THE ADVISORS' INNER CIRCLE FUND II
PROSPECTUS
DECEMBER 3, 2012
FROST GROWTH EQUITY FUND (FACEX)
FROST DIVIDEND VALUE EQUITY FUND (FADVX)
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND (FAKDX)
FROST MID CAP EQUITY FUND (FORMERLY, FROST LKCM SMALL-MID CAP EQUITY
FUND)(FAKSX)
FROST SMALL CAP EQUITY FUND (FAHMX)
FROST INTERNATIONAL EQUITY FUND (FANTX)
FROST NATURAL RESOURCES FUND (FNATX)
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND (FCAWX)
FROST DIVERSIFIED STRATEGIES FUND (FDSFX)
FROST STRATEGIC BALANCED FUND (FASTX)
FROST TOTAL RETURN BOND FUND (FATRX)
FROST CREDIT FUND (FCFAX)
FROST LOW DURATION BOND FUND (FADLX)
FROST MUNICIPAL BOND FUND (FAUMX)
FROST KEMPNER TREASURY AND INCOME FUND
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 GROWTH EQUITY FUND
INVESTMENT OBJECTIVE ...................................................2
FUND FEES AND EXPENSES .................................................2
PRINCIPAL INVESTMENT STRATEGIES ........................................3
PRINCIPAL RISKS ........................................................4
PERFORMANCE INFORMATION ................................................5
INVESTMENT ADVISER .....................................................6
PORTFOLIO MANAGERS .....................................................6
TAX INFORMATION ........................................................7
FROST DIVIDEND VALUE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................8
FUND FEES AND EXPENSES .................................................8
PRINCIPAL INVESTMENT STRATEGIES ........................................9
PRINCIPAL RISKS ........................................................10
PERFORMANCE INFORMATION ................................................10
INVESTMENT ADVISER .....................................................12
PORTFOLIO MANAGERS .....................................................12
TAX INFORMATION ........................................................12
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................13
FUND FEES AND EXPENSES .................................................13
PRINCIPAL INVESTMENT STRATEGIES ........................................14
PRINCIPAL RISKS ........................................................14
PERFORMANCE INFORMATION ................................................15
INVESTMENT ADVISER .....................................................17
PORTFOLIO MANAGERS .....................................................17
TAX INFORMATION ........................................................17
FROST MID CAP EQUITY FUND
INVESTMENT OBJECTIVE ...................................................18
FUND FEES AND EXPENSES .................................................18
PRINCIPAL INVESTMENT STRATEGIES ........................................19
PRINCIPAL RISKS ........................................................20
PERFORMANCE INFORMATION ................................................20
INVESTMENT ADVISER .....................................................22
PORTFOLIO MANAGERS .....................................................22
TAX INFORMATION ........................................................22
FROST SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE ...................................................23
FUND FEES AND EXPENSES .................................................23
PRINCIPAL INVESTMENT STRATEGIES ........................................24
PRINCIPAL RISKS ........................................................24
PERFORMANCE INFORMATION ................................................25
INVESTMENT ADVISER .....................................................27
PORTFOLIO MANAGERS .....................................................27
TAX INFORMATION ........................................................27
FROST INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE ...................................................28
FUND FEES AND EXPENSES .................................................28
PRINCIPAL INVESTMENT STRATEGIES ........................................29
PRINCIPAL RISKS ........................................................30
PERFORMANCE INFORMATION ................................................32
INVESTMENT ADVISER .....................................................34
PORTFOLIO MANAGERS .....................................................34
TAX INFORMATION ........................................................34
FROST NATURAL RESOURCES FUND
INVESTMENT OBJECTIVE ...................................................35
FUND FEES AND EXPENSES .................................................35
PRINCIPAL INVESTMENT STRATEGIES ........................................36
PRINCIPAL RISKS ........................................................37
PERFORMANCE INFORMATION ................................................40
INVESTMENT ADVISER .....................................................40
PORTFOLIO MANAGERS .....................................................40
TAX INFORMATION ........................................................40
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i
FROST CINQUE LARGE BUY-WRITE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................41
FUND FEES AND EXPENSES .................................................41
PRINCIPAL INVESTMENT STRATEGIES ........................................42
PRINCIPAL RISKS ........................................................43
PERFORMANCE INFORMATION ................................................44
INVESTMENT ADVISER .....................................................44
PORTFOLIO MANAGERS .....................................................44
TAX INFORMATION ........................................................45
FROST DIVERSIFIED STRATEGIES FUND
INVESTMENT OBJECTIVE ...................................................46
FUND FEES AND EXPENSES .................................................46
PRINCIPAL INVESTMENT STRATEGIES ........................................47
PRINCIPAL RISKS ........................................................48
PERFORMANCE INFORMATION ................................................52
INVESTMENT ADVISER .....................................................52
PORTFOLIO MANAGERS .....................................................52
TAX INFORMATION ........................................................53
FROST STRATEGIC BALANCED FUND
INVESTMENT OBJECTIVE ...................................................54
FUND FEES AND EXPENSES .................................................54
PRINCIPAL INVESTMENT STRATEGIES ........................................55
PRINCIPAL RISKS ........................................................56
PERFORMANCE INFORMATION ................................................59
INVESTMENT ADVISER .....................................................61
PORTFOLIO MANAGERS .....................................................61
TAX INFORMATION ........................................................61
FROST TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE ...................................................62
FUND FEES AND EXPENSES .................................................62
PRINCIPAL INVESTMENT STRATEGIES ........................................63
PRINCIPAL RISKS ........................................................63
PERFORMANCE INFORMATION ................................................65
INVESTMENT ADVISER .....................................................66
PORTFOLIO MANAGERS .....................................................66
TAX INFORMATION ........................................................66
FROST CREDIT FUND
INVESTMENT OBJECTIVE ...................................................67
FUND FEES AND EXPENSES .................................................67
PRINCIPAL INVESTMENT STRATEGIES ........................................68
PRINCIPAL RISKS ........................................................68
PERFORMANCE INFORMATION ................................................72
INVESTMENT ADVISER .....................................................72
PORTFOLIO MANAGERS .....................................................72
TAX INFORMATION ........................................................72
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ii
FROST LOW DURATION BOND FUND
INVESTMENT OBJECTIVE ...................................................73
FUND FEES AND EXPENSES .................................................73
PRINCIPAL INVESTMENT STRATEGIES ........................................74
PRINCIPAL RISKS ........................................................74
PERFORMANCE INFORMATION ................................................76
INVESTMENT ADVISER .....................................................77
PORTFOLIO MANAGERS .....................................................77
TAX INFORMATION ........................................................77
FROST MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE ...................................................79
FUND FEES AND EXPENSES .................................................79
PRINCIPAL INVESTMENT STRATEGIES ........................................80
PRINCIPAL RISKS ........................................................80
PERFORMANCE INFORMATION ................................................82
INVESTMENT ADVISER .....................................................83
PORTFOLIO MANAGERS .....................................................83
TAX INFORMATION ........................................................83
FROST KEMPNER TREASURY AND INCOME FUND
INVESTMENT OBJECTIVE ...................................................85
FUND FEES AND EXPENSES .................................................85
PRINCIPAL INVESTMENT STRATEGIES ........................................86
PRINCIPAL RISKS ........................................................86
PERFORMANCE INFORMATION ................................................87
INVESTMENT ADVISER .....................................................89
PORTFOLIO MANAGERS .....................................................89
TAX INFORMATION ........................................................89
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iii
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND
SHARES AND FINANCIAL INTERMEDIARY COMPENSATION ..............................90
MORE INFORMATION ABOUT RISK .................................................91
MORE INFORMATION ABOUT FUND INVESTMENTS .....................................92
INFORMATION ABOUT PORTFOLIO HOLDINGS ........................................93
INVESTMENT ADVISER ..........................................................93
PORTFOLIO MANAGERS ..........................................................95
SUB-ADVISERS ................................................................97
PURCHASING, SELLING AND EXCHANGING FUND SHARES ..............................100
SALES CHARGES ...............................................................105
SHAREHOLDER SERVICING ARRANGEMENTS ..........................................109
PAYMENTS TO FINANCIAL INTERMEDIARIES ........................................110
OTHER POLICIES ..............................................................110
DISTRIBUTION OF FUND SHARES .................................................113
DIVIDENDS AND DISTRIBUTIONS .................................................113
TAXES .......................................................................114
FINANCIAL HIGHLIGHTS ........................................................116
HOW TO OBTAIN MORE INFORMATION ABOUT THE FUNDS ......................Back Cover
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iv
Class A Shares of the Frost Kempner Treasury and Income Fund are currently not
available for purchase.
1
FROST GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Growth Equity Fund (the "Fund") seeks to achieve long-term capital
appreciation.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
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(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.22%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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%
2
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
--------------------------------------------------------------------------------
$445 $700 $974 $1,754
--------------------------------------------------------------------------------
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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 46% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders. The Fund intends to invest in companies that Frost Investment
Advisors, LLC (the "Adviser") believes will have growing revenues and earnings.
The Fund will generally invest in equity securities of domestic companies, but
may also invest in equity securities of foreign companies and American
Depositary Receipts ("ADRs"). The Adviser performs in-depth analyses of company
fundamentals and industry dynamics to identify companies displaying strong
earnings and revenue growth relative to the overall market or relative to their
peer group, improving returns on equity and a sustainable competitive
advantage.
The Adviser focuses on a number of factors to assess the growth potential of
individual companies, such as:
o Historical and expected organic revenue growth rates;
o Historical and expected earnings growth rates;
o Signs of accelerating growth potential;
o Positive earnings revisions;
o Earnings momentum;
o Improving margin and return on equity trends; and
o Positive price momentum.
When an attractive growth opportunity is identified, the Adviser seeks to
independently develop an intrinsic valuation for the stock. The Adviser
believes that the value of a company is determined by discounting the company's
future cash flows or earnings. Valuation factors considered in identifying
securities for the Fund's portfolio include:
o Price/earnings ratio;
o Price/sales ratio;
o Price/earnings to growth ratio;
o Enterprise value/earnings before interest, taxes, depreciation and
amortization;
o Enterprise value/sales;
o Price/cash flow;
o Balance sheet strength; and
3
o Returns on equity and returns on invested capital.
The Adviser also seeks to understand a firm's competitive position and the
industry dynamics in which the firm operates. The Adviser assesses industry
growth potential, market share opportunities, cyclicality and pricing power.
Further analysis focuses on corporate governance and management's ability to
create value for shareholders.
The Adviser augments its independent fundamental research process with
quantitative screens and models. The models are derived from proprietary
research or securities industry research studies and score companies based upon
a number of fundamental factors. The Adviser uses quantitative analysis to
provide an additional layer of objectivity, discipline and consistency to its
equity research process. This quantitative analysis complements the fundamental
analyses that the Adviser conducts on companies during its stock selection
process.
The Fund seeks to buy and hold securities for the long term and seeks to keep
portfolio turnover to a minimum. However, the Adviser may sell a security if
its price exceeds the Adviser's assessment of its fair value or in response to
a negative company event, a change in management, poor relative price
performance, achieved fair valuation, or a deterioration in a company's
business prospects, performance or financial strength.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's investments. These currency movements may occur
separately from, and in response to, events that do
4
not otherwise affect the value of the security in the issuer's home country.
While ADRs provide an alternative to directly purchasing the underlying foreign
securities in their respective national markets and currencies, investments in
ADRs continue to be subject to many of the risks associated with investing
directly in foreign securities.
GROWTH STYLE RISK-- The price of equity securities rises and falls in response
to many factors, including the historical and prospective earnings of the
issuer of the stock, the value of its assets, general economic conditions,
interest rates, investor perceptions, and market liquidity. The Fund may invest
in securities of companies that the Adviser believes have superior prospects
for robust and sustainable growth of revenues and earnings. These may be
companies with new, limited or cyclical product lines, markets or financial
resources, and the management of such companies may be dependent upon one or a
few key people. The stocks of such companies can therefore be subject to more
abrupt or erratic market movements than stocks of larger, more established
companies or the stock market in general.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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.
5
2003 24.25%
2004 7.75%
2005 3.90%
2006 9.63%
2007 11.93%
2008 (37.55)%
2009 29.87%
2010 15.15%
2011 (0.52)%
BEST QUARTER WORST QUARTER
15.48% (20.79)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 13.99%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Russell 1000 Growth Index.
After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the 5
year and since Performance Start Date periods.
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 GROWTH EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (3.79)% 0.12% 2.26%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (3.79)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (2.46)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 1000 GROWTH INDEX (REFLECTS NO 2.64% 2.50% 4.18%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
John Lutz, CFA, Senior Fund Manager and Senior Research Analyst at Frost, has
served on the portfolio team for the Fund since its inception.
6
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
Stephen Coker, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since 2008.
TJ Qatato, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since 2011.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
7
FROST DIVIDEND VALUE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Dividend Value Equity Fund (the "Fund") seeks long-term capital
appreciation and current income.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.22%
--------------------------------------------------------------------------------
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(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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%
8
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
--------------------------------------------------------------------------------
$445 $700 $974 $1,754
--------------------------------------------------------------------------------
|
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 90% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests 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. This investment policy
may be changed by the Fund upon 60 days' prior notice to shareholders. The Fund
will generally invest in equity securities of domestic companies, but may also
invest in equity securities of foreign companies and American Depositary
Receipts ("ADRs"). The Adviser expects that the Fund's investments in foreign
companies will normally represent less than 30% of the Fund's assets.
The Adviser seeks to identify and invest in companies that have attractive
valuations and a dividend that has the potential to grow as fast as inflation
and whose yield is greater than the market or its sector or industry average.
The Adviser considers dividends to be a significant component of total
long-term equity returns and focuses on the sustainability and growth of
dividends with attractive yields. To access the sustainability of a firm's
dividend, the Adviser analyzes a firm's dividend history, its competitive
position and the industry dynamics in which the firm operates.
The Adviser employs both quantitative and qualitative analyses to select
companies that have capital appreciation and dividend growth potential, with a
focus on the following stock characteristics:
o Attractive valuation based on intrinsic, absolute and relative value;
o Dividend yields greater than the market or their sector or industry;
o History of growing dividends with the likelihood of sustainable
growth of dividends;
o Attractive business models that generate the necessary cash flow to
cover and sustain the dividend and its growth; and
o Sound balance sheets.
The Adviser seeks to manage the Fund in a tax-efficient manner although
portfolio turnover rates can vary, depending upon market conditions. The
Adviser has disciplines in place that serve as sell signals, such as if the
price of the security exceeds the Adviser's assessment of its fair value or in
response to dividend yield declining below the Adviser's yield objective, a
negative company event, a change in management, poor relative price
performance, or a deterioration in a company's business prospects, performance
or financial strength.
9
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
the Adviser's assessment of a company's value or prospects for exceeding
earnings expectations or market conditions is wrong, the 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.
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
10
average annual total returns for 1 and 5 years and since inception compare with
those of a broad measure of market performance.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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.
2003 21.13%
2004 13.85%
2005 8.95%
2006 21.40%
2007 9.37%
2008 (28.41)%
2009 24.82%
2010 12.17%
2011 (2.68)%
BEST QUARTER WORST QUARTER
19.06% (16.85)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 6.60%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Russell 1000 Value Index.
After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the 5
year and since Performance Start Date periods.
11
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 DIVIDEND VALUE EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (5.85)% 0.64% 4.57%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (6.11)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (3.44)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 1000 VALUE INDEX (REFLECTS NO 0.39% (2.64)% 3.96%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
Michael R. Brell, CFA, Senior Research Analyst and Fund Co-Manager at Frost,
has served on the portfolio team for the Fund since its inception.
Theodore H. Harper, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
12
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Kempner Multi-Cap Deep Value Equity Fund (the "Fund") seeks to
generate a total pre-tax return, including capital growth and dividends,
greater than the rate of inflation over a three-to-five year period.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.59%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.19%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.04%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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%
13
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
--------------------------------------------------------------------------------
$428 $645 $880 $1,555
--------------------------------------------------------------------------------
|
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 24% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders. The Fund invests primarily in common stocks, but may also invest
in other types of equity securities, such as preferred stock, convertible
securities, warrants, real estate investment trusts ("REITs"), or other
similar publicly traded securities. The Fund may also purchase American
Depositary Receipts ("ADRs").
In selecting securities for the Fund, the Fund's sub-adviser, Kempner Capital
Management, Inc. ("KCM"), utilizes a deep value style of investing in which it
chooses securities that it believes are currently undervalued in the market but
have earnings potential or other factors that make them attractive. The
securities purchased are frequently out of favor with or have been ignored by
the investment community market and thus provide the opportunity to purchase at
prices significantly below their true value. KCM analyzes securities on an
individual, bottom-up basis, to determine which securities can deliver capital
appreciation and steady dividend earnings over the long-term. The Fund may
invest in companies of all capitalizations.
KCM selects securities for the Fund's portfolio based on individual stocks
rather than on industries or industry groups. KCM screens a universe of
approximately 7,500 stocks to find companies which meet most of its criteria
for price-earnings ratio (15X), projected 12-month earnings, price/cash flow
multiple, price/book multiple and price less than or equal to 20% above the
52-week low. A dividend yield is required. KCM considers it unrealistic for it
to be able to purchase a stock at its bottom, and as a result, KCM purchases
securities for the Fund's portfolio gradually, averaging down. KCM also
considers it unrealistic for it to be able to sell a stock at its highest price
level, and as a result, KCM seeks to lock in reasonable returns when they are
offered and generally sells gradually as an issue rises.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's equity securities may fluctuate drastically from day to day. Individual
companies
14
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. These factors contribute to price volatility,
which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
the Adviser's assessment of a company's value or prospects for exceeding
earnings expectations or market conditions is wrong, the 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.
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.
REIT RISK - REITs are pooled investment vehicles that own, and usually operate,
income-producing real estate. REITs are susceptible to the risks associated with
direct ownership of real estate, such as: declines in property values; increases
in property taxes, operating expenses, rising interest rates or competition
overbuilding; zoning changes; and losses from casualty or condemnation. REITs
typically incur fees that are separate from those of the Fund. Accordingly, the
Fund's investments in REITs will result in the layering of expenses, such that
shareholders will indirectly bear a proportionate share of the REITs' operating
expenses, in addition to paying Fund expenses.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional
15
Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund succeeded to the assets and operations of a common trust fund that was
managed by Frost Bank and sub-advised by KCM (the "Predecessor Fund"). The
performance information provided includes the returns of the Predecessor Fund
for periods prior to April 25, 2008. 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, 2002
("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.
2003 25.47%
2004 13.91%
2005 0.98%
2006 15.24%
2007 (3.18)%
2008 (34.17)%
2009 23.41%
2010 14.08%
2011 (1.24)%
BEST QUARTER WORST QUARTER
18.59% (20.35)%
(09/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 9.41%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the S&P 500 Value Index and the
Lipper Multi-Cap Value Funds Index. After-tax returns cannot be calculated for
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the 5 year and since Performance Start Date
periods.
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.
16
SINCE PERFORMANCE
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND 1 YEAR 5 YEARS START DATE (7/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (4.48)% (3.02)% 3.33%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (4.72)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND (2.59)% N/A N/A
SALE OF FUND SHARES
S&P 500 VALUE INDEX RETURN (REFLECTS NO (0.48)% (2.96)% 5.36%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
LIPPER MULTI-CAP VALUE FUNDS INDEX RETURN (3.00)% (2.03)% 5.16%
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Kempner Capital Management, Inc. ("Kempner") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
Harris L. Kempner, Jr., President of Kempner, has served on the portfolio team
for the Fund since its inception.
R. Patrick Rowles, Executive Vice President of Kempner, has served on the
portfolio team for the Fund since its inception.
M. Shawn Gault, Vice President of Kempner, has served on the portfolio team for
the Fund since its inception.
Andrew Duncan, Vice President of Kempner, has served on the portfolio team for
the Fund since 2012.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
17
FROST MID CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Mid Cap Equity Fund (the "Fund") seeks to maximize long-term capital
appreciation.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.90%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.51%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses of less
than 0.01%.
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:
18
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$474 $787 $1,122 $2,068
--------------------------------------------------------------------------------
|
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 108% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
mid-capitalization companies. This investment strategy may be changed by the
Fund upon 60 days' prior notice to shareholders. The Fund considers
mid-capitalization companies to be those companies with total market
capitalizations between $2 billion and $15 billion at the time of initial
purchase.
The equity securities in which the Fund may invest include common stocks,
preferred stocks, convertible securities, rights and warrants. Preferred stocks
are units of ownership in a company that normally have preference over common
stock in the payment of dividends and the liquidation of the company.
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the company's
common stock at the holder's option during a specified time period. A right is
a privilege granted to existing shareholders of a company to subscribe to
shares of a new issue of common stock before it is issued. Warrants are
securities that are usually issued together with a debt security or preferred
stock that give the holder the right to buy a proportionate amount of common
stock at a specified price.
The Fund intends to invest in companies that the Fund's sub-adviser, Luther
King Capital Management Corporation ("LKCM"), believes are likely to have
above-average growth in revenue, above-average earnings and/or the potential
for above-average capital appreciation. In selecting investments for the Fund,
LKCM performs analyses of financial and fundamental criteria to identify
high-quality companies, focusing on the following characteristics:
o Consistently high profitability;
o Strong balance sheets;
o Competitive advantages;
o High and/or improving financial returns;
o Free cash flow;
o Reinvestment opportunities; and
o Prominent market share positions.
The Fund does not sell stocks simply because they are no longer within LKCM's
capitalization range used for the initial purchase.
19
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
MID-CAPITALIZATION COMPANY RISK -- The mid-capitalization companies in which
the Fund invests may be more vulnerable to adverse business or economic events
than larger, more established companies. In particular, these 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,
mid-capitalization stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange.
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.
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.
RIGHTS AND WARRANTS RISK -- The purchase of rights or warrants involves the
risk that the Fund could lose the purchase value of a right or warrant if the
right to subscribe to additional shares is not executed 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.
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 year and since inception compare with those of a broad
measure of market performance.
20
Class A Shares of the Fund do not have a full calendar year of performance.
Consequently, the bar chart shows the performance of the Fund's Institutional
Class Shares from year to year and the performance table compares the average
annual total returns of the Fund's Institutional Class Shares to those of a
broad measure of market performance. The Fund's Institutional Class Shares are
offered in a separate prospectus. Class A Shares of the Fund would have
substantially similar performance as Institutional Class Shares because the
shares are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the expenses of the Class A Shares are
higher than the expenses of the Institutional Class Shares and, therefore,
returns for the Class A Shares would be lower than those of the Institutional
Class Shares. Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008.
Prior to February 13, 2012, 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. 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.
2009 33.32%
2010 35.43%
2011 (1.77)%
BEST QUARTER WORST QUARTER
18.76% (21.15)%
(09/30/2009) (09/30/2011)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 9.98%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Russell Midcap
Index and the Russell 2500 Index.
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local 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.
FROST MID CAP EQUITY FUND 1 YEAR SINCE INCEPTION (4/25/08)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (5.00)% 2.35%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (5.28)% 2.27%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (2.89)% 2.00%
AND SALE OF FUND SHARES
RUSSELL MIDCAP INDEX RETURN (REFLECTS NO (1.55)% 1.52%+
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
RUSSELL 2500 INDEX RETURN (REFLECTS NO (2.51)% 2.60%+
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
|
21
* The Fund has changed its primary benchmark from the Russell 2500 Index to
the Russell Midcap Index because the Fund's adviser and sub-adviser believe
that the Russell Midcap Index is more representative of the type of
securities in which the Fund invests.
+ Return shown is from April 30, 2008.
INVESTMENT ADVISER
Frost Investment Advisers LLC ("Frost") serves as investment adviser to the
Fund. Luther King Capital Management Corporation ("LKCM") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
J. Luther King, Jr., President of LKCM, has served on the portfolio team for
the Fund since its inception.
Steven R. Purvis, Principal at LKCM, has served on the portfolio team for the
Fund since its inception.
Paul W. Greenwell, Principal at LKCM, has served on the portfolio team for the
Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
22
FROST SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Small Cap Equity Fund (the "Fund") seeks to maximize 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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.93%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.19%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.37%
--------------------------------------------------------------------------------
|
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
--------------------------------------------------------------------------------
$460 $745 $1,051 $1,918
--------------------------------------------------------------------------------
|
23
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 113% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGY
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
small-capitalization companies. This investment policy may be changed by the
Fund upon 60 days' prior notice to shareholders.
The Fund intends to invest in companies that Cambiar Investors, LLC
("Cambiar"), the Fund's sub-adviser, believes are undervalued, profitable, and
capable of generating significant cash flow. In managing the Fund, Cambiar
will select value-oriented small-cap stocks for the Fund's portfolio.
Value-oriented managers generally select stocks they believe are attractively
valued in light of fundamental characteristics such as earnings, capital
structure and/or return on invested capital.
In selecting investments for the Fund, Cambiar utilizes a bottom-up,
research-focused investment philosophy that seeks to identify quality companies
that are currently undervalued to their historical trading range, yet
demonstrate catalysts not yet recognized by the market that could result in
significant appreciation over a 1-2 year time horizon. While Cambiar may use
various metrics in selecting securities for the Fund, a company must possess
the following characteristics: attractive valuation, an identifiable
performance catalyst(s) and material upside potential. In selecting investments
for the Fund, Cambiar generally considers small-capitalization companies to be
those companies with total market capitalizations less than $3 billion at the
time of initial purchase. In implementing its sell discipline, Cambiar sells
stocks once a stock reaches its price target, when there is a decline in
fundamentals, or the anticipated catalyst at purchase fails to materialize.
Stocks may also be sold in favor of a more attractive investment opportunity.
Cambiar will also trim a holding if it becomes an outsized position within the
Fund's portfolio.
The Fund may engage in active and frequent trading of portfolio securities to
achieve its 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.
INITIAL PUBLIC OFFERINGS ("IPO") RISK -- The Fund may invest a portion of its
assets in securities of companies offering shares in IPOs. IPOs may have a
magnified performance impact on a fund with a small asset base. The impact of
IPOs on the 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 the Fund for investing. Because IPO shares frequently
are volatile in price, the 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
24
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 the 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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL-CAPITALIZATION COMPANY RISK -- The small-capitalization companies in
which the Fund may invest may be more vulnerable to adverse business or
economic events than larger, more established companies. In particular, these
small- 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-capitalization stocks may be more volatile than those of
larger companies. These securities may be traded over the counter or listed on
an exchange.
ACTIVE TRADING RISK -- The Fund may engage in active and frequent trading of
portfolio securities to achieve its investment objective. Active trading may
cause the Fund to incur increased costs, which can lower the actual return of
the Fund. Active trading may also increase short-term gains and losses, which
affect taxes that must be paid.
LIQUIDITY RISK -- Particular investments may be difficult to purchase or sell.
The Fund may make investments that become less liquid in response to market
developments or adverse investor perceptions, which may reduce the returns of
the Fund because it may be unable to sell the illiquid securities at an
advantageous time or price.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to April 25, 2008. Institutional Class Shares
of the Fund are offered in a separate prospectus. Institutional Class Shares
would have substantially similar performance as Class A Shares because the
shares are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the expenses of Class A Shares are higher
than the expenses of the Institutional Class Shares and, therefore, returns for
the Class A Shares would be lower than those of the Institutional Class
Shares.
25
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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. Prior to February 1, 2010, the Fund
employed a different investment strategy. Prior to June 29, 2010, the Fund was
primarily managed by a different sub-adviser and prior to September 4, 2012 a
portion of the Fund was managed by another sub-adviser. Therefore, the past
performance shown below may have differed had the Fund's current investment
strategy been in effect and had the current sub-adviser been primarily managing
the Fund. 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.
2003 32.68%
2004 20.45%
2005 8.05%
2006 9.09%
2007 7.74%
2008 (39.76)%
2009 22.38%
2010 20.23%
2011 (2.84)%
BEST QUARTER WORST QUARTER
19.78% (25.80)%
(12/31/2011) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 6.55%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Russell 2000 Index.
After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the 5
year and since Performance Start Date periods.
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.
26
SINCE PERFORMANCE START DATE
FROST SMALL CAP EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (5.98)% (2.12)% 3.59%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (10.57)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (3.62)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 2000 INDEX RETURN (REFLECTS NO (4.18)% 0.15% 5.84%
DEDUCTION FOR FEES, EXPENSES OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Cambiar Investors LLC ("Cambiar") serves as investment sub-adviser to the
Fund.
PORTFOLIO MANAGERS
Brian M. Barish, CFA, President, Director of Research at Cambiar, has served on
the portfolio team of the Fund since 2010.
Anna (Ania) A. Aldrich, CFA, Senior Investment Analyst at Cambiar, has served on
the portfolio team of the Fund since 2010.
Andrew P. Baumbusch, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
Timothy A. Beranek, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
Maria L. Mendelsberg, CFA, Senior Investment Analyst at Cambiar, has served on
the portfolio team of the Fund since 2010.
Jeffrey H. Susman, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
27
FROST INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The Frost International Equity Fund (the "Fund") seeks to achieve long-term
capital appreciation and current income.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if shares redeemed have 2.00%
been held for less than 30 days)
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.93%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.21%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.39%
--------------------------------------------------------------------------------
|
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:
28
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$462 $751 $1,061 $1,939
--------------------------------------------------------------------------------
|
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 20% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
non-U.S. issuers. This investment policy may be changed by the Fund upon 60
days' prior notice to shareholders. The Fund invests primarily in common
stocks, but may also invest in other types of equity securities, such as
preferred stock, convertible securities, warrants or other similar publicly
traded securities. The Fund may also purchase American Depositary Receipts
("ADRs") and Global Depositary Receipts ("GDRs").
The Fund's investments are ordinarily diversified among regions, countries and
currencies, as determined by its sub-adviser, Thornburg Investment Management
Inc. ("Thornburg"). Thornburg intends to invest on an opportunistic basis when
it believes there is intrinsic value. The Fund's principal focus will be on
traditional or "basic" value stocks. However, the portfolio may include stocks
that, in Thornburg's opinion, provide value in a broader or different context.
The relative proportions of these different types of securities will vary over
time. The Fund ordinarily invests in stocks that may be undervalued or reflect
unfavorable market perceptions of company or industry fundamentals. The Fund
may invest in companies of any size.
Debt securities will be considered for investment when Thornburg believes them
to be more attractive than equity alternatives. The Fund may purchase debt
securities of any maturity and quality. The Fund evaluates currency risk on a
stock-by-stock basis. The Fund will hedge currency exposure utilizing forward
contracts if deemed appropriate by the portfolio management team. Currency
hedging, if utilized, is to protect the investment thesis for a given stock
from being significantly undermined by dollar/foreign currency fluctuations
when we perceive currency risk to be high.
Thornburg primarily uses individual company and industry analysis to make
investment decisions. Value, for purposes of Thornburg's selection criteria,
relates to both current and projected measures. Among the specific factors
considered by Thornburg in identifying undervalued securities for inclusion in
the Fund's portfolio are:
o price/earnings ratio
o price/book value
o price/cash flow ratio
o debt/capital ratio
o dividend yield
o security and consistency of revenue stream
o undervalued assets
29
o relative earnings growth potential
o industry growth potential
o industry leadership
o dividend growth potential
o franchise value
o potential for favorable developments
The Fund typically makes equity investments in the following three types of
companies:
o BASIC VALUE companies which, in Thornburg's opinion, are financially
sound companies with well established businesses whose stock is
selling at low valuations relative to the companies' net assets or
potential earning power.
o CONSISTENT EARNER companies when they are selling at valuations below
historic norms. Stocks in this category sometimes sell at premium
valuations and sometimes at discount valuations. Generally, they show
steady earnings and dividend growth.
o EMERGING FRANCHISES are value-priced companies that in Thornburg's
opinion are in the process of establishing a leading position in a
product, service or market and which Thornburg expects will grow, or
continue to grow, at an above average rate. Under normal conditions,
the proportion of the Fund invested in companies of this type will be
less than the proportions of the Fund invested in basic value or
consistent earner companies.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
30
When the Fund invests in foreign fixed income securities, it will be subject to
risks not typically associated with domestic securities. Foreign investments,
especially investments in emerging markets, can be riskier and more volatile
than investments in the United States. Adverse political and economic
developments or changes in the value of foreign currency can make it more
difficult for the Fund to sell its securities and could reduce the value of
your shares. Differences in tax and accounting standards and difficulties in
obtaining information about foreign companies can negatively affect investment
decisions. Unlike more established markets, emerging markets may have
governments that are less stable, markets that are less liquid and economies
that are less developed.
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 Fund's portfolio 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 by the Fund. 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.
HEDGING RISK. The Fund may use forward currency contracts for hedging purposes.
Hedging through the use of these instruments does not eliminate fluctuations in
the underlying prices of the securities that the Fund owns or intends to
purchase or sell. While entering into these instruments tends to reduce the
risk of loss due to a decline in the value of the hedged asset, such
instruments also limit any potential gain that may result from the increase in
value of the asset. To the extent that the Fund engages in hedging strategies,
there can be no assurance that such strategy will be effective or that there
will be a hedge in place at any given time.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall.
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. Mutual funds that invest in debt securities have
no real maturity. Instead, they calculate their weighted average maturity. This
number is an average of the effective or anticipated maturity of each debt
security held by the mutual fund, with the maturity of each security weighted
by the percentage of its assets of the mutual fund it represents.
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
31
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
Thornburg's assessment of a company's value or prospects for exceeding earnings
expectations or market conditions is wrong, the 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.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
32
Institutional Class Shares first became available on April 25, 2008, when the
Fund succeeded to the assets and operations of a common trust fund that was
managed by Frost Bank and sub-advised by Thornburg and INVESCO Global Asset
Management N.A. (the "Predecessor Fund"). The performance information provided
includes the returns of the Predecessor Fund for periods prior to April 25,
2008. 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 May 31, 2002 ("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.
2003 29.61%
2004 20.26%
2005 16.82%
2006 25.13%
2007 27.08%
2008 (41.57)%
2009 30.13%
2010 13.87%
2011 (13.92)%
BEST QUARTER WORST QUARTER
22.80% (22.20)%
(06/30/2009) (09/30/2011)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 9.82%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Morgan Stanley Capital
International All Country World ex-US Index ("MSCI ACWI ex-US Index") and the
Morgan Stanley Capital International Europe, Australasia, Far East Index ("
MSCI EAFE Index"). After-tax returns cannot be calculated for periods before
the Fund's registration as a mutual fund and they are, therefore, unavailable
for the 5 year and since Performance Start Date periods.
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.
Returns after taxes on distributions and sale of Fund shares may be higher than
before-tax returns when a net capital loss occurs upon the redemption of Fund
shares.
33
SINCE PERFORMANCE START DATE
FROST INTERNATIONAL EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (16.73)% (1.73)% 5.71%
FUND RETURN AFTER TAXES ON (16.57)% N/A N/A
DISTRIBUTIONS
FUND RETURN AFTER TAXES ON (10.60)% N/A N/A
DISTRIBUTIONS AND SALE OF FUND SHARES
MSCI ACWI EX-US INDEX RETURN (13.71)% (2.92)% 6.24%
(REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)
MSCI EAFE INDEX RETURN (REFLECTS NO (12.14)% (4.72)% 4.61%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisers LLC ("Frost") serves as investment adviser to the
Fund. Thornburg Investment Management, Inc. ("Thornburg") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
William Fries, CFA, Co-Portfolio Manager and Managing Director at Thornburg,
has served on the portfolio team for the Fund since its inception.
Lei Wang, CFA, Co-Portfolio Manager and Managing Director at Thornburg, has
served on the portfolio team for the Fund since its inception.
Wendy Trevisani, Co-Portfolio Manager and Managing Director at Thornburg, has
served on the portfolio team for the Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
34
FROST NATURAL RESOURCES FUND
INVESTMENT OBJECTIVE
The Frost Natural Resources Fund (the "Fund") seeks long-term capital growth
with a secondary goal of current income.
FUND FEES AND EXPENSES
This table 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 105 of the prospectus, and in the Fund's Statement of
Additional Information.
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
Distributions (as a percentage of offering price) None
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if shares redeemed have None
been held for less than 30 days)
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.62%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.05%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.72%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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.
35
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
--------------------------------------------------------------------------------
$494 $849 $1,228 $2,289
--------------------------------------------------------------------------------
|
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 the period from the commencement of the Fund's operations
(September 27, 2011) through the end of its most recent fiscal year, the Fund's
portfolio turnover rate was 49% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
In seeking to achieve its objectives, the Fund, under normal circumstances,
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in securities of companies in natural resources industries.
Companies in natural resources industries include: (i) companies that Frost
Investment Advisors, LLC (the "Adviser"), the Fund's adviser, considers to be
engaged, either directly or indirectly, in the exploration, discovery,
development, production, marketing or distribution of natural resources; the
development of proprietary technologies for the production or efficient
utilization of natural resources; or the provision of related supplies or
services; and (ii) to the extent not included in the foregoing, those
industries that comprise the S&P North American Natural Resources Index. Within
natural resources industries, the Adviser anticipates that the Fund will
generally invest a significant portion of its assets in the energy sector.
Examples of natural resources include:
o ENERGY -- such as companies engaged in the exploration and production
of energy sources, as well as companies involved with energy equipment
and services, drillers, refiners, storage transportation, utilities,
coal.
o ALTERNATIVE ENERGY -- such as solar, nuclear, wind and fuel cell
companies.
o INDUSTRIAL PRODUCTS -- such as chemical, building material, cement,
aggregate, associated machinery and transport companies.
o FOREST PRODUCTS -- such as timber and paper companies.
o BASE METALS -- such as companies engaged in the exploration, mining,
processing, fabrication, marketing or distribution of copper, iron
ore, nickel, steel, aluminum, rare earth minerals and molybdenum.
o SPECIALTY METALS -- such as companies engaged in the exploration,
mining, processing, fabrication, marketing or distribution of
titanium-based alloys and zirconium.
o PRECIOUS METALS -- such as companies engaged in the exploration,
mining, processing, fabrication, marketing or distribution of gold,
silver, diamonds and platinum.
o AGRICULTURAL PRODUCTS -- such as companies engaged in producing,
processing and distributing seeds, fertilizers and water.
36
The Fund generally invests in equity securities of domestic and foreign,
including emerging market, natural resources companies. The equity securities
in which the Fund may invest include common stocks, preferred stocks, American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), convertible
securities, warrants and rights, and master limited partnerships ("MLPs"). In
addition, the Fund may also invest in exchange-traded funds, exchange-traded
notes and other exchange-traded products to gain exposure to certain segments
of the natural resources market. The Fund may invest in securities of issuers
with any market capitalization.
The Adviser combines fundamental analysis and quantitative screening to select
securities for the Fund's portfolio. In particular, the Adviser focuses on
companies with desirable growth and value attributes. These attributes will
include but not be exclusive to the following: attractive debt adjusted
production growth per share; prospects for above average growth in earnings or
cash flow per share; an ability to generate high returns on invested capital
throughout an investment cycle; asset quality greater than peers; efficient
capital allocation; management strength; favorable relative price/earnings,
price/book and price/cash flow ratios; and trading at a discount to intrinsic
value. In addition, the Adviser considers the availability of specific natural
resources and the relative value of those resources given changing
supply/demand dynamics in the market. The Adviser may sell a security when the
security reaches a specified value or the Adviser's original investment
rationale is no longer considered valid.
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 risk
factors affecting shareholders' investments in the Fund are set forth below.
EQUITY RISK -- The Fund is subject to 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 the Fund's 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.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund.
CONCENTRATION RISK -- Due to the Fund's concentration in securities of
companies in the natural resources industries, events that affect the natural
resources industries will have a greater effect on the Fund than they would on
a fund that is more widely diversified among a number of unrelated industries.
Such factors include warehousing and delivery constraints, changes in supply
and demand dynamics, a potential lack of fungibility, weather, monetary and
currency exchange processes, domestic and foreign political and economic events
and policies, disease, technological developments, and changes in interest
rates. In addition, certain natural resources sub-sectors are subject to
greater governmental regulation than are other industries; therefore, changes
in tax and other government regulations may be more likely to adversely affect
the Fund.
INVESTMENTS IN INVESTMENT COMPANIES AND OTHER POOLED VEHICLES -- To the extent
the Fund invests in other investment companies, such as exchange-traded funds
("ETFs"), closed-end funds and other mutual funds, the Fund will be subject to
substantially the same risks as those associated with the direct ownership of
the securities held by such other investment companies. Such risks are
described below. As a shareholder of another investment company, the Fund
relies on that investment company to achieve its investment objective. If the
investment company fails to achieve its objective, the value of the Fund's
investment could decline, which could adversely affect the Fund's performance.
By investing in another
37
investment company, Fund shareholders indirectly bear the Fund's proportionate
share of the fees and expenses of the other investment company, in addition to
the fees and expenses that Fund shareholders directly bear in connection with
the Fund's own operations. The Fund does not intend to invest in other
investment companies unless the Adviser believes that the potential benefits of
the investment justify the payment of any additional fees or expenses. Federal
securities laws impose limitations on the Fund's ability to invest in other
investment companies.
Because closed-end funds and ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. Investments in closed-end funds and ETFs are
also subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. In addition, because the value of closed-end
funds and ETF shares depends on the demand in the market, the Adviser may not
be able to liquidate the Fund's holdings at the most optimal time, which could
adversely affect Fund performance.
INVESTMENTS IN ETNS -- An exchange-traded note ("ETN") is a debt security of an
issuer that is listed and traded on U.S. stock exchanges or otherwise traded in
the over-the-counter market. Similar to other debt securities, ETNs tend to
have a maturity date and are backed only by the credit of the issuer. ETNs are
designed to provide investors access to the returns of various market
benchmarks, such as a securities index, currency or investment strategy, less
fees and expenses. The value of an ETN may be influenced by time to maturity,
level of supply and demand for the ETN, volatility and lack of liquidity in the
underlying market, changes in the applicable interest rates, and changes in the
issuer's credit rating and economic, legal, political or geographic events that
affect the referenced market. It is expected that the issuer's credit rating
will be investment grade at the time of investment, however, the credit rating
may be revised or withdrawn at any time and there is no assurance that a credit
rating will remain in effect for any given time period. If a rating agency
lowers the issuer's credit rating, the value of the ETN will decline and a
lower credit rating reflects a greater risk that the issuer will default on its
obligation. When the Fund invests in ETNs, it will bear its proportionate share
of any fees and expenses associated with investment in such securities. Such
fees reduce the amount of return on investment at maturity or upon redemption.
There may be restrictions on the Fund's right to redeem its investment in an
ETN, which are meant to be held until maturity. There are no periodic interest
payments for ETNs, and principal is not protected. As is the case with ETFs, an
investor could lose some of or the entire amount invested in ETNs. The Fund's
decision to sell its ETN holdings may be limited by the availability of a
secondary market.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of American
Depository Receipts ("ADRs"), which are traded on U.S. 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 United States. 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 Fund's 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. While
ADRs provide an alternative to directly purchasing the underlying foreign
securities in their respective national markets and currencies, investments in
ADRs 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
38
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 Fund's portfolio 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 by the Fund. 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.
MLP RISK -- MLPs are limited partnerships in which the ownership units are
publicly traded. MLP units are registered with the U.S. Securities and Exchange
Commission (the "SEC") and are freely traded on a securities exchange or in the
over-the-counter market. MLPs often own several properties or businesses (or
own interests) that are related to oil and gas industries or other natural
resources, but they also may finance other projects. To the extent that an
MLP's interests are all in a particular industry, the MLP will be negatively
impacted by economic events adversely impacting that industry. The risks of
investing in a MLP are generally those involved in investing in a partnership
as opposed to a corporation. For example, state law governing partnerships is
often less restrictive than state law governing corporations. Accordingly,
there may be fewer protections afforded to investors in a MLP than investors in
a corporation; for example, investors in MLPs may have limited voting rights or
be liable under certain circumstances for amounts greater than the amount of
their investment. In addition, MLPs may be subject to state taxation in certain
jurisdictions which will have the effect of reducing the amount of income paid
by the MLP to its investors.
COMMODITY RISK -- Exposure to the commodities markets, through a company or an
ETF, may subject the Fund to greater volatility than investments in traditional
securities. Commodities are subject to substantial price fluctuations over
short periods of time and may be affected by unpredictable economic, political
and environmental events.
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.
39
PERFORMANCE INFORMATION
The Fund commenced operations on September 27, 2011 and therefore does not have
performance history for a full calendar year. Once the Fund has completed a
full calendar year of operations, a bar chart and table will be included that
will provide some indication of the risks of investing in the Fund by showing
the variability of the Fund's return based on net assets and comparing the
Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Theodore H. Harper, Senior Fund Manager and Senior Research Analyst at Frost,
has served on the portfolio team for the Fund since its inception.
John Lutz, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has served
on the portfolio team for the Fund since its inception.
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
40
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Cinque Large Cap Buy-Write Equity Fund (the "Fund") seeks long-term
capital appreciation and current income.
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 and in the section
"Sales Charges" on page 105 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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.90%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses(1) 0.67%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses(2) 0.15%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.97%
--------------------------------------------------------------------------------
|
(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(2) "Acquired Fund Fees and Expenses" are based on estimated amounts for the
current fiscal year.
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%
41
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
------------------------
$518 $923
------------------------
|
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.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities of
large-capitalization companies and exchange traded funds ("ETFs") designed to
track the performance of large capitalization companies, and options on
securities of large capitalization companies. This investment policy may be
changed by the Fund upon 60 days' prior notice to shareholders. The Fund
primarily will invest in common stocks, but will also invest in ETFs and sell
call options on an asset it owns, also known as a "buy-write" strategy. The
Fund to a lesser extent will also buy call and put options on an asset, a
market sector or an index. The Adviser expects that approximately 5% of the
Fund's assets will dedicated to its options strategy, although such allocation
is subject to change based on market and other conditions. Cinque Partners LLC
("Cinque"), the Fund's sub-adviser, generally considers large-capitalization
companies to be those companies with market capitalizations of $5 billion or
greater. The Fund may invest up to 20% of its net assets in small and
mid-capitalization companies.
