that the investment techniques and risk
analyses applied by the Adviser will not produce the desired results and
that legislative, regulatory, or tax developments may affect the investment
techniques available to the Adviser and the individual portfolio managers
in connection with managing the Fund. There is no guarantee that the
investment objective of the Fund will be achieved.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
total returns for 1 and 5 years and since inception compare with those of a
broad measure of market performance.
Prior to March 31, 2014, the Fund employed a different investment strategy.
Therefore, the past performance shown below may have differed had the Fund's
current investment strategy been in effect. The Fund commenced operations after
succeeding to the assets and operations of a common fund that was managed by
Frost Bank (the "Predecessor Fund"). The performance information provided
includes the returns of the Predecessor Fund for periods prior to June 30, 2008
and has been adjusted to reflect expenses for Institutional Class Shares of the
Fund. Because the Predecessor Fund was not a registered mutual fund, it was not
subject to the same investment and tax restrictions as the Fund; if it had
been, the Predecessor Fund's performance may have been lower. Although the
Predecessor Fund commenced operations prior to the periods shown, the earliest
date for which its performance can be calculated applying the relevant
performance standards is July 31, 2006 ("Performance Start Date").
Of course, the Fund's past performance (before and after taxes) does not
necessarily indicate how the Fund will perform in the future. Updated
performance information is available on the Fund's website at www.frostbank.com
or by calling 1-877-71-FROST.
2007 7.54%
2008 (24.78)%
2009 25.43%
2010 10.67%
2011 (1.72)%
2012 11.80%
2013 13.86%
BEST QUARTER WORST QUARTER
13.29% (11.43)%
(06/30/2009) (12/31/2008)
|
7
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2013
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2013 to appropriate broad-based
indices. After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the
since Performance Start Date period.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns will depend on an investor's tax
situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
SINCE PERFORMANCE
START DATE
FROST MODERATE ALLOCATION FUND 1 YEAR 5 YEARS (7/31/06)
FUND RETURN BEFORE TAXES 13.86% 11.67% 5.80%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 13.42% 11.13% N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND 8.10% 9.23% N/A
SALE OF FUND SHARES
MORNINGSTAR MODERATE ALLOCATION INDEX* 16.48% 12.83% N/A
S&P 500 INDEX ("S&P INDEX") (REFLECTS NO 32.39% 17.94% 7.40%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
MSCI ALL COUNTRY WORLD EX-U.S. INDEX 15.29% 12.81% 3.89%
("MSCI INDEX") (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)*
BARCLAYS U.S. AGGREGATE BOND INDEX ("BARCLAYS (2.02)% 4.44% 5.14%
INDEX") (REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)*
BARCLAYS GLOBAL EX-U.S. INDEX ("BARCLAYS (3.08)% 3.51% 4.81%
GLOBAL") (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)*
BLENDED 45/15/34/6 S&P INDEX/MSCI 15.09% 11.95% 6.38%
INDEX/BARCLAYS INDEX/BARCLAYS GLOBAL (REFLECTS
NO DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
BLENDED 48/12/40 S&P INDEX/MSCI 15.64% 12.16% 6.49%
INDEX/BARCLAYS INDEX (REFLECTS NO DEDUCTION FOR
FEES, EXPENSES, OR TAXES)*
|
* As of March 31, 2014, the Fund's benchmark changed from the Blended
48/12/40 S&P Index/MSCI Index/Barclays Index to the Morningstar Moderate
Allocation Index and the Blended 45/15/34/6 S&P Index/MSCI Index/Barclays
Index/Barclays Global in connection with the Fund's strategy change.
8
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Alan Tarver, CFA, Senior Fund Manager and Regional Portfolio Manager at Frost,
has served on the portfolio team for the Fund since 2014.
Tom L. Stringfellow, CFA, CPA, CFP, CIC, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception in
2006.
Brad Thompson, CFA, Fund Co-Manager, Managing Director, and Director of
Research at Frost, has served on the portfolio team for the Fund since its
inception in 2006.
R. David Telling, Jr., Fund Co-Manager at Frost, has served on the portfolio
team for the Fund since 2014.
Justin Hopkins, Research Analyst and Fund Co-Manager at Frost, has served on
the portfolio team for the Fund since its inception in 2006.
PURCHASE AND SALE OF FUND SHARES
To purchase shares of the Fund for the first time, you must invest at least
$1,000,000 for Institutional Class Shares. The Fund reserves the right to waive
the minimum initial investment amount in its sole discretion. There is no
minimum for subsequent investments.
If you own your shares directly, you may redeem your shares on any day that the
New York Stock Exchange ("NYSE") is open for business (a "Business Day") by
contacting the Fund directly by mail at: Frost Funds, P.O. Box 219009, Kansas
City, Missouri 64121-9009 (Express Mail Address: Frost Funds, c/o DST Systems,
Inc., 430 West 7th Street, Kansas City, Missouri 64105) or telephone at
1-877-71-FROST.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to redeem your shares.
TAX INFORMATION
The Fund intends to make distributions that may be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred arrangement,
such as a 401(k) plan or individual retirement account, in which case your
distribution will be taxed when withdrawn from the tax-deferred account.
9
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's web
site for more information.
10
MORE INFORMATION ABOUT RISK
Investing in each Fund involves risk and there is no guarantee that each Fund
will achieve its goals. The judgments of the Funds' investment managers about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job a
Fund's investment managers do, you could lose money on your investment in a
Fund, just as you could with similar investments.
The value of your investment in a Fund is based on the value of the securities
the Fund holds. These prices change daily due to economic and other events that
affect particular companies and other issuers. These price movements, sometimes
called volatility, may be greater or lesser depending on the types of
securities the Fund owns and the markets in which it trades. The effect on a
Fund of a change in the value of a single security will depend on how widely
the Fund diversifies its holdings.
EQUITY RISK -- Equity securities include common and preferred stocks, rights
and warrants, convertible securities, depositary receipts, as well as shares of
ETFs that attempt to track the price movement of equity indices. Common stock
represents an equity or ownership interest in an issuer. Preferred stock
provides a fixed dividend that is paid before any dividends are paid to common
stock holders, and which takes precedence over common stock in the event of a
liquidation. Like common stock, preferred stocks represent partial ownership in
a company, although preferred stock shareholders do not enjoy any of the voting
rights of common stockholders. Also, unlike common stock, a preferred stock
pays a fixed dividend that does not fluctuate, although the company does not
have to pay this dividend if it lacks the financial ability to do so.
Investments in equity securities in general are subject to market risks that
may cause their prices to fluctuate over time. The value of securities
convertible into equity securities, such as warrants or convertible debt, is
also affected by prevailing interest rates, the credit quality of the issuer
and any call provision. Fluctuations in the value of equity securities in which
a mutual fund invests will cause the fund's net asset value to fluctuate.
FIXED INCOME RISK-- The market values of fixed income investments change in
response to interest rate changes and other factors. During periods of rising
interest rates, the values of outstanding fixed income securities generally
decrease. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. During
periods of falling interest rates, certain debt obligations with high interest
rates may be prepaid (or "called") by the issuer prior to maturity. Declines in
dealer market-making capacity as a result of structural or regulatory changes
could decrease liquidity and/or increase volatility in the fixed income
markets. In response to these events, an Underlying Fund's value may fluctuate
and/or the Underlying Fund may experience increased redemptions from
shareholders, which may impact the Underlying Fund's liquidity or force the
Underlying Fund to sell securities into a declining or illiquid market. In
addition to these risks, fixed income securities may be subject to credit risk,
which is the possibility that an issuer will be unable or unwilling to make
timely payments of either principal or interest.
FOREIGN/EMERGING MARKET SECURITY RISK -- Investments in securities of foreign
companies or governments (including direct investments as well as investments
through depositary receipts) can be more volatile than investments in U.S.
companies or governments. Diplomatic, political, or economic developments,
including nationalization or appropriation, could affect investments in foreign
companies. Foreign securities markets generally have less trading volume and
less liquidity than U.S. markets. In addition, the value of securities
denominated in foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. Financial statements of foreign issuers are governed by
different accounting, auditing, and financial
11
reporting standards than the financial statements of U.S. issuers and may be
less transparent and uniform than in the U.S. Thus, there may be less
information publicly available about foreign issuers than about most U.S.
issuers. Transaction costs are generally higher than those in the U.S. and
expenses for custodial arrangements of foreign securities may be somewhat
greater than typical expenses for custodial arrangements of similar U.S.
securities. Some foreign governments levy withholding taxes against dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion will reduce the income received from
foreign securities. These risks may be heightened with respect to emerging
market countries since political turmoil and rapid changes in economic
conditions are more likely to occur in these countries.
DERIVATIVES RISK -- An Underlying Fund's use of futures contracts, forward
contracts, options and swaps is subject to derivatives risk. Derivatives are
often more volatile than other investments and may magnify the Underlying
Fund's gains or losses. There are various factors that affect the Underlying
Fund's ability to achieve its objective with derivatives. Successful use of a
derivative depends upon the degree to which prices of the underlying assets
correlate with price movements in the derivatives the Underlying Fund buys or
sells. The Underlying Fund could be negatively affected if the change in market
value of its securities fails to correlate perfectly with the values of the
derivatives it purchased or sold. The lack of a liquid secondary market for a
derivative may prevent the Underlying Fund from closing its derivative
positions and could adversely impact its ability to achieve its objective and
to realize profits or limit losses. Since derivatives may be purchased for a
fraction of their value, a relatively small price movement in a derivative may
result in an immediate and substantial loss or gain to the Underlying Fund.
Derivatives are often more volatile than other investments and the Underlying
Fund may lose more in a derivative than it originally invested in it.
Additionally, some derivative instruments are subject to counterparty risk,
meaning that the party that issues the derivative may experience a significant
credit event and may be unwilling or unable to make timely settlement payments
or otherwise honor its obligations.
FUTURES CONTRACTS -- Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific
security or asset at a specified future time and at a specified price. The
risks of futures include: (i) leverage risk; (ii) correlation risk and
(iii) liquidity risk. Because futures require only a small initial
investment in the form of a deposit or margin, they involve a high degree
of leverage. Accordingly, the fluctuation of the value of futures in
relation to the underlying assets upon which they are based is magnified.
Thus, an Underlying Fund may experience losses that exceed losses
experienced by funds that do not use futures contracts. There may be
imperfect correlation, or even no correlation, between price movements of a
futures contract and price movements of investments for which futures are
used as a substitute, or which futures are intended to hedge.
Lack of correlation (or tracking) may be due to factors unrelated to the
value of the investments being substituted or hedged, such as speculative
or other pressures on the markets in which these instruments are traded.
Consequently, the effectiveness of futures as a security substitute or as a
hedging vehicle will depend, in part, on the degree of correlation between
price movements in the futures and price movements in underlying securities
or assets. While futures contracts are generally liquid instruments, under
certain market conditions they may become illiquid. Futures exchanges may
impose daily or intra-day price change limits and/or limit the volume of
trading.
Additionally, government regulation may further reduce liquidity through
similar trading restrictions. As a result, an Underlying Fund may be unable
to close out its futures contracts at a time that is advantageous. The
successful use of futures depends upon a variety of factors, particularly
the ability of the investment adviser to predict movements of the
underlying securities markets, which requires different skills than
predicting changes in the prices of
12
individual securities. There can be no assurance that any particular
futures strategy adopted will succeed.
FORWARD CONTRACTS -- A forward contract involves a negotiated obligation to
purchase or sell a specific security or currency at a future date (with or
without delivery required), which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. Forward contracts are not traded on exchanges; rather, a
bank or dealer will act as agent or as principal in order to make or take
future delivery of a specified lot of a particular security or currency for
an Underlying Fund's account. Risks associated with forwards may include:
(i) an imperfect correlation between the movement in prices of forward
contracts and the securities or currencies underlying them; (ii) an
illiquid market for forwards; (iii) difficulty in obtaining an accurate
value for the forwards; and (iv) the risk that the counterparty to the
forward contract will default or otherwise fail to honor its obligation.
Because forwards require only a small initial investment in the form of a
deposit or margin, they involve a high degree of leverage.
OPTIONS -- Options involve the payment or receipt of a premium by the
investor and the corresponding right or obligation, as the case may be, to
either purchase or sell the underlying security for a specific price at a
certain time or during a certain period. Purchasing options involves the
risk that the underlying instrument will not change price in the manner
expected, so that the investor loses its premium. Selling options involves
potentially greater risk because the investor is exposed to the extent of
the actual price movement in the underlying security rather than only the
premium payment received (which could result in a potentially unlimited
loss). Over-the-counter options also involve counterparty solvency risk.
SWAPS -- In a swap transaction, two parties agree to exchange the returns,
differentials in rates of return or some other amount earned or realized on
the "notional amount" of predetermined investments or instruments, which
may be adjusted for an interest factor. Swaps can involve greater risks
than direct investment in securities, because swaps may be leveraged and
are subject to counterparty risk, credit risk and valuation risk. Swaps may
also be considered illiquid. It may not be possible for an Underlying Fund
to liquidate a swap position at an advantageous time or price, which may
result in significant losses.
MORE INFORMATION ABOUT FUND INVESTMENTS
The Fund's investment objective of total return may be changed without
shareholder approval.
The investments and strategies described in this Prospectus are those that the
Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, the Fund may
invest up to 100% of its assets in money market instruments or other cash
equivalents that would not ordinarily be consistent with its investment
objectives. If the Fund invests in this manner, it may not achieve its
investment objective. The Fund will do so only if the Fund's investment
managers believe that the risk of loss outweighs the opportunity for the Fund
to achieve its investment objective.
This Prospectus describes the Fund's principal investment strategies, and the
Fund will normally invest in the types of investments described in this
Prospectus. In addition to the securities and other investments and strategies
described in this Prospectus, the Fund also may invest, to a lesser extent, in
other securities, use other strategies and engage in other investment practices
that are not part of its principal investment strategies. These investments and
strategies, as well as those described in the Prospectus, are described in
detail in the Fund's Statement of Additional Information ("SAI") (for
information on how to obtain a
13
copy of the SAI, see the back cover of this Prospectus). Of course, there is no
guarantee that the Fund will achieve its investment goals.
The Fund defines non-U.S. or foreign securities as securities issued by
companies incorporated outside of the United States that do not maintain a
headquarters or primary operation within the United States.
INFORMATION ABOUT PORTFOLIO HOLDINGS
A description of the Fund's policy and procedures with respect to the
circumstances under which the Fund discloses its portfolio holdings is
available in the SAI.
INVESTMENT ADVISER
Frost Investment Advisors, LLC (the "Adviser"), a Delaware limited liability
corporation formed in 2007, serves as the investment adviser to the Fund. The
Adviser is a wholly owned non-banking subsidiary of Frost Bank. The Adviser's
principal place of business is located at 100 West Houston Street, 15th Floor,
P.O. Box 2509, San Antonio, Texas, 78299-2509. As of December 31, 2013, the
Adviser had approximately $9.9 billion in assets under management.
The Adviser makes investment decisions for the Fund and continuously reviews,
supervises and administers the Fund's investment program. The Board supervises
the Adviser and establishes policies that the Adviser must follow in its
management activities.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at the following annual rate based on the average daily net
asset of the Fund:
--------------------------------------------------------------------------------
FUND ADVISORY FEE RATE
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 0.15%(1)
--------------------------------------------------------------------------------
|
(1) Prior to March 31, 2014, the Advisory Fee was 0.70%.
The Adviser has contractually agreed to reduce its fees and/or reimburse
expenses to the extent necessary to keep total annual Fund operating expenses
(excluding interest, taxes, brokerage commissions, acquired fund fees and
expenses and extraordinary expenses (collectively, "excluded expenses")) from
exceeding certain levels as set forth below until November 30, 2015
("Contractual Expense Limitation"). This agreement may be terminated: (i) by
the Board, for any reason at any time; or (ii) by the Adviser, upon ninety (90)
days' prior written notice to the Trust, effective as of the close of business
on November 30, 2015.
--------------------------------------------------------------------------------
FUND CONTRACTUAL EXPENSE LIMITATION
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 1.35%(1)
--------------------------------------------------------------------------------
|
(1) Prior to March 31, 2014, the expense limitation was voluntary.
If at any point total annual Fund operating expenses (not including excluded
expenses) are below the Contractual Expense Limitation, the Adviser may receive
from the Fund the difference between the total annual Fund operating expenses
(not including excluded expenses) and the Contractual Expense Limitation set
forth above to recover all or a portion of its prior fee reductions or expense
reimbursements made during the preceding three-year period during which this
agreement (or any prior agreement) was in place.
14
For the fiscal year ended July 31, 2013, the Adviser received advisory fees
(after fee reductions) as a percentage of average daily net assets of the Fund
as follows:
--------------------------------------------------------------------------------
FUND ADVISORY FEES PAID
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 0.25%
--------------------------------------------------------------------------------
|
A discussion regarding the basis for the Board's approval of the investment
advisory contract with the Adviser will be available in the Fund's Semi-Annual
Report to Shareholders dated January 31, 2014, which will cover the period from
August 1, 2013 to January 31, 2014.
PORTFOLIO MANAGERS
Alan Tarver, CFA, Regional Portfolio Manager at Frost, serves as Senior Fund
Manager of the Frost Moderate Allocation Fund. Mr. Tarver is jointly and
primarily responsible for the day-to-day management of the Frost Moderate
Allocation Fund. Mr. Tarver joined Frost Bank, the parent company of the
Adviser, in 2002. He received a bachelor of arts degree in economics from the
University of Texas at Austin, a master's of international management from
Thunderbird and a master's of business administration in finance from Arizona
State University. Mr. Tarver is a holder of the right to use the Chartered
Financial Analyst (CFA[R]) designation and is a member of the CFA institute.
Tom L. Stringfellow, CFA, CFP, CPA, CIC, President and CIO at Frost, serves as
Fund Co-Manager of the Frost Moderate Allocation Fund. Mr. Stringfellow is
jointly and primarily responsible for the day-today management of the Frost
Moderate Allocation Fund. Mr. Stringfellow joined Frost Bank, the parent
company of the Adviser, in 1980. He received a bachelor's of arts degree in
business administration from Southwest Texas State University, a masters of
arts degree in economics from St. Mary's University and a masters of business
administration degree from Texas A&M University - Corpus Christi. Mr.
Stringfellow is a holder of the right to use the Chartered Financial Analyst
(CFA[R]) designation and is a member of the CFA institute.
Brad Thompson, CFA, Managing Director and Director of Research at Frost, serves
as Fund Co-Manager of the Frost Moderate Allocation Fund. Mr. Thompson is
jointly and primarily responsible for the day-today management of the Frost
Moderate Allocation Fund. Mr. Thompson joined Frost Bank, the parent company of
the Adviser, in 2002. Prior to joining Frost Bank, Mr. Thompson was a senior
analyst with Assante Asset Management in Canada and Assante Global Advisors in
Los Angeles. He received the degrees of master of commerce with honours
(finance), from the University of Melbourne; bachelor of commerce with honours
(finance), and bachelor of commerce and economics from the University of
Tasmania at Hobart, Australia. Mr. Thompson is a holder of the right to use the
Chartered Financial Analyst (CFA[R]) designation and is a member of the CFA
Institute.
R. David Telling, Jr., Fund Co-Manager at Frost, is jointly and primarily
responsible for the day-to-day management of the Frost Moderate Allocation
Fund. Mr. Telling joined the Adviser in 2010. Mr. Telling previously worked for
Frost Investment Services in 2009. Prior to joining the Frost organization, Mr.
Telling founded and operated Telling & Company, LLC, a registered investment
adviser catering to high net worth clients. From 1987 to 2007, he was employed
by Merrill Lynch where he served as First Vice President and Portfolio Manager
in the Personal Investment Advisory Service. Mr. Telling received a bachelor's
degree in economics from the University of South Florida, attended the Thomas
M. Cooley Law School and is currently a candidate in the Chartered Alternative
Investment Analyst program.
Justin Hopkins, Research Analyst at Frost, serves as Fund Co-Manager of the
Frost Moderate Allocation Fund. Mr. Hopkins is jointly and primarily
responsible for the day-to-day management of the Frost
15
Moderate Allocation Fund. Mr. Hopkins joined Frost Bank, the parent company of
the Adviser, in 2007. Prior to joining Frost Bank, Mr. Hopkins served as a
representative support specialist at National Financial Partners from 2006 to
2007 and as a mutual fund analyst, intern, part-time at Frost Bank from 2004 to
2006 and full time student from 2002 to 2006. He received a bachelor's degree
in applied arts and sciences and a master's degree in business administration
from Texas State University.
The SAI provides additional information about the portfolio managers'
compensation, other accounts managed, and ownership of Fund shares.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange Institutional Class Shares of the Fund.
Institutional Class Shares are for individual and institutional investors.
For information regarding the federal income tax consequences of transactions
in shares of the Fund, including information about cost basis reporting, see
"Taxes."
HOW TO PURCHASE FUND SHARES
All investments must be made by check, wire or ACH. All checks must be made
payable in U.S. dollars and drawn on U.S. financial institutions. The Fund does
not accept purchases made by third-party checks, credit cards, credit card
checks, cash, traveler's checks, money orders or cashier's checks.
The Fund reserves the right to reject any specific purchase order for any
reason. The Fund is not intended for excessive trading by shareholders in
response to short-term market fluctuations. For more information about the
Fund's policy on excessive trading, see "Excessive Trading Policies and
Procedures."
The Fund does not generally accept investments by non-U.S. persons. Non-U.S.
persons may be permitted to invest in the Fund subject to the satisfaction of
enhanced due diligence. Please contact the Fund for more information.
BY MAIL
You can open an account with the Fund by sending a check and your account
application to the address below. You can add to an existing account by sending
the Fund a check and, if possible, the "Invest by Mail" stub that accompanies
your statement. Be sure your check identifies clearly your name, your account
number, the Fund name and the share class.
REGULAR MAIL ADDRESS
Frost Funds
P.O. Box 219009
Kansas City, MO 64121-9009
EXPRESS MAIL ADDRESS
Frost Funds
c/o DST Systems, Inc.
430 West 7th Street
Kansas City, MO 64105
16
The Fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposit in the mail or with such
services of purchase orders does not constitute receipt by the Fund's transfer
agent. The share price used to fill the purchase order is the next price
calculated by the Fund after the Fund's transfer agent receives the order in
proper form at the P.O. Box provided for regular mail delivery or the office
address provided for express mail delivery.
BY WIRE
To open an account by wire, call 1-877-71-FROST for details. To add to an
existing account by wire, wire your money using the wiring instructions set
forth below (be sure to include the Fund name, the share class and your account
number).
WIRING INSTRUCTIONS
UMB Bank, N.A.
ABA # 101000695
Frost Funds
DDA Acct. # 9871063178
Ref: Fund name/account number/account name/share class
PURCHASES IN-KIND
Subject to the approval of the Fund, an investor may purchase shares of the
Fund with liquid securities and other assets that are eligible for purchase by
the Fund (consistent with the Fund's investment policies and restrictions) and
that have a value that is readily ascertainable in accordance with the Fund's
valuation policies. These transactions will be effected only if the Adviser
deems the security to be an appropriate investment for the Fund. Assets
purchased by the Fund in such a transaction will be valued in accordance with
procedures adopted by the Fund. The Fund reserves the right to amend or
terminate this practice at any time.
MINIMUM INVESTMENTS
You can open an account with the Fund with a minimum initial investment of
$1,000,000 for Institutional Class Shares. There is no minimum for subsequent
investments. The Fund reserves the right to waive the minimum investment
amounts in its sole discretion.
HOW TO REDEEM FUND SHARES
The sale price will be the NAV per share next determined after the Fund
receives your request in proper form.
BY MAIL
To redeem shares by mail, you may contact the Fund directly at: Frost Funds,
P.O. Box 219009, Kansas City, MO 64121-9009 (Express Mail Address: Frost Funds,
c/o DST Systems, Inc., 430 West 7th Street, Kansas City, MO 64105). Please send
a letter to the Fund signed by all registered parties on the account
specifying:
17
o The Fund name;
o The share class;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address to which redemption (sale) proceeds should be sent.
The Fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposit in the mail or with such
services of sell orders does not constitute receipt by the Fund's transfer
agent. The share price used to fill the sell order is the next price calculated
by the Fund after the Fund's transfer agent receives the order in proper form
at the P.O. Box provided for regular mail delivery or the office address
provided for express mail delivery.
All registered shareholders must sign the letter in the exact name(s) in which
their account is registered and must designate any special capacity in which
they are registered.
Certain redemption requests will require a signature guarantee by an eligible
guarantor institution. Eligible guarantors include commercial banks, savings
and loans, savings banks, trust companies, credit unions, member firms of a
national stock exchange, or any other member or participant of an approved
signature guarantor program. For example, signature guarantees may be required
if your address of record has changed in the last 30 days, you want the
proceeds sent to a bank other than the bank of record on your account, or if
you ask that the proceeds be sent to a different person or address. Please note
that a notary public is not an acceptable provider of a signature guarantee and
that we must be provided with the original guarantee. Signature guarantees are
for the protection of our shareholders. Before it grants a redemption request,
the Fund may require a shareholder to furnish additional legal documents to
insure proper authorization.
Accounts held by a corporation, trust, fiduciary or partnership, may require
additional documentation along with a signature guaranteed letter of
instruction. The Fund participates in the Paperless Legal Program (the
"Program"), which eliminates the need for accompanying paper documentation on
legal securities transfers. Requests received with a Medallion Signature
Guarantee will be reviewed for the proper criteria to meet the guidelines of
the Program and may not require additional documentation. Please contact
Shareholder Services at 1-877-71-FROST for more information.
BY TELEPHONE
You must first establish the telephone redemption privilege (and, if desired,
the wire and/or ACH redemption privilege) by completing the appropriate
sections of the account application. Call 1-877-71-FROST to redeem your shares.
Based on your instructions, the Fund will mail your proceeds to you or send
them to your bank via wire or Automated Clearing House ("ACH").
EXCHANGING SHARES
At no charge, you may exchange Institutional Class Shares of the Fund for
Institutional Class Shares of another fund in the Frost Funds complex by
writing to or calling the Fund. At no charge, you may also convert
Institutional Class shares of the Fund directly to Class A shares of the same
Fund, where offered, by writing to or calling the Fund, subject to the fees and
expenses of Class A shares, and provided that you meet the eligibility
requirements applicable to investing in Class A shares, as set forth in the
Class A
18
shares prospectus. You may only exchange or convert shares between accounts
with identical registrations (i.e., the same names and addresses).
The exchange privilege is not intended as a vehicle for short-term or excessive
trading. The Fund may suspend or terminate your exchange privilege if you
engage in a pattern of exchanges that is excessive, as determined in the sole
discretion of the Fund. For more information about the Fund's policy on
excessive trading, see "Excessive Trading Policies and Procedures."
TRANSACTION POLICIES
CALCULATING YOUR SHARE PRICE
NAV for one Fund share is the value of that share's portion of the net assets
of the Fund.
You may buy or sell shares of the Fund on any Business Day. Requests to buy and
sell shares of the Fund are processed at the NAV next computed after the Fund
receives and accepts your order. The Fund calculates NAV once each Business Day
as of the close of normal trading on the NYSE (normally, 4:00 p.m. Eastern
Time). To receive the NAV on any given day, the Fund or an authorized
institution must receive your order in proper form (meaning that it is complete
and contains all necessary information, and has all supporting documentation
such as proper Medallion signature guarantees, IRA rollover forms, etc.) before
the close of trading on the NYSE that day. Otherwise, you will receive the NAV
that is calculated at the close of trading on the following Business Day if the
NYSE is open for trading that day. If the NYSE closes early -- such as on days
in advance of certain generally observed holidays -- the Fund reserves the
right to calculate NAV as of the earlier closing time. Shares will not be
priced on days that the NYSE is closed for trading, including nationally
observed holidays. Since securities that are traded on foreign exchanges may
trade on days when the NYSE is closed, the value of the Fund may change on days
when you are unable to purchase or redeem shares.
The Fund calculates its NAV by adding the total value of its assets,
subtracting its liabilities and then dividing the result by the number of
shares outstanding. In calculating NAV, the Fund generally values its
investment portfolios at market price. If market prices are not readily
available or the Fund reasonably believes that they are unreliable, such as in
the case of a security value that has been materially affected by events
occurring after the relevant market closes, the Fund is required to price those
securities at fair value as determined in good faith using methods approved by
the Board. The Fund's determination of a security's fair value price often
involves the consideration of a number of subjective factors, and is therefore
subject to the unavoidable risk that the value that the Fund assigns to a
security may be higher or lower than the security's value would be if a
reliable market quotation for the security was readily available. The
respective prospectuses for the Underlying Funds in which the Fund invests
explain the circumstances in which those Funds will use fair value pricing and
the effect of fair value pricing.
Redeemable securities issued by open-end investment companies are valued at the
investment company's applicable NAV.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
In addition to being able to buy and sell Fund shares directly from the Fund
through its transfer agent, you may also buy or sell shares of the Fund through
accounts with financial intermediaries such as brokers and other institutions
that are authorized to place trades in Fund shares for their customers. When
you purchase or sell Fund shares through a financial intermediary (rather than
directly from the Fund), you may have to transmit your purchase and sale
requests to the financial intermediary at an earlier time for
19
your transaction to become effective that day. This allows the financial
intermediary time to process your requests and transmit them to the Fund prior
to the time the Fund calculates its NAV that day. Your financial intermediary
is responsible for transmitting all purchase and redemption requests,
investment information, documentation and money to the Fund on time. If your
financial intermediary fails to do so, it may be responsible for any resulting
fees or losses. Unless your financial intermediary is an authorized institution
(defined below), orders transmitted by the financial intermediary and received
by the Fund after the time NAV is calculated for a particular day will receive
the following day's NAV.
Certain financial intermediaries, including certain broker-dealers and
shareholder organizations, are authorized to act as agent on behalf of the
Funds with respect to the receipt of purchase and redemption orders for Fund
shares ("authorized institutions"). Authorized institutions are also authorized
to designate other intermediaries to receive purchase and redemption orders on
a Fund's behalf. A Fund will be deemed to have received a purchase or
redemption order when an authorized institution or, if applicable, an
authorized institution's designee, receives the order. Orders will be priced at
a Fund's net asset value next computed after they are received by an authorized
institution or an authorized institution's designee. To determine whether your
financial intermediary is an authorized institution or an authorized
institution's designee such that it may act as agent on behalf of a Fund with
respect to purchase and redemption orders for Fund shares, you should contact
them directly.
If you deal directly with a financial intermediary, you will have to follow
their procedures for transacting with the Fund. Your financial intermediary may
charge a fee for your purchase and/or redemption transactions. For more
information about how to purchase or sell Fund shares through a financial
intermediary, you should contact your authorized institution directly.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds can be mailed to your account address, sent to your bank by
ACH transfer or wired to your bank account (may be subject to a $15 fee). The
Fund will pay for all shares redeemed within seven days after it receives a
redemption request in proper form, meaning that it is complete, contains all
necessary information, and has all supporting documentation (such as proper
Medallion signature guarantees, IRA rollover forms, etc.). The Fund may require
that signatures be guaranteed by a bank or member firm of a national securities
exchange. Medallion signature guarantees are for the protection of
shareholders. Before it grants a redemption request, the Fund may require a
shareholder to furnish additional legal documents to insure proper
authorization. If you redeem shares that were recently purchased by check or
through ACH, you will not receive your redemption proceeds until the check has
cleared or the ACH transaction has been completed, which may take up to 15 days
from the purchase date.
REDEMPTIONS IN-KIND
The Fund generally pays sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise and for the protection
of the Fund's remaining shareholders, the Fund might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would have to pay
transaction costs to sell the securities distributed to you, as well as taxes
on any capital gains from the sale as with any redemption. In addition, you
would continue to be subject to the risks of any market fluctuation in the
value of the securities you receive in kind until they are sold.
20
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $1,000 because of redemptions, you may be
required to sell your shares. The Fund will provide you at least 30 days'
written notice to give you time to add to your account and avoid the need to
sell your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading
on the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in the SAI.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions they reasonably believe to be genuine. If you
or your financial intermediary transact with the Fund over the telephone, you
will generally bear the risk of any loss.
SHAREHOLDER SERVICING ARRANGEMENTS
The Fund may compensate financial intermediaries for providing a variety of
services to shareholders. Financial intermediaries include affiliated or
unaffiliated brokers, dealers, banks (including bank trust departments), trust
companies, registered investment advisers, financial planners, retirement plan
administrators, insurance companies, and any other institution having a
service, administration, or any similar arrangement with the Fund, its service
providers or their respective affiliates. This section and the following
section briefly describe how financial intermediaries may be paid for providing
these services.
The Fund generally pays financial intermediaries a fee that is based on the
assets of the Fund that are attributable to investments by customers of the
financial intermediary. The services for which financial intermediaries are
compensated may include record-keeping, transaction processing for
shareholders' accounts and other shareholder services. In addition to these
payments, your financial intermediary may charge you account fees, transaction
fees for buying or redeeming shares of the Fund, or other fees for servicing
your account. Your financial intermediary should provide a schedule of its fees
and services to you upon request. The Fund does not pay these service fees on
shares purchased directly. In addition to payments made directly to financial
intermediaries by the Fund, the Adviser or their affiliates may, at their own
expense, pay financial intermediaries for these and other services to Fund
shareholders, as described in the section below.
PAYMENTS TO FINANCIAL INTERMEDIARIES
From time to time, the Adviser and/or its affiliates, at their discretion, may
make payments to certain affiliated or unaffiliated financial intermediaries to
compensate them for the costs associated with distribution, marketing,
administration and shareholder servicing support for the Funds. These payments
are sometimes characterized as "revenue sharing" payments and are made out of
the Adviser's and/or its affiliates' own legitimate profits or other resources,
and are not paid by the Fund. A financial intermediary may provide these
services with respect to Fund shares sold or held through programs such as
retirement plans, qualified tuition programs, fund supermarkets, fee-based
advisory or wrap fee programs, bank trust programs, and insurance (E.G.,
individual or group annuity) programs. In addition, financial intermediaries
may receive payments for making shares of the Fund available to their
customers
21
or registered representatives, including providing the Fund with "shelf space,"
placing it on a preferred or recommended fund list, or promoting the Fund in
certain sales programs that are sponsored by financial intermediaries. To the
extent permitted by the U.S. Securities and Exchange Commission ("SEC") and
Financial Industry Regulatory Authority ("FINRA") rules and other applicable
laws and regulations, the Adviser and/or its affiliates may pay or allow other
promotional incentives or payments to financial intermediaries. For more
information please see "Payments to Financial Intermediaries" in the Fund's
SAI.
The level of payments to individual financial intermediaries varies in any
given year and may be negotiated on the basis of sales of Fund shares, the
amount of Fund assets serviced by the financial intermediary or the quality of
the financial intermediary's relationship with the Adviser and/or its
affiliates. These payments may be more or less than the payments received by
the financial intermediaries from other mutual funds and may influence a
financial intermediary to favor the sales of certain funds or share classes
over others. In certain instances, the payments could be significant and may
cause a conflict of interest for your financial intermediary. Any such payments
will not change the net asset value or price of the Fund's shares. Please
contact your financial intermediary for information about any payments it may
receive in connection with the sale of Fund shares or the provision of services
to Fund shareholders, as well as information about any fees and/or commissions
it charges.
OTHER POLICIES
EXCESSIVE TRADING POLICIES AND PROCEDURES
The Fund is intended for long-term investment purposes only and discourages
shareholders from engaging in "market timing" or other types of excessive
short-term trading. This frequent trading into and out of the Fund may present
risks to the Fund's long-term shareholders, all of which could adversely affect
shareholder returns. The risks posed by frequent trading include interfering
with the efficient implementation of the Fund's investment strategies,
triggering the recognition of taxable gains and losses on the sale of Fund
investments, requiring the Fund to maintain higher cash balances to meet
redemption requests, and experiencing increased transaction costs.
In addition, because the Fund indirectly invests in foreign securities traded
primarily on markets that close prior to the time the Fund determines its NAV,
the risks posed by frequent trading may have a greater potential to dilute the
value of Fund shares held by long-term shareholders than funds investing
exclusively in U.S. securities. In instances where a significant event that
affects the value of one or more foreign securities held by the Fund takes
place after the close of the primary foreign market, but before the time that
the Fund determines its NAV, certain investors may seek to take advantage of
the fact that there will be a delay in the adjustment of the market price for a
security caused by this event until the foreign market reopens (sometimes
referred to as "price" or "time zone" arbitrage). Shareholders who attempt this
type of arbitrage may dilute the value of their Fund's shares if the price of
the Fund's foreign securities do not reflect their fair value. Although the
Fund has procedures designed to determine the fair value of foreign securities
for purposes of calculating its NAV when such an event has occurred, fair value
pricing, because it involves judgments which are inherently subjective, may not
always eliminate the risk of price arbitrage. For more information on how the
Fund uses fair value pricing, see "Calculating Your Share Price."
The Fund's service providers will take steps reasonably designed to detect and
deter frequent trading by shareholders pursuant to the Fund's policies and
procedures described in this Prospectus and approved by the Board. For purposes
of applying these policies, the Fund's service providers may consider the
trading
22
history of accounts under common ownership or control. The Fund's policies and
procedures include the following:
o Shareholders are restricted from making more than five "round trips,"
including exchanges into or out of the Fund, per calendar year. If a
shareholder exceeds this amount, the Fund and/or its service providers
may, at their discretion, reject any additional purchase or exchange
orders. The Fund defines a round trip as a purchase or exchange into
the Fund by a shareholder, followed by a subsequent redemption out of
the Fund, of an amount the Adviser reasonably believes would be
harmful or disruptive to the Fund.
o The Fund reserves the right to reject any purchase or exchange
request by any investor or group of investors for any reason without
prior notice, including, in particular, if the Fund or its
Adviser/Sub-Adviser reasonably believes that the trading activity
would be harmful or disruptive to the Fund.
The Fund and/or its service providers seek to apply these policies to the best
of their abilities uniformly and in a manner they believe is consistent with
the interests of the Fund's long-term shareholders. The Fund does not knowingly
accommodate frequent purchases and redemptions by Fund shareholders. Although
these policies are designed to deter frequent trading, none of these measures
alone nor all of them taken together eliminate the possibility that frequent
trading in the Fund will occur.
Financial intermediaries (such as investment advisers and broker-dealers) often
establish omnibus accounts in the Fund for their customers through which
transactions are placed. In accordance with Rule 22c-2 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund has entered into
information sharing agreements with certain financial intermediaries. Under
these agreements, a financial intermediary is obligated to: (1) enforce during
the term of the agreement, the Fund's market-timing policy; (2) furnish the
Fund, upon its request, with information regarding customer trading activities
in shares of the Fund; and (3) enforce the Fund's market-timing policy with
respect to customers identified by the Fund as having engaged in market timing.
When information regarding transactions in the Fund's shares is requested by
the Fund and such information is in the possession of a person that is itself a
financial intermediary to a financial intermediary (an "indirect
intermediary"), any financial intermediary with whom the Fund has an
information sharing agreement is obligated to obtain transaction information
from the indirect intermediary or, if directed by the Fund, to restrict or
prohibit the indirect intermediary from purchasing shares of the Fund on behalf
of other persons. Please contact your financial intermediary for more
information.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.
What this means to you: When you open an account, the Fund will ask your name,
address, date of birth, and other information that will allow the Fund to
identify you. This information is subject to verification to ensure the
identity of all persons opening a mutual fund account.
The Fund is required by law to reject your new account application if the
required identifying information is not provided.
23
In certain instances, the Fund is required to collect documents to fulfill its
legal obligation. Documents provided in connection with your application will
be used solely to establish and verify a customer's identity.
Attempts to collect the missing information required on the application will be
performed by either contacting you or, if applicable, your broker. If this
information is unable to be obtained within a reasonable timeframe established
in the sole discretion of the Fund, your application will be rejected.
Upon receipt of your application in proper form (or upon receipt of all
identifying information required on the application), your investment will be
accepted and your order will be processed at the next-determined NAV per
share.
However, the Fund reserves the right to close or liquidate your account at the
NAV next determined and remit proceeds to you via check if it is unable to
verify your identity. Attempts to verify your identity will be performed within
a reasonable timeframe established in the sole discretion of the Fund. Further,
the Fund reserves the right to hold your proceeds until your original check
clears the bank, which may take up to 15 days from the date of purchase. In
such an instance, you may be subject to a gain or loss on Fund shares and will
be subject to corresponding tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the Fund's overall
obligation to deter money laundering under federal law. The Fund has adopted
an anti-money laundering compliance program designed to prevent the Fund from
being used for money laundering or the financing of illegal activities. In
this regard, the Fund reserves the right to: (i) refuse, cancel or rescind any
purchase or exchange order; (ii) freeze any account and/or suspend account
services; or (iii) involuntarily close your account in cases of threatening
conduct or suspected fraudulent or illegal activity. These actions will be
taken when, in the sole discretion of Fund management, they are deemed to be in
the best interest of the Fund or in cases when the Fund is requested or
compelled to do so by governmental or law enforcement authority. If your
account is closed at the request of governmental or law enforcement authority,
you may not receive proceeds of the redemption if the Fund is required to
withhold such proceeds.
DIVIDENDS AND DISTRIBUTIONS
Normally, the Fund distributes its net investment income, if any, quarterly and
makes distributions of its net realized capital gains, if any, at least
annually. If you own Fund shares on the Fund's record date, you will be
entitled to receive the distribution.
The Fund will automatically reinvest dividends and distributions in additional
shares of the Fund, unless you elect on your account application to receive
them in cash. To elect cash payment, you must notify the Fund in writing prior
to the date of the distribution. Your election will be effective for dividends
and distributions paid after the Fund receives your written notice. To cancel
your election, simply send the Fund written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. The following is a summary of the
federal income tax consequences of investing in the Fund. This summary does not
apply to shares held in an individual retirement account or other tax-qualified
plan, which are not subject to current tax. Transactions relating to shares
held in such accounts
24
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The Fund intends to qualify as a regulated investment company ("RIC") as
defined in Section 851 of the Internal Revenue Code of 1986, as amended. The
Fund intends to monitor its investments to ensure that it will satisfy the
qualification tests as a RIC, including the qualifying income test. See the SAI
for more information regarding the RIC qualification tests.
The Fund will distribute substantially all of its net investment income and its
net realized capital gains, if any. The dividends and distributions you
receive, whether in cash or reinvested in additional shares of the Fund may be
subject to federal, state, and local taxation, depending upon your tax
situation. Income distributions, including distributions of net short-term
capital gains but excluding distributions of qualified dividend income, are
generally taxable at ordinary income tax rates. Capital gains distributions and
distributions that are designated by the Fund as qualified dividend income are
generally taxable at the rates applicable to long-term capital gains.
Distributions received by the Fund from an investment in another fund taxable
as a RIC may be treated as qualified dividend income only to the extent the
dividend distributions are attributable to qualified dividend income received
and designated as such by the other fund. Once a year the Fund will send you a
statement showing the types and total amount of distributions you received
during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your investment. This is known as "buying a dividend" and should be
avoided by taxable investors. Call 1-877-71-FROST to find out when the Fund
expects to make a distribution to shareholders.
Each sale of shares of the Fund may be a taxable event. For tax purposes, an
exchange of your Fund shares for shares of a different fund is the same as a
sale. A sale may result in a capital gain or loss to you. For tax purposes, an
exchange of your Fund shares for shares of a different Fund is the same as a
sale. The gain or loss generally will be treated as short term if you held the
shares 12 months or less, long term if you held the shares for longer.
Effective beginning January 1, 2013, U.S. individuals with income exceeding
$200,000 ($250,000 if married and filing jointly) are subject to a new 3.8%
Medicare contribution tax on their "net investment income," including interest,
dividends, and capital gains (including capital gains realized on the sale or
exchange of shares of the Fund).
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Fund. Investment in Government
National Mortgage Association ("Ginnie Mae") or Federal National Mortgage
Association ("Fannie Mae") securities, banker's acceptances, commercial paper,
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for such tax-free treatment. The rules on exclusion of this
income are different for corporate shareholders.
The Fund (or its administrative agent) must report to the Internal Revenue
Service ("IRS") and furnish to Fund shareholders cost basis information for
Fund shares purchased on or after January 1, 2012, and sold on or after that
date. In addition to reporting the gross proceeds from the sale of Fund shares,
the Fund is also required to report the cost basis information for such shares
and indicate whether these shares had a short-term or long-term holding period.
For each sale of Fund shares, the Fund will permit shareholders to elect from
among several IRS-accepted cost basis methods, including the average basis
method. In the absence of an election, the Fund will use the average basis
method as the default cost basis method. The
25
cost basis method elected by the Fund shareholder (or the cost basis method
applied by default) for each sale of Fund shares may not be changed after the
settlement date of each such sale of Fund shares. Fund shareholders should
consult with their tax advisors to determine the best IRS-accepted cost basis
method for their tax situation and to obtain more information about how cost
basis reporting applies to them.
To the extent that the Fund invests in foreign securities, it may be subject to
foreign withholding taxes with respect to dividends or interest the Fund
received from sources in foreign countries. The Fund may elect to treat some of
those taxes as a distribution to shareholders, which would allow shareholders
to offset some of their U.S. federal income tax. Foreign tax credits, if any,
received by the Fund as a result of an investment in another RIC (including an
ETF which is taxable as a RIC) will not be passed through to you unless the
Fund qualifies as a "qualified fund of funds" in which at least 50% of the
value of the Fund's total assets (at the close of each quarter of the Fund's
taxable year) is represented by interests in other RICs. The Fund will notify
you if it makes such an election and provide you with the information necessary
to reflect foreign taxes paid on your income tax return.
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
26
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. The
information is intended to help you understand the Fund's financial performance
for the past five fiscal years. Some of this information reflects
financial information for a single Institutional Class share. The total returns
in the table represent the rate that you would have earned (or lost) on an
investment in the Fund, assuming you reinvested all of your dividends and
distributions. The information provided below has been audited by Ernst & Young
LLP, independent registered public accounting firm for the Fund. The financial
statements and the unqualified opinion of Ernst & Young LLP are included in the
2013 Annual Report of the Fund, which is available upon request by calling
1-877-71-FROST.
