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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 37
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
QUANTITATIVE GROUP OF FUNDS d/b/a QUANT FUNDS
55 Old Bedford Road
Lincoln, MA 01773
(781) 259-1144
WILLARD L. UMPHREY, President
Quant Funds
55 Old Bedford Road
Lincoln, MA 01773
Copy to:
Mark P. Goshko, Esq.
KIRKPATRICK & LOCKHART PRESTON GATES ELLIS, LLP
State Street Financial Center
One Lincoln Street
Boston, MA 02111
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Approximate Date of Proposed Public Offering:
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It is proposed that this filing will become effective (check appropriate box)
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immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on May 1, 2008 pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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SUBJECT TO COMPLETION
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FEBRUARY
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, 2008
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The information in this Prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Quant Foreign Value Small Cap Fund (the “Fund”)
Ordinary and Institutional* Shares
PROSPECTUS
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Basic Information about the Fund
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Summary of Fees and Expenses
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Non-Principal Investment Policies and Related Risks
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Calculation of Net Asset Value
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Shareholder Account Policies
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Dividends, Distributions and Taxation
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An investment in the Fund is NOT a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund may not achieve its goals and is not intended as a complete investment program. Contact your investment professional to discuss how each Fund fits into your portfolio.
BOS-1164043 v8
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE FUND’S SHARES OR DETERMINED WHETHER THE INFORMATION IN THIS PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
*
Institutional shares are authorized but not offered as of the date of this prospectus. Ordinary shares of the Fund are the only share class that you may purchase.
BASIC INFORMATION ABOUT THE FUND
Quant Foreign Value Small Cap Fund (the “Fund”) Investment Objective
Long-term growth of capital and income.
Principal Investment Strategies
Under normal market conditions, the Fund invests at least 80% of its total assets in common stocks of foreign markets issuers. A foreign markets issuer is one that is organized under the laws of a non-U.S. country, has a principal office in a non-U.S. country or derives at least 50% of its gross revenues or profits from goods or services produced in non-U.S. markets or from sales made in non-U.S. markets. Generally, the Fund invests in foreign markets issuers in Europe, Australia, and the larger capital markets of the Far East; however, the Fund also may invest without limit in emerging markets issuers. An emerging market issuer is one that is organized under the laws of an emerging country, has a principal office in an emerging country or derives at least 50% of its gross revenues or profits from goods or services produced in emerging market countries or from sales made in emerging market countries. For
purposes of the Fund’s investment policies, common stocks include securities with common stock characteristics such as depositary receipts (see below), participatory notes, warrants and rights. The Fund may also buy and sell forward foreign currency exchange contracts in non-U.S. currencies in connection with its investments.
The Fund will invest at least 80% of its total assets in stocks of small cap companies. Although there is no minimum market capitalization for companies whose securities the Fund may purchase, a small cap company will generally be a company with a market capitalization (at time of purchase) from $250 million to $2 billion.
Depositary Receipts.
A depositary receipt is a receipt traded on an investor’s domestic market for the shares of a company traded in foreign capital markets. American Depositary Receipts (“ADRs”) are receipts of shares of a foreign-based company traded on a U.S. market. Instead of buying shares of foreign-based companies in foreign markets, U.S. investors can buy shares in the U.S. in the form of an ADR. Although traded in the U.S. markets, ADRs may be subject to the risks of their underlying foreign investments. Global Depositary Receipts (“GDRs”) are receipts of shares of a company traded on a foreign market, typically an emerging market, and are generally traded on major foreign exchanges. GDRs allow investors to avoid potentially difficult and expensive trading on the issuing company’s home exchange. Because the companies issuing GDRs are not as well
established and do not use the same accounting system as more developed markets, their stocks tend to be more volatile and less liquid. Other types of depositary receipts may also be used.
The Fund’s advisor, Polaris Capital Management, LLC (“Polaris” or the “Advisor”) primarily employs a “quantitative” investment approach to selecting investments. A quantitative investment approach relies on financial models and computer databases to assist in the stock selection process. Proprietary computer models are capable of rapidly ranking a large universe of
eligible investments using an array of traditional factors applied in financial analysis, such as cash flow, earnings growth, and price to earnings ratios, as well as other non-traditional factors.
The Fund’s Advisor uses a three-step investment decision making process, with the objective to identify companies with the most undervalued streams of sustainable cash flow. First, because the Advisor believes that country and industry factors are important influences on security prices, it employs proprietary quantitative investment technology to evaluate data such as cash flow and interest rates to produce a ranking of country and industry value sectors. Second, because the Advisor believes that normal security price fluctuations produce company valuations that can undervalue the cash flow or assets of a company, it uses traditional valuation criteria to regularly screen a database of more than 20,000 companies to identify a pool of approximately 500 securities with the greatest potential for undervalued streams of sustainable cash flow or undervalued assets. Third, the Advisor conducts rigorous
fundamental research on the pool of companies identified throughout the first two steps of the investment process. The Advisor also maintains a “watch-list” of approximately 250 companies which may be used if the valuation of a company held in the Fund’s portfolio falls below the value of an alternative company. With the benefit of these rankings, the Fund’s Advisor also can monitor a portfolio of securities for consistency with the Fund’s investment objectives.
The Fund generally will be invested in issuers in three or more foreign markets. Although the Fund’s Advisor may invest in both value stocks and growth stocks, the Fund mainly invests in value stocks that the Fund’s Advisor believes are currently undervalued compared to their true worth. A growth stock is a stock the Advisor believes will have earnings that are likely to grow faster than the economy as a whole.
Principal Risks
An investment in the Fund involves a high degree of risk.
Even though the Fund seeks long-term growth of capital and income, you could lose money on your investment or not make as much as if you had invested elsewhere. Even though the Fund seeks to achieve its investment objective, you could lose money on your investment or not make as much as if you had invested elsewhere. The main risks that could affect your investment include:
Stock Market Risk
• The risk that the stock price of one or more of the companies in the Fund’s portfolio will fall, or will fail to appreciate as anticipated by the Fund’s Advisor. Many factors can adversely affect a stock’s performance.
• The risk that movements in the securities markets will adversely affect the price of the Fund’s investments, regardless of how well the companies in which the Fund invests perform.
Common Stocks Risk
• The value of a company’s stock falls as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services.
• The value of a company’s stock falls as a result of factors affecting multiple companies in a number of different industries, such as increases in production costs.
• The value of a company’s stock falls as a result of changes in financial market conditions that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates.
Warrants Risk
Warrants do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holders to purchase, and they do not represent any rights in the assets of the issuer. An investment in warrants may be considered more speculative than certain other types of investments. The value of a warrant does not necessarily change with the value of the underlying securities, and warrants expire worthless if they are not exercised on or prior to their expiration date.
Small Cap Companies Risk
Small cap companies are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Small cap companies’ earnings and revenue tend to be less predictable than for larger companies. Stocks of these companies may trade less frequently and in limited volume, and their prices may fluctuate more than stocks of other companies. Stocks of these companies may therefore be more vulnerable to adverse developments than those of larger companies. Such stocks may be harder to sell at the times and prices the Fund’s Advisor thinks appropriate.
Value Stocks Risk
To the extent the Fund invests in value stocks, if the Fund’s Advisor’s assessment of a company’s prospects is wrong, or if the market fails to recognize the stock’s value, then the price of the company’s stock may not approach the value that the Fund’s Advisor believes is the full market value. Value stocks may also decline in price even when the Fund’s Advisor already believes they are undervalued.
Growth Stocks Risk
To the extent the Fund invests in growth stocks, if the Fund’s Advisor’s assessment of the prospects for the company’s earnings growth is wrong, or if its judgment about how other investors will value the company’s earnings growth is wrong, then the price of the company’s stock may fall or not approach the value that the Fund’s Advisor has placed on it.
Foreign Investments Risk
• Unfavorable changes in currency exchange rates: Foreign investments are normally issued and traded in foreign currencies. As a result, their values may be affected by changes in the exchange rates between particular foreign currencies and the U.S. dollar.
• Political and economic developments: Foreign investments may be subject to the risks of seizure by a foreign government, imposition of restrictions on the exchange or transport of foreign currency, and tax increases.
• Unreliable or untimely information: There may be less information publicly available about a foreign company than about most U.S. companies, and foreign companies are usually not subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States.
• Limited legal recourse: Legal remedies for investors such as the Fund may be more limited than those available in the United States.
• Limited markets: Certain foreign investments may be less liquid (harder to buy and sell) and more volatile than domestic investments, which means the Fund may at times be unable to sell these investments at desirable prices. For the same reason, the Fund may at times find it difficult to value their foreign investments.
• Trading practices: Brokerage commissions and other fees are generally higher for foreign investments than for domestic investments. The procedures and rules for settling foreign transactions may also involve delays in payment, delivery or recovery of money or investments.
• Lower yield: Common stocks of foreign companies have historically offered lower dividends than comparable U.S. companies. Foreign withholding taxes may further reduce the amount of income available to distribute to shareholders of the Fund. The Fund’s yield is therefore expected to be lower than yields of most funds that invest mainly in common stocks of U.S. companies. Certain of these risks may also apply to some extent to U.S.-traded investments that are denominated in foreign currencies, investments in U.S. companies that are traded in foreign markets, or to investments in U.S. companies that have significant foreign operations.
Emerging Markets Investments Risk
The Fund may invest in emerging markets countries
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Investing in emerging markets involves risks in addition to and greater than those generally associated with investing in more developed foreign markets. The extent of foreign development, political stability, market depth, infrastructure and capitalization and regulatory oversight are generally less than in more developed markets. Emerging market economies can be subject to greater social, economic, regulatory and political uncertainties including potential expropriation and confiscatory taxation. All of these factors generally make emerging market securities more volatile and potentially less liquid than securities issued in more developed markets. Accordingly, at times the Fund may find it even more difficult to value their emerging markets investments than the Fund’s other foreign investments.
Non-Diversification Risk
• The Fund is “non-diversified” under the Investment Company Act of 1940, as amended (the “1940 Act”) that means that it may invest a higher percentage of its assets in a smaller number of issuers. As a result, a decline in the value of the securities of one issuer could have a greater negative effect on the Fund.
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This risk is greater for smaller companies that are the primary investment vehicles for the Fund, which tend to be more vulnerable to adverse developments.
Performance
This section of the prospectus would normally show how the Fund’s total return has varied from year to year, along with a broad-based market index for reference. Because the Fund is new and has less than one calendar year of performance as of the date of this prospectus, there is no past performance to report.
SUMMARY OF FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
1
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Ordinary Shares
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Institutional Shares
3
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
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None
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None
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Maximum Deferred Sales Charge (Load) (as a percentage of redemption proceeds)
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1.00%
2
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None
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Maximum Deferred Sales Charge (Load) Imposed on Reinvested Dividend and Other Distributions(as a percentage of redemption proceeds)
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1.00%
2
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None
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Maximum Redemption Fee
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None
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None
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Annual Fund Operating Expenses as a percentage of average net assets
(expenses that are deducted from Fund assets)
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Ordinary Shares
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Management Fee
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1.00%
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Distribution and/or Service (Rule 12b-1) Fees
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0.25%
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Other Expenses
4
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o
%
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Total Annual Fund Operating Expenses
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[ ]%
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Institutional Shares
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Management Fee
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1.00%
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Distribution and/or Service (Rule 12b-1) Fees
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None
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Other Expenses
4
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[ ]%
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Total Annual Fund Operating Expenses
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[ ]%
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1
If you buy and sell shares through a broker or other financial intermediary, the intermediary may charge a separate transaction fee.
2
The deferred sales charge of 1% is not imposed on certain redemptions including redemptions of shares (i) held by certain contributory 401(k) plans, (ii) maintained through the National Securities Clearing Corporation (“NSCC”), (iii) held in omnibus accounts maintained by No Transaction Fee (“NTF”) programs of certain broker-dealers or (iv) clearing though certain financial intermediaries. See
How To Redeem
—
Payment of Redemption Amount
for more information.
3
Institutional shares are authorized but not offered as of the date of this prospectus. Ordinary shares of the Fund are the only share class that you may purchase.
4
Estimated for current fiscal year. The Fund has an expense offset arrangement that reduces their custodian fee based upon the amount of cash maintained by the Fund with the custodian. “Other expenses” in the table do not take into account these expense reductions, and are therefore higher than the actual expenses of the Fund.
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 as set forth in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
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Ordinary Shares
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Institutional Shares
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1 Year
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3 Years
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1 Year
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3 Years
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[ ]
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[ ]
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[ ]
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This Example assumes that you do not redeem your shares at the end of the period:
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Ordinary Shares
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Institutional Shares
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1 Year
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3 Years
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1 Year
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3 Years
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[ ]
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[ ]
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[ ]
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The Example does not reflect deferred sales charges on reinvested dividends and other distributions. If the deferred sales charges were included, your costs would be higher.
NON-PRINCIPAL INVESTMENT POLICIES AND RELATED RISKS
The section
Basic Information about the Fund
describes the Fund’s investment objective and principal investment strategies and risks. This section describes additional investments that the Fund may make or strategies it may pursue to a lesser degree to achieve the Fund’s goal. Some of the Fund’s secondary investment policies also entail risks. To learn more about these risks you should obtain and read the Fund’s statement of additional information (“SAI”). You may request a free copy of the SAI by mail, phone or by accessing the internet. See the last page of this prospectus.
Investments other than Common Stocks.
The Fund may invest up to 20% of its assets in investments such as preferred stocks, convertible securities, fixed income securities, real estate investment trusts, or repurchase agreements.
The Fund will invest in convertible securities primarily for their equity characteristics.
The Fund may invest in fixed income securities of any maturity. The Fund may not invest more than 10% of its net assets in fixed income securities, including convertible debt securities, rated below investment grade or in unrated securities of comparable quality.
Fixed income securities are subject to the risk of an issuer’s inability to meet principal or interest payments on its obligations. Factors that could contribute to a decline in the market value of debt securities in the Fund’s portfolio include rising interest rates or a reduction in the perceived creditworthiness of the issuer of the securities. A fixed income security is considered investment grade if it is rated in one of the top four categories by a nationally recognized statistical rating organization or determined to be of equivalent quality by the Advisor. Fixed income securities rated below investment grade are commonly referred to as “junk bonds” and are considered speculative. Below investment grade fixed income securities involve greater risk of loss, are subject to greater price volatility and are less liquid, especially during periods of economic uncertainty or change, than
higher grade fixed income securities.
Real estate investment trusts (“REITs”) are companies that invest primarily in real estate or real estate related loans. Investing in REITs involves unique risks. They are significantly affected by the market for real estate and are dependent upon management skills and cash flow. In addition to its own expenses, the Fund will, in some cases, indirectly bear its proportionate share of any management and other expenses paid by REITs in which it invests.
Derivatives.
The Fund may use futures and options on securities, indices and currencies and other derivatives.
A derivative is a security or instrument whose value is determined by reference to the value or the change in value of one or more securities, currencies, indices or other financial instruments. Even a small investment in derivatives could have a significant impact on the Fund’s risk exposure to stock market values, interest rates or currency exchange rates. Certain derivatives may be less liquid and more difficult to value than other types of securities.
Derivatives may be used for both hedging and non-hedging purposes. Derivatives will not be used as a primary investment technique. Non-principal uses could include hedging against adverse changes in stock market prices, interest rates or currency exchange rates; using derivatives as a substitute for buying or selling securities or to increase the Fund’s return as a non-hedging strategy that may be considered speculative.
Short Term Trading.
Normally, the Fund’s Advisor does not trade for short-term profits. The Fund will sell an investment, however, even if it has only been held for a short time, if it no longer meets the Fund’s investment criteria.
Portfolio Turnover.
The Fund’s annual portfolio turnover ratio will vary. If the Fund’s Advisor does a lot of trading, the Fund will experience increased operating expenses, which could reduce performance and may cause shareholders to incur an increased level of taxable income or capital gains.
Cash Management and Temporary Defensive Strategies.
Normally, the Fund’s Advisor invests substantially all of the Fund’s assets to meet the Fund’s investment objective. The Fund’s Advisor may invest the remainder of the Fund’s assets in short term debt obligations with remaining maturities of less than one year, cash equivalents or may hold cash. For temporary defensive purposes, the Fund’s Advisor may judge that market conditions make pursuing the Fund’s investment strategies inconsistent with the best interests of its shareholders. The Fund’s Advisor may then temporarily use alternative strategies that are mainly designed to limit the Fund’s losses. Although the Fund’s Advisor has the flexibility to use these strategies, it may choose not to for a variety of reasons, even in very volatile market conditions. These strategies may
cause the Fund to miss out on investment opportunities, and may prevent the Fund from achieving its objective.
Changes in Policies.
The Trustees may change the Fund’s objective, investment strategies and other policies without shareholder approval, except as otherwise indicated. However, the Fund’s policies of investing at least 80% of its total assets in common stock of foreign markets issues and 80% of its total assets in small cap companies may not be materially revised unless shareholders are notified at least 60 days in advance of the proposed change.
MANAGEMENT OF THE FUND
Under Massachusetts’ law, the management of the Fund’s business and affairs is the ultimate responsibility of the Board of Trustees of the Fund.
The Manager
The Fund is managed by Quantitative Investment Advisors, Inc. d/b/a Quantitative Advisors, 55 Old Bedford Road, Lincoln, MA 01773 (the “Manager”), which handles the Fund’s business affairs. Quantitative Advisors is a privately held financial services firm providing administrative services and facilities to the Quant Funds. As of December 31, 2007, the firm had approximately $1.6 billion in assets under management for mutual funds, institutional and other clients.
The Manager may, subject to the approval of the Trustees, choose the investments of the Fund itself or, subject to the approval by the Trustees, select sub-advisors (the “Advisors”) to execute the day-to-day investment strategies of the Fund. The Manager currently employs the Advisor to make the investment decisions and portfolio transactions for the Fund and supervises the Advisor’s investment programs.
Day-to-day responsibility for investing the Fund’s assets currently is provided by the Advisor described below. The Quant Funds have received an exemptive order from the Securities and Exchange Commission (the “SEC”) that permits the Manager, subject to certain conditions, to enter into or amend an advisory contract with advisors without obtaining shareholder approval. With Trustee approval, the Manager may employ a new advisor for the Fund, change the terms of the advisory contracts, or enter into new advisory contracts with advisors. The Manager retains ultimate responsibility to oversee the advisors and to recommend their hiring, termination, and replacement. Shareholders of the Fund continue to have the right to terminate the advisory contract applicable to that Fund at any time by a vote of the majority of the
outstanding voting securities of the Fund. Shareholders will be notified of any advisor changes or other material amendments to an advisory contract that occur under these arrangements.
The Advisors and Portfolio Management
Advisor.
Polaris Capital Management, LLC (“Polaris” or the “Advisor”), 125 Summer Street, Boston, MA 02110, serves as the investment sub-adviser to the Foreign Value Fund. As of December 31, 2007, Polaris had $4.3 billion in assets under management for institutional clients and affluent individuals.
The Advisor provides portfolio management and related services to the Fund, including trade execution.
The SAI provides additional information about each portfolio manager’s compensation, other accounts managed by each portfolio manager and each portfolio manager’s ownership of shares of the Fund.
Portfolio Management.
Bernard R. Horn, Jr. is the lead portfolio manager of the Fund. Sumanta Biswas generally contributes to the day-to-day management of the Fund’s portfolio through such means as performing research and management of Polaris’ proprietary quantitative model. Mr. Biswas may also provide advice on investment decisions during periods when Mr. Horn is unavailable, but does not generally make the final decision as to which securities to purchase or sell for the Fund. The extent to which Mr. Biswas may perform these functions, and the nature of the functions, may change from time to time.
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Portfolio manager
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Portfolio manager experience in this Fund
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Primary title with Advisor and investment experience
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Bernard R. Horn, Jr.
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Since 2008 (Fund inception) lead portfolio manager
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Founder and Portfolio Manager since 1995
Investment professional since 1980
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Sumanta Biswas
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Since 2008
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Assistant Portfolio Manager since 2004
Investment professional since 1996; from 1996 to 2000 as an officer for the Securities and Exchange Board of India; in 2001 as an intern for Delta Partners; since 2002 with this Advisor
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Management and Advisory Fees
As compensation for services, the Fund pays the Manager a monthly fee at the annual rate of 1% of the average daily net assets of the Fund. From the management fee, the Manager pays the expenses of providing investment advisory services to the Fund, including the fees of the Advisor.
The Fund’s semi-annual report to be dated September 30, 2008 will contain a detailed discussion of the Board of Trustees’ consideration of the advisory and/or subadvisory agreements approved during the fiscal period April 1, 2008 to September 30, 2008.
Expense Limitations.
The Manager may voluntarily agree to limit the total operating expenses of the Fund for a period of time by waiving fees or reimbursing the Fund for an expense that it would otherwise incur. In such cases, the Manager may seek reimbursement from the Fund if the Fund’s total operating expenses fall below that limit prior to the end of the Fund’s fiscal year. Expenses eligible for reimbursement do not include interest, taxes, brokerage commissions, or extraordinary expenses, and expenses are calculated gross of custody credits, if applicable. Extraordinary expenses include, but are not limited to, the higher incremental costs of custody associated with foreign securities, litigation and indemnification expenses. The agreement is subject to periodic review, and there is no guarantee that the Manager will continue to limit these expenses
in the future.
Additional Payments.
The Manager or its affiliates may make payments, out of their own assets to certain intermediaries or their affiliates (including the Distributor, U.S. Boston Capital Corporation) based on sales or assets attributable to the intermediary, or such other criteria agreed to by the Manager. The intermediaries to which payments may be made are determined by the Manager. These payments may be in addition to other payments, such as Rule 12b-1 fees or deferred sales charges, and may provide an incentive, in addition to any sales charge, to these firms to actively promote the Quant Funds or to provide marketing or service support to the Quant Funds. See the SAI for more information.
HOW TO INVEST
The Fund is comprised of two (2) classes of shares: Ordinary Shares and Institutional Shares. Institutional shares are authorized but not offered as of the date of this prospectus. Ordinary shares of the Fund are the only share class that you may purchase.
Ordinary Shares are available to all purchasers and are subject to a fee charged pursuant to Rule 12b-1 under the 1940 Act (“Rule 12b-1 fee”) of 0.25% and in some cases a deferred sales charge (on redemption proceeds) of 1.00%
Institutional Shares are available to limited classes of purchasers on a “no-load” basis, that is, they are not subject to a sales charge or Rule 12b-1 fee. See
How to Redeem—Payment of Redemption Amount
. Both classes of shares represent interests in the same portfolio of securities and each has the same rights, except that Ordinary Shares have exclusive voting rights with respect to the Fund’s distribution plan under Rule 12b-1 (“12b-1 Plan”), which is described below.
Classes of Shares
Ordinary Shares
The minimum initial investment is generally $2,500. However, you may make a minimum investment of $1,000 if you:
• participate in the Fund’s Automatic Investment Plan;
• open a Uniform Gifts/Transfers to Minors account; or
• open an Individual Retirement Account (“IRA”) or an account under a similar plan established under the Employee Retirement Income Security Act of 1974, or for any pension, profit sharing or other employee benefit plan or participant therein, whether or not the plan is qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the “Code”), including any plan established under the Self-Employed Individuals Tax Retirement Act of 1962 (HR-10).
The Fund or the Distributor, at their discretion, may waive these minimums.
You may make subsequent purchases in any amount, although the Fund or the Distributor, at their discretion, reserve the right to impose a minimum at any time.
Institutional Shares
Institutional Shares are offered to clients who meet eligibility and minimum investment amount requirements. The minimum initial investment amount may be invested in one or more of the Quant Funds that currently offer Institutional Shares. There is no minimum additional investment amount.
Institutional Shares are not subject to any sales charges or fees pursuant to the Fund’s 12b-1 Plan.
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Minimum Initial
Investment
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Eligible Classes of Institutional Share Investors
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$1 million or more
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(i) benefit plans with at least $10,000,000 in plan assets and 200 participants, that either have a separate trustee vested with investment discretion and certain limitations on the ability of plan beneficiaries to access their plan investments without incurring adverse tax consequences or which allow their participants to select among one or more investment options, including the Fund;
(ii) banks and insurance companies purchasing shares for their own account;
(iii) an insurance company separate account; or
(iv) a bank, trust company, credit union, savings institution or other depository institution, its trust departments or common trust funds purchasing for non-discretionary customers or accounts.
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$1 million or more in the aggregate
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If an account or group of accounts is (a) not represented by a broker/dealer, (b) the minimum initial investment is at least $1 million in the aggregate at the plan, group or organization level and (c) the investment is made by:
(1) A private foundation that meets the requirements of Section 501(c)(3) of the Code;
(2) An endowment or organization that meets the requirements of Section 509(a)(1) of the Code; or
(3) A group of accounts related through a family trust, testamentary trust or other similar arrangement purchasing Institutional Shares through or upon the advice of a single fee-paid financial intermediary other than the Manager or Distributor.
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None
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Investments made for an individual account or a group of accounts:
(i) through an eligible mutual fund wrap program. To be eligible, a mutual fund wrap program must offer allocation services, charge an asset-based fee to its participants for asset allocation and/or offer advisory services, and meet trading and operational requirements under an appropriate agreement with the Distributor or clearing entity; or
(ii) by registered investment advisers who are (a) charging an asset based fee for their advisory services and (b) purchasing on behalf of their clients.
You should ask your investment firm if it offers and you are eligible to participate in such a mutual fund program and whether participation in the program is consistent with your investment goals. The
intermediaries sponsoring or participating in the mutual fund programs also may offer their clients other classes of shares of the Fund and investors may receive different levels of services or pay different fees depending upon the class of shares included in the program. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Neither the Fund, nor the Manager, nor the Distributor receives any part of the separate fees charged to clients of such intermediaries.
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None
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(i) any state, county, city, or any instrumentality, department, authority, or agency of these entities or any trust, pension, profit-sharing or other benefit plan for the benefit of the employees of these entities which is prohibited by applicable investment laws from paying a sales charge or commission when it purchases shares of any registered investment management company; or
(ii) officers, partners, trustees or directors and employees of the Fund, the Fund’s affiliated corporations, or of the Fund’s Advisor and its affiliated corporations (a “Fund Employee”), the spouse or child of the Fund Employee, the Fund Employee acting as custodian for a minor child, any trust, pension, profit-sharing or other benefit plan for the benefit of the Fund Employee or spouse and maintained by one of the above
entities, the employee of a broker-dealer with whom the Distributor has a sales agreement or the spouse or child of such employee.
To qualify for the purchase of Institutional Shares, Fund Employees and other persons listed in section (ii) must provide Quantitative Institutional Services, a division of the Manager (“Transfer Agent”), with a letter stating that the purchase is for their own investment purposes only and that the shares will not be resold, except to the Fund.
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The Manager, at its sole discretion, may accept investments of $1 million or more in the aggregate from other classes of investors substantially similar to those listed above. In addition, the Manager may waive or lower initial investment amounts in other circumstances. Please call
1-800-326-2151
for more information.
Distributor and Distribution Plan
U.S. Boston Capital Corporation is the distributor of the Fund’s shares.
The Fund has adopted the Rule 12b-1 Plan to pay for the marketing and distribution of Fund shares and for services provided to shareholders of the Fund’s Ordinary Shares as described above. Rule 12b-1 fees are paid out of the Fund’s assets on an on-going basis, which may increase the cost of your investment and cost more than other types of sales charges. The distribution fee is not directly tied to the Distributor’s expenses. If the Distributor’s expenses exceed the Distributor’s fee, the Fund is not required to reimburse the Distributor for the excess expenses; if the Distributor’s fee exceeds the Distributor’s expenses, the Distributor may realize a profit.
Additional dealer compensation.
The Distributor or its affiliates may pay additional compensation, out of their own assets, to certain brokerage firms and other intermediaries or their affiliates, based on sales or assets attributable to the broker or intermediary, or such other criteria agreed to by the Distributor. The brokers or intermediaries to which payments may be made are determined by the Distributor. These payments may provide an incentive, in addition to any deferred sales charge, to these firms to actively promote the Fund and the other series of the Quant Funds (collectively, the “Quant Funds”) or cooperate with the Distributor’s promotional efforts or to provide marketing or service support to the Quant Funds. See the SAI for more information.
Making an Initial Investment
You may purchase shares of each class of the Fund at the per share net asset value of shares of such class next determined after your purchase order is received in good order by the Fund. Orders received prior to the close of regular trading on the New York Stock Exchange (“NYSE”) (ordinarily 4:00 p.m., Eastern time), will receive that day’s closing price, unless such trade is placed as a result of an online purchase through the Fund’s web site in which case the trade will receive the price next determined after the money requested from your bank via the Automated Clearing House (“ACH”) system are received by the Fund’s Transfer Agent. The Fund will accept orders for purchases of shares on any day on which the NYSE is open. See
Calculation of Net Asset Value
. The offering of shares of the Fund may be suspended from time to time,
and the Fund reserves the right to reject any specific order.
You must provide the Fund with a completed Account Application for all initial investments, a copy of which may be obtained by calling
1-800-326-2151
, or online at
www.quantfunds.com
.
Transaction Privileges.
If you wish to have telephone exchange or telephone redemption privileges for your account, you must elect these options on the Account Application.
You should carefully review the Application and particularly consider the discussion in this prospectus regarding the Fund’s policies on exchanges of Fund shares and processing of redemption requests.
Some accounts, including IRA accounts, require a special Account Application. See
Investment Through Tax Deferred Retirement Plans
. For further information, including assistance in completing an Account Application, call the Fund’s toll-free number 1-800-326-2151.
Shares may not be purchased by facsimile request or by electronic mail
.
Patriot Act Identity 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. When you open an account, you will need to supply your name, address, date of birth, and other information that will allow the Fund to identify you. The Fund may close your account if it cannot adequately verify your identity. If your account must be closed, your redemption price will be the net asset value (less applicable sales charges) on the date of redemption.
Investments by Check.
You may purchase shares of the Fund by sending a check payable in U.S. dollars to Quant Funds specifying the name(s) of the fund(s) and amount(s) of investment(s), together with the appropriate Account Application (in the case of an initial investment) to:
Quant Funds
Attention: Transfer Agent
55 Old Bedford Road
Lincoln, Massachusetts 01773
If you buy shares with a check that does not clear, your account may be subject to extra charges to cover collection costs. Third party checks, cashiers checks and money orders will not be accepted. Purchases made by check must wait 15 days prior to being liquidated.
Internet Transactions.
Investors may make subsequent investments in their accounts through the Quant Funds’ web site.
Quant Funds will accept Internet purchase instructions only if the purchase price is paid to Quant Funds through debiting your bank account. Quant Funds imposes a limit of $10,000 on Internet purchase transactions and shareholders may only redeem shares purchased via the Quant Funds web site in writing or by calling the Quant Funds shareholder service line at
1-800-326-2151
. Regardless of the method of redemption, for the first 90 days after the Internet purchase of shares is made, proceeds from the redemption of such shares will be paid only via ACH to the same bank account from which the purchase payment to Quant Funds originated.
If the bank account number changes during such 90 days, the shareholder must provide the Quant Funds with a signature guaranteed letter of instruction from a bank or a qualified broker/dealer changing the bank account number prior to such redemption. If during such 90-day period you are unable to open a replacement bank account, you must provide a signature guaranteed letter of redemption as described in Written Request for Redemption (regardless of the amount redeemed, the person to whom the redemption proceeds are to be paid or the address to which the redemption proceeds are to be sent).
Quant Funds employs reasonable procedures to confirm that transactions entered into over the Internet are genuine. These procedures include the use of alphanumeric passwords, secure socket layering, encryption and other precautions reasonably designed to protect the integrity, confidentiality and security of shareholder information. In order to enter into a transaction on the Quant Funds’ web site, you will need your Social Security Number and an alphanumeric password. If Quant Funds follows these procedures, neither Quant Funds, its affiliates, nor the Fund will be liable for any loss, liability, cost or expense for following instructions communicated via the Internet that are reasonably believed to be genuine or that follow Quant Funds’ security procedures. By entering into the user’s agreement with Quant Funds through our web site, you lose certain rights if someone gives fraudulent or
unauthorized instructions to Quant Funds that result in a loss to you.
Automatic Investment Plan
You may participate in the Automatic Investment Plan for the Fund by completing the appropriate section of the Account Application and enclosing a minimum investment of $1,000. You must also authorize an automatic withdrawal of at least $100 per account from your checking or similar account each month to purchase shares of the Fund. You may cancel the Plan at any time, but your request must be received five business days before the next automatic withdrawal (generally the 20th of each month) to become effective for that withdrawal. Requests received fewer than five business days before a scheduled withdrawal will take effect with the next scheduled withdrawal. The Fund or the Transfer Agent may terminate the Automatic Investment Plan at any time.
Investments by Wire
If you wish to buy shares by wire, please contact the Transfer Agent at
1-800-326-2151
or your dealer or broker for wire instructions. For new accounts, you must provide a completed Account Application before, or at the time of, payment. To ensure that a wire is credited to the proper account, please specify your name, the name(s) of the Fund(s) and class of shares in which you are investing, and your account number. A bank may charge a fee for wiring funds.
Investments through Brokers and other Financial Intermediaries
Shares may be purchased through any securities dealer with whom the Distributor has a sales agreement. Shares also may be made available through financial service firms which are also securities dealers and which have a service agreement with the Distributor. The Fund has approved the acceptance of purchase request orders effective as of the time of their receipt by certain authorized financial intermediaries or their designees as long as these orders are received by these entities prior to the close of regular trading on the NYSE (ordinarily 4:00 p.m., Eastern Time). Securities dealers and financial service firms are responsible for transmitting your order to the Quant Funds in a timely manner. The Quant Funds reserve the right to adjust the closing time to coincide with an earlier closing of the NYSE or due to other unusual circumstances.
If you invest in the Fund through investment professionals or other financial intermediaries, including wrap programs and fund supermarkets, other conditions may apply to your investment in the Fund, and the investment professional or intermediary may charge you a transaction-based or other fee for its services. These conditions and fees are in addition to those imposed by the Quant Funds and its affiliates. You should ask your investment professional or financial intermediary about its services and any applicable fees.
If your shares are held in your investment firm’s name, the options and services available to you may be different from those discussed in this prospectus. Ask your investment professional for more information.
Exchange of Securities for Shares of the Fund
At the discretion of the Manager and relevant Advisors, you may purchase shares of the Fund in exchange for securities of certain companies, consistent with the Fund’s investment objectives. Additional information regarding this option is contained in the
SAI
.
Subsequent Investments
If you are buying additional shares in an existing account, you should identify the Quant Fund and your account number. If you do not specify the Quant Fund and you have investments in more than one Quant Fund, we may have to return your check to you. If you wish to make additional investments in more than one Quant Fund, you should provide your account numbers and identify the amount to be invested in each fund. You may pay for all purchases with a single check. Additional shares may be purchased online via ACH payment as well.
Investments through Tax-Deferred Retirement Plans
Retirement plans offer you a number of benefits, including the chance to defer investment income and capital gains. Contributions to a retirement plan also may be tax deductible. Custodial retirement accounts, including IRAs, Rollover IRAs, Roth IRAs, Simplified Employee Pension Plans (SEP-IRAs), and 403(b) Accounts for employees of tax-exempt institutions (including schools, hospitals and charitable organizations) require a special Account Application. Please call
1-800-326-2151
for assistance. State Street Bank and Trust Company acts as custodian for the Fund’s tax-deferred accounts. Custodial accounts are subject to specific fees. You may open other types of tax-deferred accounts, including accounts established by a Plan Sponsor under Section 401(k) of the Code for employee benefit plans, using the attached Account Application.
HOW TO EXCHANGE
You can exchange all or a portion of your shares between the Fund and other Quant Funds within the same class, subject to the applicable minimum. You may not exchange from one class of shares to another class of shares of the same or a different Quant Fund. There is no fee for exchanges.
The exchange privilege is available only in states where shares of the Quant Fund being acquired may legally be sold. Individual Quant Funds may not be registered in each state. You should be aware that exchanges might produce a gain or loss, as the case may be, for tax purposes.
You can make exchanges in writing or by telephone, if applicable. Exchanges must be made between accounts that have the same name, address and tax identification number. Exchanges will be made at the per share net asset value of shares of such class next determined after the exchange request is received in good order by the Fund. If exchanging by telephone, you must call prior to the close of regular trading on the NYSE (ordinarily 4:00 p.m., Eastern time). The Transfer Agent will only honor a telephone exchange if you have elected the telephone exchange option on your Account Application.
Shares may not be exchanged by facsimile request or by electronic mail.
HOW TO REDEEM
You can directly redeem shares of the Fund by written request, by telephone and by automatic withdrawal. Redemptions will be made at the per share net asset value of such shares next determined after the redemption request is received in good order by the Fund.
Good order means that:
• You have provided adequate instructions
• There are no outstanding claims against your account
• There are no transaction limitations on your account
• Your request includes a signature guarantee (see
Shareholder Account Policies
) if you:
— Are selling over $10,000 worth of shares
— Changed your account registration or address within the last 30 days
— Instruct the transfer agent to mail the check to an address different from the one on your account
— Want the check paid to someone other than the account owner(s)
— Are transferring the sale proceeds to a Quant mutual fund account with a different registration
— Are selling shares purchased over the Internet within 90 days and your bank account number has changed
The Transfer Agent will accept redemption requests only on days the NYSE is open. The Transfer Agent will not accept requests for redemptions that are subject to any special conditions or which specify a future or past effective date, except for certain notices of redemptions exceeding $250,000 (see
Payment of Redemption Amount
).
Regardless of the method of redemption, for the first 90 days after the purchase of shares is made over the Internet, such shares will be paid only via ACH to the same bank account from which the payment to Quant Funds originated. If the bank account number changes during such 90 days, the shareholder must provide the Quant Funds with a signature guaranteed letter of instruction from a bank or a qualified broker/dealer changing the bank account number prior to such redemption.
Written Request for Redemption
You can redeem all or any portion of your shares by submitting a written request for redemption signed by each registered owner of the shares exactly as the shares are registered. The request must clearly identify the account number and the number of shares or the dollar amount to be redeemed.
If you redeem more than $10,000, or request that the redemption proceeds be paid to someone other than the shareholder of record, or sent to an address other than the address of record, your signature must be guaranteed
. The use of signature guarantees is designed to protect both you and the Fund from the possibility of fraudulent requests for redemption. See
Shareholder Account Policies—Signature Guarantees and Other Requirements
.
Shares may not be redeemed by facsimile request or by electronic mail.
Requests should be sent to:
Quant Funds
Attention: Transfer Agent
55 Old Bedford Road
Lincoln, Massachusetts 01773
Telephone Redemption
If you have elected the telephone redemption option on your Account Application, you can redeem your shares by calling the Transfer Agent at
1-800-326-2151
provided that you have not changed your address of record within the last thirty days. You must make your redemption request prior to the close of regular trading on the NYSE (ordinarily 4:00 p.m., Eastern time). Once you make a telephone redemption request, you may not cancel it. The Fund, the Manager, the Distributor, and the Transfer Agent will not be liable for any loss or damage for acting in good faith on exchange or redemption instructions received by telephone reasonably believed to be genuine. The Fund employs reasonable procedures to confirm that instructions communicated by telephone are genuine. It is the Fund’s policy to require some form of personal identification prior to acting upon
instructions received by telephone, to provide written confirmation of all transactions effected by telephone, and to mail the proceeds of telephone redemptions only to the redeeming shareholder’s address of record.
Automatic Withdrawal Plan
If you have a minimum of $10,000 in your account, you may request withdrawal of a specified dollar amount (a minimum of $100) on either a monthly, quarterly or annual basis. You may establish an Automatic Withdrawal Plan by completing the Automatic Withdrawal Form, which is available by calling
1-800-326-2151
. You may stop your Automatic Withdrawal Plan at any time. Additionally, the Fund or the Transfer Agent may choose to stop offering the Automatic Withdrawal Plan.
Redemption through Broker/Dealers and Other Financial Intermediaries
You may sell shares back to the Fund through any securities dealer with whom the Distributor has a sales agreement. You should contact your securities dealer for appropriate instructions and for information concerning any transaction or service fee that may be imposed by the securities dealer.
Shares also may be redeemed through financial service firms which are also securities dealers and which have a service agreement with the Distributor. The Fund has approved the acceptance of redemption requests effective as of the time of their receipt by certain authorized financial intermediaries or their designees as long as these orders are received by these entities prior to the close of regular trading on the NYSE (ordinarily 4:00 p.m., Eastern Time). Securities dealers and financial service firms are responsible for transmitting your order to the Fund in a timely manner. The Fund reserves the right to adjust the closing time to coincide with an earlier closing of the NYSE or due to other unusual circumstances.
Payment of Redemption Amount
The Fund will generally send redemption proceeds, less a deferred sales charge of 1% for Ordinary Shares within three business days of the execution of a redemption request. However, if the shares to be redeemed represent an investment made by check or through the Automatic Investment Plan, the Fund reserves the right to hold the redemption check until monies have been collected by the Fund from the customers’ bank.
The Fund may suspend this right of redemption and may postpone payment for more than seven days only when the NYSE is closed for other than customary weekends and holidays, or if permitted by the rules of the SEC during periods when trading on the NYSE is restricted or during any emergency which makes it impracticable for the Fund to dispose of their securities or to determine fairly the value of their net assets, or during any other period permitted by order of the SEC. As set forth in the prospectus, the Fund may also delay payment of redemption proceeds from shares purchased by check until the check clears, which may take seven business days or longer.
Except as noted below, a deferred sales charge amounting to 1% of the value of the shares redeemed will be withheld from the redemption proceeds of Ordinary Shares and paid to the Distributor. The deferred sales charge is also imposed when you transfer your shares from an account maintained with the Fund that is subject to the deferred sales charge to an account maintained by a broker-dealer that is not subject to the deferred sales charge due to one of the exceptions cited below. Because of this deferred sales charge, prospective investors should purchase Ordinary Shares only as a long-term investment.
Deferred Sales Charge on Ordinary Shares.
The deferred sales charge on Ordinary Shares is not imposed in the case of:
• Involuntary redemptions imposed by the Fund
• Redemptions of shares tendered for exchange
• Redemptions of shares held by contributory plans qualified under Section 401(k) of the Code
• Redemptions of shares made by employees of the Manager or an affiliate
• Redemptions of shares held in omnibus accounts maintained through NSCC pursuant to a written mutual fund program agreement
• Redemptions of shares held in omnibus accounts maintained by no transaction fee (“NTF”) programs of certain financial intermediaries pursuant to a written agreement between the financial intermediaries and the Fund, the Manager and/or the Distributor
• Redemptions of shares through certain clearing arrangements pursuant to a written agreement between the financial intermediary and the Fund, the Manager and/or the Distributor
Additional information regarding circumstances under which the deferred sales charge is not imposed is available on the Quant Funds website at www.quantfunds.com.
Redemptions in Excess of $250,000
The Fund has reserved the right to pay redemption proceeds by a distribution in-kind of portfolio securities (rather than cash). In the event that the Fund makes an in-kind distribution, you could incur brokerage and transaction charges when converting the securities to cash. The Fund does not expect to make in-kind distributions, and if they do, the Fund will pay, during any 90-day period, your redemption proceeds in cash up to either $250,000 or 1% of the Fund’s net assets, whichever is less. The Fund will pay all of your redemption proceeds in cash if you provide the Fund with at least 30 days’ notice before you plan to redeem. You must specify the dollar amount or number of shares to be redeemed and the date of the transaction, a minimum of 30 days after receipt of the instruction by the Fund. You may make the instruction by telephone if you have telephone redemption privileges; otherwise, your
request must be in writing with all signatures guaranteed. If you make a request and subsequently cancel it, subsequent redemption requests may not all be paid in cash unless the subsequent request is at least 90 days after the date of the prior canceled redemption request.
CALCULATION OF NET ASSET VALUE
Net asset value for the Fund share is the value of that share’s portion of all of the net assets in the Fund. The Fund calculates its net asset value by adding the value of the Fund’s investments, cash, and other assets, subtracting its liabilities, and then dividing the result by the number of shares outstanding.
Net asset value per share of each class of shares of the Fund will be determined as of the close of trading on the NYSE (ordinarily 4:00 p.m., Eastern time) on each day on which the NYSE is open for trading. Currently, the NYSE is closed Saturdays, Sundays, and the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The Fund may invest in securities listed on foreign exchanges that trade on days on which it does not compute net asset value (i.e., Saturdays, Sundays and Exchange holidays), and the net asset value of shares of the Fund may be significantly affected on such days.
The Fund’s assets are valued primarily on the basis of market quotations, valuations provided by independent pricing services or, if quotations are not readily available, or the market value has been materially affected by events occurring after the closing of an exchange or market and before the calculation of the Fund’s net asset value (a significant event), at fair value as determined in good faith in accordance with procedures approved by the Trustees. Other significant events that may materially affect market values may include a halt in trading for an individual security, significant fluctuations in domestic or foreign markets, or the unexpected close of a securities exchange or market as a result of natural disaster, an act of terrorism or significant governmental action. For certain securities, where no sales have been reported, the Fund may value such securities at the last reported bid
price. Short-term investments that mature in sixty-days (60) or less are valued at amortized cost.
Generally, the Fund holds securities that are primarily listed and traded on a foreign exchange. Funds holding foreign securities translate values for any portfolio investments quoted in foreign
currencies into U.S. dollars using currency exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the Fund’s net asset value. Because foreign markets may be open at different times than the NYSE, the value of the Fund’s shares may change on days when shareholders are not able to buy or sell them. Many securities markets and exchanges outside the U.S. close before the close of the NYSE and before the time the net asset value for the Fund is calculated. Occasionally, events affecting the value of foreign securities or currencies may occur between the close of the market on which the security trades and the close of the NYSE which will not be reflected in the computation of the Fund’s net asset value. If events materially affecting the value of the Fund’s securities occur during such a period, then such securities may be valued at their
fair value as determined in good faith in accordance with procedures approved by the Trustees.
SHAREHOLDER SERVICES
How to Reach Us
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By Mail:
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Quantitative Institutional Services
55 Old Bedford Road
Lincoln, MA 01773
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By Telephone: 800-326-2151
On the Internet: www.quantfunds.com
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Quant Funds Website
www.quantfunds.com
You can use the website to get:
• Your current account information
• Returns of all publicly available Quant mutual funds
• prospectuses for the Quant mutual funds
• A copy of Quant Funds’ privacy notice
Household Delivery of Fund Documents
With your consent, Quant may send a single proxy statement, prospectus and shareholder report to your residence for you and any other member of your household who has an account with the Quant Funds. If you wish to revoke your consent to this practice, you may do so by notifying Quant, by phone or in writing (see “How to contact us”). Quant will begin mailing separate proxy statements, prospectuses and shareholder reports to you within 30 days after receiving your notice.
Confirmation Statements
The transfer agent maintains an account for each investment firm or individual shareholder and records all account transactions. You will be sent confirmation statements showing the details of your transactions as they occur.
Privacy
The Quant Funds have a policy that protects the privacy of your personal information. A copy of Quant Funds’ privacy notice was given to you at the time you opened your account. Quant Funds will send you a copy of the privacy notice each year. You may also obtain the privacy notice by calling the transfer agent or through the Quant Funds’ website.
Tax information
In January of each year, the Fund will mail you information about the tax status of the dividends and distributions, if any, paid to you by the Fund.
SHAREHOLDER ACCOUNT POLICIES
Exchange limitation
Quant Funds do not currently limit the number of exchange transactions you may make each year; however, the Quant Funds intend to actively discourage short-term trading in Fund shares because frequent trading can increase the expenses incurred by the Fund and make portfolio management less efficient. Short-term trading will be treated as described in
Excessive Trading
.
Excessive Trading
Frequent trading into and out of the Fund can disrupt portfolio management strategies, harm Fund performance by forcing the Fund to hold excess cash or to liquidate certain portfolio securities prematurely and increase expenses for all investors, including long-term investors who do not generate these costs. An investor may use short-term trading as a strategy, for example, if the investor believes that the valuation of the Fund’s portfolio securities for purposes of calculating its net asset value does not fully reflect the then current fair market value of those holdings. The Fund investing in securities that may require special valuation processes (such as foreign securities or small cap securities) may have increased exposure to the risks of short term trading.
Each of the Quant Funds discourages, and does not take any intentional action to accommodate, excessive and short-term trading practices, such as market timing. Although there is no generally applied standard in the marketplace as to what level of trading activity is excessive, we may consider trading in the Fund’s shares to be excessive for a variety of reasons, such as if:
• You sell shares within a short period of time after the shares were purchased;
• You make two or more purchases and redemptions within a short period of time;
• You enter into a series of transactions that is indicative of a timing pattern or strategy; or
• We reasonably believe that you have engaged in such practices in connection with other mutual funds.
The Board of Trustees has adopted policies and procedures with respect to frequent purchases and redemptions of Quant Fund shares by Fund investors. Pursuant to these policies and procedures, we monitor selected trades on a daily basis in an effort to detect excessive short-term trading. If we determine that an investor or a client of a broker has engaged in excessive short-term trading that we believe may be harmful to the Fund, we will ask the investor or broker to cease such activity and we will refuse to process purchase orders (including purchases by exchange) of such investor, broker or accounts that we believe are under their control. In determining whether to take such actions, we seek to act in a manner that is consistent with the best interests of the Fund’s shareholders. While we use our reasonable efforts to detect excessive trading activity, there can be no assurance that our efforts will be
successful or that market timers will not employ tactics designed to evade detection. If we are not successful, your return from an investment in the Fund may be adversely affected.