In constructing the Fund's portfolio, Cinque uses a systematic, proprietary
process that combines individual stock selection and sector and index exposures
into a portfolio that is then coupled with an option hedging strategy. Cinque
selects stocks for the Fund using its Combo Rank Stock model, which analyzes
measures of value, growth, balance sheet analysis and overall profitability of
a company. The output of this model is then ranked within each sector of the
S&P Composite 1500 Index universe. Cinque then selects a stock based on its
ratings and establishes a target weight that is based on Cinque's thorough
qualitative and quantitative assessment of that company's risk-reward
characteristics. Sector or index ETFs may also be selected to capture
macroeconomic performance inputs through the economic cycle. Cinque
periodically reviews the companies in its investment universe in order to
re-evaluate whether or not the assumptions and tenets (price targets, balance
sheet quality, operating trends, potential stock downside) of the original
investment thesis still hold.
Cinque also intends to utilize an option strategy that includes buy-writes,
protective puts and long-call options in an attempt to improve portfolio
downside protection and increase portfolio income. Cinque analyzes over 400
different options combinations, using S&P 500 Index options, to arrive at the
position that, in Cinque's view, provides the best chance of capturing the
excess return associated with the Fund's long portfolio, while reducing the
downside risk associated with the market. Cinque also may sell call options to
take advantage of what it perceives to be mispriced options premiums based on
its view of market volatility.
42
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.
INVESTMENTS IN ETFS - To the extent that the Fund invests in ETFs, the Fund
will be subject to substantially the same risks as those associated with the
direct ownership of the securities comprising the index on which the ETF is
based and the value of the Fund's investment will fluctuate in response to the
performance of the underlying index. ETFs typically incur fees that are
separate from those of the Fund. Accordingly, the Fund's investments in ETFs
will result in the layering of expenses such that shareholders will indirectly
bear a proportionate share of the ETFs' operating expenses, in addition to
paying Fund expenses. Because ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. In addition, because the value of ETF shares
depends on the demand in the market, the Adviser may not be able to liquidate
the Fund's holdings at the most optimal time, which could adversely affect Fund
performance.
EQUITY RISK - The Fund is subject to 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 the Fund's 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.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund.
DERIVATIVES RISK - Derivatives are often more volatile than other investments
and may magnify the Fund's gains or losses. There are various factors that
affect the Fund's ability to achieve its investment 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 Fund
buys or sells. The 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 Fund
from closing its derivative positions and could adversely impact its ability to
achieve its investment objective or to realize profits or limit losses.
Because derivative instruments may be purchased by the Fund for a fraction of
the market value of the investments underlying such instruments, a relatively
small price movement in the underlying investment may result in an immediate
and substantial gain or loss to the Fund. Derivatives are often more volatile
than other investments and the Fund may lose more in a derivative than it
originally invested in it.
Additionally, derivative instruments, particularly market access products, 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.
The Fund may purchase or sell options, which 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. For instance, the 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
43
offset the cost of purchasing the option, a put buyer would lose the premium
and related transaction costs. 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.
SMALL-CAP AND MID-CAP RISK - The smaller and medium capitalization companies in
which the Fund invests may be more vulnerable to adverse business or economic
events than larger, more established companies. In particular, small and medium
capitalization companies may have limited product lines, markets and financial
resources and may depend upon a relatively small management group. Therefore,
small and medium capitalization stocks may be more volatile than those of
larger companies. Small and medium capitalization stocks may be traded
over-the-counter or listed on an exchange.
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 manager in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
NEW FUND RISK - Because the Fund is new, investors in the Fund bear the risk
that the Fund may not be successful in implementing its investment strategy,
may not employ a successful investment strategy, or may fail to attract
sufficient assets under management to realize economies of scale, any of which
could result in the Fund being liquidated at any time without shareholder
approval and at a time that may not be favorable for all shareholders. Such
liquidation could have negative tax consequences for shareholders and will
cause shareholders to incur expenses of liquidation.
PERFORMANCE INFORMATION
The Fund is new, and therefore has no performance history. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the
Fund by showing the variability of the Fund's return based on net assets and
comparing the Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Cinque Partners LLC ("Cinque") serves as investment sub-adviser to the
Fund.
PORTFOLIO MANAGERS
Alan Adelman, Managing Partner and Chief Investment Officer at Cinque, has
served on the portfolio team for the Fund since its inception.
Jack Cowling, CFA, Senior Portfolio Manager and Partner at Cinque, has served
on the portfolio team for the Fund since its inception.
Fred Wahl, CFA, CIMA, Senior Portfolio Manager and Partner at Cinque, has
served on the portfolio team for the Fund since its inception.
Pierre Brachet, CFA, Portfolio Manager and Partner at Cinque, has served on the
portfolio team for the Fund since its inception.
44
TAX INFORMATION
The distributions made by the Fund generally are taxable, and will be taxed as
ordinary income or capital gains. If you are investing through a tax-deferred
arrangement, such as a 401(k) plan or individual retirement account, you will
generally not be subject to federal taxation on Fund distributions until you
begin receiving distributions from your tax-deferred arrangement. You should
consult your tax advisor regarding the rules governing your tax-deferred
arrangement.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
45
FROST DIVERSIFIED STRATEGIES FUND
INVESTMENT OBJECTIVE
The Frost Diversified Strategies Fund (the "Fund") seeks capital growth with
reduced correlation to the stock and bond markets.
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 105 of the prospectus, and in the Fund's Statement of Additional
Information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering 3.25%
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
Distributions (as a percentage of offering price) None
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if shares redeemed have 2.00%
been held for less than 60 days)
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.79%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.16%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 2.00%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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%
46
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
--------------------------------------------------------------------------------
$521 $932 $1,368 $2,577
--------------------------------------------------------------------------------
|
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 150% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
In seeking to achieve the Fund's objective, Frost Investment Advisors LLC (the
"Adviser"), the Fund's investment adviser, employs two distinct investment
approaches: a traditional allocation providing exposure to the stock and bond
markets, and an allocation providing exposure to alternative asset strategies.
The Fund will gain exposure to both allocations primarily through investment in
exchange-traded products ("ETPs"), which include exchange-traded funds and
exchange-traded notes. The Adviser expects to maintain an approximate 60% to
40% split between traditional and alternative asset strategies, respectively.
The traditional allocation involves exposure, primarily through ETPs, to stocks
of domestic and foreign companies (including American Depository Receipts
("ADRs")) of any size and fixed income obligations issued by U.S. and foreign
governments and corporations ("traditional asset classes"). The proportion of
Fund assets invested in each traditional asset class, either indirectly in ETPs
or directly in stocks or bonds, is continually monitored and adjusted by the
Adviser as it deems appropriate, with no limit on the percentage of assets that
may be allocated among ETPs, stocks or bonds, except such limits as one
consistent with the Fund's taxation as a regulated investment company, as
described below. When selecting ETPs for investment, the Adviser considers the
ETPs' investment goals and strategies, the investment adviser and portfolio
manager, and past performance (absolute, relative and risk-adjusted). The
Adviser then enhances or reduces exposure to traditional asset class
sub-categories (such as sector (e.g., small- or mid-cap or corporate or
asset-backed), region (e.g., Europe or Asia) or country (e.g., China or Japan))
by over- or under-weighting ETPs in each sub-category based on the Adviser's
outlook of the market for those sub-categories. The Adviser may sell an
investment if it determines that the subcategory or the traditional asset class
in general is no longer desirable or if the Adviser believes that another ETP
offers a better opportunity to achieve the Fund's objective. The Adviser may
use option collars to reduce the effects of market volatility.
The alternative allocation involves exposure to investment strategies that the
Adviser believes will produce attractive returns regardless of the performance
of traditional asset classes. These strategies offer an expanded universe of
available investments, such as currencies, commodities and derivatives, employ
a broader range of trading strategies and often emphasize absolute returns
rather than returns relative to an index benchmark. As a result, these
strategies may offer returns that have a low correlation to the performance of
traditional asset classes and may serve to hedge risk associated with
investments in traditional asset classes. The Fund seeks exposure to these
strategies by investing in shares of ETPs, mutual funds and closed-end funds
that track, on a replication basis, broad hedge fund indices and/or
47
individual inverse or low correlation hedge fund strategies. Specific
strategies will be selected by the Adviser based on its estimate of most
appropriate investments for current economic or market conditions. The
underlying assets of such investments include stocks, bonds, derivatives or
cash instruments, as well as investment companies or other pooled vehicles that
invest in such instruments. The Fund may also invest in ETPs designed to
provide investment results that match a positive or negative multiple of the
performance of an underlying index ("Enhanced ETPs"). In addition, the Fund may
invest in ETFs that are not registered or regulated under the Investment
Company Act of 1940, as amended (the "1940 Act"). These instruments typically
hold commodities, such as gold or oil, currency or other property that is
itself not a security.
In addition, in seeking returns that are expected to have reduced correlation
to the stock and bond markets, the Fund may also invest in real estate
investment trusts ("REITs"), master limited partnerships ("MLPs"), business
development companies ("BDCs") and index-related commodity securities. In
selecting these specific strategy investments, the Adviser evaluates manager
experience, trading liquidity, assets in the investment vehicle, and tracking
error when compared to the relevant benchmark. The Adviser employs a top-down
analysis of broad economic and financial indicators and trends to establish
position weightings within the Fund's portfolio. The Adviser may sell a
security if (i) its price reaches the Adviser's assessment of its fair value;
(ii) the Adviser deems it no longer aligns with the Fund's objective; (iii) the
Adviser believes another security provides a superior investment alternative.
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 risk
factors affecting shareholders' investments in the Fund are set forth below.
ALLOCATION RISK -- The Fund will allocate its investments between various asset
classes, including derivatives. These investments are based upon judgments
made by the Adviser, which may not accurately predict changes in the market.
As a result, the Fund could miss attractive investment opportunities by
underweighting markets that subsequently experience significant returns and
could lose value by overweighting markets that subsequently experience
significant declines.
INVESTMENTS IN INVESTMENT COMPANIES AND OTHER POOLED VEHICLES -- To the extent
the Fund invests in other investment companies, such as exchange-traded funds
("ETFs"), closed-end funds and other mutual funds, the Fund will be subject to
substantially the same risks as those associated with the direct ownership of
the securities held by such other investment companies. Such risks are
described below. As a shareholder of another investment company, the Fund
relies on that investment company to achieve its investment objective. If the
investment company fails to achieve its objective, the value of the Fund's
investment could decline, which could adversely affect the Fund's performance.
By investing in another investment company, Fund shareholders indirectly bear
the Fund's proportionate share of the fees and expenses of the other investment
company, in addition to the fees and expenses that Fund shareholders directly
bear in connection with the Fund's own operations. The Fund may invest in ETFs
that are not registered or regulated under the Investment Company Act of 1940,
as amended (the "1940 Act"). These instruments typically hold commodities, such
as gold or oil, currency or other property that is itself not a security. The
Fund does not intend to invest in other investment companies unless the Adviser
believes that the potential benefits of the investment justify the payment of
any additional fees or expenses. Federal securities laws impose limitations on
the Fund's ability to invest in other investment companies.
Because closed-end funds and ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. Investments in closed-
48
end funds and ETFs are also subject to brokerage and other trading costs, which
could result in greater expenses to the Fund. In addition, because the value of
closed-end funds and ETF shares depends on the demand in the market, the
Adviser may not be able to liquidate the Fund's holdings at the most optimal
time, which could adversely affect Fund performance.
INVESTMENTS IN ETNS -- An exchange-traded note ("ETN") is a debt security of an
issuer that is listed and traded on U.S. stock exchanges or otherwise traded in
the over-the-counter market. Similar to other debt securities, ETNs tend to
have a maturity date and are backed only by the credit of the issuer. ETNs are
designed to provide investors access to the returns of various market
benchmarks, such as a securities index, currency or investment strategy, less
fees and expenses. The value of an ETN may be influenced by time to maturity,
level of supply and demand for the ETN, volatility and lack of liquidity in the
underlying market, changes in the applicable interest rates, and changes in the
issuer's credit rating and economic, legal, political or geographic events that
affect the referenced market. It is expected that the issuer's credit rating
will be investment grade at the time of investment, however, the credit rating
may be revised or withdrawn at any time and there is no assurance that a credit
rating will remain in effect for any given time period. If a rating agency
lowers the issuer's credit rating, the value of the ETN will decline and a
lower credit rating reflects a greater risk that the issuer will default on its
obligation. When the Fund invests in ETNs, it will bear its proportionate share
of any fees and expenses associated with investment in such securities. Such
fees reduce the amount of return on investment at maturity or upon redemption.
There may be restrictions on the Fund's right to redeem its investment in an
ETN, which are meant to be held until maturity. There are no periodic interest
payments for ETNs, and principal is not protected. As is the case with ETFs, an
investor could lose some of or the entire amount invested in ETNs. The Fund's
decision to sell its ETN holdings may be limited by the availability of a
secondary market.
EQUITY RISK -- The Fund is subject to 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 the Fund's 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.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund.
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) and the Fund's share price
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 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
49
economic conditions or changing circumstances, however, may weaken the capacity
of the issuer to pay interest and repay principal.
DERIVATIVES RISK -- Derivatives are often more volatile than other investments
and may magnify the Fund's gains or losses. There are various factors that
affect the Fund's ability to achieve its investment 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 Fund
buys or sells. The 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 Fund
from closing its derivative positions and could adversely impact its ability to
achieve its investment objective or to realize profits or limit losses.
Because derivative instruments may be purchased by the Fund for a fraction of
the market value of the investments underlying such instruments, a relatively
small price movement in the underlying investment may result in an immediate
and substantial gain or loss to the Fund. Derivatives are often more volatile
than other investments and the Fund may lose more in a derivative than it
originally invested in it.
Additionally, derivative instruments, particularly market access products, 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.
The Fund may purchase or sell options, which 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. In particular, the Fund may
engage in option collars. An option collar involves the purchase of a put
option on a security owned by the Fund while writing a call option on the same
security. The put option leg of the collar enables the Fund to sell the
instrument underlying the option at a fixed price (i.e., the strike price),
thereby hedging against a decline in the market value of the underlying
security. The call option leg of the collar obligates the Fund to deliver the
underlying security at a higher strike price than the strike price of the put
option leg. Although the Fund receives a premium for writing the call option
contract, the Fund's upside potential is limited if the security's market price
exceeds the call option's strike price. Therefore, an option collar provides
protection from extreme downward price movement, but limits the asset's upward
price movement at the call option strike price.
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.
LEVERAGING RISK -- The Fund may invest in ETPs designed to provide investment
results that match a positive or negative multiple of the performance of an
underlying index ("Enhanced ETPs"). To the extent the Fund invests in such
Enhanced ETPs that achieve leveraged exposure to their underlying indexes
through the use of derivative instruments, the Fund will indirectly be subject
to leveraging risk. The more an Enhanced ETP invests in derivative instruments
that give rise to leverage, the more this leverage will magnify any losses on
those investments. Leverage will cause the value of an Enhanced ETP's shares to
be more volatile than if the Enhanced ETP did not use leverage. This is because
leverage tends to exaggerate the effect of any increase or decrease in the
value of an Enhanced ETP's portfolio securities or other investments. An
Enhanced ETP will engage in transactions and purchase instruments
50
that give rise to forms of leverage. Such transactions and instruments may
include, among others, the use of reverse repurchase agreements and other
borrowings, the investment of collateral from loans of portfolio securities,
the use of when issued, delayed-delivery or forward commitment transactions or
short sales. The use of leverage may also cause an Enhanced ETP to liquidate
portfolio positions when it would not be advantageous to do so in order to
satisfy its obligations or to meet segregation requirements. Certain types of
leveraging transactions could theoretically be subject to unlimited losses in
cases where an Enhanced ETP, for any reason, is unable to close out the
transaction. In addition, to the extent an Enhanced ETP borrows money, interest
costs on such borrowed money may not be recovered by any appreciation of the
securities purchased with the borrowed funds and could exceed the Enhanced
ETP's investment income, resulting in greater losses. The value of an Enhanced
ETP's shares will tend to increase or decrease more than the value of any
increase or decrease in its underlying index due to the fact that the Enhanced
ETP's investment strategies involve consistently applied leverage.
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.
REIT RISK -- REITs are pooled investment vehicles that own, and usually
operate, income-producing real estate. REITs are susceptible to the risks
associated with direct ownership of real estate, such as: declines in property
values; increases in property taxes, operating expenses, rising interest rates
or competition overbuilding; zoning changes; and losses from casualty or
condemnation. REITs typically incur fees that are separate from those of the
Fund. Accordingly, the Fund's investments in REITs will result in the layering
of expenses, such that shareholders will indirectly bear a proportionate share
of the REITs' operating expenses, in addition to paying Fund expenses.
MLP RISK -- MLPs are limited partnerships in which the ownership units are
publicly traded. MLP units are registered with the U.S. Securities and Exchange
Commission (the "SEC") and are freely traded on a securities exchange or in the
over-the-counter market. MLPs often own several properties or businesses (or
own interests) that are related to oil and gas industries or other natural
resources, but they also may finance other projects. To the extent that an
MLP's interests are all in a particular industry, the MLP will be negatively
impacted by economic events adversely impacting that industry. The risks of
investing in a MLP are generally those involved in investing in a partnership
as opposed to a corporation. For example, state law governing partnerships is
often less restrictive than state law governing corporations. Accordingly,
there may be fewer protections afforded to investors in a MLP than investors in
a corporation; for example, investors in MLPs may have limited voting rights or
be liable under certain circumstances for amounts greater than the amount of
their investment. In addition, MLPs may be subject to state taxation in certain
jurisdictions which will have the effect of reducing the amount of income paid
by the MLP to its investors.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of American
Depository Receipts ("ADRs"), which are traded on U.S. 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 United States. 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 Fund's investments. These currency
movements may occur separately from, and in response to,
51
events that do not otherwise affect the value of the security in the issuer's
home country. While ADRs provide an alternative to directly purchasing the
underlying foreign securities in their respective national markets and
currencies, investments in ADRs 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 Fund's portfolio 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 by the Fund. 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.
INVERSE CORRELATION RISK -- To the extent the Fund invests in Enhanced ETPs
that seek to provide investment results that match a negative multiple of the
performance of an underlying index, the Fund will indirectly be subject to the
risk that the performance of such Enhanced ETP will fall as the performance of
that Enhanced ETP's benchmark rises -- a result that is the opposite from
traditional mutual funds.
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 Fund commenced operations on January 7, 2011 and therefore does not have
performance history for a full calendar year. Once the Fund has completed a
full calendar year of operations, a bar chart and table will be included that
will provide some indication of the risks of investing in the Fund by showing
the variability of the Fund's return based on net assets and comparing the
Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
R. David Telling, Jr., Senior Fund Manager at Frost, has served on the
portfolio team for the Fund since its inception.
52
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
53
FROST STRATEGIC BALANCED FUND
INVESTMENT OBJECTIVE
The Frost Strategic Balanced Fund (the "Fund") seeks long-term capital
appreciation and current income.
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 105 of this prospectus, and in the Fund's Statement of
Additional Information.
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 1.07%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.29%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 2.31%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not correlate
to the expense ratio in the Fund's Financial Highlights because the Financial
Highlights include only the direct operating expenses incurred by the Fund, and
exclude Acquired Fund Fees and Expenses.
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%
54
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
--------------------------------------------------------------------------------
$551 $1,023 $1,520 $2,885
--------------------------------------------------------------------------------
|
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 18% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund seeks to achieve its investment objective
by investing in a diversified portfolio of global fixed income and equity
securities. The overarching principle of Frost Investment Advisors, LLC (the
"Adviser") is to structure the Fund to be well diversified across many asset
classes and securities. In selecting securities for the Fund, the Adviser uses
the following strategies:
o Strategic asset allocation;
o Tactical asset allocation;
o Security selection;
o Bond asset class allocation;
o Foreign currency exposure; and
o Derivatives.
Between 40% to 80% of the Fund's assets may be invested in domestic and
international equity securities, including emerging markets equity securities.
The balance of the Fund's portfolio will be invested in fixed income asset
classes and cash. Additionally, up to 40% of the Fund's assets may be invested
in non-core equity classes/styles such as real estate, infrastructure or
commodities, and hedged equity, which may also be internationally diversified.
The Adviser may alter these asset allocation guidelines according to its
outlook for each asset class. As an alternative to directly investing in
securities in these asset classes, the Fund may also invest in other investment
companies, including mutual funds, closed-end funds and exchange-traded funds
("ETFs"), to gain exposure to equity and fixed-income markets. The degree to
which the Fund invests in other investment companies for these purposes will
vary, and at times may be significant, depending on factors such as overall
Fund asset levels and the Adviser's views on the most efficient method for
achieving diversified exposure to a particular asset class consistent with the
Fund's investment objective. The Fund may also invest in derivatives to manage
risk, increase or decrease exposure to an asset class, and/or to enhance total
return. The Fund is reallocated at least annually to manage asset class drift
and improve the risk-reward profile of the Fund.
The Fund's asset class selection is based on the Adviser's outlook for the
reward and risks presented by each asset class. These assumptions are used in a
model-driven framework to make allocation decisions. The principal strategy
offers diversification and breadth by providing access to a broad array of
sources of returns through exposure to a broad selection of partially
correlated asset classes. The Adviser directs the Fund's asset market
allocation toward opportunities that are identified to be greater and away from
those that are smaller.
55
The Adviser has discretion to add or remove asset classes from the Fund based
on its analysis of valuation, opportunity and risk, provided the Fund's asset
allocation guidelines are met.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
DERIVATIVES RISKS -- Derivatives may involve risks different from, and possibly
greater than, those of traditional investments. The Fund may use derivatives
(such as futures, options, and swaps) to attempt to achieve its investment
objective and offset certain investment risks, while at the same time
maintaining liquidity. These positions may be established for hedging or
non-hedging purposes. Risks associated with the use of derivatives include the
following risks associated with hedging and leveraging activities:
o The success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in
markets, and movements in interest rates.
o The Fund may experience losses over certain ranges in the market that
exceed losses experienced by a fund that does not use derivatives.
o There may be an imperfect or no correlation between the changes in
market value of the securities held by the Fund and the prices of
derivatives.
o There may not be a liquid secondary market for derivatives.
o Trading restrictions or limitations may be imposed by an exchange.
o Government regulations may restrict trading derivatives.
o The other party to an agreement (e.g., options or expense swaps)
may default; however, in certain circumstances, such counterparty risk
may be reduced by having an organization with very good credit act as
intermediary. Because options premiums paid or received by the Fund
are small in relation to the market value of the investments
underlying the options, buying and selling put and call options can be
more speculative than investing directly in securities.
REAL ESTATE RISK -- The Fund may invest in funds, ETFs or companies that invest
in real estate. Real estate risk is the risk that real estate will underperform
the market as a whole. The general performance of the real estate industry has
historically been cyclical and particularly sensitive to economic downturns.
Real estate can be affected by changes in real estate values and rental income,
changes in interest rates, changing demographics and regional economic cycles.
56
REIT RISK -- Real Estate Investment Trusts ("REITs") are pooled investment
vehicles that own, and usually operate, income-producing real estate. REITs are
susceptible to the risks associated with direct ownership of real estate, such
as: declines in property values; increases in property taxes, operating
expenses, rising interest rates or competition overbuilding; zoning changes;
and losses from casualty or condemnation. REITs typically incur fees that are
separate from those of the Fund. Accordingly, the Fund's investments in REITs
will result in the layering of expenses, such that shareholders will indirectly
bear a proportionate share of the REITs' operating expenses, in addition to
paying Fund expenses.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
ALLOCATION RISK -- The Fund will allocate its investments between various asset
classes, including derivatives. These investments are based upon judgments
made by the Adviser, which may not accurately predict changes in the market.
As a result, the Fund could miss attractive investment opportunities by
underweighting markets that subsequently experience significant returns and
could lose value by overweighting markets that subsequently experience
significant declines.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of American
Depository Receipts ("ADRs"), which are traded on U.S. 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 United States. 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 Fund's 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. While
ADRs provide an alternative to directly purchasing the underlying foreign
securities in their respective national markets and currencies, investments in
ADRs 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 Fund's portfolio 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 by the
57
Fund. 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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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
58
of junk bonds and may cause the 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.
INVESTMENTS IN INVESTMENT COMPANIES AND ETFS -- ETFs are pooled investment
vehicles, such as registered investment companies and grantor trusts, whose
shares are listed and traded on U.S. stock exchanges or otherwise traded in the
over-the-counter market. To the extent the Fund invests in other investment
companies, such as ETFs, closed-end funds and other mutual funds, the Fund will
be subject to substantially the same risks as those associated with the direct
ownership of the securities held by such other investment companies. As a
shareholder of another investment company, the Fund relies on that investment
company to achieve its investment objective. If the investment company fails to
achieve its objective, the value of the Fund's investment could decline, which
could adversely affect the Fund's performance. By investing in another
investment company, Fund shareholders indirectly bear the Fund's proportionate
share of the fees and expenses of the other investment company, in addition to
the fees and expenses that Fund shareholders directly bear in connection with
the Fund's own operations. The Fund does not intend to invest in other
investment companies unless the Adviser believes that the potential benefits of
the investment justify the payment of any additional fees or expenses. Federal
securities laws impose limitations on the Fund's ability to invest in other
investment companies.
Because closed-end funds and ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. Investments in closed-end funds and ETFs are
also subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. In addition, because the value of closed-end
funds and ETF shares depends on the demand in the market, the Adviser may not
be able to liquidate the Fund's holdings at the most optimal time, which could
adversely affect Fund performance.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on June 30, 2008, when the
Fund 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. Because the Predecessor Fund was not a registered mutual fund, it was
not subject to the same
59
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)%
BEST QUARTER WORST QUARTER
13.22% (11.48)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 10.34%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 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 5
year and since Performance Start Date periods.
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 STRATEGIC BALANCED FUND 1 YEAR 5 YEARS (7/31/06)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (5.15)% 1.06% 2.39%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (5.40)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND (3.01)% N/A N/A
SALE OF FUND SHARES
S&P 500 INDEX (REFLECTS NO DEDUCTION FOR FEES, 2.11% (0.25)% 1.89%
EXPENSES, OR TAXES)
MSCI ALL COUNTRY WORLD EX-US INDEX (REFLECTS (13.71)% (2.92)% (0.27)%
NO DEDUCTION FOR FEES, EXPENSES, OR TAXES)
BARCLAYS US AGGREGATE INDEX (REFLECTS NO 7.84% 6.50% 6.70%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
48/12/40 BLENDED INDEX RETURN (REFLECTS NO 2.66% 2.59% 4.01%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
60
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Brad Thompson, CFA, Senior Fund Manager, Managing Director and Director of
Research at Frost, has served on the portfolio team for the Fund since its
inception.
Justin Hopkins, Fund Co-Manager, Mutual Fund Analyst and Trader at Frost, has
served on the portfolio team for the Fund since its inception.
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
61
FROST TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE
The Frost Total Return Bond Fund (the "Fund") seeks to maximize total return,
consisting of income and capital appreciation, consistent with the preservation
of principal.
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
$1,000,000 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 105 of this prospectus, and in the Fund's
Statement of Additional Information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 2.25%
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.50%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.91%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses of less
than 0.01%.
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:
62
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$316 $509 $718 $1,319
--------------------------------------------------------------------------------
|
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 61% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in fixed income securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders.
The Adviser actively manages the duration of the Fund and purchases securities
such that the average weighted duration of the Fund's portfolio will typically
range within plus or minus three years of the Fund benchmark's duration. The
Adviser, in constructing and maintaining the Fund's portfolio, employs the
following four primary strategies to varying degrees depending on its views of
economic growth prospects, interest rate predictions and relative value
assessments: interest rate positioning based on duration and yield curve
positioning; asset category allocations; credit sector allocations relating to
security ratings by the national ratings agencies; and individual security
selection. The "total return" sought by the Fund consists of income earned on
the Fund's investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates or improving credit fundamentals for a
particular sector or security.
The Fund typically invests in the following U.S. dollar-denominated fixed
income securities: U.S. Treasury securities; governmental agency debt;
corporate debt; asset-backed securities; taxable municipal bonds;
collateralized mortgage obligations ("CMO's") and residential and commercial
mortgage-backed securities. The Fund's fixed income investments focus primarily
on investment grade securities (rated in one of the four highest rating
categories by a rating agency), but may at times include securities rated below
investment grade (high yield or "junk" bonds). In addition, the Fund's fixed
income securities may include unrated securities, if deemed by the Adviser to
be of comparable quality to investment grade.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall.
63
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 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
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.
64
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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.
2003 2.54%
2004 2.59%
2005 2.21%
2006 3.35%
2007 5.30%
2008 (1.85)%
2009 19.12%
2010 8.57%
2011 4.72%
BEST QUARTER WORST QUARTER
7.08% (3.53)%
(09/30/2009) (06/30/2004)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 8.28%.
65
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Barclays U.S. Aggregate
Bond Index. After-tax returns cannot be calculated for periods before the
Fund's registration as a mutual fund and they are, therefore, unavailable for
the 5 year and since Performance Start Date periods.
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
FROST TOTAL RETURN BOND FUND 1 YEAR 5 YEARS DATE (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 2.37% 6.48% 5.39%
FUND RETURN AFTER TAXES ON 0.66% N/A N/A
DISTRIBUTIONS
FUND RETURN AFTER TAXES ON 1.62% N/A N/A
DISTRIBUTIONS AND SALE OF FUND SHARES
BARCLAYS U.S. AGGREGATE BOND INDEX 7.84% 6.50% 5.72%
RETURN (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
66
FROST CREDIT FUND
INVESTMENT OBJECTIVE
The Frost Credit Fund (the "Fund") seeks to maximize total return, consisting
of income and capital appreciation.
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
$1,000,000 in Class A Shares of the Frost Funds. More information about these
and other discounts is available from your financial professional and in the
section "Sales Charges" on page 105 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 2.25%
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.60%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses(1) 0.78%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses(2) 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.64%
--------------------------------------------------------------------------------
|
(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(2) "Acquired Fund Fees and Expenses" are based on estimated amounts for the
current fiscal year.
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%
67
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
------------------------
$388 $731
------------------------
|
PORTFOLIO TURNOVER
The Fund pays transaction costs 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.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests 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. This investment
policy may be changed by the Fund upon 60 days' prior notice to shareholders.
The Fund will invest in callable bonds, as well as fixed income securities that
pay a fixed or floating interest rate or interest that is payable in kind or
payable at maturity. The Fund will invest in high yield fixed income
securities, also referred to as "junk" bonds, which are generally rated below
BBB- by Standard & Poor's Ratings Services or Fitch, Inc. or Baa3 by Moody's
Investor Service at the time of purchase or are unrated but judged to be of
comparable quality by Frost Investment Advisors, LLC, the Fund's investment
adviser (the "Adviser"). All securities in which the Fund invests will be
denominated in U.S. dollars.
The Fund seeks to achieve its objective through a combination of active
portfolio management, a focus on relative value opportunities, sector
weightings and individual asset selection. In selecting assets for the Fund,
the Adviser uses a top-down approach to analyze industry fundamentals and
select individual securities based on its view of their relative value and
interest rate characteristics. The Adviser also will consider its view of the
yield curve and the potential for individual securities to produce consistent
income. The Adviser expects that more than half of the Fund's returns will be
derived from credit risk, rather than interest rate risk. Generally, the
greater the credit risk that a fixed income security presents, the higher the
interest rate the issuer must pay in order to compensate investors for assuming
such higher risk.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall.
68
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 three means the price of a debt security will change
about 3% for every 1% change in its yield. Thus, the higher 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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. For a Fund of this type,
credit risk is an important contributing factor over time to the performance of
the Fund.
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 the 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.
ZERO COUPON, DEFERRED INTEREST AND PAY-IN-KIND BOND RISK - These bonds are
issued at a discount from their face value because interest payments are
typically postponed until maturity. Pay-in-kind securities are securities that
have interest payable by the delivery of additional securities. The market
prices of these securities generally are more volatile than the market prices
of interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
DERIVATIVES RISK - Derivatives are often more volatile than other investments
and may magnify the Fund's gains or losses. There are various factors that
affect the Fund's ability to achieve its investment 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 Fund
buys or sells. The Fund could be negatively affected if the change in market
value of its securities fails to correlate perfectly with
69
the values of the derivatives it purchased or sold. For instance, the 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.
The lack of a liquid secondary market for a derivative may prevent the Fund
from closing its derivative positions and could adversely impact its ability to
achieve its investment objective or to realize profits or limit losses.
Because derivative instruments may be purchased by the Fund for a fraction of
the market value of the investments underlying such instruments, a relatively
small price movement in the underlying investment may result in an immediate
and substantial gain or loss to the Fund. Derivatives are often more volatile
than other investments and the Fund may lose more in a derivative than it
originally invested in it.
Additionally, derivative instruments, particularly market access products, 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.
STRUCTURED NOTE RISK - The Fund may invest in fixed income linked structured
notes. Structured notes are typically privately negotiated transactions between
two or more parties. The fees associated with a structured note may lead to
increased tracking error. The Fund also bears the risk that the issuer of the
structured note will default. The Fund bears the risk of loss of its principal
investment and periodic payments expected to be received for the duration of
its investment. In addition, a liquid market may not exist for the structured
notes. The lack of a liquid market may make it difficult to sell the structured
notes at an acceptable price or to accurately value them.
MARKET RISK - The risk that the value of securities owned by the Fund may go up
or down, sometimes rapidly or unpredictably, due to factors affecting
securities markets generally or particular industries.
ISSUER RISK - The risk that the value of a security may decline for a reason
directly related to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods or services.
LEVERAGE RISK - The use of leverage can amplify the effects of market
volatility on the Fund's share price and may also cause the Fund to liquidate
portfolio positions when it would not be advantageous to do so in order to
satisfy its obligations.
LIQUIDITY RISK - The risk that certain securities may be difficult or
impossible to sell at the time and the price that the Fund would like. The Fund
may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on Fund
management or performance.
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
70
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, the Fund may have to reinvest its principal at a
rate of interest that is lower than the rate on existing mortgage-backed
securities.
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, the 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 Fund. Conversely, as interest rates rise or spreads widen,
the likelihood of prepayment decreases. The Fund may be unable to capitalize on
securities with higher interest rates or wider spreads because the Fund's
investments are locked in at a lower rate for a longer period of time.
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 manager in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
FOREIGN COMPANY RISK - Investing in foreign companies, whether through
investments made in foreign markets or made through purchasing ADRs, which are
traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
NEW FUND RISK - Because the Fund is new, investors in the Fund bear the risk
that the Fund may not be successful in implementing its investment strategy,
may not employ a successful investment strategy, or may fail to attract
sufficient assets under management to realize economies of scale, any of which
could result in the Fund being liquidated at any time without shareholder
approval and at a time that may not be favorable for all shareholders. Such
liquidation could have negative tax consequences for shareholders and will
cause shareholders to incur expenses of liquidation.
71
PERFORMANCE INFORMATION
The Fund is new, and therefore has no performance history. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the
Fund by showing the variability of the Fund's return based on net assets and
comparing the Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGER
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income, and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
TAX INFORMATION
The distributions made by the Fund generally are taxable, and will be taxed as
ordinary income or capital gains. If you are investing through a tax-deferred
arrangement, such as a 401(k) plan or individual retirement account, you will
generally not be subject to federal taxation on Fund distributions until you
begin receiving distributions from your tax-deferred arrangement. You should
consult your tax advisor regarding the rules governing your tax-deferred
arrangement.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
72
FROST LOW DURATION BOND FUND
INVESTMENT OBJECTIVE
The Frost Low Duration Bond Fund (the "Fund") seeks to maximize total return,
consisting of income and capital appreciation, consistent with the preservation
of principal.
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
$1,000,000 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 105 of this prospectus, and in the Fund's
Statement of Additional Information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 2.25%
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.50%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.18%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.93%
--------------------------------------------------------------------------------
|
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
--------------------------------------------------------------------------------
$318 $515 $728 $1,342
--------------------------------------------------------------------------------
|
73
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 73% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in fixed income
securities. This investment policy may be changed by the Fund upon 60 days'
prior notice to shareholders. The Fund's emphasis is on total return with low
volatility by investing primarily in shorter-term investment grade securities.
Short-term bonds are considered more stable than longer-maturity bonds, but
less stable than money market securities.
To achieve its objective, the Fund invests in a diversified mix of taxable
fixed income securities. The Adviser actively manages the maturity of the Fund
and purchases securities which will, on average, mature in less than 5 years.
The Adviser actively manages the duration of the Fund and purchases securities
such that the average weighted duration of the Fund's portfolio will typically
range within plus or minus one year of the Barclays U.S. 1-5 Year Government
Credit Index duration. The Fund seeks to maintain a low duration but may
lengthen or shorten its duration within that range to reflect changes in the
overall composition of the short-term investment-grade debt markets. Duration
is a measure of a bond price's sensitivity to a given change in interest rates.
Generally, the longer a bond's duration, the greater its price sensitivity to a
change in interest rates. For example, the price of a bond with a duration of
three years would be expected to fall approximately 3% if rates were to rise by
one percentage point. The Adviser, in constructing and maintaining the Fund's
portfolio, employs the following four primary strategies to varying degrees
depending on its views of economic growth prospects, interest rate predictions
and relative value assessments: interest rate positioning based on duration and
yield curve position; asset category allocations; credit sector allocations
relating to security ratings by the national ratings agencies; and individual
security selection.
The Fund typically invests in the following U.S. dollar-denominated fixed
income securities: U.S. Treasury securities; governmental agency debt;
corporate debt; asset-backed securities; taxable municipal bonds; and, to a
lesser extent, residential and commercial mortgage-backed securities. The
Fund's fixed income investments are primarily of investment grade (rated in one
of the four highest rating categories by at least one rating agency), but may
at times include securities rated below investment grade (high yield or "junk"
bonds). In addition, the Fund's fixed income securities may include unrated
securities, if deemed by the Adviser to be of comparable quality to investment
grade.
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.
MUNICIPAL ISSUERS RISK -- There may be economic or political changes that
impact the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes in
74
the financial condition or credit rating of municipal issuers also may
adversely affect the value of the Fund's municipal securities. Constitutional
or legislative limits on borrowing by municipal issuers may result in reduced
supplies of municipal securities. Moreover, certain municipal securities are
backed only by a municipal issuer's ability to levy and collect taxes.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 three years means the price of a debt security will
change about 3% for every 1% change in its yield. Thus, the higher 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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-
75
grade debt securities. Insufficient liquidity in the junk bond market may make
it more difficult to dispose of junk bonds and may cause the 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.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to June 30, 2008. Institutional Class Shares of
the Fund are offered in a separate prospectus. Institutional Class Shares would
have substantially similar performance as Class A Shares because the shares are
invested in the same portfolio of securities and the annual returns would
differ only to the extent that the expenses of Class A Shares are higher than
the expenses of the Institutional Class Shares and, therefore, returns for the
Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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.
2003 1.64%
2004 (0.16)%
2005 0.30%
2006 2.90%
2007 5.91%
2008 1.14%
2009 11.76%
2010 3.92%
2011 2.48%
76
BEST QUARTER WORST QUARTER
4.46% (1.94)%
(06/30/2009) (06/30/2004)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 3.63%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Barclays U.S. 1-5 Year
Government/Credit Index. After-tax returns cannot be calculated for periods
before the Fund's registration as a mutual fund and they are, therefore,
unavailable for the 5 year and since Performance Start Date periods.
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 LOW DURATION BOND FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 0.19% 4.50% 3.34%
FUND RETURN AFTER TAXES ON (0.78)% N/A N/A
DISTRIBUTIONS
FUND RETURN AFTER TAXES ON 0.39% N/A N/A
DISTRIBUTIONS
AND SALE OF FUND SHARES
BARCLAYS U.S. 1-5 YEAR 3.14% 4.84% 4.26%
GOVERNMENT/CREDIT INDEX RETURN
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income, and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
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.
77
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
78
FROST MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE
The Frost Municipal Bond Fund (the "Fund") seeks to provide a consistent level
of current income exempt from federal income tax with a secondary emphasis on
maximizing total return through capital appreciation.
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
$1,000,000 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 105 of this prospectus, and in the Fund's
Statement of Additional Information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 2.25%
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.50%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.20%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.03%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.98%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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%
79
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
--------------------------------------------------------------------------------
$323 $530 $754 $1,399
--------------------------------------------------------------------------------
|
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 8% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests 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 ("AMT"). These securities include securities of
municipal issuers located in Texas as well as in other states, territories and
possessions of the United States. This investment policy may not be changed
without shareholder approval. The Fund may invest more than 25% of its total
assets in bonds of issuers in Texas.
The Adviser considers the relative yield, maturity and availability of various
types of municipal bonds and the general economic outlook in determining
whether to over- or under-weight a specific type of municipal bond in the
Fund's portfolio. Duration adjustments are made relative to the Barclays
Municipal Bond Index. The Adviser, in constructing and maintaining the Fund's
portfolio, employs the following four primary strategies to varying degrees
depending on its views of economic growth prospects, interest rate predictions
and relative value assessments: interest rate positioning based on duration and
yield curve positioning, with a typical range of three years; asset category
allocations; credit sector allocations relating to security ratings by the
national ratings agencies; and individual security selection.
Securities will be considered for sale in the event of or in anticipation of a
credit downgrade; to effect a change in duration or sector weighting of the
Fund; to realize an aberration in a security's valuation; or when the Adviser
otherwise deems appropriate.
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.
MUNICIPAL ISSUERS RISK -- There may be economic or political changes that
impact the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes in the financial condition or credit
rating of municipal issuers also may adversely affect the value of the Fund's
municipal securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal securities.
Moreover, certain municipal securities are backed only by a municipal issuer's
ability to levy and collect taxes.
80
STATE-SPECIFIC RISK -- The Fund is subject to the risk that the economy of the
states in which it invests, and the revenues underlying state municipal bonds,
may decline. Investing primarily in a single state means that the Fund is more
exposed to negative political or economic factors in that state than a fund
that invests more widely.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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
81
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 the 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.
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.
The performance information provided includes the returns of Institutional
Class Shares for periods prior to August 28, 2008. Institutional Class Shares
of the Fund are offered in a separate prospectus. Institutional Class Shares
would have substantially similar performance as Class A Shares because the
shares are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the expenses of Class A Shares are higher
than the expenses of the Institutional Class Shares and, therefore, returns for
the Class A Shares would be lower than those of the Institutional Class Shares.
Institutional Class Shares performance presented 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.
Institutional Class Shares first became available on April 25, 2008, when the
Fund 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
April 25, 2008. 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 May 31, 2002 ("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.
2003 3.14%
2004 1.42%
2005 0.54%
2006 2.45%
2007 3.37%
2008 3.38%
2009 7.15%
2010 1.18%
2011 7.32%
|
82
BEST QUARTER WORST QUARTER
4.23% (2.97)%
(09/30/2009) (12/31/2010)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Class A Shares from 1/1/12 to 9/30/12 was 3.90%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Class A Shares' average annual total returns for
the periods ended December 31, 2011 to those of the Barclays Municipal Bond
Index. After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the 5
year and since Performance Start Date periods.
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 MUNICIPAL BOND FUND 1 YEAR 5 YEARS (5/31/02)
------------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 4.95% 3.98% 3.33%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 4.89% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 4.33% N/A N/A
AND SALE OF FUND SHARES
BARCLAYS MUNICIPAL BOND INDEX RETURN 10.70% 5.22% 5.23%
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES, OR
TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
TAX INFORMATION
The Fund's distributions of interest on municipal obligations generally are not
subject to federal income tax; however the Fund may distribute taxable
dividends, including distributions of short-term capital gains, and long-term
capital gains. In addition, interest on certain obligations may be subject to
the federal alternative minimum tax. Depending on the laws of the state of your
residence, you may be subject to state tax on all or a portion of Fund
distributions.
83
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
84
FROST KEMPNER TREASURY AND INCOME FUND
INVESTMENT OBJECTIVE
The Frost Kempner Treasury and Income Fund (the "Fund") seeks to provide
current income consistent with the preservation of capital.
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
$1,000,000 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 105 of this prospectus, and in the Fund's
Statement of Additional Information.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of 2.25%
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)
------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, if applicable) None
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Class A Shares purchased without an initial sales charge may be subject to
a 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 0.35%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses(1) 0.32%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses(2) 0.04%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.96%
--------------------------------------------------------------------------------
|
(1) Other Expenses are based on estimated amounts for the current fiscal year.
(2) Acquired Fund Fees and Expenses are based on estimated amounts for the
current fiscal year.
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%
85
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
--------------------------------------------------------------------------------
$321 $524
--------------------------------------------------------------------------------
|
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 0% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in full faith and credit U.S.
Treasury obligations. This investment policy may be changed by the Fund upon 60
days' prior notice to shareholders. In selecting investments for the Fund, the
Fund's sub-adviser, Kempner Capital Management, Inc. ("KCM"), tries to increase
income without adding undue risk by analyzing yields. The Fund's investments
include Treasury bonds, Treasury notes, Treasury Inflated Protection Securities
and short-term U.S. government money market funds. In evaluating a security
for the Fund's portfolio, KCM considers, among other factors, the security's
interest rate, yield and maturity. KCM actively manages the maturity of the
Fund and its portfolio to maximize the Fund's yield based on current market
interest rates and KCM's outlook on the market.
The Fund may invest in full faith and credit money market instruments. The
percentage of the Fund invested in such holdings varies depending on various
factors, including market conditions. Consistent with preservation of capital,
a larger percentage of the Fund's net assets may be invested in cash or money
market instruments in order to provide capital and reduce the magnitude of loss
in a period of falling market prices.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated, forcing the
Fund to keep its money invested at lower rates. Falling interest rates,
however, generally cause investors to pay off mortgage-backed and asset-backed
securities earlier than expected, forcing the Fund to reinvest the money at a
lower interest rate.
The concept of duration is useful in assessing the sensitivity of a fixed
income fund to interest rate movements, which are 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,
86
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 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. Mutual funds that invest in debt securities have
no real maturity. Instead, they calculate their weighted average maturity. This
number is an average of the effective or anticipated maturity of each debt
security held by the mutual fund, with the maturity of each security weighted
by the percentage of its assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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.
Class A Shares of the Fund are not available for purchase and therefore do not
have a full calendar year of performance. Consequently, the bar chart shows the
performance of the Fund's Institutional Class Shares from year to year and the
performance table compares the average annual total returns of the Fund's
Institutional Class Shares to those of a broad measure of market performance.
The Fund's Institutional Class Shares are offered in a separate prospectus.