27
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------------------------
NET
REALIZED
NET AND
ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT GAINS TOTAL FROM NET FROM TOTAL NET ASSET
BEGINNING INCOME (LOSSES) ON FROM INVESTMENT REALIZED DIVIDENDS & VALUE, END TOTAL
OF YEAR (1) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN+
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
MODERATE ALLOCATION FUND
------------------------------------------------------------------------------------------------------------------------------------
2013 $ 10.55 $ 0.19 $ 0.98 $ 1.17 $ (0.24) $ -- $ (0.24) $ 11.48 11.17%
2012 10.49 0.19 0.06 0.25 (0.19) -- (0.19) 10.55 2.49
2011 9.54 0.14 1.05 1.19 (0.24) -- (0.24) 10.49 12.49
2010 8.67 0.16 0.87 1.03 (0.16) -- (0.16) 9.54 11.88
2009 9.76 0.32 (1.11) (0.79) (0.30) -- (0.30) 8.67 (7.66)
------------------------------------------------------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------
RATIO OF
EXPENSES
TO AVERAGE
NET ASSETS RATIO OF NET
NET ASSETS RATIO OF (EXCLUDING INVESTMENT
END OF EXPENSES WAIVERS AND INCOME PORTFOLIO
YEAR TO AVERAGE FEES PAID TO AVERAGE TURNOVER
(000) NET ASSETS INDIRECTLY) NET ASSETS RATE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MODERATE ALLOCATION FUND
----------------------------------------------------------------------------
2013 $ 4,175 1.35% 1.80% 1.72% 19%
2012 3,925 1.35 1.77 1.84 18
2011 4,399 1.30 1.39 1.34 21
2010 12,976 1.24 1.30 1.71 38
2009 12,038 1.18 1.23 3.94 33
----------------------------------------------------------------------------
|
+ TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. TOTAL
RETURN FIGURES DO NOT INCLUDE APPLICABLE SALES LOADS. TOTAL RETURN WOULD
HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN WAIVED AND ASSUMED BY THE
ADVISER DURING THE PERIOD.
(1) PER SHARE DATA CALCULATED USING THE AVERAGE SHARES METHOD.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
28
THE ADVISORS' INNER CIRCLE FUND II
FROST FUNDS
INVESTMENT ADVISER
Frost Investment Advisors, LLC
100 West Houston Street, 15th Floor
P.O. Box 2509
San Antonio, Texas 78299-2509
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
MORE INFORMATION ABOUT THE FUND IS AVAILABLE, WITHOUT CHARGE, THROUGH THE
FOLLOWING:
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI, dated March 31, 2014,
includes detailed information about the Fund and The Advisors' Inner Circle
Fund II. The SAI is on file with the SEC and is incorporated by reference into
this Prospectus. This means that the SAI, for legal purposes, is a part of this
Prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS: These reports contain information from the
Fund's portfolio managers about investment strategies, recent market conditions
and trends and their impact on Fund performance. The reports also contain more
information about the Fund's holdings and detailed financial information about
the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT OR MORE INFORMATION:
BY TELEPHONE: 1-877-71-FROST (1-877-713-7678)
BY MAIL: Frost Funds
P.O. Box 219009
Kansas City, MO 64121-9009
BY INTERNET: www.frostbank.com
FROM THE SEC: You can also obtain the SAI, as well as other information about
The Advisors' Inner Circle Fund II, from the EDGAR Database on the SEC's
website at: HTTP://WWW.SEC.GOV. You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information on the operation of
the Public Reference Room, call 202-551-8090). You may request documents by
mail from the SEC, upon payment of a duplicating fee, by writing to: U.S.
Securities and Exchange Commission, Public Reference Section, Washington, DC
20549-1520. You may also obtain this information, upon payment of a
duplicating fee, by e-mailing the SEC at the following address:
PUBLICINFO@SEC.GOV.
THE ADVISORS' INNER CIRCLE FUND II'S INVESTMENT COMPANY ACT REGISTRATION NUMBER
IS 811-07102.
FIA-PS-010-0100
A
STATEMENT OF ADDITIONAL INFORMATION
FROST GROWTH EQUITY FUND
(Institutional Class Shares: FICEX)
(Class A Shares: FACEX)
FROST VALUE EQUITY FUND (formerly Frost Dividend Value Equity Fund)
(Institutional Class Shares: FIDVX)
(Class A Shares: FADVX)
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
(Institutional Class Shares: FIKDX)
(Class A Shares: FAKDX)
FROST MID CAP EQUITY FUND
(Institutional Class Shares: FIKSX)
(Class A Shares: FAKSX)
FROST SMALL CAP EQUITY FUND
(Institutional Class Shares: FIHSX)
(Class A Shares: FAHMX)
FROST INTERNATIONAL EQUITY FUND
(Institutional Class Shares: FITNX)
(Class A Shares: FANTX)
FROST NATURAL RESOURCES FUND
(Institutional Class Shares: FNRFX)
(Class A Shares: FNATX)
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
(Institutional Class Shares: FCBWX)
(Class A Shares: FCAWX)
FROST CONSERVATIVE ALLOCATION FUND
(formerly Frost Diversified Strategies Fund)
(Class A Shares: FDSFX)
FROST MODERATE ALLOCATION FUND
(formerly Frost Strategic Balanced Fund)
(Institutional Class Shares: FIBTX)
(Class A Shares: FASTX)
FROST TOTAL RETURN BOND FUND
(Institutional Class Shares: FIJEX)
(Class A Shares: FATRX)
FROST CREDIT FUND
(Institutional Class Shares: FCFIX)
(Class A Shares: FCFAX)
FROST LOW DURATION BOND FUND
(Institutional Class Shares: FILDX)
(Class A Shares: FADLX)
FROST MUNICIPAL BOND FUND
(Institutional Class Shares: FIMUX)
(Class A Shares: FAUMX)
FROST KEMPNER TREASURY AND INCOME FUND
(Institutional Class Shares: FIKTX)
(Class A Shares: )
EACH, A SERIES OF THE ADVISORS' INNER CIRCLE FUND II
MARCH 31, 2014
i
INVESTMENT ADVISER:
FROST INVESTMENT ADVISORS, LLC
This Statement of Additional Information ("SAI") is not a prospectus. This SAI
is intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund II (the "Trust") and the Frost
Growth Equity Fund, the Frost Value Equity Fund, the Frost Kempner Multi-Cap
Deep Value Equity Fund, the Frost Mid Cap Equity Fund, the Frost Small Cap
Equity Fund, the Frost International Equity Fund, the Frost Natural Resources
Fund, the Frost Cinque Large Cap Buy-Write Equity Fund, the Frost Conservative
Allocation Fund, the Frost Moderate Allocation Fund, the Frost Total Return
Bond Fund, the Frost Credit Fund, the Frost Low Duration Bond Fund, the Frost
Municipal Bond Fund, and the Frost Kempner Treasury and Income Fund (each, a
"Fund" and collectively, the "Funds"). This SAI is incorporated by reference
into and should be read in conjunction with the Prospectuses dated March 31,
2014. Capitalized terms not defined herein are defined in the Prospectuses.
The Funds' financial statements and financial highlights including notes
thereto, and the report of Ernst & Young LLP for the fiscal year ended July 31,
2013 are contained in the 2013 Annual Report to Shareholders and are
incorporated by reference into and are deemed to be part of this SAI. A copy of
the Funds' 2013 Annual Report to Shareholders accompanies the delivery of this
SAI. A Prospectus or Annual Report may be obtained by writing the Trust at P.O.
Box 219009, Kansas City, Missouri 64121-9009 or calling toll-free
1-877-71-FROST (1-877-713-7678).
ii
TABLE OF CONTENTS
THE TRUST ................................................................ S-1
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND
POLICIES ............................................................ S-2
DESCRIPTION OF PERMITTED INVESTMENTS ..................................... S-3
INVESTMENT LIMITATIONS ................................................... S-36
THE ADVISER AND SUB-ADVISERS ............................................. S-39
PORTFOLIO MANAGERS ....................................................... S-45
THE ADMINISTRATOR ........................................................ S-51
THE DISTRIBUTOR .......................................................... S-53
PAYMENTS TO FINANCIAL INTERMEDIARIES ..................................... S-56
THE TRANSFER AGENT ....................................................... S-56
THE CUSTODIAN ............................................................ S-56
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............................ S-57
LEGAL COUNSEL ............................................................ S-57
TRUSTEES AND OFFICERS OF THE TRUST ....................................... S-58
PURCHASING AND REDEEMING SHARES .......................................... S-69
DETERMINATION OF NET ASSET VALUE ......................................... S-69
TAXES .................................................................... S-70
FUND TRANSACTIONS ........................................................ S-79
PORTFOLIO HOLDINGS ....................................................... S-85
DESCRIPTION OF SHARES .................................................... S-86
SHAREHOLDER LIABILITY .................................................... S-86
LIMITATION OF TRUSTEES' LIABILITY ........................................ S-87
PROXY VOTING ............................................................. S-87
CODES OF ETHICS .......................................................... S-87
5% AND 25% SHAREHOLDERS .................................................. S-87
APPENDIX A -- DESCRIPTION OF RATINGS ..................................... A-1
APPENDIX B -- PROXY VOTING POLICIES AND PROCEDURES ....................... B-1
March 31, 2014
FIA-SX-001-0800
|
iii
THE TRUST
GENERAL. Each Fund is a separate series of the Trust. The Trust is an open-end
investment management company established under Massachusetts law as a
Massachusetts voluntary association (commonly known as a business trust) under
a Declaration of Trust dated July 24, 1992, as amended and restated February
18, 2004 and August 10, 2004 and amended May 15, 2012. Prior to August 10,
2004, the Trust's name was The Arbor Fund. The Declaration of Trust permits the
Trust to offer separate series ("funds") of shares of beneficial interest
("shares"). The Trust reserves the right to create and issue shares of
additional funds. Each fund is a separate mutual fund, and each share of each
fund represents an equal proportionate interest in that fund. All consideration
received by the Trust for shares of any fund and all assets of such fund belong
solely to that fund and would be subject to any liabilities related thereto.
Each Fund of the Trust pays its (i) operating expenses, including fees of its
service providers, expenses of preparing prospectuses, proxy solicitation
material and reports to shareholders, costs of custodial services and
registering its shares under federal and state securities laws, pricing,
insurance expenses, brokerage costs, interest charges, taxes and organization
expenses; and (ii) pro rata share of the Fund's other expenses, including audit
and legal expenses. Expenses attributable to a specific fund shall be payable
solely out of the assets of that fund. Expenses not attributable to a specific
fund are allocated across all of the funds on the basis of relative net assets.
The other funds of the Trust are described in one or more separate Statements
of Additional Information.
DESCRIPTION OF MULTIPLE CLASSES OF SHARES. The Trust is authorized to offer
shares of the Funds, except for the Frost Conservative Allocation Fund, in
Institutional Class Shares and Class A Shares; however, Class A Shares of the
Frost Kempner Treasury and Income Fund are currently not available for purchase
and Institutional Class Shares of the Frost Moderate Allocation Fund are
currently closed to new investors. The Trust is authorized to offer shares of
the Frost Conservative Allocation Fund in Class A Shares only. The different
classes provide for variations in sales charges, certain distribution expenses
and minimum investment requirements. Minimum investment requirements and
investor eligibility are described in the prospectuses. The Trust reserves the
right to create and issue additional classes of shares. For more information
on distribution expenses, see "The Distributor" section in this SAI.
HISTORY OF CERTAIN FUNDS. Each Fund, except for the Frost Mid Cap Equity Fund,
the Frost Natural Resources Fund, the Frost Cinque Large Cap Buy-Write Equity
Fund, the Frost Conservative Allocation Fund, and the Frost Credit Fund, is a
successor to a collective investment trust and/or one or more common trust
funds (each, a "Predecessor Fund" and collectively, the "Predecessor Funds") of
Frost Bank formed in San Antonio, Texas. As a result of the conversion from a
collective investment trust and/or common trust funds, the Funds assumed all
assets and liabilities of the Predecessor Funds. The Predecessor Funds were
managed by Frost Bank using substantially the same investment objectives,
strategies, policies and restrictions as those used by the Funds. Each of the
Predecessor Funds reorganized into the Trust in 2008. A substantial portion of
the assets of each Predecessor Fund was transferred to its successor in
connection with the Funds' commencement of operations.
VOTING RIGHTS. Each shareholder of record is entitled to one vote for each
share held on the record date for the meeting. Each Fund will vote separately
on matters relating solely to it. As a Massachusetts voluntary association, the
Trust is not required, and does not intend, to hold annual meetings of
shareholders. Approval of shareholders will be sought, however, for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. Under the Declaration of Trust, the Trustees have the
power to liquidate one or more Funds without shareholder approval. While the
Trustees have no present intention of exercising this power, they
S-1
may do so if a Fund fails to reach a viable size within a reasonable amount of
time or for such other reasons as may be determined by the Trust's Board of
Trustees (each, a "Trustee" and collectively, the "Board").
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Any series of the Trust created on or after February 18, 2004 may reorganize or
merge with one or more other series of the Trust or of another investment
company. Any such reorganization or merger shall be pursuant to the terms and
conditions specified in an agreement and plan of reorganization authorized and
approved by the Trustees and entered into by the relevant series in connection
therewith. In addition, such reorganization or merger may be authorized by vote
of a majority of the Trustees then in office and, to the extent permitted by
applicable law and the Declaration of Trust, without the approval of
shareholders of any series.
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective(s) and principal investment strategies are
described in the Funds' prospectuses. Each Fund is classified as a
"diversified" investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The following information supplements, and should be
read in conjunction with, the prospectuses. For a description of certain
permitted investments discussed below, see the "Description of Permitted
Investments" section in this SAI.
PORTFOLIO TURNOVER RATE. Portfolio turnover rate is defined under the U.S.
Securities and Exchange Commission (the "SEC") rules as the value of the
securities purchased or securities sold, excluding all securities whose
maturities at the time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of the portfolio turnover rate. Instruments
excluded from the calculation of portfolio turnover may include futures
contracts in which the Funds may invest since such contracts generally have
remaining maturities of less than one year. The Funds may at times hold
investments in other short-term instruments, such as repurchase agreements,
which are excluded for purposes of computing portfolio turnover. For the fiscal
years ended July 31, 2012 and 2013, the portfolio turnover rates for each Fund
were as follows:
--------------------------------------------------------------------------------
FUND 2012 2013
--------------------------------------------------------------------------------
Frost Growth Equity Fund 46% 32%
--------------------------------------------------------------------------------
Frost Value Equity Fund 90% 77%
--------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value Equity Fund 24% 18%
--------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 108% 118%
--------------------------------------------------------------------------------
Frost Small Cap Equity Fund 113% 106%
--------------------------------------------------------------------------------
Frost International Equity Fund 20% 50%(4)
--------------------------------------------------------------------------------
Frost Natural Resources Fund 49%(2) 41%
--------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write Equity Fund N/A(1) 16%(3)
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund 150% 98%
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund 18% 19%
--------------------------------------------------------------------------------
Frost Total Return Bond Fund 61% 53%
--------------------------------------------------------------------------------
Frost Credit Fund N/A(1) 57%(3)
--------------------------------------------------------------------------------
Frost Low Duration Bond Fund 73% 85%
--------------------------------------------------------------------------------
Frost Municipal Bond Fund 8% 10%
--------------------------------------------------------------------------------
Frost Kempner Treasury And Income Fund 0% 0%
--------------------------------------------------------------------------------
|
1 Not in operation during the period.
2 Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
3 Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
4 The portfolio turnover rate of the Frost International Equity Fund was
higher during the fiscal period ended July 31, 2013 due to changes in the
investment environment.
S-2
DESCRIPTION OF PERMITTED INVESTMENTS
The following are descriptions of the permitted investments and investment
practices of the Funds and the associated risk factors. Each Fund may invest in
any of the following instruments or engage in any of the following investment
practices unless such investment or activity is inconsistent with or is not
permitted by that Fund's stated investment policies, including those stated
below.
EQUITY SECURITIES
TYPES OF EQUITY SECURITIES:
COMMON STOCKS -- Common stocks represent units of ownership in a company.
Common stocks usually carry voting rights and earn dividends. Unlike preferred
stocks, which are described below, dividends on common stocks are not fixed but
are declared at the discretion of the company's board of directors.
PREFERRED STOCKS -- Preferred stocks are also units of ownership in a company.
Preferred stocks normally have preference over common stock in the payment of
dividends and the liquidation of the company. However, in all other respects,
preferred stocks are subordinated to the liabilities of the issuer. Unlike
common stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk.
CONVERTIBLE SECURITIES -- Convertible securities are securities that may be
exchanged for, converted into, or exercised to acquire a predetermined number
of shares of the issuer's common stock at a Fund's option during a specified
time period (such as convertible preferred stocks, convertible debentures and
warrants). A convertible security is generally a fixed income security that is
senior to common stock in an issuer's capital structure, but is usually
subordinated to similar non-convertible securities. In exchange for the
conversion feature, many corporations will pay a lower rate of interest on
convertible securities than debt securities of the same corporation. In
general, the market value of a convertible security is at least the higher of
its "investment value" (I.E., its value as a fixed income security) or its
"conversion value" (I.E., its value upon conversion into its underlying common
stock).
S-3
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities. The price of a convertible security tends to increase as the market
value of the underlying stock rises, whereas it tends to decrease as the market
value of the underlying common stock declines.
A synthetic convertible security is a combination investment in which a Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. government securities and (ii) call options or warrants on
the common stock of the same or different issuer with some or all of the
anticipated interest income from the associated debt obligation that is earned
over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. A synthetic convertible position has
similar investment characteristics, but may differ with respect to credit
quality, time to maturity, trading characteristics, and other factors. Because
a Fund will create synthetic convertible positions only out of high grade fixed
income securities, the credit rating associated with the Fund's synthetic
convertible investments is generally expected to be higher than that of the
average convertible security, many of which are rated below high grade.
However, because the options used to create synthetic convertible positions
will generally have expirations between one month and three years of the time
of purchase, the maturity of these positions will generally be shorter than
average for convertible securities. Since the option component of a
convertible security or synthetic convertible position is a wasting asset (in
the sense of losing "time value" as maturity approaches), a synthetic
convertible position may lose such value more rapidly than a convertible
security of longer maturity; however, the gain in option value due to
appreciation of the underlying stock may exceed such time value loss. The
market price of the option component generally reflects these differences in
maturities, and each Fund's investment managers takes such differences into
account when evaluating such positions. When a synthetic convertible position
"matures" because of the expiration of the associated option, a Fund may extend
the maturity by investing in a new option with longer maturity on the common
stock of the same or different issuer. If a Fund does not so extend the
maturity of a position, it may continue to hold the associated fixed income
security.
RIGHTS AND WARRANTS -- A right is a privilege granted to existing shareholders
of a corporation to subscribe to shares of a new issue of common stock before
it is issued. Rights normally have a short life, usually two to four weeks, are
freely transferable and entitle the holder to buy the new common stock at a
lower price than the public offering price. Warrants are securities that are
usually issued together with a debt security or preferred stock and that give
the holder the right to buy proportionate amount of common stock at a specified
price. Warrants are freely transferable and are traded on major exchanges.
Unlike rights, warrants normally have a life that is measured in years and
entitles the holder to buy common stock of a company at a price that is usually
higher than the market price at the time the warrant is issued. Corporations
often issue warrants to make the accompanying debt security more attractive.
An investment in warrants and rights may entail greater risks than certain
other types of investments. Generally, rights and warrants do not carry the
right to receive dividends or exercise voting rights with respect to the
underlying securities, and they do not represent any rights in the assets of
the issuer. In addition, their value does not necessarily change with the value
of the
S-4
underlying securities, and they cease to have value if they are not exercised
on or before their expiration date. Investing in rights and warrants increases
the potential profit or loss to be realized from the investment as compared
with investing the same amount in the underlying securities.
MASTER LIMITED PARTNERSHIPS ("MLPS") -- Master Limited Partnerships are limited
partnerships or limited liability companies, whose partnership units or limited
liability interests are listed and traded on a U.S. securities exchange, and
are treated as publicly traded partnerships for federal income tax purposes. To
qualify to be treated as a partnership for tax purposes, an MLP must receive at
least 90% of its income from qualifying sources as set forth in Section 7704(d)
of the Internal Revenue Code of 1986, as amended (the "Code"). These
qualifying sources include activities such as the exploration, development,
mining, production, processing, refining, transportation, storage and marketing
of mineral or natural resources. MLPs generally have two classes of owners, the
general partner and limited partners. MLPs that are formed as limited
liability companies generally have two analogous classes of owners, the
managing member and the members. For purposes of this section, references to
general partners also apply to managing members and references to limited
partners also apply to members. The general partner is typically owned by a
major energy company, an investment fund, the direct management of the MLP or
is an entity owned by one or more of such parties. The general partner may be
structured as a private or publicly traded corporation or other entity. The
general partner typically controls the operations and management of the MLP
through an equity interest of as much as 2% in the MLP plus, in many cases,
ownership of common units and subordinated units. Limited partners own the
remainder of the MLP through ownership of common units and have a limited role
in the MLP's operations and management.
MLPs are typically structured such that common units and general partner
interests have first priority to receive quarterly cash distributions up to an
established minimum amount ("minimum quarterly distributions" or "MQD"). Common
and general partner interests also accrue arrearages in distributions to the
extent the MQD is not paid. Once common and general partner interests have been
paid, subordinated units receive distributions of up to the MQD; however,
subordinated units do not accrue arrearages. Distributable cash in excess of
the MQD paid to both common and subordinated units is distributed to both
common and subordinated units generally on a pro rata basis. The general
partner is also eligible to receive incentive distributions if the general
partner operates the business in a manner which results in distributions paid
per common unit surpassing specified target levels. As the general partner
increases cash distributions to the limited partners, the general partner
receives an increasingly higher percentage of the incremental cash
distributions. A common arrangement provides that the general partner can
reach a tier where it receives 50% of every incremental dollar paid to common
and subordinated unit holders. These incentive distributions encourage the
general partner to streamline costs, increase capital expenditures and acquire
assets in order to increase the partnership's cash flow and raise the quarterly
cash distribution in order to reach higher tiers. Such results benefit all
security holders of the MLP.
General partner interests of MLPs are typically retained by an MLP's original
sponsors, such as its founders, corporate partners, entities that sell assets
to the MLP and investors. A holder of general partner interests can be liable
under certain circumstances for amounts greater than the amount of the holder's
investment in the general partner interest. General partner interests often
confer direct board participation rights and in many cases, operating control,
over the MLP. These interests themselves are not publicly traded, although they
may be owned by publicly traded entities. General partner interests receive
cash distributions, typically 2% of the MLP's aggregate cash distributions,
which are contractually defined in the partnership agreement. In
S-5
addition, holders of general partner interests typically hold incentive
distribution rights ("IDRs"), which provide them with a larger share of the
aggregate MLP cash distributions as the distributions to limited partner unit
holders are increased to prescribed levels. General partner interests generally
cannot be converted into common units. The general partner interest can be
redeemed by the MLP if the MLP unitholders choose to remove the general
partner, typically with a supermajority vote by limited partner unitholders.
REAL ESTATE INVESTMENT TRUSTS ("REITS") -- A Real Estate Investment Trust is a
corporation or business trust (that would otherwise be taxed as a corporation)
which meets the definitional requirements of the Code. The Code permits a
qualifying REIT to deduct from taxable income the dividends paid, thereby
effectively eliminating corporate level federal income tax and making the REIT
a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things: invest
substantially all of its assets in interests in real estate (including
mortgages and other REITs), cash and government securities; derive most of its
income from rents from real property or interest on loans secured by mortgages
on real property; and distribute annually 95% or more of its otherwise taxable
income to shareholders.
REITs are sometimes informally characterized as Equity REITs and Mortgage
REITs. An Equity REIT invests primarily in the fee ownership or leasehold
ownership of land and buildings; a Mortgage REIT invests primarily in mortgages
on real property, which may secure construction, development or long-term
loans.
REITs may be affected by changes in underlying real estate values, which may
have an exaggerated effect to the extent that REITs in which the Underlying ETF
invests may concentrate investments in particular geographic regions or
property types. Additionally, rising interest rates may cause investors in
REITs to demand a higher annual yield from future distributions, which may in
turn decrease market prices for equity securities issued by REITs. Rising
interest rates also generally increase the costs of obtaining financing, which
could cause the value of a Underlying ETF's investments to decline. During
periods of declining interest rates, certain Mortgage REITs may hold mortgages
that the mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by such Mortgage REITs. In addition, Mortgage REITs may be
affected by the ability of borrowers to repay when due the debt extended by the
REIT and Equity REITs may be affected by the ability of tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of
the REITs. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders.
In addition to these risks, Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while Mortgage REITs may
be affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be
diversified. Equity and Mortgage REITs are also subject to heavy cash flow
dependency defaults by borrowers and self-liquidation. In addition, Equity and
Mortgage REITs could possibly fail to qualify for tax free pass-through of
income under the Code or to maintain their exemptions from registration under
the 1940 Act. The above factors may also adversely affect a borrower's or a
lessee's ability to meet its obligations to the REIT. In the event of default
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by a borrower or lessee, the REIT may experience delays in enforcing its rights
as a mortgagee or lessor and may incur substantial costs associated with
protecting its investments.
EXCHANGE-TRADED FUNDS -- The Funds may invest in exchange-traded funds. ETFs
may be structured as investment companies that are registered under the 1940
Act, typically as open-end funds or unit investment trusts. These ETFs are
generally based on specific domestic and foreign market securities indices. An
"index-based ETF" seeks to provide investment results that match the
performance of an index by holding in its portfolio either the contents of the
index or a representative sample of the securities in the index. An "enhanced
ETF" seeks to provide investment results that match a positive or negative
multiple of the performance of an underlying index. In seeking to provide such
results, an ETF, in particular, an enhanced ETF, may engage in short sales of
securities included in the underlying index and may invest in derivatives
instruments, such as equity index swaps, futures contracts, and options on
securities, futures contracts, and stock indices. Alternatively, ETFs may be
structured as grantor trusts or other forms of pooled investment vehicles that
are not registered or regulated under the 1940 Act. These ETFs typically hold
commodities, precious metals, currency or other non-securities investments.
ETFs, like mutual funds, have expenses associated with their operation, such as
advisory and custody fees. When a Fund invests in an ETF, in addition to
directly bearing expenses associated with its own operations, including the
brokerage costs associated with the purchase and sale of shares of the ETF, the
Fund will bear a pro rata portion of the ETF's expenses. In addition, it may be
more costly to own an ETF than to directly own the securities or other
investments held by the ETF because of ETF expenses. The risks of owning shares
of an ETF generally reflect the risks of owning the underlying securities or
other investments held by the ETF, although lack of liquidity in the market for
the shares of an ETF could result in the ETF's value being more volatile than
the underlying securities or other investments.
RISKS OF INVESTING IN EQUITY SECURITIES:
GENERAL RISKS OF INVESTING IN STOCKS -- While investing in stocks allows
investors to participate in the benefits of owning a company, such investors
must accept the risks of ownership. Unlike bondholders, who have preference to
a company's earnings and cash flow, preferred stockholders, followed by common
stockholders in order of priority, are entitled only to the residual amount
after a company meets its other obligations. For this reason, the value of a
company's stock will usually react more strongly to actual or perceived changes
in the company's financial condition or prospects than its debt obligations.
Stockholders of a company that fares poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
o Factors that directly relate to that company, such as decisions made
by its management or lower demand for the company's products or
services;
o Factors affecting an entire industry, such as increases in production
costs; and
o Changes in financial market conditions that are relatively unrelated
to the company or its industry, such as changes in interest rates,
currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
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SMALL AND MEDIUM-SIZED COMPANIES -- Investors in small and medium-sized
companies typically take on greater risk and price volatility than they would
by investing in larger, more established companies. This increased risk may be
due to the greater business risks of their small or medium size, limited
markets and financial resources, narrow product lines and frequent lack of
management depth. The securities of small and medium-sized companies are often
traded in the over-the-counter market and might not be traded in volumes
typical of securities traded on a national securities exchange. Thus, the
securities of small and medium capitalization companies are likely to be less
liquid, and subject to more abrupt or erratic market movements, than securities
of larger, more established companies.
TECHNOLOGY COMPANIES -- Stocks of technology companies have tended to be
subject to greater volatility than securities of companies that are not
dependent upon or associated with technological issues. Technology companies
operate in various industries. Since these industries frequently share common
characteristics, an event or issue affecting one industry may significantly
influence other, related industries. For example, technology companies may be
strongly affected by worldwide scientific or technological developments and
their products and services may be subject to governmental regulation or
adversely affected by governmental policies.
INITIAL PUBLIC OFFERINGS ("IPO") -- Each Fund may invest a portion of its
assets in securities of companies offering shares in IPOs. IPOs may have a
magnified performance impact on the Fund with a small asset base. The impact of
IPOs on a Fund's performance likely will decrease as the Fund's asset size
increases, which could reduce the Fund's total returns. IPOs may not be
consistently available to a Fund for investing, particularly as the Fund's
asset base grows. Because IPO shares frequently are volatile in price, a Fund
may hold IPO shares for a very short period of time. This may increase the
turnover of the Fund's portfolio and may lead to increased expenses for the
Fund, such as commissions and transaction costs. By selling IPO shares, the
Fund may realize taxable gains it will subsequently distribute to shareholders.
In addition, the market for IPO shares can be speculative and/or inactive for
extended periods of time. The limited number of shares available for trading
in some IPOs may make it more difficult for a Fund to buy or sell significant
amounts of shares without an unfavorable impact on prevailing prices. Holders
of IPO shares can be affected by substantial dilution in the value of their
shares, by sales of additional shares and by concentration of control in
existing management and principal shareholders.
A Fund's investment in IPO shares may include the securities of unseasoned
companies (companies with less than three years of continuous operations),
which presents risks considerably greater than common stocks of more
established companies. These companies may have limited operating histories and
their prospects for profitability may be uncertain. These companies may be
involved in new and evolving businesses and may be vulnerable to competition
and changes in technology, markets and economic conditions. They may be more
dependent on key managers and third parties and may have limited product
lines.
DEBT SECURITIES
Corporations and governments use debt securities to borrow money from
investors. Most debt securities promise a variable or fixed rate of return and
repayment of the amount borrowed at maturity. Some debt securities, such as
zero-coupon bonds, do not pay current interest and are purchased at a discount
from their face value.
S-8
TYPES OF DEBT SECURITIES:
U.S. GOVERNMENT SECURITIES - Each Fund may invest in U.S. government
securities. Securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities include U.S. Treasury securities, which are
backed by the full faith and credit of the U.S. Treasury and which differ only
in their interest rates, maturities, and times of issuance. U.S. Treasury bills
have initial maturities of one-year or less; U.S. Treasury notes have initial
maturities of one to ten years; and U.S. Treasury bonds generally have initial
maturities of greater than ten years. Certain U.S. government securities are
issued or guaranteed by agencies or instrumentalities of the U.S. government
including, but not limited to, obligations of U.S. government agencies or
instrumentalities such as the Federal National Mortgage Association ("Fannie
Mae"), the Government National Mortgage Association ("Ginnie Mae"), the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States,
the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan
Marketing Association, the National Credit Union Administration and the Federal
Agricultural Mortgage Corporation ("Farmer Mac").
Some obligations issued or guaranteed by U.S. government agencies and
instrumentalities, including, for example, Ginnie Mae pass-through
certificates, are supported by the full faith and credit of the U.S. Treasury.
Other obligations issued by or guaranteed by federal agencies, such as those
securities issued by Fannie Mae, are supported by the discretionary authority
of the U.S. government to purchase certain obligations of the federal agency,
while other obligations issued by or guaranteed by federal agencies, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the U.S. Treasury. While the U.S. government provides financial
support to such U.S. government-sponsored federal agencies, no assurance can be
given that the U.S. government will always do so, since the U.S. government is
not so obligated by law. U.S. Treasury notes and bonds typically pay coupon
interest semi-annually and repay the principal at maturity.
On September 7, 2008, the U.S. Treasury announced a federal takeover of Fannie
Mae and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), placing the
two federal instrumentalities in conservatorship. Under the takeover, the U.S.
Treasury agreed to acquire $1 billion of senior preferred stock of each
instrumentality and obtained warrants for the purchase of common stock of each
instrumentality (the "Senior Preferred Stock Purchase Agreement" or
"Agreement"). Under the Agreement, the U.S. Treasury pledged to provide up to
$200 billion per instrumentality as needed, including the contribution of cash
capital to the instrumentalities in the event their liabilities exceed their
assets. This was intended to ensure that the instrumentalities maintain a
positive net worth and meet their financial obligations, preventing mandatory
triggering of receivership. On December 24, 2009, the U.S. Treasury announced
that it was amending the Agreement to allow the $200 billion cap on the U.S.
Treasury's funding commitment to increase as necessary to accommodate any
cumulative reduction in net worth through the end of 2012. The unlimited
support the U.S. Treasury extended to the two companies expired at the
beginning of 2013 -- Fannie Mae's support is now capped at $125 billion and
Freddie Mac has a limit of $149 billion.
On August 17, 2012, the U.S. Treasury announced that it was again amending the
Agreement to terminate the requirement that Fannie Mae and Freddie Mac each pay
a 10% annual dividend. Instead, the companies will transfer to the U.S.
Treasury on a quarterly basis all profits earned during a quarter that exceed a
capital reserve amount of $3 billion. It is believed that the new
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amendment puts Fannie Mae and Freddie Mac in a better position to service their
debt because the companies no longer have to borrow from the U.S. Treasury to
make fixed dividend payments. As part of the new terms, Fannie Mae and Freddie
Mac also will be required to reduce their investment portfolios at an annual
rate of 15 percent instead of the previous 10 percent, which puts each of them
on track to cut their portfolios to a targeted $250 billion in 2018.
Fannie Mae and Freddie Mac are the subject of several continuing class action
lawsuits and investigations by federal regulators over certain accounting,
disclosure or corporate governance matters, which (along with any resulting
financial restatements) may adversely affect the guaranteeing entities.
Importantly, the future of the entities is in serious question as the U.S.
Government reportedly is considering multiple options, ranging from
nationalization, privatization, consolidation, or abolishment of the entities.
CORPORATE BONDS -- Corporations issue bonds and notes to raise money for
working capital or for capital expenditures such as plant construction,
equipment purchases and expansion. In return for the money loaned to the
corporation by investors, the corporation promises to pay investors interest,
and repay the principal amount of the bond or note.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are interests in pools
of mortgage loans that various governmental, government-related and private
organizations assemble as securities for sale to investors. Unlike most debt
securities, which pay interest periodically and repay principal at maturity or
on specified call dates, mortgage-backed securities make monthly payments that
consist 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. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a
mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit. Each Fund's investment
managers will consider such insurance and guarantees and the creditworthiness
of the issuers thereof in determining whether a mortgage-related security meets
its investment quality standards. It is possible that the private insurers or
guarantors will not meet their obligations under the insurance policies or
guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
MUNICIPAL SECURITIES -- Municipal notes include, but are not limited to,
general obligation notes, tax anticipation notes (notes sold to finance working
capital needs of the issuer in anticipation of receiving taxes on a future
date), revenue anticipation notes (notes sold to provide needed cash prior to
receipt of expected non-tax revenues from a specific source), bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
Each Fund's investment managers may purchase industrial development and
pollution control bonds if the interest paid is exempt from federal income tax.
These bonds are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds are also used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user
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to meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
Other types of tax-exempt instruments include floating rate notes. Investments
in such floating rate instruments will normally involve industrial development
or revenue bonds which provide that the rate of interest is set as a specific
percentage of a designated base rate (such as the prime rate) at a major
commercial bank, and that a Fund can demand payment of the obligation at all
times or at stipulated dates on short notice (not to exceed 30 days) at par
plus accrued interest. A Fund may use the longer of the period required before
the Fund is entitled to prepayment under such obligations or the period
remaining until the next interest rate adjustment date for purposes of
determining the maturity. Such obligations are frequently secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying credit or of the bank, as the case may be, must in the Each
Fund's investment managers' opinion be equivalent to the long-term bond or
commercial paper ratings stated above. Each Fund's investment managers will
monitor the earning power, cash flow and liquidity ratios of the issuers of
such instruments and the ability of an issuer of a demand instrument to pay
principal and interest on demand. Each Fund's investment managers may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the bond ratings in Appendix A or commercial paper ratings stated
below.
Each Fund's investment managers have the authority to purchase securities at a
price which would result in a yield to maturity lower than that generally
offered by the seller at the time of purchase when they can simultaneously
acquire the right to sell the securities back to the seller, the issuer, or a
third party (the "writer") at an agreed-upon price at any time during a stated
period or on a certain date. Such a right is generally denoted as a "standby
commitment" or a "put." The purpose of engaging in transactions involving puts
is to maintain flexibility and liquidity to permit a Fund to meet redemptions
and remain as fully invested as possible in municipal securities. Each Fund
reserves the right to engage in put transactions. The right to put the
securities depends on the writer's ability to pay for the securities at the
time the put is exercised. Each Fund would limit its put transactions to
institutions which Each Fund's investment managers believes present minimum
credit risks, and each Fund's investment managers would use its best efforts to
initially determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however be difficult to
monitor the financial strength of the writers because adequate current
financial information may not be available. In the event that any writer is
unable to honor a put for financial reasons, a Fund would be general creditor
(I.E., on a parity with all other unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between a Fund and the
writer may excuse the writer from repurchasing the securities; for example, a
change in the published rating of the underlying municipal securities or any
similar event that has an adverse effect on the issuer's credit or a provision
in the contract that the put will not be exercised except in certain special
cases, for example, to maintain portfolio liquidity. A Fund could, however, at
any time sell the underlying portfolio security in the open market or wait
until the portfolio security matures, at which time it should realize the full
par value of the security.
The municipal securities purchased subject to a put may be sold to third
persons at any time, even though the put is outstanding, but the put itself,
unless it is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only to
the Fund. Sale of the securities to third parties or lapse of time with the
put unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, a Fund could seek to negotiate terms for the
extension of such an option. If such a
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renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could,
of course, sell the portfolio security. The maturity of the underlying security
will generally be different from that of the put. There will be no limit to
the percentage of portfolio securities that the Fund may purchase subject to a
put but the amount paid directly or indirectly for puts which are not integral
parts of the security as originally issued held in the Fund will not exceed 1/2
of 1% of the value of the total assets of such Fund calculated immediately
after any such put is acquired. For the purpose of determining the "maturity"
of securities purchased subject to an option to put, and for the purpose of
determining the dollar-weighted average maturity of the Fund including such
securities, the Trust will consider "maturity" to be the first date on which it
has the right to demand payment from the writer of the put although the final
maturity of the security is later than such date.
GENERAL CONSIDERATIONS RELATING TO STATE SPECIFIC MUNICIPAL SECURITIES -- With
respect to municipal securities issued by a state and its political
subdivisions, as well as certain other governmental issuers such as the
Commonwealth of Puerto Rico, the Trust cannot predict what legislation, if any,
may be proposed in the state's legislature in regards to the state's personal
income tax status of interest on such obligations, or which proposals, if any,
might be enacted. Such proposals, if enacted, might materially adversely affect
the availability of the state's municipal securities for investment by a Fund
and the value of a Fund's investments.
SPECIAL CONSIDERATIONS RELATING TO TEXAS MUNICIPAL SECURITIES -- The Frost
Municipal Bond Fund may invest more than 25% of its total assets in securities
issued by Texas and its municipalities, and as a result are more vulnerable to
unfavorable developments in Texas than funds that invest a lesser percentage of
their assets in such securities. For example, important sectors of the State's
economy include the oil and gas industry (including drilling, production,
refining, chemicals and energy-related manufacturing) and high technology
manufacturing (including computers, electronics and telecommunications
equipment), along with an increasing emphasis on international trade. Each of
these sectors has from time to time suffered from economic downturns. Adverse
conditions in one or more of these sectors could have an adverse impact on
Texas municipal securities.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- Ginnie Mae is the principal
governmental guarantor of mortgage-related securities. Ginnie Mae is a wholly
owned corporation of the U.S. government within the Department of Housing and
Urban Development. Securities issued by Ginnie Mae are treasury securities,
which means the full faith and credit of the U.S. government backs them. Ginnie
Mae guarantees the timely payment of principal and interest on securities
issued by institutions approved by Ginnie Mae and backed by pools of
FHA-insured or VA-guaranteed mortgages. Ginnie Mae does not guarantee the
market value or yield of mortgage-backed securities or the value of a Fund's
shares. To buy Ginnie Mae securities, a Fund may have to pay a premium over the
maturity value of the underlying mortgages, which the Fund may lose if
prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- Fannie Mae is a government-sponsored
corporation owned entirely by private stockholders. Fannie Mae is regulated by
the Secretary of Housing and Urban Development. Fannie Mae purchases
conventional mortgages from a list of approved sellers and service providers,
including state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Securities issued by Fannie Mae are agency securities, which mean Fannie Mae,
but not the U.S. government, guarantees their timely payment of principal and
interest.
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FEDERAL HOME LOAN MORTGAGE CORPORATION -- Freddie Mac is stockholder-owned
corporation established by the U.S. Congress to create a continuous flow of
funds to mortgage lenders. Freddie Mac supplies lenders with the money to make
mortgages and packages the mortgages into marketable securities. The system is
designed to create a stable mortgage credit system and reduce the rates paid by
homebuyers. Freddie Mac, not the U.S. government, guarantees timely payment of
principal and interest.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE
COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS -- Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers also create pass-through
pools of conventional mortgage loans. In addition to guaranteeing the
mortgage-related security, such issuers may service and/or have originated the
underlying mortgage loans. Pools created by these issuers generally offer a
higher rate of interest than pools created by Ginnie Mae, Fannie Mae and
Freddie Mac because they are not guaranteed by a government agency.
RISKS OF MORTGAGE-BACKED SECURITIES -- Yield characteristics of mortgage-backed
securities differ from those of traditional debt securities in a variety of
ways, the most significant differences of mortgage-backed securities are:
o payments of interest and principal are more frequent (usually
monthly); and
o falling interest rates generally cause individual borrowers to pay
off their mortgage earlier than expected, which results in prepayments
of principal on the securities, thus forcing a Fund to reinvest the
money at a lower interest rate.
In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, a Fund may have to reinvest its principal at a rate of interest
that is lower than the rate on existing mortgage-backed securities.
OTHER ASSET-BACKED SECURITIES -- These securities are interests in pools of a
broad range of assets other than mortgages, such as automobile loans, computer
leases and credit card receivables. Like mortgage-backed securities, these
securities are pass-through. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations, but may
still be subject to prepayment risk.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which allow debtors to
reduce their balances by offsetting certain amounts owed on the credit cards.
Most issuers of asset-backed securities backed by automobile receivables permit
the servicers of such receivables to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that
of the holders of the related asset-backed securities. Due to the quantity of
vehicles involved and requirements under state laws, asset-backed securities
backed by automobile receivables may not have a proper security interest in
all
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of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the pool
("credit support"). Delinquency or loss more than that anticipated or failure
of the credit support could adversely affect the return on an investment in
such a security.
A Fund may also invest in residual interests in asset-backed securities, which
consists of the excess cash flow remaining after making required payments on
the securities and paying related administrative expenses. The amount of
residual cash flow resulting from a particular issue of asset-backed securities
depends in part on the characteristics of the underlying assets, the coupon
rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying
assets.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") -- CMOs are one type of
mortgage-backed security, which were first introduced in the early 1980's.
CMOs generally retain many of the yield and credit quality characteristics as
mortgage pass-through securities, while reducing some of the disadvantages of
pass-throughs. CMOs may be backed by several types of varying mortgage
collateral. The most prevalent types of collateral are: U.S. agency (e.g.,
GNMA, FNMA, or FHLMC) guaranteed mortgage pass-through securities, non-agency
guaranteed mortgage loans, and commercial mortgage loans.
Some CMOs are also characterized as a Real Estate Mortgage Investment Conduit
("REMIC"). A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages primarily secured by interests in real
property and other permitted investments.
A key difference between traditional mortgage pass-through securities and CMOs
is the mechanics of the principal payment process. Unlike pass-through
securities, which simply pay a pro rata distribution of any principal and
interest payments from the underlying mortgage collateral, CMOs are structured
into multiple classes, each bearing a different stated maturity and each
potentially having different credit rating levels. Each class of CMO, often
referred to as a "tranche", may be issued with a specific fixed interest rate
or may pay a variable interest rate, which may change monthly. Each tranche
must be fully retired by its final distribution date. Generally, all classes of
CMOs pay or accrue interest monthly similar to pass-through securities.
The credit risk of all CMOs are not identical and must be assessed on a
security by security basis. Generally, the credit risk of CMOs are heavily
dependent upon the type of collateral backing the security. For example, a CMO
collateralized by U.S. agency guaranteed pass-through securities will have a
different credit risk profile compared to a CMO collateralized by commercial
mortgage loans. Investing in the lowest tranche of CMO or REMIC certificates
often involves risk similar to those associated with investing in
non-investment grade rated corporate bonds. Additionally, CMOs may at times be
less liquid than a regular mortgage pass-through security.
SHORT-TERM INVESTMENTS -- To earn a return on uninvested assets, meet
anticipated redemptions, or for temporary defensive purposes, a Fund may invest
a portion of its assets in the short-term securities listed below, U.S.
government securities and investment-grade corporate debt securities. Unless
otherwise specified, a short-term debt security has a maturity of one year or
less.
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BANK OBLIGATIONS -- A Fund will only invest in a security issued by a
commercial bank if the bank:
o has total assets of at least $1 billion, or the equivalent in other
currencies (based on the most recent publicly available information
about the bank);
o is a U.S. bank and a member of the Federal Deposit Insurance
Corporation; and
o is a foreign branch of a U.S. bank and each Fund's investment
managers believe the security is of an investment quality comparable
with other debt securities that the Funds may purchase.
TIME DEPOSITS -- Time deposits are non-negotiable deposits, such as savings
accounts or certificates of deposit, held by a financial institution for a
fixed term with the understanding that the depositor can withdraw its money
only by giving notice to the institution. However, there may be early
withdrawal penalties depending upon market conditions and the remaining
maturity of the obligation. A Fund may only purchase time deposits maturing
from two business days through seven calendar days.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank or savings and loan
association for a definite period of time and earning a specified return.
BANKERS' ACCEPTANCE -- A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods).
COMMERCIAL PAPER -- Commercial paper is a short-term obligation with a maturity
ranging from one to 270 days issued by banks, corporations and other borrowers.
Such investments are unsecured and usually discounted. A Fund may invest in
commercial paper rated A-1, A-2 or A-3 by S&P or P-1, P-2 or P-3 by Moody's or
equivalent ratings of another nationally recognized statistical rating
organization ("NRSRO") or, if not rated, commercial paper of equivalent quality
as determined by a Fund's investment managers. See "Appendix A -- Ratings" for
a description of commercial paper ratings.
YANKEE BONDS -- Yankee bonds are dollar-denominated bonds issued inside the
United States by foreign entities. Investments in these securities involve
certain risks that are not typically associated with investing in domestic
securities. See "Foreign Securities."
ZERO COUPON BONDS -- These securities make no periodic payments of interest,
but instead are sold at a discount from their face value. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. The market value of zero coupon securities may
exhibit greater price volatility than ordinary debt securities because a
stripped security will have a longer duration than an ordinary debt security
with the same maturity. A Fund's investments in pay-in-kind, delayed and zero
coupon bonds may require it to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by
their holder, typically a custodian bank or investment brokerage firm. Once the
holder of the security has stripped or separated corpus and coupons, it may
sell each component separately. The principal or corpus is then sold at a deep
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discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold bundled in such form. The
underlying treasury security is held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (I.E., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of
the owners thereof. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero coupon
securities that the Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," a Fund may record its beneficial ownership of the coupon or corpus
directly in the book-entry record-keeping system.