Frequently, Fund shares are held through omnibus accounts maintained by financial intermediaries such as brokers and retirement plan administrators, where the holdings of multiple shareholders, such as all the clients of a particular broker, are aggregated. Our ability to monitor trading practices by investors purchasing shares through omnibus accounts is limited and dependent upon the cooperation of the financial intermediary in observing the Fund policies.
The Fund may reject: (i) a purchase or exchange order before its acceptance or (ii) an order prior to issuance of shares. The Fund may also restrict additional purchases or exchanges in an account. Each of these steps may be taken, for any reason, without prior notice, including transactions that the Fund believes are requested on behalf of market timers. The Fund reserves the right to reject any purchase request by any investor or financial institution if the Fund believes that any combination of trading activity in the account or related accounts is potentially disruptive to the Fund. A prospective investor whose purchase or exchange order is rejected will not achieve the investment results, whether gain or loss, that would have been realized if the order were accepted and an investment made in the Fund. The Fund and its shareholders do not incur any gain or loss as a result of a rejected order.
The Fund and its agents may make exceptions to these policies if, in their judgment, a transaction does not represent excessive trading or interfere with the efficient management of the Fund’s portfolio, such as purchases made through systematic purchase plans or payroll contributions.
The Fund may impose further restrictions on trading activities by market timers in the future. The Fund’s prospectus will be amended or supplemented to reflect any material additional restrictions on trading activities intended to prevent excessive trading.
Medallion signature guarantees and other requirements
You are required to obtain a medallion signature guarantee when you are:
• Requesting certain types of exchanges or sales of fund shares
• Requesting certain types of changes for your existing account
You can obtain a signature guarantee from most broker-dealers, banks, credit unions (if authorized under state law) and federal savings and loan associations. You cannot obtain a signature guarantee from a notary public.
The Quant Funds will accept only medallion signature guarantees. A medallion signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution that is participating in a medallion program recognized by the Securities Transfer Association. Signature guarantees from financial institutions that are not participating in one of these programs are not accepted. Fiduciaries and corporations are required to submit additional documents to sell fund shares.
Minimum Account Size
Each Quant Fund requires that you maintain a minimum account size, currently 50 shares for Ordinary Shares and 5,000 shares for Institutional Shares. If you hold fewer than the required minimum number of shares in your account, the Fund reserves the right to notify you that it intends to sell your shares and close your account. You will be given 30 days from the date of the notice to make additional investments to avoid having your shares sold and your account closed. This policy does not apply to certain qualified retirement plan accounts.
Telephone and Website Access
You may have difficulty contacting the Quant Funds by telephone or accessing quantfunds.com during times of market volatility or disruption in telephone or Internet service. On NYSE holidays or on days when the exchange closes early, Quant will adjust the hours for the telephone center and for online transaction processing accordingly. If you are unable to access the Quant Funds’ website, www.quantfunds.com, or reach the Quant Funds by telephone, you should communicate with the Fund in writing.
Share Certificates
The Fund does not offer share certificates. Shares are electronically recorded.
OTHER POLICIES
The Fund and the Distributor reserve the right to:
• charge a fee for exchanges or to modify, limit or suspend the exchange privilege at any time without notice. The Fund will provide 60 days’ notice of material amendments to or termination of the exchange privilege.
• revise, suspend, limit or terminate the account options or services available to shareholders at any time, except as required by the rules of the SEC.
• charge a fee for wire transfers of redemption proceeds or other similar transaction processing fees.
The Fund reserves the right to:
• suspend transactions in Fund shares when trading on the NYSE is closed or restricted, when the SEC determines an emergency or other circumstances exist that make it impracticable for the Funds to sell or value their portfolio securities.
• redeem in kind by delivering to you portfolio securities owned by the Fund rather than cash. Securities you receive this way may increase or decrease in value while you hold them and you may incur brokerage and transaction charges and tax liability when you convert the securities to cash.
Disclosure of Portfolio Holdings
The Quant Funds have established a policy with respect to the disclosure of Fund portfolio holdings. A description of this policy is provided in the Fund’s SAI. In addition, the following information is generally available to you on the Fund’s website at www.quantfunds.com:
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Information
|
Approximate Date of Posting to Website
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|
Fund’s top 10 holdings as of each quarter end
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14 days after quarter end
|
|
Fund’s full securities holdings as of each quarter end
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30 days after quarter end
|
Note that the Quant Funds or its agents may suspend the posting of this information or modify the elements of this web posting policy without notice to shareholders. Once posted, the above information will remain available on the website until at least the date on which the Quant Funds file a Form N-CSR or Form N-Q for the period that includes the date as of which the information is current.
DIVIDENDS, DISTRIBUTIONS, AND TAXATION
Dividends and Distributions
The Fund’s policy is to pay at least annually as dividends substantially all of its net investment income and to distribute annually substantially all of its net realized capital gains, if any, after giving effect to any available capital loss carryover. Normally, distributions are made once a year in December.
Unless you elect otherwise, all distributions will be automatically reinvested in additional shares of the Fund you own. You may also elect to have dividends, capital gains, or both paid in cash. You will be sent a check for your dividends, capital gains and other distributions if the total distribution is at least ten dollars. If the distribution is less than ten dollars, it may be
automatically reinvested in additional shares of the same class of the Fund you own. All distributions, whether received in shares or cash, are taxable and must be reported by you on federal income tax returns.
Taxation
The following discussion is very general. You are urged to consult your tax adviser regarding the effect that an investment in the Fund may have on your particular tax situation.
Taxability of Distributions
You will normally have to pay federal income taxes, and any state or local taxes, on the distributions you receive from the Fund, whether you take the distributions in cash or reinvest them in additional shares. Distributions designated as capital gain dividends are taxable as long-term capital gains. If a portion of the Fund’s income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the dividends received deduction for corporate shareholders. Other distributions are generally taxable as ordinary income. The Fund expects that the majority of its distributions will be designated as capital gains, however the proportion of such distributions may vary. Some dividends paid in January may be taxable as if they had been paid the previous December.
The Form 1099 that is mailed to you every January details your distributions and how they are treated for federal tax purposes. Fund distributions will reduce the Fund’s net asset value per share. Therefore, if you buy shares shortly before the record date of a distribution, you may pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
If you are neither a citizen nor a resident of the U.S., the Fund will withhold U.S. federal income tax at the rate of 30% on taxable dividends and other payments that are subject to such withholding. You may be able to arrange for a lower withholding rate under an applicable tax treaty if you supply the appropriate documentation required by the Fund. The Fund is also required in certain circumstances to apply backup withholding at the rate of 28% on taxable dividends and redemption proceeds paid to any shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. Backup withholding will not, however, be applied to payments that have been subject to 30% withholding. Prospective investors should read the Fund’s Account Application for additional information
regarding backup withholding of federal income tax.
Taxability of Transactions
When you redeem, sell or exchange shares, it is generally considered a taxable event for you. Depending on the purchase price and the sale price of the shares you redeem, sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transaction.
Further information relating to tax consequences is contained in the SAI. Fund distributions also may be subject to state, local and foreign taxes.
FINANCIAL HIGHLIGHTS
The financial highlights are not yet available for the Fund, which is newly organized.
OBTAINING ADDITIONAL INFORMATION
More information about the Quant Funds may be obtained free upon request.
The Fund’s
Statement of Additional Information
(SAI) and annual and semi-annual reports to shareholders will include additional information about the Fund. The Fund’s annual report discusses the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal years. The SAI, the Fund’s financial statements and the auditor’s report on the financial statements included in the Fund’s most recent annual report to shareholders, are incorporated by reference into this prospectus, which means they are part of this prospectus for legal purposes. The Fund also files its complete schedules of portfolio holdings with the SEC for the 1st and 3rd quarters of each fiscal year on Form N-Q. The Fund’s most recent portfolio holdings, as filed on Form N-Q, are also available at www.quantfunds.com.
If you have questions about the Quant Funds or your account, or you wish to obtain free copies of the Funds’ current SAI or annual or semi annual reports, please contact your financial adviser or contact us by mail, by telephone or on the Internet.
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By Mail:
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Quantitative Institutional Services
55 Old Bedford Road
Lincoln, MA 01773
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By Telephone: 800-326-2151
On the Internet: www.quantfunds.com
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You may review and obtain copies of the Fund’s SAI, financial reports, Forms N-Q and other information at the SEC’s Public Reference Room in Washington, D.C. You may also access reports and other information about the Fund on the EDGAR database on the SEC’s Internet site at http://www.sec.gov. You may get copies of this information, after payment of a duplication fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Please call the SEC at 1-202-942-8090 for information about the operation of the Public Reference Room. You may need to refer to the Fund’s file number.
SEC 1940 Act File #811-3790.
Distributed by U.S. Boston Capital Corporation, member FINRA, SIPC
SERVICE PROVIDERS
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Manager
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Quantitative Advisors, 55 Old Bedford Road, Lincoln, MA 01773
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Advisers
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Polaris Capital Management, LLC 125 Summer Street, Boston, MA 02110
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Distributor
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U.S. Boston Capital Corporation, 55 Old Bedford Road, Lincoln, MA 01773
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Custodian
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State Street Kansas City, 801 Pennsylvania Avenue, Kansas City, MO 64105
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Fund Accountant
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State Street Kansas City, 801 Pennsylvania Avenue, Kansas City, MO 64105
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Transfer Agent
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Quantitative Institutional Services, 55 Old Bedford Road, Lincoln, MA 01773
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Independent Registered Public Accounting Firm
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[ ]
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Legal Counsel
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[ ]
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For Account Information
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For Quant Funds information, contact your financial adviser or, if you receive account statements directly from Quant Funds, you can also call 1-800-326-2151. Telephone representatives are available from 9:00 a.m. to 5:00 p.m. Eastern Time. Or visit our web site, www.quantfunds.com.
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This page is not part of the prospectus.
55 Old Bedford Road
Lincoln, MA 01773
www.quantfunds.com
Address Service Requested
© 2008 U.S. Boston Capital Corporation
Distributor of the Quant Funds
Member FINRA, SIPC
This page is not part of the prospectus.
The Information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion dated February
o
, 2008
STATEMENT OF ADDITIONAL INFORMATION
Quant Funds
Quant Foreign Value Small Cap Fund (the “Fund”)
Ordinary Shares and Institutional
*
Shares
May
o
, 2008
This Statement of Additional Information (“SAI”) is not a prospectus. It should be read in conjunction with the Fund’s Ordinary Shares and Institutional Shares prospectus, dated May
o
, 2008. A copy of the prospectus and annual and semi-annual shareholder reports (when available) can be obtained free of charge by calling 1-800-326-2151, by written request to the Quant Funds at 55 Old Bedford Road, Lincoln, MA 01773 or from our website at: www.quantfunds.com.
TABLE OF CONTENTS
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FUND HISTORY
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1
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INVESTMENT OBJECTIVES AND POLICIES
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1
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INVESTMENT POLICIES, RISKS AND RESTRICTIONS
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2
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INVESTMENT RESTRICTIONS OF THE FUND
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8
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MANAGEMENT OF THE FUND
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9
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PORTFOLIO TRANSACTIONS
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19
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DISCLOSURE OF PORTFOLIO HOLDINGS
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20
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HOW TO INVEST
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22
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HOW TO EXCHANGE
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24
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HOW TO REDEEM
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24
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CALCULATION OF NET ASSET VALUE
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25
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DISTRIBUTIONS
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26
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TAXATION
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26
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PERFORMANCE MEASURES
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29
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THE QUANT FUNDS
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33
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PROXY VOTING POLICIES
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34
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APPENDIX
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35
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*
Institutional shares are authorized but not offered as of the date of this SAI. Ordinary shares of the Fund are the only share class that you may purchase.
FUND HISTORY
The Quantitative Group of Funds was established in 1983 as a business trust under Massachusetts’ law. A copy of the Amended and Restated Declaration of Trust (as amended through July 19, 1993) amending and restating the Agreement and Declaration of Trust dated June 27, 1983, is on file with the Secretary of the Commonwealth of Massachusetts. See THE QUANT FUNDS for additional information.
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a series of the Quantitative Group of Funds, or Quant Funds, a registered, open-end, management investment company (the “Trust”). The Fund is non-diversified. The Fund and the other funds of the Trust are collectively, the “Quant Funds.” Only information about the Fund is included in this SAI; information regarding other funds offered by the Trust is available in a separate prospectus and SAI. The investment objectives and policies of the Fund are summarized in the text of the prospectus following the captions BASIC INFORMATION ABOUT THE FUND and NON-PRINCIPAL INVESTMENT
1
POLICIES AND RELATED RISKS. There is no assurance that the Fund’s objectives will be achieved. This SAI contains certain additional information about those objectives and policies. Capitalized terms used in this SAI but not defined herein have the same meaning as in the prospectus.
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INVESTMENT POLICIES, RISKS AND RESTRICTIONS
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The prospectus presents the investment objectives and the principal investment strategies and risks of the Fund. This section supplements the disclosure in the Fund's prospectus and provides additional information on the Fund's investment policies or restrictions. Restrictions or policies stated as a maximum percentage of the Fund’s assets are only applied immediately after a portfolio investment to which the policy or restriction is applicable (other than the limitations on borrowing and illiquid securities). Accordingly, any later increase or decrease resulting from a change in values, net assets or other circumstances will not be considered in determining whether the investment complies with the Fund’s restrictions and policies.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, such as convertible debentures, bonds and preferred stock, which allow the holder thereof to convert the instrument into common stock at a specified share price or ratio. The price of the common stock may fluctuate above or below the specified price or ratio, which may allow the Fund the opportunity to purchase the common stock at below market price or, conversely, render the right of conversion worthless. The Fund will invest in convertible securities primarily for their equity characteristics.
OTHER INVESTMENT COMPANIES. The Fund may invest in the securities of other investment companies to the extent that such investments are consistent with its investment objective and policies and permissible under the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, a fund may not acquire the securities of other domestic or non-U.S. investment companies if, as a result, (i) more than 10% of the fund’s total assets would be invested in securities of other investment companies, (ii) such purchase would result in more than 3% of the total outstanding voting securities of any one investment company being held by the fund, or (iii) more than 5% of the fund’s total assets would be invested in any one investment company.
Subject to the limitations on investments in other investment companies, the Fund may invest up to 10% of its total assets in closed-end country funds whose shares are traded in the United States. Investments in closed-end funds may allow the Fund to attain exposure to a broader base of companies in certain emerging markets and to avoid foreign government restrictions that may limit direct investment in a country’s equity markets. Closed-end country funds are managed pools of securities of companies having their principal place of business in a particular foreign country. Shares of certain of these closed-end investment companies may at times only be acquired at market premiums to their net asset values.
The limitations on investments in other investment companies do not apply to the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment company. The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies’ expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
EXCHANGE TRADED FUNDS. Subject to the limitations on investment in OTHER INVESTMENT COMPANIES as such may be modified by an exemptive order from the Securities and Exchange Commission (the “SEC”) with respect to a particular exchange traded fund ("ETF"), the Fund may invest in ETFs.
ETFs, such as Standard & Poor’s Corporation (“S&P”) depositary receipts (“SPDRs”), Nasdaq 100 Index Trading Stock (“QQQs”), iShares and various country index funds, are investment companies whose shares are traded on a national exchange or the National Association of Securities Dealers’ Automatic Quotation System (NASDAQ). ETFs may be based on underlying equity or fixed income securities. SPDRs, for example, seek to provide investment results that generally correspond to the performance of the component common stocks of the S&P 500. ETFs do not sell individual shares directly to investors and only issue their shares in large blocks known as “creation units.” The investor purchasing a creation unit then sells the individual shares on a secondary market. Therefore, the liquidity of ETFs depends on the adequacy of the secondary market.
There can be no assurance that an ETF’s investment objective will be achieved. ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of securities in the index. ETFs are subject to the risks of investing in the underlying securities. The Fund, as a holder of the securities of the ETF, will bear its pro rata portion of the ETF’s expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations.
REAL ESTATE INVESTMENT TRUSTS ("REITs"). REITs are companies which invest primarily in income producing real estate or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income distributed to shareholders provided they comply with the
2
applicable requirements of the Internal Revenue Code of 1986, as amended (the "Code"). In some cases, the Fund will indirectly bear its proportionate share of any management and other expenses paid by REITs in which it invests in addition to the expenses paid by the Fund.
Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. An equity REIT may be affected by changes in the value of the underlying properties owned by the REIT. A mortgage REIT may be affected by changes in interest rates and the ability of the issuers of its portfolio mortgages to repay their obligations. REITs are dependent upon the skills of their managers and are not diversified. REITs are generally dependent upon maintaining cash flows to repay borrowings and to make distributions to shareholders and are subject to the risk of default by lessees or borrowers. REITs whose underlying assets are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated with such industry.
REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on which are reset periodically, yields on a REIT's investments in such loans will gradually align themselves to reflect changes in market interest rates. This causes the value of such investments to fluctuate less dramatically in response +to interest rate fluctuations than would investments in fixed rate obligations. REITs may have limited financial resources and may trade less frequently and in a more limited volume than larger company securities.
INVESTMENTS IN INITIAL PUBLIC OFFERINGS. To the extent consistent with its investment objective, the Fund may invest up to 5% of its total net assets (at time of purchase) in initial public offerings (“IPO”) of equity securities. The market for such securities may be more volatile and entail greater risk of loss than investments in more established companies. Many companies engaged in IPOs are smaller capitalization companies that present the risks of such companies described in “Principal Risks for the Fund” in the prospectus. Such risks may include limited operating histories, dependence on a limited number of management personnel, reliance on one or a small number of core businesses, including businesses for which there may not be well developed markets. Newly public companies may also have limited access to additional capital to finance operating needs and/or implementation of strategic
plans. At times, investments in IPOs could represent a significant portion of a fund’s investment performance. The Fund cannot assure that investments in IPOs will continue to be available to the Fund or, if available, will result in positive investment performance
,
particularly during times when the Fund is of smaller size. In addition, as the Fund’s assets increase, the impact of investments in IPOs on the overall performance of the Fund is likely to decrease.
The Fund may sell stocks purchased in IPOs shortly after the time of the offering in order to realize a short-term profit. Such sales involve transaction costs and are taxable events that would give rise to short-term capital gains that are taxable at the less favorable rates applicable to ordinary income. Although opportunities may exist to realize a short-term profit on stocks purchased in IPOs, the Fund may continue to hold such stocks for longer-term investment if Polaris Capital Management, LLC (the “Advisor” or “Polaris”) believes this is appropriate. Holding stocks of newly public companies over the longer-term involves the risk that the prices of such stocks may depreciate substantially from the initial offering price and from higher trading prices that may exist in the markets shortly following the initial offering. In addition to buying stocks directly in an IPO, the Fund may
purchase newly public stocks in the secondary market if the Fund’s Advisor determines that this is an appropriate investment. Purchasing newly public stocks shortly after the offering may involve paying market prices significantly above the initial offering price. Active market activity in newly public stocks may diminish substantially over time creating the risk that such stocks purchased in the secondary market could depreciate substantially in value, including over a relatively short time period.
DERIVATIVES. The Fund may, but is not required to, engage in a variety of transactions using “derivatives,” such as futures, options, warrants and swaps. Derivatives are financial instruments whose value depend upon, or are derived from, the value of something else, such as one or more underlying investments, indexes or currencies. Derivatives may be traded on organized exchanges, or in individually negotiated transactions with other parties (these are known as “over the counter”). The Fund may use derivatives both for hedging and non-hedging purposes. Although the Fund’s Advisor has the flexibility to use these strategies, it may choose not to for a variety of reasons, even under very volatile market conditions. Derivatives involve special risks and costs and may result in losses to the Fund. The successful use of derivatives requires sophisticated management, and the Fund will depend
on its Advisor’s ability to analyze and manage derivatives transactions. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions. Some derivatives are “leveraged” and therefore may magnify or otherwise increase investment losses to the Fund. The Fund’s use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the potential inability to terminate or sell derivatives positions. A liquid secondary market may not always exist for the Fund’s derivatives positions at any time. In fact, many over-the-counter instruments will not be liquid. Over-the-counter instruments also involve the risk that the other party will not meet its obligations to the Fund.
Participatory Notes. The Fund may invest in participatory notes. Participatory notes are offshore derivative instruments issued to foreign investors against underlying Indian securities. These securities are not registered with the Securities and
3
Exchange Board of India. The risks of investing in participatory notes are similar to those risks of investing in foreign securities in general. See “Principal Risks for the Fund” in the Fund’s prospectus for a discussion of the risks of investing in foreign securities. Participatory notes function similarly to depositary receipts except that brokers, not U.S. banks, are depositories for Indian-based securities on behalf of foreign investors. Brokers buy Indian-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities are remitted to the foreign investors. However, unlike depositary receipts, participatory notes are subject to credit risk based on the uncertainty of the counterparty’s (i.e., the broker’s) ability to meet its obligations.
OPALS. The Fund may invest in optimized portfolio as listed securities (“OPALS”). OPALS represent an interest in a basket of securities of companies primarily located in a specific country generally designed to track an index for that country. Investments in OPALS are subject to the same risks inherent in directly investing in foreign securities. See PRINCIPAL RISKS FOR THE FUND-Foreign Investments
in the prospectus. In addition, because the OPALS are not registered under the securities laws, they may only be sold to certain classes of investors, and it may be more difficult for the Fund to sell OPALS than other types of securities. However, the OPALS may generally be exchanged with the issuer for the underlying securities, which may be more readily tradable.
DEPOSITORY RECEIPTS. The Fund may invest in American Depository Receipts (ADRs), European Depository Receipts (EDRs) and Global Depository Receipts (GDRs). ADRs, EDRs and 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. The underlying shares are held in trust by a custodian bank or similar financial institution in the issuer’s home country. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. However, ADRs continue to be subject to many of the risks associated with investing directly in
foreign securities. These risks include foreign exchange risk as well as the political and economic risks of the underlying issuer’s country. ADRs, EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts differ from receipts sponsored by an issuer in that they may involve higher expenses, they may not pass-through voting or other shareholder rights, and they may be less liquid.
FOREIGN CURRENCY TRANSACTIONS. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are principally traded in the inter-bank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades.
Since investments in foreign companies will usually involve currencies of foreign countries, and since the Fund may temporarily hold funds in bank deposits in foreign currencies during the completion of investment programs, the value of the assets of the Fund, as measured in U.S. dollars, may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the Fund may incur costs in connection with conversions between various currencies. The Fund will conduct foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. The Fund will generally not enter into a forward contract with a term of greater than one year. The Fund’s Custodian (as defined below) will place cash or liquid debt
securities into a segregated account of the series in an amount equal to the value of the Fund’s total assets committed to the consummation of forward foreign currency exchange contracts. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund’s commitments with respect to such contracts.
The Fund will generally enter into forward foreign currency exchange contracts under two circumstances. First, when a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to “lock in” the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transactions, the Fund will seek to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the subject foreign currency during the period between the date the security is purchased or sold and the date on which payment is made or received.
Second, when the Fund’s Advisor believes that the currency of a particular foreign country may experience an adverse movement against the U.S. dollar, it may enter into a forward contract to sell an amount of the foreign currency approximating the value of some or all of the Fund’s portfolio securities denominated in such foreign currency. Alternatively, where appropriate, the Fund may hedge all or part of its foreign currency exposure through the use of a basket of currencies where certain of such currencies act as an effective proxy for other currencies. In such a case, the Fund may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward
4
contracts for each currency held in the Fund. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under certain circumstances, the Fund may commit a substantial portion, or up to 75% of the value of its assets, to the consummation of these contracts. The Fund’s Advisor will consider the effect a substantial commitment of its assets to forward contracts would have on the investment program of the Fund and the flexibility of the Fund to purchase additional
securities. Other than as set forth above, the Fund will not enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund’s portfolio securities or other assets denominated in that currency. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the longer-term investment decisions made with regard to overall diversification strategies. However, the Fund’s Advisor believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Fund will be served.
At the maturity of a forward contract, the Fund may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an “offsetting” contract obligating it to purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Fund’s entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Fund is not required to enter into forward contracts with regard to their foreign currency-denominated securities and will not do so unless deemed appropriate by the Fund’s Advisor. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain that might result from an increase in the value of that currency.
SHORT-TERM DEBT OBLIGATIONS. The Fund may invest in short-term debt obligations for temporary defensive purposes and for liquidity purposes (e.g., for redemption of shares, to pay expenses or pending other investments). Short-term debt obligations may include obligations of the U.S. government and securities of foreign governments. Short-term debt obligations may also include certificates of deposit and bankers’ acceptances issued by U.S. banks and foreign banks having deposits in excess of $2 billion, commercial paper, short-term corporate bonds, debentures and notes and repurchase agreements, all with one year or less to maturity. Investments in commercial paper are limited to obligations: (i) rated Prime-1 by Moody’s Investors Service, Inc. (“Moody’s”) or A-1 by S&P, or in the case of any instrument that is not rated, of comparable quality as determined by the Manager or an
Advisor, or (ii) issued by companies having an outstanding debt issue currently rated Aaa or Aa by Moody’s or AAA or AA by S&P. Investments in other corporate obligations are limited to those having maturity of one year or less and rated Aaa or Aa by Moody’s or AAA or AA by Standard & Poor’s. The value of fixed-income securities may fluctuate inversely in relation to the direction of interest rate changes.
BOND RATINGS.
Moody’s bond ratings cited above are as follows:
Aaa: Bonds that are rated “Aaa” are judged to be the best quality and to carry the smallest degree of investment risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure.
5
Aa: Bonds that are rated “Aa” are judged to be of high quality by all standards. Together with the “Aaa” group, 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 with “Aaa” securities or other elements may make long-term risks appear greater than those of “Aaa” securities.
The S&P Corporation bond ratings cited above are as follows:
AAA: “AAA” is the highest rating assigned to a debt obligation and indicates an extremely strong capacity to pay principal and interest.
AA: 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.
REPURCHASE AGREEMENTS. A repurchase agreement is a contract under which the Fund would acquire a security for a relatively short period (usually not more than one week), subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund’s cost plus interest). The Fund will enter into repurchase agreements only with: (i) commercial banks or (ii) registered broker-dealers. Although the Fund may enter into repurchase agreements with respect to any securities which it may acquire consistent with its investment policies and restrictions, it is the Fund’s present intention to enter into repurchase agreements only with respect to obligations of the U.S. government or its agencies or instrumentalities. While the repurchase agreements entered into by the Fund will provide that the underlying security at all times shall have a value at
least equal to the resale price stated in the agreements (and, for this purpose, the underlying security will be marked to market daily), if the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller’s estate.
No more than 5% of the value of the Fund’s total assets will be invested in repurchase agreements that have a maturity longer than seven (7) days. Investments in repurchase agreements which have a longer maturity are not considered to be readily marketable (see "Illiquid Securities" below). In addition, the Fund will not enter into repurchase agreements with a securities dealer if such transactions constitute the purchase of an interest in such dealer under the 1940 Act.
SECURITIES LOANS. The Fund may make secured loans of its portfolio securities amounting to not more than 30% of its total assets. See INVESTMENT RESTRICTIONS OF THE FUND. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in the recovery of the securities or loss of rights in the collateral should the borrower fail financially. Securities loans are made to broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or cash equivalents (such as U.S. Treasury bills) at least equal at all times to the market value of the securities lent. The borrower pays to the Fund an amount equal to any dividends or interest received on the securities lent. The Fund may invest the cash collateral received in interest-bearing, short-term securities or receive a fee from the borrower. Although voting rights, or rights to consent
with respect to the loaned securities, pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the security involved.
OPTIONS. The Fund may write covered call options that are traded on national securities exchanges with respect to stocks in its portfolio (ensuring that the Fund at all times will have in its portfolios the securities which it may be obligated to deliver if the options are exercised). The “writer” of a call option gives to the purchaser of that option the right to buy the underlying security from the writer at the exercise price prior to the expiration date of the call. Call options are generally written for periods of less than six months. The Fund may write covered call options on securities in its portfolios in an attempt to realize a greater current return than would be realized on the securities alone or to provide greater flexibility in disposing of such securities. The Fund may also write call options to partially hedge a possible stock market decline. Because the Fund’s objective is
growth of capital, covered call options would not be written except at a time when it is believed that the price of the common stock on which the call is being written will not rise in the near future and the Fund does not desire to sell the common stock for tax or other reasons. The writer of a covered call option receives a premium for undertaking the obligation to sell the underlying security at a fixed price during the option period if the option is exercised. So long as the Fund remains obligated as a writer of covered calls, it foregoes the opportunity to profit from increases in the market prices of the underlying securities above the exercise prices of the options, except insofar as the premiums represent such profits, and retain the risk of loss should the value of the underlying securities decline. The Fund may also enter into “closing purchase transactions” in order to terminate its obligations as a writer of covered call options prior to the expiration of the
options. Although limiting writing covered call options to those which are traded on national securities exchanges increases the likelihood of being able to make closing purchase transactions, there is no assurance that the Fund will be able to effect such transactions at any particular time or at an acceptable price. If the Fund was unable to enter into a closing purchase transaction, the principal risks to the Fund would
6
be the loss of any capital appreciation of the underlying security in excess of the exercise price and the inability to sell the underlying security in a down market until the call option was terminated. The writing of covered call options could result in an increase in the portfolio turnover rate of the Fund, especially during periods when market prices of the underlying securities appreciate.
SHORT SALES. The Fund will limit short sales to selling securities "against the box."
No securities will be sold short if after giving effect to any short sales, the value of all securities sold short would exceed 25% of the Fund’s net assets.
Short Sales Against the Box.
The Fund may sell securities “short against the box.” A short sale involves the Fund borrowing securities from a broker and selling the borrowed securities. The Fund has an obligation to return securities identical to the borrowed securities to the broker. In a short sale against the box, the Fund at all times owns an equal amount of the security sold short or securities convertible into or exchangeable for, with or without payment of additional consideration, an equal amount of the security sold short. The Fund intends to use short sales against the box to hedge. For example when the Fund believes that the price of a current portfolio security may decline, the Fund may use a short sale against the box to lock in a sale price for a security rather than selling the security immediately. In such a case, any future losses in the Fund’s long
position should be offset by a gain in the short position and, conversely, any gain in the long position should be reduced by a loss in the short position.
If the Fund effects a short sale against the box at a time when it has an unrealized gain on the security, it may be required to recognize that gain as if it had actually sold the security (a “constructive sale”) on the date it effects the short sale. However, such constructive sale treatment may not apply if the Fund closes out the short sale with securities other than the appreciated securities held at the time of the short sale provided that certain other conditions are satisfied. Uncertainty regarding the tax consequences of effecting short sales may limit the extent to which the Fund may make short sales against the box.
Asset Segregation
The 1940 Act requires that the Fund segregate assets in connection with certain types of transactions that may have the effect of leveraging the Fund’s portfolio. If the Fund enters into a transaction requiring segregation, such as a short sale, the Custodian or the Advisor will segregate liquid assets in an amount required to comply with the 1940 Act. Such segregated assets will be valued at market daily. If the aggregate value of such segregated assets declines below the aggregate value required to satisfy the 1940 Act, additional liquid assets will be segregated.
FORWARD COMMITMENTS. The Fund may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time (“forward commitments”), if the Fund holds, and maintains until the settlement date in a segregated account with the Fund’s Custodian, cash or short-term debt obligations in an amount sufficient to meet the purchase price. These debt obligations will be marked to market on a daily basis and additional liquid assets will be added to such segregated accounts as required. Forward commitments may be considered securities in themselves. They involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund’s other assets. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio,
the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses upon the sale of forward commitments.
WARRANTS. The Fund may invest in warrants purchased as units or attached to securities purchased by the series. Warrants are options to purchase equity securities at specific prices valid for a specific period of time. Their prices do not necessarily move parallel to the prices of the underlying securities. Warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
ILLIQUID SECURITIES. Securities which do not trade on stock exchanges or in the over the counter market, or have restrictions on when and how they may be sold, are generally considered to be “illiquid.” An illiquid security is one that the Fund may have difficulty, or may even be legally precluded from, selling within a particular time. The Fund may invest in illiquid securities, including restricted securities and other investments that are not readily marketable. The Fund will not purchase any such security if the purchase would cause the Fund to invest more than 15% of its net assets, measured at the time of purchase, in illiquid securities. Repurchase agreements maturing in more than seven days are considered illiquid for purposes of this restriction.
The principal risk of investing in illiquid securities is that the Fund may be unable to dispose of them at the time desired or at a reasonable price. In addition, in order to resell a restricted security, the Fund might have to bear the expense and incur the delays associated with registering the security with the SEC, and otherwise obtaining listing on a securities exchange or in the over the counter market.
ALTERNATIVE STRATEGIES. At times, the Fund’s Advisor may judge that market conditions make pursuing the Fund’s investment strategies inconsistent with the best interests of its shareholders. The Fund’s Advisor may then temporarily use
7
alternative strategies that are mainly designed to limit the Fund’s losses. These alternative strategies may include the purchase of debt, money market investments and other investments not consistent with the investment strategies of the Fund. Although the Fund’s Advisor has the flexibility to use these strategies, it may choose not to for a variety of reasons, even in very volatile market conditions. These strategies may cause the Fund to miss out on investment opportunities, and may prevent the Fund from achieving its goal.
PORTFOLIO TURNOVER. A change in securities held by the Fund is known as “portfolio turnover” and almost always involves the payment by the Fund of brokerage commissions or dealer markups and other transaction costs on the sale of securities as well as on the reinvestment of the proceeds in other securities. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund and may affect taxes paid by shareholders to the extent short-term gains are distributed. Portfolio turnover is not a limiting factor with respect to investment decisions by the Fund. As a new fund, portfolio turnover information for the Fund is not available as of the date of this SAI.
|
INVESTMENT RESTRICTIONS OF THE FUND
|
Fundamental Investment Restrictions. The Fund has adopted certain fundamental investment restrictions which, along with the Fund's investment objective, may not be changed without the affirmative vote of the holders of a "majority of the outstanding voting securities" (as defined in the 1940 Act) of the Fund. Statements in italics are not part of the restriction. For this purpose, a majority of the outstanding shares of the Fund means the vote of the lesser of:
1. 67% or more of the shares represented at a meeting, if the holders of more than 50% of the outstanding shares are present in person or by proxy, or
|
|
2.
|
more than 50% of the outstanding shares of the Fund.
|
Statements in italics are not part of the investment restriction
The Fund may not:
|
(1)
|
issue senior securities, except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction;
|
|
(2)
|
borrow money, except on a temporary basis and except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction;
|
Under current regulatory requirements, the Fund may: (a) borrow from banks or through reverse repurchase agreements in an amount up to 33 1/3% of the Fund’s total assets (including the amount borrowed); (b) borrow up to an additional 5% of the Fund’s assets for temporary purposes; (c) obtain such short-term credits as are necessary for the clearance of portfolio transactions; and (d) purchase securities on margin to the extent permitted by applicable law
.
In the opinion of the SEC, the Fund’s limitation on borrowing includes any pledge, mortgage or hypothecation of its assets.
|
(3)
|
invest in real estate except: (a) that the Fund may invest in securities of issuers that invest in real estate or interests therein, securities that are secured by real estate or interests therein, securities of real estate investment trusts, mortgage-backed securities and other securities that represent a similar indirect interest in real estate; and (b) the Fund may acquire real estate or interests therein through exercising rights or remedies with regard to an instrument or security;
|
|
(4)
|
act as an underwriter, except insofar as the Fund technically may be deemed to be an underwriter in connection with the purchase or sale of its portfolio securities;
|
|
(5)
|
make loans, except that the Fund may: (i) lend portfolio securities in accordance with the Fund’s investment policies; (ii) enter into repurchase agreements; (iii) purchase all or a portion of an issue of publicly distributed debt securities, bank loan participation interests, bank certificates of deposit, bankers’ acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities; (iv) participate in a credit facility whereby the Fund may directly lend to and borrow money from other affiliated Funds to the extent permitted under the 1940 Act or an exemption therefrom; and (v) make loans in any other manner consistent with applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction;
|
|
(6)
|
concentrate its investments in securities of companies in any particular industry; or
|
8
In the opinion of the SEC, investments are concentrated in a particular industry if such investments aggregate more than 25% of the fund’s total assets. When identifying industries for purposes of its concentration policy, the Fund will rely upon available industry classifications. As of November 1, 2006, the Fund relied on MSCI Global Industry Classification Standard (GICS ) classifications. The Fund’s policy does not apply to investments in U.S. government securities.
|
(7)
|
invest in commodities or commodity contracts, except that the Fund may invest in currency instruments and currency contracts and financial instruments and financial contracts that might be deemed to be commodities and commodity contracts in accordance with applicable law.
|
For example, a futures contract may be deemed to be a commodity contract.
Although certain of these policies envision the Fund maintaining a position in a stock index by selling futures contracts on that index and also envision that under certain conditions the Fund may engage in transactions in stock index futures and related options, the Fund does not currently intend to engage in such transactions.
All percentage limitations on investments, except the percentage limitations with respect to borrowing in fundamental policy (2) above, will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment.
MANAGEMENT OF THE FUND
The Trustees of the Trust are responsible for protecting the interests of shareholders. The Trustees meet periodically throughout the year to oversee the Fund’s activities, review contractual arrangements with companies that provide services to the Fund and review the Fund’s performance. The majority of the Trustees are otherwise not affiliated with the Fund and not “interested persons” (as defined in the 1940 Act) of the Advisor, the Manager or the Fund (“Non-Interested Trustees”).
9
|
Name, Address and
(Age) (1)
|
Position with Fund; Length of Time Served; and Term of Office
(2)
|
Principal Occupation(s)
During Past Five Years (3)
|
Number of Portfolios in Fund Complex Overseen by
Director
|
Other Directorships
Held By Director
|
|
|
|
|
|
|
|
Robert M. Armstrong (68)
|
Trustee (1985 to present)
|
President, Alumni Career Services, Inc.; Independent financial and career consulting services
|
5
|
NewPage Corporation; NewPage Holding Corporation
|
|
John M. Bulbrook (65)
|
Trustee (1985 to present)
|
CEO and Treasurer, John M. Bulbrook Insurance Agency, Inc.
|
5
|
John M. Bulbrook Insurance Agency Inc.
|
|
Edward E. Burrows (75)
|
Trustee (1985 to present)
|
Independent consulting actuary - employee benefit plans.
|
5
|
None
|
|
William H. Dunlap (56)
|
Trustee
(October 2006 to present)
|
President, EQ Rider, Inc., equestrian clothing sales; Principal, William H. Dunlap & Company (consulting firm)
|
5
|
Merrimack County Savings Bank
|
|
Clinton S. Marshall (50)
|
Trustee (April 2003 to present)
|
Owner, Coastal CFO Solutions, outsource firm offering CFO solutions to businesses;
CFO, Fore River Company, commercial real estate; Finance Director, Northern York County Family YMCA; CFO, Great Works Internet, voice an internet service provider; CFO, Holographix, developer and manufacturer of holographic mirrors and gratings
|
5
|
Great Works Internet
|
INTERESTED TRUSTEES (4) AND OFFICERS
|
Name, Address and
(Age) (1)
|
Position with Fund; Length of Time Served; and Term of Office
(2)
|
Principal Occupation(s)
During Past Five Years (3)
|
Number of Portfolios in Fund Complex Overseen by
Director
|
Other Directorships
Held By Director
|
10
|
Leon Okurowski (65)
|
Vice President, Treasurer
(1985 to present)
|
Director and Vice President, U.S. Boston Capital Corporation; Treasurer, Quantitative Investment Advisors, Inc.; Trustee, Quant Funds (4/17/1985 – 9/30/2004)
|
5
|
AB&T; Everest USB Canadian
Storage, Inc.; Quantitative Investment Advisors, Inc.; Medcool, Inc.; Sugarbush Solutions, Inc.; U.S. Boston Corporation; U.S. Boston Asset Management Corporation; MedCool, Inc., USB Corporation; USB Everest Management, LLC; USB Everest Storage LLC; USB Greenville - 86, Inc.; USB-85 Restaurant Associates, Inc.; USB Atlantic Associates, Inc.; U.S. Boston Insurance Agency, Inc.; U.S. Boston Capital Corporation
|
|
Willard L. Umphrey (66)
|
Trustee, President, Chairman (1985 to present)
|
Director, U.S. Boston Capital Corporation; President, Quantitative Investment Advisors, Inc.
|
5
|
AB&T; U.S. Boston Corporation; U.S. Boston Asset Management Corporation; Quantitative Investment Advisors, Inc.; Pear Tree Partners Management LLC; Pear Tree Royalty Company, Inc.(through 6/2005); Sugarbush Solutions, Inc.; USB Corporation; USB Greenville - 86, Inc.; USB-85 Restaurant Associates, Inc.; USB Atlantic Associates, Inc.; U.S. Boston Insurance Agency, Inc.; U.S. Boston Capital Corporation; ZaBeCor Pharmaceutical Company, LLC
|
|
Name, Address and
(Age) (1)
|
Position with Fund; Length of Time Served; and Term of Office
(2)
|
Principal Occupation(s)
During Past Five Years (3)
|
Number of Portfolios in Fund Complex Overseen by
Director
|
Other Directorships
Held By Director
|
|
Deborah A. Kessinger (44)
|
Assistant Clerk (April 2005 to present);
Chief Compliance Officer (December 2005 to present)
|
Senior Counsel (since 9/04) and Chief Compliance Officer (since 12/05), U.S. Boston Capital Corporation; Senior Counsel (since 9/2004) and Chief Compliance Officer (since 10/2006), Quantitative Investment Advisors, Inc.; Chief Compliance Officer and General Counsel, Wainwright Investment Counsel, LLC (investment management firm) (2000-2004); Compliance Attorney, Forefield, Inc. (software provider) (2001-2004) and Compliance Consultant (2007 to present)
|
N/A
|
None
|
|
Steven M. Warner (61)
|
Assistant Treasurer (October 2006 to Present)
|
Controller (since 6/06), USB Corporation; Controller (since 6/06), Quantitative Investment Advisors, Inc.; Consultant (2002-2006); Sr. Vice President of Finance (2000-2002), Corporate Vice President of Finance (1999-2002) Vice President of Finance (1992-2000) and Asst. Vice President of Financial Planning and Analysis (1987-1992), Pioneer Investment Management Shareholder Services, Inc. (transfer agent services)
|
N/A
|
None
|
Notes:
11
|
|
1.
|
The mailing address of each of the officers and Trustees is 55 Old Bedford Road, Lincoln, Massachusetts 01773.
|
|
|
2.
|
Each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal.
|
|
|
3.
|
The principal occupations of the officers and Trustees for the last five years have been with the employers shown above; although in some cases they have held different positions with such employers.
|
|
|
4.
|
Messrs. Umphrey and Okurowski are “interested persons” (as defined in the 1940 Act) of the Fund, the Manager or an Advisor. They have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with one or more of the following entities: the Trust, the Trust’s investment advisor, Quantitative Advisors, Inc. and the Fund’s distributor, U.S. Boston Capital Corporation (“Distributor”).
|
|
|
5.
|
Mr. Okurowski is also Vice President of the Fund’s Distributor, and Treasurer of the Trust’s investment advisor, Quantitative Advisors.
|
The annual fee paid to Non-Interested Trustees is $21,000 per annum and the Audit Committee Chair receives an additional $3,000 per annum.
COMPENSATION TABLE
for the fiscal year ended March 31, 2007
|
Name of Person,
Position
|
Aggregate Compensation from
the Fund
|
Pension or Retirement Benefits Accrued As
Part of Fund Expenses
|
Estimated Annual Benefits Upon
Retirement
|
Total Compensation From the Trust and Fund Complex
Paid to Trustee
|
|
Robert M. Armstrong,
Trustee
|
$0
|
N/A
|
N/A
|
$9,000
|
|
John M. Bulbrook,
Trustee
|
$0
|
N/A
|
N/A
|
$9,000
|
|
Edward E. Burrows, Trustee
|
$0
|
N/A
|
N/A
|
$9,000
|
|
William H. Dunlap,
Trustee*
|
$0
|
N/A
|
N/A
|
$7,500
|
|
Clinton S. Marshall, Trustee
|
$0
|
N/A
|
N/A
|
$9,000
|
|
Willard L. Umphrey, Trustee
|
$0
|
N/A
|
N/A
|
$8,750
|
Quantitative Investment Advisors, Inc., paid Mr. Okurowski an annual fee of $7,500 for services rendered during the fiscal year ended March 31, 2007, as an officer of the Fund. Effective October 1, 2006, the annual fee paid to Mr. Okurowski increased to $10,000.
The Trust’s Agreement and Declaration of Trust provides that the Fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with the litigation in which they may be involved because of their offices with the Fund, except if it is determined in the manner specified in the Agreement and 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 Fund or that such indemnification would relieve any officer or Trustee of any liability to the Fund or their shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Fund, at its expense, will provide liability insurance for the benefit of its Trustees and officers.
Messrs. Umphrey and Okurowski, as officers of the Manager and the Distributor, will benefit from the management and distribution fees paid or allowed by the Fund.
12
TRUSTEE SHARE OWNERSHIP TABLE
For the Calendar Year ended December 31, 2007
|
Name of Trustee
|
Dollar Range of Equity Securities in
Fund
|
Aggregate Dollar Range of Equity Securities in Quant Fund
Complex
|
NON-INTERESTED TRUSTEES:
|
Robert M. Armstrong
|
None
|
$50,001-$100,000
|
|
John M. Bulbrook
|
None
|
over $100,000
|
|
Edward E. Burrows
|
None
|
$50,001-$100,000
|
|
William H. Dunlap
|
None
|
None
|
|
Clinton S. Marshall
|
None
|
$10,001-$50,000
|
INTERESTED TRUSTEES:
|
Willard L. Umphrey
|
None
|
over $100,000
|
.
COMMITTEE STRUCTURE
For the Fiscal Year Ended March 31, 2007
The following table outlines the standing committees of the Trustees:
|
Name of
Committee
|
Functions
|
Members
|
Number of Meetings During
Last Fiscal Year
|
|
|
|
|
|
|
Audit
|
To approve independent Auditors, to review Audit results, to consider compliance matters raised by the Chief Compliance Officer and to review candidates and give recommendations of new Trustees to the full Board
|
Armstrong, Bulbrook, Marshall
|
3
|
|
|
|
|
|
|
Pricing*
|
To discuss pricing anomalies as outlined in the Fund’s Pricing Procedures
|
Dunlap, Umphrey, Burrows
|
4
|
* Mr. Dunlap joined this Committee on December 11, 2006.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF FUND SHARES
The Fund has not commenced operation and therefore no information on control persons is available as of the date of this SAI.
THE MANAGER AND MANAGEMENT CONTRACT
Information on the Board of Trustees’ approval of the Management Contract will be contained in the Fund’s semi-annual report to be dated September 3, 2008. In addition, a detailed discussion of the Board of Trustees’ consideration of the advisory and/or subadvisory agreements approved in [April] 2008 is provided below.
The Fund employs a quantitative investment approach to selecting investments among other considerations. Each approach generally is developed as a result of research conducted by a team of individuals. The same investment strategy used to manage the Fund also may be used to manage separate institutional accounts maintained at the Manager or Advisor.
13
The Manager is an affiliate of U.S. Boston Capital Corporation, the Fund’s Distributor, which is a wholly owned subsidiary of U.S. Boston Corporation. Willard L. Umphrey, CFA, President and Trustee of the Fund, Leon Okurowski, Treasurer of the Fund, individually and jointly with their spouses, together own 100% of the Manager’s outstanding voting securities. Messrs. Umphrey and Okurowski also are affiliates of U.S. Boston Capital Corporation.
Under the terms of the management agreement (the “Management Contract”), the Manager may, subject to the approval of the Trustees, manage the Fund itself or, subject to the approval by the Trustees, select a subadvisor (the “Advisor”) to manage certain aspects of the Fund. In the latter case, the Manager monitors the Advisor’s investment program and results, reviews brokerage matters, oversees compliance by the Fund with various Federal and state statutes and the Fund’s own investment objectives, policies, and restrictions and carries out the directives of the Trustees. In each case, the Manager also provides the Fund with office space, office equipment, and personnel necessary to operate and administer the Fund’s business, and provides general management and administrative services to the Fund, including overall supervisory responsibility for the general management and
investment of the Fund’s securities portfolios and for the provision of services by third parties such as the Fund’s Custodian.
The Management Contract continues in force from year to year, but only so long as its continuance is approved at least annually by: (i) vote, cast in person at a meeting called for the purpose, of a majority of those Non-Interested Trustees of the Manager or the Fund, and by (ii) either the majority vote of all the Trustees or the vote of a majority of the outstanding voting securities of the Fund. The Management Contract automatically terminates on assignment, and is terminable on 60 days’ written notice by either party.
In addition to the management fee, the Fund pays all expenses not assumed by the Manager, including, without limitation, fees and expenses of the Trustees, interest charges, taxes, brokerage commissions, expenses of issue or redemption of shares, fees and expenses of registering and qualifying the Trust and shares of the Fund for distribution under Federal and state laws and regulations, charges of custodians, auditing and legal expenses, expenses of determining net asset value of the Fund’s shares, reports to shareholders, expenses of meetings of shareholders, expenses of printing and mailing prospectuses and proxies to existing shareholders, and its proportionate share of insurance premiums and professional association dues or assessments. All general Fund expenses are allocated among and charged to the assets of the Fund on a basis that the Trustees deem fair and equitable, which may be based on the
relative net assets of the Fund or the nature of the services performed and relative applicability to the Fund. The Fund is also responsible for such non-recurring expenses as may arise, including litigation in which the Fund may be a party, and other expenses as determined by the Trustees. The Fund may have an obligation to indemnify its officers and Trustees with respect to such litigation.