Class A Shares of the Fund would have substantially similar performance as
Institutional Class Shares because the shares are invested in the same
portfolio of securities and the annual returns would differ only to the extent
that the expenses of the Class A Shares are higher than the expenses of the
Institutional Class Shares and, therefore, returns for the Class A Shares would
be lower than those of the Institutional Class Shares. Institutional Class
Shares performance presented 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.
87
Institutional Class Shares first became available on April 25, 2008, when the
Fund succeeded to the assets and operations of a common trust fund that was
managed by Frost Bank and sub-advised by KCM (the "Predecessor Fund"). The
performance information provided includes the returns of the Predecessor Fund
for periods prior to April 25, 2008. 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 November 30, 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 7.46%
2008 2.28%
2009 6.64%
2010 5.44%
2011 10.41%
BEST QUARTER WORST QUARTER
4.44% 1.35%
(06/30/2010) (12/31/2010)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 2.85%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays
Treasury Bond Index. After-tax returns cannot be calculated for periods before
the Fund's registration as a mutual fund and they are, therefore, unavailable
for the 5 year and since Performance Start Date periods.
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 KEMPNER TREASURY AND INCOME FUND 1 YEAR 5 YEARS START DATE (11/30/06)
-------------------------------------------------------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 7.93% 5.94% 5.48%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 7.81% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF 6.05% N/A N/A
FUND SHARES
BARCLAYS TREASURY BOND INDEX RETURN (REFLECTS NO 9.81% 6.81% 6.52%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
88
INVESTMENT ADVISER
Frost Investment Advisors LLC ("Frost") serves as investment adviser to the
Fund. Kempner Capital Management, Inc. ("Kempner") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
Harris L. Kempner, Jr., President of Kempner, has served on the portfolio team
for the Fund since its inception.
R. Patrick Rowles, Executive Vice President of Kempner, has served on the
portfolio team for the Fund since its inception.
M. Shawn Gault, Vice President of Kempner, has served on the portfolio team for
the Fund since its inception.
Andrew Duncan, Vice President of Kempner, has served on the portfolio team for
the Fund since 2012.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 90 OF THE PROSPECTUS.
89
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES 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 initial investment amount 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.
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.
90
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. The risks disclosed below may not be
applicable to each Fund.
EQUITY RISK -- Equity securities in which the Funds invest include public and
privately issued equity securities, common and preferred stocks, warrants,
interests in MLPs and royalty trusts, shares of ADRs and REITs, as well as
shares of ETFs that attempt to track the price movement of equity indices, and
rights to subscribe to common stock and convertible securities. 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 such 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. An
investment in a portfolio of equity securities may be more suitable for
long-term investors who can bear the risk of these share price fluctuations.
FIXED INCOME RISK-- The market value of the Funds' fixed income investments
change in response to interest rate changes and other factors. During periods
of falling interest rates, the values of outstanding fixed income securities
generally rise. 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. 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 SECURITY RISK -- The Funds' investments in securities of foreign
companies (including direct investments as well as investments through ADRs)
can be more volatile than investments in U.S. companies. 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. Foreign companies or governments generally
are not subject to uniform accounting, auditing, and financial reporting
standards comparable to those applicable
91
to domestic U.S. companies or governments. Transaction costs are generally
higher than those in the United States 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 the securities comprising the portfolio.
MORE INFORMATION ABOUT FUND INVESTMENTS
Each Fund's investment objective may be changed without shareholder approval.
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 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.
MORE INFORMATION ABOUT THE FROST DIVERSIFIED STRATEGIES FUND'S INVESTMENTS
As part of its alternative allocation, the Frost Diversified Strategies Fund
invests in shares of ETPs, mutual funds and closed-end funds that track, on a
replication basis, broad hedge fund indices and/or individual inverse or low
correlation hedge fund strategies. Such strategies include:
Mergers and Acquisitions Strategies -- Merger arbitrage strategies focus on
positions in companies currently or prospectively involved in corporate
transactions of a wide variety including, but not limited to, mergers,
restructurings, financial distress, tender offers, shareholder buybacks, debt
exchanges, security issuance or other capital structure adjustments. Investment
themes are developed on fundamental characteristics, such as attractive
valuations relative to competition or announced mergers that are friendly but
yet to be consummated. Merger arbitrage strategies employ an investment
process focused on investment in equity and equity related instruments of
companies which are currently engaged in a corporate transaction. The principal
risk involved with merger and acquisition strategy investments is that certain
of the proposed corporate transactions may be renegotiated or terminated, which
could result in a loss.
Natural Resources Strategies -- Commodity strategies consist of combinations of
long and short holdings of commodity markets around the world. This strategy
uses various investment processes and both technical and fundamental research
to determine how individual commodity contracts are used, both long and short.
A commodity strategy is often a sub-set of a Global Macro Strategy (discussed
below), where these asset classes are used to express specific macro views in
commodities and/or currencies that are part
92
of a broader strategy. Exposure to commodity-related securities may subject the
Fund to greater volatility than investments in traditional securities,
particularly if the instruments involve leverage. The value of commodity-linked
investments may be affected by changes in overall market movements, commodity
index volatility, changes in interest rates, or factors affecting a particular
industry or commodity.
Global Macro Strategies -- Global macro strategies allocate capital to multiple
independent proprietary technical and fundamental valuation models applied both
long and short to equity, fixed income, currency and commodity markets
globally. Global macro can be implemented with multiple disciplines, resulting
in a blend of approaches to maintain proper weights between discretionary
decisions and data-driven decisions to achieve superior risk-adjusted returns.
Global markets, particularly foreign stock markets, are volatile and can
decline significantly in response to adverse economic, issuer, political or
regulatory changes. Exchange rate risk between the U.S. dollar and foreign
currencies may cause the value of the Fund's investments to decline.
Long/Short Strategies -- Long/Short equity strategies combine core long
holdings of equities with short sales of stock or stock index options.
Additionally, long/short strategies may use securities that track indices on
markets, sectors, and/or industries to hedge against potential adverse
movements in security prices. There are multiple versions of this core strategy
category that can be implemented in the Fund. The basic long/short equity
strategies generally increase net long exposure in bull markets and decrease
net long exposure, or may be net short, in a bear market. The long/short equity
strategies may use equity swaps, or other derivatives, in addition to or in
lieu of investing in long or short positions in individual securities or
securities indices.
Short sales expose the Fund to the risk that the security sold short will have
to be bought (also known as "covering" the short position) at a time when the
security has appreciated in value, thus resulting in a loss. Reinvesting
proceeds received from short selling may create leverage which can amplify the
effects of market volatility on the Fund's share price.
Convertible Arbitrage Strategies -- Convertible arbitrage strategies involve
purchasing interest-bearing convertible debentures and/or high yielding,
convertible preferred stocks. These long convertible positions are then hedged
against stock market risk by selling short a percentage of the underlying
common stock and/or by writing equity call options. Arbitrage strategies
involve engaging in transactions that attempt to exploit price differences of
identical, related or similar securities on different markets or in different
forms. The Fund may realize losses or reduced rate of return if underlying
relationships among securities in which investment positions are taken change
in an adverse manner or a transaction is unexpectedly terminated or delayed.
Trading to seek short-term capital appreciation can be expected to cause the
Fund's portfolio turnover rate to be substantially higher than that of the
average equity-oriented investment company, resulting in higher transaction
costs and additional capital gains tax liabilities.
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. The Adviser manages and
supervises the investment of
93
the Funds' assets on a discretionary basis. As of September 30, 2012, the
Adviser had approximately $8.8 billion in assets under management.
The Adviser oversees the sub-advisers to 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 Cinque Large Cap Buy-Write Equity
Fund, and the Frost Kempner Treasury and Income Fund (each, a "Sub-Adviser" and
collectively, the "Sub-Advisers") to ensure their compliance with the investment
policies and guidelines of these Funds, and monitors each Sub-Adviser's
adherence to its investment style. The Adviser pays the Sub-Advisers out of the
advisory fee it receives from the Funds. The Board of Trustees of the Trust (the
"Board") supervises the Adviser and the Sub-Advisers and establishes policies
that the Adviser and Sub-Advisers must follow in their 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. For its services under the Sub-Advisory Agreements, each
Sub-Adviser is entitled to a fee, which is calculated daily and paid monthly,
by the Adviser. The Adviser has voluntarily agreed to reduce its investment
advisory fees for certain Funds as set forth below ("Voluntary Fee Reduction").
In addition, the Adviser has voluntarily agreed to further reduce its fees
and/or reimburse expenses in order to keep total annual Fund operating expenses
(excluding interest, taxes, brokerage commissions, acquired fund fees and
expenses and extraordinary expenses) from exceeding certain levels as set forth
below ("Voluntary Expense Limitation"). The Adviser intends to continue these
expense limitations until further notice, but may discontinue all or part of
these fee reductions or expense reimbursements at any time. If at any point it
becomes unnecessary for the Adviser to reduce fees or make expense
reimbursements, the Adviser may retain the difference between the total annual
Fund operating expenses and the Voluntary Expense Limitation set forth below to
recover all or a portion of its prior fee reductions or expense reimbursements
made during the preceding three-year period during which the 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. The table
below shows the rate of each Fund's investment advisory fee before the
Adviser's Voluntary Fee Reduction, the rate of the Adviser's Voluntary Fee
Reduction, the investment advisory fee after the Voluntary Fee Reduction and
the Adviser's Voluntary Expense Limitation for each Fund, and the amount of
advisory fees paid to the Adviser as a percentage of daily net assets for the
fiscal year ending July 31, 2012.
---------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE ADVISER'S ADVISORY VOLUNTARY ADVISORY
BEFORE VOLUNTARY FEE AFTER EXPENSE FEES PAID
VOLUNTARY FEE FEE VOLUNTARY LIMITATION
REDUCTION REDUCTION FEE
REDUCTION
---------------------------------------------------------------------------------------------------------------
Frost Growth Equity Fund 0.80% 0.15% 0.65% 1.50% 0.65%
---------------------------------------------------------------------------------------------------------------
Frost Dividend Value Equity Fund 0.80% 0.15% 0.65% 1.50% 0.65%
---------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep 0.59% None 0.59% 1.30% 0.59%
Value Equity Fund
---------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 0.90% None 0.90% 1.80% 0.90%
---------------------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund 1.00% for assets None 1.00% for 1.80% 0.93%
up to $100 assets up to
million $100 million
0.85% for assets 0.85% for
over $100 assets over
million $100 million
---------------------------------------------------------------------------------------------------------------
Frost International Equity Fund 0.95% for assets None 0.95% for 1.70% 0.93%
up to $150 assets up to
million $150 million
0.90% for assets 0.90% for
over $150 assets over
million $150 million
---------------------------------------------------------------------------------------------------------------
Frost Natural Resources Fund 0.80% None 0.80% 2.00% 0.80%(1)
---------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write 0.90% None 0.90% 1.75% None(2)
Equity Fund
---------------------------------------------------------------------------------------------------------------
Frost Diversified Strategies Fund 0.80% None 0.80% 2.00% 0.80%
---------------------------------------------------------------------------------------------------------------
Frost Strategic Balanced Fund 0.70% 0.05% 0.65% 1.60% 0.28%
---------------------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund 0.50% 0.15%(3) 0.35% 1.20% 0.35%
---------------------------------------------------------------------------------------------------------------
Frost Credit Fund 0.60% None 0.60% 1.25% None(2)
---------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund 0.50% 0.15%(4) 0.35% 1.20% 0.35%
---------------------------------------------------------------------------------------------------------------
Frost Municipal Bond Fund 0.50% 0.25%(5) 0.25% 1.30% 0.40%
---------------------------------------------------------------------------------------------------------------
Frost Kempner Treasury and 0.35% None 0.35% 1.30% 0.35%
Income Fund
---------------------------------------------------------------------------------------------------------------
|
(1) For the fiscal period from September 27, 2011 (commencement of operations)
to July 31, 2012.
(2) Not in operation during this period.
(3) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Total Return Bond Fund by 0.10%.
(4) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Low Duration Bond Fund by 0.20%
(5) Prior to August 30, 2012, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Municipal Bond Fund by 0.10%.
94
A discussion regarding the basis for the Board's approval of the investment
advisory contract with the Adviser and the sub-advisory contracts between the
Adviser and each Sub-Adviser will be available in the Funds' Semi-Annual Report
to Shareholders dated January 31, 2013.
PORTFOLIO MANAGERS
John Lutz, CFA, Senior Research Analyst at Frost, serves as Senior Fund Manager
of the Frost Growth Equity Fund and Fund Co-Manager of the Frost Natural
Resources Fund. Mr. Lutz is jointly and primarily responsible for the
day-to-day management of the Frost Growth Equity Fund and the Frost Natural
Resources Fund. Mr. Lutz joined Frost Bank, the parent company of the Adviser,
in 1995. He received a bachelor's degree in business administration from Texas
A&M University and a master's degree in business administration from Our Lady
of the Lake University.
TJ Qatato, CFA, Senior Research Analyst at Frost, serves as Fund Co-Manager of
the Frost Growth Equity Fund. Mr. Qatato is jointly and primarily responsible
for the day-to-day management of the Frost Growth Equity Fund. Mr. Qatato
joined Frost Investment Advisors in 2011. Prior to joining Frost, he worked for
Aster Investment Management Inc. and Friess Associates. He earned a bachelor's
degree in business administration and a master's degree in professional
accounting, both from The University of Texas at Austin. Mr. Qatato is a holder
of the right to use the Chartered Financial Analyst (CFA(R)) designation and is
a member of the CFA Institute.
Stephen Coker, CFA, Senior Research Analyst at Frost, serves as Fund Co-Manager
of the Frost Growth Equity Fund. Mr. Coker is jointly and primarily responsible
for the day-to-day management of the Frost Growth Equity Fund. Mr. Coker joined
Frost Investment Advisors in 2008. Prior to joining Frost, he worked for the
Principal Financial Group in Seattle and Trusco Capital Management in Atlanta.
He earned a bachelor's degree in Management from Georgia Tech and an MBA in
Finance from Indiana University. Mr. Coker is a holder of the right to use the
Chartered Financial Analyst (CFA[R]) designation and is a member of the CFA
Institute.
Michael R. Brell, CFA, Senior Research Analyst at Frost, serves as Fund
Co-Manager of the Frost Dividend Value Equity Fund. Mr. Brell is jointly and
primarily responsible for the day-to-day management of the Frost Dividend Value
Equity Fund. Mr. Brell joined Frost Bank, the parent company of the Adviser, in
2002. He received a bachelor's of arts degree with honors in international
relations and a master's degree in business administration from St. Mary's
University.
95
Theodore H. Harper, Senior Research Analyst at Frost, serves as Senior Fund
Manager of the Frost Natural Resources Fund and Fund Co-Manager of the Frost
Dividend Value Equity Fund. Mr. Harper is jointly and primarily responsible for
the day-to-day management of the Frost Natural Resources Fund and the Frost
Dividend Value Equity Fund. Mr. Harper joined Frost Bank, the parent company of
the Adviser, in 2000. He received a bachelor's degree in political science and
economics from the University of Arizona.
Tom L. Stringfellow, CFA, CFP, CPA, President and CIO at Frost, serves as Fund
Co-Manager of the Frost Growth Equity Fund, the Frost Dividend Value Equity
Fund, the Frost Natural Resources Fund, the Frost Diversified Strategies Fund,
and the Frost Strategic Balanced Fund. Mr. Stringfellow is jointly and
primarily responsible for the day-to-day management of the Frost Growth Equity
Fund, the Frost Dividend Value Equity Fund, the Frost Natural Resources Fund,
the Frost Diversified Strategies Fund, and the Frost Strategic Balanced 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 master's degree in economics from St.
Mary's University and a master's degree in business administration from Texas
A&M University.
Jeffery Elswick, Director of Fixed Income and Managing Director at Frost,
serves as Senior Fund Manager of the Frost Total Return Bond Fund, the Frost
Credit Fund, the Frost Low Duration Bond Fund, and the Frost Municipal Bond
Fund. Mr. Elswick is jointly and primarily responsible for the day-to-day
management of the Frost Total Return Bond Fund, the Frost Credit Fund, the
Frost Low Duration Bond Fund, and the Frost Municipal Bond Fund. Mr. Elswick
joined Frost Bank, the parent company of the Adviser, in 2006. Prior to joining
Frost Bank, Mr. Elswick served as a fixed income portfolio manager, analyst and
trader at Capital One Financial Corporation from 2000 to 2006. He received a
master of science in finance degree and a bachelor's of business administration
degree from Texas A&M University.
Brad Thompson, CFA, Managing Director and Director of Research at Frost, serves
as Senior Fund Manager of the Frost Strategic Balanced Fund and Fund Co-Manager
of the Frost Growth Equity Fund, the Frost Dividend Value Equity Fund, and the
Frost Diversified Strategies Fund. Mr. Thompson is jointly and primarily
responsible for the day-to-day management of the Frost Strategic Balanced Fund,
the Frost Growth Equity Fund, the Frost Dividend Value Equity Fund and the
Frost Diversified Strategies 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.
Justin Hopkins, Mutual Fund Analyst and Trader at Frost, serves as Fund
Co-Manager of the Frost Strategic Balanced Fund. Mr. Hopkins is jointly and
primarily responsible for the day-to-day management of the Frost Strategic
Balanced 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.
R. David Telling, Senior Fund Manager at Frost, is jointly and primarily
responsible for the day-to-day management of the Frost Diversified Strategies
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.
96
SUB-ADVISERS
The Sub-Advisers for 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 Cinque Large Cap Buy-Write Equity Fund, and
the Frost Kempner Treasury and Income Fund are responsible for the day-to-day
management of these Funds, subject to the general supervision of the Board and
the Adviser and in accordance with the investment objectives, policies and
restrictions of the Funds.
o 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, 12th Floor, FNB Building
Galveston, Texas 77550-1503. As of September 30, 2012, KCM had approximately
$434 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 the
Frost Kempner Treasury and Income Fund's investments.
Harris L. Kempner, Jr. is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Kempner has been KCM's President since
the firm's inception in 1982. He was President of U.S. National Bancshares and
Chief Investment Officer for Frost Bank of Galveston (formerly United States
National Bank) from 1969-1982. He received a BA from Harvard University in 1961
and an MBA from Stanford University in 1963.
97
R. Patrick Rowles is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Rowles joined KCM as Executive Vice
President in 1987. He was President of R. Patrick Rowles & Company from
1981-1987. He received a BBA from the University of Texas at Austin in 1961.
M. Shawn Gault is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Gault is a Vice President and joined KCM
in January 2001. He received a BS from the University of Texas at Arlington in
1995 and an MBA/MHA from the University of Houston at Clear Lake in 2000.
Andrew Duncan is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Duncan is a Vice President and joined KCM
in May 2012. He received a BS from West Virginia University in 1995 and a MS
from Texas A&M University in 1996. Prior to joining Kempner, Mr. Duncan was
employed with American National Insurance Company from May 2006 to May 2012 as
Vice President of Equity Investments. He was employed with Securities
Management & Research, Inc. from January 1997 to May 2006 as a Security
Analyst, Portfolio Manager and Senior Securities Analyst, and Vice President,
Head of Equity Mutual Funds.
98
o 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. As of September 30, 2012, LKCM had approximately
$10.3 billion in assets under management. LKCM is responsible for the day-to-day
management of the Frost Mid Cap Equity Fund's investments.
J. Luther King, Jr. is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. King has been President,
Principal, and Portfolio Manager of Luther King Capital Management Corporation
since 1979.
Steven R. Purvis is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. Purvis has been a Portfolio
Manager of Luther King Capital Management Corporation since 1996 and a
Principal of the firm since 2003.
Paul W. Greenwell is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. Greenwell has been a Portfolio
Manager of Luther King Capital Management Corporation since 1983 and a
Principal of the firm since 1986.
o FROST SMALL CAP EQUITY FUND
Cambiar Investors LLC, ("Cambiar"), a Delaware limited liability company
located at 2401 East Second Avenue, Suite 500, Denver, Colorado 80206, is an
investment adviser registered with the Securities and Exchange Commission (the
"SEC") under the Investment Advisers Act of 1940. Cambiar has provided
investment management services to corporations, foundations, endowments,
pension and profit sharing plans, trusts, estates and other institutions as
well as individuals since 1973. As of September 30, 2012, Cambiar managed
approximately $6.9 billion in firmwide assets across four equity strategies
including large-cap, small-cap, international equity and global multi-value
equity strategies.
Brian M. Barish, CFA, President, Director of Research, joined Cambiar in 1997.
He focuses on the technology, media, aerospace and defense sectors. Prior to
joining Cambiar, Mr. Barish served as Director of Emerging Markets Research for
Lazard Freres & Co., a New York based investment bank. He has also served as a
securities analyst with Bear, Stearns & Co. and Arnhold S. Bleichroeder, a New
York based research firm. Mr. Barish received a BA in Economics and Philosophy
from the University of California, Berkeley, and holds the Chartered Financial
Analyst designation.
Anna (Ania) A. Aldrich, CFA, Principal, joined Cambiar in 1999. Prior to
joining Cambiar, Ms. Aldrich was a global equity analyst at Bankers Trust, a
New York based investment company, covering the financial services and
transportation sectors. She began her career as a senior investor relations
professional at BET PLC, a New York based communications firm. Ms. Aldrich
holds an MBA in Finance from Fordham University and a BA in Computer Science
from Hunter College. She also holds the Chartered Financial Analyst
designation.
Andrew P. Baumbusch, Principal, joined Cambiar in 2004. Prior to joining
Cambiar, Mr. Baumbusch served as an investment analyst at Franklin Templeton,
Atrium Capital and Alex Brown & Sons. Mr. Baumbusch holds an MBA from the
Stanford Graduate School of Business and a BA in Economics from Princeton
University.
Timothy A. Beranek, Principal, joined Cambiar in 1999. Prior to joining
Cambiar, Mr. Beranek was with Resources Trust where he had responsibility for
oversight of financial controls for the company's mutual fund trading
relationships. He began his career with Merrill Lynch. Mr. Beranek holds a
Masters in Finance from the University of Colorado and a BS in Economics from
the University of South Dakota.
Maria L. Mendelsberg, CFA, Principal, joined Cambiar in 1997. Prior to joining
Cambiar, Ms. Mendelsberg served as an investment analyst for Eaton Vance
Management, a Boston based investment company. Before launching her investment
career, she spent many years working in retail management. Ms. Mendelsberg
received a BA in Economics and Classics from Brown University, and holds the
Chartered Financial Analyst designation.
Jeffrey H. Susman, Senior Investment Analyst, joined Cambiar in 2005. Prior to
joining Cambiar, Mr. Susman worked at UBS Investment Bank, where he was an
associate analyst on the Global Communications Equipment Equity Research Team.
Mr. Susman began his investment career as a Research Associate at Wellington
Management. Mr. Susman received an MBA in Finance and Corporate Strategy from
the University of Michigan and a BA in Economics and International Relations
from Tufts University.
o 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, New Mexico 87506. As of September 30, 2012, Thornburg
had approximately $81 billion in assets under management. Thornburg is
responsible for the day-to-day management of the Frost International Equity
Fund's investments.
William Fries, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Mr. Fries joined Thornburg
in 1995. He received a BS from the Pennsylvania State University and an MBA
from Temple University.
Lei Wang, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Mr. Wang joined Thornburg in
2004. Prior to joining Thornburg, Mr. Wang served as an associate at Enso
Capital from 2002 to 2004 and as an associate at Deutsche Bank Alex Brown Inc.
from 2001 to 2002. He received a BA/MA from East China Normal University and an
MBA from New York University.
Wendy Trevisani is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Ms. Trevisani joined
Thornburg in 1999. She received a BA from Bucknell University and an MBA from
Columbia University.
o FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
Cinque Partners LLC (Cinque), a Delaware limited liability company established
in 2011, serves as the sub-adviser to the Frost Cinque Large Cap Buy-Write
Equity Fund. Cinque's principal place of business is 11836 San Vicente
Boulevard, Los Angeles, CA 90049. As of September 30, 2012, Cinque had
approximately $170 million in assets under management. Cinque is responsible
for the day-to-day management of the Frost Cinque Large Cap Buy-Write Equity
Fund's investments.
Alan Adelman is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Adelman
joined Cinque in 2012. Prior to joining Cinque, Mr. Adelman joined Wells Fargo
Private Client Services (PCS) in 2000 as its Chief Investment Strategist,
providing investment strategy for 220 portfolio managers, 1200 registered
representatives, 600 personal trust officers and 150 private bankers. He served
as the Chief Investment Officer for Wells Fargo's offshore trust company and he
oversaw the PCS Flagship Wells Fargo Signature Core Equity Strategy, which was
used as the model for separate accounts, commingled funds and unit trusts. He
received his BS from Arizona State University Alan also completed the United
Asset Management Leadership Program at Harvard Business School and the Equity
Derivatives Program at the Columbia University School of Business.
Jack Cowling, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Cowling
joined Cinque in 2012. Prior to joining Cinque, Mr. Cowling joined Wells Fargo
Private Client Services (PCS) in 2001 as Senior Portfolio Manager, providing
investment strategy and advice for local Bank clients. He served as a senior
member of the PCS Flagship Wells Fargo Signature Core Equity Strategy Team,
which is used as the model for separate accounts, commingled funds and unit
trusts. Prior to joining Wells Fargo, Jack was a Senior Partner and Manager of
Quantitative Research for First Investment Advisors, a private client advisory
firm based in Charlotte, North Carolina. He received his Bachelor degree Summa
Cum Laude from the University of North Florida.
Fred Wahl, CFA, CIMA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Wahl joined
Cinque in 2012. Prior to joining Cinque, Mr. Wahl worked with a team of
portfolio managers and relationship managers providing alternative investment
and advisory services to ultra-high net worth clients of Wells Fargo. Mr. Wahl
was also a contributor to the Wells Fargo Wealth Management Investment Strategy
team and was one of the creators of the stock ranking and target price models
used to assess attractiveness of holdings within Wells Fargo client portfolios.
He has over 30 years of experience, primarily in the trust and investment
management business (and 2 years as an institutional broker). Prior to joining
Wells Fargo in 1992, he managed the fixed income portion of the American
Airlines pension plan as a member of the in-house portfolio management team,
and supported its plan sponsor group with equity analysis to aid in monitoring
over 40 outside investment managers. Mr. Wahl's early career consisted of
work in traditional Trust investment management, bank portfolio management, and
chief investment officer of a bank-owned registered investment advisor. He
received his Bachelor of Science in Economics & Finance from Lehigh University
Pierre Brachet, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Brachet
joined Cinque in 2012. Prior to joining Cinque, Mr. Brachet provided
statistical analysis and data management support for Private Client Services'
(PCS) Wells Fargo Signature Core equity model as well as for the PCS Asset
Allocation team. He received his MBA from Portland State University.
99
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 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."
100
HOW TO PURCHASE FUND SHARES
All investments must be made by check or wire. 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 Fund 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 and the Fund name.
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
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 and your account number).
WIRING INSTRUCTIONS
UMB Bank, N.A.
ABA # 101000695
Frost Funds
DDA Acct. # 9871063178
Ref: Fund name/account number/account name
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.
101
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
7th 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 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 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
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 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.
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
102
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 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").
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. You
may only exchange 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
When you buy shares, you pay the "offering price" for the shares. The offering
price is the NAV per share plus any sales charge applicable to the purchase.
When you sell shares you receive the NAV minus any applicable Contingent
Deferred Sales Charges ("CDSC") and/or redemption fee.
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.)
103
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 of Trustees (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
readily available.
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 requests for Fund
shares ("authorized institutions"). These requests are executed at the NAV next
determined after the authorized institution receives the request. To determine
whether your financial intermediary is an authorized institution such that it
may act as agent on behalf of the Funds with respect to purchase and redemption
requests 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
104
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.
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.
The following relates to the Frost Growth Equity Fund, the Frost Dividend 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 Diversified Strategies Fund, and the Frost Strategic
Balanced Fund:
--------------------------------------------------------------------------------------------------
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 WILL BE SUBJECT TO A 1.00%
DEFERRED SALES CHARGE IF YOU REDEEM YOUR SHARES WITHIN 12 MONTHS OF
PURCHASE.
The following relates to 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:
--------------------------------------------------------------------------------------------------
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 $1,000,000 2.25% 2.30%
$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 WILL 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
105
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 The Advisors' Inner Circle Fund II;
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.
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
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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 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.
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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.
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.
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
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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 sufficient time to add to your account and avoid the
need to sell your shares. If your Frost International Equity Fund or Frost
Diversified Strategies Fund shares are redeemed for this reason within 30
calendar days of their purchase, the redemption fee will not be applied.
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 Statement of Additional Information.
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
109
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. These payments may be in
addition to any Rule 12b-1 fees and/or shareholder servicing payments that are
reflected in the fees and expenses listed in the fee table section 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 it 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 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 Funds'
Statement of Additional Information.
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,
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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.
In addition, small- and mid-cap securities, which often trade in lower volumes
and may be less liquid, may make a Fund more susceptible to the risks posed by
frequent trading because frequent transactions in a Fund's shares may have a
greater impact on the market prices of these types of securities. 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 Funds'
Board of Trustees. 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 orders. The Funds define a round trip
as a purchase 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 Frost International Equity Fund and the Frost Diversified Strategies
Fund each assess a redemption fee of 2.00% on redemptions by shareholders of
Fund shares held for less than 30 calendar days for the International Equity
Fund and less than 60 calendar days for the Diversified Strategies Fund
(subject to certain exceptions as discussed in "Redemption Fee").
o The Funds reserve the right to reject any purchase 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-
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timing policy; (2) furnish the Funds, upon its 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.
REDEMPTION FEE
In an effort to discourage short-term trading and defray costs incurred by
shareholders as a result of such trading, the Frost International Equity Fund
and the Frost Diversified Strategies Fund each charge a 2.00% redemption fee on
redemptions of shares that have been held for less than 30 calendar days for
the International Equity Fund and less than 60 calendar days for the
Diversified Strategies Fund. The fee is deducted from the sale proceeds and
cannot be paid separately, and any proceeds of the fee are credited to the
applicable assets of the Funds. The fee does not apply to the exchange of
shares or shares purchased with reinvested dividends or distributions. In
determining how long shares of a Fund have been held, the Fund assumes that
shares held by the investor the longest period of time will be sold first. The
redemption fee is applicable to Fund shares purchased either directly or
through a financial intermediary, such as a broker-dealer. Transactions through
financial intermediaries typically are placed with a Fund on an omnibus basis
and include both purchase and sale transactions placed on behalf of multiple
investors. The Funds request that financial intermediaries assess the
redemption fee on customer accounts and collect and remit the proceeds to the
applicable Fund. However, the Funds recognize that due to operational
requirements, the intermediaries' methods for tracking and calculating the fee
may be inadequate or differ in some respects from the Funds'.
The Funds reserve the right to waive the redemption fee in its discretion where
it believes such waiver is in the best interests of a Fund, including certain
categories of redemptions that the Funds reasonably believe may not raise
frequent trading or market timing concerns. These categories include, but are
not limited to, the following: (i) participants in certain group retirement
plans whose processing systems are incapable of properly applying the
redemption fee to underlying shareholders; (ii) redemptions resulting from
certain transfers upon the death of a shareholder; (iii) redemptions by certain
pension plans as required by law or by regulatory authorities; (iv) failed
verifications; (v) involuntary redemptions; and (vi) retirement loans and
withdrawals. The redemption fee will not be applied on redemptions made within
the 30 or 60 calendar day period because the account does not meet the
applicable minimum account size or because the Fund is unable to verify the
accountholder's identity within a reasonable time after the account is opened.
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.
112
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.
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. If your account is closed for
this reason, the redemption fee will not be applied. 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 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 continuously, 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 Frost Growth Equity Fund, the Frost Mid Cap Equity Fund, the Frost
Small Cap Equity Fund, the Frost International Equity Fund, the Frost Natural
Resources Fund, and the Frost Cinque Large Cap Buy-Write Equity Fund each
distribute their net investment income and make distributions of their net
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realized capital gains, if any, at least annually. Normally, the Frost Dividend
Value Equity Fund, the Frost Kempner Multi-Cap Deep Value Equity Fund, the Frost
Diversified Strategies Fund, the Frost Strategic Balanced 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
distribute their net investment income, if any, monthly 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-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
Diversified Strategies Fund and the Natural Resources Fund 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. Absent further legislation,
the reduced tax rates applicable to qualified dividend income will not apply to
dividends received in taxable years beginning after December 31, 2012 and such
income will be taxable at ordinary income tax rates. Distributions from the
Frost Total Return Bond Fund, Frost Credit Fund, Frost Low Duration Bond Fund,
Frost Municipal Bond Fund, and Frost Kempner Treasury and Income Fund are not
expected to qualify for the reduced tax rates on qualified dividend income.
The Frost Total Return Bond Fund, Frost Credit Fund, Frost Low Duration Bond
Fund, and Frost Kempner Treasury and Income Fund are each expected to make
primarily ordinary income distributions. Because the Frost Municipal Bond Fund
invests primarily in municipal bonds, the dividends you receive from these Funds
will generally be exempt from regular federal income tax. All or a portion of
these dividends, however, may be subject to state and local taxes or to the
federal alternative minimum tax. Although the Frost Municipal Bond Fund does not
seek to realize taxable income or capital gains, these Funds may realize
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and distribute taxable income or capital gains from time to time as a result of
their normal investment activities. 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.
Recent legislation effective beginning in 2013 provides that U.S. individuals
with income exceeding $200,000 ($250,000 if married and filing jointly) will be
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 will also be 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 the new cost basis reporting law 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. 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.
115
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 period of the Fund's operations. Some of this information
reflects financial information for a single Fund 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 Fund. The financial
statements and the unqualified opinion of Ernst & Young LLP are included in the
2012 Annual Report of the Fund, which is available upon request by calling
1-877-71-FROST.
Because the Frost Cinque Large Cap Buy-Write Equity Fund and the Frost Credit
Fund have not commenced operations and Class A Shares of the Frost Kempner
Treasury and Income Bond Fund are not available for purchase as of the date of
this prospectus, financial highlights for the Frost Cinque Large Cap Buy-Write
Equity Fund, the Frost Credit Fund, and the Frost Kempner Treasury and Income
Bond Fund are not available.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
-----------------------------------------------------------------------------------------------------------------------
NET
REALIZED AND
NET ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT GAIN (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
-----------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.24 $(0.01) $ 0.23 $ 0.22 $ -- $ -- $ -- $10.46
2011 8.19 (0.00)+++ 2.06 2.06 (0.01) (0.00)^ (0.01) 10.24
2010 7.59 0.00+++ 0.61 0.61 (0.01) -- (0.01) 8.19
2009 9.34 0.01 (1.75) (1.74) (0.01) -- (0.01) 7.59
2008 (a) 9.66 0.00+++ (0.32) (0.32) -- -- -- 9.34
-----------------------------------------------------------------------------------------------------------------------
DIVIDEND VALUE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.19 $ 0.17 $(0.28) $(0.11) $ (0.17) $ -- $ (0.17) $ 8.91
2011 8.03 0.17 1.16 1.33 (0.17) -- (0.17) 9.19
2010 7.43 0.13 0.60 0.73 (0.13) -- (0.13) 8.03
2009 9.20 0.19 (1.62) (1.43) (0.19) (0.15) (0.34) 7.43
2008 (a) 9.32 0.02 (0.12) (0.10) (0.02) -- (0.02) 9.20
-----------------------------------------------------------------------------------------------------------------------
STRATEGIC BALANCED FUND
-----------------------------------------------------------------------------------------------------------------------
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
2008 (a) 10.00 0.01 (0.24) (0.23) (0.01) -- (0.01) 9.76
-----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED STRATEGIES FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.82 $ 0.03 $(0.43) $(0.40) $ (0.02) $ (0.20) $ (0.22) $ 9.20
2011 (b) 10.00 (0.01) (0.17) (0.18) -- -- -- 9.82
-----------------------------------------------------------------------------------------------------------------------
|
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
-------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
-------------------------------------------------------------------------------------------
2012 2.15 %++ $73,480 1.06 % 1.21% (0.12)% 46%
2011 25.12++ 72,139 1.07 1.22 (0.05) 38
2010 8.05%++ 47,235 1.07 1.22 0.06 56
2009 (18.60)++ 43,705 1.10 1.25 0.14 72
2008 (a) (3.31)++ 41,112 1.04* 1.19* 0.52* 5**
-------------------------------------------------------------------------------------------
DIVIDEND VALUE EQUITY FUND
-------------------------------------------------------------------------------------------
2012 (1.19 )%++ $58,479 1.06% 1.21% 1.90% 90%
2011 16.62++ $62,921 1.07 1.22 1.89 82
2010 9.85++ 39,781 1.08 1.23 1.54 76
2009 (15.08)++ 18,238 1.11 1.26 2.69 65
2008 (a) (1.07)++ 11,099 1.06* 1.21* 2.65* 34**
-------------------------------------------------------------------------------------------
STRATEGIC BALANCED FUND
-------------------------------------------------------------------------------------------
2012 2.23%++ $ 7,302 1.60%(4) 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
2008 (a) (2.27)++ 6,860 1.60* 2.04* 0.69* 9**
-------------------------------------------------------------------------------------------
DIVERSIFIED STRATEGIES FUND
-------------------------------------------------------------------------------------------
2012 (4.08)% $11,548 1.84% 1.84% 0.01% 150%
2011 (b) (1.80)++ 17,163 2.00* 2.27* (0.10)* 91**
-------------------------------------------------------------------------------------------
|
116
THE ADVISORS' INNER CIRCLE FUND II FROST FUNDS
-----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
NET
REALIZED AND
NET ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT GAIN (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
-----------------------------------------------------------------------------------------------------------------------
KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 8.90 $ 0.15 $ 0.09 $ 0.24 $(0.15) $ -- $(0.15) $ 8.99
2011 7.89 0.13 1.01 1.14 (0.13) -- (0.13) 8.90
2010 7.20 0.13 0.69 0.82 (0.13) -- (0.13) 7.89
2009 9.08 0.19 (1.74) (1.55) (0.19) (0.14) (0.33) 7.20
2008 (a) 9.09 0.01 0.03 0.04 (0.05) -- (0.05) 9.08
-----------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.65 $(0.01) $(0.60) $(0.61) $ -- $(1.31) $(1.31) $7.73
2011 7.49 (0.06) 2.22 2.16 -- -- -- 9.65
2010 6.92 (0.06) 0.63 0.57 -- -- -- 7.49
2009 9.61 (0.03) (2.59) (2.62) -- (0.07) (0.07) 6.92
2008 (a) 9.83 (0.01) (0.21) (0.22) -- -- -- 9.61
-----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.16 $ 0.09 $(1.16) $(1.07) $(0.03) $ -- $(0.03) $ 8.06
2011 7.77 0.09 1.34 1.43 (0.04) $ -- (0.04) 9.16
2010 7.18 0.05 0.54 0.59 -- -- -- 7.77
2009 9.01 0.07 (1.71) (1.64) (0.19) -- (0.19) 7.18
2008 (a) 9.31 (0.00)+++ (0.30) (0.30) -- -- -- 9.01
-----------------------------------------------------------------------------------------------------------------------
LOW DURATION BOND FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.64 $ 0.22 $ 0.11 $ 0.33 $(0.22) $(0.16) $(0.38) $10.59
2011 10.67 0.25 0.03 0.28 (0.22) (0.09) (0.31) 10.64
2010 10.32 0.35 0.32 0.67 (0.32) -- (0.32) 10.67
2009 10.01 0.45 0.30 0.75 (0.44) (0.00)+++ (0.44) 10.32
2008 (a) 10.04 0.03 (0.03) -- (0.03) -- (0.03) 10.01
-----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.69 $ 0.48 $ 0.17 $ 0.65 $(0.48) $(0.06) $(0.54) $10.80
2011 10.71 0.52 0.33 0.85 (0.49) (0.38) (0.87) 10.69
2010 10.17 0.61 0.65 1.26 (0.57) (0.15) (0.72) 10.71
2009 9.89 0.55 0.28 0.83 (0.53) (0.02) (0.55) 10.17
2008 (a) 9.95 0.04 (0.06) (0.02) (0.04) -- (0.04) 9.89
-----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.43 $ 0.27 $ 0.40 $ 0.67 $(0.28) $(0.04) $(0.32) $10.78
2011 10.50 0.31 (0.06) 0.25 (0.31) (0.01) (0.32) 10.43
2010 10.28 0.31 0.23 0.54 (0.31) (0.01) (0.32) 10.50
2009(c) 10.16 0.30 0.24 0.54 (0.32) (0.00)+++ (0.32) 10.28
-----------------------------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012(d) $12.12 $(0.08) $(0.63) $(0.71) $ -- $ -- $ -- $11.41
-----------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES FUND
-----------------------------------------------------------------------------------------------------------------------
2012(e) $10.00 $(0.03) $ 0.16 $ 0.13 $ -- $ -- $ -- $10.13
-----------------------------------------------------------------------------------------------------------------------
|
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
-------------------------------------------------------------------------------------------
KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
-------------------------------------------------------------------------------------------
2012 2.81% $24,982 1.03% 1.03% 1.74% 24%
2011 14.52 29,402 1.03 1.03 1.44 22
2010 11.48 27,365 1.04 1.04 1.62 23
2009 (16.54) 26,289 1.06 1.06 2.76 12
2008 (a) 0.43 35,014 0.99* 0.99* 1.44* 11**
-------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
-------------------------------------------------------------------------------------------
2012 (5.44)% $28,288 1.37%(4) 1.37% (0.13)% 113%
2011 28.84 35,349 1.35 1.35 (0.62) 144
2010 8.24 24,475 1.48 1.48 (0.76) 160
2009 (27.15) 18,840 1.50 1.50 (0.51) 273
2008 (a) (2.24) 21,288 1.44* 1.44* (0.73)* 110**
-------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------------------------------
2012 (11.67)% $39,475 1.39%(4) 1.39% 1.07% 20%
2011 18.42 49,881 1.39 1.39 1.01 26
2010 8.22 38,653 1.41 1.41 0.64 35
2009 (17.65) 36,191 1.46 1.46 1.07 51
2008 (a) (3.22) 41,937 1.25* 1.25* (0.20)* 16**
-------------------------------------------------------------------------------------------
LOW DURATION BOND FUND
-------------------------------------------------------------------------------------------
2012 3.27%++ $37,068 0.78%(4) 0.93% 2.11% 73%
2011 2.71++ 26,236 0.78 0.93 2.34 56
2010 6.60++ 30,225 0.78 0.95 3.28 62
2009 7.74++ 22,597 0.77 0.97 4.53 56
2008 (a) (0.02)++ 26,293 0.73* 0.93* 3.32* 8**
-------------------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
-------------------------------------------------------------------------------------------
2012 6.29%++ $117,779 0.75% 0.90% 4.55% 61%
2011 8.36++ 104,713 0.77 0.91 4.83 58
2010 12.76++ 76,319 0.79 0.92 5.73 60
2009 8.82++ 54,777 0.84 0.94 5.73 67
2008 (a) (0.21)++ 49,258 0.81* 0.92* 4.69* 12**
-------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
-------------------------------------------------------------------------------------------
2012 6.50%++ $ 3,797 0.85% 0.95% 2.50% 8%
2011 2.40++ 194 0.86 0.96 2.99 10
2010 5.31++ 816 0.86 0.96 2.97 5
2009 (c) 5.48++ 668 0.87* 0.97* 3.15* 14**(2)
-------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
-------------------------------------------------------------------------------------------
2012 (d) (5.86)% $ -- 1.80%* 1.80%* (1.38)%* 108%**(3)
-------------------------------------------------------------------------------------------
NATURAL RESOURCES FUND
-------------------------------------------------------------------------------------------
2012 (e) 1.30% $ 6,397 1.71%* 1.71%* (0.33)%* 49%**
-------------------------------------------------------------------------------------------
|
* 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.
+++ Amount represents less than $0.01.
^ Includes a return of capital less than $0.01.
(a) Commenced operations on June 30, 2008.
(b) Commenced operations on January 7, 2011.
(c) Commenced operations on August 28, 2008.
(d) Commenced operations on February 13, 2012.
(e) Commenced operations on September 27, 2011.
(1) Per share data calculated using the average shares method.
(2) Portfolio turnover rate is for the Fund for the year ended July 31, 2009.
(3) Portfolio turnover rate is for the Fund for the year ended July 31, 2012.
(4) Includes interest expense on borrowings.
Amounts designated as "-" are either $0 or have been rounded to $0
117
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
SUB-ADVISERS
Thornburg Investment Management, Inc.
2300 North Ridgetop Road
Santa Fe, New Mexico 87506
Kempner Capital Management, Inc.