EXCHANGE-TRADED NOTES ("ETN") -- Certain Funds may invest in exchange-traded
notes. ETNs are debt obligations of investment banks which are traded on
exchanges and the returns of which are linked to the performance of market
indexes. In addition to trading ETNs on exchanges, investors may redeem ETNs
directly with the issuer on a weekly basis, typically in a minimum amount of
50,000 units, or hold the ETNs until maturity. ETNs may be riskier than
ordinary debt securities and may have no principal protection. The Fund's
investment in an ETN may be influenced by many unpredictable factors, including
highly volatile commodities prices, changes in supply and demand relationships,
weather, agriculture, trade, changes in interest rates, and monetary and other
governmental policies, action and inaction. Investing in ETNs is not equivalent
to investing directly in index components or the relevant index itself. Because
ETNs are debt securities, they possess credit risk; if the issuer has financial
difficulties or goes bankrupt, the investor may not receive the return it was
promised.
TERMS TO UNDERSTAND:
MATURITY -- Every debt security has a stated maturity date when the issuer must
repay the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier, on
or after specified dates (call dates). Debt securities are most likely to be
called when interest rates are falling because the issuer can refinance at a
lower rate, similar to a homeowner refinancing a mortgage. The effective
maturity of a debt security is usually its nearest call date.
A Fund that invests in debt securities has no real maturity. Instead, it
calculates its weighted average maturity. This number is an average of the
effective or anticipated maturity of each debt security held by a Fund, with
the maturity of each security weighted by the percentage of the assets of the
Fund it represents.
DURATION -- Duration is a calculation that seeks to measure the price
sensitivity of a debt security, or a Fund that invests in debt securities, to
changes in interest rates. It measures sensitivity more accurately than
maturity because it takes into account the time value of cash flows generated
over the life of a debt security. Future interest payments and principal
payments are discounted to reflect their present value and then are multiplied
by the number of years they will be received to produce a value expressed in
years -- the duration. Effective duration takes into account call features and
sinking Fund prepayments that may shorten the life of a debt security.
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An effective duration of four years, for example, would suggest that for each
1% reduction in interest rates at all maturity levels, the price of a security
is estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
FACTORS AFFECTING THE VALUE OF DEBT SECURITIES -- The total return of a debt
instrument is composed of two elements: the percentage change in the security's
price and interest income earned. The yield to maturity of a debt security
estimates its total return only if the price of the debt security remains
unchanged during the holding period and coupon interest is reinvested at the
same yield to maturity. The total return of a debt instrument, therefore, will
be determined not only by how much interest is earned, but also by how much the
price of the security and interest rates change.
o INTEREST RATES
The price of a debt security generally moves in the opposite direction from
interest rates (I.E., if interest rates go up, the value of the bond will go
down, and vice versa).
o PREPAYMENT RISK
This risk affects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can adversely affect the value of
mortgage-backed securities, which may cause your share price to fall. Lower
rates motivate borrowers to pay off the instruments underlying mortgage-backed
and asset-backed securities earlier than expected, resulting in prepayments on
the securities. A Fund may then have to reinvest the proceeds from such
prepayments at lower interest rates, which can reduce its yield. The unexpected
timing of mortgage and asset-backed prepayments caused by the variations in
interest rates may also shorten or lengthen the average maturity of a Fund. If
left unattended, drifts in the average maturity of a Fund can have the
unintended effect of increasing or reducing the effective duration of the Fund,
which may adversely affect the expected performance of the Fund.
o EXTENSION RISK
The other side of prepayment risk occurs when interest rates are rising. Rising
interest rates can cause a Fund's average maturity to lengthen unexpectedly due
to a drop in mortgage prepayments. This would increase the sensitivity of a
Fund to rising rates and its potential for price declines. Extending the
average life of a mortgage-backed security increases the risk of depreciation
due to future increases in market interest rates. For these reasons,
mortgage-backed securities may be less effective than other types of U.S.
government securities as a means of "locking in" interest rates.
o CREDIT RATING
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term treasury securities, such as three-month
treasury bills, are considered "risk free." Corporate securities offer higher
yields than treasury securities because their payment of interest and complete
repayment of principal is less certain. The credit rating or financial
condition of an issuer may affect the value of a debt security. Generally, the
lower the quality rating of a security, the greater the risks that the issuer
will fail to pay interest and return
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principal. To compensate investors for taking on increased risk, issuers with
lower credit ratings usually offer their investors a higher "risk premium" in
the form of higher interest rates than those available from comparable treasury
securities.
Changes in investor confidence regarding the certainty of interest and
principal payments of a corporate debt security will result in an adjustment to
this "risk premium." Since an issuer's outstanding debt carries a fixed coupon,
adjustments to the risk premium must occur in the price, which affects the
yield to maturity of the bond. If an issuer defaults or becomes unable to honor
its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency
is called investment-grade because its issuer is more likely to pay interest
and repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, each Fund's investment managers may determine
that it is of investment-grade. Each Fund's investment managers may retain
securities that are downgraded, if it believes that keeping those securities is
warranted.
Debt securities rated below investment-grade (junk bonds) are highly
speculative securities that are usually issued by smaller, less credit worthy
and/or highly leveraged (indebted) companies. A corporation may issue a junk
bond because of a corporate restructuring or other similar event. Compared with
investment-grade bonds, junk bonds carry a greater degree of risk and are less
likely to make payments of interest and principal. Market developments and the
financial and business condition of the corporation issuing these securities
influences their price and liquidity more than changes in interest rates, when
compared to investment-grade debt securities. Insufficient liquidity in the
junk bond market may make it more difficult to dispose of junk bonds and may
cause a Fund to experience sudden and substantial price declines. A lack of
reliable, objective data or market quotations may make it more difficult to
value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial strength.
The Funds currently use ratings compiled by Moody's, S&P and Fitch Inc. Credit
ratings are only an agency's opinion, not an absolute standard of quality, and
they do not reflect an evaluation of market risk.
The section "Appendix A -- Description of Ratings" contains further information
concerning the ratings of certain rating agencies and their significance.
Each Fund's investment managers may use ratings produced by ratings agencies as
guidelines to determine the rating of a security at the time a Fund buys it. A
rating agency may change its credit ratings at any time. Each Fund's investment
managers monitor the rating of the security and will take such action, if any,
it believe appropriate when it learns that a rating agency has reduced the
security's rating. A Fund is not obligated to dispose of securities whose
issuers subsequently are in default or which are downgraded below the
above-stated ratings.
FOREIGN SECURITIES
Foreign securities are debt and equity securities that are traded in markets
outside of the United States. The markets in which these securities are located
can be developed or emerging. Consistent with their respective investment
strategies, the Funds can invest in foreign securities in a number of ways:
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o They can invest directly in foreign securities denominated in a
foreign currency;
o They can invest in American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and other similar global instruments; and
o They can invest in investment funds.
TYPES OF FOREIGN SECURITIES:
AMERICAN DEPOSITARY RECEIPTS -- ADRs as well as other "hybrid" forms of ADRs,
including European Depositary Receipts and Global Depositary Receipts ("GDRs"),
are certificates evidencing ownership of shares of a foreign issuer. These
certificates are issued by depository banks and generally trade on an
established market in the United States or elsewhere. A custodian bank or
similar financial institution in the issuer's home country holds the underlying
shares in trust. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. ADRs are subject to many of the risks
associated with investing directly in foreign securities. EDRs are similar to
ADRs, except that they are typically issued by European banks or trust
companies.
ADRs can be sponsored or unsponsored. While these types are similar, there are
differences regarding a holder's rights and obligations and the practices of
market participants. A depository may establish an unsponsored facility without
participation by (or acquiescence of) the underlying issuer; typically,
however, the depository requests a letter of non-objection from the underlying
issuer prior to establishing the facility. Holders of unsponsored depositary
receipts generally bear all the costs of the facility. The depository usually
charges fees upon the deposit and withdrawal of the underlying securities, the
conversion of dividends into U.S. dollars or other currency, the disposition of
non-cash distributions, and the performance of other services. Sponsored
depositary receipt facilities are created in generally the same manner as
unsponsored facilities, except that sponsored depositary receipts are
established jointly by a depository and the underlying issuer through a deposit
agreement. The deposit agreement sets out the rights and responsibilities of
the underlying issuer, the depository, and the depositary receipt holders. With
sponsored facilities, the underlying issuer typically bears some of the costs
of the depositary receipts (such as dividend payment fees of the depository),
although most sponsored depositary receipts holders may bear costs such as
deposit and withdrawal fees. Depositories of most sponsored depositary receipts
agree to distribute notices of shareholder meetings, voting instructions, and
other shareholder communications and information to the depositary receipt
holders at the underlying issuer's request. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
EMERGING MARKETS -- An "emerging market country" is generally a country that
the International Bank for Reconstruction and Development ("World Bank") and
the International Finance Corporation would consider to be an emerging or
developing country. Typically, emerging markets are in countries that are in
the process of industrialization, with lower gross national products ("GNP")
than more developed countries. There are currently over 130 countries that the
international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe.
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INVESTMENT FUNDS -- Some emerging countries currently prohibit direct foreign
investment in the securities of their companies. Certain emerging countries,
however, permit indirect foreign investment in the securities of companies
listed and traded on their stock exchanges through investment funds that they
have specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. If a Fund invests in such investment funds,
shareholders will bear not only their proportionate share of the expenses
(including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds. In
addition, these investment funds may trade at a premium over their net asset
value.
RISKS OF FOREIGN SECURITIES:
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition
to the risks inherent in U.S. investments.
POLITICAL AND ECONOMIC FACTORS -- Local political, economic, regulatory, or
social instability, military action or unrest, or adverse diplomatic
developments may affect the value of foreign investments. Listed below are some
of the more important political and economic factors that could negatively
affect an investment in foreign securities:
o The economies of foreign countries may differ from the economy of the
United States in such areas as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency, budget
deficits and national debt;
o Foreign governments sometimes participate to a significant degree,
through ownership interests or regulation, in their respective
economies. Actions by these governments could significantly influence
the market prices of securities and payment of dividends;
o The economies of many foreign countries are dependent on
international trade and their trading partners and they could be
severely affected if their trading partners were to enact protective
trade barriers and economic conditions;
o The internal policies of a particular foreign country may be less
stable than in the United States. Other countries face significant
external political risks, such as possible claims of sovereignty by
other countries or tense and sometimes hostile border clashes; and
o A foreign government may act adversely to the interests of U.S.
investors, including expropriation or nationalization of assets,
confiscatory taxation and other restrictions on U. S. investment. A
country may restrict or control foreign investments in its securities
markets. These restrictions could limit a Fund's ability to invest in
a particular country or make it very expensive for the Fund to invest
in that country. Some countries require prior governmental approval,
limit the types or amount of securities or companies in which a
foreigner can invest. Other countries may restrict the ability of
foreign investors to repatriate their investment income and capital
gains.
INFORMATION AND SUPERVISION -- There is generally less publicly available
information about foreign companies than companies based in the United States.
For example, there are often no reports and ratings published about foreign
companies comparable to the ones written about U.S. companies. Foreign
companies are typically not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. The lack of comparable information makes
investment decisions concerning foreign companies more difficult and less
reliable than domestic companies.
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STOCK EXCHANGE AND MARKET RISK -- Each Fund's investment managers anticipate
that in most cases an exchange or over-the-counter market located outside of
the United States will be the best available market for foreign securities.
Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as the markets in the United States Foreign stock
markets tend to differ from those in the United States in a number of ways.
Foreign stock markets:
o are generally more volatile than, and not as developed or efficient
as, those in the United States;
o have substantially less volume;
o trade securities that tend to be less liquid and experience rapid and
erratic price movements;
o have generally higher commissions and are subject to set minimum
rates, as opposed to negotiated rates;
o employ trading, settlement and custodial practices less developed
than those in U.S. markets; and
o may have different settlement practices, which may cause delays and
increase the potential for failed settlements.
Foreign markets may offer less protection to shareholders than U.S. markets
because:
o foreign accounting, auditing, and financial reporting requirements
may render a foreign corporate balance sheet more difficult to
understand and interpret than one subject to U. S. law and standards;
o adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis;
o in general, there is less overall governmental supervision and
regulation of securities exchanges, brokers, and listed companies than
in the United States;
o over-the-counter markets tend to be less regulated than stock
exchange markets and, in certain countries, may be totally
unregulated;
o economic or political concerns may influence regulatory enforcement
and may make it difficult for shareholders to enforce their legal
rights; and
o restrictions on transferring securities within the United States or
to U.S. persons may make a particular security less liquid than
foreign securities of the same class that are not subject to such
restrictions.
FOREIGN CURRENCY RISK -- While the Funds denominate their net asset value in
U.S. dollars, the securities of foreign companies are frequently denominated in
foreign currencies. Thus, a change in the value of a foreign currency against
the U.S. dollar will result in a corresponding change in value of securities
denominated in that currency. Some of the factors that may impair the
investments denominated in a foreign currency are:
o It may be expensive to convert foreign currencies into U.S. dollars
and vice versa;
o Complex political and economic factors may significantly affect the
values of various currencies, including U.S. dollars, and their
exchange rates;
o Government intervention may increase risks involved in purchasing or
selling foreign
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currency options, forward contracts and futures contracts, since
exchange rates may not be free to fluctuate in response to other
market forces;
o There may be no systematic reporting of last sale information for
foreign currencies or regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis;
o Available quotation information is generally representative of very
large round-lot transactions in the inter-bank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable; and
o The inter-bank market in foreign currencies is a global,
around-the-clock market. To the extent that a market is closed while
the markets for the underlying currencies remain open, certain markets
may not always reflect significant price and rate movements.
TAXES -- Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries it is possible for a Fund to
recover a portion of these taxes, the portion that cannot be recovered will
reduce the income the Fund receives from its investments. The Funds do not
expect such foreign withholding taxes to have a significant impact on
performance.
EMERGING MARKETS -- Investing in emerging markets may magnify the risks of
foreign investing. Security prices in emerging markets can be significantly
more volatile than those in more developed markets, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may:
o Have relatively unstable governments;
o Present greater risks of nationalization of businesses, restrictions
on foreign ownership and prohibitions on the repatriation of assets;
o Offer less protection of property rights than more developed
countries; and
o Have economies that are based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times.
DERIVATIVES
Derivatives are financial instruments whose value is based on an underlying
asset such as a stock or a bond, an underlying economic factor such as an
interest rate, or a market benchmark such as an index. Investors can use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs, alter duration or to remain fully invested. An
investor may also invest in derivatives to protect it from broad fluctuations
in market prices, interest rates or foreign currency exchange rates. Investing
in derivatives for these purposes is known as "hedging". When hedging is
successful, a Fund will offset depreciation in the value of its portfolio
securities by the appreciation in the value of the derivative position.
Although techniques other than the sale and purchase of derivatives could be
used to control the exposure of a Fund to market fluctuations, the use of
derivatives may be a more effective means of hedging this exposure. To the
extent that the Fund engages in hedging, there can be no assurance that any
hedge will be effective or that there will be a hedge in place at any given
time.
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Because many derivatives have a leverage or borrowing component, adverse
changes in the value or level of the underlying asset, reference rate, or index
can result in a loss substantially greater than the amount invested in the
derivative itself. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment. Accordingly, certain
derivative transactions may be considered to constitute borrowing transactions
for purposes of the 1940 Act. Such a derivative transaction will not be
considered to constitute the issuance of a "senior security" by a Fund, and
therefore such transaction will not be subject to the 300% asset coverage
requirement otherwise applicable to borrowings by the Fund, if the Fund covers
the transaction or segregates sufficient liquid assets (or such assets are
"earmarked" on the Fund's books) in accordance with the requirements and
interpretations of the SEC and its staff.
As a result of recent amendments to rules under the Commodity Exchange Act
("CEA") by the Commodity Futures Trading Commission ("CFTC"), a Fund must
either operate within certain guidelines and restrictions with respect to the
Fund's use of futures, options on such futures, commodity options and certain
swaps, or the Adviser will be subject to registration with the CFTC as a
"commodity pool operator" ("CPO").
Consistent with the CFTC's new regulations, the Trust, on behalf of the Funds,
has filed a notice of exclusion from the definition of the term CPO under the
CEA pursuant to CFTC Rule 4.5 and, therefore, the Funds are not subject to
registration or regulation as CPOs under the CEA. As a result, the Funds will
be limited in their ability to use futures, options on such futures, commodity
options and certain swaps. Complying with the limitations may restrict the
Adviser's or a Sub-Adviser's ability to implement the Funds' investment
strategies and may adversely affect the Funds' performance.
TYPES OF DERIVATIVES:
FUTURES -- A futures contract is an agreement between two parties whereby one
party sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument
underlying the contract may be a stock, stock index, bond, bond index, interest
rate, foreign exchange rate or other similar instrument. Agreeing to buy the
underlying financial instrument is called buying a futures contract or taking a
long position in the contract. Likewise, agreeing to sell the underlying
financial instrument is called selling a futures contract or taking a short
position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade --known as "contract markets" -- approved for such trading and
regulated by the CFTC. These contract markets standardize the terms, including
the maturity date and underlying financial instrument, of all futures
contracts.
Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). Contract markets require both the purchaser and seller to
deposit "initial margin" with a futures broker, known as a futures commission
merchant or custodian bank, when they enter into the contract. Initial margin
deposits are typically equal to a percentage of the contract's value. After
they open a futures contract, the parties to the transaction must compare the
purchase price of the contract to its daily market value. If the value of the
futures contract changes in such a way that a party's position declines, that
party must make additional "variation margin" payments so that the margin
payment is adequate. On the other hand, the value of the contract may change in
such a way that there is excess margin on deposit, possibly entitling the party
that has a gain to receive all or a portion of this amount. This process is
known as "marking to the market."
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Although the actual terms of a futures contract calls for the delivery of and
payment for the underlying security, in many cases the parties may close the
contract early by taking an opposite position in an identical contract. If the
sale price upon closing out the contract is less than the original purchase
price, the person closing out the contract will realize a loss. If the sale
price upon closing out the contract is more than the original purchase price,
the person closing out the contract will realize a gain. If the purchase price
upon closing out the contract is more than the original sale price, the person
closing out the contract will realize a loss. If the purchase price upon
closing out the contract is less than the original sale price, the person
closing out the contract will realize a gain.
A Fund may incur commission expenses when it opens or closes a futures
position.
OPTIONS -- An option is a contract between two parties for the purchase and
sale of a financial instrument for a specified price (known as the "strike
price" or "exercise price") at any time during the option period. Unlike a
futures contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the right
to sell the security). Options have various types of underlying instruments,
including specific securities, indices of securities prices, foreign
currencies, interest rates and futures contracts. Options may be traded on an
exchange (exchange-traded-options) or may be customized agreements between the
parties (over-the-counter or "OTC options"). As with futures, a financial
intermediary, known as a clearing corporation, financially backs
exchange-traded options. OTC options have no such intermediary and are subject
to the risk that the counterparty will not fulfill its obligations under the
contract.
o PURCHASING PUT AND CALL OPTIONS
When a Fund purchases a put option, it buys the right to sell the instrument
underlying the option at a fixed strike price. In return for this right, a Fund
pays the current market price for the option (known as the "option premium"). A
Fund may purchase put options to offset or hedge against a decline in the
market value of its securities ("protective puts") or to benefit from a decline
in the price of securities that 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. However, if the price of the underlying instrument does
not fall enough to offset the cost of purchasing the option, a put buyer would
lose the premium and related transaction costs.
Call options are similar to put options, except that a Fund obtains the right
to purchase, rather than sell, the underlying instrument at the option's strike
price. A Fund would normally purchase call options in anticipation of an
increase in the market value of securities it owns or wants to buy. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying instrument exceeded the exercise price plus the premium paid and
related transaction costs. Otherwise, a Fund would realize either no gain or a
loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
o Allowing it to expire and losing its entire premium;
o Exercising the option and either selling (in the case of a put
option) or buying (in the case of a call option) the underlying
instrument at the strike price; or
o Closing it out in the secondary market at its current price.
o SELLING (WRITING) PUT AND CALL OPTIONS
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When a Fund writes a call option it assumes an obligation 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. Similarly, when a Fund writes
a put option it assumes an obligation to purchase specified securities from the
option holder at a specified price if the option is exercised at any time
before the expiration date. The Fund may terminate its position in an
exchange-traded put option before exercise by buying an option identical to the
one it has written. Similarly, it may cancel an over-the-counter option by
entering into an offsetting transaction with the counterparty to the option.
A Fund could try to hedge against an increase in the value of securities it
would like to acquire by writing a put option on those securities. If security
prices rise, the Fund would expect the put option to expire and the premium it
received to offset the increase in the security's value. If security prices
remain the same over time, the Fund would hope to profit by closing out the put
option at a lower price. If security prices fall, the Fund may lose an amount
of money equal to the difference between the value of the security and the
premium it received. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities it
would like to acquire.
The characteristics of writing call options are similar to those of writing put
options, except that call writers expect to profit if prices remain the same or
fall. A Fund could try to hedge against a decline in the value of securities it
already owns by writing a call option. If the price of that security falls as
expected, the Fund would expect the option to expire and the premium it
received to offset the decline of the security's value. However, the Fund must
be prepared to deliver the underlying instrument in return for the strike
price, which may deprive it of the opportunity to profit from an increase in
the market price of the securities it holds.
A Fund is permitted only to write covered options. At the time of selling the
call option, the Fund may cover the option by owning, among other things:
o The underlying security (or securities convertible into the
underlying security without additional consideration), index, interest
rate, foreign currency or futures contract;
o A call option on the same security or index with the same or lesser
exercise price;
o A call option on the same security or index with a greater exercise
price and segregating cash or liquid securities in an amount equal to
the difference between the exercise prices;
o Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures
contract; or
o In the case of an index, the portfolio of securities that corresponds
to the index.
At the time of selling a put option, a Fund may cover the put option by, among
other things:
o Entering into a short position in the underlying security;
o Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with the same or greater exercise
price;
o Purchasing a put option on the same security, index, interest rate,
foreign currency or futures contract with a lesser exercise price and
segregating cash or liquid securities in an amount equal to the
difference between the exercise prices; or
o Maintaining the entire exercise price in liquid securities.
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o OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except that
the exercise of securities index options requires cash settlement 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.
o OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the
option by the holder, the contract market clearing house establishes a
corresponding short position for the writer of the option (in the case of a
call option) or a corresponding long position (in the case of a put option). If
the option is exercised, the parties will be subject to the futures contracts.
In addition, the writer of an option on a futures contract is subject to
initial and variation margin requirements on the option position. Options on
futures contracts are traded on the same contract market as the underlying
futures contract.
The buyer or seller of an option on a futures contract may terminate the option
early by purchasing or selling an option of the same series (I.E., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.
A Fund may purchase put and call options on futures contracts instead of
selling or buying futures contracts. The Fund may buy a put option on a futures
contract for the same reasons it would sell a futures contract. It also may
purchase such put options in order to hedge a long position in the underlying
futures contract. The Fund may buy call options on futures contracts for the
same purpose as the actual purchase of the futures contracts, such as in
anticipation of favorable market conditions.
A Fund may write a call option on a futures contract to hedge against a decline
in the prices of the instrument underlying the futures contracts. If the price
of the futures contract at expiration were below the exercise price, the Fund
would retain the option premium, which would offset, in part, any decline in
the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of
the futures contracts, except that, if the market price declines, a Fund would
pay more than the market price for the underlying instrument. The premium
received on the sale of the put option, less any transaction costs, would
reduce the net cost to the Fund.
o COMBINED POSITIONS
A Fund may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the Fund could construct a
combined position whose risk and return characteristics are similar to selling a
futures contract by purchasing a put option and writing a call option on the
same underlying instrument. Alternatively, the Fund could write a call option at
one strike price and buy a call option at a lower price to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
S-26
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- A forward foreign currency
contract involves an obligation to purchase or sell a specific amount of
currency at a future date or date range at a specific price. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. Forward foreign currency
exchange contracts differ from foreign currency futures contracts in certain
respects. Unlike futures contracts, forward contracts:
o Do not have standard maturity dates or amounts (I.E., the parties to
the contract may fix the maturity date and the amount).
o Are traded in the inter-bank markets conducted directly between
currency traders (usually large commercial banks) and their customers,
as opposed to futures contracts which are traded only on exchanges
regulated by the CFTC.
o Do not require an initial margin deposit.
o May be closed by entering into a closing transaction with the
currency trader who is a party to the original forward contract, as
opposed to a commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES -- A "settlement hedge" or "transaction
hedge" is designed to protect a Fund against an adverse change in foreign
currency values between the date a security is purchased or sold and the date
on which payment is made or received. Entering into a forward contract for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the U.S.
dollar price of the security. The Fund may also use forward contracts to
purchase or sell a foreign currency when it anticipates purchasing or selling
securities denominated in foreign currency, even if it has not yet selected the
specific investments.
A Fund may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the currency in which the
Fund's investment is denominated. This type of hedge, sometimes referred to as
a "proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a direct
hedge into U.S. dollars. Proxy hedges may result in losses if the currency used
to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange that one can achieve at some
future point in time. Additionally, these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency and to limit any
potential gain that might result from the increase in value of such currency.
A Fund may enter into forward contracts to shift its investment exposure from
one currency into another. Such transactions may call for the delivery of one
foreign currency in exchange for another foreign currency, including currencies
in which its securities are not then denominated. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign currency
to another foreign currency. This type of strategy, sometimes known as a
"cross-hedge," will tend to reduce or eliminate exposure to the currency that
is sold, and increase exposure to the currency that is purchased. Cross-hedges
may protect against losses resulting from a decline in the hedged currency, but
will cause the Fund to assume the risk of fluctuations in the value of the
S-27
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies
involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, a Fund may have to purchase additional foreign currency on the
spot market if the market value of a security it is hedging is less than the
amount of foreign currency it is obligated to deliver. Conversely, the Fund may
have to sell on the spot market some of the foreign currency it received upon
the sale of a security if the market value of such security exceeds the amount
of foreign currency it is obligated to deliver.
To the extent that a Fund engages in foreign currency hedging, there can be no
assurance that any hedge will be effective or that there will be a hedge in
place at any given time.
SWAPS, CAPS, COLLARS AND FLOORS
SWAP AGREEMENTS -- A swap is a financial instrument that typically involves the
exchange of cash flows between two parties on specified dates (settlement
dates), where the cash flows are based on agreed-upon prices, rates, indices,
etc. The nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors, such
as interest rates, foreign currency rates, mortgage securities, corporate
borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of a Fund and its share price. The performance of swap agreements
may be affected by a change in the specific interest rate, currency, or other
factors that determine the amounts of payments due to and from the Fund. If a
swap agreement calls for payments by the Fund, the Fund must be prepared to
make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date under
certain circumstances, such as default by one of the parties or insolvency,
among others, and can be transferred by a party only with the prior written
consent of the other party. A Fund may be able to eliminate its exposure under
a swap agreement either by assignment or by other disposition, or by entering
into an offsetting swap agreement with the same party or a similarly
creditworthy party. If the counterparty is unable to meet its obligations under
the contract, declares bankruptcy, defaults or becomes insolvent, the Fund may
not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a Fund's gains or
losses. In order to reduce the risk associated with leveraging, a Fund may
cover its current obligations under swap agreements according to guidelines
established by the SEC. If a Fund enters into a swap agreement on a net basis,
it will segregate assets with a daily value at least equal to the excess, if
any, of the Fund's accrued obligations under the swap agreement over the
accrued amount the Fund is entitled to receive under the agreement. If a Fund
enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement.
S-28
o TOTAL RETURN SWAPS
Total return swaps are contracts in which one party agrees to make payments of
the total return from a reference instrument -- which may be a single asset, a
pool of assets or an index of assets --during the specified period, in return
for payments equal to a fixed or floating rate of interest or the total return
from another underlying reference instrument. The total return includes
appreciation or depreciation on the underlying asset, plus any interest or
dividend payments. Payments under the swap are based upon an agreed upon
principal amount but since the principal amount is not exchanged, it represents
neither an asset nor a liability to either counterparty, and is referred to as
notional. Total return swaps are marked to market daily using different
sources, including quotations from counterparties, pricing services, brokers or
market makers. The unrealized appreciation (depreciation) related to the
change in the valuation of the notional amount of the swap is combined with the
amount due to a Fund at termination or settlement. The primary risks associated
with total return swaps are credit risks (if the counterparty fails to meet its
obligations) and market risk (if there is no liquid market for the agreement or
unfavorable changes occur to the underlying reference instrument).
o EQUITY SWAPS
In a typical equity swap, one party agrees to pay another party the return on a
stock, stock index or basket of stocks in return for a specified interest rate.
By entering into an equity index swap, for example, the index receiver can gain
exposure to stocks making up the index of securities without actually
purchasing those stocks. Equity index swaps involve not only the risk
associated with investment in the securities represented in the index, but also
the risk that the performance of such securities, including dividends, will not
exceed the return on the interest rate that a Fund will be committed to pay.
o INTEREST RATE SWAPS
Interest rate swaps are financial instruments that involve the exchange of one
type of interest rate for another type of interest rate cash flow on specified
dates in the future. Some of the different types of interest rate swaps are
"fixed-for floating rate swaps," "termed basis swaps" and "index amortizing
swaps." Fixed-for floating rate swaps involve the exchange of fixed interest
rate cash flows for floating rate cash flows. Termed basis swaps entail cash
flows to both parties based on floating interest rates, where the interest rate
indices are different. Index amortizing swaps are typically fixed-for floating
swaps where the notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, a Fund could lose money by
investing in an interest rate swap if interest rates change adversely. For
example, if a Fund enters into a swap where it agrees to exchange a floating
rate of interest for a fixed rate of interest, the Fund may have to pay more
money than it receives. Similarly, if a Fund enters into a swap where it agrees
to exchange a fixed rate of interest for a floating rate of interest, the Fund
may receive less money than it has agreed to pay.
o CURRENCY SWAPS
A currency swap is an agreement between two parties in which one party agrees to
make interest rate payments in one currency and the other promises to make
interest rate payments in another currency. A Fund may enter into a currency
swap when it has one currency and desires a different currency. Typically the
interest rates that determine the currency swap payments are fixed, although
occasionally one or both parties may pay a floating rate of interest. Unlike an
interest rate swap, however, the principal amounts are exchanged at the
beginning of the contract and returned at the end of the contract. Changes in
foreign exchange rates and changes in interest rates, as described above may
negatively affect currency swaps.
S-29
CAPS, COLLARS AND FLOORS -- Caps and floors have an effect similar to buying or
writing options. In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is obligated
to make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
RISKS OF DERIVATIVES:
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of a Fund than if it had not entered into any
derivatives transactions. Derivatives may magnify a Fund's gains or losses,
causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a Fund
holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could
expose a Fund to greater risks.
CORRELATION OF PRICES -- A Fund's ability to hedge its securities through
derivatives depends on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant securities.
In the case of poor correlation, the price of the securities the Fund is
hedging may not move in the same amount, or even in the same direction as the
hedging instrument. Each Fund's investment managers will try to minimize this
risk by investing only in those contracts whose behavior it expects to resemble
with the portfolio securities it is trying to hedge. However, if a Fund's
prediction of interest and currency rates, market value, volatility or other
economic factors is incorrect, the Fund may lose money, or may not make as much
money as it expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
o current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract;
o a difference between the derivatives and securities markets,
including different levels of demand, how the instruments are traded,
the imposition of daily price fluctuation limits or trading of an
instrument stops; and
o differences between the derivatives, such as different margin
requirements, different liquidity of such markets and the
participation of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on a
broad market index. Since narrower
S-30
indices are made up of a smaller number of securities, they are more
susceptible to rapid and extreme price fluctuations because of changes in the
value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of the
investments of a Fund. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect a Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a Fund's foreign-denominated investments
changes in response to many factors other than exchange rates, it may not be
possible to match the amount of currency options and futures to the value of a
Fund's investments precisely over time.
LACK OF LIQUIDITY -- Before a futures contract or option is exercised or
expires, a Fund can terminate it only by entering into a closing purchase or
sale transaction. Moreover, a Fund may close out a futures contract only on the
exchange the contract was initially traded. If there is no secondary market for
the contract, or the market is illiquid, a Fund may not be able to close out
its position. In an illiquid market, a Fund may:
o have to sell securities to meet its daily margin requirements at a
time when it is disadvantageous to do so;
o have to purchase or sell the instrument underlying the contract;
o not be able to hedge its investments; and
o not be able to realize profits or limit its losses.
Derivatives may become illiquid (I.E., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
o an exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives,
which sometimes occurs because of increased market volatility;
o unusual or unforeseen circumstances may interrupt normal operations
of an exchange;
o the facilities of the exchange may not be adequate to handle current
trading volume;
o equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other occurrences may disrupt
normal trading activity; or
o investors may lose interest in a particular derivative or category of
derivatives.
MANAGEMENT RISK -- If each Fund's investment managers incorrectly predict stock
market and interest rate trends, the Funds may lose money by investing in
derivatives. For example, if a Fund were to write a call option based on each
Fund's investment managers expectation that the price of the underlying
security would fall, but the price were to rise instead, the Fund could be
required to sell the security upon exercise at a price below the current market
price. Similarly, if a Fund were to write a put option based on each Fund's
investment managers expectation that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to
purchase the security upon exercise at a price higher than the current market
price.
PRICING RISK -- At times, market conditions might make it hard to value some
investments. For example, if a Fund has valued its securities too high, you may
end up paying too much for Fund shares when you buy into the Fund. If a Fund
underestimates its price, you may not receive the full market value for your
Fund shares when you sell.
S-31
MARGIN -- Because of the low margin deposits required upon the opening of a
derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative may
result in an immediate and substantial loss (as well as gain) to a Fund and it
may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell
securities at a time when it is disadvantageous to do so to meet its minimum
daily margin requirement. A Fund may lose its margin deposits if a broker with
whom it has an open futures contract or related option becomes insolvent or
declares bankruptcy.
VOLATILITY AND LEVERAGE -- The prices of derivatives are volatile (I.E., they
may change rapidly, substantially and unpredictably) and are influenced by a
variety of factors, including:
o actual and anticipated changes in interest rates;
o fiscal and monetary policies; and
o national and international political events.
Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum amount
that the price of a derivative may vary from the settlement price of that
derivative at the end of trading on the previous day. Once the price of a
derivative reaches this value, a Fund may not trade that derivative at a price
beyond that limit. The daily limit governs only price movements during a given
day and does not limit potential gains or losses. Derivative prices have
occasionally moved to the daily limit for several consecutive trading days,
preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in
an immediate and substantial loss (as well as gain) to a Fund and it may lose
more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell
securities at a time when it is disadvantageous to do so to meet its minimum
daily margin requirement. A Fund may lose its margin deposits if a
broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
INVESTMENT COMPANY SHARES
The Funds may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Funds. The Funds' purchases of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying the Funds'
expenses. Unless an exception is available, Section 12(d)(1)(A) of the 1940 Act
prohibits a fund from (i) acquiring more than 3% of the voting shares of any
one investment company, (ii) investing more than 5% of its total assets in any
one investment company, and (iii) investing more than 10% of its total assets
in all investment companies combined, including its ETF investments.
For hedging or other purposes, the Funds may invest in investment companies
that seek to track the composition and/or performance of specific indexes or
portions of specific indexes. Certain of these investment companies, known as
exchange-traded funds, are traded on a securities
S-32
exchange. (See "Exchange Traded Funds" above). The market prices of index-based
investments will fluctuate in accordance with changes in the underlying
portfolio securities of the investment company and also due to supply and
demand of the investment company's shares on the exchange upon which the shares
are traded. Index-based investments may not replicate or otherwise match the
composition or performance of their specified index due to transaction costs,
among other things.
Pursuant to orders issued by the SEC to each of certain iShares, Market
Vectors, Vanguard, ProShares, PowerShares, Guggenheim, Direxion, Wisdom Tree,
First Trust and SPDR exchange-traded funds (collectively, the "ETFs") and
procedures approved by the Board, the Funds may invest in the ETFs in excess of
the 3% limit described above, provided that the Funds otherwise comply with the
conditions of the SEC order, as it may be amended, and any other applicable
investment limitations. Neither the ETFs nor their investment advisers make any
representations regarding the advisability of investing in the ETFs.
MONEY MARKET SECURITIES
Money market securities include short-term U.S. government securities;
custodial receipts evidencing separately traded interest and principal
components of securities issued by the U.S. Treasury; commercial paper rated in
the highest short-term rating category by an NRSRO, such as Standard & Poor's
or Moody's, or determined by each Fund's investment managers to be of
comparable quality at the time of purchase; short-term bank obligations
(certificates of deposit, time deposits and bankers' acceptances) of U.S.
commercial banks with assets of at least $1 billion as of the end of their most
recent fiscal year; and repurchase agreements involving such securities. Each
of these money market securities are described below. For a description of
ratings, see "Appendix A -- Ratings" to this SAI.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with financial institutions. A
repurchase agreement is an agreement under which a fund acquires a fixed income
security (generally a security issued by the U.S. government or an agency
thereof, a banker's acceptance, or a certificate of deposit) from a commercial
bank, broker, or dealer, and simultaneously agrees to resell such security to
the seller at an agreed upon price and date (normally, the next business day).
Because the security purchased constitutes collateral for the repurchase
obligation, a repurchase agreement may be considered a loan that is
collateralized by the security purchased. The Funds follow certain procedures
designed to minimize the risks inherent in such agreements. These procedures
include effecting repurchase transactions only with creditworthy financial
institutions whose condition will be continually monitored by each Fund's
investment managers. The repurchase agreements entered into by the Funds will
provide that the underlying collateral at all times shall have a value at least
equal to 102% of the resale price stated in the agreement and consist only of
securities permissible under Section 101(47)(A)(i) of the Bankruptcy Code (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Funds, the custodian or its agent must take
possession of the underlying collateral. In the event of a default or
bankruptcy by a selling financial institution, the Funds will seek to liquidate
such collateral. However, the exercising of the Funds' right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, a Fund could suffer a loss. It is the current policy
of the Funds, not to invest in repurchase agreements that do not mature within
seven days if any such investment, together with any other illiquid assets held
by that Fund, amounts to more than 15% of the Fund's total assets. The
investments of the Funds in repurchase
S-33
agreements, at times, may be substantial when, in the view of each Fund's
investment managers, liquidity or other considerations so warrant.
SECURITIES LENDING
The Funds may lend portfolio securities to brokers, dealers and other financial
organizations that meet capital and other credit requirements or other criteria
established by the Board. These loans, if and when made, may not exceed 33 1/3%
of the total asset value of a Fund (including the loan collateral). The Funds
will not lend portfolio securities to their Adviser, Sub-Adviser or their
affiliates unless permissible under the 1940 Act and the rules and
promulgations thereunder. Loans of portfolio securities will be fully
collateralized by cash, letters of credit or U.S. government securities, and
the collateral will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities by marking to market daily. Any
gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Funds.
The Funds may pay a part of the interest earned from the investment of
collateral, or other fee, to an unaffiliated third party for acting as the
Funds' securities lending agent, but will bear all of any losses from the
investment of collateral.
By lending its securities, a Fund may increase its income by receiving payments
from the borrower that reflect the amount of any interest or any dividends
payable on the loaned securities as well as by either investing cash collateral
received from the borrower in short-term instruments or obtaining a fee from
the borrower when U.S. government securities or letters of credit are used as
collateral. The Funds will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must receive at least 100% cash
collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate the loan on demand; (iv)
the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) the Fund may pay only reasonable fees in
connection with the loan (which fees may include fees payable to the lending
agent, the borrower, the Fund's administrator and the custodian); and (vi)
voting rights on the loaned securities may pass to the borrower, provided,
however, that if a material event adversely affecting the investment occurs,
the Fund must terminate the loan and regain the right to vote the securities.
The Board has adopted procedures reasonably designed to ensure that the
foregoing criteria will be met. Loan agreements involve certain risks in the
event of default or insolvency of the borrower, including possible delays or
restrictions upon a Fund's ability to recover the loaned securities or dispose
of the collateral for the loan, which could give rise to loss because of
adverse market action, expenses and/or delays in connection with the
disposition of the underlying securities.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be sold or disposed of in the
ordinary course of business (within seven days) at approximately the prices at
which they are valued. Because of their illiquid nature, illiquid securities
must be priced at fair value as determined in good faith pursuant to procedures
approved by the Board. Despite such good faith efforts to determine fair value
prices, a Fund's illiquid securities are subject to the risk that the
security's fair value price may differ from the actual price which the Fund may
ultimately realize upon their sale or disposition. Difficulty in selling
illiquid securities may result in a loss or may be costly to the
S-34
Fund. Under the supervision of the Board, each Fund's investment managers
determine the liquidity of the Funds' investments. In determining the liquidity
of the Funds' investments, each Fund's investment managers may consider various
factors, including (1) the frequency and volume of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, and (4) the nature of the security and the
market in which it trades (including any demand, put or tender features, the
mechanics and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the method of
soliciting offers, the time required to dispose of the security, and the
ability to assign or offset the rights and obligations of the security). A Fund
will not invest more than 15% of its net assets in illiquid securities.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold freely to the public
absent registration under the U.S. Securities Act of 1933, as amended (the
"1933 Act") or an exemption from registration. As consistent with each Fund's
investment objectives, the Funds may invest in Section 4(2) commercial paper.
Section 4(2) commercial paper is issued in reliance on an exemption from
registration under Section 4(2) of the Act and is generally sold to
institutional investors who purchase for investment. Any resale of such
commercial paper must be in an exempt transaction, usually to an institutional
investor through the issuer or investment dealers who make a market in such
commercial paper. The Trust believes that Section 4(2) commercial paper is
liquid to the extent it meets the criteria established by the Board. The Trust
intends to treat such commercial paper as liquid and not subject to the
investment limitations applicable to illiquid securities or restricted
securities.
SHORT SALES
As consistent with each Fund's investment objectives, the Funds may engage in
short sales that are either "uncovered" or "against the box." A short sale is
"against the box" if at all times during which the short position is open, the
Fund owns at least an equal amount of the securities or securities convertible
into, or exchangeable without further consideration for, securities of the same
issue as the securities that are sold short. A short sale against the box is a
taxable transaction to the Funds with respect to the securities that are sold
short.
Uncovered short sales are transactions under which a Fund sells a security it
does not own. To complete such a transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing the security at the market price at the time of
the replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. Until the security is replaced, the
Fund is required to pay the lender amounts equal to any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund
also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker,
to the extent necessary to meet margin requirements, until the short position
is closed out.
Until the Fund closes its short position or replaces the borrowed security, the
Fund will: (a) maintain a segregated account containing cash or liquid
securities at such a level that the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short; or (b) otherwise cover the Fund's short position.
S-35
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Funds that
cannot be changed without the consent of the holders of a majority of a Fund's
outstanding shares. The phrase "majority of the outstanding shares" means the
vote of (i) 67% or more of a Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of a Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of an issuer that would cause the Fund to fail to
satisfy the diversification requirement for a diversified management
company under the 1940 Act, the rules or regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.
2. Concentrate investments in a particular industry or group of
industries, as concentration is defined under the 1940 Act, the rules
and regulations thereunder or any exemption therefrom, as such
statute, rules or regulations may be amended or interpreted from time
to time; provided, however, that the Frost Natural Resources Fund will
concentrate its investments in securities of companies in natural
resources industries.
3. Borrow money or issue senior securities (as defined under the 1940
Act), except to the extent permitted under the 1940 Act, the rules and
regulations thereunder or any exemption therefrom, as such statute,
rules or regulations may be amended or interpreted from time to time.
4. Make loans, except to the extent permitted under the 1940 Act, the
rules and regulations thereunder or any exemption therefrom, as such
statute, rules or regulations may be amended or interpreted from time
to time.
5. Purchase or sell commodities or real estate, except to the extent
permitted under the 1940 Act, the rules and regulations thereunder or
any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.
6. Underwrite securities issued by other persons, except to the extent
permitted under the 1940 Act, the rules and regulations thereunder or
any exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.
Further,
7. The Frost Municipal Bond Fund may not change its investment strategy
to invest at least 80% of its net assets, plus any borrowings for
investment purposes, in municipal securities that generate income
exempt from federal income tax, but not necessarily the federal
alternative minimum tax.
NON-FUNDAMENTAL POLICIES
In addition to each Fund's investment objective(s), the following investment
limitations of each Fund are non-fundamental and may be changed by the Board
without shareholder approval.
S-36
Each Fund may not:
1. Purchase securities of any issuer (except securities of other
investment companies, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of
the total assets of a Fund would be invested in the securities of such
issuer; or acquire more than 10% of the outstanding voting securities
of any one issuer. This restriction applies to 75% of a Fund's total
assets.
2. Purchase any securities which would cause 25% or more of the net
assets of a Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies
will be classified according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be
considered a separate industry; and (ii) financial service companies
will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will
each be considered a separate industry.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that investment strategies that either obligate the
Fund to purchase securities or require the Fund to cover a position by
segregating assets or entering into an offsetting position shall not
be subject to this limitation. Asset coverage of at least 300%
(including the amount borrowed) is required for all borrowing, except
where the Fund has borrowed money for temporary purposes in an amount
not exceeding 5% of its total assets.
4. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that the Fund may (i) purchase
or hold debt instruments in accordance with its investment objective
and policies; (ii) enter into repurchase agreements; and (iii) lend
its securities.
5. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that a
Fund may purchase (i) marketable securities issued by companies which
own or invest in real estate (including real estate investment
trusts), commodities or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial futures
contracts and options on such contracts.
6. Invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of the Fund's net assets.
Further,
7. The Frost Low Duration Bond Fund and the Frost Total Return Bond Fund
may not change their investment strategies to invest at least 80% of
their net assets, plus any borrowings for investment purposes, in
fixed income securities without 60 days' prior written notice to
shareholders.
8. The Frost Growth Equity Fund and the Frost Kempner Multi-Cap Deep
Value Equity Fund may not change their investment strategies to invest
at least 80% of their net assets,
S-37
plus any borrowings for investment purposes, in equity securities
without 60 days' prior written notice to shareholders.
9. The Frost Value Equity Fund may not change its investment strategy to
invest at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of companies that pay or are
expected to pay dividends without 60 days' prior written notice to
shareholders.
10. The Frost Small Cap Equity Fund may not change its investment
strategies to invest at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of small
capitalization companies at the time of initial purchase without 60
days' prior written notice to shareholders.
11. The Frost Mid Cap Equity Fund may not change its investment strategy
to invest at least 80% of its net assets, plus any borrowings for
investment purposes, in equity securities of mid capitalization
companies at the time of initial purchase without 60 days' prior
written notice to shareholders.
12. The Frost Kempner Treasury and Income Fund may not change its
investment strategy to invest at least 80% of its net assets, plus any
borrowings for investment purposes, in full faith and credit U.S.
Treasury obligations without 60 days' prior written notice to
shareholders.
13. The Frost International Equity Fund may not change its investment
strategy to invest at least 80% of its net assets, plus any borrowings
for investment purposes, in equity securities of non-U.S. issuers
without 60 days' prior written notice to shareholders.