The Fund has received an exemptive order from the SEC that permits the Manager, subject to certain conditions, to enter into or amend an agreement with an Advisor (an “Advisory Contract”) without obtaining shareholder approval. With Trustee approval, the Manager may employ a new Advisor for the Fund, change the terms of the Advisory Contracts, or enter into new Advisory Contracts with an advisor. The Manager retains ultimate responsibility to oversee the Advisor and to recommend its hiring, termination, and replacement. Shareholders of the Fund continue to have the right to terminate the Advisory Contract applicable to that Fund at any time by a vote of the majority of the outstanding voting securities of the Fund. Shareholders will be notified of any Advisor changes or other material amendments to an Advisory Contract that occurs under these arrangements.
As compensation for services rendered, the Fund pays the Manager a monthly management fee at the annual rate of 1.00% of the Fund’s average daily net asset value.
ADVISORY CONTRACTS
Information on the Board of Trustees’ approval of the Advisory Contract will be contained in the Fund’s semi-annual report to be dated September 30, 2008. In addition, a detailed discussion of the Board of Trustees’ consideration of the advisory and/or subadvisory agreements approved in [April] 2008 is provided below.
Pursuant to an Advisory Contract with the Manager, the Advisor to the Fund furnishes continuously an investment program for the Fund, makes investment decisions on behalf of the Fund, places all orders for the purchase and sale of portfolio investments for the Fund’s account with brokers or dealers selected by such Advisor and may perform certain limited, related administrative functions in connection therewith.
The Advisory Contract provides that it will continue in force for two years from its date, and from year to year thereafter, but only so long as its continuance is approved at least annually by: (i) vote, cast in person at a meeting called for the purpose, of a majority of those Non-Interested Trustees of the Advisor, the Manager or the Quant Funds, and by (ii) either the majority vote of all of the Trustees or the vote of a majority of the outstanding voting securities of the Fund to which it relates. The Advisory Contract may be terminated without penalty with respect to the Fund by vote of the Trustees or the shareholders of that Fund, or by the Manager on not less than 30 nor more than 60 days’ written notice or by the particular Advisor on not less
14
than 30 nor more than 60 days’, or no less than 150 days’ written notice, depending on the Fund. The Advisory Contract may be amended with respect to the Fund without a vote of the shareholders of that Fund. The Advisory Contract also terminates without payment of any penalty in the event of its assignment and in the event that for any reason the Management Contract between the funds of the Trust and the Manager terminates generally or terminates with respect to the Fund.
The Advisory Contract provides that the Advisor shall not be subject to any liability to the Fund or to the Manager or to any shareholder of the Fund for any act or omission in the course of or connected with the rendering of services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties on the part of the Advisor.
For services rendered, the Manager pays to the Advisor of a fund a fee based on a percentage of the average daily net asset value of the Fund. The fees paid by the Manager to the Fund’s Advisor is: (i) 0.35% of the aggregate average daily net asset value of the Fund for assets in the Fund up to $35 million; (ii) 0.40% of the aggregate average daily net asset value of the Fund for assets in the Fund over $35 million and up to $200 million; and (iii) 0.50% of the aggregate average daily net asset value of the Fund for assets over $200 million.
ADVISOR
Polaris Capital Management, LLC (“Polaris” or “Advisor”), 125 Summer Street, Boston, MA 02110 serves as Advisor to the Fund. As of December 31, 2007, the firm had $4.3 billion under management for institutional clients and wealthy individuals. Bernard R. Horn, Jr. is the owner of 100% of the outstanding shares of Polaris and is thus a control person of Polaris.
The portfolio managers for the Fund are listed below.
In some instances a portfolio manager manages other investment companies and/or investment accounts in addition to the Fund. The following tables show, as of December 31, 2007, the number of accounts each portfolio manager managed in each of the listed categories and the total assets in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets in those accounts.
[ Will be updated to December 31, 2007 By Amendment]
|
Portfolio Manager: Bernard R. Horn, Jr. (Polaris)
|
Category
|
Number of All Accounts
|
Total Assets of All Accounts*
|
Number of Accounts Paying a Performance Fee
|
Total Assets of Accounts Paying a Performance Fee
|
|
|
Registered Investment Companies
|
2
|
$1 billion
|
0
|
N/A
|
|
|
Other Pooled Investment Vehicles
|
11
|
$604 million
|
0
|
N/A
|
|
|
Other Accounts
|
23
|
$923 million
|
0
|
N/A
|
|
Portfolio Manager: Sumanta Biswas (Polaris)
|
Category
|
Number of All Accounts
|
Total Assets of All Accounts*
|
Number of Accounts Paying a Performance Fee
|
Total Assets of Accounts Paying a Performance Fee
|
|
|
Registered Investment Companies
|
2
|
$1 billion
|
0
|
N/A
|
|
|
Other Pooled Investment Vehicles
|
11
|
$604 million
|
0
|
N/A
|
|
|
Other Accounts
|
23
|
$923 million
|
0
|
N/A
|
* For registered investment companies, assets represent net assets of all open-end investment companies and gross assets of all closed-end investment companies.
The following table shows the dollar range of shares of the Fund that were beneficially owned by each portfolio manager as of December 31, 2007.
15
[ Will be updated to December 31, 2007 By Amendment]
|
Portfolio Manager
|
Dollar Range of Equity Securities Owned
|
|
|
|
|
|
|
|
|
|
|
$0 - $10,000
|
$10,001 -
$50,000
|
$50,001 - $100,000
|
$100,001 - $500,000
|
$100,001 - $500,000
|
Over $500,000
|
|
Bernard R. Horn, Jr. (Polaris)
|
|
|
|
|
X
|
|
|
Sumanta Biswas (Polaris)
|
|
|
|
|
|
|
It is possible that conflicts of interest may arise in connection with the portfolio managers’ management of the Fund’s investments on the one hand and the investments of other accounts for which the portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Portfolio and other accounts he or she advises. In addition, due to differences in the investment strategies or restrictions between a Portfolio and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the Portfolio. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may
create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his or her discretion in a manner that he or she believes is equitable to all interested persons.
Polaris Compensation Structure and Method Used to Determine Compensation: All cash flow earned by the firm is distributed to personnel annually in the form of a salary, bonus, retirement plan contribution or equity compensation. Cash flow of the firm is a direct function of the size of assets under management. At the senior level, bonus ranges from 0% to unlimited upside since base salary is kept at a minimum. The typical bonus range is more than 75% of base. At the junior level the bonus currently represents 0 – 50% of base. Overall compensation is based on annual firm profits which are a function of assets under management, and therefore, performance. There is no formal split between specific performance targets and subjective criteria
.
BOARD APPROVAL OF THE MANAGER AND ADVISORY CONTRACTS
The Board of Trustees, including at least a majority of the Non-Interested Trustees, is required under the 1940 Act to approve the Management and Advisory contracts on an annual basis. In this regard, the Management and Advisory contracts of the Fund will be reviewed each year by the Board of Trustees to determine whether the contracts should be renewed for an additional one-year period. Renewal of the contracts requires the majority vote of the Board of Trustees, including a majority of the Non-Interested Trustees. The Board of Trustees includes a majority of Non-Interested Trustees. The Management and Advisory contracts were last approved by the Board of Trustees at a meeting on [April 29], 2008 in accordance with the requirements of the 1940 Act.
DISTRIBUTOR AND DISTRIBUTION PLAN
Distributor. U.S. Boston Capital Corporation, 55 Old Bedford Road, Lincoln, MA 01773 (“Distributor”), a Massachusetts corporation organized April 23, 1970, is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and a member of the Financial Industry Regulatory Authority (“FINRA”). The Distributor is an affiliated person of the Fund’s Manager by virtue of being under common ownership with the Manager. The Distributor acts as the principal distributor of the Fund’s shares pursuant to a written agreement dated April 17, 1985 (“Distribution Agreement”), as amended from time to time. Under the Distribution Agreement, the Distributor is not obligated to sell any specific amount of shares of the Fund and will purchase shares for resale only against orders for shares. The Distribution Agreement calls for the Distributor to
use its best efforts to secure purchasers for Fund shares.
Distribution Plan. To permit the Fund to pay a monthly fee to the Distributor, the Fund has adopted a distribution plan (the “Plan”) on behalf of its Ordinary Shares pursuant to Rule 12b-1 under the 1940 Act to pay for the marketing and distribution of the Fund’s Ordinary Shares including all expenses of preparing, printing and distributing advertising and sales literature and for services provided to shareholders of the Fund’s Ordinary shares. The fee is not directly tied to the Distributor’s expenses. If expenses exceed the Distributor’s fees, the Fund is not required to reimburse the Distributor for excess expenses; if the Distributor’s fees exceed the expenses of distribution, the Distributor may realize a profit.
The Fund pays the Distributor a monthly fee at the annual Rule 12b-1 fee rate of 0.25% of average net assets attributable to its respective Ordinary Shares and Class A shares held in shareholder accounts opened during the period the Plan is in effect, as determined at the close of each business day during the month.
16
Rule 12b-1 provides that any payments made by an investment company to a distributor must be made pursuant to a written plan describing all material aspects of the proposed financing of distributions and that all agreements with any person relating to implementation of the plan must be in writing. Continuance of the Plan and the Distribution Agreement is subject to annual approval by a vote of the Trustees, including a majority of the Non-Interested Trustees who have no direct or indirect financial interest in the operation of the plan or related agreements (“Qualified Trustees”), cast in person at a meeting called for the purpose. The Plan may be terminated as to the Fund by the vote of a majority of the Qualified Trustees, or by the vote of a majority of the outstanding voting securities of the Fund. All material amendments to the Plan must be approved by the Qualified Trustees and any amendment to
increase materially the amount to be spent pursuant to the Plan must be approved by the vote of a majority of the outstanding voting securities of the Fund. The Trustees of the Fund review quarterly a written report of the amounts so expended and the purposes for which such expenditures were made. The Plans also terminate automatically upon assignment.
Ordinary Shares - Deferred Sales Charges. The Distributor also receives the deferred sales charges withheld from redemption proceeds, see HOW TO REDEEM, and may benefit from its temporary holding of investors’ funds in connection with certain purchases and redemptions of shares of the Fund.
Marketing and Intermediary Support Payments
In addition to payments made by the Fund to the Distributor under the Plan, to support distribution and servicing efforts, the Fund’s Manager may make payments to the Fund’s Distributor out of its own assets (and not the Fund’s).
In this regard, the Manager currently pays the Distributor a monthly fee at the annual rate of up to (1) 0.30% of the average net asset value of Institutional Shares of the Fund held by shareholder accounts for which certain employee sales agents of the Distributor are named as broker-of-record, and (2) 0.25% of the average net asset value of the Fund’s Ordinary Shares held by shareholder accounts for which certain such employee sales agents of the Distributor are named as broker-of-record.
As of the date of this SAI, Institutional Shares of the Fund are authorized but not offered. Ordinary shares of the Fund are the only share class that you may purchase.
The Manager may also pay additional amounts to the Distributor to help defray the expenses of the Distributor. The Manager also maintains the discretion to pay fees out of its own assets to unaffiliated brokers in excess of the amount paid out to such brokers by the Distributor pursuant to the Plan as a condition of such unaffiliated brokers agreeing to sell shares of the Fund. In this regard, the Manager has established arrangements for the Fund to be included on platforms or “supermarkets” sponsored by a number of unaffiliated brokers. Participation in these systems generally involves fixed set-up fees and ongoing fees based upon the higher of either a percentage of assets (up to 0.40% under certain current arrangements) in the subject Fund(s) maintained through the platform or a flat fee. Such fees are first paid out of fees received by the Distributor pursuant to the Plan, to the extent
applicable to a class of the Fund, and any remainder is paid by the Manager out of its own assets (and not the Fund’s).
Additional Payments to Financial Intermediaries
The financial intermediaries through which shares are purchased may receive all or a portion of the sales charges and Rule 12b-1 fees discussed above. In addition to those payments, the Manager or one or more of its affiliates (collectively, “Quant Affiliates”) may make additional payments to financial intermediaries in connection with the promotion and sale of shares of Quant Funds.
Quant Affiliates make these payments from their own resources (and not out of the assets of the Quant Funds), which include resources that derive from compensation for providing services to the Quant Funds. Such additional payments are not reflected in and do not change the expenses paid by investors for the purchase of a share of the Fund as set forth in the “Fees and Expenses” table in the prospectus. These additional payments are described below. The Fund, the Manager and the Advisor do not consider an intermediary’s sales of Fund shares as a factor when choosing brokers or dealers to effect portfolio transactions for the Fund.
The categories described below are not mutually exclusive. The same financial intermediary may receive payments under more than one or all categories. Many financial intermediaries that sell shares of Quant Funds receive one or more types of these payments. The financial intermediary typically initiates requests for additional compensation. A Quant Affiliate negotiates these arrangements individually with financial intermediaries and the amount of payments and the specific arrangements may differ significantly. A financial intermediary also may receive different levels of compensation with respect to sales or assets attributable to different types of clients of the same intermediary or different Quant Funds. Where services are provided, the costs of providing the services and the overall array of services provided may vary from one financial intermediary to another. Quant Affiliates do not make an independent
assessment of the cost of providing such services. While the financial intermediaries may request additional compensation from the Manager to offset costs incurred by the financial intermediary in
17
servicing its clients, the financial intermediary may earn a profit on these payments, since the amount of the payment may exceed the financial intermediary’s costs. In this context, “financial intermediary” includes any broker, dealer, bank (including bank trust departments), insurance company, transfer agent, registered investment adviser, financial planner, retirement plan administrator and any other financial intermediary having a selling, administrative, shareholder servicing or similar agreement with a Quant Affiliate.
A financial intermediary’s receipt of additional compensation may create conflicts of interest between the financial intermediary and its clients. Each type of payment discussed below may provide your financial intermediary with an economic incentive to actively promote the Quant Funds over other mutual funds or cooperate with the distributor’s promotional efforts. The receipt of additional compensation for Quant Affiliates may be an important consideration in a financial intermediary’s willingness to support the sale of the Quant Funds through the financial intermediary’s distribution system. Quant Affiliates are motivated to make the payments described above since they promote the sale of Quant Fund shares and the retention of those investments by clients of financial intermediaries. In certain cases these payments could be significant to the financial intermediary. The financial
intermediary may charge additional fees or commissions other than those disclosed in the prospectus. Financial intermediaries may categorize and disclose these arrangements differently than Quant Affiliates do. To the extent financial intermediaries sell more shares of the funds or retain shares of the funds in their clients’ accounts, Quant Affiliates benefit from the incremental management and other fees paid to Quant Affiliates by the funds with respect to those assets.
Revenue Sharing Payments.
Quant Affiliates make revenue sharing payments as incentives to certain financial intermediaries to promote and sell shares of Quant Funds. The benefits Quant Affiliates receive when they make these payments include, among other things, entry into or increased visibility in the financial intermediary’s sales system, participation by the intermediary in the distributor’s marketing efforts (such as helping facilitate or providing financial assistance for conferences, seminars or other programs at which a Quant Affiliate’s personnel may make presentations on the funds to the intermediary’s sales force), placement on the financial intermediary’s preferred fund list, and access (in some cases, on a preferential basis over other competitors) to individual members of the financial intermediary’s sales force or management. Revenue
sharing payments are sometimes referred to as “shelf space” payments because the payments compensate the financial intermediary for including Quant Funds in its fund sales system (on its “shelf space”). Quant Affiliates compensate financial intermediaries differently depending typically on the level and/or type of considerations provided by the financial intermediary.
The revenue sharing payments Quant Affiliates make may be calculated on the average daily net assets of the applicable Quant Funds attributable to that particular financial intermediary (“Asset-Based Payments”); although there is no policy limiting the amount of Asset-Based Payments any one financial intermediary may receive, the total amount of such payments normally do not exceed 0.15% per annum of those assets. Such payments also may be calculated on sales of shares of Quant Funds (“Sales-Based Payments”); although there is no policy limiting the amount of Sales-Based Payments any one financial intermediary may receive, the total amount of such payments normally do not exceed 0.25% per annum of those assets. Sales-Based Payments primarily create incentives to make new sales of shares of Quant Funds and Asset-Based Payments primarily create incentives to retain previously sold shares of
Quant Funds in investor accounts. Quant Affiliates may pay a financial intermediary either or both Sales-Based Payments and Asset-Based Payments.
Administrative and Processing Support Payments.
Quant
Affiliates also may make payments to certain financial intermediaries that sell Quant Fund shares for certain administrative services, including record keeping and sub-accounting shareholder accounts, to the extent that the funds do not pay for these costs directly. Quant Affiliates also may make payments to certain financial intermediaries that sell Quant Fund shares in connection with client account maintenance support, statement preparation and transaction processing. The types of payments that Quant Affiliates may make under this category include, among others, payment of ticket charges per purchase or exchange order placed by a financial intermediary, payment of networking fees in connection with certain mutual fund trading systems, or one-time payments for ancillary services
such as setting up funds on a financial intermediary’s mutual fund trading system.
Other Payments.
From time to time, Quant Affiliates, at their expense, may provide additional compensation to financial intermediaries which sell or arrange for the sale of shares of the Quant Funds. Such compensation provided by Quant Affiliates may include financial assistance to financial intermediaries that enable Quant Affiliates to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client entertainment, client and investor events, and other financial intermediary-sponsored events, and travel expenses, including lodging incurred by registered representatives and other employees in connection with client prospecting, retention and due diligence trips. Other compensation may be offered to the extent not prohibited by Federal or state laws or any self-regulatory agency, such as the NASD.
Quant Affiliates make payments for entertainment events they deem appropriate, subject to Quant Affiliates’ guidelines and applicable law. These payments may vary depending upon the nature of the event or the relationship.
18
As a new fund information regarding additional payments to financial intermediaries or their affiliates is not available as of the date of this SAI.
Please contact your financial intermediary for details about any payments it receives from Quant Affiliates or the Quant Funds, as well as about fees and/or commissions it charges.
CUSTODIAN
State Street - Kansas City (“Custodian”) is the custodian of the Fund’s securities and cash. The Custodian’s responsibilities include safekeeping and controlling the Fund’s cash and securities, handling the receipt and delivery of securities, determining income and collecting interest and dividends on the Fund’s investments, maintaining books of original entry for portfolio and fund accounting and other required books and accounts, and calculating the daily net asset value of each class of shares of the Fund. The Custodian does not determine the investment policies of the Fund or decide which securities the Fund will buy or sell. The Fund may, however, invest in securities of the Custodian and may deal with the Custodian as principal in securities transactions. Custodial services are performed at the Custodian’s office at 801 Pennsylvania Ave., Kansas City, MO 64105.
TRANSFER AGENT
Quantitative Institutional Services (“Transfer Agent”), a division of the Manager, is the transfer agent and dividend disbursing agent for each of the Fund. Account balances and other shareholder inquiries can be directed to the Transfer Agent at 800-326-2151. For its services, the Transfer Agent received a base fee of 0.16% of average total net asset value of each class of shares of the Fund. The Transfer Agent is also reimbursed for out of pocket expenses and for other services approved by the Trustees.
All mutual fund transfer, dividend disbursing and shareholder services activities are performed at the offices of Quantitative Institutional Services, 55 Old Bedford Road, Lincoln, Massachusetts 01773. In certain instances, other intermediaries may perform some or all of the transaction processing, recordkeeping or shareholder services, which would otherwise be provided by Transfer Agent. Transfer Agent or its affiliates may make payments, out of their own assets, to intermediaries, including those that sell Fund shares, for transaction processing, recordkeeping or shareholder services (up to 0.25% under certain current arrangements).
For example, Fund shares may be owned by certain intermediaries for the benefit of their customers. Because the Transfer Agent often does not maintain Fund accounts for shareholders in those instances, some or all of the recordkeeping services for these accounts may be performed by intermediaries. In addition, retirement plans may hold Fund shares in the name of the plan, rather than in the name of the participant. Plan recordkeepers, who may have affiliated financial intermediaries who sell Fund shares may, at the discretion of a retirement plan’s named fiduciary or administrator, be paid for providing services that would otherwise have been performed by Transfer Agent or an affiliate. Payments may also be made to plan trustees to defray plan expenses or otherwise for the benefit of plan participants and beneficiaries. For certain types of tax-exempt plans, payments may be made to a plan custodian or
other entity which holds plan assets. Payments may also be made to offset charges for certain services such as plan participant communications, provided by Transfer Agent or an affiliate or by an unaffiliated third party.
Further, subject to the approval of the Trustees, the Transfer Agent or the Fund may from time to time appoint a sub-transfer agent for the receipt of purchase and sale orders and funds from certain investors.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[ ], is the independent registered public accounting firm for the Fund. The independent registered public accounting firm conducts an annual audit of the Fund’s financial statements, assists in the preparation of Federal and state income tax returns and consults with the Fund as to matters of accounting and Federal and state income taxation.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for other investment advisory clients of the Manager or that Fund’s Advisor or its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also happens that two or more clients simultaneously buy or sell the same security, in which event each day’s transactions in such security are, insofar as possible, allocated between such clients in a
manner designed to be equitable to each, taking into account among other things the
19
amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on stock exchanges and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid includes a disclosed, fixed commission or discount retained by the underwriter or dealer.
All orders for the purchase and sale of portfolio securities for the Fund are placed, and securities for the Fund bought and sold, through a number of brokers and dealers. In so doing, the Manager or Advisor uses its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent that it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, the Manager or Advisor, having in mind the Fund’s best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the broker-dealer
in other transactions.
It has for many years been common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive research, statistical and quotation services from broker-dealers which execute portfolio transactions for the clients of such advisers. Consistent with this practice, the Advisor and the Manager may receive research, statistical and quotation services from certain broker-dealers with which the Manager or Advisor place the Fund’s portfolio transactions. These services, which in some instances may also be purchased for cash, include such matters as general economic and securities market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities. Some of these services are of value to the Advisor or the Manager in advising various of their clients (including the Fund), although not
all of these services are necessarily useful and of value in advising the Fund. The fees paid to the Advisor by the Manager or paid to the Manager by the Fund are not reduced because the Advisor or the Manager receive such services.
As permitted by Section 28(e) of the 1934 Act, and by the Advisory Contracts, the Manager or Advisor may cause the Fund to pay a broker-dealer which provides “brokerage and research services” (as defined in that Act) to the Manager or Advisor an amount of disclosed commission for effecting a securities transaction for the Fund in excess of the commission, which another broker-dealer would have charged for effecting that transaction. The Manager’s or Advisor’s authority to cause the Fund to pay any such greater commissions is subject to such written policies as the Trustees may adopt from time to time.
Consistent with the FINRA-National Association of Securities Dealers, Inc. Conduct Rules and with the requirements of Rule 12(b)-1(h)(1) of the 1940 Act, and, subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, the Manager or Advisor may use broker-dealers who sell shares of the Fund to execute portfolio transactions for the Fund.
Pursuant to conditions set forth in rules of the SEC, the Fund may purchase securities from an underwriting syndicate of which U.S. Boston Capital Corporation is a member (but not from U. S. Boston Capital Corporation itself). The conditions relate to the price and amount of the securities purchased, the commission or spread paid, and the quality of the issuer. The rules further require that such purchases take place in accordance with procedures adopted and reviewed periodically by the Trustees, particularly those Non-Interested Trustees.
As a new fund information regarding brokerage commissions is not available as of the date of this SAI.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Fund’s Board of Trustees has adopted, on behalf of the Fund’s, policies and procedures relating to disclosure of the Fund’s portfolio securities. These policies and procedures are designed to protect the confidentiality of the Fund’s portfolio holdings and to prevent the selective disclosure of such information by providing a framework for disclosing information regarding portfolio holdings, portfolio composition or other portfolio characteristics consistent with applicable regulations of the Federal securities laws and general principles of fiduciary duty relating to fund shareholders.
The Manager will make the Fund’s full portfolio holdings information available to the public on a quarterly basis with an appropriate delay based upon the nature of the information disclosed, generally between three (3) business days and thirty (30) calendar days. Normally, the Manager will post the Fund’s full portfolio holdings approximately thirty (30) days after the end of each quarter on the Fund’s website at www.quantfunds.com. Such postings will remain available until the information is filed with the SEC as described below. Such publicly disclosed information may be sent to rating agencies, reporting/news services and financial intermediaries, upon request.
20
In addition, the Manager generally makes publicly available certain information other than the Fund’s portfolio holdings. For example, the Manager makes information regarding the Fund’s top ten holdings (including the percentage of the Fund’s assets represented by each security), the percentage breakdown of the Fund’s investments by country, sector and industry, various volatility measures (such as beta, standard deviation, etc.), market capitalization ranges and other portfolio characteristics (such as alpha, average P/E ratio, etc.) no earlier than three (3) business days after the end of each month.
The Fund will disclose portfolio holdings as required by applicable law or as requested by governmental authorities. For example, the Fund will disclose its portfolio holdings quarterly on forms that must be filed with the SEC as follows: (i) portfolio holdings as of the end of each fiscal year ending March 31 will be filed as part of the annual report on Form N-CSR; (ii) portfolio holdings as of the end of the fiscal quarter ending June 30 will be filed on Form N-Q; (iii) portfolio holdings as of the end of the six-month period ending September 30 will be filed as part of the semi-annual report on Form N-CSR; and (iv) portfolio holdings as of the end of the fiscal quarter ending December 31 will be filed on Form N-Q. The Fund’s Forms N-CSR and N-Q will be available on the SEC’s web site at
www.sec.gov
. If the Fund’s portfolio
holdings information is disclosed to the public (either through a filing on the SEC’s EDGAR web site or otherwise) before the disclosure of the information on the Fund’s web site would normally occur, that Fund may post such information to its web site.
The Manager may provide the Fund’s full portfolio holdings or other information to certain entities prior to the date such information is made public (“Confidential Portfolio Information”), provided that certain conditions are met. Such disclosures may be authorized by any member of the legal department. The entities to which such disclosure of Confidential Portfolio Information may be made as of the date of this SAI are rating agencies, plan sponsors, prospective separate account clients and other financial intermediaries (i.e., organizations evaluating the Fund for purposes of investment by its clients, such as broker-dealers, investment advisers, banks, insurance companies, financial planning firms, plan sponsors, plan administrators, shareholder servicing organizations and pension consultants). The third party must agree to a limited use of that information which does not conflict with the
interests of the Fund’s shareholders, to use the information only for that authorized purpose, to keep such information confidential, and not to trade on such information. The Board of Trustees considered the disclosure of portfolio holdings information to these categories of entities to be consistent with the best interests of shareholders in light of the agreement to maintain the confidentiality of such information and only to use such information for the limited and approved purposes. As of the date of this SAI, the Manager has not provided the Fund’s Confidential Portfolio Information to any entity prior to the date such information was made public.
The Fund’s portfolio holdings disclosure policy is not intended to prevent the disclosure of any and all portfolio information to the Fund’s service providers who generally need access to such information in the performance of their contractual duties and responsibilities, such as the Manager, the Advisor, the Distributor, the Fund’s custodian and fund accountant (State Street Kansas City), the Fund’s counsel [ ] and the Fund’s independent registered public accounting firm [ ]. Such service providers may be provided with portfolio holdings information on an as needed basis with no delay. In approving the policy, the Board of Trustees considered that the service providers are subject to duties of confidentiality arising under law or contract that provide an adequate safeguard for such information. None of the Manager, the Fund, or any other service
provider receives any compensation or other consideration from any arrangement pertaining to the release of the Fund’s portfolio holdings information.
If a service provider is not subject to duties of confidentiality arising under law or contract as provided in the preceding paragraph, the service provider will be subject to a written confidentiality agreement that prohibits any trading upon the Confidential Portfolio Information. The Fund currently does not have ongoing arrangements to make Confidential Portfolio Information available to any service provider (other than those named above) or to any rating agencies. The Advisor currently has ongoing arrangements to make Confidential Portfolio Information available to the following Service Providers.
|
Name of Entity
|
Type of Service
|
Frequency
|
Lag Time
|
|
Proxy Edge
|
Proxy Voting
|
Daily
|
N/A
|
|
Institutional Shareholder Services
(ISS)
|
Proxy Voting
|
Daily
|
N/A
|
The Fund’s President and the Manager’s Chief Compliance Officer (or persons designated by each of them), acting jointly, may grant exemptions to the policy with respect to Confidential Portfolio Information. Exemptions may be granted only if the above persons (or their designees) determine that providing such information is consistent with the interests of shareholders and the third party agrees to limit the use of such information only for the authorized purpose, to keep such information confidential, and not to trade on such information. Although the Board will periodically be informed of exemptions granted, granting exemptions entails the risk that portfolio holdings information may be provided to entities that use the information in a manner inconsistent with their obligations and the best interests of the Fund.
21
The Manager and the Advisor for the Fund have the primary responsibility for ensuring that the Fund’s portfolio holdings information is only disclosed in accordance with these policies. As part of this responsibility, the Manager and Advisor must maintain such internal informational barriers as they believe are reasonably necessary for preventing unauthorized disclosure of Confidential Portfolio Information. The Fund’s Chief Compliance Officer shall confirm at least annually that the Manager’s and Advisor’s procedures and or processes are reasonably designed to comply with these portfolio holdings disclosure policies
The Fund is subadvised by an Advisor who is not affiliated with the Manager. As a result, separate accounts or other investment companies managed by an Advisor may have investment objectives and strategies that are substantially similar or identical to the Fund’s investment objective and strategy and, therefore, may have portfolio holdings that identical to or substantially the same as the portfolio holdings of the subadvised Fund. Such separate accounts or other investment companies may be subject to different holdings disclosure policies, and neither the Manager nor the Board of Trustees of the Fund exercises any control over such policies or disclosure.
Compliance with the Fund’s portfolio holdings disclosure policy is subject to periodic review by the Board of Trustees, including a review of any potential conflicts of interest in the disclosures made by the Manager in accordance with this policy or the exceptions permitted under the policy. The following changes to this policy would be subject to approval by the Board of Trustees: (i) any change to the policy to expand the categories of entities to which portfolio holdings may be disclosed, (ii) any increase in the purposes for which such disclosure may be made; or (iii) a change from quarterly to more frequent public disclosure. Any such change, if material, would be reflected in a supplement to the Fund’s SAI.
HOW TO INVEST
The procedures for purchasing shares are summarized in the prospectus under the caption HOW TO INVEST.
The Fund has authorized one or more brokers to receive purchase and redemption orders on its behalf. Authorized brokers may designate other intermediaries to receive purchase and redemption orders on the Fund’s behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker, or if applicable, a broker’s authorized designee, receives the purchase or redemption order. Purchase and redemption orders will be priced at the net asset value per share of the Fund next computed for the appropriate class of shares next computed after the purchase or redemption order is received in good order by an authorized broker or the broker’s authorized designee and accepted by the Fund.
EXCHANGE OF SECURITIES FOR SHARES OF THE QUANT FUNDS. Applications to exchange common stocks for Quant Fund shares must be accompanied by stock certificates (if any) and stock powers with signatures guaranteed by domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies or savings associations. Securities accepted by a Quant Fund will be valued as set forth under CALCULATION OF NET ASSET VALUE in the prospectus as of the time of the next determination of net asset value after such acceptance. Shares of the Fund are issued at net asset value determined as of the same time. All dividends, subscription, or other rights, which are reflected in the market price of accepted securities at the time of valuation become the property of the Quant Fund and must be delivered to the Quant Fund by the investor upon receipt from the issuer. A gain or
loss for Federal income tax purposes would be realized by the investor upon the exchange depending upon the cost of the securities tendered.
OPEN ACCOUNT SYSTEM. Under the Fund’s Open Account System all shares purchased are credited directly to your account in the designated Fund at the time of purchase. All shares remain on deposit with the Transfer Agent. No certificates are issued.
The following services are currently offered by the Open Account System:
1. You may make additional investments in the Fund by sending a check in U.S. dollars (made payable to “Quantitative Group of Funds”) to the Fund, by wire, or by online ACH transactions, as described under HOW TO INVEST in the prospectus.
2. You may select one of the following distribution options, which best fits your needs.
* REINVESTMENT PLAN OPTION: Income dividends and capital gain distributions paid in additional shares at net asset value.
* INCOME OPTION: Income dividends paid in cash, capital gain distributions paid in additional shares at net asset value.
* CASH OPTION: Income dividends and capital gain distributions paid in cash.
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You should indicate the Option you prefer, as well as the other registration details of your account, on the Account Application. The Reinvestment Plan Option will automatically be assigned unless you select a different option. Dividends and distributions paid on a class of shares of the Fund will be paid in shares of such class taken at the per share net asset value of such class determined at the close of business on the ex-date of the dividend or distribution or, at your election, in cash.
3. You will receive a statement setting forth the most recent transactions in your account after each transaction, which affects your share balance.
The cost of services rendered under the Open Account System to the holders of a particular class of shares of the Fund are borne by that class as an expense of all shareholders of that class. However, in order to cover additional administrative costs, any shareholder requesting a historical transcript of his account will be charged a fee based upon the number of years researched. There is a minimum fee of $5. The right is reserved on 60 days’ written notice to make charges to individual investors to cover other administrative costs of the Open Account System.
Sales charges
Ordinary Shares - Deferred Sales Charge. Ordinary Shares are subject to a 1.00% deferred sales charge at the time of redemption. The 1.00% deferred sales charge is imposed on the proceeds from all Ordinary Shares redeemed (including Ordinary Shares purchased through the reinvestment of dividend and capital gains distributions) subject to exceptions provided for in the Fund’s prospectus. The Distributor may pay a sales fee of 1.00% of the offering price to the dealer transmitting an order for Ordinary Shares, provided that the Ordinary Shares sold are subject to the 1.00% deferred sales charge. The Distributor may also pay the dealer a service fee for accounts serviced by the dealer based upon the service agreement between the Fund and the Broker.
TAX DEFERRED RETIREMENT PLANS.
ACCOUNTS OFFERED BY THE FUND. The Fund offers tax-deferred accounts, for which State Street Bank and Trust Company acts as custodian, including:
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Traditional Individual Retirement Accounts (IRAs)
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Simplified Employee Pension Plans (SEP-IRAs)
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403(b) Custodial Accounts
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Agreements to establish these kinds of accounts and additional information about them, including information about fees and charges, are available from the Distributor. There are many detailed rules, including provisions of tax law, governing each of theses kinds of accounts. Investors considering participation in any of these plans should consult with their attorneys or tax advisers with respect to the establishment and maintenance of any of these plans. The following is some very general information about them.
IRAS. Investors may establish either regular IRA accounts, to which they may make contributions of up to $4,000 annually (or 100% of their earned income for the year, if less) or $5,000 if you are over fifty years old, or rollover IRAs, to which they may roll over or transfer assets from another preexisting IRA of the same kind. They also may establish conversion Roth IRAs (into which they may move assets from a traditional IRA), if they satisfy certain requirements; individuals will be subject to tax on the taxable amount moved from a traditional IRA to a Roth IRA at the time of the conversion. SEP-IRAs are traditional IRA accounts established pursuant to an employer-sponsored SEP plan; different contribution limits apply to SEP-IRAs. Simple IRAs are traditional IRA accounts established pursuant to an employer-sponsored Simple IRA plan; different contributions limits apply to Simple IRAs.
Contributions to a traditional IRA will be deductible if the individual for whom the account is established is not an active participant in an employer-sponsored plan; contributions may be deductible in whole or in part if the individual is such a participant, depending on the individual’s income. Distributions from traditional IRAs are taxable as ordinary income. Contributions to a Roth IRA are not deductible. However, withdrawals may not be taxable if certain requirements are met. In either case, capital gains and income earned on Fund shares held in an IRA are not taxable as long as they are held in the IRA.
403(b)S. This kind of custodial account may be established by employees of certain educational and charitable organizations. A qualifying employee may make an election to defer salary, which is then contributed to the 403(b) account; these contributions held in a 403(b) account are not taxable as long as they are held in the account. A 403(b) holder generally will
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have taxable income only when he or she receives a distribution from the account; distributions are taxable as ordinary income.
OTHER RETIREMENT PLANS. Fund shares also may be made available as an investment under other tax-favored retirement plans, such as qualified pension plans and qualified profit sharing plans, including 401(k) plans.
HOW TO EXCHANGE
The procedures for exchanging shares of one Quant Fund for those of another are also described in the prospectus under HOW TO EXCHANGE.
An exchange involves a redemption of all or a portion of shares of one class of a Quant Fund and the investment of the redemption proceeds in shares of a like class in another Quant Fund. The redemption will be made at the per share net asset value of the particular class of shares of the Quant Fund being redeemed, which is next determined after the exchange request is received in proper order.
The shares of the particular class of shares of the Quant Fund being acquired will be purchased when the proceeds from the redemption become available, normally on the day of the exchange request, at the per share net asset value of such class next determined after acceptance of the purchase order by the Quant Fund being acquired in accordance with the customary policy of that fund for accepting investments.
The exchange of shares of one class of a Quant Fund for shares of a like class of another Quant Fund will constitute a sale for Federal income tax purposes on which the investor will realize a capital gain or loss.
The exchange privilege may be modified or terminated at any time, and the Quant Funds may discontinue offering shares of a fund or any class of a fund generally or in any particular state without notice to shareholders.
HOW TO REDEEM
The procedures for redeeming shares of a Fund are described in the prospectus under HOW TO REDEEM.
Proceeds will normally be forwarded on the second day on which the New York Stock Exchange is open after a redemption request is processed; however, the Fund reserves the right to take up to three (3) business days to make payment. This amount may be more or less than the shareholder’s investment and thus may involve a capital gain or loss for tax purposes. If the shares to be redeemed represent an investment made by check or through the automatic investment plan, the Fund reserves the right not to honor the redemption request until the check or monies have been collected.
The Fund will normally redeem shares for cash, however, the Fund reserves the right to pay the redemption price wholly or partially in kind if the Board of Trustees determines it to be advisable and in the interest of the remaining shareholders of the Fund. The redemptions in kind will be selected by the Manager or Advisor in light of the Fund’s objective and will not generally represent a pro rata distribution of each security held in the Fund’s portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of the Fund at the
beginning of such period. A redemption constitutes a sale of shares for Federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also “Taxation” below.
Shareholders are entitled to redeem all or any portion of the shares credited to their accounts by submitting a written request for redemption to Fund. Shareholders who redeem more than $10,000, or request that the redemption proceeds be paid to someone other than the shareholders of record or sent to an address other than the address of record, must have their signature(s) guaranteed by domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies or savings associations. If the shareholder is a corporation, partnership, agent, fiduciary or surviving joint owner, the Fund may require additional documentation of a customary nature. Shareholders who have authorized the Fund to accept telephone instructions may redeem shares credited to their accounts by telephone. Once made, a telephone request may not be modified or canceled.
The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If the Fund and the Transfer Agent fail to do so, they may be liable for any losses due to unauthorized or fraudulent transactions. The Fund provides written confirmation of all transactions effected by telephone and will only mail the proceeds of telephone redemptions to the redeeming shareholder’s address of record.
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The Transfer Agent will assess a fee, normally $15.00, for overnight delivery or to wire the proceeds of a redemption. Such fee will be subtracted from the net redemption amount.
EXCESSIVE TRADING. The Fund intends to deter market timing activities and do not have any agreements to permit any person to market time in the Fund. See
Excessive Trading
in the prospectus for more information on the Fund’s policies.
CALCULATION OF NET ASSET VALUE
Portfolio securities are valued each business day at the last reported sale price up to the close of the New York Stock Exchange (ordinarily 4:00 p.m., Eastern Standard Time). Where applicable and appropriate, portfolio securities will be valued using the NASDAQ Official Closing Price. If there is no such reported sale, the securities generally are valued at the mean between the last reported bid and asked prices. For certain securities, where no such sales have been reported, the Fund may value such securities at the last reported bid price. In the event that there is information suggesting that valuation of such securities based upon bid and/or asked prices may not be accurate, the Fund may value such securities in good faith at fair value in accordance with procedures established by the trustees, which may include a determination to value such securities at the last reported sale price.
The Fund may invest in securities listed on foreign exchanges that trade on days on which the Fund does not compute net asset value (i.e., Saturdays and New York Stock Exchange holidays) and the net asset value of shares of the Fund may be significantly affected on such days. Securities quoted in foreign currencies are translated into U.S. dollars, based upon the prevailing exchange rate on each business day. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith using procedures approved by the Fund’s Trustees. The Fund translates prices for its investments quoted in foreign currencies into U.S. dollars at current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the Fund’s net asset value. Because foreign markets may be open at different times than the New York Stock
Exchange, the value of the Fund’s shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the Fund’s foreign investments occur between the close of foreign markets and the close of regular trading on the New York Stock Exchange, these investments will be valued at their fair value.
The fair value of any restricted securities from time to time held by the Fund is determined by its Advisor in accordance with procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of such securities is generally determined as the amount that the Fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the Fund in connection with such disposition). In addition, such specific factors are also generally
considered as the cost of the investment, the market value of any unrestricted securities of the same class (both at the time of purchase and at the time of valuation), the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts’ reports regarding the issuer. Short-term investments that mature in sixty-days (60) or less are valued at amortized cost.
Market quotations are not considered to be readily available for long-term corporate bonds, debentures and notes; such investments are stated at fair value on the basis of valuations furnished by a pricing service, approved by the Trustees, which determines valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities, which are generally recognized by institutional traders.
For purposes of determining the net asset value per share of each class of the Fund, all assets and liabilities initially expressed in foreign currencies will be valued in U.S. dollars at the mean between the bid and asked prices of such currencies against U.S. dollars.
Generally, trading in foreign securities, as well as corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times prior to 4:15 p.m. Eastern time upon the close of business on the primary exchange for such securities. The values of such securities used in determining the net asset value of the Fund’s shares are computed as of such other times. Foreign currency exchange rates are also generally determined prior to 4:15 p.m. Eastern time. Occasionally, events affecting the value of such securities may occur between such times and 4:15 p.m. Eastern time, which will not be reflected in the computation of the Fund’s net asset value. If events materially affecting the value of the Fund’s securities occur during such a period, then these securities will be valued at their fair value as determined in good faith by the Trustees.
Expenses of the Quant Funds directly charged or attributable to the Fund will be paid from the assets of the Fund, except that Rule 12b-1 Plan expenses will not be borne by holders of Institutional Shares of the Fund and each class of shares of the
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Fund will bear its own transfer agency fees. General expenses of the Quant Funds will be allocated among and charged to the assets of the respective Quant Funds on a basis that the Trustees deem fair and equitable, which may be the relative assets of the Quant Fund or the nature of the services performed and relative applicability to the Quant Fund.
PRICE OF SHARES
Orders received by an investment dealer or authorized designee, the Transfer Agent or a Quant Fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Note that investment dealers or other intermediaries may have their own rules about share transactions and may have earlier cut-off times than those of the Fund. For more information about how to purchase through your intermediary, contact your intermediary directly.
Prices that appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the Fund, since such prices generally reflect the previous day’s closing price, while purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share, which is calculated once daily as of approximately 4:00 p.m. Eastern time, which is the normal close of trading on the New York Stock Exchange, each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the Fund’s share price would still be determined as of 4:00 p.m. Eastern time.
DISTRIBUTIONS
The Fund will be treated as a separate entity for Federal income tax purposes (see TAXATION) with its net realized gains or losses being determined separately, and capital loss carryovers determined and applied on a separate Fund basis.
TAXATION
The Fund intends to qualify annually as a “regulated investment company” (“RIC”) under the Code.
To qualify as a RIC, the Fund must: (a) derive at least 90% of its gross income from dividends, interest, gains from the sale or other disposition of stock, securities, or foreign currencies certain payments with respect to securities loans or other income derived with respect to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets consists of cash, cash items, Government securities, securities of other RICs, and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than Government securities and securities of RICs);
and (c) distribute at least 90% of its investment company taxable income (which includes interest, dividends, and net short-term capital gains in excess of net long-term capital losses) each taxable year.
As a RIC, the Fund generally will not be subject to U.S. Federal income tax on its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, that it distributes to shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gains. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses, as
prescribed by the Code) for the one-year period ending on October 31 of the calendar year, and (3) any ordinary income and capital gains for previous years that was not distributed during those years. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. To prevent application of the excise tax, the Fund intends to make its distributions in accordance with the calendar year distribution requirement.
Dividends paid out of the Fund’s investment company taxable income will be taxable to a U.S. shareholder as ordinary income. If a portion of the Fund’s income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains, if any, designated as capital gain dividends are taxable to shareholders as long-term capital gains, regardless of how long the shareholder has held the Fund’s shares, and are not eligible for the dividends-received deduction. Shareholders receiving distributions in the form of additional shares, rather than cash, generally will have a cost basis in each such share equal to the net asset value of a share of the Fund on the reinvestment date. Shareholders will be notified annually as to the U.S. Federal tax status of distributions, and shareholders
receiving distributions in the form of additional shares will receive a report as to the net asset value of those shares.
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The taxation of equity options and over-the-counter options on debt securities is governed by Code section 1234. Pursuant to Code section 1234, the premium received by the Fund for selling a put or call option is not included in income at the time of receipt. If the option expires, the premium is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid to close out its position and the premium received is short-term capital gain or loss. If a call option written by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of such security and any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term depending upon the holding period of the security. With respect to a put or call option that is purchased by the Fund, if the
option is sold, any resulting gain or loss will be a capital gain or loss, and will be long-term or short-term, depending upon the holding period of the option. If the option expires, the resulting loss is a capital loss and is long-term or short-term, depending upon the holding period of the option. If the option is exercised, the cost of the option, in the case of a call option, is added to the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining gain or loss.
Certain options and futures contracts in which the Fund may invest are “section 1256 contracts.” Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses; however, foreign currency gains or losses (as discussed below) arising from certain section 1256 contracts may be treated as ordinary income or loss. Also, section 1256 contracts held by the Fund at the end of each taxable year (and, generally, for purposes of the 4% excise tax, on October 31 of each year) are “marked-to-market” (that is, treated as sold at fair market value), resulting in unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in “straddles” for U.S. Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of engaging in hedging transactions are not entirely clear. Hedging transactions may increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Code, which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions.
Because the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which may be distributed to shareholders, and which will be taxed to them as ordinary income or long-term capital gain, may be increased or decreased as compared to a fund that did not engage in such hedging transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss) from a constructive sale of certain “appreciated financial positions” if the Fund enters into a short sale, offsetting notional principal contract or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment does not apply to certain transactions closed in the 90-day period ending with the 30th day after the close of the taxable year, if certain conditions are met.
Unless certain constructive sale rules (discussed more fully above) apply, the Fund will not realize gain or loss on a short sale of a security until it closes the transaction by delivering the borrowed security to the lender. Pursuant to Code Section 1233, all or a portion of any gain arising from a short sale may be treated as short-term capital gain, regardless of the period for which the Fund held the security used to close the short sale. In addition, the Fund’s holding period of any security, which is substantially identical to that which is sold short may be reduced or eliminated as a result of the short sale. Recent legislation, however, alters this treatment by treating certain short sales against the box and other transactions as a constructive sale of the underlying security held by the Fund, thereby requiring current recognition of gain, as described more fully above. Similarly, if the Fund
enters into a short sale of property that becomes substantially worthless, the Fund will recognize gain at that time as though it had closed the short sale. Future Treasury regulations may apply similar treatment to other transactions with respect to property that becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency, and the time the Fund actually collects such receivables or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain options futures, and forward contracts, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the
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date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as “section 988” gains or losses, may increase or decrease the amount of the Fund’s investment company taxable income to be distributed to its shareholders as ordinary income.
Upon the sale or other disposition of shares of the Fund, a shareholder may realize a capital gain or loss which may be long-term or short-term, generally depending upon the shareholder’s holding period for the shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced (including shares acquired pursuant to a dividend reinvestment plan) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares.
If the Fund invests in stock of certain foreign investment companies, the Fund may be subject to U.S. Federal income taxation on a portion of any “excess distribution” with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the Fund’s holding period for the stock. The distribution or gain so allocated to any taxable year of the Fund, other than the taxable year of the excess distribution or disposition, would be taxed to the Fund at the highest ordinary income tax rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company’s stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the
Fund’s investment company taxable income and, accordingly, would not be taxable to the Fund to the extent distributed by the Fund as a dividend to its shareholders.
Alternatively, the Fund may elect to mark to market its foreign investment company stock, resulting in the stock being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the stock would be reported as ordinary loss to the extent of any net mark-to-market gains previously included in income. The Fund also may elect, in lieu of being taxable in the manner described above, to include annually in income it’s pro rata share of the ordinary earnings and net capital gain of the foreign investment company.
Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries.
If more than 50% of the value of the Fund’s total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and may elect to “pass-through” to the Fund’s shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, if made, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his taxable income or to use it as a foreign tax credit against his U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a
shareholder that is an individual in computing the alternative minimum tax.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder’s U.S. tax attributable to his total foreign source taxable income. For this purpose, if the Fund makes the election described in the preceding paragraph, the source of the Fund’s income flows through to its shareholders. With respect to the Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from the Fund. The foreign tax credit limitation rules do not apply to certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income. The foreign tax
credit is eliminated with respect to foreign taxes withheld on dividends if the dividend paying shares or Fund shares are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if a fund fails to satisfy these holding period requirements, it cannot elect under Section 853 to pass through to shareholders the ability to claim a deduction for the related foreign taxes. If a fund fails to satisfy its holding period requirement, it cannot elect under section 853 to pass through to shareholders the ability to claim a deduction for the related foreign taxes.