2201 Market Street, 12th Floor FNB Building
Galveston, Texas 77550-1503
Cambiar Investors LLC
2401 East Second Avenue, Suite 500
Denver, Colorado 80206
Luther King Capital Management Corporation
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102-4140
Cinque Partners LLC
11836 San Vicente Boulevard
Los Angeles, CA 90049
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 December 3, 2012,
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-002-0600
THE ADVISORS' INNER CIRCLE FUND II
PROSPECTUS
DECEMBER 3, 2012
FROST GROWTH EQUITY FUND (FICEX)
FROST DIVIDEND VALUE EQUITY FUND (FIDVX)
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND (FIKDX)
FROST MID CAP EQUITY FUND (FORMERLY, FROST LKCM SMALL-MID CAP EQUITY
FUND)(FIKSX)
FROST SMALL CAP EQUITY FUND (FIHSX)
FROST INTERNATIONAL EQUITY FUND (FITNX)
FROST NATURAL RESOURCES FUND (FNRFX)
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND (FCBWX)
FROST STRATEGIC BALANCED FUND (FIBTX)
FROST TOTAL RETURN BOND FUND (FIJEX)
FROST CREDIT FUND (FCFIX)
FROST LOW DURATION BOND FUND (FILDX)
FROST MUNICIPAL BOND FUND (FIMUX)
FROST LOW DURATION MUNICIPAL BOND FUND (FILMX)
FROST KEMPNER TREASURY AND INCOME FUND (FIKTX)
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 EACH
FUND, PLEASE SEE:
PAGE
FROST GROWTH EQUITY FUND
INVESTMENT OBJECTIVE ...................................................1
FUND FEES AND EXPENSES .................................................1
PRINCIPAL INVESTMENT STRATEGIES ........................................1
PRINCIPAL RISKS ........................................................3
PERFORMANCE INFORMATION ................................................4
INVESTMENT ADVISER .....................................................5
PORTFOLIO MANAGERS .....................................................5
TAX INFORMATION ........................................................5
FROST DIVIDEND VALUE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................6
FUND FEES AND EXPENSES .................................................6
PRINCIPAL INVESTMENT STRATEGIES ........................................7
PRINCIPAL RISKS ........................................................7
PERFORMANCE INFORMATION ................................................8
INVESTMENT ADVISER .....................................................9
PORTFOLIO MANAGERS .....................................................9
TAX INFORMATION ........................................................10
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................11
FUND FEES AND EXPENSES .................................................11
PRINCIPAL INVESTMENT STRATEGIES ........................................12
PRINCIPAL RISKS ........................................................12
PERFORMANCE INFORMATION ................................................13
INVESTMENT ADVISER .....................................................14
PORTFOLIO MANAGERS .....................................................14
TAX INFORMATION ........................................................15
FROST MID CAP EQUITY FUND
INVESTMENT OBJECTIVE ...................................................16
FUND FEES AND EXPENSES .................................................16
PRINCIPAL INVESTMENT STRATEGIES ........................................16
PRINCIPAL RISKS ........................................................17
PERFORMANCE INFORMATION ................................................18
INVESTMENT ADVISER .....................................................19
PORTFOLIO MANAGERS .....................................................19
TAX INFORMATION ........................................................19
FROST SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE ...................................................20
FUND FEES AND EXPENSES .................................................20
PRINCIPAL INVESTMENT STRATEGIES ........................................20
PRINCIPAL RISKS ........................................................21
PERFORMANCE INFORMATION ................................................22
INVESTMENT ADVISER .....................................................23
PORTFOLIO MANAGERS .....................................................23
TAX INFORMATION ........................................................24
FROST INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE ...................................................25
FUND FEES AND EXPENSES .................................................25
PRINCIPAL INVESTMENT STRATEGIES ........................................26
PRINCIPAL RISKS ........................................................27
PERFORMANCE INFORMATION ................................................29
INVESTMENT ADVISER .....................................................31
PORTFOLIO MANAGERS .....................................................31
TAX INFORMATION ........................................................31
|
i
FROST NATURAL RESOURCES FUND
INVESTMENT OBJECTIVE ...................................................32
FUND FEES AND EXPENSES .................................................32
PRINCIPAL INVESTMENT STRATEGIES ........................................33
PRINCIPAL RISKS ........................................................34
PERFORMANCE INFORMATION ................................................36
INVESTMENT ADVISER .....................................................36
PORTFOLIO MANAGERS .....................................................36
TAX INFORMATION ........................................................37
FROST CINQUE LARGE BUY-WRITE EQUITY FUND
INVESTMENT OBJECTIVE ...................................................38
FUND FEES AND EXPENSES .................................................38
PRINCIPAL INVESTMENT STRATEGIES ........................................38
PRINCIPAL RISKS ........................................................39
PERFORMANCE INFORMATION ................................................41
INVESTMENT ADVISER .....................................................41
PORTFOLIO MANAGERS .....................................................41
TAX INFORMATION ........................................................41
FROST STRATEGIC BALANCED FUND
INVESTMENT OBJECTIVE ...................................................42
FUND FEES AND EXPENSES .................................................42
PRINCIPAL INVESTMENT STRATEGIES ........................................42
PRINCIPAL RISKS ........................................................43
PERFORMANCE INFORMATION ................................................47
INVESTMENT ADVISER .....................................................48
PORTFOLIO MANAGERS .....................................................48
TAX INFORMATION ........................................................48
FROST TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE ...................................................49
FUND FEES AND EXPENSES .................................................49
PRINCIPAL INVESTMENT STRATEGIES ........................................50
PRINCIPAL RISKS ........................................................50
PERFORMANCE INFORMATION ................................................51
INVESTMENT ADVISER .....................................................52
PORTFOLIO MANAGERS .....................................................53
TAX INFORMATION ........................................................53
FROST CREDIT FUND
INVESTMENT OBJECTIVE ...................................................54
FUND FEES AND EXPENSES .................................................54
PRINCIPAL INVESTMENT STRATEGIES ........................................54
PRINCIPAL RISKS ........................................................55
PERFORMANCE INFORMATION ................................................58
INVESTMENT ADVISER .....................................................58
PORTFOLIO MANAGERS .....................................................58
TAX INFORMATION ........................................................58
|
ii
FROST LOW DURATION BOND FUND
INVESTMENT OBJECTIVE ...................................................60
FUND FEES AND EXPENSES .................................................60
PRINCIPAL INVESTMENT STRATEGIES ........................................60
PRINCIPAL RISKS ........................................................61
PERFORMANCE INFORMATION ................................................62
INVESTMENT ADVISER .....................................................64
PORTFOLIO MANAGERS .....................................................64
TAX INFORMATION ........................................................64
FROST MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE ...................................................65
FUND FEES AND EXPENSES .................................................65
PRINCIPAL INVESTMENT STRATEGIES ........................................66
PRINCIPAL RISKS ........................................................66
PERFORMANCE INFORMATION ................................................67
INVESTMENT ADVISER .....................................................69
PORTFOLIO MANAGERS .....................................................69
TAX INFORMATION ........................................................69
FROST LOW DURATION MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE ...................................................70
FUND FEES AND EXPENSES .................................................70
PRINCIPAL INVESTMENT STRATEGIES ........................................71
PRINCIPAL RISKS ........................................................71
PERFORMANCE INFORMATION ................................................73
INVESTMENT ADVISER .....................................................74
PORTFOLIO MANAGERS .....................................................74
TAX INFORMATION ........................................................74
FROST KEMPNER TREASURY AND INCOME FUND
INVESTMENT OBJECTIVE ...................................................75
FUND FEES AND EXPENSES .................................................75
PRINCIPAL INVESTMENT STRATEGIES ........................................76
PRINCIPAL RISKS ........................................................76
PERFORMANCE INFORMATION ................................................77
INVESTMENT ADVISER .....................................................78
PORTFOLIO MANAGERS .....................................................78
TAX INFORMATION ........................................................78
|
iii
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND
SHARES AND FINANCIAL INTERMEDIARY COMPENSATION .......................... 79
MORE INFORMATION ABOUT RISK ............................................... 80
MORE INFORMATION ABOUT FUND INVESTMENTS ................................... 81
INFORMATION ABOUT PORTFOLIO HOLDINGS ...................................... 81
INVESTMENT ADVISER ........................................................ 81
PORTFOLIO MANAGERS ........................................................ 83
SUB-ADVISERS .............................................................. 84
PURCHASING, SELLING AND EXCHANGING FUND SHARES ............................ 88
SHAREHOLDER SERVICING ARRANGEMENTS ........................................ 93
PAYMENTS TO FINANCIAL INTERMEDIARIES ...................................... 93
OTHER POLICIES ............................................................ 94
DIVIDENDS AND DISTRIBUTIONS ............................................... 97
TAXES ..................................................................... 97
FINANCIAL HIGHLIGHTS ...................................................... 100
HOW TO OBTAIN MORE INFORMATION ABOUT THE FUNDS ..................... Back Cover
|
iv
FROST GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Growth Equity Fund (the "Fund") seeks to achieve long-term capital
appreciation.
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 0.80%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.97%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$99 $309 $536 $1,190
--------------------------------------------------------------------------------
|
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 46% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders. The Fund intends to invest in companies that Frost Investment
1
Advisors, LLC (the "Adviser") believes will have growing revenues and earnings.
The Fund will generally invest in equity securities of domestic companies, but
may also invest in equity securities of foreign companies and American
Depositary Receipts ("ADRs"). The Adviser performs in-depth analyses of company
fundamentals and industry dynamics to identify companies displaying strong
earnings and revenue growth relative to the overall market or relative to their
peer group, improving returns on equity and a sustainable competitive
advantage.
The Adviser focuses on a number of factors to assess the growth potential of
individual companies, such as:
o Historical and expected organic revenue growth rates;
o Historical and expected earnings growth rates;
o Signs of accelerating growth potential;
o Positive earnings revisions;
o Earnings momentum;
o Improving margin and return on equity trends; and
o Positive price momentum.
When an attractive growth opportunity is identified, the Adviser seeks to
independently develop an intrinsic valuation for the stock. The Adviser
believes that the value of a company is determined by discounting the company's
future cash flows or earnings. Valuation factors considered in identifying
securities for the Fund's portfolio include:
o Price/earnings ratio;
o Price/sales ratio;
o Price/earnings to growth ratio;
o Enterprise value/earnings before interest, taxes, depreciation and
amortization;
o Enterprise value/sales;
o Price/cash flow;
o Balance sheet strength; and
o Returns on equity and returns on invested capital.
The Adviser also seeks to understand a firm's competitive position and the
industry dynamics in which the firm operates. The Adviser assesses industry
growth potential, market share opportunities, cyclicality and pricing power.
Further analysis focuses on corporate governance and management's ability to
create value for shareholders.
The Adviser augments its independent fundamental research process with
quantitative screens and models. The models are derived from proprietary
research or securities industry research studies and score companies based upon
a number of fundamental factors. The Adviser uses quantitative analysis to
provide an additional layer of objectivity, discipline and consistency to its
equity research process. This quantitative analysis complements the fundamental
analyses that the Adviser conducts on companies during its stock selection
process.
The Fund seeks to buy and hold securities for the long term and seeks to keep
portfolio turnover to a minimum. However, the Adviser may sell a security if
its price exceeds the Adviser's assessment of its fair value or in response to
a negative company event, a change in management, poor relative price
performance, achieved fair valuation, or a deterioration in a company's
business prospects, performance or financial strength.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
GROWTH STYLE RISK-- The price of equity securities rises and falls in response
to many factors, including the historical and prospective earnings of the
issuer of the stock, the value of its assets, general economic conditions,
interest rates, investor perceptions, and market liquidity. The Fund may invest
in securities of companies that the Adviser believes have superior prospects
for robust and sustainable growth of revenues and earnings. These may be
companies with new, limited or cyclical product lines, markets or financial
resources, and the management of such companies may be dependent upon one or a
few key people. The stocks of such companies can therefore be subject to more
abrupt or erratic market movements than stocks of larger, more established
companies or the stock market in general.
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.
3
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.
The Fund commenced operations after succeeding 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 April 25, 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
May 31, 2002 ("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.
2003 24.56%
2004 8.07%
2005 4.16%
2006 9.90%
2007 12.18%
2008 (37.41)%
2009 30.14%
2010 15.42%
2011 (0.25)%
BEST QUARTER WORST QUARTER
15.46% (20.78)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 14.18%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Russell 1000
Growth Index. After-tax returns cannot be calculated for periods before the
Fund's registration as a mutual fund and they are, therefore, unavailable for
the 5 year and since Performance Start Date periods.
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.
4
--------------------------------------------------------------------------------
SINCE PERFORMANCE
START DATE
FROST GROWTH EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (0.25)% 1.02% 2.86%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (0.27)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (0.13)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 1000 GROWTH INDEX (REFLECTS NO 2.64% 2.50% 4.18%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
John Lutz, CFA, Senior Fund Manager and Senior Research Analyst at Frost, has
served on the portfolio team for the Fund since its inception.
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
Stephen Coker, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since 2008.
TJ Qatato, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since 2011.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
5
FROST DIVIDEND VALUE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Dividend Value Equity Fund (the "Fund") seeks long-term capital
appreciation and current income.
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 0.80%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.97%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$99 $309 $536 $1,190
--------------------------------------------------------------------------------
|
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 90% of the average value of its portfolio.
6
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests 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. This investment policy
may be changed by the Fund upon 60 days' prior notice to shareholders. The Fund
will generally invest in equity securities of domestic companies, but may also
invest in equity securities of foreign companies and American Depositary
Receipts ("ADRs"). The Adviser expects that the Fund's investments in foreign
companies will normally represent less than 30% of the Fund's assets.
The Adviser seeks to identify and invest in companies that have attractive
valuations and a dividend that has the potential to grow as fast as inflation
and whose yield is greater than the market or its sector or industry average.
The Adviser considers dividends to be a significant component of total
long-term equity returns and focuses on the sustainability and growth of
dividends with attractive yields. To access the sustainability of a firm's
dividend, the Adviser analyzes a firm's dividend history, its competitive
position and the industry dynamics in which the firm operates.
The Adviser employs both quantitative and qualitative analyses to select
companies that have capital appreciation and dividend growth potential, with a
focus on the following stock characteristics:
o Attractive valuation based on intrinsic, absolute and relative value;
o Dividend yields greater than the market or their sector or industry;
o History of growing dividends with the likelihood of sustainable
growth of dividends;
o Attractive business models that generate the necessary cash flow to
cover and sustain the dividend and its growth; and
o Sound balance sheets.
The Adviser seeks to manage the Fund in a tax-efficient manner although
portfolio turnover rates can vary, depending upon market conditions. The
Adviser has disciplines in place that serve as sell signals, such as if the
price of the security exceeds the Adviser's assessment of its fair value or in
response to dividend yield declining below the Adviser's yield objective, a
negative company event, a change in management, poor relative price
performance, or a deterioration in a company's business prospects, performance
or financial strength.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-
7
capitalization stocks may be more volatile than those of larger companies.
These securities may be traded over the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
the Adviser's assessment of a company's value or prospects for exceeding
earnings expectations or market conditions is wrong, the 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.
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.
The Fund commenced operations after succeeding 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 April 25, 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 May 31, 2002 ("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.
8
2003 21.37%
2004 14.28%
2005 9.13%
2006 21.77%
2007 9.61%
2008 (28.25)%
2009 25.12%
2010 12.45%
2011 (2.45)%
BEST QUARTER WORST QUARTER
19.14% (16.80)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 6.92%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Russell 1000
Value Index. After-tax returns cannot be calculated for periods before the
Fund's registration as a mutual fund and they are, therefore, unavailable for
the 5 year and since Performance Start Date periods.
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 DIVIDEND VALUE EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (2.45)% 1.54% 5.18%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (2.75)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (1.17)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 1000 VALUE INDEX (REFLECTS NO 0.39% (2.64)% 3.96%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since its inception.
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.
9
Michael R. Brell, CFA, Senior Research Analyst and Fund Co-Manager at Frost,
has served on the portfolio team for the Fund since its inception.
Theodore H. Harper, Senior Research Analyst and Fund Co-Manager at Frost, has
served on the portfolio team for the Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
10
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Kempner Multi-Cap Deep Value Equity Fund (the "Fund") seeks to
generate a total pre-tax return, including capital growth and dividends,
greater than the rate of inflation over a three-to-five year period.
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 0.59%
--------------------------------------------------------------------------------
Other Expenses 0.19%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.79%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$81 $252 $439 $978
--------------------------------------------------------------------------------
|
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 24% of the average value of its portfolio.
11
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders. The Fund invests primarily in common stocks, but may also invest
in other types of equity securities, such as preferred stock, convertible
securities, warrants, real estate investment trusts ("REITs"), or other
similar publicly traded securities. The Fund may also purchase American
Depositary Receipts ("ADRs").
In selecting securities for the Fund, the Fund's sub-adviser, Kempner Capital
Management, Inc. ("KCM"), utilizes a deep value style of investing in which it
chooses securities that it believes are currently undervalued in the market but
have earnings potential or other factors that make them attractive. The
securities purchased are frequently out of favor with or have been ignored by
the investment community market and thus provide the opportunity to purchase at
prices significantly below their true value. KCM analyzes securities on an
individual, bottom-up basis, to determine which securities can deliver capital
appreciation and steady dividend earnings over the long-term. The Fund may
invest in companies of all capitalizations.
KCM selects securities for the Fund's portfolio based on individual stocks
rather than on industries or industry groups. KCM screens a universe of
approximately 7,500 stocks to find companies which meet most of its criteria
for price-earnings ratio (15X), projected 12-month earnings, price/cash flow
multiple, price/book multiple and price less than or equal to 20% above the
52-week low. A dividend yield is required. KCM considers it unrealistic for it
to be able to purchase a stock at its bottom, and as a result, KCM purchases
securities for the Fund's portfolio gradually, averaging down. KCM also
considers it unrealistic for it to be able to sell a stock at its highest price
level, and as a result, KCM seeks to lock in reasonable returns when they are
offered and generally sells gradually as an issue rises.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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
12
U.S. economy or similar issuers located in the United States. 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 Fund's
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. While ADRs provide an alternative to directly
purchasing the underlying foreign securities in their respective national
markets and currencies, investments in ADRs continue to be subject to many of
the risks associated with investing directly in foreign securities.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
the Adviser's assessment of a company's value or prospects for exceeding
earnings expectations or market conditions is wrong, the 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.
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.
REIT RISK - REITs are pooled investment vehicles that own, and usually operate,
income-producing real estate. REITs are susceptible to the risks associated with
direct ownership of real estate, such as: declines in property values; increases
in property taxes, operating expenses, rising interest rates or competition
overbuilding; zoning changes; and losses from casualty or condemnation. REITs
typically incur fees that are separate from those of the Fund. Accordingly, the
Fund's investments in REITs will result in the layering of expenses, such that
shareholders will indirectly bear a proportionate share of the REITs' operating
expenses, in addition to paying Fund expenses.
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.
The Fund commenced operations after succeeding to the assets and operations of
a common trust fund that was managed by Frost Bank and sub-advised by KCM (the
"Predecessor Fund"). The performance information provided includes the returns
of the Predecessor Fund for periods prior to April 25, 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, 2002 ("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.
2003 25.77%
2004 14.26%
2005 1.17%
2006 15.53%
2007 (2.92)%
2008 (34.02)%
2009 23.57%
2010 14.51%
2011 (0.99)%
BEST QUARTER WORST QUARTER
18.66% (20.30)%
(09/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 9.61%.
13
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the S&P 500 Value
Index and the Lipper Multi-Cap Value Funds Index. After-tax returns cannot be
calculated for periods before the Fund's registration as a mutual fund and they
are, therefore, unavailable for the 5 year and since Performance Start Date
periods.
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 KEMPNER MULTI-CAP DEEP START DATE
VALUE EQUITY FUND 1 YEAR 5 YEARS (7/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (0.99)% (2.15)% 3.97%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (1.27)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (0.27)% N/A N/A
AND SALE OF FUND SHARES
S&P 500 VALUE INDEX RETURN (REFLECTS NO (0.48)% (2.96)% 5.36%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
LIPPER MULTI-CAP VALUE FUNDS INDEX (3.00)% (2.03)% 5.16%
RETURN (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Kempner Capital Management, Inc. ("Kempner") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
Harris L. Kempner, Jr., President of Kempner, has served on the portfolio team
for the Fund since its inception.
R. Patrick Rowles, Executive Vice President of Kempner, has served on the
portfolio team for the Fund since its inception.
14
M. Shawn Gault, Vice President of Kempner, has served on the portfolio team for
the Fund since its inception.
Andrew Duncan, Vice President of Kempner, has served on the portfolio team for
the Fund since 2012.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
15
FROST MID CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Mid Cap Equity Fund (the "Fund") seeks to maximize long-term capital
appreciation.
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 0.90%
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.26%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses of less
than 0.01%.
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
--------------------------------------------------------------------------------
$128 $400 $692 $1,523
--------------------------------------------------------------------------------
|
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 108% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
mid-capitalization companies. This investment strategy may be changed by the
Fund upon 60 days' prior notice to shareholders. The Fund considers mid-
16
capitalization companies to be those companies with total market
capitalizations between $2 billion and $15 billion at the time of initial
purchase.
The equity securities in which the Fund may invest include common stocks,
preferred stocks, convertible securities, rights and warrants. Preferred stocks
are units of ownership in a company that normally have preference over common
stock in the payment of dividends and the liquidation of the company.
Convertible securities are securities that may be exchanged for, converted
into, or exercised to acquire a predetermined number of shares of the company's
common stock at the holder's option during a specified time period. A right is
a privilege granted to existing shareholders of a company to subscribe to
shares of a new issue of common stock before it is issued. Warrants are
securities that are usually issued together with a debt security or preferred
stock that give the holder the right to buy a proportionate amount of common
stock at a specified price.
The Fund intends to invest in companies that the Fund's sub-adviser, Luther
King Capital Management Corporation ("LKCM"), believes are likely to have
above-average growth in revenue, above-average earnings and/or the potential
for above-average capital appreciation. In selecting investments for the Fund,
LKCM performs analyses of financial and fundamental criteria to identify
high-quality companies, focusing on the following characteristics:
o Consistently high profitability;
o Strong balance sheets;
o Competitive advantages;
o High and/or improving financial returns;
o Free cash flow;
o Reinvestment opportunities; and
o Prominent market share positions.
The Fund does not sell stocks simply because they are no longer within LKCM's
capitalization range used for the initial purchase.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
MID-CAPITALIZATION COMPANY RISK -- The mid-capitalization companies in which
the Fund invests may be more vulnerable to adverse business or economic events
than larger, more established companies. In particular, these 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,
mid-capitalization stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange.
17
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.
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.
RIGHTS AND WARRANTS RISK -- The purchase of rights or warrants involves the
risk that the Fund could lose the purchase value of a right or warrant if the
right to subscribe to additional shares is not executed 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.
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 year and since inception compare with those of a broad
measure of market performance. 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.
2009 33.65%
2010 35.76%
2011 (1.52)%
BEST QUARTER WORST QUARTER
18.83% (21.10)%
(09/30/2009) (09/30/2011)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 10.05%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Russell Midcap
Index and the Russell 2500 Index.
18
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 INCEPTION
FROST MID CAP EQUITY FUND 1 YEAR (4/25/08)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (1.52)% 3.54%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (1.81)% 3.45%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (0.62)% 3.02%
AND SALE OF FUND SHARES
RUSSELL MIDCAP INDEX RETURN (REFLECTS NO (1.55)% 1.52%+
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
RUSSELL 2500 INDEX RETURN (REFLECTS NO (2.51)% 2.60%+
DEDUCTION FOR FEES, EXPENSES, OR TAXES)*
|
* The Fund has changed its primary benchmark from the Russell 2500 Index to
the Russell Midcap Index because the Fund's adviser and sub-adviser believe
that the Russell Midcap Index is more representative of the type of
securities in which the Fund invests.
+ Return shown is from April 30, 2008.
INVESTMENT ADVISER
Frost Investment Advisers LLC ("Frost") serves as investment adviser to the
Fund. Luther King Capital Management Corporation ("LKCM") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
J. Luther King, Jr., President of LKCM, has served on the portfolio team for the
Fund since its inception.
Steven R. Purvis, Principal at LKCM, has served on the portfolio team for the
Fund since its inception.
Paul W. Greenwell, Principal at LKCM, has served on the portfolio team for the
Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
19
FROST SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Small Cap Equity Fund (the "Fund") seeks to maximize 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 0.93%
--------------------------------------------------------------------------------
Other Expenses 0.19%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.12%
--------------------------------------------------------------------------------
|
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
--------------------------------------------------------------------------------
$114 $356 $617 $1,363
--------------------------------------------------------------------------------
|
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 113% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGY
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
small-capitalization companies. This investment policy may be changed by the
Fund upon 60 days' prior notice to shareholders.
The Fund intends to invest in companies that Cambiar Investors, LLC
("Cambiar"), the Fund's sub-adviser, believes are undervalued, profitable, and
capable of generating significant cash flow. In managing the Fund, Cambiar
will select value-oriented small-cap stocks for the Fund's portfolio. Value-
20
oriented managers generally select stocks they believe are attractively valued
in light of fundamental characteristics such as earnings, capital structure
and/or return on invested capital.
In selecting investments for the Fund, Cambiar utilizes a bottom-up,
research-focused investment philosophy that seeks to identify quality companies
that are currently undervalued to their historical trading range, yet
demonstrate catalysts not yet recognized by the market that could result in
significant appreciation over a 1-2 year time horizon. While Cambiar may use
various metrics in selecting securities for the Fund, a company must possess
the following characteristics: attractive valuation, an identifiable
performance catalyst(s) and material upside potential. In selecting investments
for the Fund, Cambiar generally considers small-capitalization companies to be
those companies with total market capitalizations less than $3 billion at the
time of initial purchase. In implementing its sell discipline, Cambiar sells
stocks once a stock reaches its price target, when there is a decline in
fundamentals, or the anticipated catalyst at purchase fails to materialize.
Stocks may also be sold in favor of a more attractive investment opportunity.
Cambiar will also trim a holding if it becomes an outsized position within the
Fund's portfolio.
The Fund may engage in active and frequent trading of portfolio securities to
achieve its 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.
INITIAL PUBLIC OFFERINGS ("IPO") RISK -- The Fund may invest a portion of its
assets in securities of companies offering shares in IPOs. IPOs may have a
magnified performance impact on a fund with a small asset base. The impact of
IPOs on the 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 the Fund for investing. Because IPO shares frequently
are volatile in price, the 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 the
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
SMALL-CAPITALIZATION COMPANY RISK -- The small-capitalization companies in
which the Fund may invest may be more vulnerable to adverse business or
economic events than larger, more established companies. In particular, these
small-sized companies may pose additional risks, including liquidity risk,
21
because these companies tend to have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small-capitalization stocks may be more volatile than those of
larger companies. These securities may be traded over the counter or listed on
an exchange.
ACTIVE TRADING RISK -- The Fund may engage in active and frequent trading of
portfolio securities to achieve its investment objective. Active trading may
cause the Fund to incur increased costs, which can lower the actual return of
the Fund. Active trading may also increase short-term gains and losses, which
affect taxes that must be paid.
LIQUIDITY RISK -- Particular investments may be difficult to purchase or sell.
The Fund may make investments that become less liquid in response to market
developments or adverse investor perceptions, which may reduce the returns of
the Fund because it may be unable to sell the illiquid securities at an
advantageous time or price.
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.
The Fund commenced operations after succeeding 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 April 25, 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
May 31, 2002 ("Performance Start Date").
Prior to February 1, 2010, the Fund employed a different investment strategy.
Prior to June 29, 2010, the Fund was primarily managed by a different
sub-adviser and prior to September 4, 2012 a portion of the Fund was managed by
another sub-adviser. Therefore, the past performance shown below may have
differed had the Fund's current investment strategy been in effect and had the
current sub-adviser been primarily managing the Fund. 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.
22
2003 33.10%
2004 20.64%
2005 8.35%
2006 9.25%
2007 8.08%
2008 (39.60)%
2009 22.66%
2010 20.41%
2011 (2.49)%
BEST QUARTER WORST QUARTER
19.90% (25.69)%
(12/31/2011) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 6.74%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Russell 2000
Index. After-tax returns cannot be calculated for periods before the Fund's
registration as a mutual fund and they are, therefore, unavailable for the 5
year and since Performance Start Date periods.
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 SMALL CAP EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (2.49)% (1.23)% 4.20%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (7.21)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (1.35)% N/A N/A
AND SALE OF FUND SHARES
RUSSELL 2000 INDEX RETURN (REFLECTS NO (4.18)% 0.15% 5.84%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Cambiar Investors LLC ("Cambiar") serves as investment sub-adviser to the
Fund.
PORTFOLIO MANAGERS
Brian M. Barish, CFA, President, Director of Research at Cambiar, has served on
the portfolio team of the Fund since 2010.
Anna (Ania) A. Aldrich, CFA, Senior Investment Analyst at Cambiar, has served on
the portfolio team of the Fund since 2010.
Andrew P. Baumbusch, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
23
Timothy A. Beranek, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
Maria L. Mendelsberg, CFA, Senior Investment Analyst at Cambiar, has served on
the portfolio team of the Fund since 2010.
Jeffrey H. Susman, Senior Investment Analyst at Cambiar, has served on the
portfolio team of the Fund since 2010.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
24
FROST INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The Frost International Equity Fund (the "Fund") seeks to achieve long-term
capital appreciation and current income.
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.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
INSTITUTIONAL CLASS
SHARES
Redemption Fee (as a percentage of amount redeemed, if 2.00%
shares redeemed have been held for less than 30 days)
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
INSTITUTIONAL CLASS SHARES
Management Fees 0.93%
--------------------------------------------------------------------------------
Other Expenses 0.21%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.14%
--------------------------------------------------------------------------------
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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:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$116 $362 $628 $1,386
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25
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 20% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in equity securities of
non-U.S. issuers. This investment policy may be changed by the Fund upon 60
days' prior notice to shareholders. The Fund invests primarily in common
stocks, but may also invest in other types of equity securities, such as
preferred stock, convertible securities, warrants or other similar publicly
traded securities. The Fund may also purchase American Depositary Receipts
("ADRs") and Global Depositary Receipts ("GDRs").
The Fund's investments are ordinarily diversified among regions, countries and
currencies, as determined by its sub-adviser, Thornburg Investment Management
Inc. ("Thornburg"). Thornburg intends to invest on an opportunistic basis when
it believes there is intrinsic value. The Fund's principal focus will be on
traditional or "basic" value stocks. However, the portfolio may include stocks
that, in Thornburg's opinion, provide value in a broader or different context.
The relative proportions of these different types of securities will vary over
time. The Fund ordinarily invests in stocks that may be undervalued or reflect
unfavorable market perceptions of company or industry fundamentals. The Fund
may invest in companies of any size.
Debt securities will be considered for investment when Thornburg believes them
to be more attractive than equity alternatives. The Fund may purchase debt
securities of any maturity and quality. The Fund evaluates currency risk on a
stock-by-stock basis. The Fund will hedge currency exposure utilizing forward
contracts if deemed appropriate by the portfolio management team. Currency
hedging, if utilized, is to protect the investment thesis for a given stock
from being significantly undermined by dollar/foreign currency fluctuations
when we perceive currency risk to be high.
Thornburg primarily uses individual company and industry analysis to make
investment decisions. Value, for purposes of Thornburg's selection criteria,
relates to both current and projected measures. Among the specific factors
considered by Thornburg in identifying undervalued securities for inclusion in
the Fund's portfolio are:
o price/earnings ratio
o price/book value
o price/cash flow ratio
o debt/capital ratio
o dividend yield
o security and consistency of revenue stream
o undervalued assets
o relative earnings growth potential
o industry growth potential
26
o industry leadership
o dividend growth potential
o franchise value
o potential for favorable developments
The Fund typically makes equity investments in the following three types of
companies:
o BASIC VALUE companies which, in Thornburg's opinion, are financially
sound companies with well established businesses whose stock is
selling at low valuations relative to the companies' net assets or
potential earning power.
o CONSISTENT EARNER companies when they are selling at valuations below
historic norms. Stocks in this category sometimes sell at premium
valuations and sometimes at discount valuations. Generally, they show
steady earnings and dividend growth.
o EMERGING FRANCHISES are value-priced companies that in Thornburg's
opinion are in the process of establishing a leading position in a
product, service or market and which Thornburg expects will grow, or
continue to grow, at an above average rate. Under normal conditions,
the proportion of the Fund invested in companies of this type will be
less than the proportions of the Fund invested in basic value or
consistent earner companies.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of ADRs, which
are traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
When the Fund invests in foreign fixed income securities, it will be subject to
risks not typically associated with domestic securities. Foreign investments,
especially investments in emerging markets, can
27
be riskier and more volatile than investments in the United States. Adverse
political and economic developments or changes in the value of foreign currency
can make it more difficult for the Fund to sell its securities and could reduce
the value of your shares. Differences in tax and accounting standards and
difficulties in obtaining information about foreign companies can negatively
affect investment decisions. Unlike more established markets, emerging markets
may have governments that are less stable, markets that are less liquid and
economies that are less developed.
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 Fund's portfolio 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 by the Fund. 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.
HEDGING RISK. The Fund may use forward currency contracts for hedging purposes.
Hedging through the use of these instruments does not eliminate fluctuations in
the underlying prices of the securities that the Fund owns or intends to
purchase or sell. While entering into these instruments tends to reduce the
risk of loss due to a decline in the value of the hedged asset, such
instruments also limit any potential gain that may result from the increase in
value of the asset. To the extent that the Fund engages in hedging strategies,
there can be no assurance that such strategy will be effective or that there
will be a hedge in place at any given time.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall.
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. Mutual funds that invest in debt securities have
no real maturity. Instead, they calculate their weighted average maturity. This
number is an average of the effective or anticipated maturity of each debt
security held by the mutual fund, with the maturity of each security weighted
by the percentage of its assets of the mutual fund it represents.
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
28
economic conditions or changing circumstances, however, may weaken the capacity
of the issuer to pay interest and repay principal.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
INVESTMENT STYLE RISK -- The Fund pursues a "value style" of investing. 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
Thornburg's assessment of a company's value or prospects for exceeding earnings
expectations or market conditions is wrong, the 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.
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.
The Fund commenced operations after succeeding to the assets and operations of
a common trust fund that was managed by Frost Bank and sub-advised by Thornburg
and INVESCO Global Asset Management N.A. (the "Predecessor Fund"). The
performance information provided includes the returns of the Predecessor Fund
for periods prior to April 25, 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 May 31, 2002
("Performance Start Date").
29
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.
2003 29.94%
2004 20.43%
2005 17.11%
2006 25.41%
2007 27.40%
2008 (41.42)%
2009 30.36%
2010 14.14%
2011 (13.67)%
BEST QUARTER WORST QUARTER
22.57% (22.26)%
(06/30/2009) (09/30/2011)
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The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 10.08%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Morgan Stanley
Capital International All Country World ex-U.S. Index ("MSCI ACWI ex-U.S.
Index") and the Morgan Stanley Capital International Europe, Australasia, Far
East Index ("MSCI EAFE Index"). After-tax returns cannot be calculated for
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the 5 year and since Performance Start Date
periods.
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.
Returns after taxes on distributions and sale of Fund shares may be higher than
before-tax returns when a net capital loss occurs upon the redemption of Fund
shares.
SINCE PERFORMANCE
START DATE
FROST INTERNATIONAL EQUITY FUND 1 YEAR 5 YEARS (5/31/02)
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FUND RETURN BEFORE TAXES (13.67)% (0.84)% 6.33%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (13.55)% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (8.56)% N/A N/A
AND SALE OF FUND SHARES
MSCI ACWI EX-U.S. INDEX RETURN (13.71)% (2.92)% 6.24%
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)
MSCI EAFE INDEX RETURN (REFLECTS NO (12.14)% (4.72)% 4.61%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
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30
INVESTMENT ADVISER
Frost Investment Advisers LLC ("Frost") serves as investment adviser to the
Fund. Thornburg Investment Management, Inc. ("Thornburg") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
William Fries, CFA, Co-Portfolio Manager and Managing Director at Thornburg,
has served on the portfolio team for the Fund since its inception.
Lei Wang, CFA, Co-Portfolio Manager and Managing Director at Thornburg, has
served on the portfolio team for the Fund since its inception.
Wendy Trevisani, Co-Portfolio Manager and Managing Director at Thornburg, has
served on the portfolio team for the Fund since its inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
31
FROST NATURAL RESOURCES FUND
INVESTMENT OBJECTIVE
The Frost Natural Resources Fund (the "Fund") seeks long-term capital growth
with a secondary goal of current income.
FUND FEES AND EXPENSES
This table 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 0.80%
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Other Expenses 0.62%
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Acquired Fund Fees and Expenses 0.05%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 1.47%
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(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$150 $465 $803 $1,757
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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 the period from the commencement of the Fund's operations
(September 27, 2011) through the end of its most recent fiscal year, the Fund's
portfolio turnover rate was 49% of the average value of its portfolio.
32
PRINCIPAL INVESTMENT STRATEGIES
In seeking to achieve its objectives, the Fund, under normal circumstances,
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in securities of companies in natural resources industries.
Companies in natural resources industries include: (i) companies that Frost
Investment Advisors, LLC (the "Adviser"), the Fund's adviser, considers to be
engaged, either directly or indirectly, in the exploration, discovery,
development, production, marketing or distribution of natural resources; the
development of proprietary technologies for the production or efficient
utilization of natural resources; or the provision of related supplies or
services; and (ii) to the extent not included in the foregoing, those
industries that comprise the S&P North American Natural Resources Index. Within
natural resources industries, the Adviser anticipates that the Fund will
generally invest a significant portion of its assets in the energy sector.
Examples of natural resources include:
o ENERGY -- such as companies engaged in the exploration and production
of energy sources, as well as companies involved with energy equipment
and services, drillers, refiners, storage transportation, utilities,
coal.
o ALTERNATIVE ENERGY -- such as solar, nuclear, wind and fuel cell
companies.
o INDUSTRIAL PRODUCTS -- such as chemical, building material, cement,
aggregate, associated machinery and transport companies.
o FOREST PRODUCTS -- such as timber and paper companies.
o BASE METALS -- such as companies engaged in the exploration, mining,
processing, fabrication, marketing or distribution of copper, iron
ore, nickel, steel, aluminum, rare earth minerals and molybdenum.
o SPECIALTY METALS -- such as companies engaged in the exploration,
mining, processing, fabrication, marketing or distribution of
titanium-based alloys and zirconium.
o PRECIOUS METALS -- such as companies engaged in the exploration,
mining, processing, fabrication, marketing or distribution of gold,
silver, diamonds and platinum.
o AGRICULTURAL PRODUCTS -- such as companies engaged in producing,
processing and distributing seeds, fertilizers and water.
The Fund generally invests in equity securities of domestic and foreign,
including emerging market, natural resources companies. The equity securities
in which the Fund may invest include common stocks, preferred stocks, American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), convertible
securities, warrants and rights, and master limited partnerships ("MLPs"). In
addition, the Fund may also invest in exchange-traded funds, exchange-traded
notes and other exchange-traded products to gain exposure to certain segments
of the natural resources market. The Fund may invest in securities of issuers
with any market capitalization.
The Adviser combines fundamental analysis and quantitative screening to select
securities for the Fund's portfolio. In particular, the Adviser focuses on
companies with desirable growth and value attributes. These attributes will
include but not be exclusive to the following: attractive debt adjusted
production growth per share; prospects for above average growth in earnings or
cash flow per share; an ability to generate high returns on invested capital
throughout an investment cycle; asset quality greater than peers; efficient
capital allocation; management strength; favorable relative price/earnings,
price/book and price/cash flow ratios; and trading at a discount to intrinsic
value. In addition, the Adviser considers the availability of specific natural
resources and the relative value of those resources given changing
33
supply/demand dynamics in the market. The Adviser may sell a security when the
security reaches a specified value or the Adviser's original investment
rationale is no longer considered valid.
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 risk
factors affecting shareholders' investments in the Fund are set forth below.
EQUITY RISK -- The Fund is subject to 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 the Fund's 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.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund.
CONCENTRATION RISK -- Due to the Fund's concentration in securities of
companies in the natural resources industries, events that affect the natural
resources industries will have a greater effect on the Fund than they would on
a fund that is more widely diversified among a number of unrelated industries.
Such factors include warehousing and delivery constraints, changes in supply
and demand dynamics, a potential lack of fungibility, weather, monetary and
currency exchange processes, domestic and foreign political and economic events
and policies, disease, technological developments, and changes in interest
rates. In addition, certain natural resources sub-sectors are subject to
greater governmental regulation than are other industries; therefore, changes
in tax and other government regulations may be more likely to adversely affect
the Fund.
INVESTMENTS IN INVESTMENT COMPANIES AND OTHER POOLED VEHICLES -- To the extent
the Fund invests in other investment companies, such as exchange-traded funds
("ETFs"), closed-end funds and other mutual funds, the Fund will be subject to
substantially the same risks as those associated with the direct ownership of
the securities held by such other investment companies. Such risks are
described below. As a shareholder of another investment company, the Fund
relies on that investment company to achieve its investment objective. If the
investment company fails to achieve its objective, the value of the Fund's
investment could decline, which could adversely affect the Fund's performance.
By investing in another investment company, Fund shareholders indirectly bear
the Fund's proportionate share of the fees and expenses of the other investment
company, in addition to the fees and expenses that Fund shareholders directly
bear in connection with the Fund's own operations. The Fund does not intend to
invest in other investment companies unless the Adviser believes that the
potential benefits of the investment justify the payment of any additional fees
or expenses. Federal securities laws impose limitations on the Fund's ability
to invest in other investment companies.
Because closed-end funds and ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. Investments in closed-end funds and ETFs are
also subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. In addition, because the value of closed-end
funds and ETF shares depends on the demand in the market, the Adviser may not
be able to liquidate the Fund's holdings at the most optimal time, which could
adversely affect Fund performance.
INVESTMENTS IN ETNS -- An exchange-traded note ("ETN") is a debt security of an
issuer that is listed and traded on U.S. stock exchanges or otherwise traded in
the over-the-counter market. Similar to other debt securities, ETNs tend to
have a maturity date and are backed only by the credit of the issuer. ETNs are
34
designed to provide investors access to the returns of various market
benchmarks, such as a securities index, currency or investment strategy, less
fees and expenses. The value of an ETN may be influenced by time to maturity,
level of supply and demand for the ETN, volatility and lack of liquidity in the
underlying market, changes in the applicable interest rates, and changes in the
issuer's credit rating and economic, legal, political or geographic events that
affect the referenced market. It is expected that the issuer's credit rating
will be investment grade at the time of investment, however, the credit rating
may be revised or withdrawn at any time and there is no assurance that a credit
rating will remain in effect for any given time period. If a rating agency
lowers the issuer's credit rating, the value of the ETN will decline and a
lower credit rating reflects a greater risk that the issuer will default on its
obligation. When the Fund invests in ETNs, it will bear its proportionate share
of any fees and expenses associated with investment in such securities. Such
fees reduce the amount of return on investment at maturity or upon redemption.
There may be restrictions on the Fund's right to redeem its investment in an
ETN, which are meant to be held until maturity. There are no periodic interest
payments for ETNs, and principal is not protected. As is the case with ETFs, an
investor could lose some of or the entire amount invested in ETNs. The Fund's
decision to sell its ETN holdings may be limited by the availability of a
secondary market.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of American
Depository Receipts ("ADRs"), which are traded on U.S. 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 United States. 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 Fund's 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. While
ADRs provide an alternative to directly purchasing the underlying foreign
securities in their respective national markets and currencies, investments in
ADRs 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 Fund's portfolio 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 by the Fund. 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
35
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.
MLP RISK -- MLPs are limited partnerships in which the ownership units are
publicly traded. MLP units are registered with the U.S. Securities and Exchange
Commission (the "SEC") and are freely traded on a securities exchange or in the
over-the-counter market. MLPs often own several properties or businesses (or
own interests) that are related to oil and gas industries or other natural
resources, but they also may finance other projects. To the extent that an
MLP's interests are all in a particular industry, the MLP will be negatively
impacted by economic events adversely impacting that industry. The risks of
investing in a MLP are generally those involved in investing in a partnership
as opposed to a corporation. For example, state law governing partnerships is
often less restrictive than state law governing corporations. Accordingly,
there may be fewer protections afforded to investors in a MLP than investors in
a corporation; for example, investors in MLPs may have limited voting rights or
be liable under certain circumstances for amounts greater than the amount of
their investment. In addition, MLPs may be subject to state taxation in certain
jurisdictions which will have the effect of reducing the amount of income paid
by the MLP to its investors.
COMMODITY RISK -- Exposure to the commodities markets, through a company or an
ETF, may subject the Fund to greater volatility than investments in traditional
securities. Commodities are subject to substantial price fluctuations over
short periods of time and may be affected by unpredictable economic, political
and environmental events.
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 Fund commenced operations on September 27, 2011 and therefore does not have
performance history for a full calendar year. Once the Fund has completed a
full calendar year of operations, a bar chart and table will be included that
will provide some indication of the risks of investing in the Fund by showing
the variability of the Fund's return based on net assets and comparing the
Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Theodore H. Harper, Senior Fund Manager and Senior Research Analyst at Frost,
has served on the portfolio team for the Fund since its inception.
John Lutz, CFA, Senior Research Analyst and Fund Co-Manager at Frost, has served
on the portfolio team for the Fund since its inception.
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at Frost,
has served on the portfolio team for the Fund since its inception.
36
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
37
FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
INVESTMENT OBJECTIVE
The Frost Cinque Large Cap Buy-Write Equity Fund (the "Fund") seeks long-term
capital appreciation and current income.
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 0.90%
--------------------------------------------------------------------------------
Other Expenses(1) 0.67%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses(2) 0.15%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.72%
--------------------------------------------------------------------------------
|
(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(2) "Acquired Fund Fees and Expenses" are based on estimated amounts for the
current fiscal year.
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
-----------------------------
$175 $542
-----------------------------
|
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.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities of
large-capitalization companies and exchange traded funds
38
("ETFs") designed to track the performance of large capitalization companies,
and options on securities of large capitalization companies. This investment
policy may be changed by the Fund upon 60 days' prior notice to shareholders.
The Fund primarily will invest in common stocks, but will also invest in ETFs
and sell call options on an asset it owns, also known as a "buy-write"
strategy. The Fund to a lesser extent will also buy call and put options on an
asset, a market sector or an index. The Adviser expects that approximately 5%
of the Fund's assets will dedicated to its options strategy, although such
allocation is subject to change based on market and other conditions. Cinque
Partners LLC ("Cinque"), the Fund's sub-adviser, generally considers
large-capitalization companies to be those companies with market
capitalizations of $5 billion or greater. The Fund may invest up to 20% of its
net assets in small and mid-capitalization companies.
In constructing the Fund's portfolio, Cinque uses a systematic, proprietary
process that combines individual stock selection and sector and index exposures
into a portfolio that is then coupled with an option hedging strategy. Cinque
selects stocks for the Fund using its Combo Rank Stock model, which analyzes
measures of value, growth, balance sheet analysis and overall profitability of
a company. The output of this model is then ranked within each sector of the
S&P Composite 1500 Index universe. Cinque then selects a stock based on its
ratings and establishes a target weight that is based on Cinque's thorough
qualitative and quantitative assessment of that company's risk-reward
characteristics. Sector or index ETFs may also be selected to capture
macroeconomic performance inputs through the economic cycle. Cinque
periodically reviews the companies in its investment universe in order to
re-evaluate whether or not the assumptions and tenets (price targets, balance
sheet quality, operating trends, potential stock downside) of the original
investment thesis still hold.
Cinque also intends to utilize an option strategy that includes buy-writes,
protective puts and long-call options in an attempt to improve portfolio
downside protection and increase portfolio income. Cinque analyzes over 400
different options combinations, using S&P 500 Index options, to arrive at the
position that, in Cinque's view, provides the best chance of capturing the
excess return associated with the Fund's long portfolio, while reducing the
downside risk associated with the market. Cinque also may sell call options to
take advantage of what it perceives to be mispriced options premiums based on
its view of market volatility.