14. The Frost Natural Resources Fund may not change its investment
strategy, to invest at least 80% of its net assets, plus any
borrowings for investment purposes, in securities of companies in
natural resources industries, without 60 days' prior written notice to
shareholders.
15. The Frost Credit Fund may not change its investment strategy to
invest at least 80% of its net assets, plus any borrowings for
investment purposes, in fixed income securities of U. S. and foreign
corporate issuers, which will include corporate bonds and
mortgage-backed and other asset-backed securities, and structured
notes with economic characteristics similar to fixed income securities
without 60 days' prior written notice to shareholders.
16. The Frost Cinque Large Cap Buy-Write Equity Fund may not change its
investment strategy to invest at least 80% of its net assets, plus any
borrowings for investment purposes, in equity securities of
large-capitalization companies, ETFs designed to track the performance
of large-capitalization companies and options on securities of
large-capitalization companies without 60 days' prior written notice
to shareholders.
Except with respect to Funds' policies concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes
in values or assets will not constitute a violation of such restriction. With
respect to the limitation on illiquid securities, in the event that a
subsequent change in net assets or other circumstances cause a Fund to exceed
its limitation, the Fund will take steps to bring the aggregate amount of
illiquid instruments back within the limitations as
S-38
soon as reasonably practicable. With respect to the limitation on borrowing, in
the event that a subsequent change in net assets or other circumstances cause a
Fund to exceed its limitation, the Fund will take steps to bring the aggregate
amount of borrowing back within the limitations within three days thereafter
(not including Sundays and holidays).
THE ADVISER AND SUB-ADVISERS
INVESTMENT ADVISER
Frost Investment Advisors, LLC (the "Adviser" or "Frost"), a wholly owned
non-banking subsidiary of Frost Bank, is a professional investment management
firm registered with the SEC under the Investment Advisers Act of 1940. The
Adviser, a Delaware limited liability company, was established in December of
2007 and offers investment management services for institutions and retail
clients. The Adviser's principal place of business is located at 100 West
Houston Street, 15th Floor, P.O. Box 2509, San Antonio, Texas 78299-2509. The
Adviser is a subsidiary of Frost Bank, a state bank. Frost Bank is a subsidiary
of Cullen/Frost Bankers, Inc., a Texas Corporation. As of December 31, 2013,
the Adviser had approximately $9.9 billion in assets under management.
The Adviser has delegated the authority to manage the following Funds (the
"Sub-Advised Funds") to various sub-advisers as follows (each a "Sub-Adviser"
and collectively, the "Sub-Advisers"):
------------------------------------------------------------------------------------------------
FUND SUB-ADVISER
------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value Equity Fund Kempner Capital Management, Inc.
and Frost Kempner Treasury and Income Fund
------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund Luther King Capital Management
Corporation
------------------------------------------------------------------------------------------------
Frost International Equity Fund Thornburg Investment Management, Inc.
------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write Equity Fund Cinque Partners LLC
------------------------------------------------------------------------------------------------
|
The Adviser monitors the Sub-Advisers to ensure their compliance with the
investment policies and guidelines of the Sub-Advised Funds and monitors the
Sub-Advisers' adherence to their investment style. The Adviser pays the
Sub-Advisers out of the advisory fee it receives from the Sub-Advised Funds.
The Board supervises the Adviser and the Sub-Advisers and establishes policies
that the Adviser and Sub-Advisers must follow in their management activities.
ADVISORY AGREEMENT WITH THE TRUST. The Trust and the Adviser have entered into
an investment advisory agreement dated May 5, 2008, as amended (the "Advisory
Agreement"). Under the Advisory Agreement, the Adviser serves as the investment
adviser and makes the investment decisions for each of the Funds and
continuously reviews, supervises and administers the investment program of each
Fund, subject to the supervision of, and policies established by, the Trustees.
After the initial two-year term, the continuance of the Advisory Agreement must
be specifically approved at least annually (i) by the vote of the Trustees or
by a vote of the majority of the shareholders of the Funds and (ii) by the vote
of a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at
any time without penalty by the Trustees or, with respect to any Fund, by a
majority of the outstanding shares of that Fund, on not less than 30 days' nor
more than 60 days' written notice to the Adviser, or by the Adviser on 90 days'
written notice to the Trust. The Advisory Agreement provides that the
S-39
Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or its reckless disregard of its
obligation and duties thereunder.
ADVISORY FEES PAID TO THE ADVISER. For its services, the Adviser is entitled to
a fee, which is calculated daily and paid monthly, at the following annual
rates based on the average daily net assets of each Fund:
------------------------------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE RATE
------------------------------------------------------------------------------------------------------------------------------------
Frost Growth Equity Fund 0.65%(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Value Equity Fund 0.65%(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value Equity Fund 0.59%
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 0.90%
------------------------------------------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund 0.70%(2)
------------------------------------------------------------------------------------------------------------------------------------
Frost International Equity Fund 0.95% for assets up to $150 million
0.90% for assets over $150 million
------------------------------------------------------------------------------------------------------------------------------------
Frost Natural Resources Fund 0.80%
------------------------------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write Equity Fund 0.90%
------------------------------------------------------------------------------------------------------------------------------------
Frost Conservative Allocation Fund 0.15%(3)
------------------------------------------------------------------------------------------------------------------------------------
Frost Moderate Allocation Fund 0.15%(3)
------------------------------------------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund 0.35%(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit Fund 0.60%
------------------------------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund 0.35%(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Municipal Bond Fund 0.35%(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Treasury and Income Fund 0.35%
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Prior to November 28, 2013, the Advisory Fee for the Frost Growth Equity
Fund and Frost Value Equity Fund was 0.80% and the Advisory Fee for the
Frost Total Return Bond Fund, the Frost Low Duration Bond Fund and the
Frost Municipal Bond Fund was 0.50%.
(2) Prior to March 3, 2014, the Advisory Fee for the Frost Small Cap Equity
Fund was 1.00% for assets up to $100 million and 0.85% for assets over $100
million.
(3) Prior to March 31, 2014, the Advisory Fee was 0.80% for the Frost
Conservative Allocation Fund and 0.70% for the Frost Moderate Allocation
Fund.
S-40
The Adviser has contractually agreed to reduce its fees and/or reimburse
expenses to the extent necessary to keep total annual Fund operating expenses
(excluding interest, taxes, brokerage commissions, acquired fund fees and
expenses and extraordinary expenses (collectively, "excluded expenses")) from
exceeding certain levels as set forth below ("Contractual Expense Limitation")
until the date set forth below (the "Initial Term End Date"). This agreement
may be terminated: (i) by the Board, for any reason at any time; or (ii) by the
Adviser, upon ninety (90) days' prior written notice to the Trust, effective as
of the close of business on the Initial Term End Date.
------------------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL CONTRACTUAL INITIAL TERM END
EXPENSE EXPENSE DATE
LIMITATION LIMITATION
(INSTITUTIONAL (CLASS A
FUND CLASS SHARES) SHARES)
------------------------------------------------------------------------------------------------------------------------------------
Frost Growth Equity Fund 1.25%(1) 1.50%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Value Equity Fund 1.25%(1) 1.50%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value Equity Fund 1.05%(1) 1.30%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 1.55%(1) 1.80%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund 1.55%(1) 1.80%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost International Equity Fund 1.45%(1) 1.70%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Natural Resources Fund 1.75%(1) 2.00%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write Equity Fund 1.50%(1) 1.75%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Conservative Allocation Fund N/A(2) 1.60%(3) November 30, 2015
------------------------------------------------------------------------------------------------------------------------------------
Frost Moderate Allocation Fund 1.35%(4) 1.60%(4) November 30, 2015
------------------------------------------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund 0.95%(1) 1.20%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit Fund 1.00%(1) 1.25%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund 0.95%(1) 1.20%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Treasury and Income Fund 1.05%(1) 1.30%(1) November 30, 2014
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Prior to November 28, 2013, the expense limitation was voluntary.
(2) Institutional Class Shares are not offered for the Fund.
(3) Prior to March 31, 2014, the Contractual Expense Limitation was 2.00%.
Prior to November 28, 2013, the expense limitation was voluntary.
(4) Prior to March 31, 2014, the expense limitation was voluntary.
S-41
For the Frost Municipal Bond Fund, the Adviser has voluntarily agreed to reduce
its investment advisory fees as set forth below ("Voluntary Fee Reduction"). In
addition, the Adviser has voluntarily agreed to further reduce its fees and/or
reimburse expenses of the Frost Municipal Bond Fund to the extent necessary to
keep total annual Fund operating expenses (not including excluded expenses)
from exceeding certain levels as set forth below ("Voluntary Expense
Limitation"). The Adviser intends to continue this voluntary fee reduction and
expense limitation until further notice, but may discontinue all or part of
these fee reductions or expense reimbursements at any time.
------------------------------------------------------------------------------------------------------------------------------------
VOLUNTARY
EXPENSE VOLUNTARY
LIMITATION EXPENSE
ADVISORY FEE LIMITATION
VOLUNTARY FEE AFTER VOLUNTARY (INSTITUTIONAL (CLASS A
FUND REDUCTION FEE REDUCTION CLASS SHARES) SHARES)
------------------------------------------------------------------------------------------------------------------------------------
Frost Municipal Bond Fund 0.10%(1) 0.25% 1.05% 1.30%
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Between August 30, 2012 and November 28, 2013, the Adviser voluntarily
agreed to reduce its Advisory Fee for the Frost Municipal Bond Fund by
0.25%.
If at any point total annual Fund operating expenses (not including excluded
expenses) are below the Contractual Expense Limitation or the Voluntary Expense
Limitation, the Adviser may receive from the Fund the difference between the
total annual Fund operating expenses (not including excluded expenses) and the
Contractual Expense Limitation or the Voluntary Expense Limitation set forth
above to recover all or a portion of its prior fee reductions or expense
reimbursements made during the preceding three-year period during which this
agreement (or any prior agreement) was in place. The Adviser, however, will
not be permitted to recapture the amount of any difference that is attributable
to the Voluntary Fee Reduction.
For the fiscal years ended July 31, 2011, 2012 and 2013, the Funds paid the
Adviser the following advisory fees:
TOTAL FEES PAID
CONTRACTUAL FEES PAID FEES WAIVED BY ADVISER (AFTER WAIVERS)
FUND 2011 2012 2013 2011 2012 2013 2011 2012 2013
------------------------------------------------------------------------------------------------------------------------------------
Frost Growth
Equity Fund $2,336,217 $2,636,496 $2,833,956 $438,042 $494,347 $531,370 $1,898,175 $2,142,149 $2,302,586
------------------------------------------------------------------------------------------------------------------------------------
Frost Value
Equity Fund $2,216,943 $2,370,747 $2,163,290 $415,678 $444,518 $405,619 $1,801,265 $1,926,229 $1,757,671
------------------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Multi-Cap
Deep Value
Equity Fund $996,356 $1,022,183 $1,092,771 $0 $0 $0 $996,356 $1,022,183 $1,092,771
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid
Cap Equity
Fund $299,474 $337,744 $196,613 $0 $0 $8,629 $299,474 $337,744 $187,984
------------------------------------------------------------------------------------------------------------------------------------
Frost Small
Cap Equity
Fund $2,025,808 $1,727,127 $1,735,590 $0 $0 $0 $2,025,808 $1,727,127 $1,735,590
------------------------------------------------------------------------------------------------------------------------------------
|
S-42
TOTAL FEES PAID
CONTRACTUAL FEES PAID FEES WAIVED BY ADVISER (AFTER WAIVERS)
FUND 2011 2012 2013 2011 2012 2013 2011 2012 2013
------------------------------------------------------------------------------------------------------------------------------------
Frost
International
Equity Fund $2,761,128 $2,432,085 $2,408,945 $0 $0 $0 $2,761,128 $2,432,085 $2,408,945
------------------------------------------------------------------------------------------------------------------------------------
Frost Natural
Resources
Fund N/A(1) $206,406(3) $466,807 N/A(1) $0(3) $0 N/A(1) $206,406(3) $466,807
------------------------------------------------------------------------------------------------------------------------------------
Frost Cinque
Large Cap
Buy-Write
Equity Fund N/A(1) N/A(1) $53,501(4) N/A(1) N/A(1) $50,158(4) N/A(1) N/A(1) $3,343(4)
------------------------------------------------------------------------------------------------------------------------------------
Frost
Conservative
Allocation
Fund $67,797(2) $102,984 $52,391 $22,831(2) $0 $18,833 $44,966(2) $102,984 $33,558
------------------------------------------------------------------------------------------------------------------------------------
Frost
Moderate
Allocation
Fund $134,162 $82,195 $77,548 $19,490 $48,835 $49,436 $114,672 $33,360 $28,112
------------------------------------------------------------------------------------------------------------------------------------
Frost Total
Return Bond
Fund $2,302,159 $3,478,941 $4,427,620 $690,651 $1,043,691 $1,328,295 $1,611,508 $2,435,250 $3,099,325
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit
Fund N/A(1) N/A(1) $86,813(4) N/A(1) N/A(1) $57,245(4) N/A(1) N/A(1) $29,568(4)
------------------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration
Bond Fund $1,196,293 $1,228,606 $1,375,132 $358,890 $368,585 $412,542 $837,403 $860,021 $962,590
------------------------------------------------------------------------------------------------------------------------------------
Frost
Municipal
Bond Fund $779,077 $924,199 $1,142,489 $155,814 $184,838 $546,133 $623,263 $739,361 $596,356
------------------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Treasury and
Income Fund $96,068 $120,312 $106,295 $0 $0 $0 $96,068 $120,312 $106,295
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(3) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(4) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
INVESTMENT SUB-ADVISERS
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND AND FROST KEMPNER TREASURY AND
INCOME FUND
Kempner Capital Management, Inc. ("KCM"), a Texas corporation established in
1982, serves as the sub-adviser to the Frost Kempner Multi-Cap Deep Value
Equity Fund and the Frost Kempner Treasury and Income Fund. KCM's principal
place of business is located at 2201 Market Street,
S-43
12th Floor Frost Bank Building, Galveston, Texas, 77550-1503. As of September
30, 2013, KCM had approximately $423.9 million in assets under management. KCM
is responsible for the day-to-day management of the Frost Kempner Multi-Cap
Deep Value Equity Fund's and Frost Kempner Treasury and Income Fund's
investments.
FROST MID CAP EQUITY FUND
Luther King Capital Management Corporation ("LKCM"), a Delaware corporation
established in 1979, serves as the sub-adviser to the Frost Mid Cap Equity
Fund. LKCM's principal place of business is located at 301 Commerce Street,
Suite 1600, Fort Worth, Texas, 76102-4140. As of September 30, 2013, LKCM had
approximately $13.7 billion in assets under management. LKCM is responsible for
the day-to-day management of the Frost Mid Cap Equity Fund's investments. LKCM
is a subsidiary of Southwest JLK Corporation ("JLK"), a corporation formed
under Texas Law. LKCM employees own or control all of the stock of JLK.
FROST INTERNATIONAL EQUITY FUND
Thornburg Investment Management, Inc. ("Thornburg"), a Delaware corporation
established in 1982, serves as the sub-adviser to the Frost International
Equity Fund. Thornburg's principal place of business is located at 2300 North
Ridgetop Road, Santa Fe, NM 87506. As of September 30, 2013, Thornburg had
approximately $92.8 billion in assets under management. Thornburg is
responsible for the day-to-day management of the Frost International Equity
Fund's investments.
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
Cinque Partners LLC ("Cinque"), a Delaware corporation established in 2011,
serves as the sub-adviser to the Frost Cinque Large Cap Buy-Write Equity Fund.
The Sub-Adviser's principal place of business is located at 11836 San Vicente
Boulevard, Los Angeles, CA 90049. As of September 30, 2013, Cinque had
approximately $152.1 million in assets under management. The Sub-Adviser is
responsible for the day-to-day management of the Frost Cinque Large Cap
Buy-Write Equity Fund's investments.
SUB-ADVISORY AGREEMENTS. The Adviser and Thornburg, KCM, and LKCM have entered
into investment sub-advisory agreements dated April 28, 2008, as amended, and
Cinque has entered into an investment sub-advisory agreement dated November 14,
2012, as amended (each, a "Sub-Advisory Agreement" and collectively, the
"Sub-Advisory Agreements"). Under each Sub-Advisory Agreement, each
Sub-Adviser serves as the investment adviser for the portion of the Fund(s) for
which it is responsible for the day-to-day management, makes investment
decisions for such Fund(s) and administers the investment program of such
Fund(s), subject to the supervision of, and policies established by, the
Adviser and the Board. After the initial two-year term, the continuance of each
Sub-Advisory Agreement must be specifically approved at least annually: (i) by
the vote of the Trustees or by a vote of the shareholders of the Fund and (ii)
by the vote of a majority of the Trustees who are not parties to the
Sub-Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. A
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Board. The
Sub-Advisory Agreements provide that each Sub-Adviser shall not be protected
against any liability to the Trust or its shareholders by reason of misfeasance
or negligence generally in the performance of its duties hereunder or its
negligent disregard of its obligation and duties thereunder.
SUB-ADVISORY FEES. For the services provided pursuant to the Sub-Advisory
Agreements, each
S-44
Sub-Adviser receives an annual fee from the Adviser at the following annual
rates, based on the average daily net assets of the portion of the respective
Fund(s) managed by the Sub-Adviser:
------------------------------------------------------------------------------------------------
FUND SUB-ADVISORY FEE
------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value
Equity Fund 0.34%
------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 0.65%
------------------------------------------------------------------------------------------------
Frost International Equity Fund 0.60% for assets up to $150 million and 0.55% for
assets over $150 million
------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write 0.60%
Equity Fund
------------------------------------------------------------------------------------------------
Frost Kempner Treasury and Income 0.25%
Fund
------------------------------------------------------------------------------------------------
|
For the fiscal years ended July 31, 2011, 2012 and 2013, the Adviser paid the
Sub-Advisers the following sub-advisory fees:
------------------------------------------------------------------------------------------------
FUND CONTRACTUAL FEES PAID
------------------------------------------------------------------------------------------------
2011 2012 2013
------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value $574,176 $589,083 $629,757
Equity Fund
------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $216,290 $243,929 $142,436
------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund $1,453,273 $1,220,101 $1,155,145
------------------------------------------------------------------------------------------------
Frost International Equity Fund $1,716,552 $1,515,538 $1,501,476
------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write N/A(1) N/A(1) $35,585(2)
Equity Fund
------------------------------------------------------------------------------------------------
Frost Conservative Allocation Fund N/A(3) N/A(3) $3,202(4)
------------------------------------------------------------------------------------------------
Frost Kempner Treasury and Income $68,617 $85,937 $75,933
Fund
------------------------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
(3) Fund not sub-advised during the period.
(4) Represents payments to Cinque for the period from May 28, 2013 to July 31,
2013.
PORTFOLIO MANAGERS
This section includes information about the Funds' portfolio managers,
including information about other accounts managed, the dollar range of Fund
shares owned and compensation.
COMPENSATION. The Adviser and the Sub-Advisers compensate each Fund's portfolio
managers for their management of the Funds. Compensation for the Adviser's
portfolio managers includes an annual salary, 401(k) retirement plan and, at
the discretion of management, an annual bonus and company-wide profit sharing
provided for employees of Frost Bank. Each portfolio manager of the Adviser
currently named in the prospectuses also may own equity shares in the Frost
Bank, the parent company of the Adviser, either directly or through a 401(k)
retirement savings plan or a profit sharing plan. Both the salary and potential
bonus are reviewed approximately annually for comparability with salaries of
other portfolio managers in the industry, using survey data obtained from
compensation consultants. The awarding of a bonus is subjective. Criteria that
are
S-45
considered in formulating a bonus include, but are not limited to, the
following: revenues available to pay compensation of the manager and all other
expenses related to supporting the accounts managed by the manager, including
the manager's specific fund(s); multiple year historical total return of
accounts managed by the manager, including the manager's specific fund(s),
relative to market performance and similar investment companies; single year
historical total return of accounts managed by the manager, including the
manager's specific fund(s), relative to market performance and similar
investment companies; the degree of sensitivity of the manager to potential tax
liabilities created for account holders in generating returns, relative to
overall return. There is no material difference in the method used to calculate
the manager's compensation with respect to the manager's specific fund(s) and
other accounts managed by the manager, except that certain accounts managed by
the manager may have no income or capital gains tax considerations. To the
extent that the manager realizes benefits from capital appreciation and
dividends paid to shareholders of the manager's specific fund(s), such benefits
accrue from the overall financial performance of the manager's specific
fund(s).
The compensation of each Thornburg portfolio manager includes an annual salary,
annual bonus, and company-wide profit sharing. Each manager currently named in
the Prospectus also owns equity shares in the investment advisor, Thornburg.
Both the salary and bonus are reviewed approximately annually for comparability
with salaries of other portfolio managers in the industry, using survey data
obtained from compensation consultants. The annual bonus is subjective.
Criteria that are considered in formulating the bonus include, but are not
limited to, the following: revenues available to pay compensation of the
manager and all other expenses related to supporting the accounts managed by
the manager, including the Frost International Equity Fund; multiple year
historical total return of accounts managed by the manager, including the Fund,
relative to market performance and similar investment companies; single year
historical total return of accounts managed by the manager, including the Fund,
relative to market performance and similar investment companies; the degree of
sensitivity of the manager to potential tax liabilities created for account
holders in generating returns, relative to overall return. There is no material
difference in the method used to calculate the manager's compensation with
respect to the Fund and other accounts managed by the manager, except that
certain accounts managed by the manager may have no income or capital gains tax
considerations. To the extent that the manager realizes benefits from capital
appreciation and dividends paid to shareholders of Thornburg, such benefits
accrue from the overall financial performance of Thornburg.
KCM compensates the portfolio managers of the Frost Kempner Multi-Cap Deep
Value Equity Fund and the Frost Kempner Treasury and Income Fund for their
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. The compensation for each portfolio manager
includes an annual salary and an annual bonus based on each portfolio manager's
percentage of base salaries.
LKCM compensates the portfolio managers of the Frost Mid Cap Equity Fund for
their management of the Frost Mid Cap Equity Fund. The compensation for each
portfolio manager includes an annual salary and an eligibility to participate
in the firm's profit sharing plan/401(k). The majority of compensation is
derived from bonuses, which are discretionary and based on individual merit as
well as overall success of the firm in any given year.
Cinque compensates the portfolio managers of the Frost Cinque Large Cap
Buy-Write Equity Fund for their management of the Frost Cinque Large Cap
Buy-Write Equity Fund. Each of the Sub-Adviser's portfolio managers is a
partial owner of a percentage of the Sub-Adviser and as such will receive an
allocation of the annual net distributable income as a result of the
Sub-Adviser's financial results.
S-46
FUND SHARES OWNED BY PORTFOLIO MANAGERS. The following table shows the dollar
amount range of each portfolio manager's "beneficial ownership" of shares of
the Funds which he/she manages. Dollar amount ranges disclosed are established
by the SEC. "Beneficial ownership" is determined in accordance with Rule
16a-1(a)(2) under the Securities Exchange Act of 1934 (the "1934 Act"). The
information below is provided as of July 31, 2013, unless otherwise noted.
--------------------------------------------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES OWNED
--------------------------------------------------------------------------------
FROST
--------------------------------------------------------------------------------
Michael R. Brell $10,001 - $50,000
(Frost Value Equity Fund)
--------------------------------------------------------------------------------
Jeffery Elswick $100,001 - $500,000
(Frost Total Return Bond Fund)
--------------------------------------------------------------------------------
Theodore H. Harper None
--------------------------------------------------------------------------------
John Lutz $50,001 - $100,000
(Frost Growth Equity Fund)
--------------------------------------------------------------------------------
Tom L. Stringfellow $1 - $10,000
(Frost Moderate Allocation Fund)
$100,001 - $500,000
(Frost Growth Equity Fund)
$1 - $10,000
(Frost Value Equity Fund)
$1 - $10,000
(Frost Small Cap Equity Fund)(1)
$10,001 - $50,000
(Frost Natural Resources Fund)
--------------------------------------------------------------------------------
Brad Thompson $50,001 - $100,000
(Frost Moderate Allocation Fund)
$10,001 - $50,000
(Frost Growth Equity Fund)
--------------------------------------------------------------------------------
Stephen Coker $10,001 - $50,000
(Frost Growth Equity Fund)
--------------------------------------------------------------------------------
Justin Hopkins $10,001 - $50,000
(Frost Moderate Allocation Fund)
--------------------------------------------------------------------------------
R. David Telling None
--------------------------------------------------------------------------------
TJ Qatato None
--------------------------------------------------------------------------------
Craig Leighton None
--------------------------------------------------------------------------------
Alan Tarver None
--------------------------------------------------------------------------------
S-47
|
--------------------------------------------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES OWNED(1)
--------------------------------------------------------------------------------
THORNBURG
--------------------------------------------------------------------------------
Wendy Trevisani None
--------------------------------------------------------------------------------
Tim Cunningham None
--------------------------------------------------------------------------------
Greg Dunn None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
KCM
--------------------------------------------------------------------------------
Harris L. Kempner, Jr. Over $1,000,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
M. Shawn Gault $100,001 - $500,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
Andrew Duncan $1 - $10,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LKCM
--------------------------------------------------------------------------------
J.Luther King, Jr. None
--------------------------------------------------------------------------------
Steven R. Purvis $500,001 - $1,000,000
(Frost Mid Cap Equity Fund)
--------------------------------------------------------------------------------
Paul W. Greenwell None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CINQUE
--------------------------------------------------------------------------------
Alan Adelman None
--------------------------------------------------------------------------------
Jack Cowling None
--------------------------------------------------------------------------------
Fred Wahl None
--------------------------------------------------------------------------------
Pierre Brachet None
--------------------------------------------------------------------------------
|
(1) Valuation date January, 31, 2013.
OTHER ACCOUNTS. In addition to the Funds, certain portfolio managers are
responsible for the day-to-day management of certain other accounts, as listed
below. The information below is provided as of July 31, 2013, unless otherwise
noted.
----------------------------------------------------------------------------------------------------
REGISTERED OTHER POOLED
INVESTMENT COMPANIES INVESTMENT VEHICLES OTHER ACCOUNTS
---------------------------------------------------------------------------
NUMBER TOTAL NUMBER
OF ASSETS OF TOTAL ASSETS NUMBER OF TOTAL ASSETS
NAME ACCOUNTS (MILLIONS) ACCOUNTS (MILLIONS) ACCOUNTS (MILLIONS)
----------------------------------------------------------------------------------------------------
FROST
----------------------------------------------------------------------------------------------------
Michael R. Brell 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Jeffrey Elswick 0 $0 0 $0 69 $1,094.1
----------------------------------------------------------------------------------------------------
Theodore H. Harper 0 $0 0 $0 158 $179.3
----------------------------------------------------------------------------------------------------
John Lutz 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Tom L. Stringfellow 0 $0 0 $0 74 $232.3
----------------------------------------------------------------------------------------------------
Stephen Coker 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Brad Thompson 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Justin Hopkins 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
R. David Telling 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
TJ Qatato 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Craig Leighton 0 $0 0 $0 0 $0
----------------------------------------------------------------------------------------------------
Alan Tarver(3) 0 $0 0 $0 213 $186.1
----------------------------------------------------------------------------------------------------
S-48
|
----------------------------------------------------------------------------------------------------
THORNBURG
----------------------------------------------------------------------------------------------------
Wendy Trevisani 14 $32,629 18 $6,040 10,215(1) $15,294
----------------------------------------------------------------------------------------------------
Tim Cunningham 2 $2,006 0 $0 114 $38
----------------------------------------------------------------------------------------------------
Greg Dunn 2 $2,006 0 $0 114 $38
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
KCM
----------------------------------------------------------------------------------------------------
Harris L. Kempner, Jr. 0 $0 0 $0 13 $200.5
----------------------------------------------------------------------------------------------------
M.Shawn Gault 0 $0 0 $0 13 $200.5
----------------------------------------------------------------------------------------------------
Andrew Duncan 0 $0 0 $0 13 $200.5
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
LKCM
----------------------------------------------------------------------------------------------------
J. Luther King, Jr. 5 $1,590 7(2) $1,080 308 $4,400
----------------------------------------------------------------------------------------------------
Steven R. Purvis 5 $1,590 0 $0 79 $1,290
----------------------------------------------------------------------------------------------------
Paul W. Greenwell 2 $90 0 $0 150 $720
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
CINQUE
----------------------------------------------------------------------------------------------------
Alan Adelman 0 $0 3 $139.8 0 $0
----------------------------------------------------------------------------------------------------
Jack Cowling 0 $0 3 $139.8 0 $0
----------------------------------------------------------------------------------------------------
Fred Wahl 0 $0 3 $139.8 0 $0
----------------------------------------------------------------------------------------------------
Pierre Brachet 0 $0 3 $139.8 0 $0
----------------------------------------------------------------------------------------------------
|
(1) Includes one (1) accounts managed with a performance-based fee,
representing approximately $99 million in assets.
(2) Includes five (5) accounts managed with a performance-based fee,
representing approximately $320 million in assets.
(3) The information is provided as of January 31, 2014.
CONFLICTS OF INTERESTS. Each portfolio manager's management of "other accounts"
may give rise to potential conflicts of interest in connection with his or her
management of the Funds' investments, on the one hand, and the investments of
the other accounts, on the other. The other accounts may have the same
investment objective as a Fund's. Therefore, a potential conflict of interest
may arise as a result of the identical investment objectives, whereby the
portfolio manager could favor one account over another. Another potential
conflict could include each portfolio manager's knowledge about the size,
timing and possible market impact of a Fund's trade, whereby a portfolio
manager could use this information to the advantage of other accounts and to
the disadvantage of a Fund. However, the Adviser and each Sub-Adviser have
established policies and procedures to ensure that the purchase and sale of
securities among all accounts it manages are fairly and equitably allocated.
FROST. Potential conflicts of interest may arise because Frost engages in
portfolio management activities for other clients. Frost uses a model
portfolio management approach in which all accounts are mirrored to a selected
model creating substantially equal treatment in terms of investment strategy
and investment opportunity. Frost's trading allocation policy is designed to
the best of its ability to ensure that the allocation of trades among its
client accounts is done in a manner that is fair and equitable to all clients.
When consistent with client objectives, orders are aggregated when possible. If
a block trade is filled in different lots with the same broker, where possible,
Frost will arrange for these trades to be priced at the average of all of the
different lots to ensure that all the account executed at one broker receive
the same price.
THORNBURG. Most investment advisors and their portfolio managers manage
investments for multiple clients, including mutual funds, private accounts, and
retirement plans. In any case where a portfolio manager manages the investments
of two or more accounts, there is a possibility that conflicts of interest
could arise between the manager's management of the Frost International Equity
Fund's investments and the manager's management of other accounts. These
conflicts could include: (i) allocating a favorable investment opportunity to
one account but not another; (ii) directing one account to buy a security
before purchases through other accounts
S-49
increase the price of the security in the marketplace; (iii) giving
substantially inconsistent investment directions at the same time to similar
accounts, so as to benefit one account over another; and (iv) obtaining
services from brokers conducting trades for one account, which are used to
benefit another account. Thornburg has considered the likelihood that any
material conflicts of interest could arise between a manager's management of
the Fund's investments and the manager's management of other accounts.
Thornburg has not identified any such conflicts that may arise, and has
concluded that it has implemented policies and procedures to identify and
resolve any such conflict if it did arise.
KCM. Harris L. Kempner, Jr. is one of three members of Kempner Securities GP
LLC, which is the general partner for Kempner Securities LP, one of the clients
managed by KCM. He also holds a limited partner interest. The Kempner
Securities LP portfolio has different investment objectives than KCM's other
clients and is disposed to taking greater risks. Some of the same securities
purchased for KCM's value equity clients are also purchased for Kempner
Securities LP, but much care is taken to ensure no special treatment is given.
Stocks are primarily purchased or sold using "good until cancelled" limit
orders with rotated order entry.
LKCM. The portfolio managers will be responsible for managing the Frost Mid Cap
Equity Fund, other registered investment companies, other separately managed
accounts, including employee benefit plans, pension plans, endowments and
high-net worth individuals and, with respect to J. Luther King, Jr., certain
pooled investment vehicles that charge incentive fees and/or management fees
exceeding those paid by the Fund. These accounts may have investment
objectives, strategies and risk profiles that are similar to that of the Fund.
The portfolio managers will make investment decisions for each portfolio based
on its investment objectives and guidelines, policies, practices and other
relevant considerations. Consequently, the portfolio managers may purchase or
sell securities at the same or different times for one portfolio and not
another portfolio (including the Fund), which may affect the performance of
such securities across portfolios. The portfolio managers may place securities
transactions on behalf of other portfolios that are directly or indirectly
contrary to investment decisions made on behalf of the Fund, or make investment
decisions that are similar to those made for the Fund, both of which have the
potential to adversely impact the Fund depending on market conditions. The
portfolio managers may purchase or sell for their own accounts securities that
are purchased or sold on behalf of the Fund. The portfolio managers also may
have a beneficial interest in accounts managed by LKCM, including certain
pooled investment vehicles for which LKCM provides investment advisory
services. To the extent that LKCM seeks to purchase or sell a security for more
than one portfolio at the same time (including the Fund), LKCM may be unable to
purchase or sell the desired quantity of the security, or may be unable to
obtain as favorable a price for the security, for all affected client
portfolios. LKCM's goal is to meet its fiduciary obligations to treat all
clients fairly and provide high quality investment services to all its clients.
Thus, LKCM has developed a variety of policies and procedures that it believes
are reasonably designed to mitigate these conflicts.
CINQUE. Potential conflicts of interest may arise because Cinque provides
portfolio management services for other clients besides the Frost Cinque Large
Cap Buy-Write Equity Fund. Such other clients may have the same or
substantially similar investment objectives as the Funds. As a result, Cinque
could potentially have an incentive to favor another client account over that
of the Fund, including with respect to allocation of investment opportunities.
Cinque has policies and procedures in place designed to address such conflicts
and to ensure that allocations among all clients are made in a fair and
equitable manner. Among other things, Cinque may consider its clients'
investment objectives, risk tolerance, return targets, diversification
considerations, and liquidity needs.
S-50
THE ADMINISTRATOR
GENERAL. SEI Investments Global Funds Services (the "Administrator"), a
Delaware statutory trust, has its principal business offices at One Freedom
Valley Drive, Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of fund valuation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to other
mutual funds.
ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have
entered into an administration agreement dated January 28, 1993, as amended and
restated November 12, 2002 (the "Administration Agreement"). Under the
Administration Agreement, the Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder.
ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. The Administrator provides the
Trust with administrative services, including regulatory reporting and all
necessary office space, equipment, personnel and facilities. For these
administrative services, the Administrator is entitled to a fee, which is
detailed below in the following schedule:
--------------------------------------------------------------------------------
FEE (AS A PERCENTAGE OF AGGREGATE
AVERAGE ANNUAL ASSETS) FUNDS' AVERAGE DAILY NET ASSETS
--------------------------------------------------------------------------------
0.10% First $2 billion
--------------------------------------------------------------------------------
0.08% $2 billion - $3 billion
--------------------------------------------------------------------------------
0.06% Over $3 billion
--------------------------------------------------------------------------------
|
The foregoing fee is applicable to each Fund and is subject to a minimum
aggregate annual fee.
The annual minimum fee assumes that each portfolio includes up to two classes
and is as follows:
o The annual minimum fee for the Frost fund complex shall be $900,000
for the initial 8 funds.
o For each additional fund established after the initial 8 funds in the
Frost fund complex, the minimum annual fee for administrative services
will be increased by $90,000.
o In the event that a fund is comprised of more than two classes, the
Frost fund complex will be subject to an additional annual fee at a
rate of $15,000 per class.
Due to these minimums, the annual administration fee the Funds pay will exceed
the above percentages at low asset levels.
S-51
For the fiscal years ended July 31, 2011, 2012 and 2013 the Funds paid the
Administrator the following administration fees:
--------------------------------------------------------------------------------
ADMINISTRATION FEES PAID
--------------------------------------------------------------------------------
FUND 2011 2012 2013
--------------------------------------------------------------------------------
Frost Growth Equity Fund $284,881 $316,305 $333,085
--------------------------------------------------------------------------------
Frost Value Equity Fund $270,403 $284,462 $254,338
--------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep
Value Equity Fund $164,867 $167,041 $174,155
--------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $32,386 $36,080 $20,535
--------------------------------------------------------------------------------
Frost Small Cap Equity Fund $215,177 $178,701 $184,685
--------------------------------------------------------------------------------
Frost International Equity Fund $291,318 $251,508 $243,787
--------------------------------------------------------------------------------
Frost Natural Resources Fund N/A(1) $24,437(3) $54,660
--------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-
Write Equity Fund N/A(1) N/A(1) $5,570(4)
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund $8,173(2) $12,272 $6,603
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund $18,774 $11,275 $10,419
--------------------------------------------------------------------------------
Frost Total Return Bond Fund $449,185 $667,726 $832,638
--------------------------------------------------------------------------------
Frost Credit Fund N/A(1) N/A(1) $13,460(4)
--------------------------------------------------------------------------------
Frost Low Duration Bond Fund $233,500 $236,032 $258,734
--------------------------------------------------------------------------------
Frost Municipal Bond Fund $152,316 $177,404 $214,855
--------------------------------------------------------------------------------
Frost Kempner Treasury and
Income Fund $26,801 $33,004 $28,574
--------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(3) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(4) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
S-52
THE DISTRIBUTOR
GENERAL. SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, and the Trust are parties to a distribution agreement dated
January 28, 1993, as amended and restated as of November 14, 2005
("Distribution Agreement"). The principal business address of the Distributor
is One Freedom Valley Drive, Oaks, Pennsylvania 19456.
The continuance of the Distribution Agreement must be specifically approved at
least annually (i) by the vote of the Trustees or by a vote of the shareholders
of the Funds and (ii) by the vote of a majority of the Trustees who are not
"interested persons" of the Trust and have no direct or indirect financial
interest in the operation of the Distribution Agreement or any related
agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement will terminate automatically in the event
of its assignment (as such term is defined in the 1940 Act), and is terminable
at any time without penalty by the Trustees or by a majority of the outstanding
shares of that Fund, upon not more than 60 days' written notice by either
party. The Distribution Agreement provides that the Distributor shall not be
protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
THE DISTRIBUTION PLAN. The Distribution Plan (the "Plan") provides that Class A
Shares of each Fund pay the Distributor an annual fee of up to a maximum of
0.25% of the average daily net assets of the shares. Under the Plan, the
Distributor may make payments pursuant to written agreements to financial
institutions and intermediaries such as banks, savings and loan associations
and insurance companies including, without limit, investment counselors,
broker-dealers and the Distributor's affiliates and subsidiaries (collectively,
"Agents") as compensation for services and reimbursement of expenses incurred
in connection with distribution assistance. The Plan is characterized as a
compensation plan since the distribution fee will be paid to the Distributor
without regard to the distribution expenses incurred by the Distributor or the
amount of payments made to other financial institutions and intermediaries. The
Trust intends to operate the Plan in accordance with its terms and with the
Financial Industry Regulatory Authority ("FINRA") rules concerning sales
charges.
The Trust has adopted the Plan in accordance with the provisions of Rule 12b-1
under the 1940 Act, which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution
of its shares. Continuance of the Plan must be approved annually by a majority
of the Trustees and by a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Trust and have no direct or
indirect financial interest in the Plan or any agreements related to the Plan
("Qualified Trustees"). The Plan requires that quarterly written reports of
amounts spent under the Plan and the purposes of such expenditures be furnished
to and reviewed by the Trustees. The Plan may not be amended to increase
materially the amount that may be spent thereunder without approval by a
majority of the outstanding shares of the affected Fund(s). All material
amendments of the Plan will require approval by a majority of the Trustees of
the Trust and of the Qualified Trustees.
S-53
For the fiscal years ended July 31, 2011, 2012 and 2013, the Funds paid the
Distributor the following distribution fees, with no distribution fees retained
by the Distributor:
--------------------------------------------------------------------------------
12B-1 FEES PAID
--------------------------------------------------------------------------------
FUND 2011 2012 2013
--------------------------------------------------------------------------------
Frost Growth Equity Fund $142,615 $177,032 $192,451
--------------------------------------------------------------------------------
Frost Value Equity Fund $122,691 $156,580 $137,728
--------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value
Equity Fund $73,935 $66,843 $60,303
--------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $0 $0 $214
--------------------------------------------------------------------------------
Frost Small Cap Equity Fund $82,814 $76,901 $78,180
--------------------------------------------------------------------------------
Frost International Equity Fund $114,202 $103,166 $104,017
--------------------------------------------------------------------------------
Frost Natural Resources Fund N/A(1) $10,480(3) $19,142
--------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write
Equity Fund N/A(1) N/A(1) $4,132(4)
--------------------------------------------------------------------------------
Frost Conservative Allocation Fund $21,187(2) $32,182 $16,372
--------------------------------------------------------------------------------
Frost Moderate Allocation Fund $28,908 $19,093 $17,530
--------------------------------------------------------------------------------
Frost Total Return Bond Fund $219,511 $273,223 $311,363
--------------------------------------------------------------------------------
Frost Credit Fund N/A(1) N/A(1) $10,054(4)
--------------------------------------------------------------------------------
Frost Low Duration Bond Fund $74,022 $71,958 $91,927
--------------------------------------------------------------------------------
Frost Municipal Bond Fund $1,363 $6,406 $9,526
--------------------------------------------------------------------------------
Frost Kempner Treasury and Income
Fund $0 $0 $0
--------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(3) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(4) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
DEALER REALLOWANCES. Class A Shares of the Funds are sold subject to a
front-end sales charge as described in the Class A Shares prospectus. Selling
dealers are normally reallowed 100% of the sales charge by the Distributor. The
following table shows the amount of the front-end sales charge that is
reallowed to dealers as a percentage of the offering price of Class A Shares.
S-54
--------------------------------------------------------------------------------
LESS THAN $500,000 BUT $1,000,000
FUND $500,000 LESS THAN $1,000,000 AND OVER(1)
--------------------------------------------------------------------------------
Frost Growth
Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Value Equity
Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Kempner
Multi-Cap Deep
Value Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Mid Cap
Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Small Cap
Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost International
Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Natural
Resources Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Cinque
Large Cap Buy-
Write Equity Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Conservative
Allocation Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Moderate
Allocation Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
|
(1) The Distributor may pay dealers up to 1% on investments of $1,000,000 or
more in Class A Shares.
--------------------------------------------------------------------------------
LESS THAN $1,000,000
FUND $1,000,000 AND OVER(1)
--------------------------------------------------------------------------------
Frost Total Return Bond Fund 2.25% None
--------------------------------------------------------------------------------
Frost Credit Fund 2.25% None
--------------------------------------------------------------------------------
Frost Low Duration Bond
Fund 2.25% None
--------------------------------------------------------------------------------
Frost Municipal Bond Fund 2.25% None
--------------------------------------------------------------------------------
Frost Kempner Treasury and
Income Fund 2.25% None
--------------------------------------------------------------------------------
|
(1) The Distributor may pay dealers up to 1% on investments of $1,000,000 or
more in Class A Shares.
S-55
PAYMENTS TO FINANCIAL INTERMEDIARIES
The Adviser, Sub-Advisers and/or their affiliates, at their discretion, may
make payments from their own resources and not from Fund assets to affiliated
or unaffiliated brokers, dealers, banks (including bank trust departments),
trust companies, registered investment advisers, financial planners, retirement
plan administrators, insurance companies, and any other institution having a
service, administration, or any similar arrangement with the Funds, their
service providers or their respective affiliates, as incentives to help market
and promote the Funds and/or in recognition of their distribution, marketing,
administrative services, and/or processing support.
These additional payments may be made to financial intermediaries that sell
Fund shares or provide services to the Funds, the Distributor or shareholders
of the Funds through the financial intermediary's retail distribution channel
and/or fund supermarkets. Payments may also be made through the financial
intermediary's retirement, qualified tuition, fee-based advisory, wrap fee bank
trust, or insurance (e.g., individual or group annuity) programs. These
payments may include, but are not limited to, placing a Fund in a financial
intermediary's retail distribution channel or on a preferred or recommended
fund list; providing business or shareholder financial planning assistance;
educating financial intermediary personnel about the Funds; providing access to
sales and management representatives of the financial intermediary; promoting
sales of Fund shares; providing marketing and educational support; maintaining
share balances and/or for sub-accounting, administrative or shareholder
transaction processing services. A financial intermediary may perform the
services itself or may arrange with a third party to perform the services.
The Adviser, Sub-Advisers and/or their affiliates may also make payments from
their own resources to financial intermediaries for costs associated with the
purchase of products or services used in connection with sales and marketing,
participation in and/or presentation at conferences or seminars, sales or
training programs, client and investor entertainment and other sponsored
events. The costs and expenses associated with these efforts may include
travel, lodging, sponsorship at educational seminars and conferences,
entertainment and meals to the extent permitted by law.
Revenue sharing payments may be negotiated based on a variety of factors,
including the level of sales, the amount of Fund assets attributable to
investments in the Funds by financial intermediaries' customers, a flat fee or
other measures as determined from time to time by the Adviser, Sub-Advisers
and/or their affiliates. A significant purpose of these payments is to
increase the sales of Fund shares, which in turn may benefit the Adviser
through increased fees as Fund assets grow.
THE TRANSFER AGENT
DST Systems, Inc., 333 W. 11(th) Street, Kansas City, Missouri 64105 (the
"Transfer Agent"), serves as the Funds' transfer agent.
THE CUSTODIAN
Union Bank, N.A., 350 California Street, 6th Floor, San Francisco, CA 94104
(the "Custodian"), acts as custodian of the Funds. The Custodian holds cash,
securities and other assets of the Funds as required by the 1940 Act.
S-56
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, One Commerce Square, 2005 Market Street, Suite 700,
Philadelphia, Pennsylvania 19103, serves as independent registered public
accounting firm for the Funds. The financial statements and notes thereto
incorporated by reference have been audited by Ernst & Young LLP, as indicated
in their report with respect thereto, and are incorporated by reference in
reliance on the authority of their report as experts in accounting and
auditing.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103-2921, serves as legal counsel to the Trust.
S-57
TRUSTEES AND OFFICERS OF THE TRUST
BOARD RESPONSIBILITIES. The management and affairs of the Trust and its series,
including the Funds described in this SAI, are overseen by the Trustees. The
Board has approved contracts, as described above, under which certain companies
provide essential management services to the Trust.
Like most mutual funds, the day-to-day business of the Trust, including the
management of risk, is performed by third party service providers, such as the
Adviser, Distributor and Administrator. The Trustees are responsible for
overseeing the Trust's service providers and, thus, have oversight
responsibility with respect to risk management performed by those service
providers. Risk management seeks to identify and address risks, i.e., events or
circumstances that could have material adverse effects on the business,
operations, shareholder services, investment performance or reputation of the
funds. The funds and their service providers employ a variety of processes,
procedures and controls to identify various possible events or circumstances,
to lessen the probability of their occurrence and/or to mitigate the effects of
such events or circumstances if they do occur. Each service provider is
responsible for one or more discrete aspects of the Trust's business (e.g., the
Adviser is responsible for the day-to-day management of each Fund's portfolio
investments) and, consequently, for managing the risks associated with that
business. The Board has emphasized to the funds' service providers the
importance of maintaining vigorous risk management.