The foregoing is only a general description of the foreign tax credit under current law. Because application of the credit depends on the particular circumstances of each shareholder, shareholders are advised to consult their own tax advisers.
The Fund may be required to withhold U.S. Federal income tax at the rate of 30% of all taxable distributions payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Corporate shareholders and certain other
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shareholders specified in the Code generally are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s U.S. Federal income tax liability.
Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions. In many states, Fund distributions that are derived from interest on certain U.S. Government obligations are exempt from taxation. The tax consequences to a foreign shareholder of an investment in the Fund may be different from those described herein. Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund.
From time to time, the Fund may advertise its performance in various ways. These methods include providing information on the returns of the Fund and comparing the performance of the Fund to relevant benchmarks. Performance will be stated in terms of total return. “Total return” figures are based on the historical performance of the Fund, show the performance of a hypothetical investment and are not intended to indicate future performance.
PERFORMANCE MEASURES
As a new fund performance information is not available for the Fund as of the date of this SAI.
Under the rules of the SEC, funds advertising performance must include total return quotes, “T” below, calculated according to the following formula:
P(1+T)n = ERV
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Where:
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P = a hypothetical initial payment of $1,000
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T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the “n” year period (or fractional portion thereof) at the end of such period.
Under the rules of the SEC, funds advertising after-tax performance on distributions must include total return quotes, “T” below, calculated according to the following formula:
P(1+T)n = ATVD
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Where:
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P = a hypothetical initial payment of $1,000
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T = average annual total return (after taxes on distributions)
n = number of years
ATVD = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the “n” year period (or fractional portion thereof) after taxes on fund distributions but not after taxes on sales.
The computation assumes that dividends and distributions, less the taxes due on such distributions, are reinvested at the price stated in the prospectus (including any applicable sales load) on the reinvestment dates during the period.
Under the rules of the SEC, funds advertising after-tax performance on distributions and sales must include total return quotes, “T” below, calculated according to the following formula:
P(1+T)n = ATVDR
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Where:
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P = a hypothetical initial payment of $1,000
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T = average annual total return (after taxes on distributions and sales)
n = number of years
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ATVDR = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the “n” year period (or fractional portion thereof) after taxes on fund distributions and sales.
The computation assumes that dividends and distributions, less the taxes due on such distributions, are reinvested at the price stated in the prospectus (including any applicable sales load) on the reinvestment dates during the period.
The average annual total return, the average annual total return after taxes on distributions and the average annual total return after taxes on distributions and sales will be calculated under the foregoing formula and the time periods used in advertising will be based on rolling calendar quarters, updated to the last day of the most recent quarter prior to submission of the advertising for publication, and will cover one, five, and ten year periods plus the time period since the effective date of the registration statement relating to the particular Fund. When the period since inception is less than one year, the total return quoted will be the aggregate return for the period. In calculating redeemable value, the deferred sales charge is deducted from the ending redeemable value and all dividends and distributions by the Fund are deemed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. Total return, or “T” in the formula above, is computed by finding the average annual compounded rates of return over the 1, 5 and 10 year periods (or fractional portions thereof) that would equate the initial amount invested to the ending redeemable value. Any sales loads that might in the future be made applicable at the time to reinvestments would be included as would any recurring account charges that might be imposed on the Fund.
In reports to shareholders or other literature, the Fund may compare its performance to that of other mutual funds with similar investment objectives and to stock or other relevant indices. For example, it may compare its performance to rankings prepared by Lipper, Inc. (Lipper) or Morningstar, Inc., widely recognized independent services that monitor the performance of mutual funds. In making such comparisons, the Fund may from time to time include a total aggregate return figure or an average annual total return figure that is not calculated according to the formula set forth above in order to make a more accurate comparison to other measures of investment return. For such purposes, the Fund calculate its aggregate total return in the same manner as the above formula except that no deferred sales charges are deducted from the ending amount. When the period since inception is less than one year, the total
return quoted will be the aggregate return for the period. The Fund, however, will disclose the maximum deferred sales charge and will also disclose that the performance data so quoted do not reflect sales charges and that the inclusion of sales charges would reduce the performance quoted. Such alternative information will be given no greater prominence in such sales literature than the information prescribed under SEC rules. Performance information, rankings, ratings, published editorial comments and listings reported in national financial publications may also be used in computing performance of the Fund (if the Fund is listed in any such publication). Performance comparisons should not be considered as representative of the future performance of the Fund.
Independent statistical agencies measure the fund’s investment performance and publish comparative information showing how the fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the fund may distribute these comparisons to its shareholders or to potential investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER, INC. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, generally reflecting changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund’s historical risk/reward ratio relative to other funds in its broad investment class as determined by Morningstar, Inc. Morningstar ratings cover a variety of performance periods, including 1-year, 3-year, 5-year, 10-year and overall performance. The performance factor for the overall rating is a weighted-average assessment of the fund’s 1-year, 3-year, 5-year, and 10-year total return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard
& Poor’s and Moody’s Investor Service, Inc.
CDA/WIESENBERGER’S MANAGEMENT RESULTS publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Wiesenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Wiesenberger rankings do not reflect deduction of sales charges or fees.
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Independent publications may also evaluate the fund’s performance. The fund may from time to time refer to results published in various periodicals, including Barron’s, Financial World, Forbes, Fortune, Investor’s Business Daily, Kiplinger’s Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used to present a comparative benchmark of fund performance. The performance figures of an index reflect changes in market prices, reinvestment of all dividend and interest payments and, where applicable, deduction of foreign withholding taxes, and do not take into account brokerage commissions or other costs. Because the fund is a managed portfolio, the securities it owns will not match those in an index. Securities in an index may change from time to time.
MUTUAL FUNDS MAGAZINE, INC. publishes mutual fund rankings and is distributed monthly. Mutual Funds Magazine’s proprietary All-Star Ratings reflect historical risk-adjusted performance through a specific date and are subject to change. Overall ratings are calculated from the fund’s total return, with load-adjustments if applicable, relative to the volatility of its price fluctuations, over a minimum of two years and a maximum of ten years. Separate All-Star Ratings are also calculated for 1-, 3-, 5- and 10-year periods, as applicable. For all periods, the 20% of funds with the highest risk-adjusted returns receive Five Stars; the next highest 20% receive Four Stars, the next highest 20% receive Three Stars, etc.
THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of the rate of inflation. The index shows the average change in the cost of selected consumer goods and services and does not represent a return on an investment vehicle.
THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common stocks frequently used as a general measure of stock market performance.
THE DOW JONES UTILITIES AVERAGE is an index of 15 utility stocks frequently used as a general measure of stock market performance.
CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted index including publicly traded bonds having a rating below BBB by Standard & Poor’s and Baa by Moody’s.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index composed of securities from The Lehman Brothers Government/Corporate Bond Index, The Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers Asset-Backed Securities Index and is frequently used as a broad market measure for fixed-income securities.
THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an index composed of credit card, auto, and home equity loans. Included in the index are pass-through, bullet (non-callable), and controlled amortization structured debt securities; no subordinated debt is included. All securities have an average life of at least one year.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of publicly issued, fixed-rate, non-convertible investment-grade domestic corporate debt securities frequently used as a general measure of the performance of fixed-income securities.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an index of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), fixed-rate, non-convertible, investment-grade corporate debt securities and U.S. dollar-denominated, SEC-registered non-convertible debt issued by foreign governmental entities or international agencies used as a general measure of the performance of fixed-income securities.
THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations with maturities of up to ten years and is used as a general gauge of the market for intermediate-term fixed-income securities.
THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar-denominated and have maturities of 10 years or greater.
THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and 30-year fixed rate securities backed by mortgage pools of the Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of approximately 20,000 investment-grade, fixed-rate tax-exempt bonds.
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THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar denominated, have a minimum of one year to maturity, and are issued in amounts over $100 million.
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an index of approximately 1,482 equity securities listed on the stock exchanges of the United States, Europe, Canada, Australia, New Zealand and the Far East, with all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS INDEX is an index of approximately 700 securities available to non-domestic investors representing 26 emerging markets, with all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an index of approximately 900 equity securities issued by companies located in 21 countries and listed on the stock exchanges of Europe, Australia, and the Far East. All values are expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is an index of approximately 550 equity securities issued by companies located in one of 16 European countries, with all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is an index of approximately 418 equity securities issued by companies located in 5 countries and listed on the exchanges of Australia, New Zealand, Japan, Hong Kong, Singapore. All values are expressed in U.S. dollars.
THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded in The NASDAQ Stock Market, Inc. National Market System.
THE RUSSELL 1000 INDEX is composed of the 1,000 largest companies in the Russell 3000 Index, representing approximately 89% of the Russell 3000 total market capitalization. The Russell 3000 Index is composed of the 3,000 largest U.S. companies ranked by total market capitalization, representing approximately 98% of the U.S. investable equity market.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest companies in the Russell 3000 Index, representing approximately 11% of the Russell 3000 total market capitalization.
THE RUSSELL 2000 GROWTH INDEX is composed of securities with greater-than-average growth orientation within the Russell 2000 Index. Each security’s growth orientation is determined by a composite score of the security’s price-to- book ratio and forecasted growth rate. Growth stocks tend to have higher price-to-book ratios and forecasted growth rates than value stocks. This index is composed of approximately 1,310 companies from the Russell 2000 Index, representing approximately 50% of the total market capitalization of the Russell 2000 Index.
THE RUSSELL MIDCAP INDEX is composed of the 800 smallest companies in the Russell 1000 Index, representing approximately 35% of the Russell 1000 total market capitalization.
THE RUSSELL MIDCAP GROWTH INDEX is composed of securities with greater-than-average growth orientation within the Russell Midcap Index. Each security’s growth orientation is determined by a composite score of the security’s price-to-book ratio and forecasted growth rate. Growth stocks tend to have higher price-to-book ratios and forecasted growth rates than value stocks. This index is composed of approximately 450 companies from the Russell 1000 Growth Index, representing 20% of the total market capitalization of the Russell 1000 Growth Index.
THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND INDEX is an index of publicly traded corporate bonds having a rating of at least AA by Standard & Poor’s or Aa by Moody’s and is frequently used as a general measure of the performance of fixed-income securities.
THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index of U.S. government securities with maturities greater than 10 years.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an index that tracks the performance of the government bond markets of Australia, Austria, Belgium Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom and the United States. Country eligibility is determined by market capitalization and investability criteria.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non $U.S.) is an index of foreign government bonds calculated to provide a measure of performance in the government bond markets outside of the United States.
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STANDARD & POOR’S 500 COMPOSITE STOCK PRICE INDEX is an index of common stocks frequently used as a general measure of stock market performance.
STANDARD & POOR’S 40 UTILITIES INDEX is an index of 40 utility stocks.
STANDARD & POOR’S/BARRA VALUE INDEX is an index constructed by ranking the securities in the Standard & Poor’s 500 Composite Stock Price Index by price-to-book ratio and including the securities with the lowest price-to-book ratios that represent approximately half of the market capitalization of the Standard & Poor’s 500 Composite Stock Price Index.
THE QUANT FUNDS
The Trust has an unlimited authorized number of shares of beneficial interest that may, without shareholder approval, be divided into an unlimited number of series of such shares and an unlimited number of classes of shares of any such series. Shares are presently divided into five series of shares, including the Fund and with the exception of the Fund which has two classes of shares: Ordinary Shares and Institutional Shares, each comprised of three (3) classes of shares: Class A shares, Ordinary Shares and Institutional Shares.
Institutional Shares of the Fund are authorized but not offered as of the date of this SAI.
Ordinary shares of the Fund are the only share class that you may purchase.
There are no rights of conversion between shares of different Quant Funds, which are granted by the Amended and Restated Declaration of Trust, but holders of shares of a class of a Quant Fund may exchange all or a portion of their shares for shares of a like class in another Quant Fund (subject to their respective minimums). No exchanges are permitted from one class of shares to another class of shares of the same or a different Quant Fund.
These shares are entitled to one vote per share (with proportional voting for fractional shares) on such matters as shareholders are entitled to vote, including the election of Trustees. Shares vote by individual Quant Fund (or class thereof under certain circumstances) on all matters, except that: (i) when the 1940 Act so requires, shares shall be voted in the aggregate and not by individual Quant Fund, and (ii) when the Trustees of the Quant Funds have determined that a matter affects only the interest of one or more Quant Funds, then only holders of shares of such Quant Fund shall be entitled to vote thereon.
There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the shareholders, at which time the Trustees then in office will call a shareholders’ meeting for the election of Trustees. In addition, Trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares of the Fund and filed with the Fund or by a vote of the holders of two-thirds of the outstanding shares of the Fund at a meeting duly called for that purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding shares. Upon written request by ten or more shareholders, who have been such for at least six months and who hold, in the aggregate, shares having a net asset value of at least $25,000, stating that such shareholders
wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a Trustee, the Fund has undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the Trustees shall continue to hold office and may appoint their successors.
Shares are freely transferable, are entitled to dividends as declared by the Trustees, and in liquidation of the Trust are entitled to receive the net assets of its Fund, but not of the other Quant Funds. Shareholders have no preemptive rights. The Fund’s fiscal year ends on the last day of March.
Under Massachusetts law, shareholders could, under certain circumstances, be held liable for the obligations of the Fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund and requires notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of the Fund’s property for all loss and expense of any shareholder of that Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund of which he was a shareholder would be unable to meet its obligations.
The Trust, Manager, the Advisor and the Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics permit employees to invest in securities for their own accounts, including securities that may be purchased or held by the Fund. The Codes of Ethics are on public file with, and are available from, the SEC.
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PROXY VOTING POLICIES
The Board has adopted Proxy Voting Policies and Procedures on behalf of the Trust, which delegates responsibility for voting proxies to the Manager, subject to the Board’s continuing oversight. The Manager in turn has, where applicable, delegated responsibility for voting proxies to the Advisor that actually manage the assets of the Fund. The Manager and the Advisor have their own proxy voting policies and procedures, which the Board has reviewed. The Manager’s and the Advisor’s policies and procedures assure that all proxy voting decisions are made in the best interest of the Fund and that the Manager or the Advisor will act in a prudent and diligent manner for the benefit of the Fund. The Manager’s and the Advisor’s policies and procedures include specific provisions to determine when a conflict exists between the interests of the Fund and the interests of the Manager or the Advisor,
as the case may be. Copies of the proxy voting policies and procedures are attached to this SAI as Appendix A. Information on how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2008 will be available without charge on the Quant Funds website (
www.quantfunds.com
), upon request by contacting the Funds or via the SEC web site at
www.sec.gov
.
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APPENDIX A - VOTING POLICIES
QUANTITATIVE GROUP OF FUNDS
d/b/a QUANT FUNDS
PROXY VOTING POLICIES AND PROCEDURES
(Adopted: July 23, 2003)
I. Quant Funds’ Policy Statement
Quantitative Group of Funds (d/b/a/ Quant Funds) (“Quant”) is firmly committed to ensuring that proxies relating to Quant’s portfolio securities are voted in the best interests of Quant’s shareholders. The following policies and procedures have been established to implement Quant’s proxy voting program.
II. Trust’s Proxy Voting Program
Quantitative Advisors serves as the investment manager of Quant’s portfolios. Quantitative Advisors is responsible for the selection and ongoing monitoring of investment sub-advisers (the “Sub-Advisers”) who provide the day-to-day portfolio management for each portfolio. Quant has delegated proxy voting responsibility to Quantitative Advisors. Because Quantitative Advisors views proxy voting as a function that is incidental and integral to portfolio management, it has in turn delegated the proxy voting responsibility with respect to each portfolio to the applicable Sub-Adviser. The primary focus of Quant’s proxy voting program, therefore, is to seek to ensure that the Sub-Advisers have adequate proxy voting policies and procedures in place and to monitor each Sub-Adviser’s proxy voting. These policies and procedures may be amended from time to time based on Quant’s experience as
well as changing environments, especially as new and/or differing laws and regulations are promulgated.
III. Quantitative Advisors’ Due Diligence and Compliance Program
As part of its ongoing due diligence and compliance responsibilities, Quantitative Advisors will seek to ensure that each Sub-Adviser maintains proxy voting policies and procedures that are reasonably designed to comply with applicable laws and regulations. Quantitative Advisors will review each Sub-Adviser’s proxy voting policies and procedures (including any proxy voting guidelines) in connection with the initial selection of the Sub-Adviser to manage a portfolio and on at least an annual basis thereafter.
IV. Sub-Advisers’ Proxy Voting Policies and Procedures
Each Sub-Adviser will be required to maintain proxy voting policies and procedures that satisfy the following elements:
A. Written Policies and Procedures: The Sub-Adviser must maintain written proxy voting policies and procedures in accordance with applicable laws and regulations and must provide to Quant and Quantitative Advisors, upon request, copies of such policies and procedures.
B. Fiduciary Duty: The Sub-Adviser’s policies and procedures must be reasonably designed to ensure that Sub-Adviser votes client securities in the best interest of its clients.
C. Conflicts of Interest: The Sub-Adviser’s policies and procedures must include appropriate procedures to identify and resolve as necessary all material proxy-related conflicts of interest between the Sub-Adviser (including its affiliates) and its clients before voting client proxies.
D. Voting Guidelines: The Sub-Adviser’s policies and procedures must address with reasonable specificity how the Sub-Adviser will vote proxies, or what factors it will take into account, when voting on particular types of matters, e.g., corporate governance proposals, compensation issues and matters involving social or corporate responsibility.
E. Monitoring Proxy Voting: The Sub-Adviser must have an established system and/or process that is reasonably designed to ensure that proxies are voted on behalf of its clients in a timely and efficient manner.
F. Record Retention and Inspection: The Sub-Adviser must have an established system for creating and retaining all appropriate documentation relating to its proxy voting activities as required by applicable laws and regulations. The Sub-Adviser must provide to Quant and Quantitative Advisors such information and records with respect to proxies relating to Quant’s portfolio securities as required by law and as Quant or Quantitative Advisors may reasonably request.
V. Disclosure of Quant’s Proxy Voting Policies and Procedures and Voting Record
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Quantitative Advisors, on behalf of Quant, will take reasonable steps as necessary to seek to ensure that Quant complies with all applicable laws and regulations relating to disclosure of Quant’s proxy voting policies and procedures and its proxy voting record. Quantitative Advisors (including, at its option, through third-party service providers) will maintain a system that is reasonably designed to ensure that the actual proxy voting record of the Sub-Advisers with respect to Quant’s portfolio securities are collected, processed, filed with the Securities and Exchange Commission and delivered to Quant’s shareholders, as applicable, in a timely and efficient manner and as required by applicable laws and regulations.
VI. Reports to Quant’s Board of Trustees
Quantitative Advisors will periodically (but no less frequently than annually) report to the Board of Trustees with respect to Quant’s implementation of its proxy voting program, including summary information with respect to the proxy voting record of the Sub-Advisers with respect to Quant’s portfolio securities and any other information requested by the Board of Trustees.
QUANTITATIVE ADVISORS
PROXY VOTING POLICIES AND PROCEDURES
(Adopted July 23, 2003; revised October 21, 2005)
Quantitative Advisors serves as the investment adviser to the series of the Quantitative Group of Funds (d/b/a Quant Funds) (each a “Fund” and together the “Funds”). In that capacity Quantitative Advisors has adopted these policies and procedures in accordance with Rule 206(4)-6 under the Investment Advisers Act of 1940 (the “Advisers Act”). These policies and procedures are designed to ensure that Quantitative Advisors administers proxy voting matters in a manner consistent with the best interests of the Funds and in accordance with its fiduciary duties under the Advisers Act and other applicable laws and regulations.
I. POLICY
In the typical course of Quantitative Advisors’ business, voting of proxies of individual securities is delegated to the respective sub-advisers retained to oversee and direct the investments of the Funds. Each sub-adviser has the fiduciary responsibility for voting the proxies in a manner that is in the best interest of the Funds. In limited instances, transitional securities may be held in an account and may not be overseen by a sub-adviser. In those cases, it is Quantitative Advisors’ policy to ensure that the Funds are aware of their right to vote proxies of securities they hold if they so choose. If the Funds choose not to exercise voting authority, those Funds will be deemed to have delegated authority to Quantitative Advisors to vote such proxies in a manner that is consistent with the Funds’ best interests.
II. RESPONSIBILITY
In most cases, voting of proxies is delegated to the respective sub-adviser retained to oversee and direct the investments of the Funds. If the security is held in an account not directly overseen by a sub-adviser, the proxy voting committee of Quantitative Advisors, which consists of the members of Quantitative Advisors’ Pricing Committee, (the “Proxy Committee”) will be responsible for ensuring that proxies are either forwarded to the Funds or voted in a manner consistent with the best interests of the Funds. There may be times when refraining from voting a proxy is in a Fund’s best interest, such as when the Proxy Committee determines that the cost of voting the proxy exceeds the expected benefit to the Fund.
III. PROCEDURES
In the limited instances of voting of proxies not delegated to sub-advisers or forwarded to the Funds as mentioned above, Quantitative Advisors will (i) obtain and evaluate the proxy information provided by the companies whose shares are being voted; (ii) vote proxies in the best interest of the Funds; and (iii) submit, or arrange for the submission of, the votes to the shareholders meetings in a timely manner.
Prior to a proxy voting deadline, the Proxy Committee will make a determination as to how to vote each proxy proposal based on his or her analysis of the proposal. In evaluating a proxy proposal, the Proxy Committee may consider information from many sources, including management of the company, shareholder groups and independent proxy research services. When determining how to vote a proxy, the Proxy Committee shall consider only those factors that relate to a Fund’s investment, including how its vote will economically impact and affect the value of a Fund’s investment.
Proxy votes generally will be cast in favor of proposals that (i) maintain or strengthen the shared interests of shareholders and management; (ii) increase shareholder value; (iii) maintain or increase shareholder influence over the issuer’s board of directors and management; and (iv) maintain or increase the rights of shareholders. Proxy votes generally will be cast against proposals having the opposite effect.
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IV. CONFLICTS OF INTEREST
Quantitative Advisors may have a conflict of interest in voting a particular proxy. A conflict of interest could arise, for example, as a result of a business relationship with a company, or a direct or indirect business interest in the matter being voted upon, or as a result of a personal relationship with corporate directors or candidates for directorships. Whether a relationship creates a material conflict of interest will depend upon the facts and circumstances.
A. Identifying Conflicts of Interest
The Proxy Committee will seek to identify Quantitative Advisors conflicts by relying on publicly available information about a company and its affiliates and information about the company and its affiliates that is generally known by Quantitative Advisors’ senior management. The Proxy Committee may determine that Quantitative Advisors has a conflict of interest as a result of the following:
1. Significant Business Relationships - The Proxy Committee will consider whether the matter involves an issuer or proponent with which Quantitative Advisors, its members, officers or employees have a significant business relationship. Quantitative Advisors, its members, officers or employees may have significant business relationships with certain entities, such as other investment advisory firms, vendors, clients and broker-dealers. For this purpose, a “significant business relationship” is one that might create an incentive for Quantitative Advisors, its members, officers or employees to have a vote cast in favor of the entity soliciting proxies.
2. Significant Personal or Family Relationships - The Proxy Committee will consider whether the matter involves an issuer, proponent or individual with which an employee of Quantitative Advisors who is involved in the proxy voting process may have a significant personal or family relationship. For this purpose, a “significant personal or family relationship” is one that would be reasonably likely to influence how Quantitative Advisors votes the proxy. Employees of Quantitative Advisors, including the Proxy Committee, are required to disclose any significant personal or family relationship they may have with the issuer, proponent or individual involved in the matter. If the Proxy Committee has a significant personal or family relationship with an issuer, proponent or individual involved in the matter, he/she will immediately contact Quantitative Advisors’ Compliance Officer who will determine (i)
whether to treat the proxy in question as one involving a material conflict of interest; and (ii) if so, whether the Proxy Committee should recuse him/herself from all further matters regarding the proxy and another individual should be appointed to consider the proposal.
B. Determining Whether a Conflict is Material
In the event that the Proxy Committee determines that Quantitative Advisors has a conflict of interest with respect to a proxy proposal, the Proxy Committee shall determine whether the conflict is “material.”. The Proxy Committee may determine on a case-by-case basis that the relationship as it regards a particular proposal involves a material conflict of interest. To make a determination of nonmateriality, the Proxy Committee must conclude that the proposal is not directly related to Quantitative Advisors’ conflict with the issuer. If the Proxy Committee determines that a conflict is not material, then he or she may vote the proxy in accordance with his or her recommendation.
C. Voting Proxies Involving a Material Conflict
In the event that the Proxy Committee determines that Quantitative Advisors has a material conflict of interest with respect to a proxy proposal, prior to voting on the proposal, the Proxy Committee must:
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fully disclose the nature of the conflict to the Funds and obtain the Funds’ consent as to how Quantitative Advisors shall vote on the proposal (or otherwise obtain instructions from the Funds as to how the proxy should be voted); OR
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contact an independent third party to recommend how to vote on the proposal and vote in accordance with the recommendation of such third party (or have the third party vote such proxy); OR
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vote on the proposal and, in consultation with the Compliance Officer, detail how Quantitative Advisors’ material conflict did not influence the decision-making process.
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The Proxy Committee may address a material conflict of interest by abstaining from voting, provided that he or she has determined that abstaining from voting on the proposal is in the best interests of the Funds.
D. Documenting Conflicts of Interest
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The Proxy Committee shall document the manner in which proxies involving a material conflict of interest have been voted as well as the basis for any determination that Quantitative Advisors does not have a material conflict of interest in respect of a particular matter. Such documentation shall be maintained with the records of Quantitative Advisors.
V. RECORDKEEPING AND DISCLOSURE
Quantitative Advisors maintains the following books and records required by Rule 204-2(c)(2) under the Advisers Act for a period of not less than five years:
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a copy of these proxy voting policies and procedures, including all amendments hereto;
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a copy of each proxy statement received regarding Fund securities, provided, however, that Quantitative Advisors may rely on the proxy statement filed on EDGAR as its record;
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a record of each vote Quantitative Advisors casts on behalf of the Funds;
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a copy of any document created by Quantitative Advisors that was material its making a decision on how to vote proxies on behalf of the Funds or that memorializes the basis for that decision;
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a copy of each written Fund request for information on how Quantitative Advisors voted proxies on behalf of the Funds; and
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a copy of any written response by Quantitative Advisors to any Fund request for information on how Quantitative Advisors voted proxies on behalf of the requesting Fund.
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Quantitative Advisors will describe in Part II of its Form ADV (or other brochure fulfilling the requirement of Advisers Act Rule 204-3) its proxy voting policies and procedures and advise the Funds how they may obtain information about how Quantitative Advisors voted their securities. Information about how the Funds securities were voted or a copy of Quantitative Advisors’ proxy voting policies and procedures free of charge by written request addressed to Quantitative Advisors.
POLARIS CAPITAL MANAGEMENT, LLC PROXY POLICY
Polaris Capital Management, LLC. (the “Adviser”)’s policy regarding the voting of proxies consists of (1) the statement of the law and policy, (2) identification of the person(s) responsible for implementing this policy, and (3) the procedures adopted by the Adviser to implement the policy.
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1.
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Statement of Law and Policy
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Because a registered investment company (“fund”) is the beneficial owner of its portfolio securities, it has the right to vote proxies relative to its portfolio securities. The Securities and Exchange Commission has stated that a fund’s board has the obligation to vote proxies. As a practical matter, fund boards typically delegate this function to the fund’s adviser/sub-adviser.
Rule 206(4)-6 under the Investment Advisers Act of 1940 requires that a registered investment adviser with proxy voting authority generally must satisfy the following four requirements: (i) adopt and implement written proxy voting policies and procedures reasonably designed to ensure the adviser votes client and fund securities in the best interests of clients and fund investors and addressing how conflicts of interest are handled; (ii) disclose its proxy voting policies and procedures to clients and fund investors and furnish clients and fund investors with a copy if they request it; (iii) inform clients and fund investors as to how they can obtain information from the adviser on how their securities were voted; and (iv) retain certain records.
38
The Adviser will vote all proxies delivered to it by the fund’s custodian. The vote will be cast in such a manner, which, in the Adviser’s judgment, will be in the best interests of shareholders. The Adviser contracts with Boston Investor Services, Inc. for the processing of proxies.
The Adviser will generally comply with the following guidelines:
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•
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Routine Corporate Governance Issues
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The Adviser will vote in favor of management.
Routine issues may include, but not be limited to, election of directors, appointment of auditors, changes in state of incorporation or capital structure. In certain cases the Adviser will vote in accordance with the guidelines of specific clients.
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•
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Non-routine Corporate Governance Issues
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The Adviser will vote in favor of management unless voting with management would limit shareholder rights or have a negative impact on shareholder value.
Non-routine issues may include, but not be limited to, corporate restructuring/mergers and acquisitions, proposals affecting shareholder rights, anti-takeover issues, executive compensation, and social and political issues.
In cases where the number of shares in all stock option plans exceeds 10% of basic shares outstanding, the Adviser generally votes against proposals that will increase shareholder dilution.
In general the Adviser will vote against management regarding any proposal that allows management to issue shares during a hostile takeover.
The Adviser may not vote proxies if voting may be burdensome or expensive, or otherwise not in the best interest of clients.
Should the Adviser have a conflict of interest with regard to voting a proxy, the Adviser will disclose such conflict to the client and obtain client direction as to how to vote the proxy.
The following records will be kept for each client:
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•
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Copies of the Adviser’s proxy voting policies and procedures.
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•
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Copies of all proxy statements received.
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•
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A record of each vote the Adviser casts on behalf of the client along with any notes or documents that were material to making a decision on how to vote a proxy including an abstention on behalf of a client, including the resolution of any conflict.
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•
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A copy of each written client request for information on how the Adviser voted proxies on behalf of the client and a copy of any written response by the advisor.
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39
This proxy policy will be distributed to all clients of the Adviser and added to Part II of Form ADV. A hard copy of the policy will be included in the Compliance Program and is available on request.
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2.
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Who is Responsible for Implementing this Policy?
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The Compliance Officer is responsible for implementing, monitoring and updating this policy, including reviewing decisions made on non-routine issues and potential conflicts of interest. The Compliance Officer is also responsible for maintaining copies of all records and backup documentation in accordance with applicable record keeping requirements. The Compliance Officer can delegate in writing any of his or her responsibilities under this policy to another person.
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3.
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Procedures to Implement this Policy
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Conflicts of Interest
From time to time, proxy voting proposals may raise conflicts between the interests of the Advisers’ clients and the interests of the Adviser, its employees, or its affiliates. The Adviser must take certain steps designed to ensure, and must be able to demonstrate that those steps resulted in, a decision to vote the proxies that was based on the clients’ best interest and was not the product of the conflict. For example, conflicts of interest may arise when:
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•
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A proponent of a proxy proposal has a business relationship with the Adviser or its affiliates;
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•
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The Adviser or its affiliates have business relationships with participants in proxy contests, corporate directors, or director candidates;
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•
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An Adviser employee has a personal interest in the outcome of a particular matter before shareholders; or
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•
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An Adviser employee has a business or personal relationship with participants in proxy contests, corporate directors or director candidates.
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The Compliance Officer is responsible for identifying proxy voting proposals that present a conflict of interest. If the Adviser receives a proxy relating to an issuer that raises a conflict of interest, the Compliance Officer shall determine whether the conflict is “material” to any specific proposal included within the proxy. The Compliance Officer will determine whether a proposal is material as follows:
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•
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Routine Proxy Proposals – Proxy proposals that are “routine” shall be presumed not to involve a material conflict of interest for the Adviser, unless the Compliance Officer has actual knowledge that a routine proposal should be treated differently. For this purpose, “routine” proposals would typically include matters such as uncontested election of directors, meeting formalities, and approval of an annual report/financial statements.
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•
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Non-Routine Proxy Proposals – Proxy proposals that are “non-routine” will be presumed to involve a material conflict of interest, unless the Compliance Officer determines that the Adviser does not have such a conflict of interest. For this purpose, “non-routine” proposals would
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40
typically include any contested matter, including a contested election of directors, a merger or sale of substantial assets, a change in the articles of incorporation that materially affects the rights of shareholders, and compensation matters for management (e.g., stock option plans, retirement plans, profit sharing, or other special remuneration plans). The Adviser and the Compliance Officer will determine on a case-by-case basis that particular non-routine proposals do not involve a material conflict of interest, the Compliance Officer will consider whether the Adviser or any of its officers, directors, employees, or affiliates may have a business or personal relationship with a participant in a proxy contest, the issuer itself or the issuer’s pension plan, corporate directors, or candidates for directorships.
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•
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The Compliance Officer will record in writing the basis for any such determination.
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41
Part C Other Information
Item 23. Exhibits
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(a)
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Amended and Restated Agreement and Declaration of Trust, dated April 2, 1990 (i)
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(1)
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Amendment 1, Dated July 18, 1993, To the Agreement and Declaration of Trust, Dated April 2, 1990 (i)
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(2)
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Establishment and Designation of Class A Shares Dated July 26, 2005 (vii)
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(b)
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Amended and Restated By-Laws, Dated April 2, 1990 (i)
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(1)
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Amendment 1, Dated July 19, 1993, To the By Laws Dated April 2, 1990 (i)
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(2)
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Amendment 2, Dated July 23, 2004, To the By Laws Dated April 2, 1990 (iv)
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(c)
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(1)
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Portions of Agreement and Declaration of Trust Relating to Shareholders’ Rights (i)
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(2)
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Portions of By Laws Relating to Shareholders’ Rights (i)
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(1) Form of Amended and Restated Management Contract Between Quantitative Group of Funds and Quantitative Investment Advisors, Inc. (formerly Quantitative Advisors, Inc.), Dated May 1, 2008, filed herewith as Exhibit 99.d.1
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(2)
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Advisory Contract Between Quantitative Advisors and Columbia Partners, LLC, Dated January 31, 1999-Small Cap Fund (i)
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(3) Advisory Contract Between Quantitative Advisors and PanAgora Asset Management, Inc.), Dated August 3, 2007- Emerging Markets Fund filed herewith as Exhibit 99.d.2
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(4)
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Advisory Contract Between Quantitative Advisors and Polaris Capital Management, Inc., Dated January 31, 1999- Foreign Value Fund (i)
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(5) Advisory Contract Between Quantitative Advisors and Analytic Investors, LLC, Dated January 2, 2008 – Long/Short Fund, filed herewith as Exhibit 99.d.3
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(6)
|
Form of Advisory Contract Between Quantitative Advisors and Polaris Capital Management, LLC, Dated May 1, 2008- Foreign Value Small Cap Fund, filed herewith as Exhibit 99.d.4
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|
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(1)
|
Restated Distribution Agreement Dated February 1, 2008, attached herewith as Exhibit
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|
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(2)
|
Form of Restated Distribution Agreement Dated May 1, 2008, attached herewith as
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Exhibit 99.e.2
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(3)
|
Form of Specimen Selling Group Agreement (viii)
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|
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(4)
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Distribution Fee Waiver Agreement Dated June 1, 2007 (viii)
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(5)
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Distribution Fee Waiver Agreement Dated July 18, 2007 (viii)
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(g)
|
Custodian and Investment Accounting Agreement with Investors Fiduciary Trust Company, Dated January 18, 1998 (i)
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|
|
(1)
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First Amendment to the Custodian and Investment Accounting Agreement with State Street Kansas City f.k.a. Investors Fiduciary Trust Company, Dated March 1, 1998 (i)
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|
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(2)
|
Second Amendment to the Custodian and Investment Accounting Agreement with State Street Kansas City, Dated May 1, 2001 (ii)
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(h) Form of Amended and Restated Transfer Agent and Service Agreement, Dated May 1, 2008, attached herewith as Exhibit 99.h
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(i)
|
Opinion and Consent of Legal Counsel, to be filed via Amendment
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(j)
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Consent of Independent Registered Public Accounting Firm, to be filed via Amendment
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(m)
|
(1)
|
Distribution Plan, Dated April 2, 1990 (i)
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|
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(2)
|
Form of Specimen Selling Group Agreement (viii)
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(n)
|
(1)
|
Multiple Class Plan Pursuant to Rule 18f-3 (vii)
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(p)
|
(1)
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Code of Ethics for the Fund
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|
|
(a)
|
Dated April 2000 (ii)
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(b)
|
Dated July 23, 2003 (iii)
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(c)
|
Dated January 1, 2005 (v)
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|
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(d)
|
Dated January 10, 2008 attached herewith as Exhibit 99.p.1
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|
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(2)
|
Code of Ethics - Columbia Partners Dated 2007 (viii)
|
(3) Code of Ethics - PanAgora Asset Management, Inc. Dated August 27, 2007, attached herewith as Exhibit 99.p.2
(4) Code of Ethics - Polaris Capital Management Inc. Dated June 15, 2005, revised, attached herewith as Exhibit 99.p.3
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(5)
|
Code of Ethics - Analytic Investors, LLC Dated September 30, 2005 attached herewith as Exhibit 99.p.4
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(q)
|
Power of Attorney Dated April 24, 2007 (viii)
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Notes:
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(i)
|
Previously filed with Post-Effective Amendment No. 20 to the Registration Statement on July 30, 1999 and incorporated by reference herein.
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(ii)
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Previously filed with Post-Effective Amendment No. 21 to the Registration Statement on July 31, 2000 and incorporated by reference herein.
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(iii)
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Previously filed with Post-Effective Amendment No. 24 to the Registration Statement on July 31, 2003.
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(iv)
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Previously filed with Post-Effective Amendment No. 26 to the Registration Statement on July 29, 2004.
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(v)
|
Previously filed with Post-Effective Amendment No. 27 to the Registration Statement on May 31, 2005.
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(vi)
|
Previously filed with Post-Effective Amendment No. 28 to the Registration Statement on July 29, 2005.
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(vii) Previously filed with Post-Effective Amendment No. 29 to the Registration Statement on August 10, 2005.
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(viii)
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Previously filed with Post-Effective Amendment No. 36 to the Registration Statement on July 27, 2007 and incorporated by reference herein.
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Item 24. Persons Controlled by or under common control with the Company.
No person is presently controlled by or under common control with the Company.
Item 25. Indemnification
Indemnification provisions for officers, directors and employees of the Company are set forth in Article VIII, Sections one through three of the Amended and Restated Agreement and Declaration of Trust, and are hereby incorporated by reference. See Item 23 (a) (1) above. Under this Declaration of Trust, directors and officers will be indemnified to the fullest extent permitted to directors by the Massachusetts General Corporation Law, subject only to such limitations as may be required by the Investment Company Act of 1940, as amended, and the rules there under. Under the Investment Company Act of 1940, directors and officers of the Company cannot be protected against liability to the Fund or its
shareholders to which they would be subject because of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties of their office. The Company also maintains liability insurance policies covering its directors and officers.
Item 26. Business and Other Connections of Investment Adviser
There is set forth below information as to any other business, vocation or employment of a substantial nature in which each director or officer of Quantitative Investment Advisors, Inc., the Registrant’s investment adviser (the “Manager”), is or at any time during the past two fiscal years has been engaged for his own account or in the capacity of director, officer, employee, partner or trustee.
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Name
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Business and other connections
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|
Willard L. Umphrey:
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President/Treasurer/Clerk/Director, U.S. Boston Insurance
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Director Agency, Inc.; Director, U.S. Boston Capital Corporation; President
|
President
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/Director, USB Atlantic Associates, Inc.; Director/Treasurer, USB Corporation and U.S. Boston Corporation; Director, Pear Tree Partners Management LLC; Director, Sugarbush Solutions, Inc.; Director, U.S. Boston Asset Management Corporation,; Partner, U.S. Boston Company, U.S. Boston Company II; President/Chairman/Trustee, Quantitative Group of Funds, d/b/a Quant Funds.
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Leon Okurowski:
|
Director/President, U.S. Boston Corporation, USB
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|
Vice President, Treasurer,
|
Corporation; Vice President/Treasurer/Director,
|
|
Clerk and Director
|
U.S. Boston Capital Corporation; Vice President, U.S. Boston Insurance Agency, Inc.; Director, Medcool, Inc.; Director, Sugarbush Solutions, Inc.; Partner, U.S. Boston Company, U.S. Boston Company II; Treasurer/Vice President, Quantitative Group of Funds, d/b/a Quant Funds.
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|
Deborah A. Kessinger:
|
President and Chief Compliance Officer, U.S. Boston Capital
|
|
Chief Compliance Officer
|
Corporation; Chief Compliance Officer, Quantitative Group of Funds, d/b/a Quant Funds; Assistant Clerk, Quantitative Group of Funds, d/b/a Quant Funds.
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Steven M. Warner
|
Assistant Treasurer, Quantitative Group of Funds, d/b/a Quant Funds
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|
Controller
|
Controller, USB Corporation.
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The principal business address of each U.S. Boston affiliate named above is Lincoln North, 55 Old Bedford Road, Lincoln, Massachusetts 01773.
Item 27. Principal Underwriters
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(b)
|
The directors and officer of the Registrant’s principal underwriter are:
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Positions and
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Positions and
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|
|
Offices with
|
Offices with
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|
Name
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Underwriter
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Registrant
|
|
Deborah A. Kessinger
|
President and Chief
|
Chief Compliance Officer and
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|
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Compliance Officer
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Assistant Clerk
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Leon Okurowski
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Vice President,
|
Vice President and
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|
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Treasurer, Clerk and
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Treasurer
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Willard L. Umphrey
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Director
|
President, Chairman
|
The principal business address of each person listed above is Lincoln North, 55 Old Bedford Road, Lincoln, Massachusetts 01773.
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated there under include:
Registrant’s investment advisers:
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Quantitative Investment Advisors, Inc.
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Analytic Investors, LLC
500 South Grand Avenue,23rd Floor
Los Angeles, CA 90071
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PanAgora Asset Management, Inc.
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260 Franklin Street, 22
nd
Floor
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Columbia Partners, L.L.C., Investment Management
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5425 Wisconsin Avenue, Suite 700
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Polaris Capital Management, LLC
|
Registrant’s custodian:
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|
State Street – Kansas City
|
Registrant’s transfer agent:
Quantitative Institutional Services,
a division of Quantitative Investment Advisors, Inc.
Item 29. Management Services
Item 30. Undertakings
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Company certifies that it meets all the requirements for effectiveness of this Amendment to the Registration Statement pursuant Rule 485(a) under the Securities Act of 1933 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the town of Lincoln, County of Middlesex, and Commonwealth of Massachusetts, on the 14
th
day of February, 2008.
|
Attest:
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Quantitative Group of Funds d/b/a Quant Funds
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|
/s/ Leon Okurowski
|
/s/ Willard L. Umphrey
|
|
Leon Okurowski, Treasurer
|
Willard L. Umphrey, President
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
|
/s/ Robert M. Armstrong *
|
February 14, 2008
|
|
/s/ John M. Bulbrook *
|
February 14, 2008
|
|
/s/ Edward A. Burrows
*
|
February 14, 2008
|
|
/s/ William H. Dunla
p *
|
February 14, 2008
|
|
/s/ Clinton S. Marshall
*
|
February 14, 2008
|
|
/s/ Willard L. Umphrey
|
*
|
February 14, 2008
|
|
*By:
/s/ Willard L. Umphrey
|
February 14, 2008
|
EXHIBIT INDEX
Exhibit
|
|
(d)(1)
|
Form of Amended and Restated Management Contract Between
|
Quantitative Group of Funds and Quantitative Investment Advisors, Inc.
(formerly Quantitative Advisors, Inc.),
|
(d)(2)
|
Advisory Contract Between Quantitative Advisors and Panagora Asset
|
|
(d)(3)
|
Advisory Contract Between Quantitative Advisors and Analytic Investors, LLC,
|
|
(d)(4)
|
Form of Advisory Contract Between Quantitative Advisors and Polaris Capital
|
|
|
Management, LLC, Dated May 1, 2008- Foreign Value Small Cap Fund.
|
|
(e)(1)
|
Restated Distribution Agreement Dated February 1, 2008.
|
|
(e)(2)
|
Form of Restated Distribution Agreement Dated May 1, 2008.
|
|
(h)
|
Form of Amended and Restated Transfer Agent and Service Agreement, Dated May 1, 2008.
|
|
(p)(1)
|
Code of Ethics for the Fund Dated January 10, 2008.
|
|
(p)(2)
|
Code of Ethics - PanAgora Asset Management, Inc. Dated August 27, 2007.
|
|
(p)(3)
|
Code of Ethics - Polaris Capital Management Inc. Dated June 15, 2005, revised.
|
|
(p)(4)
|
Code of Ethics - Analytic Investors, LLC Dated September 30, 2005.
|
QUANTITATIVE INVESTMENT ADVISORS, INC.
d/b/a QUANTITATIVE ADVISORS
AMENDED AND RESTATED
MANAGEMENT CONTRACT
Amended and Restated Management Contract (“Contract”) effective as of May 1, 2008, between QUANTITATIVE GROUP OF FUNDS d/b/a QUANT FUNDS, a Massachusetts business trust (the “Fund”) and QUANTITATIVE INVESTMENT ADVISORS, INC. d/b/a QUANTITATIVE ADVISORS, a Delaware corporation (the “Manager”).
That in consideration of the mutual covenants herein contained, it is agreed as follows:
|
1.
|
SERVICES TO BE RENDERED BY MANAGER TO FUND.
|
|
|
(a)
|
Subject always to the control of the trustees (the “Trustees”) of the Fund, the Manager, will, at its expense, manage, supervise and conduct the affairs and business of the Fund and matters incidental thereto. In the performance of its duties, the Manager will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of the Fund, as amended, and its stated investment objectives, policies and restrictions as set forth in the then current Prospectus and/or Statement of Additional Information of the Fund, and will use its best efforts to safeguard and promote the welfare of the Fund and to comply with other written policies which the Trustees may from time-to-time determine and of which the Manager has received notice, and shall exercise the same care and diligence expected of the Trustees. In its management, supervision and
conduct of the Fund’s affairs and business, the Manager will do all things necessary so that each series of the Fund (the “Series”) may qualify as a “regulated investment company” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), and the Rules and Regulations thereunder.
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|
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(b)
|
Subject to the provisions of the Declaration of Trust and the Investment Company Act of 1940, as amended, (the “1940 Act”), the Manager may, at its expense, select and contract with investment advisers (the “Advisers”) for each of the Series and shall supervise any such Adviser. The Manager will compensate the Advisers for their services to the Fund from the fee paid to the Manager by the Fund pursuant to this Management Contract or from other funds available to the Manager.
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Page 1 of 6
|
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(c)
|
The Fund hereby agrees with the Manager and with any Adviser selected by the Manger as provided in Section 1(b) hereof that any entity or person associated with the Manager which is a member of a national securities exchange is authorized to effect any transaction on such exchange for the account of the Fund and any Series thereof which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
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|
|
(d)
|
Except to the extent that any such facilities are provided for any Series by its Adviser, the Manager, at its expense, will furnish (1) all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties faithfully, (2) suitable office space for the Fund; and (3) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the affairs of the Fund, but excluding shareholder accounting services. The Manager will pay the compensation, if any, of the officers of the Fund.
|
|
2.
|
OTHER AGREEMENTS, ETC.
|
It is understood that any of the shareholders, Trustees, officers and employees of the Fund may be a shareholder, partner, director, officer or employee of, or be otherwise interested in, the Manager, and in any person controlled by or under common control with the Manager, and that the Manager and any person controlled by or under common control with the Manager may have an interest in the Fund. It is also understood that the Manager and persons controlled by or under common control with the Manager have and may have advisory, management, service or other contracts with other organizations (including other investment companies and other managed accounts) and persons, and may have other interests and businesses.
|
3.
|
COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
|
The Fund will pay to the Manager, as compensation for the Manager’s services rendered, for the facilities furnished, and for the expenses borne by the Manager pursuant to Section 1, a fee, computed and paid monthly at the annual rate for each Series set forth in Schedule I. Such fee computed with respect to the net asset value of each of such Series shall be paid from the assets of such Series. Such aggregate average daily net asset value of the Series shall be determined by taking an average of all the determinations of such net asset value during such month at the close of business on each business day, and for non-business days, the net asset value determined on the previous business day, during such month while this Contract is in effect. Such fee shall be payable for each month within 30 days after the end of each month.
Page 2 of 6
In the event that the expenses of the Quantitative Small Cap Fund exceed 2% of such Series’ average net assets, the compensation due the Manager with respect to such Series for such year shall be reduced and, if necessary, the Manager shall assume expenses of the Series, to the extent required to reduce the Series’ expenses to 2% of average net assets. Series expenses subject to this limitation are exclusive of brokerage, interest, taxes and extraordinary expenses, if any and shall be calculated before giving effect to any custody credits.
|
|
If the Manager shall serve for less than the whole of a month, the foregoing
|
|
|
compensation shall be prorated.
|
4.
ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS TO
This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment; and this Contract shall not be amended as to any Series unless such amendment is approved at a meeting by an affirmative vote of a majority of the outstanding shares of the Series, and by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Manager or of the Advisors.
|
5.
|
EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
|
This Contract shall become effective upon its execution, and shall remain in full force and effect as to each Series continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows:
(a)
Either party hereto may at any time terminate this Contract as to any Series or as to the Fund as a whole by not more than sixty days’ nor less than thirty days’ written notice delivered or mailed by registered mail, postage prepaid, to the other party, or
(b)
If (i) the Trustees of the Fund, or the shareholders by the affirmative vote of a majority of the outstanding shares of any Series, and (ii) a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Manager, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate as to such Series at the close of business on the second anniversary of the effective date hereof or the expiration of one year from the effective date of the last such continuance, whichever is later; provided, however, that if the continuance of this Contract is submitted to the shareholders of a Series for their approval and such shareholders fail to approve such continuance of
this Contract as provided herein, the Manager may continue to serve hereunder in a manner consistent with the 1940 Act and the Rules and Regulations thereunder.