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.
INVESTMENTS IN ETFS - To the extent that the Fund invests in ETFs, the Fund
will be subject to substantially the same risks as those associated with the
direct ownership of the securities comprising the index on which the ETF is
based and the value of the Fund's investment will fluctuate in response to the
performance of the underlying index. ETFs typically incur fees that are
separate from those of the Fund. Accordingly, the Fund's investments in ETFs
will result in the layering of expenses such that shareholders will indirectly
bear a proportionate share of the ETFs' operating expenses, in addition to
paying Fund expenses. Because ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. In addition, because the value of ETF shares
depends on the demand in the market, the Adviser may not be able to liquidate
the Fund's holdings at the most optimal time, which could adversely affect Fund
performance.
39
EQUITY RISK - The Fund is subject to 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 the Fund's 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.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund.
DERIVATIVES RISK - Derivatives are often more volatile than other investments
and may magnify the Fund's gains or losses. There are various factors that
affect the Fund's ability to achieve its investment 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 Fund
buys or sells. The 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 Fund
from closing its derivative positions and could adversely impact its ability to
achieve its investment objective or to realize profits or limit losses.
Because derivative instruments may be purchased by the Fund for a fraction of
the market value of the investments underlying such instruments, a relatively
small price movement in the underlying investment may result in an immediate
and substantial gain or loss to the Fund. Derivatives are often more volatile
than other investments and the Fund may lose more in a derivative than it
originally invested in it.
Additionally, derivative instruments, particularly market access products, 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.
The Fund may purchase or sell options, which 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. For instance, the 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. 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.
SMALL-CAP AND MID-CAP RISK - The smaller and medium capitalization companies in
which the Fund invests may be more vulnerable to adverse business or economic
events than larger, more established companies. In particular, small and medium
capitalization companies may have limited product lines, markets and financial
resources and may depend upon a relatively small management group. Therefore,
small and medium capitalization stocks may be more volatile than those of
larger companies. Small and medium capitalization stocks may be traded
over-the-counter or listed on an exchange.
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 manager in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
40
NEW FUND RISK - Because the Fund is new, investors in the Fund bear the risk
that the Fund may not be successful in implementing its investment strategy,
may not employ a successful investment strategy, or may fail to attract
sufficient assets under management to realize economies of scale, any of which
could result in the Fund being liquidated at any time without shareholder
approval and at a time that may not be favorable for all shareholders. Such
liquidation could have negative tax consequences for shareholders and will
cause shareholders to incur expenses of liquidation.
PERFORMANCE INFORMATION
The Fund is new, and therefore has no performance history. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the
Fund by showing the variability of the Fund's return based on net assets and
comparing the Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost") serves as investment adviser to the
Fund. Cinque Partners LLC ("Cinque") serves as investment sub-adviser to the
Fund.
PORTFOLIO MANAGERS
Alan Adelman, Managing Partner and Chief Investment Officer at Cinque, has
served on the portfolio team for the Fund since its inception.
Jack Cowling, CFA, Senior Portfolio Manager and Partner at Cinque, has served
on the portfolio team for the Fund since its inception.
Fred Wahl, CFA, CIMA, Senior Portfolio Manager and Partner at Cinque, has
served on the portfolio team for the Fund since its inception.
Pierre Brachet, CFA, Portfolio Manager and Partner at Cinque, has served on the
portfolio team for the Fund since its inception.
TAX INFORMATION
The distributions made by the Fund generally are taxable, and will be taxed as
ordinary income or capital gains. If you are investing through a tax-deferred
arrangement, such as a 401(k) plan or individual retirement account, you will
generally not be subject to federal taxation on Fund distributions until you
begin receiving distributions from your tax-deferred arrangement. You should
consult your tax advisor regarding the rules governing your tax-deferred
arrangement.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
41
FROST STRATEGIC BALANCED FUND
INVESTMENT OBJECTIVE
The Frost Strategic Balanced Fund (the "Fund") seeks long-term capital
appreciation and current income.
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 0.70%
--------------------------------------------------------------------------------
Other Expenses 1.07%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.29%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 2.06%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$209 $646 $1,108 $2,390
--------------------------------------------------------------------------------
|
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 18% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund seeks to achieve its investment objective
by investing in a diversified portfolio of global fixed income and equity
securities. The overarching principle of Frost
42
Investment Advisors, LLC (the "Adviser") is to structure the Fund to be well
diversified across many asset classes and securities. In selecting securities
for the Fund, the Adviser uses the following strategies:
o Strategic asset allocation;
o Tactical asset allocation;
o Security selection;
o Bond asset class allocation;
o Foreign currency exposure; and
o Derivatives.
Between 40% to 80% of the Fund's assets may be invested in domestic and
international equity securities, including emerging markets equity securities.
The balance of the Fund's portfolio will be invested in fixed income asset
classes and cash. Additionally, up to 40% of the Fund's assets may be invested
in non-core equity classes/styles such as real estate, infrastructure or
commodities, and hedged equity, which may also be internationally diversified.
The Adviser may alter these asset allocation guidelines according to its
outlook for each asset class. As an alternative to directly investing in
securities in these asset classes, the Fund may also invest in other investment
companies, including mutual funds, closed-end funds and exchange-traded funds
("ETFs"), to gain exposure to equity and fixed-income markets. The degree to
which the Fund invests in other investment companies for these purposes will
vary, and at times may be significant, depending on factors such as overall
Fund asset levels and the Adviser's views on the most efficient method for
achieving diversified exposure to a particular asset class consistent with the
Fund's investment objective. The Fund may also invest in derivatives to manage
risk, increase or decrease exposure to an asset class, and/or to enhance total
return. The Fund is reallocated at least annually to manage asset class drift
and improve the risk-reward profile of the Fund.
The Fund's asset class selection is based on the Adviser's outlook for the
reward and risks presented by each asset class. These assumptions are used in a
model-driven framework to make allocation decisions. The principal strategy
offers diversification and breadth by providing access to a broad array of
sources of returns through exposure to a broad selection of partially
correlated asset classes. The Adviser directs the Fund's asset market
allocation toward opportunities that are identified to be greater and away from
those that are smaller.
The Adviser has discretion to add or remove asset classes from the Fund based
on its analysis of valuation, opportunity and risk, provided the Fund's asset
allocation guidelines are met.
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.
EQUITY RISK -- Since it purchases equity securities, the Fund is subject to 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 the
Fund's 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. These factors contribute to price
volatility, which is the principal risk of investing in the Fund.
43
DERIVATIVES RISKS -- Derivatives may involve risks different from, and possibly
greater than, those of traditional investments. The Fund may use derivatives
(such as futures, options, and swaps) to attempt to achieve its investment
objective and offset certain investment risks, while at the same time
maintaining liquidity. These positions may be established for hedging or
non-hedging purposes. Risks associated with the use of derivatives include the
following risks associated with hedging and leveraging activities:
o The success of a hedging strategy may depend on an ability to predict
movements in the prices of individual securities, fluctuations in
markets, and movements in interest rates.
o The Fund may experience losses over certain ranges in the market that
exceed losses experienced by a fund that does not use derivatives.
o There may be an imperfect or no correlation between the changes in
market value of the securities held by the Fund and the prices of
derivatives.
o There may not be a liquid secondary market for derivatives.
o Trading restrictions or limitations may be imposed by an exchange.
o Government regulations may restrict trading derivatives.
o The other party to an agreement (e.g., options or expense swaps)
may default; however, in certain circumstances, such counterparty risk
may be reduced by having an organization with very good credit act as
intermediary. Because options premiums paid or received by the Fund
are small in relation to the market value of the investments
underlying the options, buying and selling put and call options can be
more speculative than investing directly in securities.
REAL ESTATE RISK -- The Fund may invest in funds, ETFs or companies that invest
in real estate. Real estate risk is the risk that real estate will underperform
the market as a whole. The general performance of the real estate industry has
historically been cyclical and particularly sensitive to economic downturns.
Real estate can be affected by changes in real estate values and rental income,
changes in interest rates, changing demographics and regional economic cycles.
REIT RISK -- Real Estate Investment Trusts ("REITs") are pooled investment
vehicles that own, and usually operate, income-producing real estate. REITs are
susceptible to the risks associated with direct ownership of real estate, such
as: declines in property values; increases in property taxes, operating
expenses, rising interest rates or competition overbuilding; zoning changes;
and losses from casualty or condemnation. REITs typically incur fees that are
separate from those of the Fund. Accordingly, the Fund's investments in REITs
will result in the layering of expenses, such that shareholders will indirectly
bear a proportionate share of the REITs' operating expenses, in addition to
paying Fund expenses.
SMALL- AND MID-CAPITALIZATION COMPANY RISK -- The small- and mid-capitalization
companies in which the Fund may invest 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-capitalization stocks may be more
volatile than those of larger companies. These securities may be traded over
the counter or listed on an exchange.
44
ALLOCATION RISK -- The Fund will allocate its investments between various asset
classes, including derivatives. These investments are based upon judgments
made by the Adviser, which may not accurately predict changes in the market.
As a result, the Fund could miss attractive investment opportunities by
underweighting markets that subsequently experience significant returns and
could lose value by overweighting markets that subsequently experience
significant declines.
FOREIGN COMPANY RISK -- Investing in foreign companies, whether through
investments made in foreign markets or made through the purchase of American
Depository Receipts ("ADRs"), which are traded on U.S. 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 United States. 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 Fund's 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. While
ADRs provide an alternative to directly purchasing the underlying foreign
securities in their respective national markets and currencies, investments in
ADRs 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 Fund's portfolio 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 by the Fund. 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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 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.
45
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
INVESTMENTS IN INVESTMENT COMPANIES AND ETFS -- ETFs are pooled investment
vehicles, such as registered investment companies and grantor trusts, whose
shares are listed and traded on U.S. stock exchanges or otherwise traded in the
over-the-counter market. To the extent the Fund invests in other investment
companies, such as ETFs closed-end funds and other mutual funds, the Fund will
be subject to substantially the same risks as those associated with the direct
ownership of the securities held by such other investment companies. As a
shareholder of another investment company, the Fund relies on that investment
company to achieve its investment objective. If the investment company fails to
achieve its objective, the value of the Fund's investment could decline, which
could adversely affect the Fund's performance. By investing in another
investment company, Fund shareholders indirectly bear the Fund's proportionate
share of the fees and expenses of the other investment company, in addition to
the fees and expenses that Fund shareholders directly bear in connection with
the Fund's own operations. The Fund does not intend to invest in other
investment companies unless the Adviser believes that the potential benefits of
the investment justify the payment of any additional fees or expenses. Federal
securities laws impose limitations on the Fund's ability to invest in other
investment companies.
46
Because closed-end funds and ETFs are listed on national stock exchanges and
are traded like stocks listed on an exchange, their shares potentially may
trade at a discount or premium. Investments in closed-end funds and ETFs are
also subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. In addition, because the value of closed-end
funds and ETF shares depends on the demand in the market, the Adviser may not
be able to liquidate the Fund's holdings at the most optimal time, which could
adversely affect Fund performance.
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.
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)%
BEST QUARTER WORST QUARTER
13.29% (11.43)%
(06/30/2009) (12/31/2008)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 10.53%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to appropriate broad-based
indices. After-tax returns cannot be calculated for
47
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the 5 year and since Performance Start Date
periods.
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 STRATEGIC BALANCED FUND 1 YEAR 5 YEARS (7/31/06)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES (1.72)% 1.99% 3.32%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS (2.02)% 1.54% N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS AND (0.71)% 1.50% N/A
SALE OF FUND SHARES
S&P 500 INDEX (REFLECTS NO DEDUCTION FOR FEES, 2.11% (0.25)% 1.89%
EXPENSES, OR TAXES)
MSCI ALL COUNTRY WORLD EX-US INDEX (REFLECTS (13.71)% (2.92)% (0.27)%
NO DEDUCTION FOR FEES, EXPENSES, OR TAXES)
BARCLAYS US AGGREGATE INDEX (REFLECTS NO 7.84% 6.50% 6.70%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
48/12/40 BLENDED INDEX RETURN (REFLECTS NO 2.66% 2.59% 4.01%
DEDUCTION FOR FEES, EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Brad Thompson, CFA, Senior Fund Manager, Managing Director and Director of
Research at Frost, has served on the portfolio team for the Fund since its
inception.
Justin Hopkins, Fund Co-Manager, Mutual Fund Analyst and Trader at Frost, has
served on the portfolio team for the Fund since its inception.
Tom L. Stringfellow, CFA, CPA, CFP, President, CIO and Fund Co-Manager at
Frost, has served on the portfolio team for the Fund since inception.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
48
FROST TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE
The Frost Total Return Bond Fund (the "Fund") seeks to maximize total return,
consisting of income and capital appreciation, consistent with the preservation
of principal.
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 0.50%
--------------------------------------------------------------------------------
Other Expenses 0.16%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.66%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses of less
than 0.01%.
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
--------------------------------------------------------------------------------
$67 $211 $368 $822
--------------------------------------------------------------------------------
|
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 61% of the average value of its portfolio.
49
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in fixed income securities. This
investment policy may be changed by the Fund upon 60 days' prior notice to
shareholders.
The Adviser actively manages the duration of the Fund and purchases securities
such that the average weighted duration of the Fund's portfolio will typically
range within plus or minus three years of the Fund benchmark's duration. The
Adviser, in constructing and maintaining the Fund's portfolio, employs the
following four primary strategies to varying degrees depending on its views of
economic growth prospects, interest rate predictions and relative value
assessments: interest rate positioning based on duration and yield curve
positioning; asset category allocations; credit sector allocations relating to
security ratings by the national ratings agencies; and individual security
selection. The "total return" sought by the Fund consists of income earned on
the Fund's investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates or improving credit fundamentals for a
particular sector or security.
The Fund typically invests in the following U.S. dollar-denominated fixed
income securities: U.S. Treasury securities; governmental agency debt;
corporate debt; asset-backed securities; taxable municipal bonds;
collateralized mortgage obligations ("CMO's") and residential and commercial
mortgage-backed securities. The Fund's fixed income investments focus primarily
on investment grade securities (rated in one of the four highest rating
categories by a rating agency), but may at times include securities rated below
investment grade (high yield or "junk" bonds). In addition, the Fund's fixed
income securities may include unrated securities, if deemed by the Adviser to
be of comparable quality to investment grade.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
50
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
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.
The Fund commenced operations after succeeding 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 April 25, 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
May 31, 2002 ("Performance Start Date").
51
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.
2003 2.70%
2004 2.86%
2005 2.48%
2006 3.65%
2007 5.61%
2008 (1.73)%
2009 19.52%
2010 8.74%
2011 4.98%
BEST QUARTER WORST QUARTER
7.15% (3.39)%
(09/30/2009) (06/30/2004)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 8.48%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays U.S.
Aggregate Bond Index. After-tax returns cannot be calculated for periods before
the Fund's registration as a mutual fund and they are, therefore, unavailable
for the 5 year and since Performance Start Date periods.
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 TOTAL RETURN BOND FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 4.98% 7.20% 5.89%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 3.13% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 3.31% N/A N/A
AND SALE OF FUND SHARES
BARCLAYS U.S. AGGREGATE BOND INDEX 7.84% 6.50% 5.72%
RETURN (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
52
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
53
FROST CREDIT FUND
INVESTMENT OBJECTIVE
The Frost Credit Fund (the "Fund") seeks to maximize total return, consisting
of income and capital appreciation.
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 0.60%
--------------------------------------------------------------------------------
Other Expenses(1) 0.78%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses(2) 0.01%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.39%
--------------------------------------------------------------------------------
|
(1) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(2) "Acquired Fund Fees and Expenses" are based on estimated amounts for the
current fiscal year.
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
-----------------------------
$142 $440
-----------------------------
|
PORTFOLIO TURNOVER
The Fund pays transaction costs 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.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests 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. This investment
policy may be changed by
54
the Fund upon 60 days' prior notice to shareholders. The Fund will invest in
callable bonds, as well as fixed income securities that pay a fixed or floating
interest rate or interest that is payable in kind or payable at maturity. The
Fund will invest in high yield fixed income securities, also referred to as
"junk" bonds, which are generally rated below BBB- by Standard & Poor's Ratings
Services or Fitch, Inc. or Baa3 by Moody's Investor Service at the time of
purchase or are unrated but judged to be of comparable quality by Frost
Investment Advisors, LLC, the Fund's investment adviser (the "Adviser"). All
securities in which the Fund invests will be denominated in U.S. dollars.
The Fund seeks to achieve its objective through a combination of active
portfolio management, a focus on relative value opportunities, sector
weightings and individual asset selection. In selecting assets for the Fund,
the Adviser uses a top-down approach to analyze industry fundamentals and
select individual securities based on its view of their relative value and
interest rate characteristics. The Adviser also will consider its view of the
yield curve and the potential for individual securities to produce consistent
income. The Adviser expects that more than half of the Fund's returns will be
derived from credit risk, rather than interest rate risk. Generally, the
greater the credit risk that a fixed income security presents, the higher the
interest rate the issuer must pay in order to compensate investors for assuming
such higher risk.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 three means the price of a debt security will change
about 3% for every 1% change in its yield. Thus, the higher 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
55
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. For a Fund of this type,
credit risk is an important contributing factor over time to the performance of
the Fund.
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 the 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.
ZERO COUPON, DEFERRED INTEREST AND PAY-IN-KIND BOND RISK - These bonds are
issued at a discount from their face value because interest payments are
typically postponed until maturity. Pay-in-kind securities are securities that
have interest payable by the delivery of additional securities. The market
prices of these securities generally are more volatile than the market prices
of interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
DERIVATIVES RISK - Derivatives are often more volatile than other investments
and may magnify the Fund's gains or losses. There are various factors that
affect the Fund's ability to achieve its investment 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 Fund
buys or sells. The 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. For instance, the 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.
The lack of a liquid secondary market for a derivative may prevent the Fund
from closing its derivative positions and could adversely impact its ability to
achieve its investment objective or to realize profits or limit losses.
Because derivative instruments may be purchased by the Fund for a fraction of
the market value of the investments underlying such instruments, a relatively
small price movement in the underlying investment may result in an immediate
and substantial gain or loss to the Fund. Derivatives are often more volatile
than other investments and the Fund may lose more in a derivative than it
originally invested in it.
Additionally, derivative instruments, particularly market access products, 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.
56
STRUCTURED NOTE RISK - The Fund may invest in fixed income linked structured
notes. Structured notes are typically privately negotiated transactions between
two or more parties. The fees associated with a structured note may lead to
increased tracking error. The Fund also bears the risk that the issuer of the
structured note will default. The Fund bears the risk of loss of its principal
investment and periodic payments expected to be received for the duration of
its investment. In addition, a liquid market may not exist for the structured
notes. The lack of a liquid market may make it difficult to sell the structured
notes at an acceptable price or to accurately value them.
MARKET RISK - The risk that the value of securities owned by the Fund may go up
or down, sometimes rapidly or unpredictably, due to factors affecting
securities markets generally or particular industries.
ISSUER RISK - The risk that the value of a security may decline for a reason
directly related to the issuer, such as management performance, financial
leverage and reduced demand for the issuer's goods or services.
LEVERAGE RISK - The use of leverage can amplify the effects of market
volatility on the Fund's share price and may also cause the Fund to liquidate
portfolio positions when it would not be advantageous to do so in order to
satisfy its obligations.
LIQUIDITY RISK - The risk that certain securities may be difficult or
impossible to sell at the time and the price that the Fund would like. The Fund
may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on Fund
management or performance.
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, the Fund may have to reinvest its principal at a
rate of interest that is lower than the rate on existing mortgage-backed
securities.
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, the 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 Fund. Conversely, as interest rates rise or spreads widen,
the likelihood
57
of prepayment decreases. The Fund may be unable to capitalize on securities
with higher interest rates or wider spreads because the Fund's investments are
locked in at a lower rate for a longer period of time.
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 manager in
connection with managing the Fund. There is no guarantee that the investment
objective of the Fund will be achieved.
FOREIGN COMPANY RISK - Investing in foreign companies, whether through
investments made in foreign markets or made through purchasing ADRs, which are
traded on U.S. 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 United
States. 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 Fund's 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. While ADRs provide an
alternative to directly purchasing the underlying foreign securities in their
respective national markets and currencies, investments in ADRs continue to be
subject to many of the risks associated with investing directly in foreign
securities.
NEW FUND RISK - Because the Fund is new, investors in the Fund bear the risk
that the Fund may not be successful in implementing its investment strategy,
may not employ a successful investment strategy, or may fail to attract
sufficient assets under management to realize economies of scale, any of which
could result in the Fund being liquidated at any time without shareholder
approval and at a time that may not be favorable for all shareholders. Such
liquidation could have negative tax consequences for shareholders and will
cause shareholders to incur expenses of liquidation.
PERFORMANCE INFORMATION
The Fund is new, and therefore has no performance history. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the
Fund by showing the variability of the Fund's return based on net assets and
comparing the Fund's performance to a broad measure of market performance.
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGER
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income, and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
TAX INFORMATION
The distributions made by the Fund generally are taxable, and will be taxed as
ordinary income or capital gains. If you are investing through a tax-deferred
arrangement, such as a 401(k) plan or individual retirement account, you will
generally not be subject to federal taxation on Fund distributions until you
58
begin receiving distributions from your tax-deferred arrangement. You should
consult your tax advisor regarding the rules governing your tax-deferred
arrangement.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
59
FROST LOW DURATION BOND FUND
INVESTMENT OBJECTIVE
The Frost Low Duration Bond Fund (the "Fund") seeks to maximize total return,
consisting of income and capital appreciation, consistent with the preservation
of principal.
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 0.50%
--------------------------------------------------------------------------------
Other Expenses 0.18%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.68%
--------------------------------------------------------------------------------
|
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
--------------------------------------------------------------------------------
$69 $218 $379 $847
--------------------------------------------------------------------------------
|
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 73% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, in fixed income
securities. This investment policy may be changed by the Fund upon 60 days'
prior notice to shareholders. The Fund's emphasis is on total return with low
volatility by investing primarily in shorter-term investment grade securities.
Short-term bonds are considered more stable than longer-maturity bonds, but
less stable than money market securities.
60
To achieve its objective, the Fund invests in a diversified mix of taxable
fixed income securities. The Adviser actively manages the maturity of the Fund
and purchases securities which will, on average, mature in less than 5 years.
The Adviser actively manages the duration of the Fund and purchases securities
such that the average weighted duration of the Fund's portfolio will typically
range within plus or minus one year of the Barclays U.S. 1-5 Year Government
Credit Index duration. The Fund seeks to maintain a low duration but may
lengthen or shorten its duration within that range to reflect changes in the
overall composition of the short-term investment-grade debt markets. Duration
is a measure of a bond price's sensitivity to a given change in interest rates.
Generally, the longer a bond's duration, the greater its price sensitivity to a
change in interest rates. For example, the price of a bond with a duration of
three years would be expected to fall approximately 3% if rates were to rise by
one percentage point. The Adviser, in constructing and maintaining the Fund's
portfolio, employs the following four primary strategies to varying degrees
depending on its views of economic growth prospects, interest rate predictions
and relative value assessments: interest rate positioning based on duration and
yield curve position; asset category allocations; credit sector allocations
relating to security ratings by the national ratings agencies; and individual
security selection.
The Fund typically invests in the following U.S. dollar-denominated fixed
income securities: U.S. Treasury securities; governmental agency debt;
corporate debt; asset-backed securities; taxable municipal bonds; and, to a
lesser extent, residential and commercial mortgage-backed securities. The
Fund's fixed income investments are primarily of investment grade (rated in one
of the four highest rating categories by at least one rating agency), but may
at times include securities rated below investment grade (high yield or "junk"
bonds). In addition, the Fund's fixed income securities may include unrated
securities, if deemed by the Adviser to be of comparable quality to investment
grade.
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.
MUNICIPAL ISSUERS RISK -- There may be economic or political changes that
impact the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes in the financial condition or credit
rating of municipal issuers also may adversely affect the value of the Fund's
municipal securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal securities.
Moreover, certain municipal securities are backed only by a municipal issuer's
ability to levy and collect taxes.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 three years means the price of a debt security will
change about 3% for every 1% change in its yield. Thus, the higher duration,
the more volatile the security.
61
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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
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.
62
The Fund commenced operations after succeeding 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 April 25, 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
May 31, 2002 ("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.
2003 1.81%
2004 0.20%
2005 0.48%
2006 3.20%
2007 6.12%
2008 1.36%
2009 12.03%
2010 4.18%
2011 2.74%
BEST QUARTER WORST QUARTER
4.53% (1.87)%
(06/30/2009) (06/30/2004)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 3.82%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays U.S.
1-5 Year Government/Credit Index. After-tax returns cannot be calculated for
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the 5 year and since Performance Start Date
periods.
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.
63
SINCE PERFORMANCE
START DATE
FROST LOW DURATION BOND FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 2.74% 5.22% 3.84%
FUND RETURN AFTER TAXES ON 1.65% N/A N/A
DISTRIBUTIONS
FUND RETURN AFTER TAXES ON 2.05% N/A N/A
DISTRIBUTIONS
AND SALE OF FUND SHARES
BARCLAYS U.S. 1-5 YEAR 3.14% 4.84% 4.26%
GOVERNMENT/CREDIT INDEX RETURN
(REFLECTS NO DEDUCTION FOR FEES,
EXPENSES, OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income, and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
64
FROST MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE
The Frost Municipal Bond Fund (the "Fund") seeks to provide a consistent level
of current income exempt from federal income tax with a secondary emphasis on
maximizing total return through capital appreciation.
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 0.50%
--------------------------------------------------------------------------------
Other Expenses 0.20%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.03%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.73%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$75 $233 $406 $906
--------------------------------------------------------------------------------
|
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 8% of the average value of its portfolio.
65
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests 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 ("AMT"). These securities include securities of
municipal issuers located in Texas as well as in other states, territories and
possessions of the United States. This investment policy may not be changed
without shareholder approval. The Fund may invest more than 25% of its total
assets in bonds of issuers in Texas.
The Adviser considers the relative yield, maturity and availability of various
types of municipal bonds and the general economic outlook in determining
whether to over- or under-weight a specific type of municipal bond in the
Fund's portfolio. Duration adjustments are made relative to the Barclays
Municipal Bond Index. The Adviser, in constructing and maintaining the Fund's
portfolio, employs the following four primary strategies to varying degrees
depending on its views of economic growth prospects, interest rate predictions
and relative value assessments: interest rate positioning based on duration and
yield curve positioning, with a typical range of three years; asset category
allocations; credit sector allocations relating to security ratings by the
national ratings agencies; and individual security selection.
Securities will be considered for sale in the event of or in anticipation of a
credit downgrade; to effect a change in duration or sector weighting of the
Fund; to realize an aberration in a security's valuation; or when the Adviser
otherwise deems appropriate.
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.
MUNICIPAL ISSUERS RISK -- There may be economic or political changes that
impact the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes in the financial condition or credit
rating of municipal issuers also may adversely affect the value of the Fund's
municipal securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal securities.
Moreover, certain municipal securities are backed only by a municipal issuer's
ability to levy and collect taxes.
STATE-SPECIFIC RISK -- The Fund is subject to the risk that the economy of the
states in which it invests, and the revenues underlying state municipal bonds,
may decline. Investing primarily in a single state means that the Fund is more
exposed to negative political or economic factors in that state than a fund
that invests more widely.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price 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 duration,
the more volatile the security.
66
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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
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.
67
The Fund commenced operations after succeeding 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 April 25, 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
May 31, 2002 ("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.
2003 3.32%
2004 1.68%
2005 0.81%
2006 2.74%
2007 3.58%
2008 3.58%
2009 7.38%
2010 1.42%
2011 7.69%
BEST QUARTER WORST QUARTER
4.29% (3.00)%
(09/30/2009) (12/31/2010)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 3.99%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays
Municipal Bond Index. After-tax returns cannot be calculated for periods before
the Fund's registration as a mutual fund and they are, therefore, unavailable
for the 5 year and since Performance Start Date periods.
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.
68
SINCE PERFORMANCE
START DATE
FROST MUNICIPAL BOND FUND 1 YEAR 5 YEARS (5/31/02)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 7.69% 4.70% 3.84%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 7.62% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 6.23% N/A N/A
AND SALE OF FUND SHARES
BARCLAYS MUNICIPAL BOND INDEX RETURN 10.70% 5.22% 5.23%
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
TAX INFORMATION
The Fund's distributions of interest on municipal obligations generally are not
subject to federal income tax; however the Fund may distribute taxable
dividends, including distributions of short-term capital gains, and long-term
capital gains. In addition, interest on certain obligations may be subject to
the federal alternative minimum tax. Depending on the laws of the state of your
residence, you may be subject to state tax on all or a portion of Fund
distributions.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
69
FROST LOW DURATION MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE
The Frost Low Duration Municipal Bond Fund (the "Fund") seeks to provide a
consistent level of current income exempt from federal income tax with a
secondary emphasis on maximizing 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 0.50%
--------------------------------------------------------------------------------
Other Expenses 0.27%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.03%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.80%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$82 $255 $444 $990
--------------------------------------------------------------------------------
|
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 14% of the average value of its portfolio.
70
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of its net
assets, plus any borrowings for investment purposes, at the time of initial
purchase, in municipal securities that generate income exempt from federal
income tax, but not necessarily the federal alternative minimum tax ("AMT").
These securities include securities of municipal issuers located in Texas as
well as in other states, territories and possessions of the United States.
This investment policy may not be changed without shareholder approval.
The Fund primarily invests in securities that are of investment grade (rated in
one of the four highest rating categories). The Fund may invest more than 25%
of its total assets in bonds of issuers in Texas. The Adviser actively manages
the portfolio, as well as the maturity of the Fund, and purchases securities
which will, on average, mature in less than five years. The Fund tends to have
an average duration within plus or minus one year of the Barclays Three-Year
Municipal Bond Index. The Fund seeks to maintain a low duration, but may
lengthen or shorten its duration within its target range to reflect changes in
the overall composition of the short-term investment-grade debt markets.
Duration is a measure of a bond price's sensitivity to a given change in
interest rates. Generally, the longer a bond's duration, the greater its price
sensitivity to a change in interest rates. For example, the price of a bond
with a duration of three years would be expected to fall approximately 3% if
rates were to rise by one percentage point.
The Adviser, in constructing and maintaining the Fund's portfolio, employs the
following four primary strategies to varying degrees depending on its views of
economic growth prospects, interest rate predictions and relative value
assessments: interest rate positioning based on duration and yield curve
positioning; asset category allocations; credit sector allocations relating to
security ratings by the national ratings agencies; and individual security
selection. Securities will be considered for sale in the event of or in
anticipation of a credit downgrade; to effect a change in duration or sector
weighting of the Fund; to realize an aberration in a security's valuation; or
when the Adviser otherwise deems appropriate.
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.
MUNICIPAL ISSUERS RISK -- There may be economic or political changes that
impact the ability of municipal issuers to repay principal and to make interest
payments on municipal securities. Changes in the financial condition or credit
rating of municipal issuers also may adversely affect the value of the Fund's
municipal securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal securities.
Moreover, certain municipal securities are backed only by a municipal issuer's
ability to levy and collect taxes.
STATE-SPECIFIC RISK -- The Fund is subject to the risk that the economy of the
states in which it invests, and the revenues underlying state municipal bonds,
may decline. Investing primarily in a single state means that the Fund is more
exposed to negative political or economic factors in that state than a fund
that invests more widely.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall.
71
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 three years means the price of a debt security will
change about 3% for every 1% change in its yield. Thus, the higher 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.
Rising interest rates may also cause investors to pay off mortgage-backed and
asset-backed securities later than anticipated, forcing the Fund to keep its
money invested at lower rates. Falling interest rates, however, generally cause
investors to pay off mortgage-backed and asset-backed securities earlier than
expected, forcing the Fund to reinvest the money at a lower interest rate.
Mutual funds that invest in debt securities have no real maturity. Instead,
they calculate their weighted average maturity. This number is an average of
the effective or anticipated maturity of each debt security held by the mutual
fund, with the maturity of each security weighted by the percentage of its
assets of the mutual fund it represents.
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.
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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 the 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.
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.
72
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.
The Fund commenced operations after succeeding 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 April 25, 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.
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.
2005 (0.44)%
2006 1.69%
2007 3.35%
2008 3.55%
2009 3.99%
2010 1.57%
2011 2.12%
BEST QUARTER WORST QUARTER
2.19% (1.19)%
(12/31/2008) (03/31/2005)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 0.97%.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays
Three-Year Municipal Bond Index. After-tax returns cannot be calculated for
periods before the Fund's registration as a mutual fund and they are,
therefore, unavailable for the 5 year and since Performance Start Date
periods.
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.
73
SINCE PERFORMANCE
START DATE
FROST LOW DURATION MUNICIPAL BOND FUND 1 YEAR 5 YEARS (8/31/2004)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 2.12% 2.91% 2.14%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 2.12% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 1.95% N/A N/A
AND SALE OF FUND SHARES
BARCLAYS THREE-YEAR MUNICIPAL BOND 3.46% 4.31% 3.50%
INDEX (REFLECTS NO DEDUCTION FOR FEES,
EXPENSES OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors, LLC ("Frost")
PORTFOLIO MANAGERS
Jeffery Elswick, Senior Fund Manager, Director of Fixed Income and Managing
Director at Frost, has been the portfolio manager for the Fund since its
inception. Mr. Elswick is supported by a team of appropriately trained,
qualified analysts and fixed income traders.
TAX INFORMATION
The Fund's distributions of interest on municipal obligations generally are not
subject to federal income tax; however the Fund may distribute taxable
dividends, including distributions of short-term capital gains, and long-term
capital gains. In addition, interest on certain obligations may be subject to
the federal alternative minimum tax. Depending on the laws of the state of your
residence, you may be subject to state tax on all or a portion of Fund
distributions.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
74
FROST KEMPNER TREASURY AND INCOME FUND
INVESTMENT OBJECTIVE
The Frost Kempner Treasury and Income Fund (the "Fund") seeks to provide
current income consistent with the preservation of capital.
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 0.35%
--------------------------------------------------------------------------------
Other Expenses 0.32%
--------------------------------------------------------------------------------
Acquired Fund Fees and Expenses 0.04%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.71%
--------------------------------------------------------------------------------
|
(1) The Total Annual Fund Operating Expenses in this fee table do not
correlate to the expense ratio in the Fund's Financial Highlights because
the Financial Highlights include only the direct operating expenses
incurred by the Fund, and exclude Acquired Fund Fees and Expenses.
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
--------------------------------------------------------------------------------
$73 $227 $395 $883
--------------------------------------------------------------------------------
|
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 0% of the average value of its portfolio.
75
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in full faith and credit U.S.
Treasury obligations. This investment policy may be changed by the Fund upon 60
days' prior notice to shareholders. In selecting investments for the Fund, the
Fund's sub-adviser, Kempner Capital Management, Inc. ("KCM"), tries to increase
income without adding undue risk by analyzing yields. The Fund's investments
include Treasury bonds, Treasury notes, Treasury Inflated Protection Securities
and short-term U.S. government money market funds. In evaluating a security
for the Fund's portfolio, KCM considers, among other factors, the security's
interest rate, yield and maturity. KCM actively manages the maturity of the
Fund and its portfolio to maximize the Fund's yield based on current market
interest rates and KCM's outlook on the market.
The Fund may invest in full faith and credit money market instruments. The
percentage of the Fund invested in such holdings varies depending on various
factors, including market conditions. Consistent with preservation of capital,
a larger percentage of the Fund's net assets may be invested in cash or money
market instruments in order to provide capital and reduce the magnitude of loss
in a period of falling market prices.
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.
INTEREST RATE RISK - As with most funds that invest in debt securities, changes
in interest rates are one of the most important factors that could affect the
value of your investment. Rising interest rates tend to cause the prices of
debt securities (especially those with longer maturities) and the Fund's share
price to fall. Rising interest rates may also cause investors to pay off
mortgage-backed and asset-backed securities later than anticipated, forcing the
Fund to keep its money invested at lower rates. Falling interest rates,
however, generally cause investors to pay off mortgage-backed and asset-backed
securities earlier than expected, forcing the Fund to reinvest the money at a
lower interest rate.
The concept of duration is useful in assessing the sensitivity of a fixed
income fund to interest rate movements, which are 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 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. Mutual funds that invest in debt securities have
no real maturity. Instead, they calculate their weighted average maturity. This
number is an average of the effective or anticipated maturity of each debt
security held by the mutual fund, with the maturity of each security weighted
by the percentage of its assets of the mutual fund it represents.
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.
76
Although the Fund's 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. As a result, investments in securities issued by
government sponsored agencies that are not backed by the U.S. Treasury are
subject to higher credit risk than those that are.
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.
The Fund commenced operations after succeeding to the assets and operations of
a common trust fund that was managed by Frost Bank and sub-advised by KCM (the
"Predecessor Fund"). The performance information provided includes the returns
of the Predecessor Fund for periods prior to April 25, 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 November 30, 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 7.73%
2008 2.54%
2009 6.91%
2010 5.70%
2011 10.69%
BEST QUARTER WORST QUARTER
4.51% (1.29)%
(06/30/2010) (12/31/2010)
|
The performance information shown above is based on a calendar year. The Fund's
performance for Institutional Class Shares from 1/1/12 to 9/30/12 was 3.04%.
77
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2011
This table compares the Fund's Institutional Class Shares' average annual total
returns for the periods ended December 31, 2011 to those of the Barclays
Treasury Bond Index. After-tax returns cannot be calculated for periods before
the Fund's registration as a mutual fund and they are, therefore, unavailable
for the 5 year and since Performance Start Date periods.
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 KEMPNER TREASURY AND INCOME FUND 1 YEAR 5 YEARS (11/30/06)
--------------------------------------------------------------------------------
FUND RETURN BEFORE TAXES 10.69% 6.68% 6.21%
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 10.53% N/A N/A
FUND RETURN AFTER TAXES ON DISTRIBUTIONS 8.15% N/A N/A
AND SALE OF FUND SHARES
BARCLAYS TREASURY BOND INDEX RETURN 9.81% 6.81% 6.52%
(REFLECTS NO DEDUCTION FOR FEES, EXPENSES,
OR TAXES)
|
INVESTMENT ADVISER
Frost Investment Advisors LLC ("Frost") serves as investment adviser to the
Fund. Kempner Capital Management, Inc. ("Kempner") serves as investment
sub-adviser to the Fund.
PORTFOLIO MANAGERS
Harris L. Kempner, Jr., President of Kempner, has served on the portfolio team
for the Fund since its inception.
R. Patrick Rowles, Executive Vice President of Kempner, has served on the
portfolio team for the Fund since its inception.
M. Shawn Gault, Vice President of Kempner, has served on the portfolio team for
the Fund since its inception.
Andrew Duncan, Vice President of Kempner, has served on the portfolio team for
the Fund since 2012.
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.
FOR IMPORTANT INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES AND
FINANCIAL INTERMEDIARY COMPENSATION, PLEASE TURN TO "SUMMARY INFORMATION ABOUT
THE PURCHASE AND SALE OF FUND SHARES AND FINANCIAL INTERMEDIARY COMPENSATION"
ON PAGE 79 OF THE PROSPECTUS.
78
SUMMARY INFORMATION ABOUT THE PURCHASE AND SALE OF FUND SHARES 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
$1,000,000 for Institutional Class Shares. Each 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 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.
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.
79
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. The risks disclosed below may not be
applicable to each Fund.
EQUITY RISK -- Equity securities in which the Funds invest include public and
privately issued equity securities, common and preferred stocks, warrants,
interests in MLPs and royalty trusts, shares of ADRs and REITs, as well as
shares of ETFs that attempt to track the price movement of equity indices, and
rights to subscribe to common stock and convertible securities. 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 such 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. An
investment in a portfolio of equity securities may be more suitable for
long-term investors who can bear the risk of these share price fluctuations.
FIXED INCOME RISK-- The market value of the Funds' fixed income investments
change in response to interest rate changes and other factors. During periods
of falling interest rates, the values of outstanding fixed income securities
generally rise. 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. 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 SECURITY RISK -- The Funds' investments in securities of foreign
companies (including direct investments as well as investments through ADRs)
can be more volatile than investments in U.S. companies. 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. Foreign companies or governments generally
are not subject to uniform accounting, auditing, and financial reporting
standards comparable to those applicable
80
to domestic U.S. companies or governments. Transaction costs are generally
higher than those in the United States 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 the securities comprising the portfolio.
MORE INFORMATION ABOUT FUND INVESTMENTS
Each Fund's investment objective may be changed without shareholder approval.
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 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.
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
corporation 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. The Adviser manages and
supervises the investment of the Funds' assets on a discretionary basis. As of
September 30, 2012, the Adviser had approximately $8.8 billion in assets
under management.
The Adviser oversees the sub-advisers to the Frost Kempner Multi-Cap Deep
Value Equity Fund, the Frost International Equity Fund, the Frost Mid Cap Fund,
the Frost Small Cap Equity Fund, the Frost Cinque Large Cap Buy-Write Equity
Fund, and the Frost Kempner Treasury and Income Fund (each, a "Sub-Adviser" and
collectively, the "Sub-Advisers") to ensure their compliance with the investment
policies and guidelines of these Funds, and monitors each Sub-Adviser's
adherence to its investment style. The Adviser pays the Sub-Advisers out of the
advisory fee it receives from the Funds. The Board of Trustees of the Trust (the
"Board") supervises the Adviser and the Sub-Advisers and establishes policies
that the Adviser and Sub-Advisers must follow in their management activities.
81
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. For its services under the Sub-Advisory Agreements, each
Sub-Adviser is entitled to a fee, which is calculated daily and paid monthly,
by the Adviser. The Adviser has voluntarily agreed to reduce its investment
advisory fees for certain Funds as set forth below ("Voluntary Fee Reduction").
In addition, the Adviser has voluntarily agreed to further reduce its fees
and/or reimburse expenses in order to keep total annual Fund operating expenses
(excluding interest, taxes, brokerage commissions, acquired fund fees and
expenses and extraordinary expenses) from exceeding certain levels as set forth
below ("Voluntary Expense Limitation"). The Adviser intends to continue these
expense limitations until further notice, but may discontinue all or part of
these fee reductions or expense reimbursements at any time. If at any point it
becomes unnecessary for the Adviser to reduce fees or make expense
reimbursements, the Adviser may retain the difference between the total annual
Fund operating expenses and the Voluntary Expense Limitation set forth below to
recover all or a portion of its prior fee reductions or expense reimbursements
made during the preceding three-year period during which the 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. The table
below shows the rate of each Fund's investment advisory fee before the
Adviser's Voluntary Fee Reduction, the rate of the Adviser's Voluntary Fee
Reduction, the investment advisory fee after the Voluntary Fee Reduction and
the Adviser's Voluntary Expense Limitation for each Fund, and the amount of
advisory fees paid to the Adviser as a percentage of daily net assets for the
fiscal year ending July 31, 2012.
---------------------------------------------------------------------------------------------------------------
FUND ADVISORY FEE ADVISER'S ADVISORY FEE VOLUNTARY ADVISORY
BEFORE VOLUNTARY AFTER EXPENSE FEES PAID
VOLUNTARY FEE VOLUNTARY LIMITATION
FEE REDUCTION FEE
REDUCTION REDUCTION
---------------------------------------------------------------------------------------------------------------
Frost Growth Equity Fund 0.80% 0.15% 0.65% 1.25% 0.65%
---------------------------------------------------------------------------------------------------------------
Frost Dividend Value Equity Fund 0.80% 0.15% 0.65% 1.25% 0.65%
---------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep 0.59% None 0.59% 1.05% 0.59%
Value Equity Fund
---------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 0.90% None 0.90% 1.55% 0.90%
---------------------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund 1.00% for None 1.00% for 1.55% 0.93%
assets up to assets up to
$100 million $100 million
0.85% for 0.85% for
assets over assets over
$100 million $100 million
---------------------------------------------------------------------------------------------------------------
Frost International Equity Fund 0.95% for None 0.95% for 1.45% 0.93%
assets up to assets up to
$150 million $150 million
0.90% for 0.90% for
assets over assets over
$150 million $150 million
---------------------------------------------------------------------------------------------------------------
Frost Natural Resources Fund 0.80% None 0.80% 1.75% 0.80%(1)
---------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write 0.90% None 0.90% 1.50% None(2)
Equity Fund
---------------------------------------------------------------------------------------------------------------
Frost Strategic Balanced Fund 0.70% 0.05% 0.65% 1.35% 0.28%
---------------------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund 0.50% 0.15%(3) 0.35% 0.95% 0.35%
---------------------------------------------------------------------------------------------------------------
Frost Credit Fund 0.60% None 0.60% 1.00% None(2)
---------------------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund 0.50% 0.15%(4) 0.35% 0.95% 0.35%
---------------------------------------------------------------------------------------------------------------
Frost Municipal Bond Fund 0.50% 0.25%(5) 0.25% 1.05% 0.40%
---------------------------------------------------------------------------------------------------------------
Frost Low Duration Municipal 0.50% 0.25%(6) 0.25% 1.15% 0.30%
Bond Fund
---------------------------------------------------------------------------------------------------------------
Frost Kempner Treasury and 0.35% None 0.35% 1.05% 0.35%
Income Fund
---------------------------------------------------------------------------------------------------------------
|
(1) For the fiscal period from September 27, 2011 (commencement of operations)
to July 31, 2012.
(2) Not in operation during this period.
(3) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Total Return Bond Fund by 0.10%.
(4) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Low Duration Bond Fund by 0.20%
(5) Prior to August 30, 2012, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Municipal Bond Fund by 0.10%.
(6) Prior to August 30, 2012, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Low Duration Municipal Bond Fund by
0.20%.
82
A discussion regarding the basis for the Board's approval of the investment
advisory contract with the Adviser and the sub-advisory contracts between the
Adviser and each Sub-Adviser will be available in the Funds' Semi-Annual Report
to Shareholders dated January 31, 2013.
PORTFOLIO MANAGERS
John Lutz, CFA, Senior Research Analyst at Frost, serves as Senior Fund Manager
of the Frost Growth Equity Fund and Fund Co-Manager of the Frost Natural
Resources Fund. Mr. Lutz is jointly and primarily responsible for the
day-to-day management of the Frost Growth Equity Fund and the Frost Natural
Resources Fund. Mr. Lutz joined Frost Bank, the parent company of the Adviser,
in 1995. He received a bachelor's degree in business administration from Texas
A&M University and a master's degree in business administration from Our Lady
of the Lake University.