The Trustees' role in risk oversight begins before the inception of a fund, at
which time certain of the fund's service providers present the Board with
information concerning the investment objectives, strategies and risks of the
fund as well as proposed investment limitations for the fund. Additionally, the
fund's adviser provides the Board with an overview of, among other things, its
investment philosophy, brokerage practices and compliance infrastructure.
Thereafter, the Board continues its oversight function as various personnel,
including the Trust's Chief Compliance Officer, as well as personnel of the
adviser and other service providers, such as the fund's independent
accountants, make periodic reports to the Audit Committee or to the Board with
respect to various aspects of risk management. The Board and the Audit
Committee oversee efforts by management and service providers to manage risks
to which the funds may be exposed.
The Board is responsible for overseeing the nature, extent and quality of the
services provided to the funds by the adviser and receives information about
those services at its regular meetings. In addition, on an annual basis, in
connection with its consideration of whether to renew the advisory agreement
with the adviser, the Board meets with the adviser to review such services.
Among other things, the Board regularly considers the adviser's adherence to
the funds' investment restrictions and compliance with various fund policies
and procedures and with applicable securities regulations. The Board also
reviews information about the funds' investments, including, for example,
portfolio holdings schedules and reports on the adviser's use of derivatives in
managing the funds, if any, as well as reports on the funds' investments in
ETFs, if any.
The Trust's Chief Compliance Officer reports regularly to the Board to review
and discuss compliance issues and fund and adviser risk assessments. At least
annually, the Trust's Chief Compliance Officer provides the Board with a report
reviewing the adequacy and effectiveness of the Trust's policies and procedures
and those of its service providers, including the adviser. The report addresses
the operation of the policies and procedures of the Trust and each service
provider since the date of the last report; any material changes to the
policies and procedures
S-58
since the date of the last report; any recommendations for material changes to
the policies and procedures; and any material compliance matters since the date
of the last report.
The Board receives reports from the funds' service providers regarding
operational risks and risks related to the valuation and liquidity of portfolio
securities. The Trust's Fair Value Pricing Committee makes regular reports to
the Board concerning investments for which market quotations are not readily
available. Annually, the independent registered public accounting firm reviews
with the Audit Committee its audit of the funds' financial statements, focusing
on major areas of risk encountered by the funds and noting any significant
deficiencies or material weaknesses in the funds' internal controls.
Additionally, in connection with its oversight function, the Board oversees
fund management's implementation of disclosure controls and procedures, which
are designed to ensure that information required to be disclosed by the Trust
in its periodic reports with the SEC are recorded, processed, summarized, and
reported within the required time periods. The Board also oversees the Trust's
internal controls over financial reporting, which comprise policies and
procedures designed to provide reasonable assurance regarding the reliability
of the Trust's financial reporting and the preparation of the Trust's financial
statements.
From their review of these reports and discussions with the adviser, the Chief
Compliance Officer, the independent registered public accounting firm and other
service providers, the Board and the Audit Committee learn in detail about the
material risks of the funds, thereby facilitating a dialogue about how
management and service providers identify and mitigate those risks.
The Board recognizes that not all risks that may affect the funds can be
identified and/or quantified, that it may not be practical or cost-effective to
eliminate or mitigate certain risks, that it may be necessary to bear certain
risks (such as investment-related risks) to achieve the funds' goals, and that
the processes, procedures and controls employed to address certain risks may be
limited in their effectiveness. Moreover, reports received by the Trustees as
to risk management matters are typically summaries of the relevant information.
Most of the funds' investment management and business affairs are carried out
by or through the funds' adviser and other service providers, each of which has
an independent interest in risk management but whose policies and the methods
by which one or more risk management functions are carried out may differ from
the funds' and each other's in the setting of priorities, the resources
available or the effectiveness of relevant controls. As a result of the
foregoing and other factors, the Board's ability to monitor and manage risk, as
a practical matter, is subject to limitations.
MEMBERS OF THE BOARD. There are eight members of the Board of Trustees, six of
whom are not interested persons of the Trust, as that term is defined in the
1940 Act ("independent Trustees"). Robert Nesher, an interested person of the
Trust, serves as Chairman of the Board. George Sullivan, Jr., an independent
Trustee, serves as the lead independent Trustee. The Trust has determined its
leadership structure is appropriate given the specific characteristics and
circumstances of the Trust. The Trust made this determination in consideration
of, among other things, the fact that the independent Trustees constitute a
super-majority (75%) of the Board, the fact that the chairperson of each
Committee of the Board is an independent Trustee, the amount of assets under
management in the Trust, and the number of funds (and classes of shares)
overseen by the Board. The Board also believes that its leadership structure
facilitates the orderly and efficient flow of information to the independent
Trustees from fund management.
The Board of Trustees has three standing committees: the Audit Committee,
Governance Committee and Fair Value Pricing Committee. The Audit Committee and
Governance
S-59
Committee are chaired by an independent Trustee and composed of all of the
independent Trustees. In addition, the Board of Trustees has a lead independent
Trustee.
In his role as lead independent Trustee, Mr. Sullivan, among other things: (i)
presides over Board meetings in the absence of the Chairman of the Board; (ii)
presides over executive sessions of the independent Trustees; (iii) along with
the Chairman of the Board, oversees the development of agendas for Board
meetings; (iv) facilitates communication between the independent Trustees and
management, and among the independent Trustees; (v) serves as a key point
person for dealings between the independent Trustees and management; and (vi)
has such other responsibilities as the Board or independent Trustees determine
from time to time.
Set forth below are the names, years of birth, position with the Trust, and the
principal occupations and other directorships held during at least the last
five years of each of the persons currently serving as a Trustee of the Trust.
There is no stated term of office for the Trustees of the Trust. Unless
otherwise noted, the business address of each Trustee is SEI Investments
Company, One Freedom Valley Drive, Oaks, Pennsylvania 19456.
------------------------------------------------------------------------------------------------------------------------------------
NAME AND YEAR OF POSITION WITH PRINCIPAL OCCUPATIONS OTHER DIRECTORSHIPS HELD IN THE
BIRTH TRUST IN THE PAST 5 YEARS PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Robert Nesher Chairman of the SEI employee 1974 to Current Directorships: Trustee of The
(Born: 1946) Board of Trustees(1) present; currently Advisors' Inner Circle Fund, Bishop
(since 1991) performs various Street Funds, SEI Daily Income Trust,
services on behalf of SEI Institutional International Trust,
SEI Investments for SEI Institutional Investments Trust,
which Mr. Nesher is SEI Institutional Managed Trust, SEI
compensated. President Liquid Asset Trust, SEI Asset
and Director of SEI Allocation Trust, SEI Tax Exempt
Structured Credit Fund, Trust, Adviser Managed Trust,
LP. President and Chief New Covenant Funds, SEI Insurance
Executive Officer of Products Trust and The KP Funds. Director of
SEI Alpha Strategy SEI Global Master Fund plc, SEI Global Assets
Portfolios, LP, June Fund plc, SEI Global Investments Fund plc, SEI
2007 to September 2013. Investments--Global Funds Services,
President and Director Limited, SEI Investments Global,
of SEI Opportunity Limited, SEI Investments (Europe)
Fund, L.P. to 2010. Ltd., SEI Investments--Unit Trust
Management (UK) Limited, SEI
Multi-Strategy Funds PLC and SEI Global
Nominee Ltd.
Former Directorships: Director of SEI
Opportunity Fund, L.P. to 2010.
Director of SEI Alpha Strategy Portfolios,
LP to 2013.
------------------------------------------------------------------------------------------------------------------------------------
|
S-60
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NAME AND YEAR OF POSITION WITH PRINCIPAL OCCUPATIONS OTHER DIRECTORSHIPS HELD IN THE
BIRTH TRUST IN THE PAST 5 YEARS PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
William M. Doran Trustee(1) Self-Employed Current Directorships: Trustee of The
(Born: 1940) (since 1991) Consultant since 2003. Advisors' Inner Circle Fund, Bishop
Partner at Morgan, Lewis Street Funds, SEI Daily Income Trust,
& Bockius LLP (law SEI Institutional International Trust,
firm) from 1976 to 2003. SEI Institutional Investments Trust, SEI
Counsel to the Trust, SEI Institutional Managed Trust, SEI Liquid
Investments, SIMC, the Asset Trust, SEI Asset Allocation
Administrator and the Trust, SEI Tax Exempt Trust, Adviser
Distributor. Managed Trust, New Covenant
Funds, SEI Insurance Products Trust
and The KP Funds.
Director of SEI Investments (Europe),
Limited, SEI Investments--Global Funds
Services, Limited, SEI Investments Global,
Limited, SEI Investments (Asia),
Limited, SEI Asset Korea Co., Ltd.,
SEI Global Nominee Ltd. and SEI
Investments -- Unit Trust Management
(UK) Limited. Director of the
Distributor since 2003.
Former Directorships: Director of SEI
Alpha Strategy Portfolios, LP to 2013.
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
John K. Darr Trustee Retired. Chief Current Directorships: Trustee of The
(Born: 1944) (since 2008) Executive Officer, Advisors' Inner Circle Fund,
Office of Finance, Bishop Street Funds and The KP Funds. Director of
Federal Home Loan Federal Home Loan Banks of
Banks, from 1992 to Pittsburgh, Manna, Inc. (non-profit
2007. developer of affordable housing for
ownership) and Meals on Wheels,
Lewes/Rehoboth Beach.
------------------------------------------------------------------------------------------------------------------------------------
Joseph T. Grause, Jr. Trustee Self Employed Current Directorships: Trustee of The
(Born: 1952) (since 2011) Consultant since January Advisors' Inner Circle Fund,
2012. Director of Bishop Street Funds and The KP Funds.
Endowments and Director of The Korea Fund, Inc.
Foundations,
Morningstar Investment
Management,
Morningstar, Inc.,
February 2010 to May
2011. Director of
International Consulting
and Chief Executive
Officer of Morningstar
Associates Europe
Limited, Morningstar,
Inc., May 2007 to
February 2010. Country
Manager -- Morningstar
UK Limited,
Morningstar, Inc., June
2005 to May 2007.
------------------------------------------------------------------------------------------------------------------------------------
|
S-61
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NAME AND YEAR OF POSITION WITH PRINCIPAL OCCUPATIONS OTHER DIRECTORSHIPS HELD IN THE
BIRTH TRUST IN THE PAST 5 YEARS PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
Mitchell A. Johnson Trustee Retired. Private Investor Current Directorships: Trustee of The
(Born: 1942) (since 2005) since 1994. Advisors' Inner Circle Fund, Bishop
Street Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI
Institutional International Trust, SEI
Institutional Managed Trust, SEI
Institutional Investments Trust, SEI
Liquid Asset Trust, SEI Tax Exempt
Trust, Adviser Managed Trust,
New Covenant Funds, SEI Insurance
Products Trust and The KP Funds. Director
of Federal Agricultural Mortgage Corporation
(Farmer Mac) since 1997.
Former Directorships: Director of SEI Alpha
Strategy Portfolios, LP to 2013.
------------------------------------------------------------------------------------------------------------------------------------
Betty L. Krikorian Trustee Vice President, Current Directorships: Trustee of The
(Born: 1943) (since 2005) Compliance, AARP Advisors' Inner Circle Fund,
Financial Inc., from Bishop Street Funds and The KP Funds.
2008 to 2010. Self-
Employed Legal and
Financial Services
Consultant since 2003.
Counsel (in-house) for
State Street Bank from
1995 to 2003.
------------------------------------------------------------------------------------------------------------------------------------
Bruce Speca Trustee Global Head of Asset Current Directorships: Trustee of The
(Born: 1956) (since 2011) Allocation, Manulife Advisors' Inner Circle Fund,
Asset Management Bishop Street Funds and The KP Funds.
(subsidiary of Manulife
Financial), June 2010 to
May 2011. Executive
Vice President --
Investment Management
Services, John Hancock
Financial Services
(subsidiary of Manulife
Financial), June 2003 to
June 2010.
------------------------------------------------------------------------------------------------------------------------------------
|
S-62
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NAME AND YEAR OF POSITION WITH PRINCIPAL OCCUPATIONS OTHER DIRECTORSHIPS HELD IN THE
BIRTH TRUST IN THE PAST 5 YEARS PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
George J. Sullivan, Jr. Trustee Retired since January Current Directorships: Trustee/
(Born: 1942) (since 1999) 2012. Self-employed Director of State Street Navigator
Lead Independent Consultant, Newfound Securities Lending Trust, The
Trustee Consultants Inc., April Advisors' Inner Circle Fund, Bishop
1997 to December 2011. Street Funds, SEI Structured Credit
Fund, LP, SEI Daily Income Trust, SEI
Institutional International Trust, SEI
Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Asset Allocation
Trust, SEI Tax Exempt Trust, Adviser
Managed Trust, New Covenant
Funds, SEI Insurance Products Trust
and The KP Funds. Member of the independent
review committee for SEI's Canadian-
registered mutual funds.
Former Directorships: Director of SEI
Opportunity Fund, L.P. to 2010.
Director of SEI Alpha Strategy Portfolios,
LP to 2013.
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Denotes Trustees who may be deemed to be "interested" persons of the Funds
as that term is defined in the 1940 Act by virtue of their affiliation with
the Distributor and/or its affiliates.
INDIVIDUAL TRUSTEE QUALIFICATIONS
The Trust has concluded that each of the Trustees should serve on the Board
because of their ability to review and understand information about the Funds
provided to them by management, to identify and request other information they
may deem relevant to the performance of their duties, to question management
and other service providers regarding material factors bearing on
S-63
the management and administration of the Funds, and to exercise their business
judgment in a manner that serves the best interests of the Funds' shareholders.
The Trust has concluded that each of the Trustees should serve as a Trustee
based on their own experience, qualifications, attributes and skills as
described below.
The Trust has concluded that Mr. Nesher should serve as Trustee because of the
experience he has gained in his various roles with SEI Investments Company,
which he joined in 1974, his knowledge of and experience in the financial
services industry, and the experience he has gained serving as a trustee of the
Trust since 1991.
The Trust has concluded that Mr. Doran should serve as Trustee because of the
experience he gained serving as a Partner in the Investment Management and
Securities Industry Practice of a large law firm, his experience in and
knowledge of the financial services industry, and the experience he has gained
serving as a trustee of the Trust since 1991.
The Trust has concluded that Mr. Darr should serve as Trustee because of his
background in economics, the business experience he gained in a variety of
roles with different financial and banking institutions and as a founder of a
money management firm, his knowledge of the financial services industry, and
the experience he has gained serving as a trustee of the Trust since 2008.
The Trust has concluded that Mr. Grause should serve as Trustee because of the
knowledge and experience he gained in a variety of leadership roles with
different financial institutions, his knowledge of the mutual fund and
investment management industries, and his past experience as an interested
trustee and chair of the investment committee for a multi-managed investment
company.
The Trust has concluded that Mr. Johnson should serve as Trustee because of the
experience he gained as a senior vice president, corporate finance, of a
Fortune 500 company, his experience in and knowledge of the financial services
and banking industries, the experience he gained serving as a director of other
mutual funds, and the experience he has gained serving as a trustee of the
Trust since 2005.
The Trust has concluded that Ms. Krikorian should serve as Trustee because of
the experience she gained serving as a legal and financial services consultant,
in-house counsel to a large custodian bank and Vice President of Compliance of
an investment adviser, her background in fiduciary and banking law, her
experience in and knowledge of the financial services industry, and the
experience she has gained serving as a trustee of the Trust since 2005.
The Trust has concluded that Mr. Speca should serve as Trustee because of the
knowledge and experience he gained serving as president of a mutual fund
company and portfolio manager for a $95 billion complex of asset allocation
funds, and his over 25 years of experience working in a management capacity
with mutual fund boards.
The Trust has concluded that Mr. Sullivan should serve as Trustee because of
the experience he gained as a certified public accountant and financial
consultant, his experience in and knowledge of public company accounting and
auditing and the financial services industry, the experience he gained as an
officer of a large financial services firm in its operations department, and
his experience from serving as a trustee of the Trust since 1999.
S-64
In its periodic assessment of the effectiveness of the Board, the Board
considers the complementary individual skills and experience of the individual
Trustees primarily in the broader context of the Board's overall composition so
that the Board, as a body, possesses the appropriate (and appropriately
diverse) skills and experience to oversee the business of the funds.
BOARD COMMITTEES. The Board has established the following standing committees:
o AUDIT COMMITTEE. The Board has a standing Audit Committee that is composed
of each of the independent Trustees of the Trust. The Audit Committee
operates under a written charter approved by the Board. The principal
responsibilities of the Audit Committee include: (i) recommending which
firm to engage as each fund's independent registered public accounting firm
and whether to terminate this relationship; (ii) reviewing the independent
registered public accounting firm's compensation, the proposed scope and
terms of its engagement, and the firm's independence; (iii) pre-approving
audit and non- audit services provided by each fund's independent
registered public accounting firm to the Trust and certain other affiliated
entities; (iv) serving as a channel of communication between the
independent registered public accounting firm and the Trustees; (v)
reviewing the results of each external audit, including any qualifications
in the independent registered public accounting firm's opinion, any related
management letter, management's responses to recommendations made by the
independent registered public accounting firm in connection with the audit,
reports submitted to the Committee by the internal auditing department of
the Trust's Administrator that are material to the Trust as a whole, if
any, and management's responses to any such reports; (vi) reviewing each
fund's audited financial statements and considering any significant
disputes between the Trust's management and the independent registered
public accounting firm that arose in connection with the preparation of
those financial statements; (vii) considering, in consultation with the
independent registered public accounting firm and the Trust's senior
internal accounting executive, if any, the independent registered public
accounting firms' reports on the adequacy of the Trust's internal financial
controls; (viii) reviewing, in consultation with each fund's independent
registered public accounting firm, major changes regarding auditing and
accounting principles and practices to be followed when preparing each
fund's financial statements; and (ix) other audit related matters. Messrs.
Darr, Grause, Johnson, Speca and Sullivan and Ms. Krikorian currently serve
as members of the Audit Committee. Mr. Sullivan serves as the Chairman of
the Audit Committee. The Audit Committee meets periodically, as necessary,
and met four (4) times during the most recently completed fiscal year.
o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value Pricing
Committee that is composed of at least one Trustee and various
representatives of the Trust's service providers, as appointed by the
Board. The Fair Value Pricing Committee operates under procedures approved
by the Board. The principal responsibility of the Fair Value Pricing
Committee is to determine the fair value of securities for which current
market quotations are not readily available. The Fair Value Pricing
Committee's determinations are reviewed by the Board. Mr. Nesher,
interested trustee, currently serves as the Board's delegate on the Fair
Value Pricing Committee. The Fair Value Pricing Committee meets
periodically, as necessary, and met fifteen (15) times during the most
recently completed fiscal year.
o GOVERNANCE COMMITTEE. The Board has a standing Governance Committee
(formerly the Nominating Committee) that is composed of each of the
independent Trustees of the Trust. The Governance Committee operates under
a written charter approved by the
S-65
Board. The principal responsibilities of the Governance Committee include:
(i) considering and reviewing Board governance and compensation issues;
(ii) conducting a self-assessment of the Board's operations; (iii)
selecting and nominating all persons to serve as independent Trustees and
evaluating the qualifications of "interested" Trustee candidates; and (iv)
reviewing shareholder recommendations for nominations to fill vacancies on
the Board if such recommendations are submitted in writing and addressed to
the Committee at the Trust's office. Ms. Krikorian and Messrs. Darr,
Grause, Johnson, Speca and Sullivan currently serve as members of the
Governance Committee. Ms. Krikorian serves as the Chairman of the
Governance Committee. The Governance Committee meets periodically, as
necessary, and did not meet during the most recently completed fiscal year.
FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount
range of each Trustee's "beneficial ownership" of shares of each of the Funds
as of the end of the most recently completed calendar year. Dollar amount
ranges disclosed are established by the SEC. "Beneficial ownership" is
determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The Trustees
and officers of the Trust own less than 1% of the outstanding shares of the
Trust.
------------------------------------------------------------------------------------------
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE OF SHARES
NAME FUND SHARES (1) (ALL FUNDS IN THE FUND COMPLEX)(1,2)
------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
------------------------------------------------------------------------------------------
Doran None None
------------------------------------------------------------------------------------------
Nesher None None
------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------
Darr None None
------------------------------------------------------------------------------------------
Grause None None
------------------------------------------------------------------------------------------
Johnson None None
------------------------------------------------------------------------------------------
Krikorian None None
------------------------------------------------------------------------------------------
Speca None None
------------------------------------------------------------------------------------------
Sullivan None None
------------------------------------------------------------------------------------------
|
(1) Valuation date is December 31, 2013.
(2) The Trust is the only investment company in the Fund Complex.
BOARD COMPENSATION. The Trust paid the following fees to the Trustees during
the Funds' most recently completed fiscal year.
---------------------------------------------------------------------------------------------------------------------
ESTIMATED
AGGREGATE PENSION OR RETIREMENT ANNUAL
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON TOTAL COMPENSATION FROM THE
NAME FROM THE TRUST PART OF FUND EXPENSES RETIREMENT TRUST AND FUND COMPLEX(1)
---------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
---------------------------------------------------------------------------------------------------------------------
Doran $0 N/A N/A $0 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Nesher $0 N/A N/A $0 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
---------------------------------------------------------------------------------------------------------------------
Darr $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Grause $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Johnson $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Krikorian $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Speca $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
Sullivan $40,485 N/A N/A $40,485 for service on one (1) board
---------------------------------------------------------------------------------------------------------------------
|
(1) The Trust is the only investment company in the Fund Complex.
S-66
TRUST OFFICERS. Set forth below are the names, years of birth, position with
the Trust, and the principal occupations for the last five years of each of the
persons currently serving as executive officers of the Trust. There is no
stated term of office for the officers of the Trust. Unless otherwise noted,
the business address of each officer is SEI Investments Company, One Freedom
Valley Drive, Oaks, Pennsylvania 19456. The Chief Compliance Officer is the
only officer who receives compensation from the Trust for his services.
Certain officers of the Trust also serve as officers of one or more mutual funds
for which SEI Investments Company or its affiliates act as investment manager,
administrator or distributor.
------------------------------------------------------------------------------------------------------------------------------------
NAME AND YEAR POSITION WITH TRUST AND LENGTH OF PRINCIPAL OCCUPATIONS IN PAST 5 YEARS
OF BIRTH TERM
------------------------------------------------------------------------------------------------------------------------------------
Michael Beattie President Director of Client Service, SEI Investments
(Born: 1965) (since 2011) Company, since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Michael Lawson Treasurer, Controller and Chief Director, SEI Investments, Fund Accounting
(Born: 1960) Financial Officer since July 2005. Manager, SEI Investments,
(since 2005) Fund Accounting at SEI Investments AVP from
April 1995 to February 1998 and November
1998 to July 2005.
------------------------------------------------------------------------------------------------------------------------------------
Russell Emery Chief Compliance Officer Chief Compliance Officer of SEI Structured
(Born: 1962) (since 2006) Credit Fund, LP since June 2007.
Chief Compliance Officer of SEI Alpha Strategy
Portfolios, LP from June 2007 to September 2013.
Chief Compliance Officer of The Advisors' Inner
Circle Fund, Bishop Street Funds, SEI Institutional
Managed Trust, SEI Asset Allocation Trust, SEI
Institutional International Trust, SEI Institutional
Investments Trust, SEI Daily Income Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust,
Adviser Managed Trust, New Covenant Funds, SEI
Insurance Products Trust and The KP Funds. Chief
Compliance Officer of SEI Opportunity Fund, L.P. until
2010. Director of Investment Product Management and Development, SEI
Investments, since February 2003; Senior
Investment Analyst -- Equity Team, SEI
Investments, from March 2000 to February 2003.
------------------------------------------------------------------------------------------------------------------------------------
Lisa Whittaker Vice President and Assistant Attorney, SEI Investments Company (2012-present).
(Born: 1978) Secretary Associate Counsel and Compliance Officer, The Glenmede
(since 2013) Trust Company, N.A. (2011-2012). Associate, Drinker
Biddle & Reath LLP (2006-2011).
------------------------------------------------------------------------------------------------------------------------------------
Dianne M. Vice President and Secretary Counsel at SEI Investments since 2010. Associate
Descoteaux (since 2011) at Morgan, Lewis & Bockius LLP from 2006 to
(Born: 1977) 2010.
------------------------------------------------------------------------------------------------------------------------------------
John Munch Vice President and Assistant Attorney, SEI Investments Company, since 2001.
(Born: 1971) Secretary General Counsel, SEI Investments Distribution
(since 2012) Co., since 2004.
------------------------------------------------------------------------------------------------------------------------------------
|
S-67
------------------------------------------------------------------------------------------------------------------------------------
NAME AND YEAR POSITION WITH TRUST AND LENGTH OF PRINCIPAL OCCUPATIONS IN PAST 5 YEARS
OF BIRTH TERM
------------------------------------------------------------------------------------------------------------------------------------
Edward Privacy Officer Compliance Manager of SEI Investments
McCusker (since 2013) Company, May 2011 -- April 2013. Project
(Born: 1983) Manager and AML Operations Lead of SEI
AML Officer Private Trust Company, September 2010 -- May
(since 2013) 2011. Private Banking Client Service
Professional of SEI Private Banking and Trust,
September 2008 -- September 2010.
------------------------------------------------------------------------------------------------------------------------------------
|
S-68
PURCHASING AND REDEEMING SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the
New York Stock Exchange ("NYSE") is open for business. Shares of the Funds are
offered and redeemed on a continuous basis. Currently, the Trust is closed for
business when the following holidays are observed: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. A shareholder will at all
times be entitled to aggregate cash redemptions from all funds of the Trust up
to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day
period. The Trust has obtained an exemptive order from the SEC that permits the
Trust to make in-kind redemptions to those shareholders of the Trust that are
affiliated with the Trust solely by their ownership of a certain percentage of
the Trust's investment portfolios.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the NYSE is restricted, or during the existence of an emergency (as determined
by the SEC by rule or regulation) as a result of which disposal or valuation of
a Fund's securities is not reasonably practicable, or for such other periods as
the SEC has by order permitted. The Trust also reserves the right to suspend
sales of shares of the Funds for any period during which the NYSE, the Adviser,
the Sub-Advisers, the Administrator, the Transfer Agent and/or the Custodian
are not open for business.
DETERMINATION OF NET ASSET VALUE
GENERAL POLICY. The Funds adhere to Section 2(a)(41), and Rule 2a-4 thereunder,
of the 1940 Act with respect to the valuation of portfolio securities. In
general, securities for which market quotations are readily available are
valued at current market value, and all other securities are valued at fair
value as determined in good faith by the Board. In complying with the 1940 Act,
the Trust relies on guidance provided by the SEC and by the SEC staff in
various interpretive letters and other guidance.
EQUITY SECURITIES. Securities listed on a securities exchange, market or
automated quotation system for which quotations are readily available (except
for securities traded on NASDAQ), including securities traded over the counter,
are valued at the last quoted sale price on the primary exchange or market
(foreign or domestic) on which they are traded on valuation date (or at
approximately 4:00 p.m. Eastern Time if a security's primary exchange is
normally open at that time), or, if there is no such reported sale on the
valuation date, at the most recent quoted bid price. For securities traded on
NASDAQ, the NASDAQ Official Closing Price will be used. If such prices are not
available or determined to not represent the fair value of the security as of a
Fund's pricing time, the security will be valued at fair value as determined in
good faith using methods approved by the Board.
MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, money market
securities and other debt securities are priced based upon valuations provided
by recognized independent, third-party pricing agents. Such values generally
reflect the last reported sales price if the security is actively traded. The
third-party pricing agents may also value debt securities by employing
methodologies that utilize actual market transactions, broker-supplied
valuations, or other
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methodologies designed to identify the market value for such securities. Such
methodologies generally consider such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. Money market securities and other debt
securities with remaining maturities of sixty days or less may be valued at
their amortized cost, which approximates market value. If such prices are not
available or determined to not represent the fair value of the security as of a
Fund's pricing time, the security will be valued at fair value as determined in
good faith using methods approved by the Board.
DERIVATIVES AND OTHER COMPLEX SECURITIES. Exchange traded options on securities
and indices purchased by the Funds generally are valued at their last trade
price or, if there is no last trade price, the last bid price. Exchange traded
options on securities and indices written by the Funds generally are valued at
their last trade price or, if there is no last trade price, the last asked
price. In the case of options traded in the over-the-counter market, if the OTC
option is also an exchange traded option, the Funds will follow the rules
regarding the valuation of exchange traded options. If the OTC option is not
also an exchange traded option, the Funds will value the option at fair value
in accordance with procedures adopted by the Board. Futures contracts and
options on futures contracts are valued at the last trade price prior to the
end of the Funds' pricing cycle.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued either
at the average of the last bid price of the securities obtained from two or
more dealers or otherwise at their respective fair value as determined in good
faith by, or under procedures established by the Board. The Board has adopted
fair valuation procedures for the Funds and has delegated responsibility for
fair value determinations to the Fair Valuation Committee. The members of the
Fair Valuation Committee report, as necessary, to the Board regarding portfolio
valuation determination. The Board, from time to time, will review these
methods of valuation and will recommend changes which may be necessary to
assure that the investments of the Funds are valued at fair value.
USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the
Administrator, market prices for most securities held by the Funds are provided
daily by third-party independent pricing agents that are approved by the Board.
The valuations provided by third-party independent pricing agents are reviewed
daily by the Administrator.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that is
intended to supplement the discussion contained in the Funds' prospectuses. No
attempt is made to present a detailed explanation of the tax treatment of the
Funds or their shareholders, and the discussion here and in the Funds'
prospectuses is not intended as a substitute for careful tax planning.
Shareholders are urged to consult with their tax advisors with specific
reference to their own tax situations, including their state, local, and
foreign tax liabilities.
The following general discussion of certain federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this SAI. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated
herein.
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QUALIFICATIONS AS A REGULATED INVESTMENT COMPANY ("RIC")
Each Fund intends to qualify and elects to be treated as a RIC under Subchapter
M of the Code. By following such a policy, each Fund expects to eliminate or
reduce to a nominal amount the federal taxes to which it may be subject. The
Board reserves the right not to maintain the qualification of each Fund as a
RIC if it determines such course of action to be beneficial to shareholders.
In order to be taxable as a RIC, each Fund must distribute annually to its
shareholders at least 90% of its net investment income (generally net
investment income plus the excess of net short-term capital gains over net
long-term capital losses, less operating expenses) and at least 90% of its net
tax exempt interest income, for each tax year, if any, to its shareholders
("Distribution Requirement") and also must meet several additional
requirements. One requirement is that at least 90% of the Fund's gross income
each taxable year must be derived from dividends, interest, payments with
respect to certain securities loans, gains from the sale or other disposition
of stock, securities or foreign currencies, or other income, including,
generally, certain gains from options, futures, and forward contracts derived
with respect to its business of investing in such stock, securities or
currencies, and net income derived from an interest in qualified publicly
traded partnerships (the "Qualifying Income Test"). A second requirement is
that: (i) at the end of each fiscal quarter of each Fund's taxable year, at
least 50% of the market value of its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer,
to an amount not greater than 5% of the value of the Fund's total assets or
more than 10% of the outstanding voting securities of such issuer, and (ii) at
the end of each fiscal quarter of each Fund's taxable year, not more than 25%
of the value of its total assets is invested in the securities (other than U.S.
government securities or securities of other RICs) of any one issuer or the
securities (other than the securities of other RICs) of two or more issuers
that each Fund controls and which are engaged in the same, or similar, or
related trades or businesses, or the securities of one or more qualified
publicly traded partnerships (the "Asset Diversification Test").
If a Fund fails to satisfy the Qualifying Income Test or the Asset
Diversification Test in any taxable year, the Fund may be eligible for relief
provisions if the failures are due to reasonable cause and not willful neglect
and if a penalty tax is paid with respect to each failure to satisfy the
applicable requirements. Additionally, relief is provided for certain de
minimis failures of the diversification requirements where the Fund corrects
the failure within a specified period. If a Fund fails to qualify as a RIC for
any year, and the relief provisions are not available, all of its income will
be subject to federal income tax at regular corporate rates without any
deduction for distributions to shareholders. In such case, its shareholders
would be taxed as if they received ordinary dividends, although corporate
shareholders could be eligible for the dividends received deduction and
individuals may be able to benefit from the lower tax rates available to
qualified dividend income, subject to certain limitations. This treatment would
also apply to any portion of the distributions that might have been treated in
the shareholder's hands as long-term capital gains, as discussed below, had the
Fund qualified as a RIC. In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a RIC. The Board reserves the right not to
maintain the qualification of a Fund as a RIC if it determines such course of
action to be beneficial to shareholders.
For taxable years beginning after December 22, 2010, a Fund may elect to treat
part or all of any "qualified late year loss" as if it had been incurred in the
succeeding taxable year in determining the Fund's taxable income, net capital
gain, net short-term capital gain, and earnings and profits. The effect of this
election is to treat any such "qualified late year loss" as if it had been
incurred in the succeeding taxable year in characterizing Fund distributions
for any calendar. A "qualified
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late year loss" generally includes net capital loss, net long-term capital
loss, or net short-term capital loss incurred after October 31 of the current
taxable year (commonly referred to as "post-October losses") and certain other
late-year losses.
If a Fund has a "net capital loss" (that is, capital losses in excess of
capital gains) for a taxable year beginning after December 22, 2010 (a
"Post-2010 Loss"), the excess of the Fund's net short-term capital losses over
its net long-term capital gains is treated as a short-term capital loss arising
on the first day of the Fund's next taxable year, and the excess (if any) of
the Fund's net long-term capital losses over its net short-term capital gains
is treated as a long-term capital loss arising on the first day of the Fund's
next taxable year. A Fund's unused capital loss carryforwards that arose in
taxable years that began on or before December 22, 2010 ("Pre-2011 Losses") are
available to be applied against future capital gains, if any, realized by the
Fund prior to the expiration of those carryforwards, generally eight years
after the year in which they arose. A Fund's Post-2010 Losses must be fully
utilized before the Fund will be permitted to utilize carryforwards of Pre-2011
Losses. The carryover of capital losses may be limited under the general loss
limitation rules if a Fund experiences an ownership change as defined in the
Code.
FEDERAL EXCISE TAX
Notwithstanding the Distribution Requirement described above, which only
requires each Fund to distribute at least 90% of its annual investment company
income and does not require any minimum distribution of net capital gain, each
Fund will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute, by the end of any calendar year, at least 98% of its
ordinary income for that year and 98.2% of its capital gain net income (the
excess of short- and long-term capital gain over short- and long-term capital
loss) for the one-year period ending on October 31 of that year, plus certain
other amounts. The Funds intend to make sufficient distributions to avoid
liability for federal excise tax, but can make no assurances that such tax will
be completely eliminated. A Fund may, in certain circumstances, be required to
liquidate Fund investments in order to make sufficient distributions to avoid
federal excise tax liability at a time when the investment adviser might not
otherwise have chosen to do so, and liquidation of investments in such
circumstances may affect the ability of the Fund to satisfy the requirement for
qualification as a RIC.
SHAREHOLDER TREATMENT
The Funds' dividends that are paid to their corporate shareholders and are
attributable to qualifying dividends they received from U.S. domestic
corporations may be eligible, in the hands of such shareholders, for the
corporate dividends received deduction, subject to certain holding period
requirements and debt financing limitations. Generally, and subject to certain
limitations (including certain holding period limitations), a dividend will be
treated as a qualifying dividend if it has been received from a domestic
corporation.
The Funds receive income generally in the form of dividends and interest on
investments. This income, plus net short-term capital gains, if any, less
expenses incurred in the operation of the Funds, constitutes the Funds' net
investment income from which dividends may be paid to you. Any distributions by
the Funds (except the Frost Municipal Bond Fund, see below) from such income
will be taxable to you as ordinary income or at the lower capital gains rates
that apply to individuals receiving qualified dividend income, whether you take
them in cash or in additional shares.
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Distributions by the Funds currently are eligible for the reduced maximum tax
rate to individuals of 20% (lower rates apply to individuals in lower tax
brackets) to the extent that the Funds receive qualified dividend income on the
securities they hold and the Funds designate the distribution as qualified
dividend income. Qualified dividend income is, in general, dividend income
from taxable domestic corporations and certain foreign corporations (e.g.,
foreign corporations incorporated in a possession of the United States or in
certain countries with a comprehensive tax treaty with the United States, or
the stock of which is readily tradable on an established securities market in
the United States). A dividend will not be treated as qualified dividend income
to the extent that (i) the shareholder has not held the shares on which the
dividend was paid for more than 60 days during the 121-day period that begins
on the date that is 60 days before the date on which the shares become
"ex-dividend" (which is the day on which declared distributions (dividends or
capital gains) are deducted from a Fund's assets before it calculates the net
asset value) with respect to such dividend (and a Fund also satisfies those
holding period requirements with respect to the securities it holds that paid
the dividends distributed to the shareholder), (ii) the shareholder is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to substantially similar or related property, or (iii)
the shareholder elects to treat such dividend as investment income under
section 163(d)(4)(B) of the Code. Distributions that a Fund receives from
another investment company or ETF taxable as a RIC will be treated as qualified
dividend income only to the extent so designated by such investment company or
ETF. Distributions by a Fund of its net short-term capital gains will be
taxable as ordinary income. Capital gain distributions consisting of a Fund's
net capital gains will be taxable as long-term capital gains regardless of how
long a Fund's shares have been held by the shareholder.
It is expected that the Frost Low Duration Bond Fund, Frost Total Return Bond
Fund, and Frost Kempner Treasury and Income Fund receive income generally in
the form of interest derived from such Fund's investments, and distributions of
such earnings will be taxable to shareholders as ordinary income. However,
these Funds may derive capital gains and losses in connection with sales or
other dispositions of their portfolio securities. Distributions of long-term
capital gains are taxable as capital gains, while distributions of short-term
capital gains and net investment income are generally taxable to shareholders
as ordinary income.
Because the Frost Low Duration Bond Fund, Frost Total Return Bond Fund, Frost
Kempner Treasury and Income Fund, and Frost Municipal Bond Fund will receive
income generally in the form of interest derived from their investments, none
of their dividends are expected to qualify under the Code for the dividends
received deductions for corporations or for the lower tax rates on qualified
dividend income.
The Funds will report annually to their shareholders the amount of ordinary
income dividends, qualified dividend income and capital gains distributions, if
any.
If a Fund's distributions exceed its taxable income and capital gains realized
during a taxable year, all or a portion of the distributions made in the same
taxable year may be re-characterized as a return of capital to the
shareholders. A return of capital distribution will generally not be taxable,
but will reduce each shareholder's cost basis in the Funds and result in a
higher reported capital gain or lower reported capital loss when those shares
on which the distribution was received are sold.
Shareholders who have not held Fund shares for a full year should be aware that
a Fund may designate and distribute, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of investment in such Fund. If
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you buy shares when a Fund has realized but not yet distributed income or
capital gains, you will be "buying a dividend" by paying the full price for the
shares and gains and receiving back a portion of the price in the form of a
taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31 of the year declared.
Any gain or loss recognized on a sale, exchange, or redemption of shares of a
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than twelve months and otherwise will be treated
as a short-term capital gain or loss. However, if shares on which a
shareholder has received a net capital gain distribution are subsequently sold,
exchanged, or redeemed and such shares have been held for six months or less,
any loss recognized will be treated as a long-term capital loss to the extent
of the net capital gain distribution. In addition, the loss realized on a sale
or other disposition of shares will be disallowed to the extent a shareholder
repurchases (or enters into a contract to or option to repurchase) shares
within a period of 61 days (beginning 30 days before and ending 30 days after
the disposition of the shares). This loss disallowance rule will apply to
shares received through the reinvestment of dividends during the 61-day
period.
Effective beginning January 1, 2013, U.S. individuals with income exceeding
$200,000 ($250,000 if married and filing jointly) are subject to a new 3.8%
Medicare contribution tax on their "net investment income," including interest,
dividends, and capital gains (including capital gains realized on the sale or
exchange of shares of a Fund). "Net investment income" does not include
distributions of exempt-interest.
Each Fund (or its administrative agent) must report to the Internal Revenue
Service ("IRS") and furnish to Fund shareholders the cost basis information for
Fund shares purchased on or after January 1, 2012, and sold on or after that
date. In addition, the Fund is also required to report the cost basis
information for such shares and indicate whether these shares had a short-term
or long-term holding period. For each sale of Fund shares the Fund will permit
Fund shareholders to elect from among several IRS-accepted cost basis methods,
including average basis. In the absence of an election, a Fund will use the
average basis method as the default cost basis method. The cost basis method
elected by the Fund shareholder (or the cost basis method applied by default)
for each sale of Fund shares may not be changed after the settlement date of
each such sale of Fund shares. Fund shareholders should consult with their tax
advisors to determine the best IRS-accepted cost basis method for their tax
situation and to obtain more information about how cost basis reporting applies
to them. The requirement to report the gross proceeds from the sale of Fund
shares continues to apply to all Fund shares acquired through December 31,
2011, and sold on and after that date.
SPECIAL TAX CONSIDERATIONS FOR SHAREHOLDERS OF THE FROST MUNICIPAL BOND FUND.
The Frost Municipal Bond Fund intends to satisfy conditions (including
requirements as to the proportion of its assets invested in municipal
obligations) that will enable it to designate distributions from the interest
income generated by investments in municipal obligations, which is exempt from
regular federal income tax when received by such Fund, as exempt-interest
dividends. Shareholders receiving exempt-interest dividends will not be subject
to regular federal income tax on the amount of such dividends, but may (as
discussed below) become subject to the federal alternative minimum tax.
Insurance proceeds received by the Frost Municipal Bond Fund under any
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insurance policies in respect of scheduled interest payments on defaulted
municipal obligations will generally be excludable from federal gross income
under Section 103(a) of the Code. In the case of non-appropriation by a
political subdivision, however, there can be no assurance that payments made by
the insurer representing interest on non-appropriation lease obligations will
be excludable from gross income for federal income tax purposes.
Because the Frost Municipal Bond Fund may invest in private activity bonds
(within the meaning of Section 141 of the Code), the interest on which is not
federally tax-exempt to persons who are "substantial users" of the facilities
financed by such bonds or "related persons" of such "substantial users," the
Fund may not be an appropriate investment for shareholders who are considered
either a "substantial user" or a "related person" within the meaning of the
Code. For additional information, investors should consult their tax advisors
before investing in the Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain municipal obligations that
meet the definition of private activity bonds under the Code is included as an
item of tax preference in determining the amount of a taxpayer's alternative
minimum taxable income. To the extent that the Frost Municipal Bond Fund
receives income from private activity bonds, a portion of the dividends paid by
it, although otherwise exempt from federal income tax, will be taxable to those
shareholders subject to the alternative minimum tax regime. The Fund will
annually supply shareholders with a report indicating the percentage of the
Fund's income attributable to municipal obligations required to be included in
calculating the federal alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all municipal obligations, and
therefore all distributions by the Frost Municipal Bond Fund that would
otherwise be tax-exempt, is included in calculating a corporation's adjusted
current earnings.
Tax-exempt income, including exempt-interest dividends paid by the Frost
Municipal Bond Fund, are taken into account in determining whether a portion of
such Fund shareholder's social security or railroad retirement benefits will be
subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund that distributes exempt-interest dividends
may be disallowed as a deduction in whole or in part (depending upon the amount
of exempt-interest dividends distributed in comparison to other taxable
distributions). Under rules used by the IRS for determining when borrowed funds
are considered used for the purpose of purchasing or carrying particular
assets, the purchase of shares of a Fund may be considered to have been made
with borrowed funds even though such funds are not directly traceable to the
purchase of shares.
Depending on a shareholder's state of residence, exempt interest dividends from
interest earned on municipal obligations of a state, or its political
subdivisions may be exempt in the hands of such shareholder from income tax in
that state. However, income from municipal obligations of a state other than
the shareholder's state of residence generally will not qualify for tax-free
treatment for such shareholder.
FOREIGN TAXES. Dividends and interest received by a Fund may be subject to
income, withholding or other taxes imposed by foreign countries and United
States possessions that would reduce the yield on a Fund's securities. Tax
conventions between certain countries and the
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United States may reduce or eliminate these taxes. Foreign countries generally
do not impose taxes on capital gains with respect to investments by foreign
investors. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of stocks or securities of foreign corporations,
the Fund will be eligible to, and will, file an election with the IRS that may
enable shareholders, in effect, to receive either the benefit of a foreign tax
credit or a deduction with respect to any foreign and U.S. possessions income
taxes paid by the Fund, subject to certain limitations. Pursuant to the
election, the Fund will treat those taxes as dividends paid to its
shareholders. Each such shareholder will be required to include a proportionate
share of those taxes in gross income as income received from a foreign source
and must treat the amount so included as if the shareholder had paid the
foreign tax directly. The shareholder may then either deduct the taxes deemed
paid by him or her in computing his or her taxable income or, alternatively,
use the foregoing information in calculating any foreign tax credit they may be
entitled to use against the shareholders' federal income tax. If a Fund makes
the election, the Fund will report annually to its shareholders the respective
amounts per share of the Fund's income from sources within, and taxes paid to,
foreign countries and U.S. possessions. Based upon its investment objectives,
the Frost International Equity Fund may be eligible to make the election.
Foreign tax credits, if any, received by a Fund as a result of an investment in
another RIC (including an ETF which is taxable as a RIC) will not be passed
through to you unless the Fund qualifies as a "qualified fund of funds" under
the Code. If a Fund is a "qualified fund of funds" it will be eligible to file
an election with the IRS that will enable the Fund to pass along these foreign
tax credits to its shareholders. A Fund will be treated as a "qualified fund of
funds" under the Code if at least 50% of the value of the Fund's total assets
(at the close of each quarter of the Fund's taxable year) is represented by
interests in other RICs.
STATE TAXES. Depending upon state and local law, distributions by the Funds to
their shareholders and the ownership of such shares may be subject to state and
local taxes. Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from rules for federal income taxation
described above. It is expected that each Fund will not be liable for any
corporate excise, income or franchise tax in Massachusetts if it qualifies as a
RIC for federal income tax purpose. Shareholders are urged to consult their tax
advisors regarding state and local taxes applicable to an investment in the
Funds.
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by the Funds. Investment in
Government National Mortgage Association ("Ginnie Mae") or Federal National
Mortgage Association ("Fannie Mae") securities, banker's acceptances,
commercial paper, and repurchase agreements collateralized by U.S. government
securities do not generally qualify for such tax-free treatment. The rules on
exclusion of this income are different for corporate shareholders.
Shareholders are urged to consult their tax advisors regarding state and local
taxes applicable to an investment in the Fund.
TAX TREATMENT OF COMPLEX SECURITIES. The Funds may invest in complex
securities. These investments may be subject to numerous special and complex
tax rules. These rules could affect whether gains and losses recognized by the
Funds are treated as ordinary income or capital gain, accelerate the
recognition of income to the Funds and/or defer the Funds' ability to recognize
losses, and, in limited cases, subject the Funds' to U.S. federal income tax on
income from certain
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of its foreign securities. In turn, these rules may affect the amount, timing
or character of the income distributed to you by the Funds.