Page 3 of 6
Action by the Fund under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the one or more Series affected.
Termination of this Contract pursuant to this Section 5 shall be without the payment of any penalty.
For the purposes of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Fund or the Series, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Fund or the Series, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Fund or the Series, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “affiliated person”, “control”, “interested person” and “assignment” shall have their respective meanings defined in the 1940 Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission (“SEC”) under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act and the Rules and Regulations thereunder.
|
7.
|
NONLIABILITY OF MANAGER.
|
In the absence of willful misfeasance, bad faith or gross negligence on the part of the Manager, its partners, officers, directors, employees or agents or reckless disregard of the Manager’s obligations and duties hereunder, neither the Manager nor its officers, directors, employees or agents shall be subject to any liability to the Fund, or to any shareholder of the Fund, for any act or omission in the course of, or connected with, rendering services hereunder, provided however, that such limitation shall not apply to the extent such limitation violates Federal securities or other laws.
|
8.
|
LIMITS OF THE LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
|
A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Fund.
Page 4 of 6
IN WITNESS WHEREOF, QUANTITATIVE GROUP OF FUNDS d/b/a QUANT FUNDS and QUANTITATIVE INVESTMENT ADVISORS, INC. d/b/a QUANTITATIVE ADVISORS have each caused this instrument to be signed in duplicate in its behalf, all as of the day and year first above written.
QUANTITATIVE GROUP OF FUNDS d/b/a QUANT FUNDS
QUANTITATIVE INVESTMENT ADVISORS, INC. d/b/a QUANTITATIVE ADVISORS
Page 5 of 6
Schedule I to
Amended and Restated Management Contract dated as of May 1, 2008
Between Quantitative Group of Funds d/b/a Quant Funds and
Quantitative Investment Advisors, Inc. d/b/a Quantitative Advisors
Management Fee (as a
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Series
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Percentage of Net Assets)
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Quantitative Small Cap Fund
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1.00%
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Quantitative Long/Short Fund
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1.00%
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Quantitative Emerging Markets Fund
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1.00%
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Quantitative Foreign Value Fund
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1.00%
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Quantitative Foreign Value Small Cap Fund
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1.00%
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Page 6 of 6
QUANTITATIVE INVESTMENT ADVISORS, INC.
ADVISORY CONTRACT
Advisory Contract (“Contract”) dated as of August 3, 2007, between QUANTITATIVE INVESTMENT ADVISORS, INC., a Delaware corporation (the “Manager”) and PanAgora Asset Management, Inc., a Delaware corporation (the “Advisor”).
WITNESSETH:
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That in consideration of the mutual covenants herein contained, it is agreed as follows:
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1.
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SERVICES TO BE RENDERED BY ADVISOR TO TRUST.
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(a) Subject always to the control of the trustees (the “Trustees”) of Quantitative Group of Funds, a Massachusetts business trust (the “Trust”), and the Manager, the Advisor, at its expense, will furnish continuously an investment program for the Quantitative Emerging Markets Fund d/b/a Quant Emerging Markets Fund (the “Fund”) of the Trust. The Advisor will determine what securities shall be purchased, held, sold or exchanged by the Fund and what portion, if any, of the assets of the Fund shall be held uninvested and shall, on behalf of the Fund, make changes in the Fund’s investments. In the performance of its duties, the Advisor will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, as amended, and the stated investment objectives, policies and
restrictions of the Fund as set forth in the then current Prospectus and/or Statement of Additional Information of the Trust and with other written policies which the Trustees or the Manager may from time-to-time determine and of which the Advisor has received notice. In furnishing an investment program to the Fund and in determining what securities shall be purchased, held, sold or exchanged by the Fund, the Advisor shall (1) comply in all material respects with all provisions of applicable law governing its duties and responsibilities hereunder, including, without limitation, the Investment Company Act of 1940 (the “1940 Act”), and the Rules and Regulations thereunder; the Investment Advisors Act of 1940, and the Rules and Regulations thereunder; the Internal Revenue Code of 1986, as amended (the “Code”), relating to regulated investment companies and all Rules and Regulations thereunder; the Insider Trading and Securities Fraud Enforcement Act of 1988; and such
other laws as may be applicable to its activities as Advisor to the Fund and (2) use its best efforts to manage the Fund so that the Fund will qualify, and continue to qualify, as a regulated investment company under Subchapter M of the Code and regulations issued thereunder. The Advisor shall make its officers and employees available to the Manager or Trustees from time-to-time at reasonable times to review investment policies of the Fund and to consult with the Manager or Trustees regarding the investment affairs of the Fund.
(b) The Advisor, at its expense, will (1) furnish all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties hereunder, (2) keep records relating to the purchase, sale or current status of portfolio securities, (3) provide clerical personnel and equipment necessary for the efficient rendering of investment advice to the Fund, (4) furnish to the Manager such reports and records regarding the Fund and the Advisor as the Manager or Trustees shall from time-to-time request, and, (5) upon reasonable notice, review written references to the Advisor, or its methodology, whether in a Prospectus, Statement of Additional Information, sales material or otherwise. The Advisor shall have no obligation with respect to the determination of the Fund’s net asset value, except to provide
the Trust’s custodian with information as to the securities held in the Fund’s portfolio. The Advisor shall not be obligated to provide shareholder accounting services.
(c) The Advisor shall place all orders for the purchase and sale of portfolio investments for the Fund’s account with brokers or dealers selected by the Advisor. In the selection of such brokers or dealers and the placing of such orders, the Advisor shall use its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent that it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain for the Fund the most favorable price and execution available, the Advisor, bearing in mind the Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the
commission, if any, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker or dealer involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such written policies as the Trustees or the Manager may determine, and of which the Advisor has received notice and which the Advisor has accepted in writing, the Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by this Contract or otherwise solely by reason of its having caused the Fund to pay a broker or dealer that provides brokerage and research services to the Advisor and/or the Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Advisor determines in good faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Advisor’s and/or Manager’s overall responsibilities with respect to the Trust and to other clients as to which the Advisor and/or Manager or persons controlled by or under common control with the Advisor and/or Manager exercise investment discretion. The Advisor agrees that in connection with purchase or sales of portfolio instruments for the Fund’s account, neither the Advisor nor any officer, director, employee or agent of the Advisor shall act as principal or receive any commission other than as provided in Section 3.
(d) The assets of the Fund shall be held by the Trust’s custodian in an account which the Trust has directed the Custodian to open. The Advisor shall at no time have custody or physical control of any of the assets of the Fund. The Manager shall cause such custodian to provide the Advisor with such information and reports concerning the Fund or its assets as the Advisor may from time to time reasonably request and to accept instructions from the Advisor with respect to such assets and transactions by the Fund in the performance of the Advisor’s duties hereunder. The Advisor shall have no liability or obligation to pay the cost of such custodian or any of its services.
(e) Advice rendered to the Fund shall be confidential and may not be used by any shareholder, Trustee, officer, director, employee or agent of the Trust or of the Manager or by the advisor of any other fund of the Trust. Non-public information provided to the Manager on a confidential basis regarding the methodology of the Advisor shall not be made publicly available by the Manager, except that such information may be disclosed to the Trustees and may be disclosed to the extent necessary to comply with the federal and state securities laws and, after notice to the Advisor, upon order of any court or administrative agency or self regulatory organization of which the Manager or its affiliates are members.
(f) The Advisor shall not be obligated to pay any expenses of or for the Fund not expressly assumed by the Advisor pursuant to this Section 1.
Page 2 of 8
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2.
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OTHER AGREEMENTS, ETC.
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It is understood that any of the shareholders, Trustees, officers and employees of the Trust may be a shareholder, partner, director, officer or employee of, or be otherwise interested in, the Advisor, and in any person controlled by or under common control with the Advisor, and that the Advisor and any person controlled by or under common control with the Advisor may have an interest in the Trust. It is also understood that the Advisor and persons controlled by or under common control with the Advisor have and may have advisory, management, service or other contracts with other organizations (including other investment companies and other managed accounts) and persons, and may have other interests and businesses.
Nothing in this Contract shall prohibit the Advisor or any of its affiliates from providing any services for any other person or entity or limit the services which the Advisor or any such affiliate can provide to any person or entity. The Manager understands and agrees that the Advisor and its affiliates perform investment advisory and investment management services for various clients other than the Manager and the Trust. The Manager agrees that the Advisor and its affiliates may give advice and take action in the performance of duties with respect to any other client which may differ from advice given, or the timing or nature of action taken, with respect to the Fund. Nothing in this Contract shall be deemed to impose upon the Advisor any obligation to purchase or sell or to recommend for purchase or sale for the Fund any security or other property which the Advisor or any of its
affiliates may purchase or sell for its own account or for the account of any other client, so long as it continues to be the policy and practice of the Advisor not to favor or disfavor consistently or consciously any client or class of clients in the allocation of investment opportunities, so that to the extent practical, such opportunities will be allocated among clients over a period of time on a fair and equitable basis.
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3.
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COMPENSATION TO BE PAID BY THE MANAGER TO THE ADVISOR.
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The Manager will pay to the Advisor, as compensation for the Advisor’s services rendered and for the expenses borne by the Advisor pursuant to Section 1, a fee, computed and paid monthly at the annual rate of 0.40% of the aggregate average daily net asset value of the Fund. Such fee shall be paid by the Manager and not by the Fund out of the management fee paid by the Trust to the Manager pursuant to the Management Contract between the Manager and the Trust or out of any other funds available to the Manager. Such average daily net asset value of the Fund shall be determined by taking an average of all the determinations of such net asset value during such month at the close of business on each business day, and for non-business days, the net asset value determined on the previous business day, during such month while this Contract is in effect. Such fee shall be payable for each
month within 30 days after the end of each month.
If the Advisor shall serve for less than the whole of a month, the foregoing compensation shall be prorated.
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4.
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ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS TO THIS CONTRACT.
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This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment or in the event that the Management Contract between the Trust and the Manager is terminated generally, or with respect to the Fund; and this Contract shall not be amended unless (i) such amendment is approved at a meeting by an affirmative vote of a majority of the outstanding shares of the Fund, and (ii) by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not
Page 3 of 8
interested persons of the Trust or of the Manager or of the Advisor. Notwithstanding the foregoing, shareholder approval will not be required for amendments to this Contract if the Fund obtains an exemptive order from the Securities and Exchange Commission permitting amendments to this Contract without shareholder approval.
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5.
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EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
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This Contract shall become effective on August 3, 2007 or such other time as shall be agreed upon by the Manager and the Advisor, and shall remain in full force and effect as to the Fund continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows:
(a) The Trust or the Manager may at any time terminate this Contract as to the Fund by not more than sixty days’ or less than thirty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Advisor, or
(b) The Advisor may at any time terminate this Contract as to the Fund by not less than one hundred fifty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Manager, or
(c) If (i) the Trustees of the Trust, or the shareholders by the affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager or of the Advisor, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate as to the Fund at the close of business on the second anniversary of the effective date hereof or the expiration of one year from the effective date of the last such continuance, whichever is later; provided, however, that if the continuance of this Contract is submitted to the shareholders of the Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Advisor may continue to serve hereunder in a manner consistent with the 1940 Act and the Rules and Regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be without the payment of any penalty.
For the purposes of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Trust or the Fund, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “affiliated person”, “control”, “interested person” and “assignment” shall have their respective meanings defined in the 1940 Act and the
Page 4 of 8
Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission (“SEC”) under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act and the Rules and Regulations thereunder; and the term “brokerage and research services” shall have the meaning given by the Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
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7.
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NONLIABILITY OF ADVISOR.
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Notwithstanding any other agreement to the contrary, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, its partners, officers, directors, employees or agents or reckless disregard of the Advisor’s obligations and duties hereunder, neither the Advisor nor its officers, directors, employees or agents shall be subject to any liability to the Trust or to the Manager, or to any shareholder of the Trust, for any act or omission in the course of, or connected with, rendering services hereunder, unless the Advisor is claiming indemnity from any of them in connection herewith, but then only to the extent of the indemnity obtained.
The Advisor shall have the power to vote, either in person or by proxy, all securities in which assets of the Fund may be invested from time to time and shall not be required to seek or take instructions from the Manager or the Trustees of the Trust, or to take any action, with respect thereto.
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9.
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REPRESENTATIONS AND COVENANTS OF THE MANAGER.
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(a) The Manager represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith. In addition, the Manager represents, warrants and covenants to the Advisor that it has the power, capacity and authority to commit the Trust to this Contract; that a true and complete copy of the Agreement and Declaration of Trust and By-Laws of the Trust and the stated objectives, policies and restrictions of the Fund have been delivered to the Advisor; and that true and complete copies of every amendment thereto will be delivered to the Advisor as promptly as practicable after the adoption thereof. The Manager agrees that notwithstanding any other
provision of this Contract to the contrary, the Advisor will not be bound by any such amendment until the Advisor has received a copy thereof and has had a reasonable opportunity to review it.
(b) The Manager shall indemnify and hold harmless the Advisor, its partners, officers, employees and agents and each person, if any, who controls the Advisor within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Advisor to perform its responsibilities hereunder or claims arising from its acts or failure to act in performing this Contract)
to which the Advisor or any other Indemnified Party may become subject under any federal or state law as a result of any failure of the Manager or, if caused by any failure of the Manager, of the Trust or the Fund, to disclose a material fact, or any omission by the Manager, or, if caused by any failure of the
Page 5 of 8
Manager, of the Trust or the Fund, to disclose a material fact, in any document relating to the Trust or the Fund, except any failure or omission caused solely by (i) the incorporation in any such document of information relating to the Advisor which is furnished to the Manager in writing by or with the consent of the Advisor expressly for inclusion in such document or (ii) a breach, of which the Manager was not aware, by the Advisor of its duties hereunder. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Manager shall assume the reasonable expenses and costs (including any reasonable attorneys’ fees and costs) of the Indemnified Party or investigating and/or defending any claim asserted or threatened by any party, subject always to the Manager first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the
event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
(c) No public reference to, or description of, the Advisor or its methodology or work shall be made by the Manager or the Trust, whether in a prospectus, Statement of Additional Information or otherwise, unless the Manager provides the Advisor with a reasonable opportunity to review any such reference or description prior to the first use of such reference or description..
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10.
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REPRESENTATIONS AND COVENANTS OF THE ADVISOR.
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(a) The Advisor represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law, or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith.
(b) The Advisor shall immediately notify the Manager in the event that the Advisor or any of its affiliates: (1) becomes aware that it is subject to a statutory disqualification that prevents the Advisor from serving as investment advisor pursuant to this Contract; or (2) becomes aware that it the subject of an administrative proceeding or enforcement action by the SEC or any other regulatory authority. The Advisor further agrees to notify the Manager immediately of any material fact known to the Advisor respecting or relating to the Advisor that is not contained in the Trust’s Registration Statement regarding the Fund, or any amendment or supplement thereto, but that is required to be disclosed therein, and of any statement contained therein that becomes untrue in any material respect.
(c) The Advisor agrees to maintain such books and records with respect to its services to the Fund as are required under the 1940 Act, and rules adopted thereunder, and by other applicable legal provisions, and to preserve such records for the periods and in the manner required by that Section, and those rules and legal provisions. The Advisor also agrees that records it maintains and preserves pursuant to Rule 31a-1 and Rule 31a-2 under the 1940 Act and otherwise in connection with its services hereunder are the property of the Trust and will be surrendered promptly to the Trust upon its request. The Advisor further agrees that it will furnish to regulatory authorities having the requisite authority any information or reports in connection with its services hereunder which may be requested in order to determine whether the operations
of the Fund are being conducted in accordance with applicable laws and regulations.
(d) The Advisor shall provide the Manager with quarterly representations regarding the compliance of its’ employees with the Advisor’s code of ethics governing personal securities transactions. The Advisor shall provide the Manager with copies of any revisions to its code of ethics.
Page 6 of 8
(e) The Advisor shall indemnify and hold harmless the Manager, the Fund, their partners, officers, employees and agents and each person, if any, who controls the Manager or Fund within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Manager to perform its responsibilities hereunder or claims arising from its acts or failure to act in
performing this Contract) arising from Advisor’s (or its respective agents and employees) failure to perform its duties and assume its obligations hereunder, including any action or claim against the Manager based on any alleged untrue statement or misstatement of a material fact made or provided in writing by or with the consent of Advisor contained in any registration statement, prospectus, shareholder report or other information or materials relating to the Fund and shares issued by the Fund, or the failure or alleged failure to state a material fact therein required to be stated in order that the statements therein are not misleading, which fact should have been made known or provided by the Advisor to the Manager. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Advisor shall assume the reasonable expenses and costs (including any reasonable attorneys’ fees and costs) of the Indemnified Party of investigating and/or
defending any claim asserted or threatened by any party, subject always to the Advisor first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
It is understood that the name of the Fund (as it may be changed from time to time while the Advisor provides services pursuant to this Contract) or any derivative thereof or logo associated with that name is the valuable property of the Trust and/or its affiliates, and that the Advisor has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Advisor is Advisor to the Trust and/or the Fund. Upon termination of this Contract the Advisor shall forthwith cease to use such name (or derivative or logo).
This Contract shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws, except to the extent such laws shall be preempted by the Investment Company Act of 1940 or by other applicable laws.
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13.
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INDEPENDENT CONTRACTOR.
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Advisor shall for all purposes of this Contract be deemed to be an independent contractor and, except as otherwise expressly provided herein, shall have no authority to act for, bind or represent the Fund in any way or otherwise be deemed to be an agent of the Fund. Likewise, the Fund, the Manager and their affiliates, agents and employees shall not be deemed agents of the Advisor and shall have no authority to bind the Advisor.
Page 7 of 8
(a) The captions of this Contract are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
(b) In the event that the Advisor or Manager is or becomes a party to any action or proceedings in respect of which indemnification may be sought hereunder, the party seeking indemnification shall promptly notify the other party thereof. The party from whom indemnification is sought shall not be liable hereunder for any settlement of any action or claim effected without its written consent, which consent shall not be reasonably withheld.
(c) This Contract may be executed in one or more counterparts, all of which taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF
, QUANTITATIVE INVESTMENT ADVISORS, INC. and PANAGORA ASSET MANAGEMENT, INC. have each caused this instrument to be signed in duplicate in its behalf, all as of the day and year first above written.
QUANTITATIVE INVESTMENT ADVISORS, INC.
By
/s/ Willard L. Umphrey
PANAGORA ASSET MANAGEMENT, INC.
By
/s/ Louis X. Iglesias
Name: Louis X. Iglesias
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Title:
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Chief Compliance Officer
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Page 8 of 8
QUANTITATIVE INVESTMENT ADVISORS, INC.
ADVISORY CONTRACT
Advisory Contract (“Contract”) dated as of January 2, 2008, between QUANTITATIVE INVESTMENT ADVISORS, INC., a Delaware corporation (the “Manager”), and ANALYTIC INVESTORS, LLC, a Delaware limited liability corporation (the “Advisor”).
WITNESSETH:
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That in consideration of the mutual covenants herein contained, it is agreed as follows:
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1.
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SERVICES TO BE RENDERED BY ADVISOR TO TRUST.
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(a) Subject always to the control of the trustees (the “Trustees”) of Quantitative Group of Funds, a Massachusetts business trust (the “Trust”), and the Manager, the Advisor, at its expense, will furnish continuously an investment program for the Quant Long/Short Fund (the “Fund”) of the Trust. The Advisor will determine what securities shall be purchased, held, sold or exchanged by the Fund and what portion, if any, of the assets of the Fund shall be held uninvested and shall, on behalf of the Fund, make changes in the Fund’s investments. In the performance of its duties, the Advisor will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, as amended, and the stated investment objectives, policies and restrictions of the Fund as set forth in the then
current Prospectus and/or Statement of Additional Information of the Trust and with other written policies which the Trustees or the Manager may from time-to-time determine and of which the Advisor has received notice. In furnishing an investment program to the Fund and in determining what securities shall be purchased, held, sold or exchanged by the Fund, the Advisor shall (1) comply in all material respects with all provisions of applicable law governing its duties and responsibilities hereunder, including, without limitation, the Investment Company Act of 1940 (the “1940 Act”), and the Rules and Regulations thereunder; the Investment Advisors Act of 1940, and the Rules and Regulations thereunder; the Internal Revenue Code of 1986, as amended (the “Code”), relating to regulated investment companies and all Rules and Regulations thereunder; the Insider Trading and Securities Fraud Enforcement Act of 1988; and such other laws as may be applicable to its activities
as Advisor to the Fund and (2) use its best efforts to manage the Fund so that the Fund will qualify, and continue to qualify, as a regulated investment company under Subchapter M of the Code and regulations issued thereunder. The Advisor shall make its officers and employees available to the Manager or Trustees from time-to-time at reasonable times to review investment policies of the Fund and to consult with the Manager or Trustees regarding the investment affairs of the Fund.
(b) The Advisor, at its expense, will (1) furnish all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties hereunder, (2) keep records relating to the purchase, sale or current status of portfolio securities, (3) provide clerical personnel and equipment necessary for the efficient rendering of investment advice to the Fund, (4) furnish to the Manager such reports and records regarding the Fund and the Advisor as the Manager or Trustees shall from time-to-time request, and, (5) upon reasonable notice, review written references to the Advisor, or its methodology, whether in a Prospectus, Statement of Additional Information, sales material or otherwise. The Advisor shall have no obligation with respect to the determination of the Fund’s net asset value, except to provide
the Trust’s custodian with information as to the securities held in the Fund’s portfolio. The Advisor shall not be obligated to provide shareholder accounting services.
(c) The Advisor shall place all orders for the purchase and sale of portfolio investments for the Fund’s account with brokers or dealers selected by the Advisor. In the selection of such brokers or dealers and the placing of such orders, the Advisor shall use its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent that it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain for the Fund the most favorable price and execution available, the Advisor, bearing in mind the Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the
commission, if any, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker or dealer involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such written policies as the Trustees or the Manager may determine, and of which the Advisor has received notice and which the Advisor has accepted in writing, the Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by this Contract or otherwise solely by reason of its having caused the Fund to pay a broker or dealer that provides brokerage and research services to the Advisor and/or the Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Advisor determines in good faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Advisor’s and/or Manager’s overall responsibilities with respect to the Trust and to other clients as to which the Advisor and/or Manager or persons controlled by or under common control with the Advisor and/or Manager exercise investment discretion. The Advisor agrees that in connection with purchase or sales of portfolio instruments for the Fund’s account, neither the Advisor nor any officer, director, employee or agent of the Advisor shall act as principal or receive any commission other than as provided in Section 3.
On occasions when the Advisor deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients of the Advisor, the Advisor to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the allocation of expenses incurred in the transaction, will be made by the Advisor in the manner the Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to its other clients.
(d) The assets of the Fund shall be held by the Trust’s custodian in an account which the Trust has directed the Custodian to open. The Advisor shall at no time have custody or physical control of any of the assets of the Fund. The Manager shall cause such custodian to provide the Advisor with such information and reports concerning the Fund or its assets as the Advisor may from time to time reasonably request and to accept instructions from the Advisor with respect to such assets and transactions by the Fund in the performance of the Advisor’s duties hereunder. The Advisor shall not be liable for the acts of omissions of the custodian and shall have no liability or obligation to pay the cost of such custodian or any of its services.
(e) Advice rendered to the Fund shall be confidential and may not be used by any shareholder, Trustee, officer, director, employee or agent of the Trust or of the Manager or by the advisor of any other fund of the Trust. Non-public information provided to the Manager on a confidential basis regarding the methodology of the Advisor shall not be made publicly available
Page 2 of 8
by the Manager, except that such information may be disclosed to the Trustees and may be disclosed to the extent necessary to comply with the federal and state securities laws and, after notice to the Advisor, upon order of any court or administrative agency or self regulatory organization of which the Manager or its affiliates are members.
(f) The Advisor shall not be obligated to pay any expenses of or for the Fund including, without limitation, interest, taxes, brokerage commissions, other costs in connection with purchase or sale of securities or other investment instruments with respect to the Fund, and the fees and expense of any other service providers to the Fund) not expressly assumed by the Advisor pursuant to this Section 1.
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2.
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OTHER AGREEMENTS, ETC.
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It is understood that any of the shareholders, Trustees, officers and employees of the Trust may be a shareholder, partner, director, officer or employee of, or be otherwise interested in, the Advisor, and in any person controlled by or under common control with the Advisor, and that the Advisor and any person controlled by or under common control with the Advisor may have an interest in the Trust. It is also understood that the Advisor and persons controlled by or under common control with the Advisor have and may have advisory, management, service or other contracts with other organizations (including other investment companies and other managed accounts) and persons, and may have other interests and businesses.
Nothing in this Contract shall prohibit the Advisor or any of its affiliates from providing any services for any other person or entity or limit the services which the Advisor or any such affiliate can provide to any person or entity. The Manager understands and agrees that the Advisor and its affiliates perform investment advisory and investment management services for various clients other than the Manager and the Trust. The Manager agrees that the Advisor and its affiliates may give advice and take action in the performance of duties with respect to any other client which may differ from advice given, or the timing or nature of action taken, with respect to the Fund. Nothing in this Contract shall be deemed to impose upon the Advisor any obligation to purchase or sell or to recommend for purchase or sale for the Fund any security or other property which the Advisor or any of its
affiliates may purchase or sell for its own account or for the account of any other client, so long as it continues to be the policy and practice of the Advisor not to favor or disfavor consistently or consciously any client or class of clients in the allocation of investment opportunities, so that to the extent practical, such opportunities will be allocated among clients over a period of time on a fair and equitable basis.
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3.
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COMPENSATION TO BE PAID BY THE MANAGER TO THE ADVISOR.
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The Manager will pay to the Advisor, as compensation for the Advisor’s services rendered and for the expenses borne by the Advisor pursuant to Section 1, a fee, computed and paid monthly at the annual rate of 0.45% of the first $100 million and 0.40% of amounts in excess of $100 million of the aggregate average daily net asset value of the Fund. Such fee shall be paid by the Manager and not by the Fund out of the management fee paid by the Trust to the Manager pursuant to the Management Contract between the Manager and the Trust or out of any other funds available to the Manager. Such average daily net asset value of the Fund shall be determined by taking an average of all the determinations of such net asset value during such month at the close of business on each business day, and for non-business days, the net asset value determined on the previous business day, during such
month while this Contract is in effect. Such fee shall be payable for each month within 30 days after the end of each month.
Page 3 of 8
If the Advisor shall serve for less than the whole of a month, the foregoing compensation shall be prorated.
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4.
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ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS TO THIS CONTRACT.
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This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment or in the event that the Management Contract between the Trust and the Manager is terminated generally, or with respect to the Fund; and this Contract shall not be amended unless (i) such amendment is approved at a meeting by an affirmative vote of a majority of the outstanding shares of the Fund, and (ii) by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager or of the Advisor. Notwithstanding the foregoing, shareholder approval will not be required for amendments to this Contract if the Fund obtains an exemptive order from the Securities and Exchange Commission permitting amendments to this Contract without shareholder approval or if
otherwise permitted by the 1940 Act or the rules and regulations thereunder.
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5.
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EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
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This Contract shall become effective on January 2, 2008 or such other time as shall be agreed upon by the Manager and the Advisor, and shall remain in full force and effect as to the Fund continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows:
(a) The Trust or the Manager may at any time terminate this Contract as to the Fund by not more than sixty days’ or less than thirty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Advisor, or
(b) The Advisor may at any time terminate this Contract as to the Fund by not less than one hundred fifty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Manager, or
(c) If (i) the Trustees of the Trust, or the shareholders by the affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager or of the Advisor, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate as to the Fund at the close of business on the second anniversary of the effective date hereof or the expiration of one year from the effective date of the last such continuance, whichever is later; provided, however, that if the continuance of this Contract is submitted to the shareholders of the Fund for their approval and such shareholders fail to approve such
continuance of this Contract as provided herein, the Advisor may continue to serve hereunder in a manner consistent with the 1940 Act and the Rules and Regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be without the payment of any penalty.
Page 4 of 8
For the purposes of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Trust or the Fund, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “affiliated person”, “control”, “interested person” and “assignment” shall have their respective meanings defined in the 1940 Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission (“SEC”) under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act and the Rules and Regulations thereunder; and the term “brokerage and research services” shall have the meaning given by the Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
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7.
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NONLIABILITY OF ADVISOR.
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Notwithstanding any other agreement to the contrary, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, its partners, officers, directors, employees or agents or reckless disregard of the Advisor’s obligations and duties hereunder, neither the Advisor nor its officers, directors, employees or agents shall be subject to any liability to the Trust or to the Manager, or to any shareholder of the Trust, for any act or omission in the course of, or connected with, rendering services hereunder, unless the Advisor is claiming indemnity from any of them in connection herewith, but then only to the extent of the indemnity obtained.
The Advisor shall have the power to vote, either in person or by proxy, all securities in which assets of the Fund may be invested from time to time and shall not be required to seek or take instructions from the Manager or the Trustees of the Trust, or to take any action, with respect thereto.
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9.
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REPRESENTATIONS AND COVENANTS OF THE MANAGER.
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(a) The Manager represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith. In addition, the Manager represents, warrants and covenants to the Advisor that it has the power, capacity and authority to commit the Trust to this Contract; that a true and complete copy of the Agreement and Declaration of Trust and By-Laws of the Trust and the stated objectives, policies and restrictions of the Fund have been delivered to the Advisor; and that true and complete copies of every amendment thereto will be delivered to the Advisor as promptly as practicable after the adoption thereof. The Manager agrees that notwithstanding any other
provision of this Contract to the contrary, the Advisor will not be bound by any such amendment until the Advisor has received a copy thereof and has had a reasonable opportunity to review it.
Page 5 of 8
(b) The Manager shall indemnify and hold harmless the Advisor, its partners, officers, employees and agents and each person, if any, who controls the Advisor within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Advisor to perform its responsibilities hereunder or claims arising from its acts or failure to act in performing this Contract)
to which the Advisor or any other Indemnified Party may become subject under any federal or state law as a result of any failure of the Manager or, if caused by any failure of the Manager, of the Trust or the Fund, to disclose a material fact, or any omission by the Manager, or, if caused by any failure of the Manager, of the Trust or the Fund, to disclose a material fact, in any document relating to the Trust or the Fund, except any failure or omission caused solely by (i) the incorporation in any such document of information relating to the Advisor which is furnished to the Manager in writing by or with the consent of the Advisor expressly for inclusion in such document or (ii) a breach, of which the Manager was not aware, by the Advisor of its duties hereunder. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Manager shall assume the reasonable expenses and costs (including any reasonable attorneys’ fees and costs) of the
Indemnified Party of investigating and/or defending any claim asserted or threatened by any party, subject always to the Manager first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
(c) No public reference to, or description of, the Advisor or its methodology or work shall be made by the Manager or the Trust, whether in a prospectus, Statement of Additional Information or otherwise, unless the Manager provides the Advisor with a reasonable opportunity to review any such reference or description prior to the first use of such reference or description..
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10.
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REPRESENTATIONS AND COVENANTS OF THE ADVISOR.
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(a) The Advisor represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law, or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith.
(b) The Advisor shall immediately notify the Manager in the event that the Advisor or any of its affiliates: (1) becomes aware that it is subject to a statutory disqualification that prevents the Advisor from serving as investment advisor pursuant to this Contract; or (2) becomes aware that it the subject of an administrative proceeding or enforcement action by the SEC or any other regulatory authority. The Advisor further agrees to notify the Manager immediately of any material fact known to the Advisor respecting or relating to the Advisor that is not contained in the Trust’s Registration Statement regarding the Fund, or any amendment or supplement thereto, but that is required to be disclosed therein, and of any statement contained therein respecting or relating to the Advisor that becomes untrue in any material respect.
(c) The Advisor agrees to maintain such books and records with respect to its services to the Fund as are required under the 1940 Act, and rules adopted thereunder, and by other applicable legal provisions, and to preserve such records for the periods and in the manner
Page 6 of 8
required by that Section, and those rules and legal provisions. The Advisor also agrees that records it maintains and preserves pursuant to Rule 31a-1 and Rule 31a-2 under the 1940 Act and otherwise in connection with its services hereunder are the property of the Trust and will be surrendered promptly to the Trust upon its request. The Advisor further agrees that it will furnish to regulatory authorities having the requisite authority any information or reports in connection with its services hereunder which may be requested in order to determine whether the operations of the Fund are being conducted in accordance with applicable laws and regulations.
(d) The Advisor shall provide the Manager with quarterly representations regarding the compliance of its’ employees with the Advisor’s code of ethics governing personal securities transactions. The Advisor shall provide the Manager with copies of any revisions to its code of ethics.
(e) The Advisor shall indemnify and hold harmless the Manager, the Fund, their partners, officers, employees and agents and each person, if any, who controls the Manager or Fund within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Manager to perform its responsibilities hereunder or claims arising from its acts or failure to act in
performing this Contract) arising from Advisor’s (or its respective agents and employees) failure to perform its duties and assume its obligations hereunder, including any action or claim against the Manager based on any alleged untrue statement or misstatement of a material fact respecting or relating to the Advisor its duties and obligations under this agreement made or provided in writing by or with the consent of Advisor contained in any registration statement, prospectus, shareholder report or other information or materials relating to the Fund and shares issued by the Fund, or the failure or alleged failure to state a material fact therein respecting or relating to the Advisor required to be stated in order that the statements therein are not misleading, which fact should have been made known or provided by the Advisor to the Manager. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Advisor shall assume the reasonable expenses
and costs (including any reasonable attorneys’ fees and costs) of the Indemnified Party of investigating and/or defending any claim asserted or threatened by any party, subject always to the Advisor first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
It is understood that the name of the Fund (as it may be changed from time to time while the Advisor provides services pursuant to this Contract) or any derivative thereof or logo associated with that name is the valuable property of the Trust and/or its affiliates, and that the Advisor has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Advisor is the advisor to the Trust and/or the Fund. Upon termination of this Contract the Advisor shall forthwith cease to use such name (or derivative or logo).
Page 7 of 8
This Contract shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws, except to the extent such laws shall be preempted by the 1940 Act or by other applicable laws.
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13.
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INDEPENDENT CONTRACTOR.
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Advisor shall for all purposes of this Contract be deemed to be an independent contractor and, except as otherwise expressly provided herein, shall have no authority to act for, bind or represent the Fund in any way or otherwise be deemed to be an agent of the Fund. Likewise, the Fund, the Manager and their affiliates, agents and employees shall not be deemed agents of the Advisor and shall have no authority to bind the Advisor.
(a) The captions of this Contract are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
(b) In the event that the Advisor or Manager is or becomes a party to any action or proceedings in respect of which indemnification may be sought hereunder, the party seeking indemnification shall promptly notify the other party thereof. The party from whom indemnification is sought shall not be liable hereunder for any settlement of any action or claim effected without its written consent, which consent shall not be reasonably withheld.
(c) This Contract may be executed in one or more counterparts, all of which taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF
, QUANTITATIVE INVESTMENT ADVISORS, INC. and ANALYTIC INVESTORS, LLC have each caused this instrument to be signed in duplicate in its behalf, all as of the day and year first above written.
QUANTITATIVE INVESTMENT ADVISORS, INC.
By_
/s/ Willard L. Umphrey
ANALYTIC INVESTORS, LLC
By
/s/ Marie Nastasi Arlt
Name: Marie Nastasi Arlt
Title: Chief Operating Officer
Page 8 of 8
QUANTITATIVE INVESTMENT ADVISORS, INC.
ADVISORY CONTRACT
Advisory Contract (“Contract”) dated as of May 1, 2008, between QUANTITATIVE INVESTMENT ADVISORS, INC., a Massachusetts corporation (the “Manager”) and POLARIS CAPITAL MANAGEMENT, LLC, a Massachusetts limited liability company (the “Advisor”).
That in consideration of the mutual covenants herein contained, it is agreed as follows:
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1.
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SERVICES TO BE RENDERED BY ADVISOR TO TRUST.
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(a) Subject always to the control of the trustees (the “Trustees”) of Quantitative Group of Funds, a Massachusetts business trust (the “Trust”), and the Manager, the Advisor, at its expense, will furnish continuously an investment program for the Quantitative Foreign Value Small Cap Fund (the “Fund”) of the Trust. The Advisor will determine what securities shall be purchased, held, sold or exchanged by the Fund and what portion, if any, of the assets of the Fund shall be held uninvested and shall, on behalf of the Fund, make changes in the Fund’s investments. In the performance of its duties, the Advisor will comply with the provisions of the Agreement and Declaration of Trust and By-Laws of the Trust, as amended, and the stated investment objectives, policies and restrictions of the Fund as set forth in the
then current Prospectus and/or Statement of Additional Information of the Trust and with other written policies which the Trustees or the Manager may from time-to-time determine and of which the Advisor has received notice. In furnishing an investment program to the Fund and in determining what securities shall be purchased, held, sold or exchanged by the Fund, the Advisor shall (1) comply in all material respects with all provisions of applicable law governing its duties and responsibilities hereunder, including, without limitation, the Investment Company Act of 1940 (the “1940 Act”), and the Rules and Regulations thereunder; the Investment Advisors Act of 1940, and the Rules and Regulations thereunder; the Internal Revenue Code of 1986, as amended (the “Code”), relating to regulated investment companies and all Rules and Regulations thereunder; the Insider Trading and Securities Fraud Enforcement Act of 1988; and such other laws as may be applicable to its
activities as Advisor to the Fund and (2) use its best efforts to manage the Fund so that the Fund will qualify, and continue to qualify, as a regulated investment company under Subchapter M of the Code and regulations issued thereunder. The Advisor shall make its officers and employees available to the Manager or Trustees from time-to-time at reasonable times to review investment policies of the Fund and to consult with the Manager or Trustees regarding the investment affairs of the Fund.
(b) The Advisor, at its expense, will (1) furnish all necessary investment and management facilities, including salaries of personnel, required for it to execute its duties
hereunder, (2) keep records relating to the purchase, sale or current status of portfolio securities, (3) provide clerical personnel and equipment necessary for the efficient rendering of investment advice to the Fund, (4) furnish to the Manager such reports and records regarding the Fund and the Advisor as the Manager or Trustees shall from time-to-time request, and, (5) upon reasonable notice, review written references to the Advisor, or its methodology, whether in a Prospectus, Statement of Additional Information, sales material or otherwise. The Advisor shall have no obligation with respect to the determination of the Fund’s net asset value, except to provide the Trust’s custodian with information as to the securities held in the Fund’s portfolio. The Advisor shall not be obligated to provide shareholder accounting services.
(c) The Advisor shall place all orders for the purchase and sale of portfolio investments for the Fund’s account with brokers or dealers selected by the Advisor. In the selection of such brokers or dealers and the placing of such orders, the Advisor shall use its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent that it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain for the Fund the most favorable price and execution available, the Advisor, bearing in mind the Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, if
any, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker or dealer involved and the quality of service rendered by the broker or dealer in other transactions. Subject to such written policies as the Trustees or the Manager may determine, and of which the Advisor has received notice and which the Advisor has accepted in writing, the Advisor shall not be deemed to have acted unlawfully or to have breached any duty created by this Contract or otherwise solely by reason of its having caused the Fund to pay a broker or dealer that provides brokerage and research services to the Advisor and/or the Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Advisor determines in good faith that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Advisor’s and/or Manager’s overall responsibilities with respect to the Trust and to other clients as to which the Advisor and/or Manager or persons controlled by or under common control with the Advisor and/or Manager exercise investment discretion. The Advisor agrees that in connection with purchase or sales of portfolio instruments for the Fund’s account, neither the Advisor nor any officer, director, employee or agent of the Advisor shall act as principal or receive any commission other than as provided in Section 3.
(d) The assets of the Fund shall be held by the Trust’s custodian in an account which the Trust has directed the Custodian to open. The Advisor shall at no time have custody or physical control of any of the assets of the Fund. The Manager shall cause such custodian to provide the Advisor with such information and reports concerning the Fund or its assets as the Advisor may from time to time reasonably request and to accept
instructions from the Advisor with respect to such assets and transactions by the Fund in the performance of the Advisor’s duties hereunder. The Advisor shall have no liability or obligation to pay the cost of such custodian or any of its services.
(e) Advice rendered to the Fund shall be confidential and may not be used by any shareholder, Trustee, officer, director, employee or agent of the Trust or of the Manager or by the advisor of any other fund of the Trust. Non-public information provided to the Manager on a confidential basis regarding the methodology of the Advisor shall not be made publicly available by the Manager, except that such information may be disclosed to the Trustees and may be disclosed to the extent necessary to comply with the federal and state securities laws and, after notice to the Advisor, upon order of any court or administrative agency or self regulatory organization of which the Manager or its affiliates are members.
(f) The Advisor shall not be obligated to pay any expenses of or for the Fund not expressly assumed by the Advisor pursuant to this Section 1.
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2.
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OTHER AGREEMENTS, ETC.
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It is understood that any of the shareholders, Trustees, officers and employees of the Trust may be a shareholder, partner, director, officer or employee of, or be otherwise interested in, the Advisor, and in any person controlled by or under common control with the Advisor, and that the Advisor and any person controlled by or under common control with the Advisor may have an interest in the Trust. It is also understood that the Advisor and persons controlled by or under common control with the Advisor have and may have advisory, management, service or other contracts with other organizations (including other investment companies and other managed accounts) and persons, and may have other interests and businesses.
Nothing in this Contract shall prohibit the Advisor or any of its affiliates from providing any services for any other person or entity or limit the services which the Advisor or any such affiliate can provide to any person or entity. The Manager understands and agrees that the Advisor and its affiliates perform investment advisory and investment management services for various clients other than the Manager and the Trust. The Manager agrees that the Advisor and its affiliates may give advice and take action in the performance of duties with respect to any other client which may differ from advice given, or the timing or nature of action taken, with respect to the Fund. Nothing in this Contract shall be deemed to impose upon the Advisor any obligation to purchase or sell or to recommend for purchase or sale for the Fund any security or other property which the Advisor or any of its
affiliates may purchase or sell for its own account or for the account of any other client, so long as it continues to be the policy and practice of the Advisor not to favor or disfavor consistently or consciously any client or class of clients in the allocation of investment opportunities, so that to the extent practical, such opportunities will be allocated among clients over a period of time on a fair and equitable basis.
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3.
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COMPENSATION TO BE PAID BY THE MANAGER TO THE ADVISOR
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The Manager will pay to the Advisor, as compensation for the Advisor’s services rendered and for the expenses borne by the Advisor pursuant to Section 1, a fee, computed and paid monthly at the annual rate of (i) 0.35% of the aggregate average daily net asset value of the Fund for assets in the Fund up to $35,000,000 (ii) 0.40% of the aggregate average daily net asset value of the Fund for assets in the Fund over $35,000,000 and up to $200,000,000 and (iii) 0.50% of the aggregate average daily net asset value of the Fund for assets over $200,000,000. Such fee shall be paid by the Manager and not by the Fund out of the management fee paid by the Trust to the Manager pursuant to the Management Contract between the Manager and the Trust or out of any other funds available to the Manager. Such average daily net asset value of the Fund shall be determined by taking an average of all the
determinations of such net asset value during such month at the close of business on each business day, and for non-business days, the net asset value determined on the previous business day, during such month while this Contract is in effect. Such fee shall be payable for each month within 30 days after the end of each month.
If the Advisor shall serve for less than the whole of a month, the foregoing compensation shall be prorated.
4.
ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS TO
This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment or in the event that the Management Contract between the Trust and the Manager is terminated generally, or with respect to the Fund; and this Contract shall not be amended unless (i) such amendment is approved at a meeting by an affirmative vote of a majority of the outstanding shares of the Fund, and (ii) by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager or of the Advisor. Notwithstanding the foregoing, shareholder approval will not be required for amendments to this Contract if the Fund obtains an exemptive order from the Securities and Exchange Commission permitting amendments to this Contract without shareholder approval.
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5.
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EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
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This Contract shall become effective on May 1, 2008 or such other time as shall be agreed upon by the Manager and the Advisor, and shall remain in full force and effect as to the Fund continuously thereafter (unless terminated automatically as set forth in Section 4) until terminated as follows:
(a) The Trust or the Manager may at any time terminate this Contract as to the Fund by not more than sixty days’ or less than thirty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Advisor, or
(b) The Advisor may at any time terminate this Contract as to the Fund by not less than one hundred fifty days’ written notice delivered or mailed by registered mail, postage prepaid, to the Manager, provided, however, that if the Manager has violated or breached any material provision of this Contract and has failed to cure said breach within thirty days of receipt of written notification of the breach from the Advisor, the Advisor may thereupon terminate this Contract or
(c) If (i) the Trustees of the Trust, or the shareholders by the affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager or of the Advisor, by vote cast in person at a meeting called for the purpose of voting on such approval, do not specifically approve at least annually the continuance of this Contract, then this Contract shall automatically terminate as to the Fund at the close of business on the second anniversary of the effective date hereof or the expiration of one year from the effective date of the last such continuance, whichever is later; provided, however, that if the continuance of this Contract is submitted to the shareholders of the Fund for their approval and such shareholders fail to approve such continuance
of this Contract as provided herein, the Advisor may continue to serve hereunder in a manner consistent with the 1940 Act and the Rules and Regulations thereunder.
Action by the Trust under (a) above may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 shall be without the payment of any penalty.
For the purposes of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Trust or the Fund, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Trust or the Fund, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “affiliated person”, “control”, “interested person” and “assignment” shall have their respective meanings defined in the 1940 Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission (“SEC”) under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act and the Rules and Regulations thereunder; and the
term “brokerage and research services” shall have the meaning given by the Securities Exchange Act of 1934 and the Rules and Regulations thereunder.
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7.
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NONLIABILITY OF ADVISOR.
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Notwithstanding any other agreement to the contrary, in the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, its partners, officers, directors, employees or agents or reckless disregard of the Advisor’s obligations and duties hereunder, neither the Advisor nor its officers, directors, employees or agents shall be subject to any liability to the Trust or to the Manager, or to any shareholder of the Trust, for any act or omission in the course of, or connected with, rendering services hereunder, unless the Advisor is claiming indemnity from any of them in connection herewith, but then only to the extent of the indemnity obtained.
The Advisor shall have the power to vote, either in person or by proxy, all securities in which assets of the Fund may be invested from time to time and shall not be required to seek or take instructions from the Manager or the Trustees of the Trust, or to take any action, with respect thereto.
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9.
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REPRESENTATIONS AND COVENANTS OF THE MANAGER.
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(a) The Manager represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith. In addition, the Manager represents, warrants and covenants to the Advisor that it has the power, capacity and authority to commit the Trust to this Contract; that a true and complete copy of the Agreement and Declaration of Trust and By-Laws of the Trust and the stated objectives, policies and restrictions of the Fund have been delivered to the Advisor; and that true and complete copies of every amendment thereto will be delivered to the Advisor as promptly as practicable after the adoption thereof. The Manager agrees that notwithstanding any other provision of
this Contract to the contrary, the Advisor will not be bound by any such amendment until the Advisor has received a copy thereof and has had a reasonable opportunity to review it.
(b) The Manager shall indemnify and hold harmless the Advisor, its partners, officers, employees and agents and each person, if any, who controls the Advisor within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Advisor to perform its responsibilities hereunder or claims arising from its acts or failure to act in performing this Contract) to
which the Advisor or any other Indemnified
Party may become subject under any federal or state law as a result of any failure of the Manager or, if caused by any failure of the Manager, of the Trust or the Fund, to disclose a material fact, or any omission by the Manager, or, if caused by any failure of the Manager, of the Trust or the Fund, to disclose a material fact, in any document relating to the Trust or the Fund, except any failure or omission caused solely by (i) the incorporation in any such document of information relating to the Advisor which is furnished to the Manager in writing by or with the consent of the Advisor expressly for inclusion in such document or (ii) a breach, of which the Manager was not aware, by the Advisor of its duties hereunder. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Manager shall assume the reasonable expenses and costs (including any reasonable
attorneys’ fees and costs) of the Indemnified Party or investigating and/or defending any claim asserted or threatened by any party, subject always to the Manager first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
(c) No public reference to, or description of, the Advisor or its methodology or work shall be made by the Manager or the Trust, whether in a prospectus, Statement of Additional Information or otherwise, unless the Manager provides the Advisor with a reasonable opportunity to review any such reference or description prior to the first use of such reference or description..
(d) The Manager covenants to the Advisor that, during the term of this Agreement, the Trust and the Manager shall not knowingly solicit any multiemployer plan subject to the Taft-Hartley Act or any governmental plan described in Sections 401(a)(24) or 818(a)(6) of the Code (or portions thereof and/or any group of such plans and/or trusts) (collectively “Plan Investors”) to purchase or hold shares of beneficial interest in the Fund or knowingly solicit any advisor for a Plan Investor to purchase shares of beneficial interest in the Fund for such Plan Investors or to advise such Plan Investors to purchase Fund shares. The Manager acknowledges that the Advisor is party to a non-competition covenant that restricts the Advisor’s ability to provide investment advisory services, directly or indirectly, to any such Plan Investors and, accordingly, that this covenant is a material
provision of this Contract.
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10.