TJ Qatato, CFA, Senior Research Analyst at Frost, serves as Fund Co-Manager of
the Frost Growth Equity Fund. Mr. Qatato is jointly and primarily responsible
for the day-to-day management of the Frost Growth Equity Fund. Mr. Qatato
joined Frost Investment Advisors in 2011. Prior to joining Frost, he worked for
Aster Investment Management Inc. and Friess Associates. He earned a bachelor's
degree in business administration and a master's degree in professional
accounting, both from The University of Texas at Austin. Mr. Qatato is a holder
of the right to use the Chartered Financial Analyst (CFA[R]) designation and is
a member of the CFA Institute.
Stephen Coker, CFA, Senior Research Analyst at Frost, serves as Fund Co-Manager
of the Frost Growth Equity Fund. Mr. Coker is jointly and primarily responsible
for the day-to-day management of the Frost Growth Equity Fund. Mr. Coker joined
Frost Investment Advisors in 2008. Prior to joining Frost, he worked for the
Principal Financial Group in Seattle and Trusco Capital Management in Atlanta.
He earned a bachelor's degree in Management from Georgia Tech and an MBA in
Finance from Indiana University. Mr. Coker is a holder of the right to use the
Chartered Financial Analyst (CFA[R]) designation and is a member of the CFA
Institute.
Michael R. Brell, CFA, Senior Research Analyst at Frost, serves as Fund
Co-Manager of the Frost Dividend Value Equity Fund. Mr. Brell is jointly and
primarily responsible for the day-to-day management of the Frost Dividend Value
Equity Fund. Mr. Brell joined Frost Bank, the parent company of the Adviser, in
2002. He received a bachelor's of arts degree with honors in international
relations and a master's degree in business administration from St. Mary's
University.
Theodore H. Harper, Senior Research Analyst at Frost, serves as Senior Fund
Manager of the Frost Natural Resources Fund and Fund Co-Manager of the Frost
Dividend Value Equity Fund. Mr. Harper is jointly and primarily responsible for
the day-to-day management of the Frost Natural Resources Fund and the Frost
Dividend Value Equity Fund. Mr. Harper joined Frost Bank, the parent company of
the Adviser, in 2000. He received a bachelor's degree in political science and
economics from the University of Arizona.
Tom L. Stringfellow, CFA, CFP, CPA, President and CIO at Frost, serves as Fund
Co-Manager of the Frost Growth Equity Fund, the Frost Dividend Value Equity
Fund, the Frost Natural Resources Fund and the Frost Strategic Balanced Fund.
Mr. Stringfellow is jointly and primarily responsible for the day-today
management of the Frost Growth Equity Fund, the Frost Dividend Value Equity
Fund, the Frost Natural Resources Fund and the Frost Strategic Balanced 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 master's degree in economics from St.
Mary's University and a master's degree in business administration from Texas
A&M University.
Jeffery Elswick, Director of Fixed Income and Managing Director at Frost,
serves as Senior Fund Manager of the Frost Total Return Bond Fund, the Frost
Credit Fund, the Frost Low Duration Bond Fund, the Frost Municipal Bond Fund
and the Frost Low Duration Municipal Bond Fund. Mr. Elswick is jointly and
primarily responsible for the day-to-day management of the Frost Total Return
Bond Fund, the Frost Credit Fund, the Frost Low Duration Bond Fund, the Frost
Municipal Bond Fund, and the Frost Low Duration Municipal Bond Fund. Mr.
Elswick joined Frost Bank, the parent company of the Adviser, in 2006. Prior to
joining Frost Bank, Mr. Elswick served as a fixed income portfolio manager,
analyst and trader at Capital One Financial Corporation from 2000 to 2006. He
received a master of science in finance degree and a bachelor's of business
administration degree from Texas A&M University.
Brad Thompson, CFA, Managing Director and Director of Research at Frost, serves
as Senior Fund Manager of the Frost Strategic Balanced Fund and Fund Co-Manager
of the Frost Growth Equity Fund and the Frost Dividend Value Equity Fund. Mr.
Thompson is jointly and primarily responsible for the day-to-day management of
the Frost Strategic Balanced Fund, the Frost Growth Equity Fund, and the Frost
Dividend Value Equity 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.
Justin Hopkins, Mutual Fund Analyst and Trader at Frost, serves as Fund
Co-Manager of the Frost Strategic Balanced Fund. Mr. Hopkins is jointly and
primarily responsible for the day-to-day management of the Frost Strategic
Balanced 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.
83
SUB-ADVISERS
The Sub-Advisers for 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 Cinque Large Cap Buy-Write Equity Fund, and
the Frost Kempner Treasury and Income Fund are responsible for the day-to-day
management of these Funds, subject to the general supervision of the Board and
the Adviser and in accordance with the investment objectives, policies and
restrictions of the Funds.
84
o 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, 12th Floor, FNB Building
Galveston, Texas 77550-1503. As of September 30, 2012, KCM had approximately
$434 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 the
Frost Kempner Treasury and Income Fund's investments.
Harris L. Kempner, Jr. is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Kempner has been KCM's President since
the firm's inception in 1982. He was President of U.S. National Bancshares and
Chief Investment Officer for Frost Bank of Galveston (formerly United States
National Bank) from 1969-1982. He received a BA from Harvard University in 1961
and an MBA from Stanford University in 1963.
R. Patrick Rowles is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Rowles joined KCM as Executive Vice
President in 1987. He was President of R. Patrick Rowles & Company from
1981-1987. He received a BBA from the University of Texas at Austin in 1961.
M. Shawn Gault is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Gault is a Vice President and joined KCM
in January 2001. He received a BS from the University of Texas at Arlington in
1995 and an MBA/MHA from the University of Houston at Clear Lake in 2000.
Andrew Duncan is jointly and primarily responsible for the day-to-day
management of the Frost Kempner Multi-Cap Deep Value Equity Fund and the Frost
Kempner Treasury and Income Fund. Mr. Duncan is a Vice President and joined KCM
in May 2012. He received a BS from West Virginia University in 1995 and a MS
from Texas A&M University in 1996. Prior to joining Kempner, Mr. Duncan was
employed with American National Insurance Company from May 2006 to May 2012 as
Vice President of Equity Investments. He was employed with Securities
Management & Research, Inc. from January 1997 to May 2006 as a Security
Analyst, Portfolio Manager and Senior Securities Analyst, and Vice President,
Head of Equity Mutual Funds.
85
o 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. As of September 30, 2012, LKCM had approximately
$10.3 billion in assets under management. LKCM is responsible for the day-to-day
management of the Frost Mid Cap Equity Fund's investments.
J. Luther King, Jr. is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. King has been President,
Principal, and Portfolio Manager of Luther King Capital Management Corporation
since 1979.
Steven R. Purvis is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. Purvis has been a Portfolio
Manager of Luther King Capital Management Corporation since 1996 and a
Principal of the firm since 2003.
Paul W. Greenwell is jointly and primarily responsible for the day-to-day
management of the Frost Mid Cap Equity Fund. Mr. Greenwell has been a Portfolio
Manager of Luther King Capital Management Corporation since 1983 and a
Principal of the firm since 1986.
86
o FROST SMALL CAP EQUITY FUND
Cambiar Investors LLC, ("Cambiar"), a Delaware limited liability company
located at 2401 East Second Avenue, Suite 500, Denver, Colorado 80206, is an
investment adviser registered with the Securities and Exchange Commission (the
"SEC") under the Investment Advisers Act of 1940. Cambiar has provided
investment management services to corporations, foundations, endowments,
pension and profit sharing plans, trusts, estates and other institutions as
well as individuals since 1973. As of September 30, 2012, Cambiar managed
approximately $6.9 billion in firmwide assets across four equity strategies
including large-cap, small-cap, international equity and global multi-value
equity strategies.
Brian M. Barish, CFA, President, Director of Research, joined Cambiar in 1997.
He focuses on the technology, media, aerospace and defense sectors. Prior to
joining Cambiar, Mr. Barish served as Director of Emerging Markets Research for
Lazard Freres & Co., a New York based investment bank. He has also served as a
securities analyst with Bear, Stearns & Co. and Arnhold S. Bleichroeder, a New
York based research firm. Mr. Barish received a BA in Economics and Philosophy
from the University of California, Berkeley, and holds the Chartered Financial
Analyst designation.
Anna (Ania) A. Aldrich, CFA, Principal, joined Cambiar in 1999. Prior to
joining Cambiar, Ms. Aldrich was a global equity analyst at Bankers Trust, a
New York based investment company, covering the financial services and
transportation sectors. She began her career as a senior investor relations
professional at BET PLC, a New York based communications firm. Ms. Aldrich
holds an MBA in Finance from Fordham University and a BA in Computer Science
from Hunter College. She also holds the Chartered Financial Analyst
designation.
Andrew P. Baumbusch, Principal, joined Cambiar in 2004. Prior to joining
Cambiar, Mr. Baumbusch served as an investment analyst at Franklin Templeton,
Atrium Capital and Alex Brown & Sons. Mr. Baumbusch holds an MBA from the
Stanford Graduate School of Business and a BA in Economics from Princeton
University.
Timothy A. Beranek, Principal, joined Cambiar in 1999. Prior to joining
Cambiar, Mr. Beranek was with Resources Trust where he had responsibility for
oversight of financial controls for the company's mutual fund trading
relationships. He began his career with Merrill Lynch. Mr. Beranek holds a
Masters in Finance from the University of Colorado and a BS in Economics from
the University of South Dakota.
Maria L. Mendelsberg, CFA, Principal, joined Cambiar in 1997. Prior to joining
Cambiar, Ms. Mendelsberg served as an investment analyst for Eaton Vance
Management, a Boston based investment company. Before launching her investment
career, she spent many years working in retail management. Ms. Mendelsberg
received a BA in Economics and Classics from Brown University, and holds the
Chartered Financial Analyst designation.
Jeffrey H. Susman, Senior Investment Analyst, joined Cambiar in 2005. Prior to
joining Cambiar, Mr. Susman worked at UBS Investment Bank, where he was an
associate analyst on the Global Communications Equipment Equity Research Team.
Mr. Susman began his investment career as a Research Associate at Wellington
Management. Mr. Susman received an MBA in Finance and Corporate Strategy from
the University of Michigan and a BA in Economics and International Relations
from Tufts University.
o 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, New Mexico 87506. As of September 30, 2012, Thornburg
had approximately $81 billion in assets under management. Thornburg is
responsible for the day-to-day management of the Frost International Equity
Fund's investments.
William Fries, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Mr. Fries joined Thornburg
in 1995. He received a BS from the Pennsylvania State University and an MBA
from Temple University.
Lei Wang, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Mr. Wang joined Thornburg in
2004. Prior to joining Thornburg, Mr. Wang served as an associate at Enso
Capital from 2002 to 2004 and as an associate at Deutsche Bank Alex Brown Inc.
from 2001 to 2002. He received a BA/MA from East China Normal University and an
MBA from New York University.
Wendy Trevisani is jointly and primarily responsible for the day-to-day
management of the Frost International Equity Fund. Ms. Trevisani joined
Thornburg in 1999. She received a BA from Bucknell University and an MBA from
Columbia University.
o FROST CINQUE LARGE CAP BUY-WRITE EQUITY FUND
Cinque Partners LLC (Cinque), a Delaware limited liability company established
in 2011, serves as the sub-adviser to the Frost Cinque Large Cap Buy-Write
Equity Fund. Cinque's principal place of business is 11836 San Vicente
Boulevard, Los Angeles, CA 90049. As of September 30, 2012, Cinque had
approximately $170 million in assets under management. Cinque is responsible
for the day-to-day management of the Frost Cinque Large Cap Buy-Write Equity
Fund's investments.
Alan Adelman is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Adelman
joined Cinque in 2012. Prior to joining Cinque, Mr. Adelman joined Wells Fargo
Private Client Services (PCS) in 2000 as its Chief Investment Strategist,
providing investment strategy for 220 portfolio managers, 1200 registered
representatives, 600 personal trust officers and 150 private bankers. He served
as the Chief Investment Officer for Wells Fargo's offshore trust company and he
oversaw the PCS Flagship Wells Fargo Signature Core Equity Strategy, which was
used as the model for separate accounts, commingled funds and unit trusts. He
received his BS from Arizona State University Alan also completed the United
Asset Management Leadership Program at Harvard Business School and the Equity
Derivatives Program at the Columbia University School of Business.
Jack Cowling, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Cowling
joined Cinque in 2012. Prior to joining Cinque, Mr. Cowling joined Wells Fargo
Private Client Services (PCS) in 2001 as Senior Portfolio Manager, providing
investment strategy and advice for local Bank clients. He served as a senior
member of the PCS Flagship Wells Fargo Signature Core Equity Strategy Team,
which is used as the model for separate accounts, commingled funds and unit
trusts. Prior to joining Wells Fargo, Jack was a Senior Partner and Manager of
Quantitative Research for First Investment Advisors, a private client advisory
firm based in Charlotte, North Carolina. He received his Bachelor degree Summa
Cum Laude from the University of North Florida.
Fred Wahl, CFA, CIMA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Wahl joined
Cinque in 2012. Prior to joining Cinque, Mr. Wahl worked with a team of
portfolio managers and relationship managers providing alternative investment
and advisory services to ultra-high net worth clients of Wells Fargo. Mr. Wahl
was also a contributor to the Wells Fargo Wealth Management Investment Strategy
team and was one of the creators of the stock ranking and target price models
used to assess attractiveness of holdings within Wells Fargo client portfolios.
He has over 30 years of experience, primarily in the trust and investment
management business (and 2 years as an institutional broker). Prior to joining
Wells Fargo in 1992, he managed the fixed income portion of the American
Airlines pension plan as a member of the in-house portfolio management team,
and supported its plan sponsor group with equity analysis to aid in monitoring
over 40 outside investment managers. Mr. Wahl's early career consisted of
work in traditional Trust investment management, bank portfolio management, and
chief investment officer of a bank-owned registered investment advisor. He
received his Bachelor of Science in Economics & Finance from Lehigh University.
Pierre Brachet, CFA, is jointly and primarily responsible for the day-to-day
management of the Frost Cinque Large Cap Buy-Write Equity Fund. Mr. Brachet
joined Cinque in 2012. Prior to joining Cinque, Mr. Brachet provided
statistical analysis and data management support for Private Client Services'
(PCS) Wells Fargo Signature Core equity model as well as for the PCS Asset
Allocation team. He received his MBA from Portland State University.
87
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 Funds.
Institutional Class 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 or wire. 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 Fund 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 and the Fund name.
88
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
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 and your account number).
WIRING INSTRUCTIONS
UMB Bank, N.A.
ABA # 101000695
Frost Funds
DDA Acct. # 9871063178
Ref: Fund name/account number/account name
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 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 a Fund with a minimum initial investment of
$1,000,000 for Institutional Class Shares. There is no minimum for subsequent
investments. Each Fund reserves the right to waive the minimum investment
amounts in its sole discretion.
HOW TO REDEEM FUND SHARES
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:
89
o The Fund name;
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.
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 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").
EXCHANGING SHARES
At no charge, you may exchange Institutional Class Shares of a Fund for
Institutional Class Shares of another Fund in the Frost Funds complex by
writing to or calling the Funds. You may only exchange 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."
90
TRANSACTION POLICIES
CALCULATING YOUR SHARE PRICE
When you buy shares, you pay the "offering price" for the shares. The offering
price is the NAV per share plus any sales charge applicable to the purchase.
When you sell shares you receive the NAV minus any applicable Contingent
Deferred Sales Charges ("CDSC") and/or redemption fee.
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 of Trustees (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
readily available.
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 requests for Fund
shares ("authorized institutions"). These requests are executed at the NAV next
determined after the authorized institution receives the request. To determine
whether your financial intermediary is an authorized institution such that it
may act as agent on behalf of the Funds with respect to purchase and redemption
requests for Fund shares, you should contact them directly.
91
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.
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 sufficient time to add to your account and avoid the
need to sell your shares. If your Frost International Equity Fund shares are
redeemed for this reason within 30 calendar days of their purchase, the
redemption fee will not be applied.
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 Statement of Additional Information.
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.
92
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. These payments may be in
addition to shareholder servicing payments that are reflected in the fees and
expenses listed in the fee table section 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 it 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 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 Funds' Statement of Additional
Information.
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
93
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.
In addition, small- and mid-cap securities, which often trade in lower volumes
and may be less liquid, may make a Fund more susceptible to the risks posed by
frequent trading because frequent transactions in a Fund's shares may have a
greater impact on the market prices of these types of securities. 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 Funds'
Board of Trustees. 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 orders. The
Funds define a round trip as a purchase 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 Frost International Equity Fund assesses a redemption fee of
2.00% on redemptions by shareholders of Fund shares held for less than
30 calendar days (subject to certain exceptions as discussed in
"Redemption Fee").
94
o The Funds reserve the right to reject any purchase 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 its 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.
REDEMPTION FEE
In an effort to discourage short-term trading and defray costs incurred by
shareholders as a result of such trading, the Frost International Equity Fund
charges a 2.00% redemption fee on redemptions of shares that have been held for
less than 30 calendar days. The fee is deducted from the sale proceeds and
cannot be paid separately, and any proceeds of the fee are credited to the
assets of the Fund. The fee does not apply to the exchange of shares or shares
purchased with reinvested dividends or distributions. In determining how long
shares of the Fund have been held, the Fund assumes that shares held by the
investor the longest period of time will be sold first. The redemption fee is
applicable to Fund shares purchased either directly or through a financial
intermediary, such as a broker-dealer. Transactions through financial
intermediaries typically are placed with the Fund on an omnibus basis and
include both purchase and sale transactions placed on behalf of multiple
investors. The Fund requests that financial intermediaries assess the
redemption fee on customer accounts and collect and remit the proceeds to the
Fund. However, the Fund recognizes that due to operational requirements, the
intermediaries' methods for tracking and calculating the fee may be inadequate
or differ in some respects from the Fund's.
The Fund reserves the right to waive the redemption fee in its discretion where
it believes such waiver is in the best interests of the Fund, including certain
categories of redemptions that the Fund reasonably believes may not raise
frequent trading or market timing concerns. These categories include, but are
not limited to, the following: (i) participants in certain group retirement
plans whose processing systems are incapable of properly applying the redemption
fee to underlying shareholders; (ii) redemptions resulting from certain
transfers upon the death of a shareholder; (iii) redemptions by certain pension
plans as required by law or by regulatory authorities; (iv) failed
verifications; (v) involuntary redemptions; and (vi) retirement loans and
withdrawals. The redemption fee will not be applied on redemptions made within
the 30 calendar day period because the account does not meet the applicable
minimum account size or because the Fund is unable to verify the accountholder's
identity within a reasonable time after the account is opened.
95
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.
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. If your account is closed for
this reason, the redemption fee will not be applied.
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.
96
DIVIDENDS AND DISTRIBUTIONS
Normally, the Frost Growth Equity Fund, the Frost Mid Cap Equity Fund, the Frost
Small Cap Equity Fund, the Frost International Equity Fund, the Frost Natural
Resources Fund, and the Frost Cinque Large Cap Buy-Write Equity Fund each
distribute their net investment income and make distributions of their net
realized capital gains, if any, at least annually. Normally, the Frost Dividend
Value Equity Fund, the Frost Kempner Multi-Cap Deep Value Equity Fund, the Frost
Strategic Balanced Fund, the Frost Total Return Bond Fund, the Frost Credit
Fund, the Frost Low Duration Bond Fund, the Frost Municipal Bond Fund, the Frost
Low Duration Municipal Bond Fund, and the Frost Kempner Treasury and Income Fund
each distribute their net investment income, if any, monthly 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-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
Natural Resources Fund 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 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.
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. Absent further legislation,
the reduced tax rates applicable to qualified dividend income will not apply to
dividends received in taxable years beginning after December 31, 2012 and such
income will be taxable at ordinary income tax rates. Distributions from the
Frost Total Return Bond Fund, Frost Credit Fund, Frost Low Duration Bond Fund,
Frost Municipal Bond Fund, Frost Low Duration Municipal Bond Fund, and the Frost
Kempner Treasury and Income Fund are not expected to qualify for the reduced tax
rates on qualified dividend income.
The Frost Total Return Bond Fund, Frost Credit Fund, Frost Low Duration Bond
Fund, and Frost Kempner Treasury and Income Fund are each expected to make
primarily ordinary income distributions. Because the Frost
97
Municipal Bond Fund and Frost Low Duration Municipal Bond Fund invest primarily
in municipal bonds, the dividends you receive from these Funds will generally
be exempt from regular federal income tax. All or a portion of these dividends,
however, may be subject to state and local taxes or to the federal alternative
minimum tax. Although the Frost Municipal Bond Fund and Frost Low Duration
Municipal Bond Fund do not seek to realize taxable income or capital gains,
these Funds may realize and distribute taxable income or capital gains from
time to time as a result of their normal investment activities. 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.
Recent legislation effective beginning in 2013 provides that U.S. individuals
with income exceeding $200,000 ($250,000 if married and filing jointly) will be
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 will also be 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 the new cost basis reporting law 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. 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.
98
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
99
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 period of the Fund's operations. Some of this information
reflects financial information for a single Fund 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 Fund. The financial
statements and the unqualified opinion of Ernst & Young LLP are included in the
2012 Annual Report of the Fund, which is available upon request by calling
1-877-71-FROST.
Because the Frost Cinque Large Cap Buy-Write Equity Fund and the Frost Credit
Fund have not commenced operations as of the date of this prospectus, financial
highlights for the Frost Cinque Large Cap Buy-Write Equity Fund and the Frost
Credit Fund are not available.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------------
NET
NET ASSET NET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT UNREALIZED TOTAL FROM NET FROM TOTAL NET ASSET
BEGINNING INCOME GAINS (LOSSES) FROM INVESTMENT REALIZED DIVIDENDS & VALUE, END
OF PERIOD (LOSS)(1) ON INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.26 $0.01 $ 0.23 $ 0.24 $ (0.02) $ -- $(0.02) $10.48
2011 8.21 0.02 2.06 2.08 (0.03) (0.00)^ (0.03) 10.26
2010 7.61 0.03 0.60 0.63 (0.03) -- (0.03) 8.21
2009 9.34 0.03 (1.74) (1.71) (0.02) -- (0.02) 7.61
2008 (a) 10.00 0.00+++ (0.66) (0.66) -- -- -- 9.34
-----------------------------------------------------------------------------------------------------------------------
DIVIDEND VALUE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.20 $0.19 $(0.28) $ (0.09) $ (0.19) $ -- $(0.19) $ 8.92
2011 8.03 0.19 1.17 1.36 (0.19) -- (0.19) 9.20
2010 7.44 0.15 0.59 0.74 (0.15) -- (0.15) 8.03
2009 9.20 0.21 (1.61) (1.40) (0.21) (0.15) (0.36) 7.44
2008(a) 10.00 0.07 (0.80) (0.73) (0.07) -- (0.07) 9.20
-----------------------------------------------------------------------------------------------------------------------
STRATEGIC BALANCED FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.49 $0.19 $ 0.06 $ 0.25 $ (0.19) $ -- $(0.19) $10.55
2011 9.54 0.14 1.05 1.19 (0.24) -- (0.24) 10.49
2010 8.67 0.16 0.87 1.03 (0.16) -- (0.16) 9.54
2009 9.76 0.32 (1.11) (0.79) (0.30) -- (0.30) 8.67
2008(b) 10.00 0.01 (0.23) (0.22) (0.02) -- (0.02) 9.76
-----------------------------------------------------------------------------------------------------------------------
|
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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
------------------------------------------------------------------------------------------
GROWTH EQUITY FUND
------------------------------------------------------------------------------------------
2012 2.31%++ $262,447 0.81% 0.96% 0.13% 46%
2011 25.35++ 257,479 0.82 0.97 0.21 38
2010 8.25++ 195,304 0.82 0.97 0.31 56
2009 (18.28)++ 188,920 0.85 1.00 0.38 72
2008(a) (6.60)++ 211,065 0.86* 1.01* 0.21* 5**
------------------------------------------------------------------------------------------
DIVIDEND VALUE EQUITY FUND
------------------------------------------------------------------------------------------
2012 (0.94)%++ $225,509 0.81% 0.96% 2.16% 90%
2011 17.03++ 235,531 0.82 0.97 2.12 82
2010 9.96++ 198,506 0.83 0.98 1.84 76
2009 (14.76)++ 157,923 0.86 1.01 2.96 65
2008(a) (7.28)++ 146,164 0.88* 1.03* 2.91* 34**
------------------------------------------------------------------------------------------
STRATEGIC BALANCED FUND
------------------------------------------------------------------------------------------
2012 2.49%++ $ 3,925 1.35%(2) 1.77% 1.84% 18%
2011 12.49++ 4,399 1.30 1.39 1.34 21
2010 11.88++ 12,976 1.24 1.30 1.71 38
2009 (7.66)++ 12,038 1.18 1.23 3.94 33
2008(b) (2.25)++ 23,960 1.35* 1.79* 1.05* 9**
------------------------------------------------------------------------------------------
|
* 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.
+++ AMOUNT REPRESENTS LESS THAN $0.01.
^ INCLUDES A RETURN OF CAPITAL LESS THAN $0.01.
(A) COMMENCED OPERATIONS ON APRIL 25, 2008.
(B) COMMENCED OPERATIONS ON JUNE 30, 2008.
(C) COMMENCED OPERATIONS ON SEPTEMBER 27, 2011.
(1) PER SHARE DATA CALCULATED USING THE AVERAGE SHARES METHOD.
(2) INCLUDES INTEREST EXPENSE ON BORROWINGS.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
100
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------------
NET
NET ASSET NET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT UNREALIZED TOTAL FROM NET FROM TOTAL NET ASSET
BEGINNING INCOME GAINS (LOSSES) FROM INVESTMENT REALIZED DIVIDENDS & VALUE, END
OF PERIOD (LOSS)(1) ON INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------
KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 8.90 $0.17 $ 0.10 $ 0.27 $ (0.18) $ -- $(0.18) $ 8.99
2011 7.89 0.15 1.02 1.17 (0.16) -- (0.16) 8.90
2010 7.20 0.15 0.69 0.84 (0.15) -- (0.15) 7.89
2009 9.08 0.20 (1.73) (1.53) (0.21) (0.14) (0.35) 7.20
2008 (a) 10.00 0.05 (0.92) (0.87) (0.05) -- (0.05) 9.08
-----------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.72 $ 0.01 $(0.60) $ (0.59) $ -- $(1.31) $ (1.31) $ 7.82
2011 7.53 (0.03) 2.22 2.19 -- -- -- 9.72
2010 6.94 (0.04) 0.63 0.59 -- -- -- 7.53
2009 9.61 (0.02) (2.58) (2.60) -- (0.07) (0.07) 6.94
2008(a) 10.00 (0.01) (0.38) (0.39) -- -- -- 9.61
------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $ 9.18 $0.11 $(1.16) $ (1.05) $ (0.05) $ -- $(0.05) $ 8.08
2011 7.79 0.11 1.34 1.45 (0.06) -- (0.06) 9.18
2010 7.18 0.07 0.55 0.62 (0.01) -- (0.01) 7.79
2009 9.01 0.08 (1.71) (1.63) (0.20) -- (0.20) 7.18
2008 (a) 10.00 0.06 (1.05) (0.99) -- -- -- 9.01
------------------------------------------------------------------------------------------------------------------------
LOW DURATION BOND FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.64 $0.25 $ 0.11 $ 0.36 $ (0.25) $(0.16) $(0.41) $10.59
2011 10.67 0.27 0.04 0.31 (0.25) (0.09) (0.34) 10.64
2010 10.32 0.37 0.33 0.70 (0.35) -- (0.35) 10.67
2009 10.01 0.47 0.30 0.77 (0.46) (0.00)+++ (0.46) 10.32
2008 (a) 10.00 0.10 0.01 0.11 (0.10) -- (0.10) 10.01
------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
-----------------------------------------------------------------------------------------------------------------------
2012 $10.70 $0.51 $ 0.15 $ 0.66 $ (0.50) $(0.06) $(0.56) $10.80
2011 10.71 0.54 0.35 0.89 (0.52) (0.38) (0.90) 10.70
2010 10.17 0.63 0.66 1.29 (0.60) (0.15) (0.75) 10.71
2009 9.89 0.58 0.28 0.86 (0.56) (0.02) (0.58) 10.17
2008 (a) 10.00 0.13 (0.11) 0.02 (0.13) -- (0.13) 9.89
------------------------------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND
------------------------------------------------------------------------------------------
2012 3.06% $154,505 0.78% 0.78% 1.99% 24%
2011 14.80 141,615 0.78 0.78 1.69 22
2010 11.75 125,363 0.79 0.79 1.87 23
2009 (16.33) 119,227 0.81 0.81 3.02 12
2008(a) (8.69) 153,539 0.82* 0.82* 2.20* 11**
------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
------------------------------------------------------------------------------------------
2012 (5.17)% $142,295 1.12%(2) 1.12% 0.13% 113%
2011 29.08 182,577 1.10 1.10 (0.36) 144
2010 8.50 140,224 1.23 1.23 (0.53) 160
2009 (26.94) 80,026 1.25 1.25 (0.27) 273
2008(a) (3.90) 64,577 1.33* 1.33* (0.26)* 110**
------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
------------------------------------------------------------------------------------------
2012 (11.39)% $198,348 1.14%(2) 1.14% 1.32% 20%
2011 18.66 263,419 1.14 1.14 1.25 26
2010 8.69 218,996 1.16 1.16 0.91 35
2009 (17.51) 182,004 1.21 1.21 1.27 51
2008 (a) (9.90) 230,394 1.19* 1.19* 2.25* 16**
------------------------------------------------------------------------------------------
LOW DURATION BOND FUND
------------------------------------------------------------------------------------------
2012 3.52%++ $239,140 0.53%(2) 0.68% 2.37% 73%
2011 2.97++ 236,573 0.53 0.68 2.56 56
2010 6.86++ 165,334 0.53 0.70 3.52 62
2009 8.00++ 103,107 0.52 0.72 4.77 56
2008 (a) 1.12++ 118,107 0.56* 0.76* 3.88* 8**
------------------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
------------------------------------------------------------------------------------------
2012 6.45%++ $675,039 0.50% 0.65% 4.79% 61%
2011 8.72++ 489,685 0.51 0.66 5.08 58
2010 13.03++ 319,147 0.54 0.67 5.97 60
2009 9.08++ 238,649 0.59 0.69 5.97 67
2008 (a) 0.15++ 199,384 0.62* 0.72* 4.78* 12**
------------------------------------------------------------------------------------------
|
* 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.
+++ AMOUNT REPRESENTS LESS THAN $0.01.
^ INCLUDES A RETURN OF CAPITAL LESS THAN $0.01.
(A) COMMENCED OPERATIONS ON APRIL 25, 2008.
(B) COMMENCED OPERATIONS ON JUNE 30, 2008.
(C) COMMENCED OPERATIONS ON SEPTEMBER 27, 2011.
(1) PER SHARE DATA CALCULATED USING THE AVERAGE SHARES METHOD.
(2) INCLUDES INTEREST EXPENSE ON BORROWINGS.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
101
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED JULY 31,
------------------------------------------------------------------------------------------------------------------------
NET
NET ASSET NET REALIZED AND DIVIDENDS DISTRIBUTIONS
VALUE, INVESTMENT UNREALIZED TOTAL FROM NET FROM TOTAL NET ASSET
BEGINNING INCOME GAINS (LOSSES) FROM INVESTMENT REALIZED DIVIDENDS & VALUE, END
OF PERIOD (LOSS)(1) ON INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD
-----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
------------------------------------------------------------------------------------------------------------------------
2012 $10.43 $ 0.30 $ 0.40 $ 0.70 $(0.30) $(0.04) $(0.34) $10.79
2011 10.50 0.34 (0.06) 0.28 (0.34) (0.01) (0.35) 10.43
2010 10.28 0.34 0.22 0.56 (0.33) (0.01) (0.34) 10.50
2009 9.94 0.34 0.34 0.68 (0.34) (0.00)+++ (0.34) 10.28
2008 (a) 10.00 0.09 (0.07) 0.02 (0.08) -- (0.08) 9.94
------------------------------------------------------------------------------------------------------------------------
LOW DURATION MUNICIPAL BOND FUND
------------------------------------------------------------------------------------------------------------------------
2012 $10.30 $0.14 $(0.01) $ 0.13 $(0.14) $(0.00)+++ $(0.14) $10.29
2011 10.35 0.18 (0.05) 0.13 (0.18) (0.00)+++ (0.18) 10.30
2010 10.22 0.21 0.13 0.34 (0.21) -- (0.21) 10.35
2009 10.00 0.23 0.22 0.45 (0.23) -- (0.23) 10.22
2008 (a) 10.00 0.06 0.00+++ 0.06 (0.06) -- (0.06) 10.00
------------------------------------------------------------------------------------------------------------------------
KEMPNER TREASURY AND INCOME FUND
------------------------------------------------------------------------------------------------------------------------
2012 $11.03 $0.12 $ 0.55 $ 0.67 $(0.16) $(0.11) $(0.27) $11.43
2011 10.54 0.34 0.59 0.93 (0.30) (0.14) (0.44) 11.03
2010 10.14 0.30 0.54 0.84 (0.20) (0.24) (0.44) 10.54
2009 9.94 0.01 0.33 0.34 (0.10) (0.04) (0.14) 10.14
2008 (a) 10.00 0.12 (0.06) 0.06 (0.12) -- (0.12) 9.94
------------------------------------------------------------------------------------------------------------------------
MID-CAP EQUITY FUND
------------------------------------------------------------------------------------------------------------------------
2012 $12.26 $(0.07) $(0.56) $(0.63) $ -- $(0.22) $(0.22) $ 11.41
2011 9.40 (0.10) 2.96 2.86 -- -- -- 12.26
2010 7.13 (0.08) 2.35 2.27 -- -- -- 9.40
2009 9.57 (0.03) (2.41) (2.44) -- -- -- 7.13
2008 (a) 10.00 (0.01) (0.42) (0.43) -- -- -- 9.57
------------------------------------------------------------------------------------------------------------------------
NATURUAL RESOURCES FUND
------------------------------------------------------------------------------------------------------------------------
2012(c) $10.00 $ 0.00 $ 0.15 $ 0.15 $ -- $ -- $ -- $ 10.15
------------------------------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
MUNICIPAL BOND FUND
------------------------------------------------------------------------------------------
2012 6.84%++ $204,090 0.60% 0.70% 2.81% 8%
2011 2.68++ 159,989 0.62 0.72 3.25 10
2010 5.56++ 165,952 0.61 0.71 3.22 5
2009 6.99%++ 141,775 0.62 0.72 3.39 14
2008 (a) 0.24++ 124,174 0.67* 0.77* 3.20* 3**
------------------------------------------------------------------------------------------
LOW DURATION MUNICIPAL BOND FUND
------------------------------------------------------------------------------------------
2012 1.32%++ $ 92,501 0.57%(2) 0.77% 1.39% 14%
2011 1.29++ 79,658 0.60 0.80 1.75 9
2010 3.32++ 65,841 0.61 0.81 2.02 21
2009 4.51%++ 54,257 0.61 0.81 2.26 27
2008 (a) 0.57++ 48,699 0.72* 0.92* 2.18* 10**
------------------------------------------------------------------------------------------
KEMPNER TREASURY AND INCOME FUND
------------------------------------------------------------------------------------------
2012 6.12% $ 33,774 0.67% 0.67% 1.02% 0%
2011 9.08 31,269 0.76 0.76 3.14 5
2010 8.48 26,357 0.71 0.71 2.85 28
2009 3.50 26,128 0.70 0.70 0.12 114
2008 (a) 0.59 21,852 1.00* 1.00* 4.42* 0**
------------------------------------------------------------------------------------------
MID-CAP EQUITY FUND
------------------------------------------------------------------------------------------
2012 (5.06)% $25,448 1.25%(2) 1.25% (0.61)% 108%
2011 30.43 54,972 1.26 1.26 (0.86) 53
2010 31.84 21,159 1.39 1.39 (0.92) 72
2009 (25.50)++ 10,778 1.55 1.63 (0.42) 88
2008 (a) (4.30)++ 10,984 1.55* 2.13* (0.19)* 27**
------------------------------------------------------------------------------------------
NATURAL RESOURCES FUND
------------------------------------------------------------------------------------------
2012 (c) 1.50% $44,041 1.42%* 1.42%* (0.02)%* 49%**
------------------------------------------------------------------------------------------
|
* 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.
+++ AMOUNT REPRESENTS LESS THAN $0.01.
^ INCLUDES A RETURN OF CAPITAL LESS THAN $0.01.
(A) COMMENCED OPERATIONS ON APRIL 25, 2008.
(B) COMMENCED OPERATIONS ON JUNE 30, 2008.
(C) COMMENCED OPERATIONS ON SEPTEMBER 27, 2011.
(1) PER SHARE DATA CALCULATED USING THE AVERAGE SHARES METHOD.
(2) INCLUDES INTEREST EXPENSE ON BORROWINGS.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
96
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
SUB-ADVISERS
Thornburg Investment Management, Inc.
2300 North Ridgetop Road
Santa Fe, New Mexico 87506
Kempner Capital Management, Inc.
2201 Market Street, 12th Floor FNB Building
Galveston, Texas 77550-1503
Cambiar Investors LLC
2401 East Second Avenue, Suite 500
Denver, Colorado 80206
Luther King Capital Management Corporation
301 Commerce Street, Suite 1600
Fort Worth, Texas 76102-4140
Cinque Partners LLC
11836 San Vicente Boulevard
Los Angeles, CA 90049
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 December 3, 2012,
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-001-0600
STATEMENT OF ADDITIONAL INFORMATION
FROST GROWTH EQUITY FUND
(INSTITUTIONAL CLASS SHARES: FICEX)
(CLASS A SHARES: FACEX)
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 (FORMERLY, FROST LKCM SMALL-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 DIVERSIFIED STRATEGIES FUND
(CLASS A SHARES: FDSFX)
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 LOW DURATION MUNICIPAL BOND FUND
(INSTITUTIONAL CLASS SHARES: FILMX)
FROST KEMPNER TREASURY AND INCOME FUND
(INSTITUTIONAL CLASS SHARES: FIKTX)
EACH, A SERIES OF THE ADVISORS' INNER CIRCLE FUND II
DECEMBER 3, 2012
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 Dividend 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
Diversified Strategies Fund, the Frost Strategic Balanced Fund, the Frost Total
Return Bond Fund, the Frost Credit Fund, the Frost Low Duration Bond Fund, the
Frost Municipal Bond Fund, the Frost Low Duration 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 December 3, 2012. 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, 2012 are contained in the 2012
Annual Report to Shareholders and are incorporated by reference into and are
deemed to be part of this SAI. A copy of the Funds' 2012 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).
TABLE OF CONTENTS
THE TRUST ................................................................. 1
ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND
POLICIES ............................................................. 2
DESCRIPTION OF PERMITTED INVESTMENTS ...................................... 3
INVESTMENT LIMITATIONS .................................................... 35
THE ADVISER AND SUB-ADVISERS .............................................. 38
PORTFOLIO MANAGERS ........................................................ 44
THE ADMINISTRATOR ......................................................... 50
THE DISTRIBUTOR ........................................................... 52
PAYMENTS TO FINANCIAL INTERMEDIARIES ...................................... 55
THE TRANSFER AGENT ........................................................ 56
THE CUSTODIAN ............................................................. 56
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............................. 56
LEGAL COUNSEL ............................................................. 56
TRUSTEES AND OFFICERS OF THE TRUST ........................................ 56
PURCHASING AND REDEEMING SHARES ........................................... 66
DETERMINATION OF NET ASSET VALUE .......................................... 67
TAXES ..................................................................... 68
FUND TRANSACTIONS ......................................................... 76
PORTFOLIO HOLDINGS ........................................................ 82
DESCRIPTION OF SHARES ..................................................... 83
SHAREHOLDER LIABILITY ..................................................... 84
LIMITATION OF TRUSTEES' LIABILITY ......................................... 84
PROXY VOTING .............................................................. 84
CODES OF ETHICS ........................................................... 84
5% AND 25% SHAREHOLDERS ................................................... 85
APPENDIX A -- DESCRIPTION OF RATINGS ...................................... A-1
APPENDIX B -- PROXY VOTING POLICIES AND PROCEDURES ........................ B-1
December 3, 2012
FIA-SX-001-0600
|
ii
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 Diversified Strategies Fund and the
Frost Low Duration Municipal Bond 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. The Trust is authorized to offer
shares of the Frost Diversified Strategies Fund in Class A Shares only and is
authorized to offer shares of the Frost Low Duration Municipal Bond Fund in
Institutional Class Shares only. The different classes provide for variations
in sales charges, certain distribution and shareholder servicing expenses and
minimum initial 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 Diversified Strategies Fund, and the First 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 April 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
1
shareholder approval. While the Trustees have no present intention of
exercising this power, they 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 Board of Trustees.
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.
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, 2011 and 2012, the portfolio turnover rates for each Fund
were as follows:
--------------------------------------------------------------------------------
FUND 2011 2012
--------------------------------------------------------------------------------
Frost Growth Equity Fund 38% 46%
--------------------------------------------------------------------------------
Frost Dividend Value Equity Fund 82% 90%
--------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value Equity Fund 22% 24%
--------------------------------------------------------------------------------
Frost Mid Cap Equity Fund(1) 53% 108%
--------------------------------------------------------------------------------
Frost Small Cap Equity Fund 144% 113%
--------------------------------------------------------------------------------
Frost International Equity Fund 26% 20%
--------------------------------------------------------------------------------
Frost Natural Resources Fund N/A(2) 49%(3)
--------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write Equity Fund N/A(2) N/A(2)
--------------------------------------------------------------------------------
Frost Diversified Strategies Fund 91%(4) 150%
--------------------------------------------------------------------------------
Frost Strategic Balanced Fund 21% 18%
--------------------------------------------------------------------------------
Frost Total Return Bond Fund 58% 61%
--------------------------------------------------------------------------------
Frost Credit Fund N/A(2) N/A(2)
--------------------------------------------------------------------------------
Frost Low Duration Bond Fund 56% 73%
--------------------------------------------------------------------------------
Frost Municipal Bond Fund 10% 8%
--------------------------------------------------------------------------------
Frost Low Duration Municipal Bond Fund 9% 14%
--------------------------------------------------------------------------------
Frost Kempner Treasury And Income Fund 5% 0%
--------------------------------------------------------------------------------
|
(1) Increase in portfolio turnover rate is due to a change in the Fund's
investment strategy.
(2) Not in operation during the period.
(3) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(4) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
2
DESCRIPTION OF PERMITTED INVESTMENTS
The following are descriptions of the permitted investments and investment
practices discussed in the "Additional Information about Investment Objectives
and Policies" section and the associated risk factors. The Funds will only
invest in any of the following instruments or engage in any of the following
investment practices if such investment or activity is consistent with each
Fund's investment objective(s) and permitted by the Fund's stated investment
policies.
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 values 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 the 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).
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 the Fund
purchases both (i) high-grade cash equivalents or a high grade debt obligation
of an issuer or U.S. government
3
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
the 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, the 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 the 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 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 -- Master Limited Partnerships ("MLPs") 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
4
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 such as us. 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
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.
5
REAL ESTATE INVESTMENT TRUSTS -- A Real Estate Investment Trust (a "REIT") 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
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
6
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 the 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.
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.
7
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 the 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 the 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.
TYPES OF DEBT SECURITIES:
U.S. GOVERNMENT SECURITIES - The 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 Fannie Mae, the Government National Mortgage
Association ("Ginnie Mae"), the Small Business Administration, the Federal Farm
Credit Administration, the Federal
8
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 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 over the next
three years. As a result of this Agreement, the investments of holders,
including the Fund, of mortgage-backed securities and other obligations issued
by Fannie Mae and Freddie Mac are protected through 2012.
While the U.S. Treasury is committed to offsetting negative equity at Fannie
Mae and Freddie Mac through its preferred stock purchases through 2012, no
assurance can be given that the initiatives discussed above will ensure that
Fannie Mae and Freddie Mac will remain successful in meeting their obligations
with respect to the debt and mortgage-backed securities they issue beyond that
date. In addition, Fannie Mae and Freddie Mac are also 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.
9
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 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
10
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 the Appendix 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, the 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 the 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 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
11
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 and the Frost Low Duration Municipal Bond Fund each may
invest more than 25% of their 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 ("GNMA") -- GNMA is the principal
governmental guarantor of mortgage-related securities. GNMA is a wholly owned
corporation of the U.S. government within the Department of Housing and Urban
Development. Securities issued by GNMA are treasury securities, which means the
full faith and credit of the U.S. government backs them. GNMA guarantees the
timely payment of principal and interest on securities issued by institutions
approved by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
GNMA does not guarantee the market value or yield of mortgage-backed securities
or the value of a Fund's shares. To buy GNMA 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 ("FNMA") -- FNMA is a government-
sponsored corporation owned entirely by private stockholders. FNMA
is regulated by the Secretary of Housing and Urban Development. FNMA 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 FNMA are agency securities, which means FNMA, but not the
U.S. government, guarantees their timely payment of principal and interest.
FREDDIE MAC-- 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 GNMA, FNMA & Freddie Mac because
they are not guaranteed by a government agency.
12
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
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.
13
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
U.S. Internal Revenue Code of 1986, as amended (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 is not identical and must be assessed on a
security by security basis. Generally, the credit risk of CMOs is 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.
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.
14
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
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.
15
EXCHANGE-TRADED NOTES -- 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.
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.
16
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 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.
17
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:
o They can invest directly in foreign securities denominated in a
foreign currency;
o They can invest in American Depositary Receipts, European Depositary
Receipts and other similar global instruments; and
o They can invest in investment funds.
TYPES OF FOREIGN SECURITIES:
AMERICAN DEPOSITARY RECEIPTS (ADRS) -- ADRs as well as other "hybrid" forms of
ADRs, including European Depositary Receipts ("EDRs") 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
18
underlying foreign securities in their national markets and currencies. ADRs
are subject to many of the risks associated with investing directly in foreign
securities. European Depositary Receipts 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.
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 bear
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.
19
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 countries more difficult and less
reliable than domestic companies.