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by the Funds. Similarly, foreign exchange losses realized
by the Funds on the sale of debt securities are generally treated as ordinary
losses by the Funds. These gains when distributed will be taxable to you as
ordinary dividends, and any losses will reduce the Funds' ordinary income
otherwise available for distribution to you. This treatment could increase or
reduce the Funds' ordinary income distributions to you, and may cause some or
all of the Funds' previously distributed income to be classified as a return of
capital.
With respect to investments in STRIPS, TRs, and other zero coupon securities
which are sold at original issue discount and thus do not make periodic cash
interest payments, a Fund will be required to include as part of its current
income the imputed interest on such obligations even though the Fund has not
received any interest payments on such obligations during that period. Because
each Fund distributes all of its net investment income to its shareholders, a
Fund may have to sell Fund securities to distribute such imputed income which
may occur at a time when the Adviser would not have chosen to sell such
securities and which may result in taxable gain or loss.
MLPS. Certain Funds intend to invest in certain MLPs and other entities which
may be treated as qualified publicly traded partnerships, as defined in Section
851(h) of the Code ("QPTP"). A QPTP is an entity that is treated as a
partnership for federal income tax purposes (1) interests in which are traded
on an established securities market or readily tradable on a secondary market
or the substantial equivalent thereof, (2) that derives at least 90% of its
income from passive sources defined in Code Section 7704(d), and (3) that
derives less than 90% of its income from the qualifying income sources in the
Qualifying Income Test. The net income from QPTPs is qualifying income for
purposes of the Qualifying Income Test, but a Fund's investment in one or more
of such QPTPs is limited under the Diversification Test to no more than 25% of
the value of the Fund's assets. The Funds will monitor their investments in
such QPTPs in order to ensure compliance with the Qualifying Income Test and
Diversification Test. Please see the discussion regarding the consequences of
failing to satisfy one of these RIC qualification tests set forth above.
INVESTMENT IN CERTAIN ETFS AND ETNS. The Funds may make investments into one or
more exchange traded products, such as ETNs or ETFs, swaps or other investments
that may raise questions regarding the qualification of the income from such
investments as qualifying income under the Qualifying Income Test. The Funds
intend to monitor its investments and the character of its income to ensure it
will satisfy the Qualifying Income Test, but it is possible that a Fund may
fail to qualify as a RIC in a given tax year in which it fails the Qualifying
Income Test. Please see the discussion regarding the consequences of failing to
satisfy one of these RIC qualification tests set forth above.
REITS. The Funds may invest in REITs. Investments in REIT equity securities may
require a Fund to accrue and distribute income not yet received. To generate
sufficient cash to make the requisite distributions, a Fund may be required to
sell securities in its portfolio (including when it is not advantageous to do
so) that it otherwise would have continued to hold. The Fund's investments in
REIT equity securities may at other times result in a Fund's receipt of cash in
excess of the REIT's earnings if the Fund distributes these amounts, these
distributions could constitute a return of capital to Fund shareholders for
federal income tax purposes. Dividends
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received by a Fund from a REIT generally will not constitute qualified dividend
income and will not qualify for the dividends received deduction.
Certain tax-exempt shareholders, including qualified pension plans, individual
retirement accounts, salary deferral arrangements, 401(k)s, and other
tax-exempt entities, generally are exempt from federal income taxation except
with respect to their unrelated business taxable income ("UBTI"). Under current
law, the Funds generally serve to block UBTI from being realized by their
tax-exempt shareholders. However, notwithstanding the foregoing, the tax-exempt
shareholder could realize UBTI by virtue of an investment in the Fund where,
for example: (i) the Fund invests in residual interests of Real Estate Mortgage
Investment Conduits ("REMICs"); (ii) the Fund invests in a REIT that is a
taxable mortgage pool ("TMP") or that has a subsidiary that is TMP or that
invests in the residual interest of a REMIC, or (iii) shares in the Fund
constitute debt-financed property in the hands of the tax-exempt shareholder
within the meaning of section 514(b) of the Code. There are no restrictions
preventing a Fund from holding investments in REITs that hold residual
interests in REMICs, and a Fund may do so. Charitable remainder trusts are
subject to special rules and should consult their tax adviser. The IRS has
issued guidance with respect to these issues and prospective shareholders,
especially charitable remainder trusts, are strongly encouraged to consult with
their tax advisors regarding these issues.
Under Treasury Regulations, generally, if an individual shareholder recognizes
a loss of $2 million or more or if a corporate shareholder recognizes a loss of
$10 million or more, the shareholder must file with the IRS a disclosure
statement on Form 8886. Direct shareholders of securities are in many cases
exempt from this reporting requirement, but under current guidance,
shareholders of a RIC are not exempt. Future guidance may extend for current
exemption from this reporting requirement to shareholders of most or all RICs.
The fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer's treatment of the loss is proper.
Shareholders should consult their own tax advisers to determine the
applicability of these regulations in light of their individual circumstances.
SPECIAL TAX CONSIDERATIONS. In general, with respect to the Funds, gains from
"foreign currencies" and from foreign currency options, foreign currency
futures, and forward foreign exchange contracts ("forward contracts") relating
to investments in stock, securities, or foreign currencies will be qualifying
income for purposes of determining whether the Fund qualifies as a RIC. It is
currently unclear, however, who will be treated as the issuer of a foreign
currency instrument for purposes of the RIC diversification requirements
applicable to a Fund.
Under the Code, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (I.E., unless
certain special rules apply, currencies other than the U.S. Dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under the Code. Also, certain
foreign exchange gains derived with respect to foreign fixed-income securities
are also subject to special treatment. In general, any such gains or losses
will increase or decrease the amount of a Fund's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of a Fund's net capital gain.
Additionally, if such losses exceed other investment company taxable income
during a taxable year, a Fund would not be able to make any ordinary dividend
distributions.
If a Fund owns shares in certain foreign investment entities, referred to as
"passive foreign investment companies" or "PFICs", the Fund will be subject to
one of the following special tax regimes: (i) the Fund would be liable for U.S.
federal income tax, and an additional interest
S-78
charge, on a portion of any "excess distribution" from such foreign entity or
any gain from the disposition of such shares, even if the entire distribution
or gain is paid out by the Fund as a dividend to its shareholders; (ii) if the
Fund were able and elected to treat a PFIC as a "qualified electing fund" or
"QEF", the Fund would be required each year to include in income, and
distribute to shareholders in accordance with the distribution requirements set
forth above, the Fund's pro rata share of the ordinary earnings and net capital
gains of the PFIC, whether or not such earnings or gains are distributed to the
Fund; or (iii) the Fund may be entitled to mark-to-market annually shares of
the PFIC, and in such event would be required to distribute to shareholders any
such mark-to-market gains in accordance with the distribution requirements set
forth above.
BACKUP WITHHOLDING. In certain cases, a Fund will be required to withhold, and
remit to the U.S. Treasury, 28% of any distributions paid to a shareholder who:
(1) has failed to provide a correct taxpayer identification number; (2) is
subject to backup withholding by the IRS; (3) has not certified to that Fund
that such shareholder is not subject to backup withholding; or (4) has failed
to certify that he or she is a U.S. citizen or U.S. resident alien.
A U.S. withholding tax at a 30% rate will be imposed on dividends beginning
after June 30, 2014 (and proceeds of sales in respect of Fund shares received
by Fund shareholders beginning after December 31, 2016) for shareholders who
own their shares through foreign accounts or foreign intermediaries if certain
disclosure requirements related to U.S. accounts or ownership are not
satisfied. The Funds will not pay any additional amounts in respect to any
amounts withheld.
Non-U.S. investors in the Funds may be subject to U.S. withholding and estate
tax and are encouraged to consult their tax advisors prior to investing in the
Funds regarding the applicable rate of U.S. withholding tax on amounts treated
as ordinary dividends from a Fund and the applicability of U.S. gift and estate
taxes.
If you hold your shares in a tax-qualified retirement account, you generally
will not be subject to federal taxation on income and capital gains
distribution from a Fund, until you begin receiving payments from your
retirement account. You should consult your tax adviser regarding the tax rules
that apply to your retirement account.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this SAI in light of the
particular tax situations of the shareholders and regarding specific questions
as to federal, state, or local taxes.
FUND TRANSACTIONS
BROKERAGE TRANSACTIONS. Generally, equity securities are bought and sold
through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Money market securities and other debt
securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, the Funds will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from dealers
serving as market makers will similarly include the dealer's mark up or reflect
a dealer's mark down. When a Fund executes transactions in the over-the-counter
market, it will generally deal with primary market makers unless prices that
are more favorable are otherwise obtainable.
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In addition, the Adviser may place a combined order for two or more accounts it
manages, including a Fund, engaged in the purchase or sale of the same security
if, in its judgment, joint execution is in the best interest of each
participant and will result in best price and execution. Transactions involving
commingled orders are allocated in a manner deemed equitable to each account or
Fund. Although it is recognized that, in some cases, the joint execution of
orders could adversely affect the price or volume of the security that a
particular account or Fund may obtain, it is the opinion of the Adviser that
the advantages of combined orders outweigh the possible disadvantages of
separate transactions.
For the fiscal years ended July 31, 2011, 2012 and 2013, the Funds paid the
following aggregate brokerage commissions on portfolio transactions:
-----------------------------------------------------------------------------------------
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID
FUND 2011 2012 2013
-----------------------------------------------------------------------------------------
Frost Growth Equity Fund $273,523 $331,291 $213,870
-----------------------------------------------------------------------------------------
Frost Value Equity Fund $667,915 $831,199 $663,545
-----------------------------------------------------------------------------------------
Frost Kempner Multi-Cap
Deep Value Equity Fund $118,379 $105,793 $122,618
-----------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $84,248 $143,003 $56,799
-----------------------------------------------------------------------------------------
Frost Small Cap Equity
Fund $708,622 $675,289 $557,230
-----------------------------------------------------------------------------------------
Frost International Equity
Fund $185,008 $140,231 $217,527
-----------------------------------------------------------------------------------------
Frost Natural Resources
Fund N/A(1) $100,833(2) $89,522
-----------------------------------------------------------------------------------------
Frost Cinque Large Cap
Buy-Write Equity Fund N/A(1) N/A(1) $17,141(4)
-----------------------------------------------------------------------------------------
Frost Conservative Allocation
Fund $58,770(3) $85,574 $22,331
-----------------------------------------------------------------------------------------
Frost Moderate Allocation
Fund $12,954 $3,891 $3,226
-----------------------------------------------------------------------------------------
Frost Total Return Bond
Fund $0 $0 $0
-----------------------------------------------------------------------------------------
Frost Credit Fund N/A(1) N/A(1) $0(4)
-----------------------------------------------------------------------------------------
Frost Low Duration Bond
Fund $0 $0 $0
-----------------------------------------------------------------------------------------
Frost Municipal Bond Fund $0 $0 $0
-----------------------------------------------------------------------------------------
Frost Kempner Treasury
and Income Fund $0 $0 $0
-----------------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(3) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(4) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
BROKERAGE SELECTION. The Trust does not expect to use one particular broker or
dealer, and when one or more brokers is believed capable of providing the best
combination of price and execution, the Adviser may select a broker based upon
brokerage or research services provided to the
S-80
Adviser. The Adviser may pay a higher commission than otherwise obtainable
from other brokers in return for such services only if a good faith
determination is made that the commission is reasonable in relation to the
services provided.
Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances,
to cause each Fund to pay a broker or dealer a commission for effecting a
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting the transaction in recognition of the value of
brokerage and research services provided by the broker or dealer. In addition
to agency transactions, the Adviser may receive brokerage and research services
in connection with certain riskless principal transactions, in accordance with
applicable SEC guidance. Brokerage and research services include: (1)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (2) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends, Fund
strategy, and the performance of accounts; and (3) effecting securities
transactions and performing functions incidental thereto (such as clearance,
settlement, and custody). In the case of research services, the Adviser
believes that access to independent investment research is beneficial to its
investment decision-making processes and, therefore, to each Fund.
To the extent that research services may be a factor in selecting brokers, such
services may be in written form or through direct contact with individuals and
may include information as to particular companies and securities as well as
market, economic, or institutional areas and information which assists in the
valuation and pricing of investments. Examples of research-oriented services
for which the Adviser might utilize Fund commissions include research reports
and other information on the economy, industries, sectors, groups of
securities, individual companies, statistical information, political
developments, technical market action, pricing and appraisal services, credit
analysis, risk measurement analysis, performance and other analysis. The
Adviser may use research services furnished by brokers in servicing all client
accounts and not all services may necessarily be used in connection with the
account that paid commissions to the broker providing such services.
Information so received by the Adviser will be in addition to and not in lieu
of the services required to be performed by the Funds' Adviser under the
Advisory Agreement. Any advisory or other fees paid to the Adviser are not
reduced as a result of the receipt of research services.
In some cases the Adviser may receive a service from a broker that has both a
"research" and a "non-research" use. When this occurs, the Adviser makes a good
faith allocation, under all the circumstances, between the research and
non-research uses of the service. The percentage of the service that is used
for research purposes may be paid for with client commissions, while the
Adviser will use its own funds to pay for the percentage of the service that is
used for non-research purposes. In making this good faith allocation, the
Adviser faces a potential conflict of interest, but the Adviser believes that
its allocation procedures are reasonably designed to ensure that it
appropriately allocates the anticipated use of such services to their research
and non-research uses.
From time to time, the Funds may purchase new issues of securities in a fixed
price offering. In these situations, the seller may be a member of the selling
group that will, in addition to selling securities, provide the Adviser with
research services. FINRA has adopted rules expressly permitting these types of
arrangements under certain circumstances. Generally, the seller will provide
research "credits" in these situations at a rate that is higher than that which
is available for typical secondary market transactions. These arrangements may
not fall within the safe harbor of Section 28(e).
S-81
For the fiscal year ended July 31, 2013, the Funds paid the following
commissions on brokerage transactions directed to brokers pursuant to an
agreement or understanding whereby the broker provides research or other
brokerage services to the Adviser:
------------------------------------------------------------------------------------------------------------------------------------
TOTAL DOLLAR AMOUNT OF
TOTAL DOLLAR AMOUNT OF TRANSACTIONS INVOLVING
FUND BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS
FOR RESEARCH SERVICES FOR RESEARCH SERVICES
------------------------------------------------------------------------------------------------------------------------------------
Frost Growth Equity Fund $213,870 $239,037,287
------------------------------------------------------------------------------------------------------------------------------------
Frost Value Equity Fund $664,927 $458,038,747
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value
Equity Fund $0 $0
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $42,702 $6,948,256
------------------------------------------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund $161,015 $137,050,461
------------------------------------------------------------------------------------------------------------------------------------
Frost International Equity Fund $215,657 $244,898,608
------------------------------------------------------------------------------------------------------------------------------------
Frost Natural Resources Fund $89,522 $55,733,501
------------------------------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write
Equity Fund $16,474(1) $13,895,257(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Conservative Allocation Fund $20,194 $12,769,198
------------------------------------------------------------------------------------------------------------------------------------
Frost Moderate Allocation Fund $3,226 $4,211,639
------------------------------------------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund $0 $0
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit Fund $0(1) $0(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund $0 $0
------------------------------------------------------------------------------------------------------------------------------------
Frost Municipal Bond Fund $0 $0
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Treasury and Income
Fund $0 $0
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency
transactions through registered broker-dealer affiliates of either the Fund,
the Adviser or the Distributor for a commission in conformity with the 1940
Act, the 1934 Act and rules promulgated by the SEC. These rules require that
commissions paid to the affiliate by the Fund for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities
S-82
exchange during a comparable period of time." The Trustees, including those
who are not "interested persons" of the Funds, have adopted procedures for
evaluating the reasonableness of commissions paid to affiliates and review
these procedures periodically.
For the fiscal years ended July 31, 2011, 2012 and 2013, the Funds paid the
following aggregate brokerage commissions on portfolio transactions effected by
affiliated brokers. All amounts shown were paid to the Distributor.
------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR AMOUNT OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
BROKERAGE COMMISSIONS PAID TO BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS
AFFILIATED BROKERS PAID TO AFFILIATED BROKERS EFFECTED THROUGH
FUND AFFILIATED BROKERS
------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2011 2012 2013 2011 2012 2013
------------------------------------------------------------------------------------------------------------------------------------
Frost Growth
Equity Fund $167,722 $181,534 $82,817 61.3% 54.8% 38.7% 61.3% 60.8% 54.2%
------------------------------------------------------------------------------------------------------------------------------------
Frost Value
Equity Fund $356,807 $567,066 $350,836 53.4% 68.5% 52.8% 53.4% 68.5% 54.8%
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner
Multi-Cap Deep
Value Equity
Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid Cap
Equity Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Small Cap
Equity Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost
International
Equity Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Natural
Resources Fund N/A(1) $74,018(3) $67,872 N/A(1) 73.4%(3) 75.8% N/A(1) 78.9%(3) 93.5%
------------------------------------------------------------------------------------------------------------------------------------
Frost Cinque
Large Cap Buy-
Write Equity
Fund N/A(1) N/A(1) $0(4) N/A(1) N/A(1) 0%(4) N/A(1) N/A(1) 0%(4)
------------------------------------------------------------------------------------------------------------------------------------
Frost
Conservative
Allocation Fund $70(2) $145 $3 0.1%(2) 0.2% 0% 0.1%(2) 0.2% 0.8%
------------------------------------------------------------------------------------------------------------------------------------
Frost Moderate
Allocation Fund $8,710 $2,668 $2,589 67.2% 68.6% 100% 67.2% 75.6% 100%
------------------------------------------------------------------------------------------------------------------------------------
Frost Total
Return Bond
Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit
Fund N/A(1) N/A(1) $0(4) N/A(1) N/A(1) 0%(4) N/A(1) N/A(1) 0%(4)
------------------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration Bond
Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Municipal
Bond Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner
Treasury and
Income Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Not in operation during the period.
(2) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(3) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(4) Represents the period from December 3, 2012 (commencement of Fund
operations) to July 31, 2013.
S-83
SECURITIES OF "REGULAR BROKER-DEALERS." The Funds are required to identify any
securities of their "regular brokers and dealers" (as such term is defined in
the 1940 Act) that each Fund held during its most recent fiscal year. During
the most recent fiscal year, the following Funds held securities of their
"regular brokers or dealers" as follows:
------------------------------------------------------------------------------------------------------------------------------------
FUND NAME OF TYPE OF SECURITY DOLLAR AMOUNT AT
BROKER/DEALER HELD FYE (IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
Frost Value Equity Fund JP Morgan Chase Equity $10,230
------------------------------------------------------------------------------------------------------------------------------------
Frost Kempner Multi Cap Barclays Equity $2,863
Deep Value Equity Fund
------------------------------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Morgan Stanley Debt $1,010
Fund ------------------------------------------------------------------------------------------------------
Bank of America Debt $979
------------------------------------------------------------------------------------------------------
Chase Debt $1,105
------------------------------------------------------------------------------------------------------------------------------------
Frost Total Return Fund Morgan Stanley Debt $48,170
------------------------------------------------------------------------------------------------------
Merrill Lynch Debt $2,974
------------------------------------------------------------------------------------------------------
Bank of America Debt $19,905
------------------------------------------------------------------------------------------------------
CitiGroup Debt $10,033
------------------------------------------------------------------------------------------------------
Chase Debt $23,212
------------------------------------------------------------------------------------------------------
Wachovia Debt $49
------------------------------------------------------------------------------------------------------
Jeffries Debt $12,290
------------------------------------------------------------------------------------------------------
Barclays Debt $3,980
------------------------------------------------------------------------------------------------------------------------------------
Frost Moderate Allocation
Fund Barclays Equity $224
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit Fund Barclays Debt $1,244
------------------------------------------------------------------------------------------------------------------------------------
Jeffries Debt $1,010
-------------------------------------------------------------------------------------------------------
Bank of America Debt $976
-------------------------------------------------------------------------------------------------------
CitiGroup Debt $260
-------------------------------------------------------------------------------------------------------
JP Morgan Chase Debt $1,676
------------------------------------------------------------------------------------------------------------------------------------
|
S-84
PORTFOLIO HOLDINGS
The Board has approved a policy and procedures that govern the timing and
circumstances regarding the disclosure of Fund portfolio holdings information
to shareholders and third parties. These policies and procedures are designed
to ensure that disclosure of information regarding the Funds' portfolio
securities is in the best interests of Fund shareholders, and include
procedures to address conflicts between the interests of the Funds'
shareholders and those of the Adviser, Sub-Advisers, principal underwriter, or
any affiliated person of the Funds, the Adviser, the Sub-Advisers or the
principal underwriter. Pursuant to such procedures, the Board has authorized
the Adviser's Chief Compliance Officer ("Adviser CCO") to authorize the release
of the Funds' portfolio holdings, as necessary, in conformity with the
foregoing principles. The Adviser CCO, either directly or through reports by
the Funds' Chief Compliance Officer, reports quarterly to the Board regarding
the operation and administration of such policies and procedures.
Pursuant to applicable law, the Funds are required to disclose their complete
portfolio holdings quarterly, within 60 days of the end of each fiscal quarter
(currently, each October 31, January 31, April 30, and July 31). Each Fund will
disclose a complete or summary schedule of investments (which includes each of
the Fund's 50 largest holdings in unaffiliated issuers and each investment in
unaffiliated issuers that exceeds one percent of the Fund's net asset value
("Summary Schedule")) in its Semi-Annual and Annual Reports which are
distributed to the Fund's shareholders. Each Fund's complete schedule of
investments following the first and third fiscal quarters will be available in
quarterly holdings reports filed with the SEC on Form N-Q, and the Fund's
complete schedule of investments following the second and fourth fiscal
quarters will be available in shareholder reports filed with the SEC on Form
N-CSR.
Reports filed with the SEC on Form N-Q and Form N-CSR are not distributed to
the Funds' shareholders but are available, free of charge, on the EDGAR
database on the SEC's website at www.sec.gov. Should a Fund include only a
Summary Schedule rather than a complete schedule of investments in its
Semi-Annual and Annual Reports, its Form N-CSR will be available without
charge, upon request, by calling 1-877-71-FROST.
Each Fund generally posts a detailed list of its securities (portfolio
holdings) as of the most recent calendar month end, 30 days after the end of
the calendar month. In addition, each Fund generally posts its ten largest
portfolio holdings, and the percentage that each of these holdings represents
of the Fund's total assets, as of the most recent calendar month end, 10
calendar days after the end of the calendar month. These postings can be found
on the internet at HTTP://AICFUNDHOLDINGS.COM/FROST and generally remain until
replaced by new postings as described above. The Adviser may exclude any
portion of a Fund's portfolio holdings from publication when deemed in the best
interest of the Fund. Additionally, each Fund publishes a quarterly fact sheet
that includes, among other things, a list of its ten largest portfolio
holdings, on a quarterly basis, generally within two (2) weeks after the end of
each quarter. The fact sheets will be available without charge, upon request,
by calling 1-877-71-FROST.
In addition to information provided to shareholders and the general public,
portfolio holdings information may be disclosed as frequently as daily to
certain service providers, such as the custodian, administrator or transfer
agent, in connection with their services to the Funds. From time to time rating
and ranking organizations, such as S&P, Lipper and Morningstar, Inc., may
request non-public portfolio holdings information in connection with rating a
Fund. Similarly, institutional investors, financial planners, pension plan
sponsors and/or their consultants or other third-parties may request portfolio
holdings information in order to assess the risks of a Fund's portfolio along
with related performance attribution statistics. The lag time for such
disclosures
S-85
will vary. The Funds believe that these third parties have legitimate
objectives in requesting such portfolio holdings information. The Funds' Chief
Compliance Officer will regularly review these arrangements and will make
periodic reports to the Board regarding disclosure pursuant to such
arrangements. The Adviser currently has no arrangements to provide non-public
portfolio holdings information to any entity.
The Funds' policies and procedures provide that the Adviser's CCO may authorize
disclosure of non-public portfolio holdings information to such parties at
differing times and/or with different lag times. Prior to making any disclosure
to a third party, the Adviser's CCO must determine that such disclosure serves
a reasonable business purpose, is in the best interests of the Fund's
shareholders and that to the extent conflicts between the interests of the
Fund's shareholders and those of the Fund's Adviser, Sub-Adviser, principal
underwriter, or any affiliated person of the Fund exist, such conflicts are
addressed. Portfolio holdings information may be disclosed no more frequently
than monthly to ratings agencies, consultants and other qualified financial
professionals or individuals. The disclosures will not be made sooner than
three days after the date of the information.
With the exception of disclosures to rating and ranking organizations as
described above, the Funds require any third party receiving non-public
holdings information to enter into a confidentiality agreement with the
Adviser. The confidentiality agreement provides, among other things, that
non-public portfolio holdings information will be kept confidential and that
the recipient has a duty not to trade on the non-public information and will
use such information solely to analyze and rank the Funds, or to perform due
diligence and asset allocation, depending on the recipient of the information.
The Funds' policies and procedures prohibit any compensation or other
consideration from being paid to or received by any party in connection with
the disclosure of portfolio holdings information, including the Funds, the
Adviser and its affiliates or recipient of the Funds' portfolio holdings
information.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
funds and shares of each Fund, each of which represents an equal proportionate
interest in the portfolio with each other share. Shares are entitled upon
liquidation to a pro rata share in the net assets of a Fund. Shareholders have
no preemptive rights. The Declaration of Trust provides that the Trustees of
the Trust may create additional series or classes of shares. All consideration
received by the Trust for shares of any additional funds and all assets in
which such consideration is invested would belong to that fund and would be
subject to the liabilities related thereto. Share certificates representing
shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the
S-86
Trust or the Trustees, and because the Declaration of Trust provides for
indemnification out of the Funds' property for any shareholder held personally
liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Trust's Declaration of Trust provides that a Trustee shall be liable only
for his or her own willful defaults and, if reasonable care has been exercised
in the selection of officers, agents, employees or investment advisers, shall
not be liable for any neglect or wrongdoing of any such person. The Declaration
of Trust also provides that each Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in the Declaration of Trust shall protect or indemnify a Trustee
against any liability for his or her willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties. Nothing contained in
this section attempts to disclaim a Trustee's individual liability in any
manner inconsistent with the federal securities laws.
PROXY VOTING
The Board has delegated responsibility for decisions regarding proxy voting for
securities held by the Funds to the Adviser. When voting shares of an
underlying fund, the Adviser will vote such proxies in accordance with its
proxy policies and procedures, which are included in Appendix B to this SAI.
For assets that are managed directly by Sub-Advisers, the Adviser has delegated
responsibility for decisions regarding proxy voting to the Sub-Advisers. Each
Sub-Adviser will vote such proxies in accordance with its proxy policies and
procedures, which are also included in Appendix B.
The Trust is required to disclose annually the Funds' complete proxy voting
record on Form N-PX. The Funds' proxy voting record for the most recent
12-month period ended June 30th is available: (i) without charge upon request
by calling 1-877-71-FROST; and (ii) on the SEC's website at www.sec.gov.
CODES OF ETHICS
The Board, on behalf of the Trust, has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act. In addition, the Adviser, Sub-Advisers,
Distributor and Administrator have each adopted Codes of Ethics pursuant to
Rule 17j-1. These Codes of Ethics apply to the personal investing activities of
trustees, officers and certain employees ("access persons"). Rule 17j-1 and the
Codes of Ethics are designed to prevent unlawful practices in connection with
the purchase or sale of securities by access persons. Under each Code of
Ethics, access persons are permitted to invest in securities, including
securities that may be purchased or held by the Funds, but are required to
report their personal securities transactions for monitoring purposes. In
addition, certain access persons are required to obtain approval before
investing in initial public offerings or private placements, or are prohibited
from making such investments. Copies of these Codes of Ethics are on file with
the SEC, and are available to the public.
5% AND 25% SHAREHOLDERS
As of March 3, 2014, the following persons were record owners (or to the
knowledge of the Trust, beneficial owners) of 5% and 25% or more of the shares
of the Funds. Persons who owned
S-87
of record or beneficially more than 25% of a Fund's outstanding shares may be
deemed to control the Fund within the meaning of the 1940 Act. Shareholders
controlling a Fund may have a significant impact on any shareholder vote of the
Fund. The Trust believes that most of the shares referred to below were held
by the below persons in account for their fiduciary, agency or custodial
customers.
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
FROST GROWTH EQUITY FUND CLASS A
SEI Private Trust Company 2,943,544.5570 64.11%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 1,281,231.3800 27.90%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST GROWTH EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 22,785,442.1730 88.73%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 1,810,868.1630 7.05%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
FROST VALUE EQUITY FUND CLASS A
SEI Private Trust Company 3,328,643.0180 64.10%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 940,876.1520 18.12%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST VALUE EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 20,962,817.4570 93.38%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
S-88
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FROST MODERATE ALLOCATION FUND INSTITUTIONAL CLASS
SEI Private Trust Company 266,789.4290 98.16%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST MODERATE ALLOCATION FUND CLASS A
SEI Private Trust Company 47,348.2610 18.60%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
CBNA as custodian FBO 40,366.0610 15.86%
The Commercial Kitchen 401K Plan
6 Rhoads Dr Ste 7
Utica, NY 13502-6317
FROST SMALL CAP EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 3,061,392.7640 92.97%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST SMALL CAP EQUITY FUND CLASS A
SEI Private Trust Company 1,496,019.6320 80.71%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 15,627,479.9630 97.85%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND CLASS A
SEI Private Trust Company 1,161,737.1960 60.35%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
S-89
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SEI Private Trust Company 547,174.8500 28.42%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
NFS LLC FEBO 149,662.7390 7.77%
Marshall & Ilsley Trust CO
FBO Bank 98 DLY RCRDKPG
ATTN: MUT Funds 11270 W Park PL
STE 400
Milwaukee, WI 53224
FROST LOW DURATION BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 16,417,187.8290 82.88%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 1,171,951.5320 5.92%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
FROST LOW DURATION BOND FUND CLASS A
SEI Private Trust Company 620,449.9880 37.22%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 352,003.7190 21.11%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
NFS LLC FEBO 141,334.5960 8.48%
Marshall & Ilsley Trust CO
FBO Bank 98 DLY RCRDKPG
ATTN: MUT Funds 11270 W Park PL
STE 400
Milwaukee, WI 53224
NFS LLC FEBO 131,664.5780 7.90%
Point Investments Ltd
A Partnership
PO Box 829
San Antonio, TX 78293-0829
S-90
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FROST TOTAL RETURN BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 65,146,273.2420 79.03%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST TOTAL RETURN BOND FUND CLASS A
SEI Private Trust Company 4,065,460.0460 30.89%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 3,602,062.1030 27.37%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Charles Schwab & Co. Inc. 950,387.6370 7.22%
Special Custody A/C FBO Customers
101 Montgomery St
San Francisco, CA 94104-4151
FROST MUNICIPAL BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 19,152,934.6470 98.73%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST MUNICIPAL BOND FUND CLASS A
NFS LLC FEBO 278,777.0560 73.05%
Point Investments Ltd
A Partnership
PO Box 829
San Antonio, TX 78293-0829
NFS LLC FEBO 60,691.6440 15.90%
Carolyn Seale
Carol Lee Klose
249 Westover Rd.
Alamo Heights, TX 78209-5651
FROST KEMPNER TREASURY & INCOME FUND INSTITUTIONAL CLASS
SEI Private Trust Company 2,013,376.9560 98.50%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
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FROST MID CAP EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 1,770,285.1880 90.25%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST INTERNATIONAL EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 20,486,951.4660 85.37%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 2,406,161.9230 10.03%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
FROST INTERNATIONAL EQUITY FUND CLASS A
SEI Private Trust Company 1,183,537.4620 51.04%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 822,768.1190 35.48%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST CONSERVATIVE ALLOCATION FUND CLASS A
SEI Private Trust Company 331,649.8370 75.41%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
NFS LLC Febo 29,760.7660 6.77%
Chilton Maverick
6515 Broadway
San Antonio, TX 78209-4564
SEI Private Trust Company 28,505.9190 6.48%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
S-92
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FROST NATURAL RESOURCES FUND INSTITUTIONAL CLASS
SEI Private Trust Company 4,358,858.5580 93.74%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST NATURAL RESOURCES FUND CLASS A
SEI Private Trust Company 418,842.8520 57.86%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 275,936.3090 38.12%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST MID CAP EQUITY FUND CLASS A
NFS LLC FEBO 17,159.3110 60.05%
Carolyn B Madrid TTEE
Madrid Family Trust
U/W 6/11/08
107 Pepper Bush St.
Shavano Park, TX 78231-1416
NFS LLC Febo 7,758.6980 27.15%
Carolyn B Madrid
TOD on File
107 Pepper Bush St.
Shavano Park, TX 78231-1416
SEI Private Trust Company 3,271.1350 11.45%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST CREDIT FUND INSTITUTIONAL CLASS
SEI Private Trust Company 5,361,304.6870 93.99%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST CREDIT FUND CLASS A
SEI Private Trust Company 594,863.4800 71.12%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
S-93
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Charles Schwab & Co Inc 185,739.3270 22.21%
Special Custody A/C FBO Customers
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4151
SEI Private Trust Company 43,787.0790 5.23%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 3,689,253.1110 94.84%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND CLASS A
SEI Private Trust Company 300,120.5040 57.39%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Charles Schwab & Co Inc 191,539.9160 36.62%
Special Custody A/C FBO Customers
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4151
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S-94
APPENDIX A- DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
DESCRIPTION OF RATINGS
The following descriptions of securities ratings have been published by Moody's
Investors Services, Inc. ("Moody's"), Standard & Poor's ("S&P"), and Fitch
Ratings ("Fitch"), respectively.
DESCRIPTION OF MOODY'S GLOBAL RATING SCALES
Ratings assigned on Moody's global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial obligations
issued by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Long-term
ratings are assigned to issuers or obligations with an original maturity of one
year or more and reflect both on the likelihood of a default on contractually
promised payments and the expected financial loss suffered in the event of
default. Short-term ratings are assigned to obligations with an original
maturity of thirteen months or less and reflect the likelihood of a default on
contractually promised payments.
DESCRIPTION OF MOODY'S LONG-TERM OBLIGATION RATINGS
Aaa Obligations rated Aaa are judged to be of the highest quality, subject to
the lowest level of credit risk.
Aa Obligations rated Aa are judged to be of high quality and are subject to
very low credit risk.
A Obligations rated A are considered upper-medium grade and are subject to low
credit risk.
Baa Obligations rated Baa are judged to be medium-grade and subject to moderate
credit risk and as such may possess certain speculative characteristics.
Ba Obligations rated Ba are judged to be speculative and are subject to
substantial credit risk.
B Obligations rated B are considered speculative and are subject to high credit
risk.
Caa Obligations rated Caa are judged to be speculative of poor standing and are
subject to very high credit risk.
Ca Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
C Obligations rated C are the lowest rated class and are typically in default,
with little prospect for recovery of principal or interest.
NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aaa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
A-1
HYBRID INDICATOR (HYB)
The hybrid indicator (hyb) is appended to all ratings of hybrid securities
issued by banks, insurers, finance companies, and securities firms. By their
terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together
with the hybrid indicator, the long-term obligation rating assigned to a hybrid
security is an expression of the relative credit risk associated with that
security.
DESCRIPTION OF SHORT-TERM OBLIGATION RATINGS
Moody's employs the following designations to indicate the relative repayment
ability of rated issuers:
P-1 Issuers (or supporting institutions) rated Prime-1 have a superior ability
to repay short-term debt obligations.
P-2 Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.
P-3 Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability to repay short-term obligations.
NP Issuers (or supporting institutions) rated Not Prime do not fall within any
of the Prime rating categories.
DESCRIPTION OF MOODY'S US MUNICIPAL SHORT-TERM OBLIGATION RATINGS
The Municipal Investment Grade ("MIG") scale is used to rate US municipal bond
anticipation notes of up to three years maturity. Municipal notes rated on the
MIG scale may be secured by either pledged revenues or proceeds of a take-out
financing received prior to note maturity. MIG ratings expire at the maturity
of the obligation, and the issuer's long-term rating is only one consideration
in assigning the MIG rating. MIG ratings are divided into three levels--MIG 1
through MIG 3--while speculative grade short-term obligations are designated
SG.
MIG 1 This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2 This designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group.
MIG 3 This designation denotes acceptable credit quality. Liquidity and
cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.
SG This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
A-2
DESCRIPTION OF MOODY'S DEMAND OBLIGATION RATINGS
In the case of variable rate demand obligations ("VRDOs"), a two-component
rating is assigned: a long or short-term debt rating and a demand obligation
rating. The first element represents Moody's evaluation of risk associated with
scheduled principal and interest payments. The second element represents
Moody's evaluation of risk associated with the ability to receive purchase
price upon demand ("demand feature"). The second element uses a rating from a
variation of the MIG scale called the Variable Municipal Investment Grade
("VMIG") scale.
VMIG 1 This designation denotes superior credit quality. Excellent protection
is afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
VMIG 2 This designation denotes strong credit quality. Good protection is
afforded by the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of purchase
price upon demand.
VMIG 3 This designation denotes acceptable credit quality. Adequate protection
is afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
SG This designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does not
have an investment grade short-term rating or may lack the structural and/or
legal protections necessary to ensure the timely payment of purchase price upon
demand.
DESCRIPTION OF S&P'S ISSUE CREDIT RATINGS
An S&P's issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium-term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The opinion reflects Standard
& Poor's view of the obligor's capacity and willingness to meet its financial
commitments as they come due, and may assess terms, such as collateral security
and subordination, which could affect ultimate payment in the event of
default.
Issue credit ratings can be either long-term or short-term. Short-term ratings
are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days--including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition
to the usual long-term rating. Medium-term notes are assigned long-term
ratings.
Issue credit ratings are based, in varying degrees, on Standard & Poor's
analysis of the following considerations:
o Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
o Nature of and provisions of the obligation;
A-3
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
LONG-TERM ISSUE CREDIT RATINGSo
AAA An obligation rated 'AAA' has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated 'AA' differs from the highest-rated obligations only to
a small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong A An obligation rated 'A' is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB; B; CCC; CC; AND C Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are
regarded as having significant speculative characteristics. 'BB' indicates the
least degree of speculation and 'C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C A 'C' rating is assigned to obligations that are currently highly vulnerable
to nonpayment, obligations that have payment arrearages allowed by the terms of
the documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among
others, the 'C' rating may be assigned to subordinated debt, preferred stock or
other obligations on which cash payments have been suspended in accordance with
the instrument's terms or when preferred stock is the subject of a distressed
exchange offer, whereby some or all of the issue is either repurchased for an
amount of cash or replaced by other instruments having a total value that is
less than par.
D An obligation rated 'D' is in payment default. The 'D' rating category is
used when payments on an obligation are not made on the date due, unless
Standard & Poor's believes that such payments will be made within five business
days, irrespective of any grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of similar action if payments
on an
A-4
obligation are jeopardized. An obligation's rating is lowered to 'D' upon
completion of a distressed exchange offer, whereby some or all of the issue is
either repurchased for an amount of cash or replaced by other instruments
having a total value that is less than par.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate
a particular obligation as a matter of policy.
oThe ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories.
SHORT-TERM ISSUE CREDIT RATINGS
A-1 A short-term obligation rated 'A-1' is rated in the highest category by
S&P. The obligor's capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B A short-term obligion rated 'B' is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitments; however, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its financial
commitments.
C A short-term obligation rated 'C' is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due,
unless S&P believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
DESCRIPTION OF S&P'S MUNICIPAL SHORT-TERM NOTE RATINGS
An S&P's U.S. municipal note rating reflects S&P's opinion about the liquidity
factors and market access risks unique to the notes. Notes due in three years
or less will likely receive a note rating. Notes with an original maturity of
more than three years will most likely receive a long-term debt rating. In
determining which type of rating, if any, to assign, Standard & Poor's analysis
will review the following considerations:
o Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
o Source of payment--the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
A-5
S&P's municipal short-term note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF FITCH'S CREDIT RATINGS SCALES
Fitch's credit ratings provide an opinion on the relative ability of an entity
to meet financial commitments, such as interest, preferred dividends, repayment
of principal, insurance claims or counterparty obligations. Credit ratings are
used by investors as indications of the likelihood of receiving the money owed
to them in accordance with the terms on which they invested.
The terms "investment grade" and "speculative grade" have established
themselves over time as shorthand to describe the categories 'AAA' to 'BBB'
(investment grade) and 'BB' to 'D' (speculative grade). The terms "investment
grade" and "speculative grade" are market conventions, and do not imply any
recommendation or endorsement of a specific security for investment purposes.
"Investment grade" categories indicate relatively low to moderate credit risk,
while ratings in the "speculative" categories either signal a higher level of
credit risk or that a default has already occurred.
Fitch's credit ratings do not directly address any risk other than credit risk.
In particular, ratings do not deal with the risk of a market value loss on a
rated security due to changes in interest rates, liquidity and other market
considerations. However, in terms of payment obligation on the rated liability,
market risk may be considered to the extent that it influences the ABILITY of
an issuer to pay upon a commitment. Ratings nonetheless do not reflect market
risk to the extent that they influence the size or other conditionality of the
OBLIGATION to pay upon a commitment (for example, in the case of index-linked
bonds).
In the default components of ratings assigned to individual obligations or
instruments, the agency typically rates to the likelihood of nonpayment or
default in accordance with the terms of that instrument's documentation. In
limited cases, Fitch may include additional considerations (I.E., rate to a
higher or lower standard than that implied in the obligation's documentation).
In such cases, the agency will make clear the assumptions underlying the
agency's opinion in the accompanying rating commentary.
DESCRIPTION OF FITCH'S LONG-TERM CORPORATE FINANCE OBLIGATIONS RATING SCALES
Fitch long-term obligations rating scales are as follows:
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
A-6
AA Very high credit quality. 'AA' ratings denote expectations of very low
credit risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. 'A' ratings denote expectations of low credit risk. The
capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.
BBB Good credit quality. 'BBB' ratings indicate that expectations of credit
risk are currently low. The capacity for payment of financial commitments is
considered adequate but adverse business or economic conditions are more likely
to impair this capacity.
BB Speculative. 'BB' ratings indicate an elevated vulnerability to credit risk,
particularly in the event of adverse changes in business or economic conditions
over time; however, business or financial alternatives may be available to
allow financial commitments to be met.
B Highly speculative. 'B' ratings indicate that material credit risk is
present.
CCC 'CCC' ratings indicate that substantial credit risk is present.
CC 'CC' ratings indicate very high levels of credit risk.
C 'C' ratings indicate exceptionally high levels of credit risk.
NR This designation is used to denote securities not rated by Fitch where Fitch
has rated some, but not all, securities comprising an issuance capital
structure.
WD This designation indicates that the rating has been withdrawn and the issue
or issuer is no longer rated by Fitch.
NOTE: The modifiers "+" or "-" may be appended to a rating to denote relative
status within major rating categories. Such suffixes are not added to the 'AAA'
obligation rating category, or to corporate finance obligation ratings in the
categories below 'B'.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
A short-term issuer or obligation rating is based in all cases on the
short-term vulnerability to default of the rated entity or security stream and
relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-Term Ratings are
assigned to obligations whose initial maturity is viewed as "short term" based
on market convention. Typically, this means up to 13 months for corporate,
sovereign, and structured obligations and up to 36 months for obligations in
U.S. public finance markets.
Fitch's short-term ratings are as follows:
F1 Highest short-term credit quality. Indicates the strongest intrinsic
capacity for timely payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 Good short-term credit quality. Good intrinsic capacity for timely payment
of financial commitments.
A-7
F3 Fair short-term credit quality. The intrinsic capacity for timely payment of
financial commitments is adequate.
B Speculative short-term credit quality. Minimal capacity for timely payment of
financial commitments, plus heightened vulnerability to near term adverse
changes in financial and economic conditions.
C High short-term default risk. Default is a real possibility.
RD Restricted default. Indicates an entity that has defaulted on one or more of
its financial commitments, although it continues to meet other financial
obligations. Applicable to entity ratings only.
D Default. Indicates a broad-based default event for an entity, or the default
of a short-term obligation.
NR This designation is used to denote securities not rated by Fitch where Fitch
has rated some, but not all, securities comprising an issuance capital
structure.
WD This designation indicates that the rating has been withdrawn and the issue
or issuer is no longer rated by Fitch.
A-8
APPENDIX B
FROST INVESTMENT ADVISORS, LLC
PROXY VOTING POLICIES AND PROCEDURES
Frost Investment Advisors, LLC has adopted the following proxy voting policies
and procedures (the "Proxy Voting Policy") for the voting of proxies on behalf
of client accounts for which Frost Investment Advisors, LLC has voting
discretion by contract, including the Frost Investment Advisors, LLC Funds.
Under this Proxy Voting Policy, shares are to be voted in a timely manner and
in the best interests of the client. Frost Investment Advisors, LLC's CCO or
their designee is responsible for monitoring compliance with these policies and
procedures.
Frost Investment Advisors, LLC has retained an independent third party (the
"Service Firm") to review proxy proposals and to vote proxies in a manner
consistent with an approved set of guidelines (the "Proxy Guidelines"). The
Proxy Guidelines are provided by the Service Provider and approved by the Chief
Investment Officer ("CIO") of Frost Investment Advisors, LLC investment and the
CCO or their designee (See Appendix D). The CIO annually adopts the Proxy
Guidelines concerning various corporate governance issues. The CIO has the
ultimate responsibility for the content, interpretation and application of the
Proxy Guidelines and may apply these Proxy Guidelines with a measure of
flexibility. The CCO or their designee shall monitor the Service Firm to assure
that all proxies are being properly voted and appropriate records are being
retained.
Except as otherwise provided herein, the CIO may overrule the Service Firm and
assert its authority to vote the proxies itself in instances where it is in
disagreement with the Service Firm. The CIO may choose to vote contrary to the
recommendations of the Service Firm, if it determines that such action is in
the best interests of a Client. In exercising its discretion, the CIO may take
into account a variety of factors relating to the matter under consideration,
the nature of the proposal and the company involved. As a result, the CIO may
vote in one manner in the case of one company and in a different manner in the
case of another where, for example, the past history of the company, the
character and integrity of its management, the role of outside directors, and
the company's record of producing performance for investors justifies a high
degree of confidence in the company and the effect of the proposal on the value
of the investment.
Similarly, poor past performance, uncertainties about management and future
directions, and other factors may lead the CIO to conclude that particular
proposals present unacceptable investment risks and should not be supported.
The CIO also evaluates proposals in context. A particular proposal may be
acceptable standing alone, but objectionable when part of an existing or
proposed package. Special circumstances may also justify casting different
votes for different clients with respect to the same proxy vote.