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REPRESENTATIONS AND COVENANTS OF THE ADVISOR.
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(a) The Advisor represents that the terms of this Contract do not violate any obligation by which it is bound, whether arising by contract, operation of law, or otherwise, and that it has the power, capacity and authority to enter into this Contract and to perform in accordance herewith.
(b) The Advisor shall immediately notify the Manager in the event that the Advisor or any of its affiliates: (1) becomes aware that it is subject to a statutory disqualification that prevents the Advisor from serving as investment advisor pursuant to this Contract; or (2) becomes aware that it the subject of an administrative proceeding or
enforcement action by the SEC or any other regulatory authority. The Advisor further agrees to notify the Manager immediately of any material fact known to the Advisor respecting or relating to the Advisor that is not contained in the Trust’s Registration Statement regarding the Fund, or any amendment or supplement thereto, but that is required to be disclosed therein, and of any statement contained therein that becomes untrue in any material respect.
(c) The Advisor agrees to maintain such books and records with respect to its services to the Fund as are required under the 1940 Act, and rules adopted thereunder, and by other applicable legal provisions, and to preserve such records for the periods and in the manner required by that Section, and those rules and legal provisions. The Advisor also agrees that records it maintains and preserves pursuant to Rule 31a-1 and Rule 31a-2 under the 1940 Act and otherwise in connection with its services hereunder are the property of the Trust and will be surrendered promptly to the Trust upon its request. The Advisor further agrees that it will furnish to regulatory authorities having the requisite authority any information or reports in connection with its services hereunder which may be requested in order to determine whether the operations of the Fund are
being conducted in accordance with applicable laws and regulations.
(d) The Advisor shall provide the Manager with quarterly representations regarding the compliance of its’ employees with the Advisor’s code of ethics governing personal securities transactions. The Advisor shall provide the Manager with copies of any revisions to its code of ethics.
(e) The Advisor shall indemnify and hold harmless the Manager, the Fund, their partners, officers, employees and agents and each person, if any, who controls the Manager or Fund within the meaning of any applicable law (each individually an “Indemnified Party”) from and against all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable fees and other expenses of an Indemnified Party’s counsel, other than attorneys’ fees and costs in relation to the preparation of this Contract; each party bearing responsibility for its own such costs and fees), joint or several, (other than liabilities, losses, expenses, attorneys’ fees and costs or damages arising from the failure of the Manager to perform its responsibilities hereunder or claims arising from its acts or failure to act in performing
this Contract) arising from Advisor’s (or its respective agents and employees) failure to perform its duties and assume its obligations hereunder, including any action or claim against the Manager based on any alleged untrue statement or misstatement of a material fact made or provided in writing by or with the consent of Advisor contained in any registration statement, prospectus, shareholder report or other information or materials relating to the Fund and shares issued by the Fund, or the failure or alleged failure to state a material fact therein required to be stated in order that the statements therein are not misleading, which fact should have been made known or provided by the Advisor to the Manager. With respect to any claim for which an Indemnified Party is entitled to indemnity hereunder, the Advisor shall assume the reasonable expenses and costs (including any reasonable attorneys’ fees and costs) of the Indemnified Party of investigating and/or defending any
claim asserted or threatened by any party, subject always to the Advisor
first receiving a written undertaking from the Indemnified Party to repay any amounts paid on its behalf in the event and to the extent of any subsequent determination that the Indemnified Party was not entitled to indemnification hereunder with respect of such claim.
It is understood that the name of the Fund (as it may be changed from time to time while the Advisor provides services pursuant to this Contract) or any derivative thereof or logo associated with that name is the valuable property of the Trust and/or its affiliates, and that the Advisor has the right to use such name (or derivative or logo) only with the approval of the Manager and only so long as the Advisor is Advisor to the Trust and/or the Fund. Upon termination of this Contract the Advisor shall forthwith cease to use such name (or derivative or logo).
It is further understood that the name of the Advisor and the name “Cloud Hill Conference Companies” (as they may be changed from time to time while the Advisor provides services pursuant to this Contract) or any derivative thereof or logo associated with those names is the valuable property of the Advisor and/or its affiliates, and that the Trust has the right to use such names (or derivatives or logos) only with the approval of the Advisor, which shall not be unreasonably withheld, and only so long as the Advisor is Advisor to the Trust and/or the Fund.
This Contract shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws, except to the extent such laws shall be preempted by the Investment Company Act of 1940 or by other applicable laws.
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13.
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INDEPENDENT CONTRACTOR.
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Advisor shall for all purposes of this Contract be deemed to be an independent contractor and, except as otherwise expressly provided herein, shall have no authority to act for, bind or represent the Fund in any way or otherwise be deemed to be an agent of the Fund. Likewise, the Fund, the Manager and their affiliates, agents and employees shall not be deemed agents of the Advisor and shall have no authority to bind the Advisor.
(a) The captions of this Contract are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
(b) In the event that the Advisor or Manager is or becomes a party to any action or proceedings in respect of which indemnification may be sought hereunder, the party seeking indemnification shall promptly notify the other party thereof. The party from whom indemnification is sought shall not be liable hereunder for any settlement of any action or claim effected without its written consent, which consent shall not be reasonably withheld.
(c) This Contract may be executed in one or more counterparts, all of which taken together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, QUANTITATIVE INVESTMENT ADVISORS, INC. and POLARIS CAPITAL MANAGEMENT, LLC have each caused this instrument to be signed in duplicate in its behalf, all as of the day and year first above written.
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By___________________________
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POLARIS CAPITAL
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By__________________________
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AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
Amended and Restated Distribution Agreement effective as of February 1, 2008, by and between QUANTITATIVE GROUP OF FUNDS (formerly U.S. BOSTON INVESTMENT COMPANY), a Massachusetts business trust (the “Trust”) and U.S. BOSTON CAPITAL CORPORATION, a Massachusetts corporation (“U.S. Boston Capital”).
WHEREAS, the Trust and U.S. Boston Capital are desirous of entering into an agreement providing for the distribution by U.S. Boston Capital of shares of the Trust;
NOW, THEREFORE, in consideration of the mutual agreements contained in the Terms and Conditions of Distribution Agreement attached to and forming a part of this Contract (the “Terms and Conditions”), the Trust hereby appoints U.S. Boston Capital as a distributor of shares of the Trust, and U.S. Boston Capital hereby accepts such appointment, all as set forth in the Terms and Conditions.
A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, QUANTITATIVE GROUP OF FUNDS and U.S. BOSTON CAPITAL CORPORATION have each caused this Distribution Agreement to be signed in duplicate in its behalf, all as of the day and year first above written.
QUANTITATIVE GROUP OF FUNDS
By: /s/
Willard L. Umphrey
President and Chairman
U.S. BOSTON CAPITAL CORPORATION
By:
/s/ Deborah A. Kessinger
President
Page 1 of 7
TERMS AND CONDITIONS
OF
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
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1.
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Sale of Shares to U.S. Boston Capital and Sales by U.S. Boston Capital
.
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A. The Trust grants to U.S. Boston Capital, an affiliate of the Trust’s investment adviser, Quantitative Investment Advisors, Inc., the right and option to purchase shares of beneficial interest of each class of each Series of the Trust (the “Shares”) for sale to investors either directly or indirectly through other broker-dealers. U.S. Boston Capital is not required to purchase any specified number of shares, but will purchase from the Trust only a sufficient number of Shares as may be necessary to fill unconditional orders received from time to time by U.S. Boston Capital from investors and dealers. Upon receipt of registration instructions in proper form and payment for such shares, U.S. Boston Capital will transmit such instructions to the Trust or its agent for registration of
the shares purchased.
B. U.S. Boston Capital shall offer Shares to the public at an offering price based upon the net asset value of the Shares, to be calculated for each class of Shares as described in the Registration Statement, including the Prospectus(es), filed with the Commission and in effect at the time of the offering, plus sales charges as approved by the U.S. Boston Capital and the Trustees of the Trust and as further outlined in the Trust’s Prospectus(es). The offering price shall be subject to any provisions set forth in the Prospectus(es) from time to time with respect thereto, including, without limitation, rights of accumulation, letters of intention, exchangeability of Shares, reinstatement privileges, net asset value purchases by certain persons and reinvestments of dividends and capital gain distributions.
C. In the case of all Shares sold to investors through other broker-dealers, a portion of applicable sales charges will be reallowed to such broker-dealers who are members of the National Association of Securities Dealers or, in the case of certain sales by banks or certain sales to foreign nationals, to brokers or dealers exempt from registration with the Commission. The concession reallowed to broker-dealers shall be set forth in a written sales agreement and shall be generally the same for broker-dealers providing comparable levels of sales and service.
2.
Fee
. For its services as distributor of the shares of the Trust, U.S. Boston Capital shall receive from the Trust a distribution fee at the rate and upon the terms and conditions set forth in the Distribution Plan attached as Exhibit A hereto, and as amended from time to time. The distribution fee shall be accrued daily and paid monthly within five (5) business days following the last day of each month.
3.
Reservation of Right Not to Sell
. The Trust reserves the right to refuse at any time or times to sell any of its shares for any reason deemed adequate by it.
Page 2 of 7
4.
Sales of Shares by the Trust
. The Trust reserves the right to issue shares at any time directly to its shareholders as a stock dividend or stock split and to sell shares to its shareholders or to other persons at not less than net asset value.
5.
Repurchase of Shares
. U.S. Boston Capital will act as agent for the Trust in connection with the repurchase and redemption of shares by the Trust upon the terms and conditions set forth in the then current prospectus of the Trust or as the Trust acting through its Trustees may otherwise direct.
6.
Basis of Purchases and Sales of Shares
. U.S. Boston Capital’s obligation to sell shares hereunder shall be on a best efforts basis only and U.S. Boston Capital shall not be obligated to sell any specific number of shares. Shares will be sold by U.S. Boston Capital only against orders therefor. U.S. Boston Capital will not purchase shares from anyone other than the Trust except in accordance with Section 5, and will not take “long” or “short” positions in shares contrary to the Agreement and Declaration of Trust of the Trust.
7.
Rules of NASD, Etc.
U.S. Boston Capital will conform to the Conduct Rules of the National Association of Securities Dealers, Inc. and the securities laws of any jurisdiction in which it sells, directly or indirectly, any Trust shares. U.S. Boston Capital also agrees to furnish to the Trust sufficient copies of any agreements or plans it intends to use in connection with any sales of shares in adequate time for the Trust to file and clear them with the proper authorities before they are put in use, and not to use them until so filed and cleared.
8.
Independent Contractor
. U.S. Boston Capital shall be an independent contractor and neither U.S. Boston Capital nor any of its officers or employees as such, is or shall be an employee of the Trust. U.S. Boston Capital is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees.
U.S. Boston Capital assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder.
9.
Expenses
. The Trust will pay or reimburse U.S. Boston Capital for all expenses of qualifying shares of the Trust for sale under the securities or so-called “Blue Sky” laws of any state and of registering shares under the Federal Securities Act of 1933 and Investment Company Act of 1940. U.S. Boston Capital will pay all expenses of preparing, printing and distributing advertising and sales literature and the Trust will pay all costs of the preparation and printing of prospectuses and reports as required by said Acts and the direct expenses of the issue of shares.
10.
Indemnification of Trust
. U.S. Boston Capital agrees to indemnify and hold harmless the Trust and each person who has been, is, or may hereafter be a Trustee of the Trust against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of U.S. Boston Capital or any agent or employee of U.S. Boston Capital or any other person for whose
Page 3 of 7
acts U.S. Boston Capital is responsible or is alleged to be responsible, unless such misrepresentation or omission was made in reliance upon written information
furnished by the Trust. U.S. Boston Capital also agrees likewise to indemnify and hold harmless the Trust and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of U.S. Boston Capital’s failure to exercise reasonable care and diligence with respect to its services rendered in connection with
investment, reinvestment, employee benefit and other plans for shares. The term “expenses” includes amounts paid in satisfaction of judgments or in settlements which are made with U.S. Boston Capital’s consent. The foregoing rights of indemnification shall be
in addition to any other rights to which the Trust or a Trustee may be entitled as a matter of law.
11.
Indemnification of U.S. Boston Capital
. The Trust agrees to indemnify and hold harmless U.S. Boston Capital, its several officers, employees and directors, and any person who controls U.S. Boston Capital
within the meaning of Section 15 of the Securities Act of 1933, against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact in the Registration Statement or prospectus, provided that in no event shall
anything contained in this Agreement be construed so as to protect U.S. Boston Capital against any liability to the Trust or its shareholders to which U.S. Boston Capital would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of its duties under this Agreement.
12.
Assignment Terminates this Contract; Amendments of this Contract
. This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment. This Contract may be amended only if such amendment be approved either by action of the Trustees of the Trust or at a meeting of the shareholders of the Trust by the affirmative vote of a majority of the outstanding shares of the Trust, and by a majority of the Trustees of the Trust who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Distribution Plan or this Contract by vote cast in person at a meeting called for the purpose of voting on such approval.
13.
Effective Period and Termination of this Contract
. This Contract shall take effect upon the date first above written and shall remain in full force and effect continuously as to a series of the Trust (“Series”) (unless terminated automatically as set forth in Section 12) until terminated:
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(a)
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Either by such Series or U.S. Boston Capital by not more than sixty (60) days’ nor less than ten (10) days’ written notice delivered or mailed by registered mail, postage prepaid, to the other party; or
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(b)
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Automatically as to any Series at the close of business on the second anniversary of the execution of this Contract or upon the expiration of one year from the effective date of the last continuance of this Contract, whichever is later, if the continuance of this Contract is not specifically approved at least annually by the Trustees of the Trust or the shareholders of such Series by the affirmative vote of a majority of the outstanding shares
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Page 4 of 7
of such Series, and by a majority of the Trustees of the Trust who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Distribution Plan or this Contract by vote cast in person at a meeting called for the purpose of voting on such approval.
Action by a Series of the Trust under (a) above may be taken either (i) by vote of the Trustees of the Trust, or (ii) by the affirmative vote of a majority of the outstanding shares of such Series. The requirement under (b) above that continuance of this Contract be “specifically approved at least annually” shall be construed in a manner consistent with the Investment Company Act of 1940 and the Rules and Regulations thereunder.
Termination of
this Contract pursuant to this Section 12 shall be without the payment of any penalty.
If this Contract is terminated or not renewed with respect to one or more Series, it may continue in effect with respect to any Series as to which it has not been terminated (or has been renewed).
14.
Certain Definitions
. For the purpose of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Trust or the Series, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Trust or the Series, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Trust or the Series, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “interested persons” and “assignment” shall have the meanings defined in the Investment Company Act of 1940, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. Certain other items used herein that are not otherwise defined have the meaning given in the current prospectus of the Trust or constituent
agreements or documents of the Trust.
Page 5 of 7
EXHIBIT A
AMENDED AND RESTATED
DISTRIBUTION PLAN
This Plan (the “Plan”) constitutes the Amended and Restated Distribution Plan of QUANTITATIVE GROUP OF FUNDS, a Massachusetts business trust (the “Trust”).
Section 1
. The Trust will pay to U.S. BOSTON CAPITAL CORPORATION (“U.S. BOSTON CAPITAL”), a Massachusetts corporation which acts a principal distributor of the Trust’s shares (the “Distributor”), a monthly fee for acting as principal distributor at the annual rate set forth in Schedule A attached hereto, and as amended from time to time. The fee for each series of the Trust (“Series”) and each class of shares of such Series (individually, a “Class” and collectively, the “Classes”) shall be based upon the average net asset value of such Series held in shareholder accounts opened during the period the Plan is in effect (“Qualified Accounts”). The net asset value of each Series and each Class shall be determined at the close of each business day during each
month. Such fee shall be computed for each Series and Class shall be paid from the assets of each such Series and Class.
Section 2.
This Plan shall not take effect until it has been approved by a vote of at least a majority of the outstanding voting securities of the Trust.
Section 3
. This Plan shall not take effect until it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the “Act”) or the rules regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Qualified Trustees of the Trust cast in person at a meeting called for the purpose of voting on this Plan or such agreement.
Section 4
. This Plan shall continue in effect for a period more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan’s Section 3.
Section 5
. Any person authorized to direct the and disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall Provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so extended and the purposes for which such expenditures were made.
Section 6
. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees, or by vote of a majority of the Trust’s outstanding voting securities.
Section 7
. All agreements with any person relating to Implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
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A.
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That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the Trust’s outstanding voting securities, on not more than 60 days’ written notice to any other party to the agreement; and That such agreement shall terminate automatically in the event of its assignment.
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Page 6 of 7
Section 8
. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding voting securities of the Trust, and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 3.
Section 9
. (a) As used in this Plan, the term “Qualified Trustees” shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it. For so long as this Plan is in effect, selection and nomination of those Trustees of the Trust who are not interested persons of the Trust shall he committed to the discretion of such is interested Trustees.
(b) As used in this Plan, the terms “assignment” and “interested person” shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission.
SCHEDULE A
to the Amended and Restated
Distribution Plan
Effective as of February 1, 2008
Quantitative Group of Funds
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A.
Ordinary Shares
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Annual Distribution Fee
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Service Fee
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Quantitative Small Cap Fund
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0.25%
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0.00%
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Quantitative Long/Short Fund
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0.25%
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0.00%
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Quantitative Emerging Markets Fund
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0.25%
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0.00%
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Quantitative Foreign Value Fund
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0.25%
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0.00%
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B.
Institutional Shares
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Annual Distribution Fee
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Service Fee
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Quantitative Small Cap Fund
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0.00%
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0.00%
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Quantitative Long/Short Fund
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0.00%
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0.00%
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Quantitative Emerging Markets Fund
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0.00%
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0.00%
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Quantitative Foreign Value Fund
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0.00%
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0.00%
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Page 7 of 7
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
Amended and Restated Distribution Agreement effective as of May 1, 2008, by and between QUANTITATIVE GROUP OF FUNDS (formerly U.S. BOSTON INVESTMENT COMPANY), a Massachusetts business trust (the “Trust”) and U.S. BOSTON CAPITAL CORPORATION, a Massachusetts corporation (“U.S. Boston Capital”).
WHEREAS, the Trust and U.S. Boston Capital are desirous of entering into an agreement providing for the distribution by U.S. Boston Capital of shares of the Trust;
NOW, THEREFORE, in consideration of the mutual agreements contained in the Terms and Conditions of Distribution Agreement attached to and forming a part of this Contract (the “Terms and Conditions”), the Trust hereby appoints U.S. Boston Capital as a distributor of shares of the Trust, and U.S. Boston Capital hereby accepts such appointment, all as set forth in the Terms and Conditions.
A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, QUANTITATIVE GROUP OF FUNDS and U.S. BOSTON CAPITAL CORPORATION have each caused this Distribution Agreement to be signed in duplicate in its behalf, all as of the day and year first above written.
QUANTITATIVE GROUP OF FUNDS
By:
President and Chairman
U.S. BOSTON CAPITAL CORPORATION
By:
President
Page 1 of 7
TERMS AND CONDITIONS
OF
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
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1.
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Sale of Shares to U.S. Boston Capital and Sales by U.S. Boston Capital
.
|
A. The Trust grants to U.S. Boston Capital, an affiliate of the Trust’s investment adviser, Quantitative Investment Advisors, Inc., the right and option to purchase shares of beneficial interest of each class of each Series of the Trust (the “Shares”) for sale to investors either directly or indirectly through other broker-dealers. U.S. Boston Capital is not required to purchase any specified number of shares, but will purchase from the Trust only a sufficient number of Shares as may be necessary to fill unconditional orders received from time to time by U.S. Boston Capital from investors and dealers. Upon receipt of registration instructions in proper form and payment for such shares, U.S. Boston Capital will transmit such instructions to the Trust or its agent for registration of
the shares purchased.
B. U.S. Boston Capital shall offer Shares to the public at an offering price based upon the net asset value of the Shares, to be calculated for each class of Shares as described in the Registration Statement, including the Prospectus(es), filed with the Commission and in effect at the time of the offering, plus sales charges as approved by the U.S. Boston Capital and the Trustees of the Trust and as further outlined in the Trust’s Prospectus(es). The offering price shall be subject to any provisions set forth in the Prospectus(es) from time to time with respect thereto, including, without limitation, rights of accumulation, letters of intention, exchangeability of Shares, reinstatement privileges, net asset value purchases by certain persons and reinvestments of dividends and capital gain distributions.
C. In the case of all Shares sold to investors through other broker-dealers, a portion of applicable sales charges will be reallowed to such broker-dealers who are members of the National Association of Securities Dealers or, in the case of certain sales by banks or certain sales to foreign nationals, to brokers or dealers exempt from registration with the Commission. The concession reallowed to broker-dealers shall be set forth in a written sales agreement and shall be generally the same for broker-dealers providing comparable levels of sales and service.
2.
Fee
. For its services as distributor of the shares of the Trust, U.S. Boston Capital shall receive from the Trust a distribution fee at the rate and upon the terms and conditions set forth in the Distribution Plan attached as Exhibit A hereto, and as amended from time to time. The distribution fee shall be accrued daily and paid monthly within five (5) business days following the last day of each month.
3.
Reservation of Right Not to Sell
. The Trust reserves the right to refuse at any time or times to sell any of its shares for any reason deemed adequate by it.
Page 2 of 7
4.
Sales of Shares by the Trust
. The Trust reserves the right to issue shares at any time directly to its shareholders as a stock dividend or stock split and to sell shares to its shareholders or to other persons at not less than net asset value.
5.
Repurchase of Shares
. U.S. Boston Capital will act as agent for the Trust in connection with the repurchase and redemption of shares by the Trust upon the terms and conditions set forth in the then current prospectus of the Trust or as the Trust acting through its Trustees may otherwise direct.
6.
Basis of Purchases and Sales of Shares
. U.S. Boston Capital’s obligation to sell shares hereunder shall be on a best efforts basis only and U.S. Boston Capital shall not be obligated to sell any specific number of shares. Shares will be sold by U.S. Boston Capital only against orders therefor. U.S. Boston Capital will not purchase shares from anyone other than the Trust except in accordance with Section 5, and will not take “long” or “short” positions in shares contrary to the Agreement and Declaration of Trust of the Trust.
7.
Rules of NASD, Etc.
U.S. Boston Capital will conform to the Conduct Rules of the National Association of Securities Dealers, Inc. and the securities laws of any jurisdiction in which it sells, directly or indirectly, any Trust shares. U.S. Boston Capital also agrees to furnish to the Trust sufficient copies of any agreements or plans it intends to use in connection with any sales of shares in adequate time for the Trust to file and clear them with the proper authorities before they are put in use, and not to use them until so filed and cleared.
8.
Independent Contractor
. U.S. Boston Capital shall be an independent contractor and neither U.S. Boston Capital nor any of its officers or employees as such, is or shall be an employee of the Trust. U.S. Boston Capital is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees.
U.S. Boston Capital assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder.
9.
Expenses
. The Trust will pay or reimburse U.S. Boston Capital for all expenses of qualifying shares of the Trust for sale under the securities or so-called “Blue Sky” laws of any state and of registering shares under the Federal Securities Act of 1933 and Investment Company Act of 1940. U.S. Boston Capital will pay all expenses of preparing, printing and distributing advertising and sales literature and the Trust will pay all costs of the preparation and printing of prospectuses and reports as required by said Acts and the direct expenses of the issue of shares.
10.
Indemnification of Trust
. U.S. Boston Capital agrees to indemnify and hold harmless the Trust and each person who has been, is, or may hereafter be a Trustee of the Trust against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of U.S. Boston Capital or any agent or employee of U.S. Boston Capital or any other person for whose
Page 3 of 7
acts U.S. Boston Capital is responsible or is alleged to be responsible, unless such misrepresentation or omission was made in reliance upon written information
furnished by the Trust. U.S. Boston Capital also agrees likewise to indemnify and hold harmless the Trust and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of U.S. Boston Capital’s failure to exercise reasonable care and diligence with respect to its services rendered in connection with
investment, reinvestment, employee benefit and other plans for shares. The term “expenses” includes amounts paid in satisfaction of judgments or in settlements which are made with U.S. Boston Capital’s consent. The foregoing rights of indemnification shall be
in addition to any other rights to which the Trust or a Trustee may be entitled as a matter of law.
11.
Indemnification of U.S. Boston Capital
. The Trust agrees to indemnify and hold harmless U.S. Boston Capital, its several officers, employees and directors, and any person who controls U.S. Boston Capital
within the meaning of Section 15 of the Securities Act of 1933, against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact in the Registration Statement or prospectus, provided that in no event shall
anything contained in this Agreement be construed so as to protect U.S. Boston Capital against any liability to the Trust or its shareholders to which U.S. Boston Capital would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of its duties under this Agreement.
12.
Assignment Terminates this Contract; Amendments of this Contract
. This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment. This Contract may be amended only if such amendment be approved either by action of the Trustees of the Trust or at a meeting of the shareholders of the Trust by the affirmative vote of a majority of the outstanding shares of the Trust, and by a majority of the Trustees of the Trust who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Distribution Plan or this Contract by vote cast in person at a meeting called for the purpose of voting on such approval.
13.
Effective Period and Termination of this Contract
. This Contract shall take effect upon the date first above written and shall remain in full force and effect continuously as to a series of the Trust (“Series”) (unless terminated automatically as set forth in Section 12) until terminated:
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(a)
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Either by such Series or U.S. Boston Capital by not more than sixty (60) days’ nor less than ten (10) days’ written notice delivered or mailed by registered mail, postage prepaid, to the other party; or
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(b)
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Automatically as to any Series at the close of business on the second anniversary of the execution of this Contract or upon the expiration of one year from the effective date of the last continuance of this Contract, whichever is later, if the continuance of this Contract is not specifically approved at least annually by the Trustees of the Trust or the shareholders of such Series by the affirmative vote of a majority of the outstanding shares
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Page 4 of 7
of such Series, and by a majority of the Trustees of the Trust who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Distribution Plan or this Contract by vote cast in person at a meeting called for the purpose of voting on such approval.
Action by a Series of the Trust under (a) above may be taken either (i) by vote of the Trustees of the Trust, or (ii) by the affirmative vote of a majority of the outstanding shares of such Series. The requirement under (b) above that continuance of this Contract be “specifically approved at least annually” shall be construed in a manner consistent with the Investment Company Act of 1940 and the Rules and Regulations thereunder.
Termination of
this Contract pursuant to this Section 12 shall be without the payment of any penalty.
If this Contract is terminated or not renewed with respect to one or more Series, it may continue in effect with respect to any Series as to which it has not been terminated (or has been renewed).
14.
Certain Definitions
. For the purpose of this Contract, the “affirmative vote of a majority of the outstanding shares” means the affirmative vote, at a duly called and held meeting of shareholders, (a) of the holders of 67% or more of the shares of the Trust or the Series, as the case may be, present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Trust or the Series, as the case may be, entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Trust or the Series, as the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms “interested persons” and “assignment” shall have the meanings defined in the Investment Company Act of 1940, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. Certain other items used herein that are not otherwise defined have the meaning given in the current prospectus of the Trust or constituent
agreements or documents of the Trust.
Page 5 of 7
EXHIBIT A
AMENDED AND RESTATED
DISTRIBUTION PLAN
This Plan (the “Plan”) constitutes the Amended and Restated Distribution Plan of QUANTITATIVE GROUP OF FUNDS, a Massachusetts business trust (the “Trust”).
Section 1
. The Trust will pay to U.S. BOSTON CAPITAL CORPORATION (“U.S. BOSTON CAPITAL”), a Massachusetts corporation which acts a principal distributor of the Trust’s shares (the “Distributor”), a monthly fee for acting as principal distributor at the annual rate set forth in Schedule A attached hereto, and as amended from time to time. The fee for each series of the Trust (“Series”) and each class of shares of such Series (individually, a “Class” and collectively, the “Classes”) shall be based upon the average net asset value of such Series held in shareholder accounts opened during the period the Plan is in effect (“Qualified Accounts”). The net asset value of each Series and each Class shall be determined at the close of each business day during each
month. Such fee shall be computed for each Series and Class shall be paid from the assets of each such Series and Class.
Section 2.
This Plan shall not take effect until it has been approved by a vote of at least a majority of the outstanding voting securities of the Trust.
Section 3
. This Plan shall not take effect until it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the “Act”) or the rules regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Qualified Trustees of the Trust cast in person at a meeting called for the purpose of voting on this Plan or such agreement.
Section 4
. This Plan shall continue in effect for a period more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan’s Section 3.
Section 5
. Any person authorized to direct the and disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall Provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so extended and the purposes for which such expenditures were made.
Section 6
. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees, or by vote of a majority of the Trust’s outstanding voting securities.
Section 7
. All agreements with any person relating to Implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
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A.
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That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the Trust’s outstanding voting securities, on not more than 60 days’ written notice to any other party to the agreement; and That such agreement shall terminate automatically in the event of its assignment.
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Page 6 of 7
Section 8
. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding voting securities of the Trust, and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 3.
Section 9
. (a) As used in this Plan, the term “Qualified Trustees” shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it. For so long as this Plan is in effect, selection and nomination of those Trustees of the Trust who are not interested persons of the Trust shall he committed to the discretion of such is interested Trustees.
(b) As used in this Plan, the terms “assignment” and “interested person” shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission.
SCHEDULE A
to the Amended and Restated
Distribution Plan
Effective as of May 1, 2008
Quantitative Group of Funds
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A.
Ordinary Shares
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Annual Distribution Fee
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Service Fee
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Quantitative Small Cap Fund
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0.25%
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0.00%
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Quantitative Long/Short Fund
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0.25%
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0.00%
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Quantitative Emerging Markets Fund
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0.25%
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0.00%
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Quantitative Foreign Value Fund
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0.25%
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0.00%
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Quantitative Foreign Value Small Cap Fund
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0.25%
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0.00%
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B.
Institutional Shares
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Annual Distribution Fee
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Service Fee
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Quantitative Small Cap Fund
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0.00%
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0.00%
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Quantitative Long/Short Fund
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0.00%
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0.00%
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Quantitative Emerging Markets Fund
|
0.00%
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0.00%
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Quantitative Foreign Value Fund
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0.00%
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0.00%
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Quantitative Foreign Value Small Cap Fund
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0.00%
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0.00%
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Page 7 of 7
AMENDED AND RESTATED
TRANSFER AGENT AND SERVICE AGREEMENT
between
QUANTITATIVE GROUP OF FUNDS
and
QUANTITATIVE INVESTMENT ADVISORS, INC.
AMENDED AND RESTATED AGREEMENT effective as of May 1, 2008, by and between Quantitative Group of Funds, a Massachusetts business trust doing business as Quant Funds, having its principal office and place of business at 55 Old Bedford Road, Lincoln, MA 01773 (the “Fund”), and Quantitative Investment Advisors, Inc., a Delaware Corporation, doing business as Quantitative Advisors, having its principal office and place of business at 55 Old Bedford Road, Lincoln, MA 01773 (“QA”) which is duly registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934.
WHEREAS, the Fund is authorized to issue its shares of beneficial interest (“Shares”) in separate Series, with each such Series representing interests in a separate portfolio of securities and other assets; and
WHEREAS, the Fund intends to presently offer Shares in Series, as identified in Exhibit A attached hereto (such Series, together with all other Series subsequently established by the Fund and made subject to this Agreement in accordance with Article 13, being herein referred to as the “Series”);
WHEREAS, the Fund desires to appoint QA as its transfer agent, dividend disbursing agent and agent in connection with certain other activities; and QA desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
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1.
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Terms of Appointment; Duties of QA.
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1.1 Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints QA to act as, and QA agrees to act as its transfer agent for the Shares, dividend disbursing agent and agent in connection with any accumulation, open account or similar plans provided to the shareholders of the Fund (“Shareholders”) and set out in the Prospectus and/or Statement of Additional Information of the Fund, including without limitation any periodic investment plan or periodic withdrawal program.
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1.2
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QA agrees that it will perform the following services:
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(a) In accordance with procedures established from time to time by agreement between the Fund and QA, QA shall:
(i) receive for acceptance, orders for the purchase of Shares of each Series and promptly deliver payment and appropriate documentation therefore to the Custodian of the Fund authorized pursuant to the Agreement and Declaration of Trust of the Fund (the “Custodian”) and will instruct the Custodian as to the account of which Series such payment should be credited to;
(ii) pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account;
(iii) receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation therefore to the Custodian identifying to the Custodian the Series whose Shares are being redeemed;
(iv) at the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders;
(v) effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions;
(vi) prepare and transmit (or credit to the appropriate Shareholder account) payments for dividends and distributions declared with respect to each Series;
(vii) maintain records of account for and advise the Fund and its Shareholders as to the foregoing;
(viii) provide the Fund with a internet site whereby shareholders may receive information about their funds, daily pricing of the shares of the Fund, performance of each series of the Fund, information about individual shareholder’s accounts through the use of a password protected portion of the internet site and providing a method by which existing and new shareholders may make additional investments in the Fund’s series and;
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(b)
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In addition to and not in lieu of the services set forth in the above paragraph (a), QA shall:
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(i) perform all of the customary services of a transfer agent, dividend disbursing agent and as relevant, agent in connection with accumulation, open account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on non resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information;
(ii) provide a system which will enable the Fund to monitor the total number of Shares sold in each State. The Fund shall (A) identify to QA in writing those transactions to be treated as exempt from blue sky reporting for each state and (B) verify the establishment of transactions for each state on the system prior to activation and thereafter monitor the daily activity for each state. The responsibility of QA
for the Fund’s blue sky state registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and QA.
2.1 For performance by QA pursuant to this Agreement, the Fund agrees to pay QA a fee as set out in the fee schedule attached hereto as Exhibit B. Such fees and out of pocket expenses and advances identified under Section 2.2 below may be changed from time to time subject to mutual written agreement between the Fund and QA.
2.2 In addition to the fee paid under 2.1 above, the Fund agrees to reimburse QA for out of pocket expenses or advances incurred by QA for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by QA at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within five days following the mailing of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all Shareholder accounts shall be advanced to QA by the Fund at least seven (7) days prior to the mailing date of such materials.
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3.
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Representations and Warranties of QA.
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QA represents and warrants to the Fund that:
3.1 It is a corporation duly organized and existing and in good standing under the laws of Delaware.
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3.2
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It is duly qualified to carry on its business in the Commonwealth of Massachusetts.
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3.3 It is empowered under applicable laws and by its charter and By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
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4.
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Representations and Warranties of the Fund.
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The Fund represents and warrants to QA that:
4.1 It is a Massachusetts business trust duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Agreement and Declaration of Trust and By-Laws to enter into and perform this Agreement.
4.3 All proceedings required by said Agreement and Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end and non-diversified management investment company registered under the Investment Company Act of 1940.
4.5 A registration statement under the Securities Act of 1933 with respect to all Shares of any Series being offered for sale will be effective before any Shares of any Series are issued and sold and will remain effective, and appropriate state securities law filings with respect to all Shares of any Series being offered for sale will have been made before any Shares of any Series are issued and sold and will continue to be made before any Shares of any Series are issued and sold.
5.1 QA shall not be responsible for, and the Fund shall indemnify and hold QA harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to:
(a) All actions of QA or its agents or subcontractors required to be taken pursuant to this Agreement;
(b) The Fund’s refusal or failure to comply with the terms of this Agreement, or which arise out of the Fund’s lack of good faith, negligence or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder;
(c) The reliance on or use by QA or its agents or subcontractors of information, records and documents which (i) are received by QA or its agents or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have been prepared and/or maintained by the Fund or any other person or firm on behalf of the Fund;
(d) The reliance on, or carrying out by QA or its agents or subcontractors of any instructions or requests of the Fund;
(e) The offer or sale of Shares in violation of any requirement under the federal securities laws or any State’s securities laws, failure of such Shares be registered in such State or if such Shares are in violation of any stop order or other determination or ruling by any federal agency or State with respect to the offer or sale of such Shares in such State unless such violation results from any action or omission by QA or any of its agents or subcontractors which fails to comply with written instructions of the Fund or any officer of the Fund that no offers or sales be made in general or to the residents of a particular State; provided, however, that the Fund shall not indemnify or hold QA harmless from and against any losses, damages, costs, charges, counsel fees, payments, expenses or liability arising out of or attributable to any actions
or omissions of QA taken or made in bad faith or resulting from QA’s negligence or willful misconduct.
5.2 QA shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any action or failure or omission to act by QA as a result of QA’s lack of good faith, negligence or willful misconduct,
5.3 At any time QA may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by QA under this Agreement, and QA and it agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action taken or omitted by it in reliance upon such instructions or taken or omitted by it in reliance upon the opinion of such counsel. QA, it agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the
proper officer or agent of the Fund, or upon any instruction, information, data, records or documents provided QA or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. QA, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officers of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co-registrar.
5.4 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act or failure to act hereunder.
5.6 In order for the indemnification provisions contained in this Article 5 to apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party’s prior written consent.
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6.
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Covenants of the Fund and QA.
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6.1
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The Fund shall promptly furnish to QA the following:
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(a) A certified copy of the resolution of the Trustees of the Fund authorizing the appointment of QA and the execution and delivery of this Agreement.
(b) A copy of the Agreement and Declaration of Trust and By-Laws of the Fund and all amendments thereto.
6.2 QA hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices.
6.3 QA shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, QA agrees that all such records prepared or maintained by QA relating to the services to be performed by QA hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request.
6.4 QA and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law.
6.5 In case of any requests or demands for the inspection of the Shareholder records of the Fund, QA will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. QA reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person.
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7.
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Termination of Agreement.
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7.1 This Agreement may be terminated by either party upon one hundred twenty (120) days written notice to the other.
7.2 Should this Agreement be terminated, all out of pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, QA reserves the right to charge for any other reasonable expenses associated with such termination.
8.1 Neither this Agreement nor any rights or obligations hereunder may be assigned by QA without the written consent of the Fund.
8.2 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.
9.1 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Trustees of the Fund.
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10.
|
Massachusetts Law, to Apply.
|
10.1 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts.
11.1 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written.
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12.
|
Limitation of Liability of Trustees and Shareholders.
|
12.1 A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or Shareholders individually but are binding only upon the assets and property of the Fund.
13.1 In the event that the Fund establishes one or more Series of Shares in addition to those identified in Exhibit A attached hereto with respect to which it desires to have QA render services as transfer agent under the terms hereof, it shall so notify QA in writing, and if QA agrees in writing to provide such services, such Series of Shares shall become a Series hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers, as of the day and year first above written.
Quantitative Group of Funds
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By:
|
_________________________
|
Willard L. Umphrey, President
Attest:
Quantitative Investment Advisors, Inc.
|
By:
|
__________________________
|
Willard L. Umphrey, President
Attest:
EXHIBIT A
Quantitative Small Cap Fund
Quantitative Long/Short Fund
Quantitative Emerging Markets Fund
Quantitative Foreign Value Fund
Quantitative Foreign Value Small Cap Fund
EXHIBIT B
FEES:
QA shall be paid a fee, computed and paid monthly, at an annual rate of 0.16% of the aggregate average daily net asset value of each series of the Trust, such fee to be payable in arrears by the 15th of each month.
OUT OF POCKET EXPENSES:
Out of pocket expenses include, but are not limited to: legal fees, confirmation production, report preparation, postage, forms, telephone, microfilm or microfiche, and expenses incurred at the specific direction of the Fund, as agreed upon from time to time.
QUANTITATIVE GROUP OF FUNDS
QUANTITATIVE ADVISORS
U.S. BOSTON CAPITAL CORPORATION
CODE OF ETHICS
FOR PERSONAL INVESTING
INTRODUCTION
This Code of Ethics (the “Code”) has been adopted pursuant to Rule 17j-1 of the Investment Company Act of 1940 (the “1940 Act”) and the Rules 204A-1, 204-2(a)(12) and 204-2(a)(13) of the Investment Advisers Act of 1940 (the “Advisers Act”).
The Code governs personal investment activities by employees, officers, directors and trustees of the Quantitative Group of Funds (collectively, the “Funds” and individually a “Fund”), Quantitative Investment Advisors, Inc. (the “Manager”), and U.S. Boston Capital Corporation (the “Distributor”).
The provisions outlined in the Code apply differently to each person depending on your position with the Funds, the Manager or the Distributor. It is your responsibility to familiarize yourself with this document each year and again if your position changes during a year.
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For purposes of the Code:
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§
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Unless indicated otherwise, the term “you” refers to all Access Persons (as the term is defined below) except the Disinterested Trustees.
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§
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The term “Quant” is used to refer collectively to the Funds, the Manager and the Distributor. The terms “we” and “our” refer to Quant.
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The Code is administered and enforced by the Compliance Officer and his or her designees.
Page 1 of 18
STATEMENT OF POLICY
Quant is committed to maintaining the highest ethical standards in connection with the management of our clients’ assets. An important part of this commitment is our fiduciary responsibility to put our clients’ interests ahead of our own. This Code is designed to provide us with a high level of confidence that your personal investment activities are consistent with our clients’ interests.
You must conduct all of your personal investment activities in a manner that is consistent with this Code. In addition, you must conduct all of your personal investment activities in a manner that avoids any actual or potential conflict of interest or abuse of your position of trust and responsibility. You must avoid taking inappropriate advantage of your position with Quant such as avoiding any situation that may create the perception of abuse or that may call into question the exercise of your judgment including, but not limited to, the receipt of exceptional investment opportunities or gifts of more than an insignificant value from any person or institution doing or attempting to do business with Quant.
Under the Code, you must conduct your personal investment activities in a manner which complies with the requirements of the federal securities laws. For purposes of this Code, the federal securities laws include the following laws, as amended from time to time, and any rules and regulations adopted thereunder by the Securities Exchange Commission or the Department of the Treasury, as applicable:
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§
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Securities Act of 1933;
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§
|
Securities Exchange Act of 1934;
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|
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§
|
Investment Company Act of 1940;
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|
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§
|
Investment Advisers Act of 1940;
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|
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§
|
Title V of the Gramm-Leach-Bliley Act; and
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|
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§
|
Bank Secrecy Act as it applies to mutual funds and investment advisers.
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It is important that you understand that the Code does not attempt to identify all possible conflicts of interest and that literal compliance with each of its specific provisions will not shield you from accountability for your personal investment activities or other conduct that violates our fiduciary duty to our clients. In other words, you must comply not only with technical provisions of the Code, but also with the spirit of the Code.
Page 2 of 18
APPLICABLIITY
Persons to Whom the Code Applies
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The Code applies to all Access Persons.
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Upon the determination that you are an Access Person, the Compliance Officer will provide you with a copy of this Code. If you know that you are an Access Person under this Code, you will be required to comply with it even if the Compliance Officer has not yet advised you that you are an Access Person. The prohibitions described below apply only to a transaction in a Reportable Security in which you had, or by reason of the transaction acquire, any direct or indirect beneficial ownership. Except as provided in the Statement of Policy, Disinterested Trustees are not generally subject to this Code and only must comply with those provisions that are expressly stated as applying to Disinterested Trustees. Please refer to the “Definitions” section of the Code for the definition of “Access Person.”
Accounts to Which the Code Applies
The Code applies to transactions in Reportable Securities in accounts beneficially owned by you.
The term “beneficial ownership” is more encompassing than you might expect. For example, an individual may be deemed to have beneficial ownership of securities held in the name of a spouse, minor children, or relatives sharing his or her home, or under other circumstances indicating investment control or a sharing of financial interest. See the “Definition” section of the Code for a more comprehensive explanation of “beneficial ownership.” Regardless of your position with the Funds, the Manager or the Distributor all of your transactions in the Funds must be consistent with the prospectus requirements of the Funds at all times.
Securities to Which the Code Applies
The Code applies to all transactions in Reportable Securities and Reportable Funds. See the “Definitions” section of the Code for more information on both Reportable Securities and Reportable Funds.
Activities to Which the Code Applies
Your personal investment activity, outside affiliations and receipt of gifts are subject to restrictions, and, in some cases, prohibitions of the Code.
Certain of these activities, such as competing with client trades or holdings and making personal use of or benefiting from client trades or holdings, are unethical. Others, such as purchases of initial public offerings and private placements, are restricted because they present the potential for actual or perceived conflicts of interest. The prohibitions
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and restrictions contained in this Code are based on the rules and interpretive positions of the Securities and Exchange Commission, industry “best practices” recommendations and the policies of the Funds, the Manager and the Distributor.
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CODE OF ETHICS
(a) “Access Person” means any director, trustee or officer of the Funds, the Manager or the Distributor. It also means:
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(i)
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Any employee or independent contractor of the Funds, the Manager or the Distributor (or any company that controls the Funds, the Manager or the Distributor) who has access to nonpublic information regarding clients’ purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any Reportable Fund;
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(ii)
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Every natural person who controls the Funds, the Manager or the Distributor and who is involved in making securities recommendations to clients or who has access to such recommendations that are nonpublic; and
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(iii)
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Any employee or other person designated by the Compliance Officer as an Access Person under this Code.
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(b) “Advisor” means advisors other than the Manager engaged by the Funds or the Manager to manage a Fund.
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(c)
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“Advisory Person” of a Fund means:
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(i)
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Any employee, including any household member of any employee, of the Funds, the Distributor, or the Manager or of any company in a control relationship to the Advisory Person who, in connection with his or her regular duties makes, participates in or obtains information regarding the purchase or sale of a security by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and
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(ii)
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Any natural person in a control relationship to the Funds, the Distributor, or the Manager who obtains information concerning recommendations made to a Fund with regard to the purchase or sale of a security.
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(d) A security is “Being Considered for Purchase or Sale” when a recommendation to purchase or sell such security has been made and communicated and, with respect to the person making the recommendations, when such person seriously considers making a recommendation.
(e) A security is “Being Purchased or Sold” when a Fund has a pending buy or sell order in the security.
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(f) “Beneficial Ownership” shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, except that the determination of direct or indirect ownership shall apply to all securities that an Access Person has or acquires. A person is generally deemed to have beneficial ownership of a security if the security is (1) held, in full or in part, in the name of such person directly or indirectly through any contract, arrangement, understanding, relationship or otherwise; (2) held by another person but subject to an agreement granting such person rights such as the ability to vote or sell the security; (3) available to such person within 60 days by exercise of a right, conversion
of a security or pursuant to the power to revoke a trust; (4) held in trust for such person; or (5) held by an entity primarily used for personal trading and which is partially owned by the person.
(g) “Client” means any account to which the Manger provides investment advice, including the Funds.
(h) “Control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position within the company.
(i) “Disinterested Trustee” means a trustee of the Funds who is not an “interested person” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.
(j) “Fund” means a fund in the Quantitative Group of Funds, each of which is an investment company registered under the 1940 Act.
(k) “Household Member” means any person residing in the same living space as an employee.
(l) “Initial Public Offering” or “IPO” means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. “Hot Issue” means any IPO which is oversubscribed.
(m) “Investment Personnel” means all persons who provide information and advice to the persons responsible for making the investment decisions regarding the Fund or who help execute such person’s decisions or who in the ordinary course of business receive information about such decisions. At present, no officers or employees of the Fund, the Manager, or the Distributor are Investment Personnel.
(n) “Private Placement” means an offering of securities that is exempt from registration pursuant to Section 4(2) or Section 4(6) or pursuant to Rules 504, 505 or 506 under the Securities Act of 1933 and other similar non-U.S. securities. Private placements include, but are not limited to, equity partnerships, hedge funds, limited partnerships and venture capital funds.
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(o) “Purchase or Sale of a Security” includes,
among other things
, the writing of an option to purchase or sell a security.
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(p)
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“Reportable Fund” means:
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(i)
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Any Fund for which the Manager serves an investment adviser as defined in Section 2(a)(20) of the 1940 Act (that is, the Quant Funds);
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(ii)
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Any Fund whose investment adviser or principal underwriter controls the Manager, is controlled by the Manager or is under common control with the Manager. For this purpose, control has the same meaning as it does in Section 2(a)(9) of the 1940 Act; and
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(iii)
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Open-end Exchange-Traded Funds.
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(q) “Reportable Security” means any type of equity or debt security (such as common stock, preferred stock, UIT exchange-traded fund, corporate or government bonds or corporate or government notes as defined in section 202(a)(9) of the 1940 Act) and any instrument representing, or any rights relating to, a security (such as certificates of participation, depository receipts, put and call options, warrants, convertible securities and securities indices)
except
that it does not include:
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(i)
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Direct obligations of the U.S. government (note, however, that securities issued by agencies or instrumentalities of the U.S. government (such as GNMA obligations), municipal obligations and obligations of other governments are Reportable Securities);
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(ii)
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Bankers’ acceptances;
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(iii)
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Bank certificates of deposit;
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(v)
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High quality short-term debt instruments, including repurchase agreements;
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(vi)
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Shares of money market funds;
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(vii)
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Shares issued by open end funds
other than Reportable Funds
(as defined above); and
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(viii)
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Shares issued by unit investment trusts that are invested exclusively in one or more open end funds, none of which are Reportable Funds.
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2.
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Fully or Partially Exempted Transactions
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The prohibitions, restrictions, pre-clearance requirements and reporting requirements of this Code
do not
apply to:
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(a)
Transactions in Securities that are not Reportable Securities
. Reportable Securities are defined above under “Definitions.”
(b)
Transactions in Non-Discretionary Accounts
. Purchases or sales effected to any account over which you, as an Access Person (or any member of your immediate family sharing the same household with you), have no direct or indirect influence or control. This exemption includes any account of yours that is managed on a discretionary basis by someone other than you (or any member of your immediate family sharing the same household with you).