STOCK EXCHANGE AND MARKET RISK -- Each Fund's investment managers anticipate
that in most cases an exchange or over-the-counter ("OTC") 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;
20
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 OTC 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 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.
21
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. They 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 have offset any depreciation in the value of its Fund
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 the 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.
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 the 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 in accordance with the
requirements and interpretation of the SEC and its staff.
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 information 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.
22
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 Commodity Futures Trading Commission ("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."
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, the
Fund pays the current market price for the option (known as the "option
premium"). The 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. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price
23
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 the Fund obtains the right
to purchase, rather than sell, the underlying instrument at the option's strike
price. The Fund would normally purchase call options in anticipation of an
increase in the market value of securities it owns or wants to buy. The 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, the 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
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:
24
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.
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.
25
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.
o 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.
26
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
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
27
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, the Fund may
cover its current obligations under swap agreements according to guidelines
established by the SEC. If the 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 the
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.
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.
28
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.
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
29
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 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;
30
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.
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.
31
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 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.
32
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 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 Funds' Board of Trustees. 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
33
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 Trust's Board of Trustees. 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 Fund. Under the supervision of the Trust's Board of Trustees, 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 of Trustees
of the Trust. The Trust intends to treat such commercial paper as liquid and
not subject to the investment limitations applicable to illiquid securities or
restricted securities.
34
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.
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.
35
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 in municipal securities that generate
income exempt from federal income tax, but not necessarily the federal
alternative minimum tax.
8. The Frost Low Duration Municipal Bond Fund may not change its investment
strategy to invest at least 80% of its net assets 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 Trust's
Board of Trustees without shareholder approval. These non-fundamental policies
are based upon the regulations currently set forth in the 1940 Act.
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.
36
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% 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, plus any borrowings for investment purposes, in
equity securities without 60 days' prior written notice to shareholders.
9. The Frost Dividend 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.
37
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 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 following descriptions of certain provisions of the 1940 Act may assist
investors in understanding the above policies and restrictions:
REAL ESTATE. The 1940 Act does not directly restrict an investment company's
ability to invest in real estate, but does require that every investment
company have a fundamental investment policy governing such investments. The
Funds will not purchase or sell real estate, except that the Funds may
purchase: (i) marketable securities issued by companies which own or invest in
real estate (including real estate investment trusts).
COMMODITIES. The 1940 Act does not directly restrict an investment company's
ability to invest in commodities, but does require that every investment
company have a fundamental investment policy governing such investments. The
Funds will not purchase or sell physical commodities or commodities contracts,
except that the Funds may purchase: (i) marketable securities issued by
companies which own or invest in commodities or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
UNDERWRITING. Under the 1940 Act, underwriting securities involves a fund
purchasing securities directly from an issuer for the purpose of selling
(distributing) them or participating in any such activity either directly or
indirectly. Under the 1940 Act, a diversified fund may not make any commitment
as underwriter, if immediately thereafter the amount of its outstanding
underwriting commitments, plus the value of its investments in securities of
issuers (other than investment companies) of which it owns more than 10% of the
outstanding voting securities, exceeds 25% of the value of its total assets.
THE ADVISER AND SUB-ADVISERS
INVESTMENT ADVISER
Frost Investment Advisors, LLC (the "Adviser" or "Frost"), an affiliate 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.
38
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 Small Cap Equity Fund Cambiar Investors LLC
---------------------------------------------------------------------------------------
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 Trust's Board of Trustees (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
of the Trust. 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 shareholders of the Fund 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 of the Trust 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 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 set forth in the table below based on the average daily net assets of
each Fund. For its services under the sub-advisory agreements, each Sub-Adviser
is entitled to a fee, which is calculated daily and paid monthly, by the
Adviser. The Adviser has voluntarily agreed to reduce its investment advisory
fees for certain Funds as set forth below (the "Voluntary Fee Reduction"). In
addition, the Adviser has voluntarily agreed to further 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 (the "Voluntary Expense
Limitation"). The Adviser may discontinue all or part of these fee reductions
or reimbursements at any time. If at any point it becomes unnecessary for the
Adviser to reduce fees or make expense reimbursements, the Adviser may retain
the difference between the total annual fund operating expenses (not including
excluded
39
expenses) and the expense limitation set forth below to recover all or a
portion of its prior reductions or reimbursements made during the preceding
three-year period during which the agreement was in place. The Adviser,
however, will not be permitted to recover the amount of any difference that is
attributable to the Voluntary Fee Reduction. The table below shows the rate of
each Fund's investment advisory fee before the Voluntary Fee Reduction, the
amount of the Adviser's Voluntary Fee Reduction with respect to each Fund and
the investment advisory fee after the Voluntary Fee Reduction and the Adviser's
Voluntary Expense Limitation for each Fund.
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ADVISORY FEE ADVISER'S VOLUNTARY VOLUNTARY
BEFORE VOLUNTARY ADVISORY FEE EXPENSE EXPENSE
VOLUNTARY FEE FEE AFTER FEE LIMITATIONS LIMITATIONS
FUND REDUCTION REDUCTION REDUCTION (INSTITUTIONAL (CLASS A
CLASS SHARES) SHARES)
-----------------------------------------------------------------------------------------------------------------
Frost Growth Equity
Fund 0.80% 0.15% 0.65% 1.25% 1.50%
-----------------------------------------------------------------------------------------------------------------
Frost Dividend Value
Equity Fund 0.80% 0.15% 0.65% 1.25% 1.50%
-----------------------------------------------------------------------------------------------------------------
Frost Kempner Multi-
Cap Deep Value Equity
Fund 0.59% None 0.59% 1.05% 1.30%
-----------------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity
Fund 0.90% None 0.90% 1.55% 1.80%
-----------------------------------------------------------------------------------------------------------------
1.00% for assets up 1.00% for assets
to $100 million up to $100 million
Frost Small Cap Equity 0.85% for assets 0.85% for assets
Fund over $100 million None over $100 million 1.55% 1.80%
-----------------------------------------------------------------------------------------------------------------
0.95% for assets up 0.95% for assets
to $150 million up to $150 million
Frost International 0.90% for assets 0.90% for assets
Equity Fund over $150 million None over $150 million 1.45% 1.70%
-----------------------------------------------------------------------------------------------------------------
Frost Natural Resources 0.80% None 0.80% 1.75% 2.00%
Fund
-----------------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap 0.90% None 0.90% 1.50% 1.75%
Buy-Write Equity Fund
-----------------------------------------------------------------------------------------------------------------
Frost Diversified 0.80% None 0.80% N/A(1) 2.00%
Strategies Fund
-----------------------------------------------------------------------------------------------------------------
Frost Strategic
Balanced Fund 0.70% 0.05% 0.65% 1.35% 1.60%
-----------------------------------------------------------------------------------------------------------------
Frost Total Return
Bond Fund 0.50% 0.15%(2) 0.35% 0.95% 1.20%
-----------------------------------------------------------------------------------------------------------------
Frost Credit Fund 0.60% None 0.60% 1.00% 1.25%
-----------------------------------------------------------------------------------------------------------------
Frost Low Duration
Bond Fund 0.50% 0.15%(3) 0.35% 0.95% 1.20%
-----------------------------------------------------------------------------------------------------------------
Frost Municipal Bond
Fund 0.50% 0.25%(4) 0.25% 1.05% 1.30%
-----------------------------------------------------------------------------------------------------------------
Frost Low Duration
Municipal Bond Fund 0.50% 0.25%(5) 0.25% 1.15% N/A(1)
-----------------------------------------------------------------------------------------------------------------
Frost Kempner
Treasury and Income
Fund 0.35% None 0.35% 1.05% 1.30%
-----------------------------------------------------------------------------------------------------------------
|
(1) This class is not offered for the indicated Fund.
(2) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Total Return Bond Fund by 0.10%.
(3) Prior to November 30, 2009, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Low Duration Bond Fund by 0.20%.
(4) Prior to August 30, 2012, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Municipal Bond Fund by 0.10%.
(5) Prior to August 30, 2012, the Adviser voluntarily agreed to reduce its
Investment Advisory Fee for the Frost Low Duration Municipal Bond Fund by
0.20%.
40
For the fiscal years ended July 31, 2010, 2011 and 2012, the Funds paid the
Adviser the following advisory fees:
------------------------------------------------------------------------------------------------------------------------------------
TOTAL FEES PAID
CONTRACTUAL FEES PAID FEES WAIVED BY ADVISER (AFTER WAIVERS)
-------------------------------------------------------------------------------------------------------------------
FUND 2010 2011 2012 2010 2011 2012 2010 2011 2012
------------------------------------------------------------------------------------------------------------------------------------
Frost
Growth
Equity Fund $2,057,222 $2,336,217 $2,636,496 $385,730 $438,042 $494,347 $1,671,492 $1,898,175 $2,142,149
------------------------------------------------------------------------------------------------------------------------------------
Frost
Dividend
Value
Equity Fund $1,752,876 $2,216,943 $2,370,747 $328,665 $415,678 $444,518 $1,424,211 $1,801,265 $1,926,229
------------------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Multi-Cap
Deep Value
Equity Fund $908,228 $996,356 $1,022,183 $0 $0 $0 $908,228 $996,356 $1,022,183
------------------------------------------------------------------------------------------------------------------------------------
Frost Mid
Cap Equity
Fund $141,407 $299,474 $337,744 $0 $0 $0 $141,407 $299,474 $337,744
------------------------------------------------------------------------------------------------------------------------------------
Frost Small
Cap Equity
Fund $1,222,820 $2,025,808 $1,727,127 $0 $0 $0 $1,222,820 $2,025,808 $1,727,127
------------------------------------------------------------------------------------------------------------------------------------
Frost
International
Equity
Fund $2,331,403 $2,761,128 $2,432,085 $0 $0 $0 $2,331,403 $2,761,128 $2,432,085
------------------------------------------------------------------------------------------------------------------------------------
Frost
Natural
Resources
Fund N/A(3) N/A(3) $206,406(1) N/A(3) N/A(3) $0(1) N/A(3) N/A(3) $206,406(1)
------------------------------------------------------------------------------------------------------------------------------------
Frost
Cinque
Large Cap
Buy-Write
Equity Fund N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
Frost
Diversified
Strategies
Fund N/A(3) $67,797(2) $102,984 N/A(3) $22,831(2) $0 N/A(3) $44,966(2) $102,984
------------------------------------------------------------------------------------------------------------------------------------
Frost
Strategic
Balanced
Fund $152,179 $134,162 $82,195 $12,446 $19,490 $48,835 $139,733 $114,672 $33,360
------------------------------------------------------------------------------------------------------------------------------------
Frost Total
Return
Bond Fund $1,755,258 $2,302,159 $3,478,941 $473,978 $690,651 $1,043,691 $1,281,280 $1,611,508 $2,435,250
------------------------------------------------------------------------------------------------------------------------------------
Frost Credit
Fund N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3) N/A(3)
------------------------------------------------------------------------------------------------------------------------------------
|
41
------------------------------------------------------------------------------------------------------------------------------------
TOTAL FEES PAID
CONTRACTUAL FEES PAID FEES WAIVED BY ADVISER (AFTER WAIVERS)
-------------------------------------------------------------------------------------------------------------------
FUND 2010 2011 2012 2010 2011 2012 2010 2011 2012
------------------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration
Bond Fund $885,717 $1,196,293 $1,228,606 $292,744 $358,890 $368,585 $592,973 $837,403 $860,021
------------------------------------------------------------------------------------------------------------------------------------
Frost
Municipal
Bond Fund $777,976 $779,077 $924,199 $155,594 $155,814 $184,838 $622,382 $623,263 $739,361
------------------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration
Municipal
Bond Fund $305,839 $354,934 $417,071 $122,337 $141,975 $166,830 $183,502 $212,959 $250,241
------------------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Treasury
and Income
Fund $92,608 $96,068 $120,312 $0 $0 $0 $92,608 $96,068 $120,312
------------------------------------------------------------------------------------------------------------------------------------
|
(1) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(2) Represents the period from January 7, 2011 (commencement of Fund
operations) to July 31, 2011.
(3) Not in operation during the period.
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, 12th Floor FNB Building,
Galveston, Texas, 77550-1503. As of September 30, 2012, KCM had approximately
$434 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.
42
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, 2012, LKCM had
approximately $10.3 billion in assets under management. LKCM is responsible for
the day-to-day management of the Frost Mid Cap Equity Fund's investments.
FROST SMALL CAP EQUITY FUND
Cambiar Investors LLC (or "Cambiar"), a Delaware limited liability company,
serves as the sub-adviser for the Frost Small Cap Equity Fund. Cambiar Investors
LLC's principal place of business is located at 2401 East Second Avenue, Suite
500, Denver, Colorado 80206. As of September 30, 2012, Cambiar had approximately
$6.9 billion in assets under management. Cambiar is responsible for the
day-to-day management of the Frost Small Cap Equity Fund's investments.
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, 2012, Thornburg had
approximately $81 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, 2012, Cinque had
approximately $170 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
Cambiar has entered into an investment sub-advisory agreement dated June 29,
2010, and Cinque has entered into an investment sub-advisory agreement dated
November 14, 2012 (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 Fund(s) for which it is responsible for
the day-today 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 Sub-Adviser receives an annual fee from the Adviser at the
following annual rates, based on the average daily net assets of the respective
Funds:
43
-----------------------------------------------------------------------------------
FUND SUB-ADVISORY FEE
-----------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value
Equity Fund 0.34%
-----------------------------------------------------------------------------------
Frost Mid Cap Equity Fund 0.65%
-----------------------------------------------------------------------------------
Frost Small Cap Equity Fund 0.62%
-----------------------------------------------------------------------------------
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 Equity Fund 0.60%
-----------------------------------------------------------------------------------
Frost Kempner Treasury and Income 0.25%
Fund
-----------------------------------------------------------------------------------
|
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 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 and co-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
44
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.
Cambiar compensates the portfolio managers of the Frost Small Cap Equity Fund
for their management of the Frost Small Cap Equity Fund. The portfolio
managers' compensation consists of an industry competitive base salary,
discretionary cash bonus, and a profit-sharing contribution at year-end. While
Cambiar's investment professionals receive a competitive salary plus a bonus
tied to firm and individual performance, contributions are also measured
through performance attribution which details individual stock and sector
selection as well as overall "value added" for the firm. This would include
assistance with product development and client service. Company equity is also
available to reward key employees.
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.
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").
Because the Frost Cinque Large Cap Buy-Write Equity Fund and the Frost
Credit Fund are new, as of the date of this SAI, the Funds' portfolio managers
did not beneficially own shares of the Frost Cinque Large Cap Buy-Write Equity
Fund or the Frost Credit Fund.
--------------------------------------------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES OWNED(1)
--------------------------------------------------------------------------------
FROST
--------------------------------------------------------------------------------
Michael R. Brell $50,001 - $100,000
(Frost Dividend Value Equity Fund)
--------------------------------------------------------------------------------
Jeffery Elswick $100,001 - $500,000
(Frost Total Return Bond Fund)
--------------------------------------------------------------------------------
Theodore H. Harper $10,001 - $50,000
(Frost Dividend Value
Equity Fund)
--------------------------------------------------------------------------------
|
45
--------------------------------------------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES OWNED(1)
--------------------------------------------------------------------------------
John Lutz $10,001 - $50,000
(Frost Growth Equity Fund)
--------------------------------------------------------------------------------
Tom L. Stringfellow $1 - $10,000
(Frost Diversified Strategies Fund)
$100,001 - $500,000
(Frost Growth Equity Fund)
$50,001 - $100,000
(Frost Dividend Value Equity Fund)
--------------------------------------------------------------------------------
Brad Thompson $10, 001 - $50,000
(Frost Strategic Balanced Fund)
$10,001 - $50,000
(Frost Dividend Value Equity 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 Strategic Balanced Fund)
--------------------------------------------------------------------------------
R. David Telling None
--------------------------------------------------------------------------------
TJ Qatato None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THORNBURG
--------------------------------------------------------------------------------
William Fries None
--------------------------------------------------------------------------------
Wendy Trevisani None
--------------------------------------------------------------------------------
Lei Wang None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
KCM
--------------------------------------------------------------------------------
Harris L. Kempner, Jr. Over $1,000,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
R. Patrick Rowles Over $1,000,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
M. Shawn Gault $50,001 - $100,000
(Frost Kempner Multi-Cap
Deep Value Equity Fund)
--------------------------------------------------------------------------------
Andrew Duncan None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CAMBIAR
--------------------------------------------------------------------------------
Brian M. Barish None
--------------------------------------------------------------------------------
Anna (Ania) A. Aldrich None
--------------------------------------------------------------------------------
Andrew P. Baumbusch None
--------------------------------------------------------------------------------
Timothy A. Beranek None
--------------------------------------------------------------------------------
Maria L. Mendelsberg None
--------------------------------------------------------------------------------
Jeffrey H. Susman None
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LKCM
--------------------------------------------------------------------------------
J.Luther King, Jr. None
--------------------------------------------------------------------------------
Steven R. Purvis $100,001 - $500,000
(Frost Mid Cap Equity Fund)
--------------------------------------------------------------------------------
Paul W. Greenwell None
--------------------------------------------------------------------------------
|
(1) Valuation date July 31, 2012.
46
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. Note that none of the accounts listed below are subject to a performance-
based advisory fee. The information below is provided as of July 31, 2012.
----------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------
Jeffery Elswick 0 0 0 0 73 $893
----------------------------------------------------------------------------------------------------
Theodore H. Harper 0 0 0 0 179 $177
----------------------------------------------------------------------------------------------------
John Lutz 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------
Tom L. Stringfellow 0 0 0 0 199 $310
----------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
THORNBURG
----------------------------------------------------------------------------------------------------
William Fries 17 $30,800 8 $3,400 50 $8,700
----------------------------------------------------------------------------------------------------
Wendy Trevisani 17 $30,800 13 $3,400 10,244 $13,700
----------------------------------------------------------------------------------------------------
Lei Wang 17 $30,800 8 $3,400 50 $8,700
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
KCM
----------------------------------------------------------------------------------------------------
Harris L. Kempner, Jr. 0 0 2 $73.3 11 $47
----------------------------------------------------------------------------------------------------
R.Patrick Rowles 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------
M.Shawn Gault 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------
Andrew Duncan 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
CAMBIAR
----------------------------------------------------------------------------------------------------
Brian M. Barish 2 $1,379 0 0 38 $2,527
----------------------------------------------------------------------------------------------------
Anna (Ania) A. Aldrich 1 $1.15 0 0 81 $125
----------------------------------------------------------------------------------------------------
Andrew P. Baumbusch 3 $1,383 0 0 399 $192
----------------------------------------------------------------------------------------------------
Timothy A. Beranek 1 $1.41 0 0 2 $.575
----------------------------------------------------------------------------------------------------
Maria L. Mendelsberg 0 0 0 0 8,658 $2,302
----------------------------------------------------------------------------------------------------
Jeffrey H. Susman 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
LKCM
----------------------------------------------------------------------------------------------------
J. Luther King, Jr. 5 $1,300 7 $756 298 $3,700
----------------------------------------------------------------------------------------------------
Steven R. Purvis 4 $1,200 0 0 78 $1,200
----------------------------------------------------------------------------------------------------
Paul W. Greenwell 2 $79 0 0 139 $671
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
CINQUE
----------------------------------------------------------------------------------------------------
Alan Adelman 0 0 3 $170 0 $0
----------------------------------------------------------------------------------------------------
Jack Cowling 0 0 3 $170 0 $0
----------------------------------------------------------------------------------------------------
Fred Wahl 0 0 3 $170 0 $0
----------------------------------------------------------------------------------------------------
Pierre Brachet 0 0 3 $170 0 $0
----------------------------------------------------------------------------------------------------
|
47
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.
CAMBIAR. The portfolio managers' management of "other accounts" may give rise
to potential conflicts of interest in connection with his or her management of
the Frost Small Cap Equity Fund's 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 the Fund. 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 the portfolio manager's knowledge about the size, timing
and possible market impact of Fund trades, whereby the portfolio manager could
use this information to the advantage of other accounts and to the disadvantage
of the Fund.
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 or co-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
48
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 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 provies investment advisory services.
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 Fund. 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.
49
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. Pursuant to a schedule to
the Administration Agreement, the Administrator also serves as the shareholder
servicing agent for the Funds whereby the Administrator provides certain
shareholder services to the Funds.
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 initial annual minimum fee will be based upon the number of portfolios
launched within the Frost fund complex as of the inception date of the Frost
fund complex. The annual minimum fees assume that each portfolio includes up to
two classes and are 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.
50
For the fiscal years ended July 31, 2010, 2011 and 2012 the Funds paid the
Administrator the following administration fees:
-----------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL ADMINISTRATION FEES WAIVED BY
FEES PAID ADMINISTRATOR TOTAL FEES PAID (AFTER WAIVERS)
-----------------------------------------------------------------------------------------------------------
FUND 2010 2011 2012 2010 2011 2012 2010 2011 2012
-----------------------------------------------------------------------------------------------------------------------------
Frost Growth
Equity Fund $257,150 $284,881 $316,305 $0 $0 $0 $257,150 $284,881 $316,305
-----------------------------------------------------------------------------------------------------------------------------
Frost
Dividend
Value Equity
Fund $219,108 $270,403 $284,462 $0 $0 $0 $219,108 $270,403 $284,462
-----------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Multi-Cap
Deep Value
Equity Fund $153,935 $164,867 $167,041 $0 $0 $0 $153,935 $164,867 $167,041
-----------------------------------------------------------------------------------------------------------------------------
Frost Mid
Cap Equity
Fund $15,712 $32,386 $36,080 $0 $0 $0 $15,712 $32,386 $36,080
-----------------------------------------------------------------------------------------------------------------------------
Frost Small
Cap Equity
Fund $126,217 $215,177 $178,701 $0 $0 $0 $126,217 $215,177 $178,701
-----------------------------------------------------------------------------------------------------------------------------
Frost
International
Equity Fund $250,709 $291,318 $251,508 $0 $0 $0 $250,709 $291,318 $251,508
-----------------------------------------------------------------------------------------------------------------------------
Frost Natural
Resources
Fund N/A(1) N/A(1) $24,437(2) N/A(1) N/A(1) $0(2) N/A(1) N/A(1) $24,437(2)
-----------------------------------------------------------------------------------------------------------------------------
Frost Cinque
Large Cap
Buy-Write
Equity Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
-----------------------------------------------------------------------------------------------------------------------------
Frost
Diversified
Strategies
Fund N/A(1) $8,173(3) $12,272 N/A(1) $0(3) $0 N/A(1) $8,173(3) $12,272
-----------------------------------------------------------------------------------------------------------------------------
Frost
Strategic
Balanced
Fund $21,740 $18,774 $11,275 $0 $0 $0 $21,740 $18,774 $11,275
-----------------------------------------------------------------------------------------------------------------------------
Frost Total
Return Bond
Fund $351,049 $449,185 $667,726 $0 $0 $0 $351,049 $449,185 $667,726
-----------------------------------------------------------------------------------------------------------------------------
Frost Credit
Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
-----------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration
Bond Fund $177,142 $233,500 $236,032 $0 $0 $0 $177,142 $233,500 $236,032
-----------------------------------------------------------------------------------------------------------------------------
|
51
-----------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL ADMINISTRATION FEES WAIVED BY
FEES PAID ADMINISTRATOR TOTAL FEES PAID (AFTER WAIVERS)
-----------------------------------------------------------------------------------------------------------
FUND 2010 2011 2012 2010 2011 2012 2010 2011 2012
-----------------------------------------------------------------------------------------------------------------------------
Frost
Municipal
Bond Fund $155,594 $152,316 $177,404 $0 $0 $0 $155,594 $152,316 $177,404
-----------------------------------------------------------------------------------------------------------------------------
Frost Low
Duration
Municipal
Bond Fund $61,167 $69,305 $80,093 $0 $0 $0 $61,167 $69,305 $80,093
-----------------------------------------------------------------------------------------------------------------------------
Frost
Kempner
Treasury and
Income Fund $26,459 $26,801 $33,004 $0 $0 $0 $26,459 $26,801 $33,004
-----------------------------------------------------------------------------------------------------------------------------
|
(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.
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 Fund 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 of the Trust 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
52
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 of the Trust 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.
For the fiscal years ended July 31, 2010, 2011 and 2012, the Funds paid the
Distributor the following distribution fees:
------------------------------------------------------------------------------------------------------
12B-1 FEES
12B-1 FEES PAID RETAINED BY DISTRIBUTOR
-------------------------------------------------------------------------
FUND 2010 2011 2012 2010 2011 2012
------------------------------------------------------------------------------------------------------
Frost Growth Equity
Fund $121,413 $142,615 $177,032 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Dividend Value
Equity Fund $76,959 $122,691 $156,580 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Kempner Multi-
Cap Deep Value Equity
Fund $69,073 $73,935 $66,843 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Mid Cap Equity
Fund $0 $0 $0 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Small Cap Equity
Fund $51,531 $82,814 $76,901 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost International
Equity Fund $104,795 $114,202 $103,166 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Natural
Resources Fund N/A(1) N/A(1) $10,480(2) N/A(1) N/A(1) $0(2)
------------------------------------------------------------------------------------------------------
Frost Cinque Large Cap
Buy-Write Equity Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
------------------------------------------------------------------------------------------------------
Frost Diversified
Strategies Fund N/A(1) $21,187(3) $32,182 N/A(1) $0(3) $0
------------------------------------------------------------------------------------------------------
Frost Strategic
Balanced Fund $22,355 $28,908 $19,093 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Total Return
Bond Fund $179,795 $219,511 $273,223 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Credit Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
------------------------------------------------------------------------------------------------------
Frost Low Duration
Bond Fund $68,606 $74,022 $71,958 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Municipal Bond
Fund $1,750 $1,363 $6,406 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Low Duration
Municipal Bond Fund $1,513 $939 $286 $0 $0 $0
------------------------------------------------------------------------------------------------------
Frost Kempner
Treasury and Income
Fund $0 $0 $0 $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.
53
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.
--------------------------------------------------------------------------------
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 Dividend
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 Diversified
Strategies Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
Frost Strategic
Balanced Fund 3.25% 2.00% None
--------------------------------------------------------------------------------
|
(1) If you are in a category of investors who may purchase Fund shares without
a front-end sales charge, you will be subject to a 1.00% deferred sales
charge if you redeem your shares within 12 months of purchase.
54
--------------------------------------------------------------------------------
FUND LESS THAN $1,000,000 $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) If you are in a category of investors who may purchase Fund shares without
a front-end sales charge, you will be subject to a 1.00% deferred sales
charge if you redeem your shares within 12 months of purchase.
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 Fund 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.
55
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.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, One Commerce Square, 2005 Market Street, Philadelphia, PA
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.
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 the 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
56
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 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
57
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 ten members of the Board of Trustees, eight 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, 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 (80%) 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 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:
presides over board meetings in the absence of the Chairman of the Board;
presides over executive sessions of the independent Trustees; along with the
Chairman of the Board, oversees the development of agendas for Board meetings;
facilitates communication between the independent Trustees and management, and
among the independent Trustees; serves as a key point person for dealings
between the independent Trustees and management; and has such other
responsibilities as the Board or independent Trustees determine from time to
time.
Set forth below are the names, dates of birth, position with the Trust, length
of term of office, 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. Unless otherwise noted, the business address of each
Trustee is SEI Investments Company, One Freedom Valley Drive, Oaks,
Pennsylvania 19456.
58
-------------------------------------------------------------------------------------------------------------
POSITION
NAME AND WITH TRUST
DATE OF AND LENGTH PRINCIPAL OCCUPATIONS
BIRTH OF TERM IN THE PAST 5 YEARS OTHER DIRECTORSHIPS HELD IN THE PAST 5 YEARS
-------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
-------------------------------------------------------------------------------------------------------------
Robert Chairman SEI employee 1974 to Current Directorships: Trustee of The Advisors'
Nesher of the present; currently Inner Circle Fund, Bishop Street Funds, SEI
(08/17/46) Board of performs various Daily Income Trust, SEI Institutional
Trustees(1) services on behalf of International Trust, SEI Institutional
(since SEI Investments for Investments Trust, SEI Institutional Managed
1991) which Mr. Nesher is Trust, SEI Liquid Asset Trust, SEI Asset
compensated. President Allocation Trust, SEI Tax Exempt Trust,
and Director of SEI Adviser Managed Trust and New Covenant
Structured Credit Fund, Funds, President and Director of SEI Structured
LP. President and Chief Credit Fund, L.P. Director of SEI Global Master
Executive Officer of Fund plc, SEI Global Assets Fund plc, SEI
SEI Alpha Strategy Global Investments Fund plc, SEI
Portfolios, LP, June Investments--Global Funds Services, Limited,
2007 to present. SEI Investments Global, Limited, SEI
President and Director Investments (Europe) Ltd., SEI Investments--
of SEI Opportunity Unit Trust Management (UK) Limited, SEI
Fund, L.P. to 2010. Multi-Strategy Funds PLC, SEI Global
Nominee Ltd. and SEI Alpha Strategy
Portfolios, LP.
Former Directorships: Director of SEI
Opportunity Fund, L.P. to 2010.
-------------------------------------------------------------------------------------------------------------
William M. Trustee(1) Self-Employed Current Directorships: Trustee of The Advisors'
Doran (since Consultant since 2003. Inner Circle Fund, Bishop Street Funds, SEI
(05/26/40) 1991) Partner at Morgan, Daily Income Trust, SEI Institutional
Lewis & Bockius LLP International Trust, SEI Institutional
(law firm) from 1976 to Investments Trust, SEI Institutional Managed
2003. Counsel to the Trust, SEI Liquid Asset Trust, SEI Asset
Trust, SEI Investments, Allocation Trust, SEI Tax Exempt Trust,
SIMC, the Adviser Managed Trust and New Covenant
Administrator and the Funds. Director of SEI Alpha Strategy
Distributor. Portfolios, LP. 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.
-------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-------------------------------------------------------------------------------------------------------------
Charles E. Trustee Self-Employed Current Directorships: Trustee of The Advisors'
Carlbom (since Business Inner Circle Fund and Bishop Street Funds;
(08/20/34) 2005) Consultant, Business Director of Oregon Transfer Co.
Projects Inc. since
1997.
-------------------------------------------------------------------------------------------------------------
John K. Darr Trustee Retired. CEO, Office of Current Directorships: Trustee of The Advisors'
(08/17/44) (since Finance, Federal Home Inner Circle Fund and Bishop Street Funds.
2008) Loan Bank, from 1992 Director of Federal Home Loan Banks of
to 2007. Pittsburgh and Manna, Inc. (non-profit
developer of affordable housing for ownership).
Director of Meals on Wheels, Lewes/Rehoboth
Beach.
-------------------------------------------------------------------------------------------------------------
|
59
-------------------------------------------------------------------------------------------------------------
POSITION
NAME AND WITH TRUST
DATE OF AND LENGTH PRINCIPAL OCCUPATIONS
BIRTH OF TERM IN THE PAST 5 YEARS OTHER DIRECTORSHIPS HELD IN THE PAST 5 YEARS
-------------------------------------------------------------------------------------------------------------
Joseph T. Trustee Self Employed Current Directorships: Trustee of The Advisors'
Grause, (since Consultant since Inner Circle Fund and Bishop Street Funds.
Jr.(05/28/52) 2011) January 2012; Director
of Endowments and
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.
-------------------------------------------------------------------------------------------------------------
Mitchell A. Trustee Retired. Private Current Directorships: Trustee of The Advisors'
Johnson (since Investor since 1994. Inner Circle Fund, Bishop Street Funds, SEI
(03/01/42) 2005) 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, SEI Alpha Strategy
Portfolios, LP, Adviser Managed Trust and
New Covenant Funds. Director, Federal
Agricultural Mortgage Corporation (Farmer
Mac) since 1997.
-------------------------------------------------------------------------------------------------------------
Betty L. Trustee Vice President, Current Directorships: Trustee of The Advisors'
Krikorian (since 2005) Compliance, AARP Inner Circle Fund and Bishop Street Funds.
(01/23/43) Financial Inc. from
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 Advisors'
(02/12/56) (since 2011) Allocation, Manulife Inner Circle Fund and Bishop Street Funds.
Asset Management
(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.
-------------------------------------------------------------------------------------------------------------
|
60
-------------------------------------------------------------------------------------------------------------
POSITION
NAME AND WITH TRUST
DATE OF AND LENGTH PRINCIPAL OCCUPATIONS
BIRTH OF TERM IN THE PAST 5 YEARS OTHER DIRECTORSHIPS HELD IN THE PAST 5 YEARS
-------------------------------------------------------------------------------------------------------------
James M. Trustee Attorney, Solo Current Directorships: Trustee/Director of The
Storey (since 1994) Practitioner since 1994. Advisors' Inner Circle Fund, Bishop Street
(04/12/31) Funds and U.S. Charitable Gift Trust. Trustee of
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 and
SEI Alpha Strategy Portfolios, L.P. until
December 2010.
-------------------------------------------------------------------------------------------------------------
George J. Trustee Retired since January Current Directorships: Trustee/Director of State
Sullivan, Jr. (since 2012. Self-employed Street Navigator Securities Lending Trust, The
(11/13/42) 1999) Consultant, Newfound Advisors' Inner Circle Fund, Bishop Street
Lead Consultants Inc. April Funds, SEI Structured Credit Fund, LP, SEI
Independent 1997 to December Daily Income Trust, SEI Institutional
Trustee 2011. International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed
Trust, SEI Liquid Asset Trust, SEI Asset
Allocation Trust, SEI Tax Exempt Trust, SEI
Alpha Strategy Portfolios, LP, Adviser
Managed Trust and New Covenant 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.
-------------------------------------------------------------------------------------------------------------
|
(1) Denotes Trustees who may be deemed to be "interested" persons of the Fund
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 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 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 trustee of the Trust since 1991.
61
The Trust has concluded that Mr. Carlbom should serve as Trustee because of the
business experience he gained as President and CEO of a large distribution
cooperative and Chairman of a consulting company, his knowledge of the
financial services industry, and the experience he has gained serving as
trustee of the Trust since 2005.
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 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 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 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. Storey should serve as Trustee because of the
mutual fund governance experience he gained as an Investment Management
attorney, both in private practice and with the SEC, his background serving as
counsel to numerous mutual fund boards of trustees, his knowledge of the 1940
Act, his experience in and knowledge of the financial services industry, and
the experience he has gained serving as trustee of the Trust since 1994.
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 trustee of the Trust since 1999.
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.
62
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:
recommending which firm to engage as each fund's independent
registered public accounting firm and whether to terminate this
relationship; reviewing the independent registered public accounting
firm's compensation, the proposed scope and terms of its engagement,
and the firm's independence; 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;
serving as a channel of communication between the independent
registered public accounting firm and the Trustees; 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;
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; 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; 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 other audit related matters. Messrs. Carlbom, Darr,
Grause, Johnson, Speca, Storey, 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 once 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 Board. The principal
responsibilities of the Governance Committee include: considering and
reviewing Board governance and compensation issues; conducting a
self-assessment of the Board's operations; selecting and nominating
all persons to serve as Independent Trustees and evaluating the
qualifications of "interested" Trustee candidates; and reviewing
shareholder recommendations for nominations to fill vacancies on the
63
Board if such recommendations are submitted in writing and addressed
to the Committee at the Trust's office. Ms. Krikorian and Messrs.
Carlbom, Darr, Grause, Johnson, Speca, Storey 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 met three (3) times 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 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.
--------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE
NAME DOLLAR RANGE OF FUND SHARES OF SHARES (ALL FUNDS)(1)
--------------------------------------------------------------------------------
INTERESTED TRUSTEES
--------------------------------------------------------------------------------
Nesher None None
--------------------------------------------------------------------------------
Doran None None
--------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
--------------------------------------------------------------------------------
Carlbom None None
--------------------------------------------------------------------------------
Darr None None
--------------------------------------------------------------------------------
Grause, Jr. None None
--------------------------------------------------------------------------------
Johnson None None
--------------------------------------------------------------------------------
Krikorian None None
--------------------------------------------------------------------------------
Speca None None
--------------------------------------------------------------------------------
Storey None None
--------------------------------------------------------------------------------
Sullivan None None
--------------------------------------------------------------------------------
|
(1) Valuation date is December 31, 2011.
(2) The Trust is the only investment company in the Fund Complex.
BOARD COMPENSATION. The Trust paid the following fees to the Trustees during
its most recently completed fiscal year.
---------------------------------------------------------------------------------------------------------------
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION FROM
COMPENSATION ACCRUED AS PART OF BENEFITS UPON THE TRUST AND FUND
NAME FROM THE TRUST FUND EXPENSES RETIREMENT COMPLEX(2)
---------------------------------------------------------------------------------------------------------------
$0 for service on one (1)
Robert A. Nesher(1) $0 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$0 for service on one (1)
William M. Doran(1) $0 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
Charles E. Carlbom $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
John K. Darr $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$32,414 for service on (1)
Joseph T. Grause, Jr. $32,414 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
Mitchell A. Johnson $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
Betty L. Krikorian $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$32,414 for service on (1)
Bruce Speca $32,414 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
James M. Storey $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
$42,139 for service on (1)
George J. Sullivan $42,139 N/A N/A board
---------------------------------------------------------------------------------------------------------------
|
(1) A Trustee who is an "interested person" as defined by the 1940 Act.
(2) The Trust is the only investment company in the "Fund Complex."
64
TRUST OFFICERS. Set forth below are the names, dates of birth, length of term
of office, position with the Trust, and the principal occupations for the last
five years of each of the persons currently serving as the Executive 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.
---------------------------------------------------------------------------------------------------------
POSITION WITH
NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATIONS IN OTHER DIRECTORSHIPS HELD
DATE OF BIRTH OF TERM PAST 5 YEARS IN THE PAST 5 YEARS
---------------------------------------------------------------------------------------------------------
Michael Beattie President Director of Client Service at SEI from None.
(03/13/65) (since 2011) 2004 to 2011. Vice President at SEI
from 2009 to November 2011.
---------------------------------------------------------------------------------------------------------
Michael Treasurer, Director, SEI Investments, Fund None.
Lawson Controller and Accounting since July 2005.
(10/08/60) Chief Financial Manager, SEI Investments, Fund
Officer Accounting at SEI Investments AVP
(since 2005) from April 1995 to February 1998
and November 1998 to July 2005.
---------------------------------------------------------------------------------------------------------
Russell Emery Chief Compliance Chief Compliance Officer of SEI None.
(12/18/62) Officer Structured Credit Fund, LP and SEI
(since 2006) Alpha Strategy Portfolios, LP since
June 2007. Chief Compliance Officer of
SEI Opportunity Fund, L.P., SEI
Institutional Managed Trust, SEI Asset
Allocation Trust, SEI Institutional
International Trust, SEI Institutional
Investments Trust, SEI Daily Income
Trust, SEI Liquid Asset Trust and SEI
Tax Exempt Trust since March 2006.
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.
---------------------------------------------------------------------------------------------------------
|
65
---------------------------------------------------------------------------------------------------------
POSITION WITH
NAME AND TRUST AND LENGTH PRINCIPAL OCCUPATIONS IN OTHER DIRECTORSHIPS HELD
DATE OF BIRTH OF TERM PAST 5 YEARS IN THE PAST 5 YEARS
---------------------------------------------------------------------------------------------------------
Timothy D. Vice President and General Counsel and Secretary of None.
Barto Assistant Secretary SIMC and the Administrator since
(03/28/68) (since 1999) 2004. Vice President of SIMC and the
Administrator since 1999. Vice
President and Assistant Secretary of
SEI Investments since 2001. Assistant
Secretary of SIMC, the Administrator
and the Distributor, and Vice President
of the Distributor from 1999 to 2003.
---------------------------------------------------------------------------------------------------------
John Munch Vice President and Attorney, SEI Investments Company, None.
(05/07/71) Assistant Secretary since 2001.
(since 2012)
---------------------------------------------------------------------------------------------------------
Dianne M. Vice President Counsel at SEI Investments since 2010. None.
Sulzbach and Secretary Associate at Morgan, Lewis & Bockius
(07/18/77) (since 2011) LLP from 2006 to 2010. Associate at
Morrison & Foerster LLP from 2003 to
2006. Associate at Stradley Ronon
Stevens & Young LLP from 2002 to
2003.
---------------------------------------------------------------------------------------------------------
Keri Rohn Privacy Officer Compliance Officer at SEI Investments None.
(8/24/80) (since 2009) since 2003.
AML Officer
(since 2011)
---------------------------------------------------------------------------------------------------------
|
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
66
$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 Trust's Board of Trustees.
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 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 Trust's Board
of Trustees.
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.
67
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 Internal Revenue Code of 1986, as amended (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.
RIC MODERNIZATION ACT
Congress passed the Regulated Investment Company Modernization Act on December
22, 2010 (the "RIC Mod Act") which makes certain beneficial changes for
regulated investment companies under Subchapter M of the Code ("RICs") and
their shareholders, some of which are referenced below. In general, the RIC Mod
Act contains simplification provisions effective for taxable years beginning
after December 22, 2010, which are aimed at preventing disqualification of a
RIC for "inadvertent" failures of the asset diversification and/or qualifying
income tests described below. Additionally, the RIC Mod Act allows capital
losses to be carried forward indefinitely and retain the character of the
original loss, exempts RICs from the preferential dividend rule, and repeals
the 60-day designation requirement for certain types of income and gains.
QUALIFICATIONS AS A RIC
Each Fund intends to qualify and elects to be treated as a RIC. 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 regulated investment company 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. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to 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 ("90% Test"); (ii) 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 (iii) at the end of each fiscal quarter
of each Fund's taxable year, not more than 25%
68
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 ("Asset Test").
If a Fund fails to satisfy the qualifying income or diversification
requirements 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 (for tax years ending prior to December 31, 2012). 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 regulated investment company if it determines such
course of action to be beneficial to shareholders.
The RIC Mod Act changed the treatment of capital loss carryovers for RICs. The
new rules are similar to those that apply to capital loss carryovers of
individuals and provide that such losses are carried over by the Fund
indefinitely. Thus, if the Fund has a "net capital loss" (that is, capital
losses in excess of capital gains) for a taxable year beginning after December
22, 2010, 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 such 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. Different rules apply to pre-enactment net capital losses which
can only be carried forward to offset capital gains realized during the eight
years following the year of the loss and are treated as a short-term capital
loss in the year to which it is carried. Certain transition rules require
post-enactment capital losses to be utilized first, which, depending on the
circumstances for the Fund, may result in the expiration of unused
pre-enactment losses. In addition, the carryover of capital losses may be
limited under the general loss limitation rules if the 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.
69
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 and the Frost Low Duration
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.
Distributions by the Funds currently are eligible for the reduced maximum tax
rate to individuals of 15% (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 regulated investment company will be treated as qualified
dividend income only to the extent so designated by such investment company or
ETF. Absent further legislation, the maximum 15% rate on qualified dividend
income and long term capital gains will not apply to dividends received in
taxable years beginning after December 31, 2012. 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
70
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, Frost Municipal Bond Fund, and Frost Low
Duration 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 qualified
dividend income and capital gain 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.
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.
Recent legislation effective beginning in 2013 provides that U.S. individuals
with income exceeding $200,000 ($250,000 if married and filing jointly) will be
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.
Legislation passed by Congress in 2008 requires the Funds (or their
administrative agent) to 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 to the present law requirement to report the gross proceeds from the
sale of Fund shares, the Funds will also be 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 Funds will
permit Fund shareholders to elect from among several IRS-accepted cost basis
methods, including average cost. In the absence of an election, the Funds will
use the average basis method as their 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
71
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 the new cost basis reporting law applies to them. The
current law requirement to report only the gross proceeds from the sale of Fund
shares will continue 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
AND THE FROST LOW DURATION MUNICIPAL BOND FUND. The Frost Municipal Bond Fund
and the Frost Low Duration Municipal Bond Fund intend to satisfy conditions
(including requirements as to the proportion of its assets invested in
municipal obligations) that will enable them 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 and the Frost Low Duration Municipal Bond Fund under any 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 nonappropriation lease obligations will be
excludable from gross income for federal income tax purposes.
Because the Frost Municipal Bond Fund and the Frost Low Duration 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," these Funds 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 a 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 or the
Frost Low Duration 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. These Funds 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 or the Frost Low
Duration 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 and the Frost Low Duration 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.
72
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 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 Internal Revenue Service 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. No Fund is liable for any income or franchise tax in
73
Massachusetts if it qualifies as a RIC for federal income tax purposes.
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 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.
COMMODITY-LINKED DERIVATIVES. The status of the swap agreements and other
commodity-linked derivative instruments under the RIC qualification tests has
been addressed in Revenue Ruling 2006-1 and Revenue Ruling 2006-31 which
provide that income from commodity-linked swaps in which the Funds invest will
not be considered qualifying income. Each Fund will therefore restrict its
income from commodity-linked swaps (when combined with its other investments
that produce non-qualifying income) to be less than 10 percent of its gross
income. The Funds may also gain exposure to commodities through investments in
controlled foreign corporations and certain qualified publicly traded
partnerships.
74
MLPS. Certain Funds intend to invest in certain MLPs which may be treated as
qualified publicly traded partnerships. Income from qualified publicly traded
partnerships is qualifying income for purposes of the 90% Test, but a Fund's
investment in one or more of such qualified publicly traded partnerships is
limited under the Asset Test to no more than 25% of the value of the Fund's
assets. The Funds will monitor its investment in such qualified publicly
traded partnerships in order to ensure compliance with the Asset Test.
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 90% Test. The Funds intend to
monitor its investments and the character of its income to ensure it will
satisfy the 90% 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 90% 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 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 its
tax-exempt shareholders. However, notwithstanding the foregoing, tax-exempt
shareholders could realize UBTI by virtue of an investment in a Fund where, for
example, (i) the Funds invest in REITs that hold residual interests in real
estate mortgage investment conduits ("REMICs") or (ii) shares in a Fund
constitute debt-financed property in the hands of the tax-exempt shareholder
within the meaning of section 514(b) of the Code. Charitable remainder trusts
are subject to special rules and should consult their tax advisors. There are
no restrictions preventing a Fund from holding investments in REITs that hold
residual interests in REMICs, and a Fund may do so. 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 U.S. Treasury regulations, if an individual shareholder recognizes a loss
of $2 million or more or 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 portfolio securities are in many cases
excepted from this reporting requirement, but under current guidance,
shareholders of a RIC such as the Funds are not excepted. Future guidance may
extend the current exception 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 tax advisors to determine
the applicability of these regulations in light of their individual
circumstances.