Frost Investment Advisors, LLC may occasionally be subject to conflicts of
interest in the voting of proxies due to business or personal relationships
with persons having an interest in the outcome of certain votes. For example,
Frost Investment Advisors, LLC or its affiliates may provide trust, custody,
investment management, brokerage, underwriting, banking and related services to
accounts owned or controlled by companies whose management is soliciting
proxies. Occasionally, Frost Investment Advisors, LLC may also have business or
personal relationships with other proponents of proxy proposals, participants
in proxy contests, corporate directors or candidates for directorships. Frost
Investment Advisors, LLC may also be required to vote proxies for securities
issued by Cullen/Frost Bankers, Inc. or its affiliates or on matters in which
Frost Investment Advisors, LLC has a direct financial interest, such as
shareholder approval of a change in the advisory fees paid by a Fund.
Frost Investment Advisors, LLC seeks to address such conflicts of interest
through various measures above, including and the retention of the Service Firm
to perform proxy review and vote recommendation functions. The CIO has the
responsibility to determine whether a proxy vote involves a potential conflict
of interest and how the conflict should be addressed in conformance with the
Proxy Voting Policy. The CIO
A-9
would normally resolve such conflicts by allowing the Service Firm to vote in
accordance with the Proxy Guidelines.
Frost Investment Advisors, LLC may choose to instruct the Service Firm not to
vote proxies in certain situations or for a client. This may occur, for
example, in situations where the exercise of voting rights could restrict the
ability to freely trade the security in question (as is the case, for example,
in certain foreign jurisdictions known as "blocking markets"). In addition,
voting certain international securities may involve unusual costs to clients.
In other cases it may not be possible to vote certain proxies despite good
faith efforts to do so, for instance when inadequate notice of the matter is
provided. In the instance of loan securities, voting of proxies typically
requires termination of the loan, so it is not usually in the best economic
interests of clients to vote proxies on loaned securities. Frost Investment
Advisors, LLC typically will not, but reserves the right to, vote where share
blocking restrictions, unusual costs or other barriers to efficient voting
apply. If Frost Investment Advisors, LLC does not vote, it would have made the
determination that the cost of voting exceeds the expected benefit to the
client. The CIO shall record the reason for any proxy not being voted, which
record shall be kept with the proxy voting records of Frost Investment
Advisors, LLC.
In circumstances in which the Service Firm does not provide recommendations for
a particular proxy, the CIO may obtain recommendations from analysts at Frost
Investment Advisors, LLC who review the issuer in question or the industry in
general. The CIO will apply the Proxy Guidelines as discussed above to any such
recommendation.
Clients will be informed how they may obtain these proxy voting policies and
procedures through Frost Investment Advisors, LLC's Part 2A of Form ADV, in the
Funds' Statement of Additional Information ("SAI") and on Frost Investment
Advisors, LLC's website. Further proxy voting information may be obtained in
the Funds' SAI and shareholder's reports.
A report of proxies voted for the Funds is made quarterly to the Funds' Board,
noting any proxies that were voted in exception to the Proxy Guidelines. Frost
Investment Advisors, LLC's proxy voting record will also be filed on Form N-PX.
An annual record of all proxy votes cast for the Funds during the most recent
12-month period ended June 30 can be obtained, free of charge, on the Fund's
website, and on the SEC's website at www.sec.gov.
Frost Investment Advisors, LLC will prepare and maintain the following
records of its proxy voting:
o The proxy voting policies and procedures;
o Copies of proxy statements Frost Investment Advisors, LLC received
for client securities;
o A record of each vote Frost Investment Advisors, LLC cast on behalf
of a client;
o A copy of any document Frost Investment Advisors, LLC created that
was material to making a decision on how to vote proxies on behalf of
a client or that memorializes the basis for that decision; and
A copy of each written client request for information on how Frost Investment
Advisors, LLC voted proxies on behalf of the client, and a copy of any written
response by Frost Investment Advisors, LLC to any (written or oral) client
request for that information on behalf of the requesting client.
A-10
[GRAPHIC OMITTED]
PROXY VOTING POLICIES AND PROCEDURES
1. Scope of Policies and Procedures. These Proxy Voting Policies and Procedures
("Procedures") are used to determine how to vote proxies relating to portfolio
securities held in accounts managed by Cinque Partners and whose voting
authority has been delegated to Cinque Partners. Cinque Partners believes that
the Procedures are reasonably designed to ensure that proxy matters are
conducted in the best interest of clients, in accordance with its fiduciary
duties.
2. VOTING PHILOSOPHY. Cinque Partners exercises its voting responsibility, as a
fiduciary, with the goal of maximizing value to shareholders consistent with
the governing laws and investment policies of each portfolio. While SECURITIES
are not purchased to exercise control or to seek to effect corporate change
through share ownership, Cinque Partners supports sound corporate governance
practices within companies in which they invest.
Cinque Partners may utilize Institutional Shareholders Services (ISS), a
proxy-voting agent, for voting proxies and proxy voting analysis and research.
Either ISS or Cinque Partners (the "Proxy Voter") votes proxies in accordance
with the Cinque Partners Proxy Guidelines established by Cinque Partners Proxy
Committee and attached hereto as Appendix A.
3. RESPONSIBILITIES
(A) Proxy Administrator & Proxy Committee
Cinque Partners has designated a Proxy Administrator who is responsible for
administering and overseeing the proxy voting process to ensure the
implementation of the Procedures. The Proxy Administrator monitors the
Proxy Voter to determine that the Proxy Voter is accurately applying the
Procedures as set forth herein and that proxies are voted in a timely and
responsible manner. The Proxy Administrator reviews the continuing
appropriateness of the Procedures set forth herein, recommends revisions as
necessary, serves under the direction of the chairperson for the Proxy
Committee and provides an annual update to the Managing Committee on the
proxy voting process.
2012 Proxy Committee Members- Robert Tuleya (Chairman), ALAN Adelman,
Fred Wahl
Proxy Administrator: Robert Tuleya
Cinque Proxy Voter: Pierre Brachet
(i) VOTING GUIDELINES. Cinque Partners Proxy Guidelines set forth Cinque
Partners' proxy policy statement and guidelines regarding how proxies will be
voted on the issues specified. The Proxy Voter will vote proxies for or against
as directed by the guidelines. Where the guidelines specify a "case by case"
determination for a particular issue, the Proxy Voter will evaluate the proxies
based on thresholds established in the proxy guidelines. In addition, proxies
relating to issues not addressed in the guidelines, especially foreign
securities, Cinque Partners will refer to ISS Proxy Guidelines and consult with
Cinque Partners' Investment Committee. Finally, with respect to issues for
which a vote for or against is specified by the Procedures, the Proxy
Administrator shall have the authority to direct the Proxy Voter to forward the
proxy to him or her for a discretionary vote, in consultation with the [Proxy
Committee or the portfolio manager covering the subject security] if the Proxy
Committee [or the portfolio manager] determines that a case-by- case review of
such matter is warranted, provided however, that such authority to deviate from
the Procedures shall not be exercised if the Proxy Administrator is aware of
any conflict of interest (as described further below) with respect to such
matter.
(ii) VOTING DISCRETION. In all cases, the Proxy Administrator will exercise its
voting discretion in accordance with the voting philosophy of the Cinque
Partners Proxy Guidelines. In cases where a proxy is forwarded by the Proxy
Voter to the Proxy Administrator, the Proxy Administrator may be assisted in
its voting decision through receipt of: (i) independent research and voting
recommendations provided by ISS or other independent sources; or (ii)
information provided by company managements and shareholder groups. In the
event that the Proxy Administrator is aware of a material conflict of interest
involving Cinque Partners or any of its affiliates regarding a proxy that has
been forwarded to him or her, the Proxy Administrator will return the proxy to
the Proxy Voter to be voted in conformance with the voting guidelines of ISS.
Voting decisions made by the Proxy Administrator will be reported to the Proxy
Voter to ensure that the vote is registered in a timely manner.
(iii) SECURITIES ON LOAN. As a general matter, securities on loan will not be
recalled to facilitate proxy voting (in which case the borrower of the security
shall be entitled to vote the proxy).
(iv) CONFLICTS OF INTEREST. Cinque Partners has obtained a copy of ISS
policies, procedures and practices regarding potential conflicts of interest
that could arise in ISS proxy voting services to Cinque Partners as a result of
business conducted by ISS. Cinque Partners believes that potential conflicts of
interest by ISS are minimized by these policies, procedures and practices. In
addition, Cinque Partners may have a conflict of interest regarding a proxy to
be voted upon if, for example, Cinque Partners and/or its affiliates have other
relationships with the issuer of the proxy. Cinque Partners believes that, in
most instances, any material conflicts of interest will be minimized through a
strict and objective application by ISS of the voting guidelines attached
hereto. However, when the Proxy
Administrator is aware of a material conflict of interest regarding a matter
that would otherwise require a vote by Cinque Partners, the Proxy Administrator
shall defer to ISS to vote in conformance with the voting guidelines of ISS
In addition, the Proxy Administrator will seek to avoid any undue influence as
a result of any material conflict of interest that exists between the interest
of a client and Cinque Partners or any of its affiliates. To this end, an
independent fiduciary engaged by Cinque Partners will direct the Proxy
Administrator on voting instructions for the Cinque Partners proxy.
(v) PRACTICAL LIMITATIONS TO PROXY VOTING. Cinque Partners uses its best
efforts to vote proxies, in certain circumstances it may be impractical or
impossible for Cinque Partners to vote proxies (e.g. limited value or
unjustifiable costs).
(B) ISS
ISS may be delegated with the following responsibilities:
o RESEARCH AND MAKE VOTING DETERMINATIONS IN ACCORDANCE WITH THE CINQUE
PARTNERS PROXY GUIDELINES DESCRIBED IN APPENDIX A;
o VOTE AND SUBMIT PROXIES IN A TIMELY MANNER;
o HANDLE OTHER ADMINISTRATIVE FUNCTIONS OF PROXY VOTING;
o MAINTAIN RECORDS OF PROXY STATEMENTS RECEIVED IN CONNECTION WITH
PROXY VOTES AND PROVIDE COPIES OF SUCH PROXY STATEMENTS PROMPTLY UPON
REQUEST;
o MAINTAIN RECORDS OF VOTES CAST; AND
o PROVIDE RECOMMENDATIONS WITH RESPECT TO PROXY VOTING MATTERS IN
GENERAL.
(C) Except in instances where clients have retained voting authority, Cinque
Partners will instruct custodians of client accounts to forward all proxy
statements and materials received in respect of client accounts to ISS.
(D) Notwithstanding the foregoing, Cinque Partners retains final authority and
fiduciary responsibility for proxy voting.
4. RECORD RETENTION. Cinque Partners will maintain the following records
relating to the implementation of the Procedures:
o A COPY OF THESE PROXY VOTING POLICIES AND PROCEDURES;
o PROXY STATEMENTS RECEIVED FOR CLIENT SECURITIES (WHICH WILL BE
SATISFIED BY RELYING ON EDGAR OR ISS);
o RECORDS OF VOTES CAST ON BEHALF OF CLIENTS (WHICH ISS MAINTAINS ON
BEHALF OF CINQUE PARTNERS);
o RECORDS OF EACH WRITTEN CLIENT REQUEST FOR PROXY VOTING RECORDS AND
CINQUE PARTNERS' WRITTEN RESPONSE TO ANY CLIENT REQUEST (WRITTEN OR
ORAL) FOR SUCH RECORDS; AND
o ANY DOCUMENTS PREPARED BY CINQUE PARTNERS OR ISS THAT WERE MATERIAL
TO MAKING A PROXY VOTING DECISION.
Such proxy voting books and records shall be maintained at an office of Cinque
Partners in an easily accessible place for a period of seven years.
5. DISCLOSURE OF POLICIES AND PROCEDURES. Cinque Partners will disclose to its
clients and prospective clients a summary description of its proxy voting
policy and procedures. A detailed copy of the Cinque Partners Proxy Voting
Policies and Procedures and Appendix A: Cinque Partners Proxy Guidelines will
be provided to clients upon request.
Cinque Partners will also provide proxy statements and any records as to how we
voted proxies on behalf of client upon request.
Except as otherwise required by law, Cinque Partners has a general policy of
not disclosing to any issuer or third party how its client proxies are voted.
APPENDIX A
CINQUE PARTNERS PROXY GUIDELINES
Cinque Partners will vote proxies relating to portfolio securities held in
accounts managed by Cinque Partners and whose voting authority has been
delegated to Cinque Partners in accordance with the following proxy voting
guidelines. To the extent these guidelines do not address a proxy voting
proposal and the proposal does not give rise to a material conflict of interest,
Cinque Partners will vote pursuant to ISS' U.S. and International proxy voting
guidelines as updated and revised from year to year. ISS provides their
guidelines annually via their website at
HTTP://WWW.ISSGOVERNANCE.COM/POLICY/2012/POLICY_INFORMATION.
KEMPNER CAPITAL MANAGEMENT, INC.
PROXY VOTING
POLICIES AND PROCEDURES
PROXIES ARE VOTED ON BEHALF OF CLIENTS
Kempner Capital Management, Inc. ("KCM") will treat voting rights of securities
held in its clients' portfolios in a manner that is in its clients' best
interests. KCM will first determine whether it is in the clients' best
interest for KCM to exercise the clients' voting rights with respect to
specific securities. If KCM determines that it is appropriate to exercise
voting rights in a particular instance, the matters on which a vote is
solicited will be evaluated in light of the clients' investment objectives for
the security. Since protection of the client's interest is KCM's most
important concern, KCM votes against management's recommendation on some issues
where we feel it is necessary, taking each proposal individually and analyzing
its merits.
Examples of some voting issues with which we are concerned are:
1) Selection of Auditors - KCM attempts to take into consideration an
auditor's litigation history and current standing in the financial
community;
2) Shareholder Rights - KCM tries to ensure that the voting of a
proposal does not cause unnecessary dilution of minority shareholder
rights;
3) Stock Issuance Plans - KCM approves stock-issuance plans that are
tied to earnings growth and stock performance;
4) Conflict of Interest - KCM recognizes that conflicts of interest
could arise in the proxy decision-making process.
For example, if a proponent of a proxy proposal has a business relationship
with KCM, or an employee of KCM has a personal interest in the outcome of a
matter before shareholders, a conflict could exist. KCM's compliance policies
prohibit employees from serving as a director on the board of any public
company, without approval of KCM's Board of Directors. It is KCM's policy not
to trade in the securities of any company that has a KCM employee on its Board,
so proxy voting would not be an issue. Currently no employees serve on the
Boards of any public companies. Harris L. Kempner, Jr. does serve as an
advisory director on the Board of Cullen Frost Bankers, Inc., but it is an
honorary position only. He does not attend voting Board Meetings or receive
non-public information of any kind. Mr. Kempner does vote the Cullen Frost
proxy for Kempner Securities LP, which is a KCM client and he votes the Cullen
Frost proxies for directed accounts at Frost Trust Department. Any proxies
involving a conflict of interest will be discussed by the Investment Committee
and outside counsel may be consulted to ensure the proxies are voted in the
best interests of KCM's clients.
DETERMINING WHETHER TO VOTE PROXIES
For portfolios containing voting securities, the Investment Committee is
responsible for determining whether exercising the voting rights with respect
to such securities is in the best interest of the clients. The factors to be
used in making this determination are listed in the Appendix. In making this
determination, the portfolio managers may take into account other factors that
are relevant to the portfolio. The Investment Committee will notify the
Compliance Officer in writing as to those situations in which proxies will not
be voted (and the reason(s) therefore) prior to the date by which such proxies
must be voted.
LOANED SECURITIES
Pursuant to an agreement between the client and their custodian regarding
client holdings, certain securities may have shares on loan. The proxy ballot
received for this security will have been reduced by those shares that are out
on loan. KCM will verify that the actual shares owned by the client, less the
shares loaned by the custodian if any, are equal to the number of shares on the
proxy ballot, and these shares will be voted. The Chief Compliance Officer
("CCO") will monitor proxy voting procedures for loaned securities to ensure
adherence to this policy.
KCM has the ability to recall shares of currently managed mutual funds that
have been loaned by the custodian. In order for the shares on loan to be
included in the proxy vote, the shares would have to be recalled and returned
to the custodian prior to the proxy vote record date. Notices of annual
meetings are usually received after the record date, making this a difficult
process in which case the borrower has the right to vote the proxy. When/if
portfolio managers learn of a proxy issue which they deem important, they alert
the operations staff to attempt to recall the shares as soon as possible.
PROCEDURE FOR VOTING PROXIES
The Investment Committee will make all determinations as to how to vote proxies
related to securities in client portfolios. The Investment Committee will
follow the guidelines listed in the Appendix unless he/she has a specific
reason for voting otherwise in a particular instance. KCM's decisions come as
a result of researching the proxy statement and annual report, as well as
continually following the company. The ongoing research is the responsibility
of the entire portfolio management team. Portfolio manager, Shawn Gault,
reviews each proxy statement and presents to Investment Committee. The final
voting instruction is then given to operations personnel.
It is KCM's policy to: 1) review all proxy materials on portfolio companies,
and to vote those proxies in each election, 2) resist and vote against efforts
by management to concentrate voting control in itself, efforts of management to
dilute the percentage ownership of minority shareholders, and attempts by
management to enhance their personal economic condition at the expense of the
shareholders in the case of a merger, buy-out tender, management-led leveraged
buyout or restructuring efforts in whatever form, and 3) support equitable
performance or incentive-based stock acquisition programs in favor of
management. KCM believes that a reasonable level of stock ownership by
management, to be earned serially over a long period of time, tends to benefit
the interests of minority shareholders. In light of the ever-increasing number
of
"social" issues contained in proxies, KCM votes solely on the considerations
outlined above.
Specific instructions from the client are honored, and KCM does vote according
to those instructions, as long as they are not in direct conflict with prudent
investment management. In such cases, the ramifications are discussed with the
client before voting. KCM does not vote proxies when the cost of doing so is
impractical. In the accompanying Appendix are factors KCM considers when
determining whether to vote proxies and Proxy Voting Guidelines. Also included
in our proxy voting process are potential conflicts of interest in which KCM
will not vote.
The CCO attends the Investment Committee Meetings and therefore is available
for comment on the vote. Written records of proxy votes are maintained and
available to the CCO.
MATERIALS AVAILABLE TO CLIENTS
KCM's proxy voting policies and procedures are described in the Firm's Form
ADV. All clients have been notified that copies of these policies and
procedures, together with information concerning KCM's proxy votes on their
behalf, are available from the Firm, without charge, upon request to the CCO.
RECORDKEEPING
KCM will maintain the following records for a period of five years (other than
proxy statements on file with the SEC's EDGAR system (www.sec.gov/edgar.shtml))
in accordance with the Firm's Books and Records Policies and Procedures:
o Copies of KCM's proxy voting policies and procedures and any
amendments.
o Proxy statements received regarding client securities.
o Records of votes cast on behalf of clients.
o Records of written client requests for proxy voting information and
KCM's written responses to any such written or oral client request.
o Any documents prepared by KCM's employees that were material to
making a decision as to how to vote proxies or that memorialized the
basis for that decision.
o Documentation of exceptions to KCM's proxy voting policies.
CHIEF COMPLIANCE OFFICER'S PROCEDURES
The CCO will:
o Review proxy voting periodically to ensure that proxy policy is
followed.
o Ensure that proxy policy is described and offered on KCM's ADV Part
2A.
APPENDIX
PROXY VOTING POLICIES AND PROCEDURES
FACTORS TO CONSIDER IN DETERMINING WHETHER TO VOTE PROXIES
The following factors should be used by the Investment Committee to determine
whether proxies should be voted, together with any other factors the Investment
Committee believes are relevant to their determination:
LANGUAGE. KCM does not vote proxies written in a language other than English
for which no translation has been given.
LEGACY SECURITIES. KCM does not vote proxies for legacy securities held in a
new account previously managed by another manager that KCM intends to sell.
NON-MANAGED SECURITIES. KCM does not vote proxies for securities held in a
portion of client's portfolio that is not managed by KCM.
CONFLICTS OF INTEREST. KCM will not vote proxies that contain potential
conflicts of interest, e.g., KCM has a material business relationship with a
proponent of a proxy proposal, participants in a proxy contest or directors or
nominee directors of a portfolio company. This also holds true if a KCM
employee has a personal interest in the outcome of a particular proxy
proposal.
COST OF VOTING. Whether the cost of voting on a proposal (e.g., required
in-person voting in a distant location) would likely exceed the value of any
anticipated benefits of approving or defeating the proposal.
IMPRACTICABILITY. Whether the timing of receipt and/or the mechanics of voting
make it impracticable to vote.
SECURITIES LENT. Whether the securities are on loan (which, therefore, have
been transferred into the borrower's name) and the securities have not been
recalled as of the record date or the vote date relating to the proxy
proposals.
CLIENT MAINTAINS VOTING AUTHORITY. Whether the relevant client has specified in
writing (either in an investment advisory agreement or in a separate
instruction) that it will maintain the authority to vote proxies or that it has
delegated the right to a third party.
KEMPNER CAPITAL MANAGEMENT, INC. PROXY VOTING GUIDELINES
When it is determined that voting a proxy is in the relevant clients' best
interests, the following guidelines are to be used to determine how to vote.
These guidelines are not prescriptive; there may be circumstances in which
clients' best interests would be served by voting differently.
ISSUE VOTE
1. Management or board entrenchment and anti-takeover measures: In General,
a. Implementation of staggered board member terms. Oppose, but
each will be
b. Limitations on shareholders' ability to call special meetings. considered on a
c. Implementation of supermajority voting requirements. case-by-case
basis
d. Large increases in authorized common or preferred shares,
where management provides no explanation for their use or need.
e. Implementation of "fair price" provisions.
f. Implementation, augmentation or extension of "poison pill" shareholder
rights plans.
g. Authorization of "greenmail."
2. Creation of cumulative voting rights. In General,
Oppose, but
each will be
considered on a
case-by-case
basis
3. Action based on support for or furtherance of social issues (unless Oppose
specific client guidelines supersede).
4. Election of directors recommended by management (except if there is Case-by-Case
a proxy fight).
5. Confidential voting. Approve
6. Limitations on directors' liability. Approve
7. Elimination of preemptive rights. Approve
8. Implementation or enhancement of employee compensation and Case-by-Case
benefit plans (including stock option, stock purchase, 401(k) and other (consider
retirement plans). potential dilution)
a. Shareholder approval of benefits paid to an executive after
death
Approve
9. Grant of options and/or stock or other special benefits to management. Case-by-Case
10. Additional indemnification for directors and/or officers. Case-by-Case
|
ISSUE VOTE
11. Reincorporation in another state. Case-by-Case
(what is
rationale?)
12. Implementation of "golden parachutes":
a. If plan appears necessary to attract and retain critical personnel. Case-by-Case
b. Otherwise. Oppose
13. Change in board composition and compensation:
a. Increase in the size of the board beyond 13 members. Case-by-Case
b. Increase in the number of independent non-executive directors. Approve
c. Restrictions on directors' tenure, such as a mandatory Case-by-Case
retirement age or limits on length of service or requirements that
directors own a certain amount of a company's stock.
d. Elimination of retirement benefits for non-employee directors. Approve
e. Requirement that directors be paid partially or solely in stock. Oppose
f. Shareholder advisory vote on executive compensation (Say on Approve
Pay)
g. Requirement of performance for performance stock units Approve
h. Grand retirement allowance to retiring directors Oppose
14. Routine matters: Case-by-Case
a. Approval of auditors (unless management seeks to replace them in the
context of a dispute over policies).
b. Time and place of annual meeting.
c. Change of company name.
d. Ratification of directors on routine matters since previous
annual meeting.
e. Other matters as to which management or the Board is generally
competent and in the best position to assess and decide.
15. Mergers and acquisitions. Case-by-Case
16. Political contributions
a. Reporting/disclosure of political contributions and trade Case-by-Case
association
b. Authorization to make political contributions and incur political Case-by-Case
expense
17. Disclosure of charitable contributions Generally
Disapprove
|
ISSUE VOTE
18. Shareholder proposals
a. For Independent Chair Approve
b. To limit CEO to serve on maximum of one other board Approve
|
LUTHER KING CAPITAL MANAGEMENT CORPORATION
PROXY VOTING POLICY
I. INTRODUCTION AND GENERAL PRINCIPLES
A. Luther King Capital Management Corporation ("LKCM") generally has
been delegated the contractual authority and responsibility to vote
the proxies of its investment advisory clients, including both ERISA
and non-ERISA clients.
B. LKCM understands that proxy voting is an integral aspect of
investment management. Accordingly, proxy voting must be conducted
with the same degree of prudence and loyalty accorded any fiduciary or
other obligation of an investment adviser.
C. LKCM believes that the following policies and procedures are
reasonably designed to ensure that proxies are voted in the best
interest of clients, in accordance with LKCM's fiduciary duty,
applicable rules under the Investment Advisers Act of 1940, and
fiduciary standards and responsibilities for ERISA clients set out in
Department of Labor interpretations.
D. Notwithstanding the foregoing, LKCM will not vote proxies for a
client if (i) LKCM has not been granted contractual authority to vote
the client's proxies, (ii) the client provides proxy voting
instructions to LKCM, or (iii) LKCM otherwise does not have
discretionary authority to vote the client's proxies. In such event,
it is the responsibility of the client to vote such proxies and to
instruct its custodian to mail proxy materials directly to such client
accordingly. In addition, LKCM will not vote a proxy for a client if
(i) the client engages in a securities lending program through its
custodian and the applicable securities were loaned by the client at
the record date for such proxy or (ii) LKCM does not receive a meeting
notice in sufficient time to enable it to process such proxy.
II. PROXY VOTING PROCEDURES
A. Compliance monitors the proxy voting process, including overseeing
any third-party vendor retained to review, monitor, or vote proxies.
B. LKCM has engaged Institutional Shareholder Services, Inc. ("ISS") as
its proxy voting administrator to:
(1) research and make voting determinations for securities held in
client portfolios;
(2) vote and submit proxies in a timely manner;
(3) handle other administrative functions of proxy voting;
(4) maintain records of proxy statements received in connection with
proxy votes and provide copies of such proxy statements promptly
upon request;
(5) maintain records of votes cast; and
(6) provide recommendations with respect to proxy voting matters in
general.
C. Except in instances where clients have retained discretionary
authority to vote proxies, LKCM will instruct custodians to forward
proxy statements and materials received in respect of client accounts
to ISS.
III. PROXY VOTING GUIDELINES
A. LKCM has determined that, except as set forth below, proxies will be
voted in accordance with the voting recommendations contained in the
applicable ISS Voting Guidelines in effect at the time of voting (as
applicable, the "ISS Voting Guidelines"). LKCM will periodically
review the ISS Voting Guidelines, including any significant changes or
updates thereto. In connection with such reviews, LKCM may determine
that it is not in the best interest of its clients to vote proxies in
accordance with the ISS Voting Guidelines on certain matters. In such
event, LKCM will follow the procedures identified in Section III(C)
below in connection with voting any such proxies contrary to the ISS
Voting Guidelines.
B. In the event the ISS Voting Guidelines do not address how a proxy
should be voted, LKCM will vote the proxy in accordance with ISS
recommendations. If ISS refrains from making any such recommendations,
LKCM will vote the proxy consistent with the general principles of
these policies and procedures and in the client's best interest. Prior
to voting any proxies in the absence of ISS recommendations, however,
Compliance will determine whether any material conflict of interest
may exist between LKCM and the client with respect thereto. If
Compliance determines that a material conflict of interest may exist,
LKCM will follow the procedures identified in Section IV(B) below in
connection with the voting of such proxies.
C. There may be circumstances under which LKCM believes that it is in
the best interest of clients to vote proxies in a manner inconsistent
with the ISS Voting Guidelines or ISS recommendations. Prior to voting
any proxies inconsistent with the ISS Voting Guidelines or ISS
recommendations, however, Compliance will determine whether any
material conflict of interest may exist between LKCM and the client
with respect thereto. If Compliance determines that a material
conflict of interest may exist, LKCM will follow the procedures
identified in Section IV(B) below in connection with the voting of
such proxies.
IV. CONFLICTS OF INTEREST
A. LKCM has reviewed ISS' code of ethics and conflicts of interest
policy (as amended or updated from time to time, the "ISS Conflict
Policy"), which address conflicts of interest that could arise in
connection with advisory services provided by ISS or its affiliates.
LKCM believes that the ISS Conflict Policy contains policies and
procedures that are reasonably designed to mitigate any such potential
conflicts of interest.
B. In the event that LKCM or Compliance determines that voting a proxy
may present a material conflict of interest between LKCM and the
client, LKCM will (1) in cases where ISS had made a recommendation,
take no further action, in which case ISS shall vote such proxy in
accordance with the ISS Voting Guidelines or ISS recommendations, as
applicable, (2) disclose such conflict of interest to the client and
obtain written direction from the client as to how to vote the proxy,
(3) suggest that the client engage another party to determine how to
vote the proxy, or (4) engage another independent third party to
determine how to vote the proxy.
C. Notwithstanding the foregoing, LKCM must vote proxies in the best
interest of clients when material conflicts of interest may exist with
respect thereto.
D. LKCM believes that the foregoing policies and procedures are
reasonably designed to address material conflicts of interest that may
arise between LKCM and a client as to the manner in which proxies are
voted.
V. RECORDKEEPING
LKCM will maintain records relating to the implementation of these
policies and procedures, including:
(1) a copy of these policies and procedures, which will be made available
to clients upon request;
(2) proxy statements received regarding client securities, which will be
satisfied by relying on EDGAR or ISS;
(3) a record of each vote cast, which ISS maintains on LKCM's behalf;
(4) any other document created by LKCM that was material in making a
decision to vote proxies on behalf of a client or that memorializes
the basis for that decision; and
(5) each written client request for proxy voting records and LKCM's
written response with respect thereto.
Such books and records will be maintained at LKCM's offices in an
easily accessible place for a period of five years.
VI. DISCLOSURE
Except as otherwise required or permitted by law, LKCM has a general
policy of not disclosing to any issuer or third party the manner in which
client proxies are voted. LKCM will provide clients with a copy of these
policies and procedures upon request. In addition, clients may receive
information concerning the manner in which securities held in their portfolios
were voted during the current calendar year by contacting Jacob D. Smith, Chief
Compliance Officer, by telephone at (817) 332-3235 or by email AT
JSMITH@LKCM.COM. All questions relating to these policies and procedures, or
the other documents and policies referenced herein, should be directed to Mr.
Smith.
May 2013
THORNBURG INVESTMENT MANAGEMENT, INC.
THORNBURG INVESTMENT TRUST
PROXY VOTING POLICY
MARCH 2012
POLICY OBJECTIVES
This Policy has been adopted by Thornburg Investment Management, Inc. ("TIM")
and Thornburg Investment Trust (the "Trust") to facilitate the voting of
proxies relating to portfolio securities in what it perceives to be the best
interests of persons for whom TIM performs investment management services and
is authorized and required to vote or consider voting proxies. The Trust has
delegated to TIM the authority to vote proxies relating to its portfolio
securities in accordance with this Policy.
This Policy is intended by TIM to constitute "written policies and procedures"
as described in Rule 206(4)-6 under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). This Policy is intended by the Trust to
constitute proxy voting policies and procedures referred to in Item 13 of Form
N-1A adopted under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
Please see the Glossary of Terms for definitions of terms used in this Policy.
VOTING OBJECTIVES
This Policy defines procedures for voting securities in each Account managed by
TIM, for the benefit of and in the best interest of the Investment Client. The
objective of voting a security in each case under this Policy is to seek to
enhance the value of the security, or to reduce potential for a decline in the
security's value. This Policy does not prescribe voting requirements or
specific voting considerations. Instead, this Policy provides procedures for
assembling voting information and applying the informed expertise and judgment
of TIM's personnel on a timely basis in pursuit of the above stated voting
objectives.
A further element of this Policy is that while voting on all issues presented
should be considered, voting on all issues is not required by this Policy
unless specifically directed or required by an Investment Client. Some issues
presented for a vote of security holders may not be relevant to this Policy's
voting objectives, or it may not be reasonably possible to ascertain what
effect, if any, a vote on a given issue may have on the value of an investment.
Accordingly, unless an Investment Client and TIM have agreed that TIM shall
vote a specific security or all securities in an Account, TIM may abstain from
voting or decline to vote in those cases where there appears to be no
relationship between the issue and the enhancement or preservation of an
investment's value, when TIM believes the costs of voting exceed the likely
benefit to the Investment Client, or when TIM believes other factors indicate
that the objectives of the Policy are less likely to be realized by voting a
security.
It is also important to the pursuit of the Policy's voting objectives that TIM
be able to substitute its judgment in any specific situation for a presumption
in this Policy where strict adherence to the presumption could reasonably be
expected by TIM, based upon the information then
available (including but not limited to media and expert commentary and outside
professional advice and recommendations sought by TIM on the issue), to be
inconsistent with the objectives of this Policy. Accordingly, TIM understands
that it may substitute its judgment in a specific voting situation described in
the preceding sentence, except where explicitly prohibited by agreement with
the Investment Client or this Policy.
TIM is not responsible for voting proxies relating to proxy materials that are
not forwarded on a timely basis, nor does TIM control the setting of record
dates, shareholder meeting dates, or the timing of distribution of proxy
materials and ballots relating to shareholder votes. In addition,
administrative matters beyond TIM's control may at times prevent TIM from
voting proxies in certain non-US markets (see "Voting Restrictions in Certain
Non-US Markets," below).
ERISA ACCOUNTS
Portfolio managers should recognize, in considering proxy votes for ERISA
Accounts:
(a) Plan trustees are ordinarily responsible for voting securities held by a
plan, unless the plan documents direct TIM or another person to vote the
proxies;
(b) If TIM is delegated authority to vote proxies, voting may be subject to
specific written guidelines issued by the plan's trustees or other officials;
and
(c) TIM may not delegate authority to vote proxies, unless the plan documents
or other written agreement expressly permit delegation.
PROXY VOTING COORDINATOR
The President shall appoint a Proxy Voting Coordinator. The Proxy Voting
Coordinator shall discharge the following functions in effectuating this
Policy:
(a) Collecting and assembling proxy statements and other communications
pertaining to proxy voting, together with proxies or other means of voting or
giving voting instructions, and providing those materials to the appropriate
portfolio managers to permit timely voting of proxies;
(b) Collecting recommendations, analysis, commentary and other information
respecting subjects of proxy votes, from service providers engaged by TIM and
other services specified by portfolio managers, and providing this information
to the President or the appropriate portfolio managers to permit evaluation of
proxy voting issues;
(c) Providing to appropriate portfolio managers any specific voting
instructions from Investment Clients;
(d) Collecting proxy votes or instructions from portfolio managers, and
transmitting the votes or instructions to the appropriate custodians, brokers,
nominees or other persons (which may include proxy voting services or agents
engaged by TIM);
(e) Accumulating Voting Results as set forth in this Policy (which may be
performed by proxy voting services or agents engaged by TIM) and transmitting
or arranging for the transmission of that information in accordance with
"Communicating Votes," below; and
(f) Recordkeeping in accordance with "Recordkeeping", below.
The Proxy Voting Coordinator may, with the President's approval, delegate any
portion or all of any one or more of these functions to one or more other
individuals employed by TIM. Any portion or all of any one or more of these
functions may be performed by service providers engaged by TIM.
ASSEMBLING VOTING INFORMATION
The Proxy Voting Coordinator shall obtain proxy statements and other
communications pertaining to proxy voting, together with proxies or other means
of voting or giving voting instructions to custodians, brokers, nominees,
tabulators or others in a manner to permit voting on relevant issues in a
timely manner. TIM may engage service providers and other third parties to
assemble this information, digest or abstract the information where necessary
or desirable, and deliver it to the portfolio managers or others to evaluate
proxy voting issues.
PORTFOLIO MANAGERS
The portfolio manager responsible for management of a specific Account is
responsible for timely voting (or determining not to vote in appropriate cases)
proxies relating to securities in the Account in accordance with this Policy.
The President may exercise this authority in any instance. The portfolio
manager or President may delegate voting responsibilities to one or more other
portfolio managers or other individuals. Persons exercising voting authority
under this paragraph are authorized to consider voting recommendations and
other information and analysis from service providers (including proxy voting
services) engaged by TIM.
ACCUMULATING VOTING RESULTS
The Proxy Voting Coordinator is responsible for accumulating the following
information as to each matter relating to a portfolio security held by any
Account, considered at any shareholder meeting, and with respect to which the
Account was entitled to vote:
(a) The name of the issuer of the portfolio security;
(b) The exchange ticker symbol of the portfolio security;
(c) The CUSIP number for the portfolio security;
(d) The shareholder meeting date;
(e) A brief identification of the matter voted on;
(g) Whether a vote was cast on the matter;
(h) How we cast the vote (e.g., "for," "against," "abstain," or "withhold
regarding election of directors"); and
(i) Whether we cast the vote for or against management.
TIM may use service providers to record and cumulate the foregoing information.
The Proxy Voting Coordinator may, with the President's approval, delegate any
portion or all of these functions to one or more other individuals employed by
TIM.
RESOLUTION OF CONFLICTS OF INTEREST
In any case where a portfolio manager determines that a proxy vote involves an
actual Conflict of Interest, and the proxy vote relates to the election of a
director in an uncontested election or ratification of selection of independent
accountants, the portfolio manager shall vote the proxy in accordance with the
recommendation of any proxy voting service engaged by TIM. If no such
recommendation is available, or if the proxy vote involves any other matters,
the portfolio manager shall immediately refer the vote to the Investment Client
(or in the case of any Investment Company as to which TIM is the adviser or
subadviser and is authorized to vote proxies, to the chairman of its audit
committee) for direction on the voting of the proxy or consent to vote in
accordance with the portfolio manager's recommendation. In all cases where such
a vote is referred to the Investment Client, TIM shall disclose the Conflict of
Interest to the Investment Client.
COMMUNICATING VOTES
The Proxy Voting Coordinator shall (i) communicate to TIM's fund accounting
department proxy voting information respecting votes on portfolio securities
held by Investment Clients which are Investment Companies, sufficient to permit
fund accounting to prepare Form N-PX filings for the Investment Companies; and
(ii) provide in writing to any Investment Client requesting information on
voting of proxies with respect to portfolio securities, the information
described under the caption "Accumulating Voting Results," for the period or
periods specified by the Investment Client. If the information requested by the
Investment Client pertains to a period which is not readily available, or is
not described above under the caption "Accumulating Voting Results," the Proxy
Voting Coordinator will confer with the Chief Compliance Officer. The Proxy
Voting Coordinator may, with the President's approval, delegate any portion or
all of this function to one or more individuals employed by TIM. TIM may engage
one or more service providers to facilitate timely communication of proxy
votes.
RECORD OF VOTING DELEGATION
The Proxy Voting Coordinator shall maintain a list of all Accounts, with a
specification as to each Account whether or not TIM is authorized to vote
proxies respecting the Account's portfolio securities.
COMMENT ON VOTING
It is the Policy of TIM not to comment on specific proxy votes with respect to
securities in an Account in response to inquiries from persons who are not
specifically authorized representatives as to the Account. Attention is
directed in this regard to the Thornburg Investment Management Internal
Confidentiality and Privacy Protection Policy and the Thornburg Investment
Trust Policy and Procedures for Disclosure of Portfolio Securities Holdings, as
in effect from time to time. Customer service representatives and other persons
who may receive such inquiries should advise persons presenting the inquiries
that TIM does not comment on proxy voting, and that as to Investment Companies
for which TIM is required to disclose proxy votes, the information is available
on the Investment Company's website and filed with the SEC. The President may
authorize comments in specific cases, in his discretion.
JOINING INSURGENT OR VOTING COMMITTEES
It is the policy of TIM, for itself and the Accounts, not to join any insurgent
or voting committee or similar group. The President may approve participation
in any such committee or group in his discretion, and shall advise the
authorized representatives for the Account of any such action.
SOCIAL ISSUES
It is the presumption of this Policy that proxies shall not be voted on Social
Issues except that TIM may substitute its judgment in any specific situation
involving a Social Issue as provided in the third paragraph under the caption
"Voting Objectives."
VOTING RESTRICTIONS IN CERTAIN NON-US MARKETS
Proxy voting in certain countries requires "share blocking." During a "share
blocking" period, shares that will be voted at a meeting may not be sold until
the meeting has taken place and the shares are returned to the Investment
Client's custodian bank. TIM may choose not to vote an Investment Client's
shares in a "share blocking" market if TIM believes that the benefit to the
Investment Client of being able to sell the shares during this "share blocking"
period outweighs the benefit of exercising the vote. TIM will exercise its
judgment subject to any specific voting instructions agreed to between TIM and
the Investment Client.
Certain non-US markets require that TIM provide a power of attorney to give
local agents authority to carry out TIM's voting instructions. While TIM will
make efforts to comply with relevant local market rules, TIM frequently does
not provide a power of attorney for the following reasons that include but are
not limited to: (i) TIM may not have the required Investment Client information
that the local market requires, (ii) TIM may deem the expense too great, or
(iii) TIM may determine not to provide a power of attorney based upon advice of
legal counsel. Failure to provide an effective power of attorney in a
particular non-US market may prevent TIM from being able to vote an Investment
Client's shares in that market.
ANNUAL REVIEW OF POLICY FUNCTION.
Pursuant to the review requirements of Rule 206(4)-7 under the Advisers Act and
Rule 38a-1 under the Investment Company Act, the Chief Compliance Officer, or a
Designated Compliance Officer, shall conduct a periodic review, no less often
than annually, which shall comprise the following elements:
(a) Review a sample of the record of voting delegation maintained by the Proxy
Voting Coordinator against Voting Results to determine if TIM is exercising its
authority to vote proxies on portfolio securities held in the selected
Accounts;
(b) Request and review voting data to determine if timely communication of
proxy votes is reasonably accomplished during the period reviewed;
(c) Meet with the Proxy Voting Coordinator to review the voting of proxies,
communication of proxy votes, accumulation of Voting Results and the general
functioning of this Policy;
(d) Evaluate the performance of any proxy voting services or agents employed by
TIM, including whether or not the service or agent maintains its independence
with respect to companies the securities of which are the subject of voting
recommendations, information or analysis from the service or agent; and
(e) Prepare written reports respecting the foregoing items to the President,
the Trustees of the Trust, and any Investment Company Clients for which such a
report is required.
RECORDKEEPING
The Proxy Voting Coordinator shall maintain the following records:
(a) Copies of this Policy as from time to time revised or supplemented;
(b) A copy of each proxy statement that TIM receives regarding Investment
Client securities. In
maintaining a record of proxy statements referred to in this item, the Proxy
Voting Coordinator may rely on obtaining copies from the Securities and
Exchange Commission's EDGAR system or similar accessible database;
(c) Voting Results for each Investment Client;
(d) A copy of any document created by TIM that was material to making a
decision how to vote
proxies on behalf of an Investment Client or that memorializes the basis for
that decision;
(e) A copy of each written Investment Client request for information on how TIM
voted proxies on behalf of the Investment Client, and a copy of any written
response by TIM to any (written or oral) Investment Client request for
information on how TIM voted proxies on behalf of the requesting Investment
Client; and
(f) Communications to Investment Clients respecting Conflicts of Interest.
The Chief Compliance Officer, or a Designated Compliance Officer, shall
maintain the following records:
(a) All written reports arising from annual reviews of policy function; and
(b) Chronological record of proxy voting records reviewed by quarter.
All records shall be maintained and preserved pursuant to the separately
adopted Document Retention and Destruction Policy for the time period indicated
in the current Books and Records Matrix. The President may authorize the Proxy
Voting Coordinator to engage one or more service providers to perform any
portion of this recordkeeping function provided (1) the function is performed
in compliance with then applicable governmental regulations, and (2) each
service provider provides a written undertaking to furnish the records to TIM
promptly upon request.
GLOSSARY OF TERMS
"ACCOUNT" means any discrete account or portfolio as to which TIM has
discretionary investment authority. An Investment Client may have multiple
Accounts. Each series of any Investment Company as to which TIM is the adviser
or subadviser is an Account.
"CHIEF COMPLIANCE OFFICER" means the Chief Compliance Officer of TIM.
"CONFLICT OF INTEREST" means as to any Account, any conflict between a
pecuniary interest of TIM or any affiliate, and the duties of TIM to the
Investment Client who is the owner of the Account.
"ERISA" means the Employee Retirement Income Security Act of 1975, as amended.
Reference to an "ERISA Account" means an account for an employee benefit plan
governed by ERISA.
"INVESTMENT CLIENT" means any person with whom TIM has a contract to perform
discretionary investment management services, including a series of an
Investment Company, and for whom TIM is authorized by the contract or required
by applicable law to vote or consider voting securities in the Investment
Client's Account.
"INVESTMENT COMPANY" means a company registered as such under the Investment
Company Act.
"PRESIDENT" means the president of TIM, or in the event of his unavailability
any individual who is a vice president and managing director of TIM.
"PROXY VOTING COORDINATOR" means the individual appointed from time to time by
the President to perform the proxy voting coordination functions described in
this Policy.
"SOCIAL ISSUES" means any issue presented for a vote of holders of any security
which is held in an Account, which may reasonably be interpreted as (i)
unrelated in any substantial respect to the voting objectives of this Policy,
and (ii) intended to promote directly or indirectly the interests of persons
who are not holders of the security.
"TIM" means Thornburg Investment Management, Inc.
"VOTING RESULTS" means the specific information described under the caption
"Accumulating Voting Results."
PART C: OTHER INFORMATION
ITEM 28. EXHIBITS:
(a)(1) The Advisors' Inner Circle Fund II's (the "Registrant") Amended and
Restated Agreement and Declaration of Trust, dated July 24, 1992, as amended
and restated February 18, 2004 and August 10, 2004, is incorporated herein by
reference to Exhibit (a)(3) of Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the U.S. Securities Exchange Commission (the "SEC") via EDGAR Accession
No. 0001135428-04- 000490 on September 17, 2004.
(a)(2) Amendment No. 1, dated May 15, 2012, to the Registrant's Amended and
Restated Agreement and Declaration of Trust, dated July 24, 1992, as amended
and restated February 18, 2004 and August 10, 2004, is incorporated herein by
reference to Exhibit (a)(2) of Post-Effective Amendment No. 129 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-12-000274 on May 30, 2012.
(b) Registrant's Second Amended and Restated By-Laws are incorporated herein by
reference to Exhibit (b) of Post-Effective Amendment No. 125 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-12-000088 on February 28,
2012.
(c) Not Applicable.
(d)(1) Amended and Restated Investment Advisory Agreement, dated May 31, 2000,
as amended and restated as of May 21, 2001, between the Registrant and Horizon
Advisers, relating to the Hancock Horizon Family of Funds, is incorporated
herein by reference to Exhibit (d)(16) of Post- Effective Amendment No. 31 to
the Registrant's Registration Statement on Form N-1A (File No. 033-50718),
filed with the SEC via EDGAR Accession No. 0001135428-01-500044 on May 31,
2001.
(d)(2) Schedule A, as revised November 19, 2013, to the Amended and Restated
Investment Advisory Agreement between the Registrant and Horizon Advisers,
relating to the Hancock Horizon Family of Funds, is incorporated herein by
reference to Exhibit (d)(2) of Post- Effective Amendment No. 166 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000695 on December 20,
2013.