(c)
Automatic Investment Plan Transactions
. Purchases or withdrawals that are part of an automatic investment plan, including automatic investment plans with respect to shares of Reportable Funds. For purposes of this section, an “automatic investment plan” is a program in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. A dividend reinvestment plan is a type of automatic investment plan.
The prohibitions, restrictions, pre-clearance requirements do not apply to the following (unless indicated otherwise in the Code)
but
the reporting requirements of this Code continue to apply to:
(d)
Non-Volitional Transactions
. Purchases or sales that are non-volitional on the part of the Access Person (or any member of your immediate family sharing the same household with you). A non-volitional transaction includes an in-the-money option that is automatically exercised by a broker, a security that is called away as a result of an exercise of an option or a security that is sold by a broker, without consulting you, to meet a margin call not otherwise met by you.
(e)
Rights Offerings
. Purchases effected upon the exercise of rights issued by an issuer
proportionately
to all holders of a class of its securities, to the extent such rights were acquired from the issuer, and sales of such rights so acquired.
(f)
Tender Offers
. Tenders of securities pursuant to tender offers that are expressly conditioned on the tender offeror’s acquisition of all of the securities of the same class. This exemption does not apply to tenders of securities pursuant to any other tender offer.
(g)
Small Transactions
. You may enter into transactions of an insignificant value, as determined by the Manager from time to time.
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3.
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Prohibited Purchases and Sales
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(a)
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Access Persons
may not
engage in any of the following activities:
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(i)
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Transact in Reportable Securities (including the Quant Funds) without pre-clearance.
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(b) Investment Personnel
may not
engage in the activities in (a) above that apply to all Access Persons and, in addition, may not engage in any of the following activities:
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(i)
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Purchasing or selling, directly or indirectly, any Reportable Security in which they had, or by reason of such transaction acquire, any direct or indirect beneficial ownership and which is Being Considered for Purchase or Sale by a Fund or is Being Purchased or Sold by a Fund. Any profits realized by Investment Personnel from trades made in violation of this subsection (a)(i) shall be disgorged to the respective Fund.
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(ii)
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Acquiring Reportable Securities in a private placement transaction without the prior consent of the Compliance Officer or, in his or her absence, the President of the Manager. In determining whether to grant such consent, the Compliance Officer or the President of the Manager shall consider, among other factors, whether the investment opportunity should be reserved for a Fund or its shareholders and whether the opportunity is being offered to the person by virtue of his or her position with the investment company.
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(iii)
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Either purchasing and selling or selling and purchasing the same or equivalent Reportable Securities or Reportable Funds within sixty days of the initial transaction. For the purpose of this section, puts, calls, options and similar instruments are deemed to be equivalent securities of the Reportable Security or Reportable Fund underlying the instrument. Any profits generated from such transactions must be disgorged to the respective Fund.
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4.
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Pre-Clearance of Trades
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(a)
Transactions in Reportable Securities or Reportable Funds
. All transactions in Reportable Securities or Reportable Funds made by Access Persons must be pre-cleared by the Compliance Officer, or in his absence, the Compliance Officer’s designated agent or the President of the Manager. The Compliance Officer shall review all proposed transactions for potential violations of the Code. All pre-clearance requests must be made by submitting a Pre-Clearance Form which can be found in P:\Compliance\Compliance Forms\Code of Ethics Forms. Although all transactions in Reportable Securities or Reportable Funds must be pre-cleared, a transaction may be automatically approved by the Compliance Officer if the transaction meets the de minimis exception below. Pre-clearance approval shall be good for one day
from the date
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it is granted and may be extended for additional one-day periods at the discretion of the Compliance Officer upon the request of the Access Person.
De Minimis Exception
. A transaction may be automatically approved if it meets all of the following conditions:
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1.
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A transaction of less than $30,000 or in the local country equivalent,
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2.
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2,000 shares or units; and
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3.
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not more than 1% of the average daily trading volume in the security for the preceding 5 trading days.
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(b)
Initial Public Offerings
. Subject to the prohibition in the paragraph (b)(i) below, all purchases of Initial Public Offerings (IPOs) made by an Access Person, including household members of the Access Person, must be pre-cleared by the Compliance Officer, or in his absence, the President of the Manager. Any Access Person must obtain information from their executing broker as to whether the IPO is a “hot issue.” The employee shall then present a completed pre-clearance form to the Compliance Officer. Access Persons will only be granted clearance by the Compliance Officer to purchase IPOs that are not considered “hot issues.”
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(i)
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IPO Prohibition.
A
ccess Persons (or immediate family members as defined under the NASD’s conduct rules) who are also NASD registered representatives or principals are prohibited from purchasing IPOs under NASD Conduct Rule 2790. An exception may apply in an issuer-directed offering.
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(c)
Private Placements
. All purchases of Private Placements made by an Access Person, including household members of the Access Person, must be pre-cleared by the Compliance Officer, or in his absence, the President of the Manager.
(a) Every Access Person shall report to the Compliance Officer the information described in Section 5(c) of this Code of Ethics with respect to transactions in any Reportable Security or Reportable Fund in which such Access Person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security.
(b) Notwithstanding Section 5(a) of this Code, an Access Person need not make a report where the report would duplicate information recorded pursuant to rule 204-2(a)(12) under the Investment Advisers Act of 1940, as amended; provided, however, that such information must be received no later than 30 days after the end of the calendar quarter in which the transaction takes place.
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(c)
Quarterly Holdings Reports
. Each report shall be made no later than 30 days after the end of the calendar quarter in which the transactions (or lack thereof) to which the report relates was effected, and shall contain the following information:
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(i)
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The date of the transaction, the title and number of
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shares, the CUSIP number and the principal amount
of each security involved;
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(ii)
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The nature of the transaction (i.e., purchase sale or
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any other type of acquisition or disposition);
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(iii)
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The price at which the transaction was effected;
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(iv)
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The name of the broker, dealer or bank with or through
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whom the transaction was effected;
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(v)
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The date the transaction report was submitted.
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(d)
Reports by Disinterested Trustees
. A Disinterested Trustee need only report a transaction in a Reportable Security if such trustee knew, or in the ordinary course of fulfilling his or her official duties as a trustee, should have known that during the 5-day period immediately preceding or after the date of the transaction by the Disinterested Trustee:
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(i)
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such security was or is to be purchased or sold by a Fund; or
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(ii)
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such security was or is being considered for purchase or
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In addition, Disinterested Trustees need not file a quarterly transaction report if the Trustee made no reportable transactions during a quarter. This exemption does not relieve Disinterested Trustees of their obligation to file the annual acknowledgment of their responsibilities of the Code required by
Section 5(e)
below, if applicable.
(e)
Certification
. The report for the final calendar quarter of each year must also include a statement by Access Persons that they are aware of their obligations under this Code and that for the past year they have complied with the Code in all respects, including the reporting requirements.
(f) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates.
(g) Every report containing a purchase or sale prohibited under Section 3 of the Code with respect to which the reporting person relies upon one of the exemptions
Page 11 of 18
provided in Section 2 of the Code shall contain a brief statement of the exemption relied upon and the circumstances of the transaction.
(h) With respect to those transactions executed through a broker, an Access Person may fulfill his or her reporting requirement by directing the broker(s) to transmit to the Compliance Officer a duplicate of confirmations of such transactions, provided, however, the Access Person will still be required to represent at the end of each quarter that the trades reflected on the confirmations constituted all of his or her trades for the quarter. Confirmations sent to the Compliance Officer should be addressed “Personal and Confidential” and must be received within 30 days of the calendar quarter end.
(i)
Annual Holdings Reports
. On an annual basis, within 30 days of the conclusion of each calendar year, all Access Persons must provide the Compliance Officer with a list of their securities holdings that is current within 45 days of submission.
(j)
Initial Holdings Reports
. Newly hired Access Persons shall provide the Compliance Officer with a list of their full securities holdings upon commencement of their employment within 10 days of their hire date that is current within 45 days prior to becoming an Access Person. Specifically,
newly hired Access persons must report to the Compliance Officer all securities holdings on the Initial Holdings Report Form
that requires the following information:
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(i)
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The title, number of shares and principal amount of each security in which you have any direct or indirect Beneficial Ownership as of the time you became an Access Person;
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(ii)
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The name of any broker, dealer or bank with whom you maintained an account in which any securities were held for your direct or indirect benefit Ownership as of the time you became an Access Person; and
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(iii)
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The date the report was submitted.
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The Initial Holdings Report may be satisfied by indicating on the Initial Holdings Report Form that you are providing a copy of securities account statements.
Newly appointed Access Persons can satisfy the Initial Holdings Report requirement by timely filing and dating a copy of all securities account statements listing all of their securities holdings. If a newly appointed Access Person has previously provided securities account statements, the Initial Holdings Report requirement can be satisfied by timely confirming the accuracy of the statements in writing.
(k)
No Transactions during a Reporting Period
. If an Access Person does not effect any reportable transactions during a reporting period, such person is not required to file a report so stating.
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6.
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Review and Recordkeeping
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(a) The Compliance Officer shall notify each person who is an Access Person that such person is subject to this Code of Ethics, including the reporting requirements, and shall deliver a copy of this Code of Ethics to each such person.
(b) The Compliance Officer shall review the reports submitted by each Access Person to determine whether there may have been any transactions proscribed by this Code of Ethics. In such event, the Compliance Officer shall immediately report the transaction to the President of the Manager and submit a report to the Board of Trustees of the Fund at its next meeting following receipt of the report by the Compliance Officer. The Compliance Officer shall have discretion not to submit a report to the Board of Trustees if he finds that by reason of the size of the transaction, the circumstances thereof or otherwise, no fraud or deceit or manipulative practice could reasonably have be found to have been practiced on the Fund in connection with its holding or acquisition of the security or that no other material violation of this Code of Ethics has
occurred. A written memorandum of any such finding shall be filed with any such reports submitted pursuant to this Code of Ethics.
(c) The Compliance Officer shall, at the end of each calendar quarter, request a representation from all Advisors that the Advisor is in compliance with the Code of Ethics promulgated by the Advisor. Any report by an Advisor of a violation of its Code of Ethics shall be disclosed by the Compliance Officer to the President of the Manager and the Board of Trustees of the Fund as provided in
Section 5(b)
above. At the time the Fund and the Manager enter into an agreement with any Advisor to provide advisory services to the Fund, the Compliance Officer shall request a current copy of the Advisor’s Code of Ethics, and all Advisors will be required to provide the Compliance Officer with revisions to their Codes of Ethics.
(d) The Compliance Officer shall maintain records in the manner and to the extent set forth below:
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(i)
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Preserve in an easily accessible place a copy of this Code of Ethics and any other code of ethics that at any time within the last five years has been in effect;
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(ii)
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Maintain in an easily accessible place a list of all Access Persons who are, or within the last five years have been, required to make reports;
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(iii)
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Preserve for a period of not less than five years from the end of the fiscal year in which it was made, the first two years in an easily accessible place, a copy of each report made by an Access Person and a copy of any written memoranda prepared by the Compliance Officer in connection therewith; and
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Page 13 of 18
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(iv)
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Preserve in an easily accessible place for a period of not less than five years from the end of the fiscal year in which the violation occurs a record of any violation of this Code of Ethics and of any action taken as a result of such violation.
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All reports of securities transactions, information related to investigating violations of the Code and any other information filed with the Compliance Officer pursuant to this Code shall be treated as confidential, but are subject to review and reporting as provided herein. In addition, we may report information to third parities under certain circumstances. For example, we may make reports of securities transactions and violations of this Code available to (i) clients or former clients or (ii) to the Securities and Exchange Commission or any other regulatory or self-regulatory organization to the extent required by law or regulation or (iii) to other civil or criminal authorities if we consider it to be necessary or advisable.
Upon being informed of a violation of this Code of Ethics, the Compliance Officer of the Fund may impose such sanctions as he or she deems appropriate, including,
among other things
, a letter of censure or suspension, termination of the employment of the violator or a request for disgorgement of any profit received from a securities transaction effected in violation of this Code of Ethics. All material violations of this Code of Ethics and any sanctions imposed thereto shall be reported periodically to the Board of Trustees of the Fund.
The Compliance Officer may take into account any factors that he or she determines to be appropriate in imposing sanctions. Such factors may include, but are not limited to, your history of compliance, the nature of the violation, whether the violation was intentional or inadvertent and any harm suffered by a client. Violations of this Code also may result in criminal prosecution or civil action. The Board of Trustees of the Funds shall have the power to modify or increase any sanction, as it deems appropriate.
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9.
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Service as a Director Prohibited for Investment Personnel
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Investment Personnel shall not serve on the Board of Directors or equivalent entity of a publicly traded company without the prior consent of the Fund’s Compliance Officer, or, in his or her absence, the President of the Manager. In granting such consent, the Compliance Officer or President of the Manager must find that the board service would be consistent with the interests of the Fund and its shareholders. In the event that such service is allowed, the Compliance Officer or President of the Manager shall take measures to ensure such person is isolated from investment decisions.
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10.
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Gifts and Entertainment Policy
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Receipt of Gifts
. Access Persons may not accept anything of value, including gratuities, in excess of $100 per year from any person or entity that does business with or on behalf of the Funds, the Manager or the Distributor or from an entity that is a potential investment for a client where such payment or gratuity is in relation to the business of the Fund, the Manager, or the Distributor. A gift of any kind is considered a gratuity. Any solicitation of gifts, personal benefits or gratuities is unprofessional and is strictly prohibited.
Offers of Gifts
. Access Persons may not offer gifts, favors, entertainment, special accommodations, or other things of value that could be viewed as overly generous or aimed at influencing decision-making of a person or entity or making a client feel beholden to Quant or the Access Person.
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Cash
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Access Persons may not offer or accept cash or cash equivalents as a gift.
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Entertainment
. Access Persons may not provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of Quant. Quant permits reasonable, ordinary business entertainment, but prohibits any events, which may be perceived as extravagant or involving lavish expenditures.
(a) Occasional lunches, dinners, cocktail parties, or comparable gatherings conducted for business purposes are permitted.
(b) Other entertainment events, such as, sporting events, theater, movies, concerts, or other forms of entertainment conducted for business purposes, are permitted only under the following conditions:
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(i)
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The host must be present for the event.
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(ii)
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The location of the event must be in the metropolitan area in which the office of the Access Person is located.
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(iii)
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Spouses or other family members of the Access Person may not attend the entertainment event or any meals before or after the entertainment event.
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(iv)
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Acceptance of entertainment having a market value materially exceeding the face value of the entertainment including, for example, attendance at a sporting event playoff game, is prohibited.
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(v)
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The Access Person may not accept entertainment events more than four times a year and not more than two times in any year from any single person or entity. The Access Person may not provide
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Page 15 of 18
entertainment events more than two times in any year to any single person or entity.
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(vi)
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The Compliance Officer may grant exceptions to these rules. For example, it may be appropriate for an employee attending a legitimate conference in a location away from the office to attend a business entertainment event in that location. All exceptions must be precleared by written request to the Compliance Officer.
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Pre-Clearance
. Business entertainment events provided for under (b) above must be approved in writing by the Compliance Officer in advance of the event. Requests should be made in writing to the Compliance Officer. The Compliance Officer shall review or approve the request and document the review in writing.
Reporting
. All gifts and entertainment given and received must be reported to the Compliance Officer in writing. The Compliance Officer maintains a log of all gifts and entertainment. The log shall be reviewed quarterly (documenting such review by initialing the log) looking for any patterns that may raise concern.
As described in Section 2 of the Code, we have established certain categories of transactions and conduct that are completely or partially exempt from various provisions of this Code.
Although exemptions other than those specifically included in the Code will rarely, if ever, be granted, the Compliance Officer may prospectively grant other exemptions from the trading restrictions, pre-clearance requirements or other provisions of this Code if the Compliance Officer believes that such an exemption is appropriate in light of all of the surrounding circumstances. The factors the Compliance Officer may review, include, but are not limited to, whether the granting of the exemption would violate the spirit of this Code and whether the granting of the exemption would cause any injury to any client. The Compliance Officer may grant exemptions under the Code only after reviewing all material information.
All exemption requests must be submitted to the Compliance Officer in writing and in advance. If appropriate, the Compliance Officer will consult with the President of the Manager in considering such requests. The Compliance Officer will inform you in writing whether or not the exemption has been granted. If you are granted an exemption to any provision of this Code, you still will be expected to comply with all other provisions of this Code.
If you believe you have been mistreated by any action rendered with respect to a violation of the Code or an exemption request waiver request, you may appeal the
Page 16 of 18
determination by providing the compliance officer with a written explanation within 30 days of being informed of such determination. If appropriate, the compliance officer will arrange for a review by senior management and will advise you whether the action will be imposed, modified or withdrawn.
Federal law requires that a code of ethics must not only be adopted but must also be enforced with reasonable diligence. The Compliance Officer will keep records of any violation of the Code and of the actions taken as a result of such violations.
The policies and procedures described in the Code do not create any obligations to any person or entity other than the Funds, the Manager and the Distributor. The Code is not a promise or contract, and it may be modified at any time. The Funds, the Manager and the Distributor retain the discretion to decide whether the Code applies to a specific situation, and how it should be interpreted.
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14.
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Report to the Board of Trustees
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Each year, the Compliance Officer will submit a report to the Board of Trustees of the Funds. The report will include, among other things:
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•
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The number and nature of all material violations of the Code and the sanctions imposed;
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•
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Any recommended changes to the Code based upon the Compliance Officer’s experience with the Code, evolving industry practices and developments in applicable laws or regulations; and
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•
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A certification that the Funds, the Manager and the Distributor have adopted procedures reasonably necessary to prevent access persons from violating the Code.
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15.
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Trustee Review of Code
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The Board of Trustees of the Fund may from time to time adopt such interpretations of this Code, as they deem appropriate. The Board of Trustees will review the operation of this Code of Ethics at least annually for its continuing appropriateness.
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16.
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Appointment of Compliance Officer
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The Board of Trustees has appointed Deborah A. Kessinger as the Compliance Officer with respect to this Code of Ethics to serve until further notice.
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17.
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Policies and Procedures to Prevent Insider Trading Violations
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Page 17 of 18
In addition to the requirements of this Code, all officers, directors and employees are subject to our Policy Statement on Insider Trading. This policy statement prohibits any officer, director or employee, either personally or on behalf of others, from buying or selling any security, including mutual funds and private accounts managed by the Manager or the Distributor, while in possession of material nonpublic information about the issuer of the security. The policy statement also prohibits such persons from communicating to third parties any material nonpublic information about any such security or issuer of such securities. Any violation of our Policy Statement on Insider Trading that adversely affects a client shall be deemed to be a violation of this Code.
You may have other obligations related to your purchase and sale of securities that are not covered by the Code. Please follow any guidelines you receive from the Funds, the Manager and the Distributor.
(revised January 1, 2006)
(revised February 21, 2006)
(revised January 8, 2007)
(revised January 10, 2008)
Page 18 of 18
CODE OF ETHICS
PanAgora Asset Management, Inc.
CODE OF ETHICS
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It is the personal responsibility of every PanAgora employee to avoid any conduct that could create a conflict, or even the appearance of a conflict, with our fund shareholders and other clients, or to do anything that could damage or erode the trust our fund shareholders and other clients place in PanAgora and its employees.
TABLE OF CONTENTS
2
OVERVIEW
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OVERVIEW
This overview is provided only as a convenience and is not intended to substitute for a careful reading of the complete document. As a condition of continued employment, every PanAgora employee is required to read, understand, and comply with the provisions of the entire Code of Ethics. Additionally, employees are expected to comply with the policies and procedures contained within PanAgora’s Compliance Program, which can be accessed online through PAMZone or in hard copy through the Code of Ethics Officer.
It is the personal responsibility of every PanAgora employee to avoid any conduct that could create a conflict, or even the appearance of a conflict, with our fund shareholders or other clients, or do anything that could damage or erode the trust our clients place in PanAgora and its employees. This is the spirit of the Code of Ethics. In accepting employment at PanAgora, every employee accepts the absolute obligation to comply with the letter and the spirit of the Code of Ethics. Failure to comply with the spirit of the Code of Ethics is just as much a violation of the Code as failure to comply with the written rules of the Code.
The rules of the Code cover activities, including personal securities transactions, of PanAgora employees, certain family members of employees, and entities (such as corporations, trusts, or partnerships) that employees may be deemed to control or influence.
Sanctions will be imposed for violations of the Code of Ethics. Sanctions may include monetary fines, bans on personal trading, reductions in salary increases or bonuses, disgorgement of trading profits, suspension of employment, and termination of employment. The proceeds resulting from monetary sanctions will be given to a charity chosen by the Code of Ethics Officer.
Insider trading
PanAgora employees are forbidden to buy or sell any security while either PanAgora or the employee is in possession of material, non-public information (inside information) concerning the security or the issuer. A violation of PanAgora’s insider trading policies may result in criminal and civil penalties, including imprisonment, disgorgement of profits, and substantial fines.
An employee aware of or in possession of inside information must report it immediately to the Code of Ethics Officer or the Deputy Code of Ethics Officer. See Appendix A: Overview of Insider Trading
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Conflicts of interest
The Code of Ethics imposes limits on activities of PanAgora employees where the activity may conflict with the interests of PanAgora or its clients. These include limits on the receipt and solicitation of gifts and on service as a fiduciary for a person or entity outside of PanAgora.
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For example, PanAgora employees generally may not accept gifts over $100 in total value in a calendar year from any entity or any supplier of goods or services to PanAgora. In addition, a PanAgora employee may not serve as a director of any corporation or other entity without prior written approval of the Code of Ethics Officer, and
PanAgora employees may not be members of investment clubs.
Confidentiality
Information about PanAgora clients and PanAgora investment activity and research is proprietary and confidential and may not be disclosed or used by any PanAgora employee outside PanAgora without a valid business purpose.
PanAgora/Putnam mutual funds
All employees and certain family members are subject to a minimum 90-day holding period for shares in PanAgora and Putnam’s open-end mutual funds. This restriction does not apply to PanAgora or Putnam’s money market funds or Putnam’s Stable Value Fund. Except in limited circumstances, all employees must hold any PanAgora or Putnam open-end fund shares in accounts at PanAgora or Putnam Preferred Access.
Personal securities trading
PanAgora employees may not buy or sell any security for their own account without clearing the proposed transaction in advance. Clearance is facilitated through the Personal Trading Assistant (PTA), the online pre-clearance system for equity securities, and directly with the Code of Ethics Administrator for fixed-income securities and transactions in PanAgora or Putnam closed-end funds. Certain securities are exempted from this pre-clearance requirement (e.g., shares of open-end (not closed-end) mutual funds).
PanAgora employees may not buy any securities in an initial public offering or in a private placement, except in limited circumstances when prior written authorization is obtained.
Clearance must be obtained in advance, between 9:00 a.m. and 4:00 p.m. Eastern Standard Time (EST) on the day of the trade.
A clearance is valid only for the day it is obtained
. PanAgora employees are strongly discouraged from engaging in excessive trading for their personal accounts. Employees will be prohibited from making more than 10 trades in individual securities within a quarter. Trading in excess of this level will be reviewed with the Code of Ethics Oversight Committee.
Short selling
PanAgora employees are prohibited from short selling any security, whether or not it is held in a PanAgora client portfolio, except that short selling against broad market indexes and “against the box” are permitted. Note, however, that short selling “against the box”
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or otherwise hedging an investment in shares of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc. stock is prohibited.
Confirmations of trading and periodic account statements
All PanAgora employees must have their brokers send duplicate confirmations and
statements of personal securities transactions
, including transactions of those who share the same household as the employee or for accounts over which the employee has investment discretion, to the Code of Ethics Officer. Employees must contact the Code of Ethics Administrator to (a) obtain an authorization letter from PanAgora to hold the account (b) provide instructions to the broker in establishing the Rule 407 Letter from PanAgora for setting up a personal brokerage account and (c) enter broker account profile into PTA.
Quarterly and annual reporting
All employees of PanAgora are Access Persons. Access persons must report all their securities transactions in each calendar quarter to the Code of Ethics Officer within 15 days after the end of the quarter. All Access Persons must disclose all personal securities holdings (even those to which pre-clearance may not apply) upon commencement of employment, quarterly and thereafter on an annual basis. If you fail to report as required, salary increases and bonuses may be reduced. Egregious conduct, e.g., willful failures to report, will be subject to harsher sanctions, which may include termination of employment.
IPOs and private placements
PanAgora employees may not buy any securities in an initial public offering or in a private placement, except in limited circumstances when prior written authorization is obtained.
Personal securities transactions by Access Persons
and certain investment professionals
The Code imposes several special restrictions on personal securities transactions by Access Persons and certain investment professionals, which are summarized as follows. (Refer to Section II for details):
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90-Day Short Term Holding Period
. No Access Person shall purchase and then sell at a profit, or sell and then repurchase at a lower price, any security or related derivative security within 90 calendar days.
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7-Day Rule.
Before a portfolio manager or research analyst places an order to buy a security for any portfolio he manages/researches, he must sell from his personal account any such security or related derivative security purchased within the preceding seven calendar days and disgorge any profit from the sale.
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Blackout Rules
. No portfolio manager or research analyst may sell any security or related derivative security for her personal account until seven calendar days have passed since the most recent purchase of that security or related derivative security by any portfolio she manages/researches. No portfolio manager or research analyst may buy any security or related derivative security for his personal account until seven calendar days have passed since the most recent sale of that security or related derivative security by any portfolio he manages/researches.
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Contra-Trading Rule
. No portfolio manager may sell out of her personal account any security or related derivative security that is held in any portfolio she manages unless she has received the written approval of an appropriate Director in your group and the Code of Ethics Officer.
• No portfolio manager may cause a PanAgora client to take action for the manager’s own personal benefit.
Similar rules limit personal securities transactions by analysts and directors. Please read these rules carefully as you are responsible for understanding the restrictions.
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PREAMBLE
It is the personal responsibility of every PanAgora employee to avoid any conduct that would create a conflict, or even the appearance of a conflict, with our fund shareholders or other clients, or do anything that could damage or erode the trust our clients place in PanAgora and its employees. This is the spirit of the Code of Ethics. In accepting employment at PanAgora, every employee also accepts the absolute obligation to comply with the letter and the spirit of the Code of Ethics. Failure to comply with the spirit of the Code of Ethics is just as much a violation of the Code as failure to comply with the written rules of the Code. Sanctions will be imposed for violations of the Code of Ethics, including the Code’s reporting requirements.
Sanctions will include bans on personal trading, reductions in salary increases or bonuses, disgorgement of trading profits, suspension of employment, and termination of employment.
PanAgora is required by law to adopt a Code of Ethics. The purposes of the law are to ensure that companies and their employees comply with all applicable laws and to prevent abuses in the investment advisory business that can arise when conflicts of interest exist between the employees of an investment advisor and its clients. By adopting and enforcing a Code of Ethics, we strengthen the trust and confidence reposed in us by demonstrating that, at PanAgora, client interests come before personal interests.
The Code that follows represents a balancing of important interests. On the one hand, as a registered investment advisor, PanAgora owes a duty of undivided loyalty to its clients, and must avoid even the appearance of a conflict that might be perceived as abusing the trust they have placed in PanAgora. On the other hand, PanAgora does not want to prevent conscientious professionals from investing for their own account where conflicts do not exist or are so attenuated as to be immaterial to investment decisions affecting PanAgora clients.
When conflicting interests cannot be reconciled, the Code makes clear that, first and foremost, PanAgora employees owe a fiduciary duty to PanAgora clients. In most cases, this means that the affected employee will be required to forego conflicting personal securities transactions. In some cases, personal investments will be permitted, but only in a manner, which, because of the circumstances and applicable controls, cannot reasonably be perceived as adversely affecting PanAgora client portfolios or taking unfair advantage of the relationship PanAgora employees have to PanAgora clients.
The Code contains specific rules prohibiting defined types of conflicts. Because every potential conflict cannot be anticipated in advance, the Code also contains certain general provisions prohibiting conflict situations. In view of these general provisions, it is critical that any individual who is in doubt about the applicability of the Code in a given situation seek a determination from the Code of Ethics Officer about the propriety of the conduct in advance. The procedures for obtaining such a determination are described in Section
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VI of the Code.
It is critical that the Code be strictly observed. Not only will adherence to the Code ensure that PanAgora renders the best possible service to its clients, it will ensure that no individual is liable for violations of law.
It should be emphasized that adherence to this policy is a fundamental condition of employment at PanAgora. Every employee is expected to adhere to the requirements of this Code of Ethics despite any inconvenience that may be involved. Any employee failing to do so may be subject to such disciplinary action, including financial penalties and termination of employment, as determined by the Code of Ethics Officer, the Code of Ethics Oversight Committee or the Chief Executive Officer of PanAgora.
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DEFINITIONS
: Code of Ethics
The words below are defined specifically for the purpose of PanAgora’s Code of Ethics.
Gender references in the Code of Ethics alternate.
Rule of construction regarding time periods
Unless the context indicates otherwise, time periods used in the Code of Ethics shall be measured inclusively, i.e., beginning on the dates from which the measurement is made.
EXCEPTIONS
Unless the context indicates otherwise, there will be no exceptions to the rules.
Access Persons
All employees of PanAgora are considered Access Persons.
Closed-end Fund
A fund with a fixed number of shares outstanding and which does not redeem shares the way a typical mutual fund does. Closed-end funds typically trade like stocks on exchange
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Code of Ethics Administrator
The individual designated by the Code of Ethics Officer to assume responsibility for day-to-day, nondiscretionary administration of this Code. The current Code of Ethics Administrator is Robin Kelly, who can be reached at extension x6373.
Code of Ethics Officer
The PanAgora officer who has been assigned the responsibility of enforcing and interpreting this Code. The Code of Ethics Officer shall be the Chief Compliance Officer or such other person as is designated by the Chief Executive Officer of PanAgora. If the Code of Ethics Officer is unavailable, the Deputy Code of Ethics Officer shall act in his or her stead. The Code of Ethics Officer is Louis X. Iglesias. The Deputy Code of Ethics Officer is Robin J. Kelly.
Code of Ethics Oversight Committee
Has oversight responsibility for administering the Code of Ethics. Members include the Code of Ethics Officer and other members of PanAgora’s senior management approved by the Chief Executive Officer of PanAgora.
Considered Securities Limited Sale Rule
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This rule permits a sale (but not a purchase) of a security up to 250 shares per day if the market capitalization of the security is $500 million to $5 billion.
Discretionary Account
An account for which the holder gives his/her broker or investment advisor (but not an immediate family member) complete authority to make management decisions to buy and sell securities (also called controlled account or managed accocunt).
Exchange Traded Fund (ETF)
A fund that tracks an index, but can be traded like a stock, ETFs always bundle together the securities that are in an index. Examples include (but are not limited to): SPDRs, WEBs, QQQQs, iShares, HLDRs.
Immediate family
Spouse, domestic partner, minor children, or other relatives living in the same household as the PanAgora employee. All pre-clearance and reporting applies to “immediate family members”.
Narrow-based derivative
A future, swap, put or call option, or similar derivative instrument whose return is determined by reference to fewer than 25 underlying issuers. Single stock futures and exchange traded funds based on fewer than 25 issuers are included.
Personal Trading Assistant (PTA)
The Personal Trading Assistant (PTA) is an intuitive, browser-based application that provides an automated and streamlined mechanism for managing employee personal trading practices, e.g. pre-clearance, reporting and certifications in accordance with regulatory requirements and PanAgora’s Code of Ethics.
Policy statements
The Policy Statement Concerning Insider Trading Prohibitions attached to the Code as Appendix A and the Policy Statement Regarding Employee Trades in Shares of PanAgora or Putnam closed-end funds attached to the Code as Appendix B.
Private placement
Any offering of a security not offered to the public and not requiring registration with the relevant securities authorities.
Purchase or sale of a security
Any acquisition or transfer of any interest in the security for direct or indirect
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consideration; this includes the writing of an option. This definition includes any transfer of a security by an employee as a gift to an individual or a charity.
PanAgora
Any or all of PanAgora, and its subsidiaries, any one of which shall be a PanAgora company.
PanAgora client
Any of the PanAgora mutual funds, or any advisory, trust, or other client of PanAgora.
PanAgora employee (or employee)
Any employee of PanAgora.
Restricted list
The list established in accordance with Rule 1 of Section I.A.
Security
The following instruments are defined as “securities” and require pre-clearance:
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Any type or class of equity or debt security; any rights relating to a security, such as warrants, convertible securities
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Narrow-based derivative
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Unless otherwise noted, the term security does not include:
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Direct and indirect obligations of the U.S. government and its agencies
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Certificates of deposit
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Any other money market instruments
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Exchange traded index funds containing a portfolio or securities of 25 or more issuers (e.g., SPDRs, WEBs, QQQs)
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Any option on a broad-based market index or an exchange-traded futures contract or option
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Selling Short
The sale of a security that the investor does not own in order to take advantage of an anticipated decline in the price of the security. In order to sell short, the investor must borrow the security from his broker in order to make delivery to the buyer.
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Selling Short Against the Box
A short sale where the investor owns the security, but does not want to use the shares for delivery, so he borrows them from the brokerage firm.
Transaction for a personal account (or personal securities transaction)
Securities transactions: (a) for the personal account of any employee; (b) for the account of a member of the immediate family of any employee; (c) for the account of a partnership in which a PanAgora employee or immediate family member is a general partner or a partner with investment discretion; (d) for the account of a trust in which a PanAgora employee or immediate family member is a trustee with investment discretion; (e) for the account of a closely-held corporation in which a PanAgora employee or immediate family member holds shares and for which he has investment discretion; and (f ) for any account other than a PanAgora client account, which receives investment advice of any sort from the employee or immediate family member, or as to which the employee or immediate family member has investment discretion.
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SECTION I: Personal Securities Rules for All Employees
A. Pre-clearance and the Restricted List
Rule 1 – Pre-clearance Requirements and the Personal Trading Assistant (PTA) System
Pre-clearance is required for the following securities:
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Stock of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc.
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Any type or class of equity or debt security, including corporate and municipal bonds
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Any rights relating to a security, such as warrants and convertible securities
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Closed-end funds – including Putnam closed-end funds. Country funds as well as other funds that are not tied to an index, are considered closed-end funds and are subject to pre-clearance and reporting requirements, e.g., India Fund (INF), Morgan Stanley Asia Pacific Fund (APF), Central Europe and Russia Fund (CEE). Certain closed-end funds which sometimes are referred to as closed-end ETFs., Blackrock (BKK), Western Asset Emerging (ESD) or Eaton Vance Muni Trust (EVN) are also subject to pre-clearance and reporting requirements.
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Any narrow based derivative, e.g. a put or call option on a single security
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Any security donated as a gift to an individual or a charity
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Pre-clearance is
not
required for:
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Currencies, Treasuries (T-bills), and direct and indirect obligations of the U.S. government and its agencies
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Direct and indirect obligations of any member of the country of the Organization for Economic Co-Operation and Development (OECD), commercial paper, certificates of deposit (CDs), repurchase agreements, bankers’ acceptances, and other money market instruments
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The following are excluded from pre-clearance but not from reporting requirements:
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Exchange-traded index funds (ETFs) containing a portfolio of securities of 25 or more issuers (e.g., SPDRs, WEBs, QQQQs, iShares, HLDRs), and any option on a broad-based market index or an exchange-traded futures contract or option thereon.
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Rule 2: Personal Trading Assistant (PTA) System and Restricted List
No PanAgora employee shall purchase or sell for his personal account any security requiring pre-clearance under Rule 1 without prior clearance obtained through procedures set forth by the Code of Ethics Officer. Equity securities are pre-cleared
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through the Personal Trading Assistant (PTA) Putnam’s intranet pre-clearance system (under the left column of www.putnam.com/panagora/remoteaccess). Fixed-income securities must be pre-cleared by calling the Code of Ethics Administrator, and there are special rules for trading in PanAgora or Putnam closed-end funds. See Appendix B. Subject to the limited exceptions below, no clearance will be granted for securities appearing on the Restricted List. Securities will be placed on the Restricted List in the following circumstances:
(a) When orders to purchase or sell such security have been entered for any PanAgora client, or the security is being actively considered for purchase for any PanAgora client, unless the security is a nonconvertible investment grade rated (at least BBB by S&P or Baa by Moody’s) fixed-income investment;
(b) When such a security is a voting security of a corporation in the banking, savings and loan, insurance, communications, public utilities, or gaming (i.e., casinos) industries, if holdings of PanAgora or Putnam clients in that corporation exceed 7%;
(c) When, in the judgment of the Code of Ethics Officer, other circumstances warrant restricting personal transactions of PanAgora employees in a particular security;
(d) When required under the circumstances described in the Policy Statement Concerning Insider Trading Prohibitions, attached as Appendix A.
Reminder: Securities for an employee’s personal account include securities owned by certain family members of a PanAgora employee. Thus, this Rule prohibits certain trades by family members of PanAgora employees. See Definitions.
Compliance with this rule does not exempt an employee from complying with any other applicable rules of the Code, such as those described in Section III. In particular, Access Persons and certain investment professionals must comply with the special rules set forth in Section II.
IMPLEMENTATION
An employee wishing to trade any equity security shall first obtain clearance through the Personal Trading Assistant (PTA) system. The system may be accessed online at
www.putnam.com/panagora/remote
access and selecting “Access PTA”. Employees may pre-clear securities between 9:00 a.m. and 4:00 p.m. ET. Requests to make personal securities transactions may not be made using the system or presented to the Code of Ethics Administrator before 9:00 a.m. or after 4:00 p.m. ET.
Pre-clearance must be made by calling the Code of Ethics Administrator for fixed-income (munis and corporate) bonds, including non-convertible investment grade rated (BBB by S&P or Baa by Moody’s) and Putnam closed-end funds.
The PTA system will inform the employee whether the security may be traded and
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whether trading in the security is subject to the “Large Cap” limitation or the “Considered List – Limited Sale Exception”. The response of the pre-clearance system as to whether a security appears on the Restricted List and, if so, whether it is eligible for the exceptions set forth after this Rule shall be final, unless the employee appeals to the Code of Ethics Officer, using the procedure described in Section VII, regarding the request to trade a particular security.
A clearance is only valid for trading on the day it is obtained. Trades in securities listed on Asian or European stock exchanges, however, may be executed within one business day after pre-clearance is obtained
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If a security is not on the Restricted List, other classes of securities of the same issuer (e.g., preferred or convertible preferred stock) may be on the Restricted List. It is the employee’s responsibility to identify with particularity the class of securities for which permission is being sought for a personal investment.
If the pre-clearance system does not recognize a security, or if an employee is unable to use the system or has any questions with respect to the system or pre-clearance, the employee may consult the Code of Ethics Administrator. The Code of Ethics Administrator shall not have authority to answer any questions about a security other than whether trading is permitted. The response of the Code of Ethics Administrator as to whether a security appears on the Restricted List and, if so, whether it is eligible for any applicable exceptions set forth after this Rule shall be final, unless the employee appeals to the Code of Ethics Officer, using the procedure described in Section VII, regarding the request to trade a particular security.
EXCEPTIONS
A.
Large Cap Exception.
If a security appearing on the Restricted List is an equity security for which the issuer has a market capitalization (defined as outstanding shares multiplied by current price per share) of over $5 billion, then a PanAgora employee may purchase or sell up to 1,000 shares of the security per day for his personal account. This exception does not apply if the security appears on the Restricted List in the circumstances described in subpart (b), (c), or (d) of Rule 1.
B.
Considered List - Limited Sale Rule.
As the PanAgora list of securities is broad and inclusive, employees will be permitted to make limited sales (250 shares) but not purchases of securities held in their accounts if trading is blocked solely by the Considered List of securities.
C.
Pre-clearing Transactions Effected by Share Subscription
. The purchase of securities made by subscription rather than on an exchange are limited to issuers having a market capitalization of $5 billion or more and are subject to a 1,000 share limit. The following are procedures to comply with Rule 1 when effecting a purchase or sale of shares by subscription:
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(a) The PanAgora employee must pre-clear the trade on the day he or she submits a subscription to the issuer, rather than on the actual day of the trade since the actual day of the trade typically will not be known to the employee who submits the subscription. At the time of pre-clearance, the employee will be told whether the purchase is permitted (in the case of a corporation having a market capitalization of $5 billion or more), or not permitted (in the case of a smaller capitalization issuer).
(b) The subscription for any purchase or sale of shares must be reported on the employee’s quarterly personal securities transaction report, noting the trade was accomplished by subscription.
(c) Because no brokers are involved in the transaction, the confirmation requirement will be waived for these transactions, although the PanAgora employee must provide the Legal and Compliance Department with any transaction summaries or statements sent by the issuer.
D.
Trades in Approved Discretionary Brokerage Accounts
. A transaction does not need to be pre-cleared if it takes place in an account that the Code of Ethics Officer has approved in writing as exempt from the pre-clearance requirement. In the sole discretion of the Code of Ethics Officer accounts that will be considered for exclusion from the pre-clearance requirement are only those for which an employee’s securities broker or investment advisor has complete discretion (a discretionary account) and the following conditions are met (i) the employee certifies annually in writing that the employee has no influence over the transactions in the discretionary account and is not aware of the transactions in the discretionary account prior to their execution, (ii) the compliance department of the employee’s broker or investment advisor certifies annually in
writing that the employee has no influence over the transactions in the discretionary account and is not aware of the transactions in the discretionary account prior to their execution; and (iii) each calendar quarter, the broker or investment advisor sends PanAgora’s Code of Ethics Administrator copies of each quarterly statement for the discretionary account. Employees wishing to seek such an exemption must send a written request to the Code of Ethics Administrator.
COMMENTS
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Pre-clearance
. Subpart (a) of Rule 2 is designed to avoid the conflict of interest that might occur when an employee trades for his personal account a security that currently is being traded or is likely to be traded for a PanAgora client. Such conflicts arise, for example, when the trades of an employee might have an impact on the price or availability of a particular security, or when the trades of the client might have an impact on price to the benefit of the employee. Thus, exceptions involve situations where the trade of a PanAgora employee is unlikely to have an impact on the market.
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Regulatory Limits.
Owing to a variety of federal statutes and regulations in the banking, savings and loan, insurance, communications, and gaming industries, it is critical that accounts of PanAgora and Putnam clients not hold more than 10% of the voting securities
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(7% for public utilities) of any issuer in those industries. Because of the risk that the personal holdings of PanAgora and Putnam employees may be aggregated with PanAgora and Putnam holdings for these purposes, subpart (b) of this Rule limits personal trades in these areas. The 7% limit will allow the regulatory limits to be observed.
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Options
. For the purposes of this Code, options are treated like the underlying security. See Definitions. Thus, an employee may not purchase, sell, or “write” option contracts for a security that is on the Restricted List. The automatic exercise or assignment of an options contract (the purchase or writing of which was previously pre-cleared) does not have to be pre-cleared. Note, however, that the sale of securities obtained through the exercise of options must be pre-cleared.
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Involuntary transactions
. Involuntary personal securities transactions are exempted from the Code. Special attention should be paid to this exemption. (See Section I.D.)
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Tender offers.
This Rule does not prohibit an employee from tendering securities from his personal account in response to an any and all tender offer, even if PanAgora clients are also tendering securities. A PanAgora employee is, however, prohibited from tendering securities from his personal account in response to a partial tender offer, if PanAgora clients are also tendering securities.
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Gifts of Securities.
Pre-clearance is required for securities donated as a gift to a charitable organization or to an individual. Employees are required to provide a figt transfer certificate of the transaction (if produced) to the Code of Ethics Administrator along with an account statement reflecting the gift transaction. Receipt of a securities gift should be reported on the Access Person’s Annual Holding Report. Employees who receive a securities gift must report the gift to the Code of Ethics Administrator to make the necessary adjustments in PTA and Access Persons must disclose this holding in PTA.
Rule 3: Marsh & McLennan (MMC) Securities
All employees trading MMC securities must pre-clear the trades in the PTA system. MMC securities include stock, options, and any other securities such as debt. Sales out of the MMC Employee Stock Purchase Plan and transactions in all Putnam and MMC employee benefit and bonus plans, i.e., rebalancing or exchanging out of the 401(k)/Profit Sharing/Bonus Plan, are included in this requirement.
Pre-clearance of MMC is required when, for example, you:
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Sell MMC out of the Stock Purchase Plan
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Exchange MMC shares into or out of your 401(k)/Profit Sharing/Bonus Plan
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Rebalance your Putnam fund choices, which results in a buy or sell of MMC from your 401(k)/Profit Sharing/Bonus Plan
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Trade in MMC securities in other accounts held outside Putnam
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Pre-clearance is not required when you:
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Increase/decrease the amount of money that is automatically deducted (systematic plan) from your paycheck and used to purchase MMC shares in your 401(k)/Profit Sharing/Stock Purchase Plan
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Maintain standing instructions to have money deducted (automatic payroll deductions) and want to increase or decrease the percentage allocated, or instruct to reduce it to “0” in your 401(k)/Profit Sharing/Stock Purchase Plan
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Apply for a loan and/or make withdrawals of the stock from your 401(k)/Profit Sharing Plan
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COMMENTS
All transactions of MMC require pre-clearance in PTA before you contact your broker to trade shares in an outside brokerage account or before contacting Citigroup Smith Barney to sell shares out of your Stock Purchase Plan. Also, if MMC is one of your choices in the 401(k)/Profit Sharing Plan, all exchanges out must be cleared. Even though clearance is not required for Putnam mutual funds, if you do not wish to include MMC shares when rebalancing any of your fund choices, which will result in an automatic exchange of your MMC shares, you must remember to exclude MMC shares prior to submitting your changes. If you are investing online, check the box to exclude MMC; or if you are investing by telephone with a Putnam representative, ask to exclude MMC before rebalancing the funds.
Additional MMC -related policies:
• Transactions in MMC securities which are held in Putnam’s internal plans are not subject to the 90-Day Short-Term Rule
(applicable to Access Persons only)
or to the holding periods that apply to Putnam mutual funds.
B. Prohibited Transactions
Rule 1: Short-Selling Prohibition
PanAgora employees are prohibited from short selling any security in their own accounts, whether or not the security is held in a PanAgora client portfolio. Employees are prohibited from hedging investments made in securities of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc.
EXCEPTIONS
Short selling against broad market indexes (such as the Dow Jones Industrial Average, the NASDAQ index, and the S&P 100 & 500 indexes) and short selling against the box are permitted (except that short selling shares of Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc. against the box is not permitted).
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Rule 2: Initial Public Offerings Prohibition
No PanAgora employee shall purchase any security for her personal account in an initial public offering. Employees are also restricted from participating in Initial Public Offerings via a Discretionary Account.
EXCEPTION
Pre-existing Status Exception
. A PanAgora employee shall not be barred by this Rule or by Rule 1(a) of Section I.A. from purchasing securities for her personal account in connection with an initial public offering of securities by a bank or insurance company when the employee’s status as a policyholder or depositor entitles her to purchase securities on terms more favorable than those available to the general public, in connection with the bank’s conversion from mutual or cooperative form to stock form, or the insurance company’s conversion from mutual to stock form, provided that the employee has had the status entitling her to purchase on favorable terms for at least two years. This exception is only available with respect to the value of bank deposits or insurance policies that an employee owns before the announcement of the initial public offering. This exception
does not apply, however, if the security appears on the Restricted List in the circumstances set forth in subparts (b), (c), or (d) of Section I.A., Rule 2.
IMPLEMENTATION
A.
General Implementation.
An employee shall inquire, before any purchase of a security for her personal account, whether the security to be purchased is being offered pursuant to an initial public offering. If the security is offered through an initial public offering, the employee shall refrain from purchasing that security for her personal account unless the exception applies.
B.
Administration of Exception.
If the employee believes the exception applies, she shall consult the Code of Ethics Administrator concerning whether the security appears on the Restricted List and if so, whether it is eligible for this exception.
COMMENTS
• The purpose of this Rule is designed to avoid the conflict of interest that might occur when an employee trades for his personal account a security that currently is being traded or is likely to be traded for a PanAgora client. Such conflicts arise, for example, when the trades of an employee might have an impact on the price or availability of a particular security, or when the trades of the client might have an impact on price to the benefit of the employee. Thus, exceptions involve situations where the trade of a Putnam employee is unlikely to have an impact on the market.
• Purchases of securities in the immediate after-market of an initial public offering are not prohibited, provided they do not constitute violations of other portions of the Code of
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Ethics. For example, participation in the immediate after-market as a result of a special allocation from an underwriting group would be prohibited by Section III, Rule 3 concerning gifts and other favors.
• Public offerings subsequent to initial public offerings are not deemed to create the same potential for competition between PanAgora employees and PanAgora clients because of the pre-existence of a market for the securities.
Rule 3: Private Placement Pre-Approval Requirements
No PanAgora employee shall purchase any security for his personal account in a limited private offering or private placement without prior approval from the Code of Ethics Officer. Privately placed limited partnerships and funds such as private equity or hedge funds are specifically included in this Rule.
COMMENTS
• The purpose of this Rule is to prevent a PanAgora employee from investing in securities for his own account pursuant to a limited private offering that could compete with or disadvantage PanAgora clients, and to prevent PanAgora employees from being subject to efforts to curry favor by those who seek to do business with PanAgora.
• Exemptions to the prohibition will generally not be granted where the proposed investment relates directly or indirectly to investments by a PanAgora client, or where individuals involved in the offering (including the issuers, broker, underwriter, placement agent, promoter, fellow investors and affiliates of the foregoing) have any prior or existing business relationship with PanAgora or a PanAgora employee, or where the PanAgora employee believes that such individuals may expect to have a future business relationship with PanAgora or a PanAgora employee.