75
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 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, the Funds will be required to withhold,
at the applicable withholding rate, and remit to the United States Treasury,
such withheld amounts on 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 Internal Revenue Service, (3) has not certified to
the Funds that such shareholder is not subject to backup withholding, or (4)
has not certified that such shareholder is a U.S. person or U.S. resident
alien.
Non-U.S. investors in the Funds may be subject to U.S. withholding and estate
tax and additional reporting and disclosure obligations and are encouraged to
consult their tax advisors prior to investing in the Funds.
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
76
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.
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. Nonetheless, the Adviser believes that the ability of a
Fund to participate in higher volume transactions will generally be beneficial
to the Funds.
For the fiscal years ended July 31, 2010, 2011 and 2012, the Funds paid the
following aggregate brokerage commissions on portfolio transactions:
--------------------------------------------------------------------------------
AGGREGATE DOLLAR AMOUNT
OF BROKERAGE COMMISSIONS PAID
-----------------------------------------------
FUND 2010 2011 2012
--------------------------------------------------------------------------------
Frost Growth Equity Fund $410,509 $273,523 $331,291
--------------------------------------------------------------------------------
Frost Dividend Value
Equity Fund $567,475 $667,915 $831,199
--------------------------------------------------------------------------------
Frost Kempner Multi-Cap
Deep Value Equity Fund $128,444 $118,379 $105,793
--------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $44,275 $84,248 $143,003
--------------------------------------------------------------------------------
Frost Small Cap Equity
Fund $1,370,477 $708,622 $675,289
--------------------------------------------------------------------------------
Frost International Equity
Fund $220,558 $185,008 $140,231
--------------------------------------------------------------------------------
Frost Natural Resources
Fund N/A(1) N/A(1) $100,833(2)
--------------------------------------------------------------------------------
Frost Cinque Large Cap
Buy-Write Equity Fund N/A(1) N/A(1) N/A(1)
--------------------------------------------------------------------------------
Frost Diversified Strategies
Fund N/A(1) $58,770(3) $85,574
--------------------------------------------------------------------------------
Frost Strategic Balanced
Fund $14,776 $12,954 $3,891
--------------------------------------------------------------------------------
Frost Total Return Bond
Fund $0 $0 $0
--------------------------------------------------------------------------------
Frost Credit Fund N/A(1) N/A(1) N/A(1)
--------------------------------------------------------------------------------
Frost Low Duration Bond
Fund $0 $0 $0
--------------------------------------------------------------------------------
Frost Municipal Bond Fund $0 $0 $0
--------------------------------------------------------------------------------
Frost Low Duration
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.
77
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 Funds' Adviser may select a broker
based upon brokerage or research services provided to the 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.
78
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).
For the fiscal year ended July 31, 2012, 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 $331,291 $294,762,605
---------------------------------------------------------------------------------------------
Frost Dividend Value Equity Fund $828,188 $501,758,500
---------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Deep Value
Equity Fund $0 $0
---------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund $65,589 $60,795.216
---------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund $0 $0
---------------------------------------------------------------------------------------------
Frost International Equity Fund $139,759 $139,135,728
---------------------------------------------------------------------------------------------
Frost Natural Resources Fund $100,833(1) $77,944,497(1)
---------------------------------------------------------------------------------------------
Frost Cinque Large Cap Buy-Write
Equity Fund N/A(2) N/A(2)
---------------------------------------------------------------------------------------------
Frost Diversified Strategies Fund $61,332 $40,730,667
---------------------------------------------------------------------------------------------
Frost Strategic Balanced Fund $3,891 $5,612,471
---------------------------------------------------------------------------------------------
Frost Total Return Bond Fund $0 $0
---------------------------------------------------------------------------------------------
Frost Credit Fund N/A(2) N/A(2)
---------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund $0 $0
---------------------------------------------------------------------------------------------
Frost Municipal Bond Fund $0 $0
---------------------------------------------------------------------------------------------
Frost Low Duration Municipal
Bond Fund $0 $0
---------------------------------------------------------------------------------------------
Frost Kempner Treasury and
Income Fund $0 $0
---------------------------------------------------------------------------------------------
|
(1) Represents the period from September 27, 2011 (commencement of Fund
operations) to July 31, 2012.
(2) Not in operation during this period.
79
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 Securities Exchange Act of 1934 (the "1934 Act") and rules promulgated
by the SEC. These rules further 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 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, 2010, 2011 and 2012, 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
-------------------------------------------------------------------------------------------------------------
2010 2011 2012 2010 2011 2012 2010 2011 2012
-------------------------------------------------------------------------------------------------------------
Frost Growth
Equity Fund $317,201 $167,722 $181,534 77.3% 61.3% 54.8% 83% 61.3% 60.8%
-------------------------------------------------------------------------------------------------------------
Frost Dividend
Value Equity
Fund $349,310 $356,807 $567,066 62% 53.4% 68.5% 58% 53.4% 68.5%
-------------------------------------------------------------------------------------------------------------
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 $604,109 $0 $0 100% 0% 0% 100% 0% 0%
-------------------------------------------------------------------------------------------------------------
Frost
International
Equity Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
-------------------------------------------------------------------------------------------------------------
Frost Natural
Resources Fund N/A(1) N/A(1) $74,018(2) N/A(1) N/A(1) 73.4%(2) N/A(1) N/A(1) 78.9%(2)
-------------------------------------------------------------------------------------------------------------
Frost Cinque
Large Cap Buy-
Write Equity
Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
-------------------------------------------------------------------------------------------------------------
Frost
Diversified
Strategies Fund N/A(1) $70(3) $145 N/A(1) 0.1%(3) 0.2% N/A(1) 0.1%(3) 0.2%
-------------------------------------------------------------------------------------------------------------
|
80
-------------------------------------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------------------------
2010 2011 2012 2010 2011 2012 2010 2011 2012
-------------------------------------------------------------------------------------------------------------
Frost Strategic
Balanced Fund $15,209 $8,710 $2,668 100% 67.2% 68.6% 100% 67.2% 75.6%
-------------------------------------------------------------------------------------------------------------
Frost Total
Return Bond
Fund $0 $0 $0 0% 0% 0% 0% 0% 0%
-------------------------------------------------------------------------------------------------------------
Frost Credit
Fund N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1) N/A(1)
-------------------------------------------------------------------------------------------------------------
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 Low
Duration
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 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.
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. As of
July 31, 2012, the following Funds held securities of their "regular brokers or
dealers" as follows:
81
---------------------------------------------------------------------------------------------------
NAME OF TYPE OF DOLLAR
FUND BROKER/DEALER SECURITY HELD AMOUNT AT FYE
---------------------------------------------------------------------------------------------------
Frost Dividend Value Equity Fund Goldman Sachs Debt $148,000
---------------------------------------------------------------------------------------------------
Frost Kempner Multi-Cap Bank of America Equity $1,423,000
Deep Value Equity Fund ----------------------------------------------------------------
Goldman Sachs Debt $135,000
---------------------------------------------------------------------------------------------------
Frost Mid Cap Equity Fund Goldman Sachs Debt $11,000
---------------------------------------------------------------------------------------------------
Frost Small Cap Equity Fund Goldman Sachs Debt $133,000
---------------------------------------------------------------------------------------------------
Frost Strategic Balanced Fund Goldman Sachs Debt $2,000
---------------------------------------------------------------------------------------------------
Frost Total Return Bond Fund Morgan Stanley Debt $60,995,000
----------------------------------------------------------------
Merrill Lynch Debt $5,510,000
----------------------------------------------------------------
Bank of America Debt $13,610,000
----------------------------------------------------------------
Citigroup Debt $6,837,000
----------------------------------------------------------------
Credit Suisse Debt $4,944,000
----------------------------------------------------------------
Goldman Sachs Debt $5,535,000
----------------------------------------------------------------
Jeffries Debt $16,538,000
---------------------------------------------------------------------------------------------------
Frost Low Duration Bond Fund Morgan Stanley Debt $35,353,000
----------------------------------------------------------------
Bank of America Debt $6,355,000
----------------------------------------------------------------
Goldman Sachs Debt $9,785,000
---------------------------------------------------------------------------------------------------
|
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 Funds' 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 Fund shareholders. Each Fund's complete schedule of investments
following the first and third fiscal quarters is available in quarterly
holdings reports filed with the SEC on Form N-Q, and each Fund's complete
schedule of investments following the 2nd and 4th fiscal quarters is available
in Semi-Annual and Annual Reports filed with the SEC on Form N-CSR. Quarterly
holdings reports filed with the SEC on Form N-Q are not distributed to Fund
shareholders, but are available, free of charge, on the EDGAR database on the
SEC's website at www.sec.gov.
The 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, the 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 the 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.
82
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 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, 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.
83
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 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 of Trustees of the Trust 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
Board of Trustees will periodically review the Funds' proxy voting record.
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 upon request by calling
1-877-71-FROST or by writing to the Funds at Frost Funds P.O. Box 219009 Kansas
City, MO 64121-9009. Each Fund's Form N-PX is also available on the SEC's
website at www.sec.gov.
CODES OF ETHICS
The Board of Trustees, 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,
84
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 November 5, 2012, 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 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. 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 2,947,303.0960 42.20%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 1,930,495.3840 27.64%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 1,695,257.1410 24.27%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
FROST GROWTH EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 23,438,589.9340 95.33%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST DIVIDEND VALUE EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 22,537,018.8760 92.44%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST DIVIDEND VALUE EQUITY FUND CLASS A
SEI Private Trust Company 2,923,007.2350 45.28%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 1,295,079.3000 20.06%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
85
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
--------------------------------------------------------------------------------
Hartford Securities Dist Co Inc 735,865.3630 11.40%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
FROST STRATEGIC BALANCED FUND INSTITUTIONAL CLASS
SEI Private Trust Company 368,074.3180 98.80%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST STRATEGIC BALANCED FUND CLASS A
Hartford Securities Dist Co Inc 435,850.2190 64.66%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 53,721.9890 7.97%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
CBNA As Custodian FBO 35,269.5000 5.23%
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 16,965,653.1430 95.77%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST SMALL CAP EQUITY FUND CLASS A
SEI Private Trust Company 1,264,522.0920 35.18%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 1,194,277.9000 33.22%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 794,902.8530 22.11%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
86
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
FROST KEMPNER MULTI-CAP DEEP VALUE EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 16,539,501.8370 98.20%
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 1,140,603.6520 39.23%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 703,792.3040 24.21%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 686,877.4440 23.63%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
NFS LLC FEBO 170,715.4540 5.87%
Marshal & Ilsley Trust Co NA
FBO Bank 98 DLY RCRDKPG
Attn: Mutual Funds
11270 W Park Pl
STE 400
Milwaukee, WI 53224
FROST LOW DURATION BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 21,390,596.1780 87.76%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST LOW DURATION BOND FUND CLASS A
Hartford Securities Dist Co Inc 1,359,553.1330 36.07%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 1,178,506.9670 31.27%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 415,832.8950 11.03%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
87
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
FROST TOTAL RETURN BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 58,516,506.8130 86.42%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST TOTAL RETURN BOND FUND CLASS A
SEI Private Trust Company 4,090,205.5760 36.37%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 3,900,650.5100 34.69%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
Hartford Securities Dist Co Inc 2,231,344.0380 19.84%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
|
FROST LOW DURATION MUNICIPAL BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 8,543,561.9640 97.32%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST MUNICIPAL BOND FUND INSTITUTIONAL CLASS
SEI Private Trust Company 20,075,648.8530 97.67%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST MUNICIPAL BOND FUND CLASS A
NFS LLC FEBO 269,177.6140 75.55%
Point Investments Ltd
A Partnership
PO Box 829
San Antonio, TX 78209-5651
NFS LLC FEBO 60,691.6440 17.03%
Carolyn Seale
Carol Lee Klose
249 Westover Rd
Alamo Heights, TX 78209-5651
|
FROST KEMPNER TREASURY & INCOME FUND INSTITUTIONAL CLASS
SEI Private Trust Company 2,786,387.7230 94.23%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
88
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
--------------------------------------------------------------------------------
FROST MID CAP EQUITY FUND INSTITUTIONAL
SEI Private Trust Company 1,236,888.9190 83.68%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
BRICS & Co 81,300.5610 5.50%
FBO Ben E Keith Co Ret Plan -- Frost
A/C o*****9308
340 S Cleveland Ave OH1-0481
Westerville, OH 43081-8917
FROST MID CAP EQUITY FUND CLASS A
SEI Investment Company 8.2510 50.14%
One Freedom Valley Dr.
Oaks, PA 19456-9989
DST Systems Inc 2.0510 12.46%
Output Audit Account
Attn Carolyn Barber
430 W 7th St
Kansas City, MO 64105-1407
DST Systems Inc 2.0510 12.46%
Output Audit Account
Attn Carolyn Barber
430 W 7th St
Kansas City, MO 64105-1407
SEI Private Trust Company Cust 2.0510 12.46%
IRA A/C DST IRA Audit Acct
Attn Carolyn Barber
430 W 7th St
Kansas City, MO 64105-1407
SEI Private Trust Company Cust 2.0510 12.46%
IRA A/C DST IRA Audit Acct
Attn Carolyn Barber
430 W 7th St
Kansas City, MO 64105-1407
FROST INTERNATIONAL EQUITY FUND INSTITUTIONAL CLASS
SEI Private Trust Company 20,524,351.2370 88.90%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST INTERNATIONAL EQUITY FUND CLASS A
Hartford Securities Dist Co Inc 2,211,338.8760 45.96%
As Agent for Reliance Trust Co
FBO Agents Plan Customers
Attn UIT Operations
PO Box 2999
Hartford, CT 06104-2999
SEI Private Trust Company 1,416,140.4230 29.44%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
89
NAME AND ADDRESS OF RECORD OWNER NUMBER OF SHARES PERCENT OF CLASS
--------------------------------------------------------------------------------
SEI Private Trust Company 723,020.3910 15.03%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST DIVERSIFIED STRATEGIES FUND CLASS A
SEI Private Trust Company 519,077.7740 80.92%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 47,327.3000 7.38%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST NATURAL RESOURCES FUND INSTITUTIONAL CLASS
SEI Private Trust Company 4,071,406.5970 93.83%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
FROST NATURAL RESOURCES FUND CLASS A
SEI Private Trust Company 412,552.2230 60.88%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
SEI Private Trust Company 241,792.9030 35.68%
C/O Frost ID 390
One Freedom Valley Dr.
Oaks, PA 19456-9989
|
90
APPENDIX A- DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD AND POOR'S ("S&P)
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.
|
MOODY'S
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.
|
FITCH INC. ("FITCH")
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.
F3: Fair short-term credit quality. The intrinsic capacity for timely payment
of financial commitments is adequate.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows,
superior liquidity support, or demonstrated broad-based access to the market
for refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2
are of high quality. Margins of protection are ample although not so large as
in the MIG-I/VMIG-2 group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will
A-1
most likely receive a long-term debt rating. The following criteria will be
used in making that assessment:
- Amortization Schedule - the larger the final maturity relative to
other maturities, the more likely it will be treated as a note, and
- 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.
S&P note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. Those issues determined
to possess a very strong capacity to pay a 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 votes.
|
DESCRIPTION OF CORPORATE BOND RATINGS
S&P
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such
a rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Debt rated BB and B is regarded as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. Debt rated BB has
less near-term vulnerability to default than other speculative grade debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions that could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BBB- rating. Debt rate B has greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
MOODY'S
Bonds that are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are
A-2
protected by a large, or an exceptionally stable, margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa by Moody's are judged by Moody's
to be of high quality by all standards. Together with bonds rated Aaa, they
comprise what are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present that make the long-term risks appear
somewhat larger than the Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's bond ratings, where specified, are applied to financial contracts,
senior bank obligations and insurance company senior policyholder and claims
obligations with an original maturity in excess of one-year. Obligations
relying upon support mechanisms such as letters-of-credit and bonds of
indemnity are excluded unless explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating
on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's sovereign rating. Such branch
obligations are rated at the lower of the bank's rating or Moody's sovereign
rating for the bank deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings
do not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act
of 1933 or issued in conformity with any other applicable law or regulation.
Nor does Moody's represent that any specific bank or insurance company
obligation is legally enforceable or is a valid senior obligation of a rated
issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
A-3
FITCH
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions
liable to but slight market fluctuation other than through changes in the money
rate. The prime feature of an AAA bond is a showing of earnings several times
or many times interest requirements, with such stability of applicable earnings
that safety is beyond reasonable question whatever changes occur in conditions.
Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond
question and are readily salable, whose merits are not unlike those of the AAA
class, but whose margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but influenced as to rating
by the lesser financial power of the enterprise and more local type market.
Bonds rated A are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings. Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements. Bonds
rated B are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
A-4
[LOGO OMITTED] FROST INVESTMENT ADVISORS, LLC
Post Office Box 2509
San Antonio, TX 78299-2509
September 10, 2012
APPENDIX A: PROXY VOTING POLICY
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 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
Investments Committee, comprised of senior Frost Investment Advisors, LLC
investment and compliance officers (See Appendix D). The Investments Committee
annually adopts the Proxy Guidelines concerning various corporate governance
issues. The Investments Committee 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 Investments Committee 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 Investments Committee
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 Investments Committee 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 Investments Committee 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 Investments Committee to conclude
that particular proposals present unacceptable investment risks and should not
be supported. The Investments Committee 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, including the establishment, composition and
authority of the Investments Committee and the retention of the Service Firm to
perform proxy review and vote recommendation functions. The Investments
Committee 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 Investments Committee 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 Investments Committee 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 Investments Committee may obtain recommendations from
analysts at Frost Investment Advisors, LLC who review the issuer in question or
the industry in general. The Investments Committee 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.
CAMBIAR INVESTORS, LLC
PROXY VOTING AND CLASS ACTIONS
Last Updated June 15, 2012
PROXY VOTING POLICY AND PROCEDURES
OBJECTIVE: The objective of Cambiar proxy voting process is to maximize the
long-term investment performance of our clients.
POLICY: Cambiar will typically vote all proxy proposals in accordance with
management recommendations unless the effect of particular resolutions could
adversely affect shareholder value. In such cases, it is Cambiar's policy to
vote against these proposals. If Cambiar sees it necessary to become further
involved, the Analyst will directly engage management.
PROXY VOTING PROCEDURE: The procedure for processing proxy ballots is as
follows:
1. Custodians are directed to send all proxy material to Cambiar.
Cambiar has retained Glass Lewis & Co. ("Glass Lewis") to provide
independent research. Cambiar votes proxies through Broadridge's Proxy
Edge platform.
2. The Proxy Administrator reviews the research provided by Glass Lewis
& Co. for each company meeting and each proposal. If Glass Lewis'
recommendations agree and favor management Cambiar votes according to
management's recommendations.
3. If non-routine proposals or proposals considered to have a potential
negative investment performance impact are discovered or Glass Lewis
recommends a vote against a management recommendation, the Proxy
Administrator will review the particular resolutions with the
Portfolio Manager responsible for the investment and vote per the
Portfolio Manager's recommendations.
Where a material conflict of interest has been identified, Cambiar
will notify its clients of the conflict and vote based on Glass
Lewis's recommendation to ensure the best economic interests of its
clients are met.
4. Cambiar keeps a record of all accounts and proxies voted and provides
monthly and/or quarterly reports as required through the Proxy Edge
platform.
5. On a regular basis, the Proxy Administrator reviews the proxy voting
record with the Portfolio Managers.
6. Copies of this procedure can be obtained free of charge by:
o calling Cambiar Investors, LLC toll-free at 888-673-9950 or
o by visiting our web site at HTTP://WWW. CAMBIAR. COM or
o by writing us at: 2401 E. Second Ave. #500, Denver, CO
80206
7. By August 31, each year Cambiar's annual proxy voting record for the
previous 12 months ending June 30 may be obtained free of charge by:
o calling 888-673-9950 or
o by visiting our web site at HTTP://WWW. CAMBIAR. COM or
o by writing us at: 2401 E. Second Ave. #500, Denver, CO
80206
CLASS ACTION PROCEDURES:
Cambiar has engaged a third party class action claims service, Class Actions
Claims Management, to provide securities class action research and proof of
claim filing services for our clients. Class Action Claims Management shall
participate in all relevant class actions.
PROXY PAPER GUIDELINES
2012 PROXY SEASON
AN OVERVIEW OF
THE GLASS LEWIS APPROACH TO
PROXY ADVICE
[LOGO OMITTED]
GLASS LEWIS & CO. SUMMARY
UNITED STATES
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CONTENTS
I. ELECTION OF DIRECTORS ................................................ 1
BOARD OF DIRECTORS ................................................... 1
SEPARATION OF THE ROLES OF CHAIRMAN AND CEO .......................... 3
MAJORITY VOTING FOR THE ELECTION OF DIRECTORS ........................ 3
CLASSIFIED BOARDS .................................................... 3
MUTUAL FUND BOARDS ................................................... 3
II. FINANCIAL REPORTING .................................................. 4
AUDITOR RATIFICATION ................................................. 4
AUDITOR ROTATION ..................................................... 4
PENSION ACCOUNTING ISSUES ............................................ 4
III. COMPENSATION ......................................................... 5
EQUITY BASED COMPENSATION PLANS ...................................... 5
OPTION EXCHANGES ..................................................... 5
PERFORMANCE BASED OPTIONS ............................................ 6
LINKING PAY WITH PERFORMANCE ......................................... 6
DIRECTOR COMPENSATION PLANS .......................................... 6
ADVISORY VOTES ON COMPENSATION ....................................... 6
ADVISORY VOTES ON COMPENSATION FREQUENCY ............................. 7
LIMITS ON EXECUTIVE COMPENSATION ..................................... 7
LIMITS ON EXECUTIVE STOCK OPTIONS .................................... 7
IV. GOVERNANCE STRUCTURE ................................................. 7
ANTI-TAKEOVER MEASURES ............................................... 7
AUTHORIZED SHARES .................................................... 8
VOTING STRUCTURE ..................................................... 8
SHAREHOLDER PROPOSALS 8
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V. ENVIRONMENTAL AND SOCIAL RISK ....................................... 12
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ELECTION OF DIRECTORS
BOARD OF DIRECTORS
Boards are put in place to represent shareholders and protect their interests.
Glass Lewis seeks boards with a proven record of protecting shareholders and
delivering value over the medium-and long-term. We believe that boards working
to protect and enhance the best interests of shareholders are independent, have
directors with diverse backgrounds, have a record of positive performance, and
have members with a breadth and depth of relevant experience.
BOARD COMPOSITION
We look at each individual on the board and examine his or her relationships
with the company, the company's executives and with other board members. The
purpose of this inquiry is to determine whether pre-existing personal, familial
or financial relationships are likely to impact the decisions of that board
member.
We vote in favor of governance structures that will drive positive performance
and enhance shareholder value. The most crucial test of a board's commitment to
the company and to its shareholders is the performance of the board and its
members. The performance of directors in their capacity as board members and as
executives of the company, when applicable, and in their roles at other
companies where they serve, is critical to this evaluation.
We believe a director is independent if he or she has no material financial,
familial or other current relationships with the company, its executives or
other board members except for service on the board and standard fees paid for
that service. Relationships that have existed within the five years prior to
the inquiry are usually considered to be "current" for purposes of this test.
In our view, a director is affiliated if he or she has a material financial,
familial or other relationship with the company or its executives, but is not
an employee of the company. This includes directors whose employers have a
material financial relationship with the Company. This also includes a director
who owns or controls 20% or more of the company's voting stock.
We define an inside director as one who simultaneously serves as a director and
as an employee of the company. This category may include a chairman of the
board who acts as an employee of the company or is paid as an employee of the
company.
Although we typically vote for the election of directors, we will recommend
voting against directors (or withholding where applicable, here and following)
for the following reasons:
A director who attends less than 75% of the board and applicable committee
meetings.
A director who fails to file timely form(s) 4 or 5 (assessed on a
case-by-case basis).
A director who is also the CEO of a company where a serious restatement has
occurred after the CEO certified the pre-restatement financial statements.
All board members who served at a time when a poison pill was adopted
without shareholder approval within the prior twelve months.
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We also feel that the following conflicts of interest may hinder a
director's performance and will therefore recommend voting against a:
CFO who presently sits on the board.
Director who presently sits on an excessive number of boards
Director, or a director whose immediate family member, provides material
professional services to the company at any time during the past three
years.
Director, or a director whose immediate family member, engages in airplane,
real estate or other similar deals, including perquisite type grants from
the company.
Director with an interlocking directorship.
BOARD COMMITTEE COMPOSITION
All key committees including audit, compensation, governance, and nominating
committees should be composed solely of independent directors and each
committee should be focused on fulfilling its specific duty to shareholders. We
typically recommend that shareholders vote against any affiliated or inside
director seeking appointment to an audit, compensation, nominating or
governance committee or who has served in that capacity in the past year.
REVIEW OF THE COMPENSATION DISCUSSION AND ANALYSIS REPORT
We review the CD&A in our evaluation of the overall compensation practices of a
company, as overseen by the compensation committee. In our evaluation of the
CD&A, we examine, among other factors, the extent to which the company has used
performance goals in determining overall compensation, how well the company has
disclosed performance metrics and goals and the extent to which the performance
metrics, targets and goals are implemented to enhance company performance. We
would recommend voting against the chair of the compensation committee where
the CD&A provides insufficient or unclear information about performance metrics
and goals, where the CD&A indicates that pay is not tied to performance, or
where the compensation committee or management has excessive discretion to
alter performance terms or increase amounts of awards in contravention of
previously defined targets. However, if a company provides shareholders with an
advisory vote on compensation, we will recommend that shareholders only vote
against the advisory compensation vote proposal unless the compensation
practices are particularly egregious or persistent.
REVIEW OF RISK MANAGEMENT CONTROLS
We believe companies, particularly financial firms, should have a dedicated
risk committee, or a committee of the board charged with risk oversight, as
well as a chief risk officer who reports directly to that committee, not to the
CEO or another executive. In cases where a company has disclosed a sizable loss
or writedown, and where a reasonable analysis indicates that the company's
board-level risk committee should be held accountable for poor oversight, we
would recommend that shareholders vote against such committee members on that
basis. In addition, in cases where a company maintains a significant level of
financial risk exposure but fails to
-3-
disclose any explicit form of board-level risk oversight (committee or
otherwise), we will consider recommending to vote against the chairman of the
board on that basis.
SEPARATION OF THE ROLES OF CHAIRMAN AND CEO
Glass Lewis believes that separating the roles of corporate officers and the
chairman of the board is a better governance structure than a combined
executive/chairman position. The role of executives is to manage the business
on the basis of the course charted by the board. Executives should be in the
position of reporting and answering to the board for their performance in
achieving the goals set out by such board. This becomes much more complicated
when management actually sits on, or chairs, the board.
We view an independent chairman as better able to oversee the executives of the
company and set a pro-shareholder agenda without the management conflicts that
a CEO and other executive insiders often face. This, in turn, leads to a more
proactive and effective board of directors that is looking out for the
interests of shareholders above all else.
We do not recommend voting against CEOs who serve on or chair the board.
However, we do support a separation between the roles of chairman of the board
and CEO, whenever that question is posed in a proxy.
In the absence of an independent chairman, we support the appointment of a
presiding or lead director with authority to set the agenda for the meetings
and to lead sessions outside the presence of the insider chairman.
MAJORITY VOTING FOR THE ELECTION OF DIRECTORS
Glass Lewis will generally support proposals calling for the election of
directors by a majority vote in place of plurality voting. If a majority vote
standard were implemented, a nominee would have to receive the support of a
majority of the shares voted in order to assume the role of a director. Thus,
shareholders could collectively vote to reject a director they believe will not
pursue their best interests. We think that this minimal amount of protection
for shareholders is reasonable and will not upset the corporate structure nor
reduce the willingness of qualified shareholder-focused directors to serve in
the future.
CLASSIFIED BOARDS
Glass Lewis favors the repeal of staggered boards in favor of the annual
election of directors. We believe that staggered boards are less accountable to
shareholders than annually elected boards. Furthermore, we feel that the annual
election of directors encourages board members to focus on protecting the
interests of shareholders.
MUTUAL FUND BOARDS
Mutual funds, or investment companies, are structured differently than regular
public companies (i.e., operating companies). Members of the fund's adviser are
typically on the board and management takes on a different role than that of
other public companies. As such, although
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many of our guidelines remain the same, the following differences from the
guidelines at operating companies apply at mutual funds:
We believe three-fourths of the boards of investment companies should be made
up of independent directors, a stricter standard than the two-thirds
independence standard we employ at operating companies.
We recommend voting against the chairman of the nominating committee at an
investment company if the chairman and CEO of a mutual fund is the same person
and the fund does not have an independent lead or presiding director.
II. FINANCIAL REPORTING
AUDITOR RATIFICATION
We believe that role of the auditor is crucial in protecting shareholder value.
In our view, shareholders should demand the services of objective and
well-qualified auditors at every company in which they hold an interest. Like
directors, auditors should be free from conflicts of interest and should
assiduously avoid situations that require them to make choices between their
own interests and the interests of the shareholders.
Glass Lewis generally supports management's recommendation regarding the
selection of an auditor. However, we recommend voting against the ratification
of auditors for the following reasons:
When audit fees added to audit-related fees total less than one-half of
total fees.
When there have been any recent restatements or late filings by the company
where the auditor bears some responsibility for the restatement or late
filing (e.g., a restatement due to a reporting error).
When the company has aggressive accounting policies.
When the company has poor disclosure or lack of transparency in financial
statements.
When there are other relationships or issues of concern with the auditor
that might suggest a conflict between the interest of the auditor and the
interests of shareholders.
When the company is changing auditors as a result of a disagreement between
the company and the auditor on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
AUDITOR ROTATION
We typically support audit related proposals regarding mandatory auditor
rotation when the proposal uses a reasonable period of time (usually not less
than 5-7 years).
-5-
PENSION ACCOUNTING ISSUES
Proxy proposals sometimes raise the question as to whether pension accounting
should have an effect on the company's net income and therefore be reflected in
the performance of the business for purposes of calculating payments to
executives. It is our view that pension credits should not be included in
measuring income used to award performance-based compensation. Many of the
assumptions used in accounting for retirement plans are subject to the
discretion of a company, and management would have an obvious conflict of
interest if pay were tied to pension income.
III. COMPENSATION
EQUITY BASED COMPENSATION PLANS
Glass Lewis evaluates option and other equity-based compensation on a
case-by-case basis. We believe that equity compensation awards are a useful
tool, when not abused, for retaining and incentivizing employees to engage in
conduct that will improve the performance of the company.
We evaluate option plans based on certain overarching principles:
Companies should seek additional shares only when needed.
The number of shares requested should be small enough that companies need
shareholder approval every three to four years (or more frequently).
If a plan is relatively expensive, it should not be granting options solely
to senior executives and board members.
Annual net share count and voting power dilution should be limited.
Annual cost of the plan (especially if not shown on the income statement)
should be reasonable as a percentage of financial results and in line with
the peer group.
The expected annual cost of the plan should be proportional to the value of
the business.
The intrinsic value received by option grantees in the past should be
reasonable compared with the financial results of the business.
Plans should deliver value on a per-employee basis when compared with
programs at peer companies.
Plans should not permit re-pricing of stock options.
OPTION EXCHANGES
Option exchanges are reviewed on a case-by-case basis, although they are
approached with great skepticism. Repricing is tantamount to a re-trade. We
will support a repricing only if the following conditions are true:
Officers and board members do not participate in the program.
-6-
The stock decline mirrors the market or industry price decline in terms of
timing and approximates the decline in magnitude.
The exchange is value neutral or value creative to shareholders with very
conservative assumptions and a recognition of the adverse selection
problems inherent in voluntary programs.
Management and the board make a cogent case for needing to incentivize and
retain existing employees, such as being in a competitive employment
market.
PERFORMANCE BASED OPTIONS
We generally recommend that shareholders vote in favor of performance-based
option requirements. We feel that executives should be compensated with equity
when their performance and that of the company warrants such rewards. We
believe that boards can develop a consistent, reliable approach, as boards of
many companies have, that would attract executives who believe in their ability
to guide the company to achieve its targets.
LINKING PAY WITH PERFORMANCE
Executive compensation should be linked directly with the performance of the
business the executive is charged with managing. Glass Lewis grades companies
on an A to F scale based on our analysis of executive compensation relative to
performance and that of the company's peers and will recommend voting against
the election of compensation committee members at companies that receive a
grade of F.
DIRECTOR COMPENSATION PLANS
Non-employee directors should receive compensation for the time and effort they
spend serving on the board and its committees. In particular, we support
compensation plans that include equity-based awards, which help to align the
interests of outside directors with those of shareholders. Director fees should
be competitive in order to retain and attract qualified individuals.
ADVISORY VOTES ON COMPENSATION
We closely review companies' compensation practices and disclosure as outlined
in their CD&As and other company filings to evaluate management-submitted
advisory compensation vote proposals. In evaluating these non-binding
proposals, we examine how well the company has disclosed information pertinent
to its compensation programs, the extent to which overall compensation is tied
to performance, the performance metrics selected by the company and the levels
of compensation in comparison to company performance and that of its peers.
Glass Lewis will generally recommend voting in favor of shareholder proposals
to allow shareholders an advisory vote on compensation.
At companies that received a significant shareholder vote against their
advisory vote on executive compensation in the previous year, we will look for
disclosure in the proxy statement and other publicly-disclosed filings that
indicates the compensation committee is responding to the prior year's vote
results. In the absence of evidence that the board is responding
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appropriately, we will recommend holding compensation committee members
accountable for this failure.
ADVISORY VOTES ON COMPENSATION FREQUENCY
We believe companies should submit say-on-pay votes to shareholders every year
and therefore will generally support annual votes on compensation absent a
compelling reason. We believe annual say-on-pay votes encourage beneficial
board and shareholder dialogue on compensation and that the relatively minor
additional financial burdens on a company with regard to an annual vote are
outweighed by the benefits to shareholders of more frequent accountability.
LIMITS ON EXECUTIVE COMPENSATION
Proposals to limit executive compensation will be evaluated on a case-by-case
basis. As a general rule, we believe that executive compensation should be left
to the board's compensation committee. We view the election of directors, and
specifically those who sit on the compensation committee, as the appropriate
mechanism for shareholders to express their disapproval or support of board
policy on this issue.
LIMITS ON EXECUTIVE STOCK OPTIONS
We favor the grant of options to executives. Options are a very important
component of compensation packages designed to attract and retain experienced
executives and other key employees. Tying a portion of an executive's
compensation to the performance of the company also provides an excellent
incentive to maximize share values by those in the best position to affect
those values. Accordingly, we typically vote against caps on executive stock
options.
IV. GOVERNANCE STRUCTURE
ANTI-TAKEOVER MEASURES
POISON PILLS (SHAREHOLDER RIGHTS PLANS)
Glass Lewis believes that poison pill plans generally are not in the best
interests of shareholders. Specifically, they can reduce management
accountability by substantially limiting opportunities for corporate takeovers.
Rights plans can thus prevent shareholders from receiving a buy-out premium for
their stock.
We believe that boards should be given wide latitude in directing the
activities of the company and charting the company's course. However, on an
issue such as this where the link between the financial interests of
shareholders and their right to consider and accept buyout offers is so
substantial, we believe that shareholders should be allowed to vote on whether
or not they support such a plan's implementation.
In certain limited circumstances, we will support a limited poison pill to
accomplish a particular objective, such as the closing of an important merger,
or a pill that contains what we believe to be a reasonable 'qualifying offer'
clause.
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RIGHT OF SHAREHOLDERS TO CALL A SPECIAL MEETING
We will recommend in favor of proposals that allow shareholders to call special
meetings. In order to prevent abuse and waste of corporate resources by a very
small minority of shareholders, we believe that such rights should be limited
to a minimum threshold of 10-15% of shareholders requesting such a meeting,
depending on the company size.
SHAREHOLDER ACTION BY WRITTEN CONSENT
We will recommend in favor of proposals that allow shareholders to act by
written consent. In order to prevent abuse and waste of corporate resources by
a very small minority of shareholders, we believe that such rights should be
limited to at least the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
were present and voting.
AUTHORIZED SHARES
Proposals to increase the number of authorized shares will be evaluated on a
case-by-case basis. Adequate capital stock is important to the operation of a
company. When analyzing a request for additional shares, we typically review
four common reasons why a company might need additional capital stock beyond
what is currently available:
Stock split
Shareholder defenses
Financing for acquisitions
Financing for operations
Unless we find that the company has not disclosed a detailed plan for use of
the proposed shares, or where the number of shares far exceeds those needed to
accomplish a detailed plan, we typically recommend in favor of the
authorization of additional shares.
VOTING STRUCTURE
CUMULATIVE VOTING
Glass Lewis will recommend voting for proposals seeking to allow cumulative
voting unless the company has majority voting for the election of directors in
which case we will vote against. Cumulative voting is a voting process that
maximizes the ability of minority shareholders to ensure representation of
their views on the board. Cumulative voting generally operates as a safeguard
for by ensuring that those who hold a significant minority of shares are able
to elect a candidate of their choosing to the board.
SUPERMAJORITY VOTE REQUIREMENTS
Glass Lewis favors a simple majority voting structure. Supermajority vote
requirements act as impediments to shareholder action on ballot items that are
critical to our interests. One key
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example is in the takeover context where supermajority vote requirements can
strongly limit shareholders' input in making decisions on such crucial matters
as selling the business.
SHAREHOLDER PROPOSALS
Shareholder proposals are evaluated on a case-by-case basis. We generally favor
proposals that are likely to increase shareholder value and/or promote and
protect shareholder rights. We typically prefer to leave decisions regarding
day-to-day management of the business and policy decisions related to
political, social or environmental issues to management and the board except
when we see a clear and direct link between the proposal and some economic or
financial issue for the company.
V. CAPITAL MANAGEMENT
We believe companies should actively evaluate risks to long-term shareholder
value stemming from poor governance practices. In addition, we believe
companies should consider their exposure to environmental and social risk,
including changes in environmental or social regulation with respect to their
operations, as well as related legal and reputational risks and should
incorporate this exposure into their overall business risk profile. Companies
should disclose to shareholders both the nature and magnitude of such risks as
well as steps they have taken or will take to mitigate those risks.
When we identify situations where shareholder value is at risk, we may
recommend voting in favor of a reasonable and well-targeted shareholder
proposal if we believe supporting the proposal will promote disclosure of
and/or mitigate significant risk exposure. In egregious cases where a company
has failed to adequately mitigate risks stemming from environmental or social
practices, we will recommend shareholders vote against directors.
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FOR MORE INFORMATION ABOUT GLASS LEWIS' POLICIES OR OUR APPROACH TO PROXY
ANALYSIS, PLEASE VISIT WWW.GLASSLEWIS.COM OR CONTACT OUR CHIEF POLICY OFFICER,
ROBERT MCCORMICK, AT +1 415 6784228.
THIS DOCUMENT SETS FORTH THE PROXY VOTING POLICY AND GUIDE LINES OF GLASS,
LEWIS & CO., LLC. THE POLICIES INCLUDED HEREIN HAVE BEEN DEVELOPED BASED ON
GLASS LEWIS' EXPERIENCE WITH PROXY VOTING AND CORPORATE GOVERNANCE ISSUES AND
ARE NOT TAILORED TO ANY SPECIFIC PERSON. MOREOVER, THESE GUIDELINES ARE NOT
INTENDED TO BE EXHAUSTIVE AND DO NOT INCLUDE ALL POTENTIAL VOTING ISSUES. THE
INFORMATION INCLUDED HEREIN IS REVIEWED PERIODICALLY AND UPDATED OR REVISED AS
NECESSARY.
GLASS LEWIS IS NOT RESPONSIBLE FOR ANY ACTIONS TAKEN OR NOT TAKEN ON THE BASIS
OF THIS INFORMATION. THIS DOCUMENT MAY NOT BE REPRODUCED OR DISTRIBUTED IN ANY
MANNER WITHOUT THE WRITTEN PERMISSION OF GLASS LEWIS.
COPYRIGHT (C) 2011 GLASS, LEWIS & CO., LLC. ALL RIGHTS RESERVED.
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SAN FRANCISCO
Headquarters
Glass, Lewis & Co., LLC
One Sansome Street
Suite 3300
San Francisco, CA 94104
Tel: +1 415-678-4110
Tel: +1 888-800-7001
Fax: +1 415-357-0200
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NEW YORK
Glass, Lewis & Co., LLC
48 Wall Street
15th Floor
New York, N.Y. 10005
Tel: +1 212-797-3777
Fax: +1 212-980-4716
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AUSTRALIA
CGI Glass Lewis Pty Limited
Suite 8.01, Level 8,
261 George St
Sydney NSW 2000
Australia
Tel: +61 2 9299 9266
Fax: +61 2 9299 1866
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Glass Lewis International, Ltd.
Via Pazzalino 25
6962 Lugano Viganello
Switzerland
Phone: +41 76 346 0673
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IRELAND
Glass Lewis Europe, Ltd.
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Bishop's Quay
Limerick, Ireland
Phone: +353 61 404700
Fax: +353 61 404711
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PLEASE DIRECT GENERAL INQUIRIES TO INFO@GLASSLEWIS.COM
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KEMPNER CAPITAL MANAGEMENT PROXY VOTING POLICY
KCM's policy regarding the voting of proxies is to insure that our voting
selections are in the best interests of our clients. KCM takes into
consideration several issues in the enforcing of this policy.
GENERAL PROXY VOTING POLICY
Since protection of our clients' interest is our most important concern, we
vote 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:
o SELECTION OF AUDITORS -- KCM attempts to take into consideration an
auditor's litigation history and current standing in the financial
community.
o SHAREHOLDER RIGHTS -- KCM tries to insure that the voting of a
proposal does not cause unnecessary dilution of minority shareholder
rights.
o STOCK ISSUANCE PLANS -- KCM approves stock-issuance plans that are
tied to earnings growth and stock performance.
The KCM Investment Committee has added further specifics to the proxy voting
policy. KCM will vote:
o AGAINST CUMULATIVE VOTING --
KCM believes voting against cumulative voting to be in the best
interest of the minority shareholders.
o FOR THE REQUIREMENTS OF A MAJORITY FOR ELECTION OF DIRECTORS --
KCM believes voting for majority voting would give shareholders a
meaningful role in the director election process. Under plurality
voting standards, a nominee in a director election can be elected with
as little as a single affirmative vote, even if a substantial majority
of votes cast are "withheld" from that nominee. The majority vote
standard would require that a director receive a majority of the votes
cast in order to be elected to the Board.
o AGAINST SHAREHOLDER PROPOSALS REGARDING POLITICAL AND CHARITABLE
CONTRIBUTIONS --
KCM believes company disclosure requirements for political and
charitable contributions are sufficient.
o FOR SEPARATION OF CHAIRMAN AND CEO --
Separation of Chairman and CEO positions are believed to be in the
best interest of the shareholders.
o FOR DECLASSIFIED BOARD -- ANNUAL ELECTION OF BOARD MEMBERS --
KCM believes the annual election of Board members to be in the best
interest of shareholders.
PROXY DECISION-MAKING PROCESS
Our decisions come as a result of researching the proxy statement and annual
report, which accompanied the proxy material as well as continually following
the company in general as an investment policy. The ongoing research is the
responsibility of the entire portfolio management team but our analyst reviews
each proxy statement and presents his recommendations to the KCM Investment
Committee for review and final vote.
It is KCM's policy to:
o Review all proxy materials on portfolio companies and to vote those
proxies in each election.
o 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
shareholders in the case of a merger, buy-out tender, management-led
leveraged buy-out or restructuring efforts in whatever form.
o Support equitable PERFORMANCE or incentive-based stock acquisition
programs in favor of management. We believe 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 the minority
shareholder.
In light of the ever-increasing number of "social" issue events entered 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 a case, the ramifications are discussed with the
client before voting.
KCM does NOT vote proxies when the cost of doing so is impractical. The
following proxies will NOT be voted:
o Proxies written in a language other than English, for which no
translation has been provided.
o Proxies that require travel overseas in order to vote.
o Proxies for legacy securities held in a new account previously
managed by another manager that KCM intends to sell.
o Proxies for securities held in a portion of client's portfolio that
is not managed by KCM.
o Proxies for securities on loan that must be recalled in order to
vote.
CONFLICTS 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.
All proxies are reviewed in KCM's weekly Investment Committee Meetings. Any
proxies involving a possible conflict of interest will be reviewed thoroughly
by the Committee. Outside counsel will be consulted, if the Investment
Committee deems it prudent, to be sure the proxies are voted in the best
interest of KCM's clients.
RECORD KEEPING
KCM votes each proxy electronically via ProxyEdge or at the Proxyvote.com
website. KCM maintains records on proxies voted for a period of 5 years. These
records detail how each proxy was voted and give
the reasons for any votes decided against management's recommendation. Client
requests for information on how proxies were voted are also maintained for a
period of 3 years.
The Fund's proxy voting record for the most recent 12-month period ended June
30(th) is available upon request by calling 1-877-71-Frost or by writing to the
Funds at Frost Funds, P.O. Box 219009, Kansas City, MO 64121-9009. In
accordance with Securities and Exchange regulations, all Funds file a record of
all proxy voting activity for the prior 12 months ending June 30(th). That
filing is made on or before August 31(st) of each year.
Revised November, 2010
LUTHER KING CAPITAL MANAGEMENT CORPORATION
PROXY VOTING POLICY AND PROCEDURES
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. The Chief Compliance Officer (the "CCO") 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, the CCO will determine
whether any material conflict of interest may exist between LKCM and the
client with respect thereto. If the CCO 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, the CCO will determine whether any material conflict of interest
may exist between LKCM and the client with respect thereto. If the CCO
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 the CCO 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 1, 2012
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. discharge the following
functions in effectuating this Policy:
The Proxy Voting Coordinator shall
(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
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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
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Thornburg Investment Management, Inc.
(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
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Thornburg Investment Management, Inc.
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;
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Thornburg Investment Management, Inc.
(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
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Thornburg Investment Management, Inc.
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."
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Thornburg Investment Management, Inc.
Proxy
CINQUE PARTNERS Voting
INVESTMENT MANAGEMENT
CAPITALIZING ON CHANGE (Updated 06.22.2012)
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.
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