(d)(3) Expense Limitation Agreement, as last amended October 2012, between the
Registrant and Horizon Advisers, is incorporated herein by reference to Exhibit
(d)(3) of Post-Effective Amendment No. 141 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-12-000544 on November 28, 2012.
(d)(4) Schedule A, as revised November 19, 2013, to the Expense Limitation
Agreement between the Registrant and Horizon Advisers is incorporated herein by
reference to Exhibit (d)(4) of Post- Effective Amendment No. 166 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000695 on December 20,
2013.
(d)(5) Sub-Advisory Agreement, dated August 15, 2008, between Horizon Advisers
and Earnest Partners, LLC, relating to the Hancock Horizon Diversified
International Fund, is incorporated herein by reference to Exhibit (d)(5) of
Post-Effective Amendment No. 83 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-09-000036 on February 5, 2009.
1
(d)(6) Investment Advisory Agreement, dated October 24, 2008, between the
Registrant and Champlain Investment Partners, LLC, relating to the Champlain
Small Company Fund, Champlain Mid Cap Fund and Champlain All Cap Fund, is
incorporated herein by reference to Exhibit (d)(7) of Post-Effective Amendment
No. 95 to the Registrant's Registration Statement on Form N-1A (File No. 033-
50718), filed with the SEC via EDGAR Accession No. 0001135428-10-000419 on
September 30, 2010.
(d)(7) Schedule A, as revised November 19, 2013, to the Investment Advisory
Agreement, dated October 24, 2008, between the Registrant and Champlain
Investment Partners, LLC, relating to the Champlain Small Company Fund,
Champlain Mid Cap Fund and Champlain All Cap Fund, is incorporated herein by
reference to Exhibit (d)(7) of Post-Effective Amendment No. 165 to the
Registrant's Registration Statement on Form N-1A (File No. 033- 50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000694 on December 20,
2013.
(d)(8) Expense Limitation Agreement, effective as of November 29, 2010, between
the Registrant and Champlain Investment Partners, LLC, relating to the
Champlain Small Company Fund, Champlain Mid Cap Fund and Champlain All Cap
Fund, is incorporated herein by reference to Exhibit (d)(6) of Post-Effective
Amendment No. 132 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000324
on July 13, 2012.
(d)(9) Schedule A, as revised November 19, 2013, to the Expense Limitation
Agreement, dated November 29, 2010, between the Registrant and Champlain
Investment Partners, LLC, relating to the Champlain Small Company Fund,
Champlain Mid Cap Fund and Champlain All Cap Fund, is incorporated herein by
reference to Exhibit (d)(9) of Post-Effective Amendment No. 165 to the
Registrant's Registration Statement on Form N-1A (File No. 033- 50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000694 on December 20,
2013.
(d)(10) Investment Advisory Agreement, dated December 21, 2004, between the
Registrant and W. H. Reaves & Co. Inc., relating to the Reaves Select Research
Fund, is incorporated herein by reference to Exhibit (d)(6) of Post-Effective
Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-05-000155
on March 31, 2005.
(d)(11) Investment Advisory Agreement, dated May 5, 2008, between the
Registrant and Frost Investment Advisors, LLC, relating to the Frost Family of
Funds, is incorporated herein by reference to Exhibit (d)(16) of Post-Effective
Amendment No. 76 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-08-000222
on May 30, 2008.
(d)(12) Schedule A, as revised February 11, 2014, to the Investment Advisory
Agreement, dated May 5, 2008, between the Registrant and Frost Investment
Advisors, LLC, is filed herewith.
(d)(13) Expense Waiver Reimbursement Agreement, dated May 5, 2008, between the
Registrant and Frost Investment Advisors, LLC, relating to the Frost Family of
Funds, is incorporated herein by reference to Exhibit (d)(16) of Post-Effective
Amendment No. 132 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000324
on July 13, 2012.
(d)(14) Amended Schedules A and B, dated November 20, 2013, to the Expense
Waiver Reimbursement Agreement, dated May 5, 2008, between the Registrant and
Frost Investment Advisors, LLC, relating to the Frost Family of Funds, is filed
herewith.
2
(d)(15) Expense Limitation Agreement, dated November 20, 2013, between the
Registrant and Frost Investment Advisors, LLC, is incorporated herein by
reference to Exhibit (d)(14) of Post-Effective Amendment No. 161 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000640 on November 27, 2013.
(d)(16) Amended Schedule A, dated February 11, 2014, to the Expense Limitation
Agreement, dated November 20, 2013, between the Registrant and Frost Investment
Advisors, LLC, is filed herewith.
(d)(17) Investment Sub-Advisory Agreement, dated April 28, 2008, between Frost
Investment Advisors, LLC and Kempner Capital Management, Inc., relating to the
Frost Kempner Multi-Cap Deep Value Equity Fund and Frost Kempner Treasury and
Income Fund, is incorporated herein by reference to Exhibit (d)(18) of
Post-Effective Amendment No. 76 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-08-000222 on May 30, 2008.
(d)(18) Investment Sub-Advisory Agreement, dated April 28, 2008, between Frost
Investment Advisors, LLC and Thornburg Investment Management, Inc., relating to
the Frost International Equity Fund, is incorporated herein by reference to
Exhibit (d)(19) of Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-08-000222 on May 30, 2008.
(d)(19) Investment Sub-Advisory Agreement, dated April 28, 2008, between Frost
Investment Advisors, LLC and Luther King Capital Management Corporation,
relating to the Frost Mid Cap Fund, is incorporated herein by reference to
Exhibit (d)(20) of Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-08-000222 on May 30, 2008.
(d)(20) Investment Sub-Advisory Agreement, dated November 14, 2012, between
Frost Investment Advisors, LLC and Cinque Partners LLC, is incorporated herein
by reference to Exhibit (d)(25) of Post-Effective Amendment No. 142 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-12-000562 on December 3, 2012.
(d)(21) Investment Advisory Agreement, dated April 30, 2008, between the
Registrant and GRT Capital Partners, LLC, relating to the GRT Funds, is
incorporated herein by reference to Exhibit (d)(22) of Post-Effective Amendment
No. 76 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-08-000222 on
May 30, 2008.
(d)(22) Schedule A, as amended and restated November 17, 2010, to the
Investment Advisory Agreement, dated April 30, 2008, between the Registrant and
GRT Capital Partners, LLC, relating to the GRT Funds, is incorporated herein by
reference to Exhibit (d)(21) of Post-Effective Amendment No. 100 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-10-000585 on December 6, 2010.
(d)(23) Expense Waiver Reimbursement Agreement, dated April 30, 2008, between
the Registrant and GRT Capital Partners, LLC, relating to the GRT Value Fund,
is incorporated herein by reference to Exhibit (d)(19) of Post-Effective
Amendment No. 132 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000324
on July 13, 2012.
3
(d)(24) Investment Advisory Agreement, dated January 27, 2009, between the
Registrant and Lowry Hill Investment Advisors, Inc. (now known as Abbot Downing
Investment Advisors), relating to the Clear River Fund, is incorporated herein
by reference to Exhibit (d)(27) of Post-Effective Amendment No. 86 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-09-000212 on May 29, 2009.
(d)(25) Expense Limitation Agreement, effective as of November 29, 2010,
between the Registrant and Lowry Hill, relating to the Clear River Fund, is
incorporated herein by reference to Exhibit (d)(21) of Post-Effective Amendment
No. 132 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000324 on
July 13, 2012.
(d)(26) Investment Advisory Agreement, dated July 13, 2011, between the
Registrant and Westfield Capital Management Company, L.P., relating to the
Westfield Family of Funds, is incorporated herein by reference to Exhibit
(d)(25) of Post-Effective Amendment No. 114 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-11-000362 on July 13, 2011.
(d)(27) Schedule A, as revised May 14, 2013, to the Investment Advisory
Agreement, dated July 13, 2011, between the Registrant and Westfield Capital
Management Company, L.P., relating to the Westfield Family of Funds, is
incorporated herein by reference to Exhibit (d)(24) of Post-Effective Amendment
No. 152 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000383 on
July 24, 2013.
(d)(28) Expense Limitation Agreement, as amended and restated May 14, 2013,
between the Registrant and Westfield Capital Management Company, L.P., relating
to the Westfield Capital Large Cap Growth Fund and Westfield Capital Dividend
Growth Fund, is incorporated herein by reference to Exhibit (d)(25) of
Post-Effective Amendment No. 152 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000383 on July 24, 2013.
(d)(29) Investment Advisory Agreement, dated November 14, 2012, between the
Registrant and LM Capital Group, LLC, relating to the LM Capital Opportunistic
Bond Fund, is incorporated herein by reference to Exhibit (d)(26) of
Post-Effective Amendment No. 145 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000047 on January 14, 2013.
(d)(30) Expense Limitation Agreement, effective as of November 14, 2012,
between the Registrant and LM Capital Group, LLC, relating to the LM Capital
Opportunistic Bond Fund, is incorporated herein by reference to Exhibit (d)(27)
of Post-Effective Amendment No. 145 to the Registrant's Registration Statement
on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000047 on January 14, 2013.
(d)(31) Investment Advisory Agreement, dated October 21, 2013 between the
Registrant and Kopernik Global Investors, LLC, relating to the Kopernik Global
All-Cap Fund, is incorporated herein by reference to Exhibit (d)(30) of
Post-Effective Amendment No. 159 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000608 on October 23, 2013.
(d)(32) Expense Limitation Agreement, dated October 21, 2013, between the
Registrant and Kopernik Global Investors, LLC, relating to the Kopernik Global
All-Cap Fund, is incorporated herein by reference to Exhibit (d)(34) of
Post-Effective Amendment No. 159 to the Registrant's Registration Statement on
4
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000608 on October 23, 2013.
(d)(33) Investment Advisory Agreement, dated November 20, 2013, between the
Registrant and R Squared Capital Management L.P., relating to the RSQ
International Equity Fund, is incorporated herein by reference to Exhibit
(d)(35) of Post-Effective Amendment No. 162 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-13-000642 on November 27, 2013.
(d)(34) Expense Limitation Agreement, dated November 20, 2013, between the
Registrant and R Squared Capital Management L.P. relating to the RSQ
International Equity Fund, is incorporated herein by reference to Exhibit
(d)(36) of Post-Effective Amendment No. 162 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-13-000642 on November 27, 2013.
(d)(35) Investment Advisory Agreement, dated April 1, 2014, between the
Registrant and Cardinal Capital Management, L.L.C., relating to the Cardinal
Small Cap Value Fund, is incorporated herein by reference to Exhibit (d)(35) of
Post-Effective Amendment No. 174 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-14-000229 on March 31, 2014.
(d)(36) Expense Limitation Agreement, dated April 1, 2014, between the
Registrant and Cardinal Capital Management, L.L.C., relating to the Cardinal
Small Cap Value Fund, is incorporated herein by reference to Exhibit (d)(36) of
Post-Effective Amendment No. 174 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-14-000229 on March 31, 2014.
(e)(1) Distribution Agreement, dated January 28, 1993, as amended and restated
as of November 14, 2005, between the Registrant and SEI Investments
Distribution Co. is incorporated herein by reference to Exhibit (e)(1) of
Post-Effective Amendment No. 48 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-06-000209 on May 31, 2006.
(e)(2) Amendment No. 1, effective as of August 30, 2010, to the Distribution
Agreement, dated January 28, 1993, as amended and restated as of November 14,
2005, is incorporated herein by reference to Exhibit (e)(2) of Post-Effective
Amendment No. 125 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000088
on February 28, 2012.
(e)(3) Revised Form of Sub-Distribution and Servicing Agreement for SEI
Investments Distribution Co. is incorporated herein by reference to Exhibit
(e)(2) of Post-Effective Amendment No. 76 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-08-000222 on May 30, 2008.
(f) Not Applicable.
(g)(1) Custody Agreement, dated May 31, 2000, between the Registrant and
Hancock Bank and Trust, relating to the Hancock Horizon Family of Funds, is
incorporated herein by reference to Exhibit (g) of Post-Effective Amendment No.
35 to the Registrant's Registration Statement on Form N- 1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-04-000232 on
May 28, 2004.
(g)(2) Revised Appendix B to the Custody Agreement dated May 31, 2000 between
the Registrant and Hancock Bank and Trust, relating to the Hancock Horizon
Family of Funds, is to be filed by amendment.
5
(g)(3) Custody Agreement, dated February 14, 2013, between the Registrant and
U.S. Bank, N.A., relating to the Champlain Family of Funds, Reaves Select
Research Fund and GRT Family of Funds, to be filed by amendment.
(g)(4) Custodian Agreement, dated November 19, 2007, between the Registrant and
Union Bank of California, relating to the Frost Family of Funds, is
incorporated herein by reference to Exhibit (g)(5) of Post-Effective Amendment
No. 66 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-07-000581 on
December 28, 2007.
(g)(5) Appendices A, B and C, as last amended February 18, 2009, to the
Custodian Agreement, dated November 19, 2007, between the Registrant and Union
Bank of California, is to be filed by amendment.
(g)(6) Custodian Agreement between the Registrant and Wells Fargo Bank, N.A.,
relating to the Clear River Fund, is to be filed by amendment.
(g)(7) Custodian Agreement between the Registrant and Citi Global Transaction
Services is to be filed by amendment.
(h)(1) Administration Agreement, dated January 28, 1993, as amended and
restated as of November 12, 2002, between the Registrant and SEI Investments
Global Funds Services is incorporated herein by reference to Exhibit (h)(2) of
Post-Effective Amendment No. 34 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-03-000338 on May 30, 2003.
(h)(2) Shareholder Services Plan, dated May 31, 2000, relating to the Hancock
Horizon Family of Funds, is incorporated herein by reference to Exhibit (h)(15)
of Post-Effective Amendment No. 28 to the Registrant's Registration Statement
on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0000912057-00-026908 on May 31, 2000.
(h)(3) Schedule A, as amended November 19, 2013, to the Shareholder Services
Plan, dated May 31, 2000, relating to the Hancock Horizon Family of Funds, is
incorporated herein by reference to Exhibit (h)(3) of Post- Effective Amendment
No. 166 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000695 on
December 20, 2013.
(h)(4) Shareholder Services Plan, dated August 9, 2005 is incorporated herein
by reference to Exhibit (h)(12) of Post-Effective Amendment No. 45 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-05-000569 on September 29,
2005.
(h)(5) Schedule A, as last amended May 14, 2013, to the Shareholder Services
Plan, dated August 9, 2005, is incorporated herein by reference to Exhibit
(h)(5) of Post-Effective Amendment No. 150 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-13-000305 on May 31, 2013.
(h)(6) Transfer Agency and Service Agreement, dated May 31, 2000, between the
Registrant and Hancock Bank and Trust is incorporated herein by reference to
Exhibit (e)(2) of Post-Effective Amendment No. 35 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-04-000232 on May 28, 2004.
6
(h)(7) AML Amendment to the Transfer Agency and Service Agreement, dated May
31, 2000, between the Registrant and Hancock Bank and Trust is incorporated
herein by reference to Exhibit (e)(3) of Post-Effective Amendment No. 35 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-04-000232 on May 28, 2004.
(h)(8) Amendment, dated September 1, 2003, to the Transfer Agency and Service
Agreement, dated May 31, 2000, between the Registrant and Hancock Bank and
Trust is incorporated herein by reference to Exhibit (e)(4) of Post-Effective
Amendment No. 35 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-04-000232
on May 28, 2004.
(h)(9) Amendment, dated September 1, 2010, to the Transfer Agency and Service
Agreement, dated May 31, 2000, between the Registrant and Hancock Bank and
Trust is incorporated herein by reference to Exhibit (h)(9) of Post-Effective
Amendment No. 99 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-10-000563
on November 29, 2010.
(h)(10) Transfer Agency Agreement, dated April 1, 2006, between the Registrant
and DST Systems, Inc., is to be filed by amendment.
(h)(11) Transfer Agency and Service Agreement, dated May 31, 2007, between the
Registrant and UMB Fund Services, Inc. is incorporated herein by reference to
Exhibit (h)(19) of Post-Effective Amendment No. 66 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-07-000581 on December 28, 2007.
(h)(12) Revised Schedules A and C to the Transfer Agency and Service Agreement
dated May 31, 2007 between the Registrant and UMB Fund Services, Inc., is to be
filed by amendment.
(h)(13) Transfer Agency Agreement between the Registrant and Citi Global
Transaction Services is to be filed by amendment.
(h)(14) Transfer Agency Agreement between the Registrant and Boston Financial
Data Services, LLC, is to be filed by amendment.
(h)(15) Transfer Agency Agreement between the Registrant and Atlantic Fund
Services, dated November 14, 2012, is incorporated herein by reference to
Exhibit (h)(15) of Post-Effective Amendment No. 161 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-13-000640 on November 27, 2013.
(h)(16) Shareholder Services Plan, relating to Retirement Class Shares of the
LM Capital Opportunistic Bond Fund, is incorporated herein by reference to
Exhibit (h)(16) of Post-Effective Amendment No. 145 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-13-000047 on January 14, 2013.
(i) Opinion and Consent of Counsel, Morgan, Lewis and Bockius, LLP, is filed
herewith.
(j) Consent of independent registered public accounting firm, Ernst & Young,
LLP, is filed herewith.
(k) Not Applicable.
7
(l) Not Applicable.
(m)(1) Distribution Plan (compensation type), dated May 31, 2000, as amended
November 16, 2004, is incorporated herein by reference to Exhibit (m)(1) of
Post-Effective Amendment No. 110 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-11-000294 on May 27, 2011.
(m)(2) Schedule A, as revised November 19, 2013, to the Distribution Plan,
dated May 31, 2000, as amended November 16, 2004, relating to the Hancock
Horizon Family of Funds, is incorporated herein by reference to Exhibit (m)(2)
of Post- Effective Amendment No. 166 to the Registrant's Registration Statement
on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000695 on December 20, 2013.
(m)(3) Distribution Plan (reimbursement type), as approved by the Board of
Trustees on February 23, 2005, is incorporated herein by reference to Exhibit
(m)(2) of Post-Effective Amendment No. 40 to the Registrant's Registration
Statement on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR
Accession No. 0001135428-05-000155 on March 31, 2005.
(m)(4) Revised Schedule A, as amended November 19, 2013, to the Distribution
Plan dated February 23, 2005, relating to the Champlain Small Company Fund,
Champlain Mid Cap Fund and Champlain All Cap Fund, is incorporated herein by
reference to Exhibit (m)(4) of Post-Effective Amendment No. 165 to the
Registrant's Registration Statement on Form N-1A (File No. 033- 50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000694 on December 20,
2013.
(m)(5) Revised Schedule F, dated March 10, 2008, as last amended February 11,
2014, to the Distribution Plan, dated May 31, 2000, as amended November 16,
2004, relating to the Frost Funds, is filed herewith.
(m)(6) Schedule H, dated October 4, 2013, to the Distribution Plan, dated May
31, 2000, relating to the Kopernik Global All-Cap Fund, is incorporated herein
by reference to Exhibit (m)(6) of Post-Effective Amendment No. 159 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000608 on October 23, 2013.
(m)(7) Schedule I, dated November 20, 2013, to the Distribution Plan, dated May
31, 2000, as amended November 16, 2004, relating to the RSQ International
Equity Fund, is incorporated herein by reference to Exhibit (m)(7) of
Post-Effective Amendment No. 162 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000642 on November 27, 2013.
(n) Amended and Restated Rule 18f-3 Multiple Class Plan, dated February 2007,
including Amended and Restated Schedules and Certificates of Class Designation
thereto, is incorporated herein by reference to Exhibit (n) of Post-Effective
Amendment No. 171 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-14-000098
on February 28, 2014.
(o) Not Applicable.
(p)(1) Registrant's Code of Ethics is incorporated herein by reference to
Exhibit (p)(1) of Post-Effective Amendment No. 65 to the Registrant's
Registration Statement on Form N-1A (File No. 033- 50718), filed with the SEC
via EDGAR Accession No. 0001116502-07-002196 on November 28, 2007.
8
(p)(2) SEI Investments Distribution Co. Code of Ethics, as revised September
20, 2013, is incorporated herein by reference to Exhibit (p)(2) of
Post-Effective Amendment No. 161 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000640 on November 27, 2013.
(p)(3) Hancock Bank and Trust Code of Ethics is incorporated herein by
reference to Exhibit (p)(3) of Post-Effective Amendment No. 58 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-07-000187 on May 31, 2007.
(p)(4) Earnest Partners, LLC Code of Ethics is incorporated herein by reference
to Exhibit (p)(4) of Post-Effective Amendment No. 82 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-08-000506 on November 26, 2008.
(p)(5) Champlain Investment Partners, LLC revised Code of Ethics is
incorporated herein by reference to Exhibit (p)(5) of Post-Effective Amendment
No. 150 to the Registrant's Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000305 on
May 31, 2013.
(p)(6) W. H. Reaves & Co., Inc. Code of Ethics, as revised July 18, 2011, is
incorporated herein by reference to Exhibit (p)(6) of Post-Effective Amendment
No. 141 to the Registrants Registration Statement on Form N-1A (File No.
033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000544 on
November 28, 2012.
(p)(7) Frost Investment Advisors, LLC Code of Ethics, as revised April 22,
2013, is incorporated herein by reference to Exhibit (p)(7) of Post-Effective
Amendment No. 150 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000305
on May 31, 2013.
(p)(8) Kempner Capital Management, Inc. Code of Ethics, as revised July 2012,
is incorporated herein by reference to Exhibit (p)(9) of Post-Effective
Amendment No. 141 to the Registrants Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000544
on November 28, 2012.
(p)(9) Thornburg Investment Management, Inc. Code of Ethics, as revised July
2013, is incorporated herein by reference to Exhibit (p)(10) of Post-Effective
Amendment No. 161 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000640
on November 27, 2013.
(p)(10) Luther King Capital Management Corporation Code of Ethics, as revised
October 1, 2012, is incorporated herein by reference to Exhibit (p)(11) of
Post-Effective Amendment No. 150 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000305 on May 31, 2013.
(p)(11) GRT Capital Partners, LLC Code of Ethics, as revised March 31, 2011, is
incorporated herein by reference to Exhibit (p)(12) of Post-Effective
Amendment No. 141 to the Registrants Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-12-000544
on November 28, 2012.
(p)(12) Abbot Downing Investment Advisors Code of Ethics is incorporated herein
by reference to Exhibit (p)(13) of Post-Effective Amendment No. 141 to the
Registrants Registration Statement on Form
9
N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-12-000544 on November 28, 2012.
(p)(13) Westfield Capital Management Company, L.P. Code of Ethics, as revised
March 13, 2013, is incorporated herein by reference to Exhibit (p)(15) of
Post-Effective Amendment No. 152 to the Registrant's Registration Statement on
Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000383 on July 24, 2013.
(p)(14) Cinque Partners LLC Code of Ethics is incorporated herein by reference
to Exhibit (p)(17) of Post-Effective Amendment No. 142 to the Registrant's
Registration Statement on Form N-1A (File No. 033-50718), filed with the SEC
via EDGAR Accession No. 0001135428-12-000562 on December 3, 2012.
(p)(15) LM Capital Group, LLC Code of Ethics is incorporated herein by
reference to Exhibit (p)(18) of Post-Effective Amendment No. 145 to the
Registrant's Registration Statement on Form N-1A (File No. 033-50718), filed
with the SEC via EDGAR Accession No. 0001135428-13-000047 on January 14, 2013.
(p)(16) Kopernik Global Investors, LLC Code of Ethics, dated September 11,
2013, is incorporated herein by reference to Exhibit (p)(19) of Post-Effective
Amendment No. 159 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000608
on October 23, 2013.
(p)(17) R Squared Capital Management L.P. Code of Ethics, dated October 18,
2013, is incorporated herein by reference to Exhibit (p)(20) of Post-Effective
Amendment No. 162 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000642
on November 27, 2013.
(p)(18) SEI Investments Global Funds Services Code of Ethics, dated June 2012,
is incorporated herein by reference to Exhibit (p)(21) of Post-Effective
Amendment No. 161 to the Registrant's Registration Statement on Form N-1A (File
No. 033-50718), filed with the SEC via EDGAR Accession No. 0001135428-13-000640
on November 27, 2013.
(p)(19) Cardinal Capital Management, L.L.C. Code of Ethics is incorporated
herein by reference to Exhibit (p)(21) of Post-Effective Amendment No. 169 to
the Registrant's Registration Statement on Form N-1A (File No. 033-50718),
filed with the SEC via EDGAR Accession No. 0001135428-14-000043 on January 15,
2014.
(q) Powers of Attorney, dated May 15, 2013, for Ms. Betty L. Krikorian and
Messrs. Robert A. Nesher, Michael Lawson, William M. Doran, John K. Darr,
George J. Sullivan, Jr., Michael Beattie, Mitchell A. Johnson, Bruce R. Speca
and Joseph T. Grause, Jr. are incorporated herein by reference to Exhibit (q)
of Post-Effective Amendment No. 150 to the Registrant's Registration Statement
on Form N-1A (File No. 033-50718), filed with the SEC via EDGAR Accession No.
0001135428-13-000305 on May 31, 2013.
10
ITEM 29. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
Not Applicable.
ITEM 30. INDEMNIFICATION:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit (a) to
the Registrant's Registration Statement is incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to trustees, directors,
officers and controlling persons of the Registrant by the Registrant pursuant
to the Agreement and Declaration of Trust or otherwise, the Registrant is aware
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the 1933 Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, directors,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such
trustees, directors, officers or controlling persons in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issues.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISERS:
The following lists any other business, profession, vocation or employment of a
substantial nature in which each investment adviser (including sub-advisers),
and each director, officer or partner of that investment adviser (or
sub-adviser), is or has been engaged within the last two fiscal years for his
or her own account or in the capacity of director, officer, employee, partner,
or trustee. Unless noted below, none of the investment advisers (or
sub-advisers) and/or directors, officers or partners of each investment adviser
(or sub-adviser) is or has been engaged within the last two fiscal years in any
other business, profession, vocation or employment of a substantial nature for
his or her own account or in the capacity of director, officer, employee,
partner or trustee.
ABBOT DOWNING INVESTMENT ADVISORS
Abbot Downing Investment Advisors ("Abbot Downing") serves as the investment
adviser for the Registrant's Clear River Fund. The principal address of Abbot
Downing is 90 South Seventh Street, Suite 5100, Minneapolis, Minnesota 55402.
Abbot Downing is a Separately Identifiable Department (SID) of Wells Fargo
Bank.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Abbot Downing engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
CARDINAL CAPITAL MANAGEMENT, L.L.C.
Cardinal Capital Management, L.L.C. ("Cardinal Capital") serves as the
investment adviser for the Registrant's Cardinal Small Cap Value Fund. The
principal address of Cardinal Capital is Four Greenwich Office Park, Greenwich,
CT 06831. Cardinal Capital is an investment adviser registered under the
Investment Advisers Act of 1940, as amended.
During the fiscal years ended October 31, 2012 and 2013, no director, officer or
partner of Cardinal Capital engaged in any other business, profession, vocation
or employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
11
CHAMPLAIN INVESTMENT PARTNERS, LLC
Champlain Investment Partners, LLC ("Champlain") serves as the investment
adviser for the Registrant's Champlain Small Company Fund, Champlain Mid Cap
Fund and Champlain All Cap Fund. The principal address of Champlain is 180
Battery Street, Burlington, Vermont 05401. Champlain is an investment adviser
registered under the Investment Advisers Act of 1940, as amended.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Champlain engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
CINQUE PARTNERS LLC
Cinque Partners LLC ("Cinque"), a Delaware corporation established in 2011,
serves as the investment sub-adviser to the Frost Cinque Large Cap Buy-Write
Equity Fund. The Sub-Adviser's principal place of business is located at 11836
San Vicente Boulevard, Los Angeles, CA 90049. Cinque is an investment adviser
registered under the Investment Advisers Act of 1940, as amended.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Cinque engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
12
EARNEST PARTNERS, LLC
Earnest Partners, LLC ("Earnest") serves as investment sub-adviser for the
Registrant's Hancock Horizon Diversified International Fund. The principal
business address for Earnest is 1180 Peachtree Street, Suite 2300, Atlanta,
Georgia 30309. Earnest is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. The information listed below is for the
fiscal years ended January 31, 2012 and 2013.
--------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------
Paul E. Viera Westchester Limited, LLC Managing Member
CEO and Manager 1180 Peachtree Street NE
Suite 2300
Atlanta, GA 30309
-------------------------------------------------------
GREYBULL Partners LLC Manager
1180 Peachtree Street NE
Suite 2350
Atlanta, GA 30309
--------------------------------------------------------------------------------
John G. Whitmore GREYBULL Partners LLC COO
COO 1180 Peachtree Street NE
Suite 2350
Atlanta, GA 30309
-------------------------------------------------------
Westchester Limited, LLC Secretary
1180 Peachtree Street NE
Suite 2300
Atlanta, GA 30309
--------------------------------------------------------------------------------
James M. Wilson GREYBULL Partners LLC CCO and Secretary
CCO and Secretary 1180 Peachtree Street NE
Suite 2350
Atlanta, GA 30309
--------------------------------------------------------------------------------
|
FROST INVESTMENT ADVISORS, LLC
Frost Investment Advisors, LLC ("Frost") serves as the investment adviser for
the Registrant's Frost Growth Equity Fund, Frost Value Equity Fund (formerly,
Frost Dividend Value Equity Fund), Frost Moderate Allocation Fund (formerly,
Frost Strategic Balanced Fund), Frost Kempner Multi-Cap Deep Value Equity Fund,
Frost Small Cap Equity Fund, Frost International Equity Fund, Frost Low
Duration Bond Fund, Frost Total Return Bond Fund, Frost Municipal Bond Fund,
Frost Kempner Treasury and Income Fund, Frost Mid Cap Equity Fund, Frost
Conservative Allocation Fund (formerly, Frost Diversified Strategies Fund),
Frost Natural Resources Fund, Frost Credit Fund and Frost Cinque Large Cap
Buy-Write Equity Fund. The principal business address for Frost is 100 West
Houston Street, 15(th) Floor, San Antonio, Texas 78205-1414. Frost is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Frost engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
13
GRT CAPITAL PARTNERS, LLC
GRT Capital Partners, LLC ("GRT") serves as investment adviser for the
Registrant's GRT Value Fund and GRT Absolute Return Fund. The principal
business address for GRT is One Liberty Square, Floor 11, Boston, Massachusetts
02109. GRT is an investment adviser registered under the Investment Advisers
Act of 1940, as amended. The information listed below is for the fiscal years
ended July 31, 2012 and 2013.
--------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------
Timothy A. Krochuk FBHC Holding Company Director
Managing Member 1095 Canyon Blvd.
Boulder, CO 80302
-------------------------------------------------------
CHP Clean Energy, L.L.C. Managing Member
One Liberty Square, Floor 11
Boston, MA 02109,
--------------------------------------------------------------------------------
|
HORIZON ADVISERS
Horizon Advisers serves as the investment adviser for the Registrant's Hancock
Horizon Family of Funds (Core Bond Fund, Value Fund, Growth Fund, Burkenroad
Small Cap Fund, Government Money Market Fund, Diversified International Fund,
Quantitative Long/Short Fund, Louisiana Tax-Free Income Fund, Mississippi
Tax-Free Income Fund, Diversified Income Fund and U.S. Small Cap Fund). The
principal address of Horizon Advisers is One Hancock Plaza, Post Office Box
4019, Gulfport, Mississippi 39502-4019. Horizon Advisers is an investment
adviser registered under the Investment Advisers Act of 1940, as amended. The
information listed below is for the fiscal years ended January 31, 2012 and
2013.
--------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------
William Eden Hancock Investment Services, Inc. Compliance Director
Chief Compliance 2600 Citiplace Drive,
Officer Suite 100
Baton Rouge, LA 70808
--------------------------------------------------------------------------------
|
KEMPNER CAPITAL MANAGEMENT, INC.
Kempner Capital Management, Inc. ("Kempner") serves as the investment
sub-adviser for the Registrant's Frost Kempner Multi-Cap Deep Value Equity Fund
and Frost Kempner Treasury and Income Fund. The principal address of Kempner is
2201 Market Street, 12th Floor, Frost Bank Building, Galveston, Texas
77550-1503. Kempner is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. The information listed below is for the
fiscal years ended July 31, 2012 and 2013.
--------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------
Harris L. Kempner, Jr., H. Kempner Trust Association Trustee
President P.O. Box 119
Galveston, TX 77553
--------------------------------------------------------------------------------
14
|
--------------------------------------------------------------------------------
Legacy Holding Company Director
600 Jefferson St., Suite 300
Houston, TX 77002
---------------------------------------------------
Balmorhea Ranches Director
P.O. Box 348
Pecos, TX 79772
---------------------------------------------------
Frost Bank -- Galveston Advisory Director
P.O. Box 179
Galveston, TX 77553
---------------------------------------------------
Cullen Frost Bankers Inc. -- Director Emeritus
San Antonio
P.O. Box 1600
San Antonio, TX 78296
---------------------------------------------------
Kempner Securities GP, LLC General Partner
P.O. Box 119
Galveston, TX 77553
---------------------------------------------------
Galveston Finale GP, LLC General Partner
P.O. Box 119
Galveston, TX 77553
--------------------------------------------------------------------------------
|
KOPERNIK GLOBAL INVESTORS, LLC
Kopernik Global Investors, LLC ("Kopernik") serves as the investment adviser
for the Registrant's Kopernik Global All-Cap Fund. The principal address of
Kopernik is Two Harbour Place, 302 Knights Run Avenue, Suite 1225, Tampa,
Florida 33602. Kopernik is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The information listed below is
for the fiscal years ended October 31, 2012 and 2013.
------------------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
------------------------------------------------------------------------------------------
David B. Iben, Manager, Vinik Asset Management Director and head of Global
Chief Investment Officer 260 Franklin Street Value Team
Suite 1900
Boston, MA 02110
Tradewinds Global Investors Chief Investment Officer,
2049 Century Park East Co-president and lead
16(th) Floor portfolio manager.
Los Angeles, CA 90067
------------------------------------------------------------------------------------------
Isabel Satra, Vinik Asset Management Portfolio Manager/Analyst
Chief Financial Officer 260 Franklin Street
Suite 1900
Boston, MA 02110
Tradewinds Global Investors Portfolio Manager/Analyst
2049 Century Park East
16(th) Floor
Los Angeles, CA 90067
------------------------------------------------------------------------------------------
|
15
------------------------------------------------------------------------------------------
Sally L. Case, Vinik Asset Management Director of Operations
Chief Operations Officer 260 Franklin Street
Suite 1900
Boston, MA 02110
Nuveen Investment Management Director of Operations
2049 Century Park East
16(th) Floor
Los Angeles, CA 90067
------------------------------------------------------------------------------------------
Robert S. Lamont, Jr., Transamerica Asset Vice President and Senior
General Counsel and Management, Inc. Counsel
Chief Compliance Officer 570 Carillon Parkway
St. Petersburg, FL 33716
------------------------------------------------------------------------------------------
|
LM CAPITAL GROUP, LLC
LM Capital Group, LLC ("LM Capital") serves as investment adviser for the
Registrant's LM Capital Opportunistic Bond Fund. The principal address of LM
Capital is 750 B Street, Suite 3010, San Diego, CA 92101. LM Capital is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended. The information listed below is for the fiscal years ended July 31,
2012 and 2013.
--------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------
Luis Maizel, LM Advisors President
Sr. Managing Director 950 B Street, Suite 3020
San Diego, CA 92101
--------------------------------------------------------------------------------
|
LUTHER KING CAPITAL MANAGEMENT CORPORATION
Luther King Capital Management Corporation ("Luther King") serves as the
investment sub-adviser for the Registrant's Frost Mid Cap Equity Fund. The
principal address of Luther King is 301 Commerce Street, Suite 1600, Fort
Worth, Texas 76102. Luther King is an investment adviser registered under the
Investment Advisers Act of 1940, as amended.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Luther King engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
R SQUARED CAPITAL MANAGEMENT L.P.
R Squared Capital Management L.P. ("RSQ") serves as the investment adviser for
the Registrant's RSQ International Equity Fund. The principal address of RSQ is
299 Park Avenue, 6th Floor, New York, NY 10171. RSQ is an investment adviser
registered under the Investment Advisers Act of 1940, as amended. The
information listed below is for the fiscal years ended October 31, 2012 and
2013.
16
--------------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER COMPANY
ADVISER OTHER COMPANY
--------------------------------------------------------------------------------------
Richard Pell Artio Global Management Chief Executive Officer
Chairman 330 Madison Avenue Board of Directors
New York, NY 10017
--------------------------------------------------------------------------------------
Rudolph-Riad Younes Artio Global Management Head of International Equities
Chief Executive Officer 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
Michael Testorf Artio Global Management Senior Portfolio
Senior Portfolio Manager 330 Madison Avenue Manager/Analyst
New York, NY 10017
--------------------------------------------------------------------------------------
Elyse Waldinger Artio Global Management Head of Trading and Portfolio
Chief Operating Officer 330 Madison Avenue Support
New York, NY 10017
--------------------------------------------------------------------------------------
Junichi Nonami Artio Global Management Portfolio Manager/Analyst
Portfolio Manager 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
Nikhil Chari Artio Global Management Research Analyst
Analyst 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
Danny Seth Artio Global Management Senior Research Analyst
Analyst 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
Harry Polishook Artio Global Management Portfolio Manager/Analyst
Analyst 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
Sharif Farha Artio Global Management Junior Research Analyst
Analyst 330 Madison Avenue
New York, NY 10017
--------------------------------------------------------------------------------------
|
THORNBURG INVESTMENT MANAGEMENT, INC.
Thornburg Investment Management, Inc. ("Thornburg") serves as the investment
sub-adviser for the Registrant's Frost International Equity Fund. The principal
address of Thornburg is 2300 North Ridgetop Road, Santa Fe, New Mexico 87506.
Thornburg is an investment adviser registered under the Investment Advisers Act
of 1940, as amended. The information listed below is for the fiscal years ended
July 31, 2012 and 2013.
------------------------------------------------------------------------------------------
NAME AND POSITION NAME AND PRINCIPAL CONNECTION WITH
WITH INVESTMENT BUSINESS ADDRESS OF OTHER OTHER COMPANY
ADVISER COMPANY
------------------------------------------------------------------------------------------
Garrett Thornburg, Thornburg Securities Corporation Chairman, controlling interest
Chairman 2300 N. Ridgetop Road
Santa Fe, NM 87506
--------------------------------------------------------------------
WEL, Inc. Chairman, controlling interest
2300 North Ridgetop Road,
Santa Fe NM 87506
--------------------------------------------------------------------
Chamisa Energy, Wel, Inc. is the managing
2300 North Ridgetop Road, member and has a controlling
Santa Fe NM 87506 interest
------------------------------------------------------------------------------------------
|
W. H. REAVES & CO., INC.
W. H. Reaves & Co., Inc. ("Reaves Asset Management") serves as the investment
adviser for the Registrant's Reaves Select Research Fund. The principal business
address of Reaves Asset Management is 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302. Reaves Asset Management is an investment adviser
registered under the Investment Advisers Act of 1940, as amended.
During the fiscal years ended July 31, 2012 and 2013, no director, officer or
partner of Reaves Asset Management engaged in any other business, profession,
vocation or employment of a substantial nature for his or her own account or in
the capacity of director, officer, employee, partner or trustee.
WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P.
Westfield Capital Management Company, L.P. ("Westfield") serves as the
investment adviser for the Registrant's Westfield Capital Large Cap Growth Fund
and Westfield Capital Dividend Growth Fund. The principal business address of
Westfield is One Financial Center, Boston, Massachusetts 02111. Westfield is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended.
During the fiscal years ended October 31, 2012 and 2013, no director, officer
or partner of Westfield engaged in any other business, profession, vocation or
employment of a substantial nature for his or her own account or in the
capacity of director, officer, employee, partner or trustee.
17
ITEM 32. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities
of the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
Bishop Street Funds January 27, 1995
SEI Asset Allocation Trust April 1, 1996
SEI Institutional Investments Trust June 14, 1996
City National Rochdale Funds (f/k/a CNI Charter Funds) April 1, 1999
Causeway Capital Management Trust September 20, 2001
ProShares Trust November 14, 2005
Community Capital Trust (f/k/a Community Reinvestment
Act Qualified Investment Fund) January 8, 2007
TD Asset Management USA Funds July 25, 2007
SEI Structured Credit Fund, LP July 31, 2007
Wilshire Mutual Funds, Inc. July 12, 2008
Wilshire Variable Insurance Trust July 12, 2008
Global X Funds October 24, 2008
ProShares Trust II November 17, 2008
Exchange Traded Concepts Trust (f/k/a FaithShares Trust) August 7, 2009
Schwab Strategic Trust October 12, 2009
RiverPark Funds September 8, 2010
Adviser Managed Trust Fund December 10, 2010
Huntington Strategy Shares July 26, 2011
New Covenant Funds March 23, 2012
Cambria ETF Trust August 30, 2012
Highland Funds I (f/k/a Pyxis Funds I) September 25, 2012
KraneShares Trust December 18, 2012
LocalShares Investment Trust May 6, 2013
SEI Insurance Products Trust September 10, 2013
KP Funds September 19, 2013
The Advisors' Inner Circle Fund III February 12,2014
J.P. Morgan Exchange-Traded Fund Trust February 20,2014
|
18
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in
the answer to Item 25 of Part B. Unless otherwise noted, the business
address of each director or officer is Oaks, PA 19456.
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
---- ------------------- ---------------------
William M. Doran Director Trustee
Edward D. Loughlin Director --
Wayne M. Withrow Director --
Kevin P. Barr President & Chief Executive Officer --
Maxine J. Chou Chief Financial Officer, Chief
Operations Officer, & Treasurer --
Karen E. LaTourette Chief Compliance Officer,
Anti-Money Laundering
Officer & Assistant Secretary --
John C. Munch General Counsel & Secretary Vice President and
Secretary
Mark J. Held Senior Vice President --
Lori L. White Vice President & Assistant Secretary --
John P. Coary Vice President & Assistant Secretary --
John J. Cronin Vice President --
Robert M. Silvestri Vice President --
|
19
ITEM 33. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records are maintained at the
offices of the Registrant's custodians:
Hancock Bank and Trust
One Hancock Plaza
P.O. Box 4019
Gulfport, Mississippi 39502
U. S. Bank, National Association
800 Nicollett Mall
Minneapolis, Minnesota 55402
Union Bank of California, National Association
475 Sansome Street
15th Floor
San Francisco, California 94111
Wells Fargo Bank, N.A.
608 2nd Avenue South
9th Floor
Minneapolis, Minnesota 55479
Citibank N.A.
388 Greenwich Street
New York, New York 10013
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11); and 31a-1(f), the required books and records are
maintained at the offices of the Registrant's administrator:
SEI Investment Global Funds Services
One Freedom Valley Drive
Oaks, Pennsylvania 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's advisers:
Abbot Downing Investment Advisors
90 South Seventh Street
Suite 5100
Minneapolis, Minnesota 55402
20
Cardinal Capital Management, L.L.C.
Four Greenwich Office Park
Greenwich, CT 06831
Champlain Investment Partners, LLC
180 Battery Street
Burlington, Vermont 05401
Cinque Partners LLC
11836 San Vicente Boulevard
Los Angeles, CA 90049
Earnest Partners, LLC
1180 Peachtree Street
Suite 2300
Atlanta, Georgia 30309
Frost Investment Advisors, LLC
100 West Houston Street
15th Floor Tower
San Antonio, Texas 78205-1414
GRT Capital Partners, LLC
One Liberty Square, Floor 11
Boston, Massachusetts 02109
Horizon Advisers
One Hancock Plaza
P.O. Box 4019
Gulfport, Mississippi 39502
Kempner Capital Management, Inc.
2201 Market Street
12th Floor
Frost Bank Building
Galveston, Texas 77550-1503
Kopernik Global Investors, LLC
Two Harbour Place
302 Knights Run Avenue, Suite 1225
Tampa, Florida 33602
LM Capital Group, LLC
750 B Street
Suite 3010
San Diego, CA 92101
Luther King Capital Management Corporation
301 Commerce Street
Suite 1600
Fort Worth, Texas 76102-4140
21
R Squared Capital Management L.P.
299 Park Avenue, 6th Floor
New York, NY 10171
Thornburg Investment Management, Inc.
119 East Marcy Street
Suite 202
Santa Fe, New Mexico 87501-2046
W. H. Reaves & Co., Inc.
10 Exchange Place
18th Floor
Jersey City, New Jersey 07302
Westfield Capital Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
ITEM 34. MANAGEMENT SERVICES:
None.
ITEM 35. UNDERTAKINGS:
None.
22
NOTICE
A copy of the Agreement and Declaration of Trust for The Advisors' Inner Circle
Fund II is on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually, and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or Shareholders individually, but are binding only upon the
assets and property of the Trust.
23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933, as amended, and has
duly caused this Post-Effective Amendment No. 175 to Registration Statement No.
033-50718 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oaks, Commonwealth of Pennsylvania on the 31st day
of March, 2014.
THE ADVISORS' INNER CIRCLE FUND II
By: *
Michael Beattie, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
* Trustee March 31, 2014
------------------------
John K. Darr
* Trustee March 31, 2014
------------------------
William M. Doran
* Trustee March 31, 2014
------------------------
Joseph T. Grause, Jr.
* Trustee March 31, 2014
------------------------
Mitchell A. Johnson
* Trustee March 31, 2014
------------------------
Betty L. Krikorian
* Trustee March 31, 2014
------------------------
Robert A. Nesher
* Trustee March 31, 2014
------------------------
Bruce Speca
* Trustee March 31, 2014
------------------------
George J. Sullivan, Jr.
* President March 31, 2014
------------------------
Michael Beattie
* Treasurer, Controller & March 31, 2014
------------------------ Chief Financial Officer
Michael Lawson
*By: /S/ DIANNE M. DESCOTEAUX
------------------------
|
Dianne M. Descoteaux, pursuant to Powers of Attorney dated
May 15, 2013, incorporated herein by reference to Exhibit (q)
of Post-Effective Amendment No. 150, filed on May 31, 2013.
24
EXHIBIT INDEX
EXHIBIT DESCRIPTION
(d)(12) Schedule A, as revised February 11, 2014, to the Investment
Advisory Agreement, dated May 5, 2008, between the Registrant and
Frost Investment Advisors, LLC
(d)(14) Amended Schedules A and B, dated November 20, 2013, to the Expense
Waiver Reimbursement Agreement, dated May 5, 2008, between the
Registrant and Frost Investment Advisors, LLC, relating to the
Frost Family of Funds
(d)(16) Amended Schedule A, dated February 11, 2014, to the Expense
Limitation Agreement, dated November 20, 2013, between the
Registrant and Frost Investment Advisors, LLC
(i) Opinion and Consent of Counsel, Morgan, Lewis and Bockius, LLP
(j) Consent of independent registered public accounting firm, Ernst &
Young, LLP
(m)(5) Revised Schedule F, dated March 10, 2008, as last amended February
11, 2014, to the Distribution Plan, dated May 31, 2000, as amended
November 16, 2004, relating to the Frost Funds
|
25
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