• An exemption may be granted, subject to reviewing all the facts and circumstances, for investments in:
(a) Pooled investment funds, including hedge funds, subject to the condition that an employee investing in a pooled investment fund would have no involvement in the activities or decision-making process of the fund except for financial reports made in the ordinary course of the fund’s business, and subject to the condition that the hedge fund does not invest significantly in registered investment companies.
(b) Private placements where the investment cannot relate, or be expected to relate, directly or indirectly to PanAgora or investments by a PanAgora client.
• Employees who apply for an exemption will be expected to disclose to the Code of Ethics Officer in writing all facts and relationships relating to the proposed investment.
• Applications to invest in private placements will be reviewed by the Code of Ethics Oversight Committee. This review will take into account, among other factors, the considerations described in the preceding comments.
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Rule 4: Trading with Material Non-Public Information
No PanAgora employee shall purchase or sell any security for her personal account or for any PanAgora client account while in possession of material, nonpublic information concerning the security or the issuer.
EXCEPTIONS
None. Please read Appendix A, Policy Statement Concerning Insider Trading Prohibitions.
Rule 5: No Personal Trading with Client Portfolios
No PanAgora employee shall purchase from or sell to a PanAgora client any securities or other property for his personal account, nor engage in any personal transaction to which a PanAgora client is known to be a party, or which transaction may have a significant relationship to any action taken by a PanAgora client.
EXCEPTIONS
None.
IMPLEMENTATION
It shall be the responsibility of every PanAgora employee to make inquiry prior to any personal transaction sufficient to satisfy himself that the requirements of this Rule have been met.
COMMENT
This rule is required by federal law. It does not prohibit a PanAgora employee from purchasing any shares of an open-end PanAgora fund. The policy with respect to employee trading in closed-end PanAgora funds is attached as Appendix B.
Rule 6: Holding Putnam Mutual Fund Shares
PanAgora employees may not hold shares of PanAgora or Putnam open-end U.S. mutual funds other than through accounts maintained at PanAgora/Putnam through Putnam Preferred Access (PPA). Employees placing purchase orders in shares of PanAgora or Putnam open-end funds must place such orders through PanAgora/Putnam and not through an outside broker or other intermediary. Employees redeeming or exchanging shares of PanAgora or Putnam open-end funds must place those orders through PanAgora/Putnam and not through an outside broker or other intermediary. Contact a PPA representative at 1-800-634-1590 for instructions on how to transfer these funds.
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REMINDER:
For purposes of this Rule, “employee” includes:
• Members of the immediate family of a PanAgora employee who share the same household as the employee or for whom the PanAgora employee has investment discretion (family member);
• Any trust in which a PanAgora employee or family member is a trustee with investment discretion and in which such PanAgora employee or any family member are collectively beneficiaries;
• Any closely-held entity (such as a partnership, limited liability company, or corporation) in which a PanAgora employee and his or her family members hold a controlling interest and with respect to which they have investment
discretion; and
• Any account (including any retirement, pension, deferred compensation, or similar account) in which a PanAgora employee or family member has a substantial economic interest and over which said PanAgora employee or family member exercises investment discretion.
COMMENTS
These requirements also apply to:
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•
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self-directed IRA accounts holding Putnam fund shares, and
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•
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variable insurance accounts, which invest in Putnam Variable Trusts such as the Putnam/Hartford Capital Manager Programs. Employees must designate Putnam Retail Management as the broker of record for all such accounts. Employees may not hold an interest in Putnam Variable Trust which cannot be held through Putnam.
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EXCEPTION
Retirement, pension, deferred compensation and similar accounts that cannot be legally transferred to Putnam are not subject to the requirement. For example, a spouse of a PanAgora employee may have a 401(k) plan with her employer that invests in Putnam funds. Any employee who continues to hold shares in open-end Putnam
funds outside of Putnam must notify the Code of Ethics Officer in writing of the account information, provide the reason why the account cannot be transferred to Putnam and arrange for a quarterly statement of transactions in such account to be sent to the Code of Ethics Administrator.
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Rule 7: Putnam Mutual Fund Employee Restrictions
(a) Employees defined in Rule 6 may not, within a 90-calendar day period, make a purchase followed by a sale or a sale followed by a purchase of shares of the same open-end Putnam mutual fund even if the transactions occur in different accounts.
(b) Employees who are Access Persons may not, within a one-year period, make a purchase followed by a sale or a sale followed by a purchase of shares of the same open-end Putnam mutual fund or of shares of any U.S. registered mutual fund to which Putnam acts as advisor or sub-advisor even if the transactions occur in different accounts.
(c) All employees are required to “link” their immediate family members’ accounts holding Putnam mutual funds to comply with the disclosure requirements. These accounts are also subject to the 90-day and one-year rules. To link these accounts, log on to
www.putnam.com/panagora/remoteaccess
and select Linked Mutual Fund Accounts. You are required to confirm the information and will be prompted to add any accounts that you or your family members have that should be linked or delinked accounts which you or your family have closed.
COMMENTS
This Rule applies to transactions by a Putnam employee and family members as defined in the Code in any type of account including retail, IRA, variable annuity, 401(k)/Profit Sharing Plan, and any deferred compensation account and the restrictions apply across all accounts maintained by an employee and family members:
• An employee who buys shares of an open-end Putnam mutual fund may not sell any shares of the same mutual fund until 90 calendar days have passed.
Example: If an employee buys shares of a Putnam fund on Day 1 for a retail account and then sells (by exchange) shares of the same fund for his or her Putnam Profit Sharing 401(k) Plan account on Day 85, the employee has violated the rule.
Similarly, an employee who sells shares of an open-end Putnam mutual fund may not buy any shares of the same mutual fund until 90 calendar days have passed.
Similarly, an employee who buys shares of an open-end PanAgora or Putnam mutual fund may not sell any shares of the same mutual fund until 1 year has passed.
• The purpose of these blackout periods restriction is to prevent any market timing, or appearance of market timing activity.
• This Rule applies to transactions by a PanAgora employee and their family member as defined in the Code in any type of account, including retail, IRA, variable annuity, college savings 529 plans, Profit Sharing 401(k) Plan, and any deferred compensation accounts.
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• The minimum sanction for an initial violation of the blackout period shall be disgorgement of any profit made on the transaction. Additional sanctions may apply, including termination of employment.
EXCEPTIONS
A. The restrictions do not apply to Putnam’s money market funds and Putnam Stable Value Fund.
B. Profit Sharing 401(k) Plan Contributions and Payroll Deductions. The 90-day or one year restriction is not triggered by initial allocation of regular employee or employer contributions or forfeitures to an employee’s account under the terms of PanAgora employee benefit plans or a PanAgora payroll deduction direct investment program; later
exchanges of these contributions will be subject to either the 90-day or one year blackout period.
C. Systematic Programs. The restrictions do not apply with respect to shares sold or acquired as a result of participation in a systematic program for contributions, withdrawals or exchanges, provided that an election to participate in any such program and the participation dates of the program are not be changed more often than quarterly after the program is elected by the employee. Access Persons may elect a quarterly or semiannual rebalancing program although it may only be changed on an annual basis;
D. Employee Benefit Plan Withdrawals and Distributions. This restriction does not apply with respect to shares sold for withdrawals, loans or distributions under the terms of PanAgora employee benefit plans;
E. Dividends, Distributions, Mergers, and Share Class Conversions. This restriction does not apply with respect to the acquisitioned shares as a result of reinvestment of dividends, distributions, mergers, conversions of share classes, or other similar actions. Subsequent transactions with respect to the shares will be covered.
F. College Savings Program: Redemptions from an employee’s college savings 529 plan to pay for qualified educational expenses for the beneficiary of the account (and redemptions due to death or disability) are exempt from the 90-day and one-year restrictions applicable to Putnam mutual funds. Qualified redemptions include:
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•
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Supplies and equipment required for enrollment
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G. Special Situations: In special situations, as determined by PanAgora’s Code of Ethics Oversight Committee, exceptions may be granted to the blackout periods as a result of death, disability, or special circumstances (such as, personal hardship)
.
Employees can request an exception by submitting a written request to the Code of Ethics Officer.
Rule 8: Special: Good Until Canceled Orders
Good Until Canceled (GTC) Limit Orders are prohibited.
Any order not executed on the day of pre-clearance must be resubmitted for pre-clearance before being executed on a subsequent day. “Good until canceled limit” orders are prohibited because of the potential failure to pre-clear.
EXCEPTION
Same day limit orders are permitted.
Rule 9: Excessive Trading
PanAgora employees are strongly discouraged from engaging in excessive trading for their personal accounts. Employees are
prohibited from making more than 10 trades in individual securities in any given quarter. Excessive trading within PanAgora or Putnam open-end mutual funds is prohibited. For the purpose of this rule, an employee is prohibited from engaging in more than a total of 10 trades in all accounts the employee may hold (including those accounts held by his immediate family members), not 10 trades per individual accounts.
EXCEPTIONS
For the purpose of calculating the number of trades in any quarter, trading the same security in the same direction (buy or sell) over a period of five business days will be counted as one transaction.
Trades in ETFs containing 25 or more issuers and trades of MMC, Great West Life and affiliate stock in Putnam internal plans are not counted towards the 10 trade limit.
COMMENTS
• Although a PanAgora employee’s excessive trading may not itself constitute a conflict of interest with PanAgora clients, PanAgora believes that its clients’ confidence in PanAgora will be enhanced and the likelihood of PanAgora achieving better investment results for its clients over the long term will be increased if PanAgora employees rely on their investment — as opposed to trading — skills in transactions for their own account. Moreover, excessive trading by a PanAgora employee for his or her own account diverts an employee’s attention from the responsibility of servicing PanAgora clients, and increases the possibilities for transactions that are in actual or apparent conflict with PanAgora client transactions. Short-term trading is strongly discouraged while employees
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are encouraged to take a long-term view.
• Employees should be aware that their trading activity is closely monitored.
Activity exceeding 10 trades per quarter will be prohibited by the Code of Ethics Oversight Committee.
Sanctions will be imposed such as a trading ban or a more stringent sanction may be determined at the discretion of the Committee. Different rules apply with respect to trading in shares of PanAgora or Putnam open-end mutual funds. See Section I. B, Rule 7 above.
C. Discouraged Transactions
Rule 1: Naked Options
PanAgora employees are strongly discouraged from engaging in writing (selling) naked options for their personal accounts.
Naked option transactions are particularly dangerous, because a PanAgora employee may be prevented by the restrictions in this Code of Ethics from covering the naked option at the appropriate time. All employees should keep in mind the limitations on their personal securities trading imposed by this Code when contemplating such an investment strategy.
Engaging in naked options transactions on the basis of material, nonpublic information is
prohibited. See Appendix A, Policy Statement Concerning Insider Trading Prohibitions.
EXCEPTIONS
None.
D. Exempted Transactions
Rule 1: Involuntary Transactions
Transactions that are involuntary on the part of a PanAgora employee are exempt from the prohibitions set forth in Sections I.A., I.B., and I.C.
EXCEPTIONS
None.
COMMENTS
• This exemption is based on categories of conduct that the Securities and Exchange Commission does not consider “abusive.”
• Examples of involuntary personal securities transactions include:
(a) Sales out of the brokerage account of a PanAgora employee as a result of bona fide
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margin call, provided that withdrawal of collateral by the PanAgora employee within the ten days previous to the margin call was not a contributing factor to the margin call;
(b) Purchases arising out of an automatic dividend reinvestment program of an issuer of a publicly traded security.
• Transactions by a trust in which the PanAgora employee (or a member of his immediate family) holds a beneficial interest, but for which the employee has no direct or indirect influence or control with respect to the selection of investments, are involuntary transactions. In addition, these transactions do not fall within the definition of “personal securities transactions.” See Definitions.
• A good-faith belief on the part of the employee that a transaction was involuntary will not be a defense to a violation of the Code of Ethics. In the event of confusion as to whether a particular transaction is involuntary, the burden is on the employee to seek a prior written determination of the applicability of this exemption. The procedures for obtaining such a determination appear in Section VII, Part 4.
Rule 2: Special Exemptions
Transactions that have been determined in writing by the Code of Ethics Officer before the transaction occurs to be no more than remotely harmful to PanAgora clients because the transaction would be very unlikely to affect a highly institutional market, or because the transaction is clearly not related economically to the securities to be purchased, sold, or held by a PanAgora client, are exempt from the prohibitions set forth in Sections I.A., I.B., and I.C.
IMPLEMENTATION
An employee may seek an ad-hoc exemption under this Rule by following the procedures in Section VII, Part 4.
COMMENTS
• This exemption is also based upon categories of conduct that the Securities and Exchange Commission does not consider “abusive.”
• The burden is on the employee to seek a prior written determination that the proposed transaction meets the standards for an ad hoc exemption set forth in this Rule.
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SECTION II: Additional Special Rules for Personal Securities Transactions of Access Persons and Certain Investment Professionals
Access Persons
Rule 1: 90-Day Short Term Rule
Access Persons
may not sell a security at a profit within
90 days
of purchase or buy a security at a price below which he or she sold it within the past
90 days.
EXCEPTIONS
None, unless prior written approval from the Code of Ethics Officer is obtained. Exceptions may be granted on a case-by-case basis when no abuse is involved and the equities of the situation support an exemption. For example, although an Access Person may buy a stock as a long-term investment, that stock may have to be sold involuntarily due to unforeseen activity such as a merger.
IMPLEMENTATION
A. The 90-Day Short-Term Rule applies to all Access Persons, as defined in the Definitions section of the Code.
B. Calculation of whether there has been a profit is based upon the market prices of the securities.
The calculation includes commissions and other sales charges.
C. As an example, an Access Person would not be permitted to sell a security at $12 that he purchased within the prior 90 days for $10. Similarly, an Access Person would not be permitted to purchase a security at $10 that she had sold within the prior 90 days for $12.
COMMENTS
• The prohibition against short-term trading profits by Access Persons is designed to minimize the possibility that they will capitalize inappropriately on the market impact of trades involving a client portfolio about which they might possibly have information.
• Although directors, portfolio managers, and analysts may sell securities at a profit within 90 days of purchase in order to comply with the requirements of the 7-Day Rule applicable to them (described below), the profit will have to be disgorged to charity under the terms of the 7-Day Rule.
•
An Access Person cannot trade a security within 90 days regardless of tax lot election.
Certain Investment Professionals
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Rule 2: 7-Day Rule
(a)
Portfolio Managers
:
Before a portfolio manager (including a director with respect to an account he manages) places an order to buy a security for any PanAgora client portfolio that he manages, he must sell that security or related derivative security if he has purchased it in his personal account within the preceding seven calendar days.
(b)
Co-managers
:
Before a portfolio manager places an order to buy a security for any PanAgora client he manages, his co-manager must sell that security or related derivative security if he has purchased it in his personal account within the preceding seven calendar days.
(c)
Research Analysts
:
Before an analyst makes a buy or outperform recommendation for a security, he must sell that security or related derivative security if he has purchased it in his personal account within the preceding seven calendar days
.
COMMENTS
• This Rule applies to portfolio managers (including directors with respect to accounts they manage) in connection with any purchase (no matter how small) in any client account managed by that portfolio manager or director. In particular, it should be noted that the requirements of this Rule also apply with respect to purchases in client accounts, resulting from “cash flows.” To comply with the requirements of this Rule, it is the responsibility of each portfolio manager or director to be aware of the placement of all orders for purchases of a security by client accounts that he or she manages for seven days following the purchase of that security for his or her personal account.
• An investment professional who must sell securities to be in compliance with the 7-Day Rule must absorb any loss and
disgorge to charity any profit
resulting from the sale. The recipient charity will be chosen by the Code of Ethics Officer.
• This Rule is designed to avoid even the appearance of a conflict of interest between an investment professional and a PanAgora client. A greater burden is placed on these professionals given their positions in the organization. Transactions executed for the employee’s personal account must be conducted in a manner consistent with the
Code of Ethics and in such a manner as to avoid any actual or perceived conflict of interest or any abuse of the employee’s position of trust and responsibility.
• “Portfolio Manager” is used in this Section as a functional label, and is intended to cover any employee with authority to authorize a trade on behalf of a PanAgora client, whether or not such employee bears the title “portfolio manager.” “Analyst” is also used in this Section as a functional label, and is intended to cover any employee who is not a portfolio manager but who may make recommendations regarding investments for PanAgora clients.
EXCEPTIONS
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None.
Rule 3: Blackout Rule
(a)
Portfolio Managers
: No portfolio manager (including a director with respect to an account she manages) shall: (i) sell any security or related derivative security for her personal account until seven calendar days have elapsed since the most recent purchase of that security or related derivative security by any PanAgora client portfolio she manages or co-manages; or (ii) purchase any security or related derivative security for her personal account until seven calendar days have elapsed since the most recent sale of that security or related derivative security from any PanAgora client portfolio that she manages or co-manages.
(b)
Research Analysts
: No analyst shall: (i) sell any security or related derivative security for his personal account until seven calendar days have elapsed since his most recent buy or outperform recommendation for that security or related derivative security; or (ii) purchase any security or related derivative security for his personal account until seven calendar days have elapsed since his most recent sell or under perform
recommendation for that security or related derivative security.
COMMENTS
• This Rule applies to portfolio managers (including directors with respect to accounts they manage) in connection with any purchase (no matter how small) in any client account managed by that portfolio manager or directors. In particular, it should be noted that the requirements of this rule also apply with respect to transactions in client accounts resulting from cash flows. In order to comply with the requirements of this Rule, it is the responsibility of each portfolio manager and director to be aware of all transactions in a security by client accounts that he or she manages that took place within the seven days preceding a transaction in that security for his or her personal account.
• This Rule is designed to prevent a PanAgora portfolio manager or analyst from engaging in personal investment conduct that appears to be counter to the investment strategy she is pursuing or recommending on behalf of a PanAgora client.
• Trades by a PanAgora portfolio manager for her personal account in the “same direction” as the PanAgora client portfolio she manages, and trades by an analyst for his personal account in the same direction as his recommendation, do not present the same danger, so long as any same direction trades do not violate other provisions of the Code or the Policy Statements.
EXCEPTIONS
None.
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Rule 4: Contra Trading Rule
(a)
Portfolio Managers
: No portfolio manager shall, without prior clearance, sell out of his personal account securities or related derivative securities held in any PanAgora client portfolio that he manages or co-manages.
(b)
Directors
: No director shall, without prior clearance, sell out of his personal account securities or related derivative securities held in any PanAgora client portfolio managed in his investment group
.
EXCEPTIONS
None, unless prior clearance and written approval are given.
IMPLEMENTATION
A
. Individuals Authorized to Give Approval
. Prior to engaging in any such sale, a portfolio manager shall seek approval, in writing, of the proposed sale. In the case of a portfolio manager or analyst, prior written approval of the proposed sale shall be obtained from a director to whom he reports or, in his absence, another director. In the case of a director, prior written approval of the proposed sale shall be obtained from the chief investment officer. In the case of the chief investment officer, prior written approval shall be obtained from the Code of Ethics Officer. In addition to the foregoing, prior written approval must also be obtained from the Code of Ethics Officer or in the case of the chief investment officer, prior written approval from the chief executive officer.
B.
Contents of Written Approval
. In every instance, the written approval
form attached as Appendix C
(or such other form as the Code of Ethics Officer shall designate) shall be used. The written approval should be signed by the director giving approval and dated the date such approval was given, and shall state, briefly, the reasons why the trade was allowed and why the investment conduct pursued by the portfolio manager, analyst, or director was deemed inappropriate for the PanAgora client account controlled by the individual seeking to engage in the transaction for his personal account. Such written approval shall be sent by the director approving the transaction to the Code of Ethics Officer, for her approval, within 24 hours or as promptly as circumstances permit. Approvals obtained after a transaction has been
completed or while it is in process will not satisfy the requirements of this Rule.
COMMENT
This Rule, like Rule 3 of this Section, is designed to prevent a PanAgora portfolio manager from engaging in personal investment conduct that appears to be counter to the investment strategy that he is pursuing on behalf of a PanAgora client.
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Rule 5: No Personal Benefit
No portfolio manager shall cause, and no analyst shall recommend, a PanAgora client to take action for the portfolio manager’s or analyst’s own personal benefit.
EXCEPTIONS
None.
COMMENTS
• A portfolio manager who trades in, or an analyst who recommends, particular securities for a PanAgora client account in order to support the price of securities in his personal account, or who “front runs” a PanAgora client order is in violation of this Rule. Portfolio managers and analysts should be aware that this Rule is not limited to personal transactions in securities (as that word is defined in Definitions). Thus, a portfolio manager or analyst who front runs a PanAgora client purchase or sale of obligations of the U.S. government is in violation of this Rule, although U.S. government obligations are excluded from the definition of security.
• This Rule is not limited to instances when a portfolio manager or analyst has malicious intent. It also prohibits conduct that creates an appearance of impropriety. Portfolio managers and analysts who have questions about whether proposed conduct creates an appearance of impropriety should seek a prior written determination from the Code of Ethics Officer, using the procedures described in Section VI, Part 3.
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SECTION III: General Rules for All Employees
Rule 1: Compliance with All Laws, Regulations and Policies
All employees must comply with applicable laws and regulations as well as company policies. This includes tax, anti-trust, political contribution, and international boycott laws. In addition, no employee at PanAgora may engage in fraudulent conduct of any kind.
EXCEPTIONS
None.
COMMENTS
• PanAgora may report to the appropriate legal authorities conduct by PanAgora employees that violates this Rule.
• It should also be noted that the U.S. Foreign Corrupt Practices Act makes it a criminal offense to make a payment or offer of payment to any non-U.S. governmental official, political party, or candidate to induce that person to affect any governmental act or decision, or to assist PanAgora’s obtaining or retaining business.
Rule 2: Conflicts of Interest
No PanAgora employee shall conduct herself in a manner, which is contrary to the interests of, or in competition with, PanAgora or a PanAgora client, or which creates an actual or apparent conflict of interest with a PanAgora client.
EXCEPTIONS
None.
COMMENTS
• This Rule is designed to recognize the fundamental principle that PanAgora employees owe their chief duty and loyalty to PanAgora and PanAgora clients.
• It is expected that a PanAgora employee who becomes aware of an investment opportunity that she believes is suitable for a PanAgora client who she services will present it to the appropriate portfolio manager, prior to taking advantage of the opportunity herself.
Rule 3: Gifts and Entertainment Policy
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No PanAgora employee shall accept anything of material value from any broker-dealer, financial institution, corporation or other entity, any existing or prospective supplier of goods or services with a business relationship to PanAgora, or any company or other entity whose securities are held in or are being considered as investments for any other PanAgora client accounts. Included are gifts, favors, preferential treatment, special arrangements, or access to special events.
COMMENTS
This Rule is intended to permit the acceptance of only proper types of customary and limited business amenities.
A PanAgora employee may not, under any circumstances, accept anything that could create the appearance of any kind of conflict of interest. For example, acceptance of any consideration is prohibited if it would create the appearance of a reward or inducement for conducting PanAgora business either with the person providing the gift or his employer.
IMPLEMENTATION
A.
Gifts
. An employee may not accept small gifts with an aggregate value of more than $100 in any year from any one source, i.e., entity or firm. . Any PanAgora employee who is offered or receives an item exceeding $100 in value is prohibited by this Rule and must report the details to the Code of Ethics Officer and surrender or return the gift. Any entertainment event provided to an employee where the host is not in attendance is treated as a gift and is subject to the $100 per year per source limit.
B.
Entertainment
. PanAgora’s rules are designed to permit reasonable, ordinary business entertainment, but prohibit any events, which may be perceived as extravagant or involving lavish expenditures.
1.
Occasional
lunches, dinners, cocktail parties, or comparable gatherings
conducted for business purposes
are permitted.
For example, occasional attendance at group functions sponsored by sell side firms is permitted where the function relates to investments or other business activity. Occasional attendance at these functions is not required to be counted against the limits described in paragraph (B)(2) below.
2. Other entertainment events, such as, sporting events, theater, movies, concerts, or other forms of entertainment
conducted for business purposes
, are permitted only under the following conditions:
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(i)
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The host must be present for the event.
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(ii)
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The location of the event must be in the metropolitan area in which the office
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of the employee is located.
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(iii)
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Spouses or other family members of the employee may not attend the entertainment event or any meals before or after the entertainment event.
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(iv)
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The value of the entertainment event provided to the employee may not exceed $150, not including the value of any meals that may be provided to the employee before or after the event.
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Acceptance of entertainment events having a market value materially exceeding the face value of the entertainment including, for example, attendance at sporting event playoff games, is prohibited. This prohibition applies even if the face value of tickets to the events is $150 or less or when the PanAgora employee offers to pay for the tickets. If there is any ambiguity about whether to accept an entertainment event in these circumstances, please consult the Code of Ethics Officer.
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(v)
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The employee may not accept entertainment events under this provision (B)(2) more than six times a year and not more than two times in any year from any single source.
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(vi)
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The Code of Ethics Officer may grant exceptions to these rules. For example, it may be appropriate for an employee attending a legitimate conference in a location away from the office to attend a business entertainment event in that location. All exceptions must be approved in advance by written request to the Code of Ethics Officer.
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3. Any employee attending any entertainment event under (B)(1) or (B)(2) above must disclose a meal or entertainment in the PTA system within 20 business days of the event. Failure to report will be treated as a violation of the Code.
Planned absences, i.e., vacations, leave or business trips are not valid excuses for providing late reports. Failure to meet the deadline violates the Code’s rules. Late filers may be subject to monetary fines.
4. Meals and entertainment, which are part of the regular program at an investment conference (i.e., open to all participants), are not subject to the limits of this section (B)(2) above. Meals which are part of a meeting and/or a conference do not require reporting. An employee is required to disclose a meal outside of a business meeting or conference setting within 20 days in the PTA system.
C.
Among the items that are prohibited are:
1. Any entertainment event attendance, which would reflect badly on PanAgora as a firm of the highest fiduciary and ethical standards. For example, events involving adult entertainment or gambling must be avoided.
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2. Entertainment involving travel away from the metropolitan area in which the employee is located. If in the event an exception is granted as contemplated by (B)(2)(vi) above, payment by a third party of the cost of transportation to a location outside the employee’s metropolitan area, lodging while in another location, and any meals not specifically approved by the Code of Ethics officer, are prohibited;
3. Personal loans to a PanAgora employee on terms more favorable than those generally available for comparable credit standing and collateral; and
4. Preferential brokerage or underwriting commissions or spreads or allocations of shares or interests in an investment for the personal account of a PanAgora employee; and
D. As with any of the provisions of the Code of Ethics, a sincere belief by the employee that he was acting in accordance with the requirements of this Rule will not satisfy his obligations under the Rule. Therefore, an employee who is in doubt concerning the propriety of any gift or favor should seek a prior written determination from the Code of Ethics Officer, as provided in number 3 of Section VII.
E. No PanAgora employee may solicit any gift or entertainment from any person, even if the gift or entertainment, if unsolicited, would be permitted.
F. The Rule does not prohibit employees on business travel from using local transportation and arrangements customarily supplied by brokers or similar entities. For example, it is customary for brokers in developing markets to make local transportation arrangements. These arrangements are permitted so long as the expense of lodging and air travel are paid by PanAgora.
Rule 4: Anti-bribery/Kickback Policy
No PanAgora employee shall pay, offer, or commit to pay any amount of consideration which might be or appear to be a bribe or kickback in connection with PanAgora’s business.
EXCEPTIONS
None.
COMMENT
Although the rule does not specifically address political contributions (which are described in Rule 5 below), PanAgora employees should be aware that it is against corporate policy to use company assets to fund political contributions of any sort, even where such contributions may be legal. No PanAgora employee should offer or agree to make any political contributions (including political dinners and similar fundraisers) on behalf of PanAgora, and no employee will be reimbursed by PanAgora for such
38
contributions made by the employee personally.
Rule 5: Political Activities, Contributions/Solicitations and Lobbying Policy
A.
Corporate Contributions.
Political activities of corporations such as
PanAgora
are highly regulated, and corporate political contributions are prohibited. . No corporate assets, funds, facilities, or personnel may be used to benefit any candidate, campaign, political party, or political committee, including contributions made in connection with fundraisers.
1. If employees anticipate that any corporate funds or assets (such as corporate facilities or personnel) may be used in connection with any political volunteer activity, they must obtain pre-approval from the Chief Compliance Officer.
2. Employees should not seek or approve reimbursement from PanAgora for any political contribution expenses. Any contributions for which employees seek reimbursement from Putnam is considered a contribution by Putnam and is subject to the corporate political contribution requirements.
B. Personal Contributions. Employees have the right to make personal contributions. However, if employees choose to participate in the political process, they must do so as individuals, not as representatives of PanAgora.
In certain limited circumstances, individual contributions may raise issues under applicable laws regulating political contributions to public officials, or candidates for official positions, who could be in a position to hire PanAgora. As a result, the following rules apply to individual contributions by employees.
1. Prior to making any political contribution to a person or entity with whom PanAgora has a current or proposed business relationship, or who can make or influence decisions to engage PanAgora to provide services, employees must pre-clear the proposed contribution with the Chief Compliance Officer.
2. Employees may not make contributions to candidates or elected officials for the following offices without prior written approval from the Chief Compliance Officer:
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1.
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State or local offices in California, New Jersey, Ohio, or West Virginia
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2.
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State Treasurer in Connecticut or Vermont
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3.
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Any public office in the City of Houston
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C.
Government Official.
Employees must obtain
pre-approval
from the Code of Ethics Officer prior to providing any gift (including meals, entertainment, transportation or lodging) to any government official or employee.
D.
Lobbying.
Federal and state law imposes limits and registration requirements on efforts by individuals and companies to influence the passage of legislation or to obtain business from governments. Accordingly, Putnam employees should not engage in any lobbying activities without
approval
from Putnam’s Director of Government Relations. Lobbying does not include solicitation of investment management business through the ordinary course of business, such as responding to a Request For Proposals (RFPs).
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EXCEPTIONS
None.
COMMENTS
This rule prohibits solicitation on personal letterhead by PanAgora employees except as pre-approved by the Code of Ethics Officer.
Rule 6: Confidentiality of PanAgora Business Information
No unauthorized disclosure may be made by any employee or former employee of any trade secrets or proprietary information of PanAgora or of any confidential information. No information regarding any PanAgora client portfolio, actual or proposed securities trading activities of any PanAgora client, or PanAgora research shall be disclosed outside the PanAgora organization unless doing so has a valid business purpose and is in accord with any relevant procedures established by PanAgora relating to such disclosures.
COMMENT
All information about PanAgora and PanAgora clients is strictly confidential. PanAgora research information should not be disclosed without proper approval and never for personal gain.
Rule 7: Roles At Other Entities
No PanAgora employee shall serve as officer, employee, director, trustee, or general partner of a corporation or entity other than PanAgora, without prior approval of the Code of Ethics Officer. Requests for a role at a publicly-traded company will be closely reviewed and permission will be granted on an ad-hoc basis. . [See also Section IV, Rule 5]
IMPLEMENTATION
A. All employees must provide a written request seeking approval from the Code of Ethics Officer if they wish to serve as an employee, officer, director, trustee or general partner of a corporation or entity other than PanAgora. The details of the outside business affiliation must be disclosed in PTA. Click on Certifications/Disclosures/Outside Business Affiliation/start/complete each question/click Submit. A determination will be sent via email.
B. Upon hire, all employees who also hold an outside position must complete an Outside Business Affiliation Disclosure in PTA.
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EXCEPTION
Charitable or Non-profit Exception
. This Rule shall not prevent any PanAgora employee from serving as officer, director, or trustee of a charitable or not-for-profit institution, provided that the employee abides by the Code of Ethics and the Policy Statements with respect to any investment activity for which she has any discretion or input as officer, director, or trustee. The pre-clearance and reporting requirements of the Code of Ethics do not apply to the trading activities of such charitable or not-for-profit institutions for which an employee serves as an officer, director, or trustee unless the employee is responsible for day-to-day portfolio management of the account.
COMMENTS
• This Rule is designed to ensure that PanAgora cannot be deemed an affiliate of any issuer of securities by virtue of service by one of its officers or employees as director or trustee.
• Positions with public companies are especially problematic and will normally not be approved.
• Certain charitable or not-for-profit institutions have assets (such as endowment funds or employee benefit plans) which require prudent investment. To the extent that a PanAgora employee (because of her position as officer, director, or trustee of an outside entity) is charged with responsibility to invest such assets prudently, she may not be able to discharge that duty while simultaneously abiding by the spirit of the Code of Ethics and the Policy Statements. Employees are cautioned that they should not accept service as an officer, director, or trustee of an outside charitable or not-for-profit entity where such investment responsibility is involved, without seriously considering their ability to discharge their fiduciary duties with respect to such investments.
Rule 8: Role as Trustee or Fiduciary Outside of PanAgora
No PanAgora employee shall serve as a trustee, executor, custodian, any other fiduciary, or as an investment advisor or counselor for any account outside PanAgora.
EXCEPTIONS
A.
Charitable or Religious Exception
. This Rule shall not prevent any PanAgora employee from serving as fiduciary with respect to a religious or charitable trust or foundation, so long as the employee abides by the spirit of the Code of Ethics and the Policy Statements with respect to any investment activity over which he has any discretion or input. The pre-clearance and reporting requirements of the Code of Ethics do not apply to the trading activities of such a religious or charitable trust or foundation unless the employee is responsible for day-to-day portfolio management of the account.
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B.
Family Trust or Estate Exception.
This Rule shall not prevent any PanAgora employee from serving as fiduciary with respect to a family trust or estate, so long as the employee abides by all of the Rules of the Code of Ethics with respect to any investment activity over which he has any discretion.
COMMENT
The roles permissible under this Rule may carry with them the obligation to invest assets prudently. Once again, PanAgora employees are cautioned that they may not be able to fulfill their duties in that respect while abiding by the Code of Ethics and the Policy Statements.
Rule 9: Investment Clubs
No PanAgora employee may be a member of any investment club.
EXCEPTIONS
None.
COMMENT
This Rule guards against the danger that a PanAgora employee may be in violation of the Code of Ethics and the Policy Statements by virtue of his personal securities transactions in or through an entity that is not bound by the restrictions imposed by this Code of Ethics and the Policy Statements. Please note that this restriction also applies to the spouse of a PanAgora employee and any relatives of a PanAgora employee living in the same household as the employee, as their transactions are covered by the Code of Ethics (see page vii).
Rule 10: Business Negotiations For PanAgora
No PanAgora employee may become involved in a personal capacity in consultations or negotiations for corporate financing, acquisitions, or other transactions for outside companies (whether or not held by any PanAgora client), nor negotiate nor accept a fee in connection with these activities without obtaining the prior written permission of the Chief Executive Officer of PanAgora.
EXCEPTIONS
None.
Rule 11: Accurate Records
No employee may create, alter or destroy (or participate in the creation, alteration
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or destruction of) any record that is intended to mislead anyone or to conceal anything that is, or is reasonably believed to be, improper. In addition, all employees responsible for the preparation, filing, or distribution of any regulatory filings or public communications must ensure that such filings or communications are timely, complete, fair, accurate, and understandable.
EXCEPTIONS
None.
COMMENTS
• In many cases, this is not only a matter of company policy and ethical behavior but also required by law. Our books and records must accurately reflect the transactions represented and their true nature. For example, records must be accurate as to the recipient of all payments; expense items, including personal expense reports, must accurately reflect the true nature of the expense. No unrecorded fund or asset shall be established or maintained for any reason.
• All financial books and records must be prepared and maintained in accordance with Generally Accepted Accounting Principles and PanAgora’s existing accounting controls, to the extent applicable.
Rule 12: Family Members’ Conflict Policy
No employee or member of an employee’s immediate family shall have any direct or indirect personal financial interests in companies which do
business, with PanAgora unless such interest is disclosed and approved by the Code of Ethics Officer.
Investment holdings in public companies which are not material to the employee are excluded from this prohibition. The Code also provides more detailed supplemental rules to address potential conflicts of interests which may arise if members of employees’ families are closely involved in doing business with Putnam.
Corporate purchase of goods and services
PanAgora will not acquire goods and services from any firm in which a member of an employee’s immediate family serves as the sales representative in a senior management capacity or has an ownership interest in the supplier firm (excluding normal investment holdings in public companies) without permission from the Code of Ethics Officer. Any employee who is aware of a proposal to purchase goods and services from a firm at which a member of the employee’s immediate family meets one of the previously mentioned conditions must notify the Code of Ethics Officer.
Portfolio Trading
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PanAgora will not allocate any trades for a portfolio to any firm that employs a member of an employee’s immediate family as a sales representative to PanAgora (in a primary, secondary or back up role). Any PanAgora employee who is aware that an immediate family member serves as a broker-dealer’s sales representative to Putnam should inform the Code of Ethics Officer.
Definition of Immediate Family
“Immediate family” of an employee means (1) husband or wife of the employee, (2) any child, sibling or parent of an employee and any person married to a child, sibling, or parent of an employee and (3) any other person who lives in the same household as the employee.
Rule 13: Affiliated Entities
With respect to any affiliate of PanAgora that provides investment advisory services and is listed below in Comment 4 to this Rule, as revised from time to time (each a Non-PanAgora affiliate or NPA), No employee shall:
(a) Directly or indirectly seek to influence the purchase, retention, or disposition of, or exercise of voting consent, approval or similar rights with respect to, any portfolio security in any account or fund advised by the NPA and not by PanAgora,
(b) Transmit any information regarding the purchase, retention or disposition of, or exercise of voting, consent, approval, or similar rights with respect to, any portfolio security held in a PanAgora or NPA client account to any personnel of the NPA,
(c) Transmit any trade secrets, proprietary information, or confidential information of PanAgora to the NPA unless doing so has a valid business purpose and is in accord with any relevant procedures established by PanAgora relating to such disclosures,
(d) Use confidential information or trade secrets of the NPA for the benefit of the employee, PanAgora, or any other NPA, or
(e) Breach any duty of loyalty to the NPA derived from the employee’s service as a director or officer of the NPA.
COMMENTS
• Sections (a) and (b) of the Rule are designed to help ensure that the portfolio holdings of PanAgora clients and clients of the NPA need not be aggregated for purposes of determining beneficial ownership under Section 13(d) of the Securities Exchange Act or applicable regulatory or contractual investment restrictions that incorporate such definition of beneficial ownership. Persons who serve as directors or officers of both PanAgora and an NPA should take care to avoid even inadvertent violations of Section (b). Section (a) does not prohibit a PanAgora employee who serves as a director or officer
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of the NPA from seeking to influence the modification or termination of a particular investment product or strategy in a manner that is not directed at any specific securities. Sections (a) and (b) do not apply when a PanAgora affiliate serves as an advisor or sub-advisor to the NPA or one of its products, in which case normal PanAgora aggregation rules apply.
• As a separate entity, any NPA may have trade secrets or confidential information that it would not choose to share with PanAgora. This choice must be respected.
• When PanAgora employees serve as directors or officers of an NPA, they are subject to common law duties of loyalty to the NPA, despite their PanAgora employment. In general, this means that when performing their duties as NPA directors or officers, they must act in the best interest of the NPA and its shareholders. PanAgora’s Compliance Department will assist any PanAgora employee who is a director or officer of an NPA and has questions about the scope of his or her responsibilities to the NPA.
• Entities that are currently non-Putnam affiliates within the scope of this Rule are: Nissay Asset Management Co., Ltd., L.P., and PanAgora Asset Management, Inc.
• Putnam and PanAgora also maintain an information barrier between the investment professionals of each organization regarding investment and trading information.
Rule 14: Computer and Network Use Policies
No employee shall use computer hardware, software, data, Internet, electronic mail, voice mail, electronic messaging (e-mail or cc: Mail), or telephone communications systems in a manner that is inconsistent with their use as set forth in policy statements governing their use that are adopted from time to time by PanAgora. No employee shall introduce a computer virus or computer code that may result in damage to PanAgora’s information or computer systems.
COMMENT
PanAgora’s policy statements relating to these matters are contained in the Computer and Network Use Policy section of the Employee Handbook.
EXCEPTIONS
None.
Rule 15: CFA Institute Code of Ethics
All employees must follow and abide by the spirit of the Code of Ethics and the Standards of Professional Conduct of the CFA Institute. The texts of the CFA Institute Code of Ethics and Standards of Professional Conduct are set forth in
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Exhibit D.
EXCEPTIONS
None.
Rule 16: Privacy Policy
Except as provided below, no employee may disclose to any outside organization or person any nonpublic personal information about any individual who is a current or former client of any PanAgora retail or institutional fund, or current or former client of a PanAgora company. All employees shall follow the security procedures as established from time to time by a PanAgora company to protect the confidentiality of all client account information.
Except as PanAgora’s Compliance Department may expressly authorize, no employee shall collect any nonpublic personal information about a prospective or current client of PanAgora or prospective or current client of a PanAgora company, other than through an account application (or corresponding information provided by the client’s financial representative) or in connection with executing client transactions, nor shall any information be collected other than the following: name, address, telephone number, Social Security number, and investment, broker, and transaction information.
EXCEPTIONS
A.
PanAgora Employees
. Nonpublic personal information may be disclosed to PanAgora employees in connection with processing transactions or maintaining accounts for shareholders of a PanAgora fund and clients of a PanAgora company, to the extent that access to such information is necessary to the performance of that employee’s job functions.
B.
Client Consent Exception
. Nonpublic personal information about a client’s account may be provided to a non-PanAgora organization at the specific request of the client or with the client’s prior written consent.
C.
Broker or Advisor Exception
. Nonpublic personal information about a client’s account may be provided to the client’s broker of record.
D.
Third-Party Service Provider Exception
. Nonpublic personal information may be disclosed to a service provider that is not affiliated with a PanAgora fund or PanAgora company only when such disclosure is necessary for the service provider to perform the specific services contracted for, and only (a) if the service provider executes PanAgora’s standard confidentiality agreement, or (b) pursuant to an agreement containing a confidentiality provision that has been approved by the Compliance Department. Examples of such service providers include proxy solicitors and proxy vote tabulators, mail services, and providers of other administrative services, and Information Services
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Division consultants who have access to nonpublic personal information.
COMMENTS
• Nonpublic personal information is any information that personally identifies a PanAgora client of a PanAgora company and is not derived from publicly available sources. This privacy policy applies to clients who are individuals, not institutions. However, as a general matter, all information that we receive about a PanAgora client of a PanAgora company shall be treated as confidential. No employee may sell or otherwise provide shareholder or client lists or any other information relating to a client to any marketing organization.
• All PanAgora employees with access to client account information must be trained in and follow PanAgora’s security procedures designed to safeguard that information from unauthorized use. For example, a telephone representative must be trained in and follow PanAgora’s security procedures to verify the identity of a caller requesting account information.
• Any questions regarding this privacy policy should be directed to PanAgora’s Compliance Department. A violation of this policy may be subject to the sanctions imposed for violations of PanAgora’s Code of Ethics.
• Employees must report any violation of this policy or any possible breach of the confidentiality of client information (whether intentional or accidental) to the director in charge of the employee’s business unit. Directors who are notified of such a violation or possible breach must immediately report it in writing to PanAgora’s chief compliance officer and, in the event of a breach of computerized data, PanAgora’s chief technology officer.
Rule 17: Anti-money Laundering Policy
No employee may engage in any money laundering activity or facilitate any money-laundering activity through the use of any PanAgora account or client account. Any situations giving rise to a suspicion that attempted money laundering may be occurring in any account must be reported immediately to the managing director in charge of the employee’s business unit. Managing directors who are notified of such a suspicion of money laundering activity must immediately report it in writing to PanAgora’s chief compliance officer and chief financial officer.
Rule 18: Record Retention
All employees must comply with the record retention requirements applicable to the business unit. Employees should check with their managers or the chief compliance officer of their division to determine what record retention requirements apply to their business unit.
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SECTION IV: Reporting Requirements for All Employees
Reporting of Personal Securities Transactions
Rule 1: Broker Confirmations and Statements
Each PanAgora employee shall ensure that copies of all confirmations for securities transactions for his personal brokerage accounts and brokerage account statements are sent to the PanAgora Compliance Department’s (Code of Ethics Administrator). (For the purpose of this Rule, securities shall also include ETFs, futures, and other derivatives on broad-based market indexes excluded from the pre-clearance requirement.) Statements and confirmations are required for PanAgora or Putnam funds not held at PPA or in a PanAgora retirement plan, as well as for U.S. mutual funds sub-advised by PanAgora.
PanAgora employees must disclose their brokerage accounts in the PTA system and complete all required information which will facilitate the instructions to the broker.
EXCEPTION
None.
IMPLEMENTATION
A. PanAgora employees must instruct their broker-dealers to send duplicate statements and confirmations to PanAgora and must follow up with the broker-dealer on a reasonable basis to ensure that the instructions are being followed. For brokerage accounts,
PanAgora employees should contact the Code of Ethics Administrator to obtain a letter from PanAgora authorizing the setting up of a personal brokerage account.
B. Statements and confirmations should be submitted to the Code of Ethics Administrator.
C. Failure of a broker-dealer to comply with the instructions of a PanAgora employee to send confirmations shall be a violation by the PanAgora employee of this Rule. Similarly, failure by an employee to report the existence of a personal account (and, if the account is opened after joining PanAgora, failure to obtain proper authorization to establish the account) shall be a violation of this Rule.
D. Statements and confirmations must also be sent for members of an employees’ immediate family, including statements received with respect to a family member’s 401(k) plan at another employer.
COMMENTS
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• Transactions for personal accounts are defined broadly to include more than transactions in accounts under an employee’s own name. See Definitions.
• Statements and confirmations are required for all personal securities transactions, whether or not exempted or excepted by this Code.
• To the extent that a PanAgora employee has investment authority over securities transactions of a family trust or estate, confirmations of those transactions must also be made, unless the employee has received a prior written exception from the Code of Ethics Officer.
Rule 2: Access Persons – Quarterly Transaction Report
Every Access Person shall file a quarterly report, within fifteen calendar days of the end of each quarter, recording all purchases and sales of any securities for personal accounts as defined in the Definitions. (For the purpose of this Rule, reportable “securities” also includes exchange traded funds (ETF), futures, and any option on a security or securities index, including broad-based market indexes excluded from the pre-clearance requirement and also includes transactions in PanAgora open-end funds if the account for the PanAgora or Putnam funds is not held at PPA or in a PanAgora retirement plan and for transactions in U.S. mutual funds sub-advised by PanAgora.)
EXCEPTIONS
None.
IMPLEMENTATION
All employees required to file such a report will receive by e-mail a blank form at the end of the quarter from the Code of Ethics Administrator. The form will specify the information to be reported. The form shall also contain a representation that employees have complied fully with all provisions of the Code of Ethics.
COMMENTS
• The date for each transaction required to be disclosed in the quarterly report is the
trade date
for the transaction, not the settlement date.
• If the requirement to file a quarterly report applies to you and you fail to report within the required 15-day period,
salary increases and bonuses may be reduced in accordance with guidelines stated in the form
. It is the responsibility of the employee to request an early report if he has knowledge of a planned absence, i.e., vacation or business trip.
Reporting of Personal Securities Holdings
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Rule 3: Access Persons – Initial/Annual Holdings Report
Access Persons must disclose all personal securities holdings to the Code of Ethics Officer upon commencement of employment within ten calendar days of hire and thereafter on an annual basis. This requirement is mandated by SEC regulations and is designed to facilitate the monitoring of personal securities transactions. PanAgora’s Code of Ethics Administrator will provide Access Persons with the form for making these reports and the specific information that must be disclosed at the time that the disclosure is required.
Rule 4: Certifications
All employees are required to submit a certification in PTA annually attesting to compliance with all of the conditions of the Code of Ethics.
Rule 5: Outside Business Affiliation
The details of an outside business affiliation must be disclosed in PTA under Certifications/Disclosures/Outside Business Affiliations (see Section III, Rule 7).
Rule 6: Reporting of Irregular Activity
If a PanAgora employee suspects that fraudulent, illegal, or other irregular activity (including violations of the Code of Ethics) might be occurring at PanAgora, the activity should be reported immediately to the managing director in charge of that employee’s business unit. Managing directors who are notified of any such activity must immediately report it in writing to PanAgora’s Chief Financial Officer and PanAgora’s Chief Compliance Officer.
An employee who does not feel comfortable reporting this activity to the relevant managing director may instead contact the Chief Compliance Officer, the Putnam Ethics hotline, or Putnam’s Ombudsman.
Rule 7: Ombudsman
Putnam has established a formal Office of the Ombudsman as an additional mechanism for an employee to report an impropriety or conduct that is not in line with the company’s value system. The ombudsman is a person who is authorized to receive complaints or questions confidentially about alleged acts, omissions, improprieties, and broader systemic problems within the organization. Communication with the Ombudsman is confidential.
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SECTION V: Education Requirements
Every PanAgora employee has an obligation to fully understand the requirements of the Code of Ethics. The Rules set forth below are designed to enhance this understanding.
Rule 1: Distribution of Code
A copy of the Code of Ethics will be distributed to every PanAgora employee periodically. All Access Persons will be required to certify annually that they have read, understood, and will comply with the provisions of the Code of Ethics, including the Code’s Policy Statement Concerning Insider Trading Prohibitions.
Rule 2: Annual Training Requirement
Every employee will annually be required to complete training on PanAgora’s Code of Ethics.
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SECTION VII: Compliance and Appeal Procedures
A. Restricted List
No employee may engage in a personal securities transaction without prior clearance.
B. Consultation of Restricted List
It is the responsibility of each employee to pre-clear through PTA or consult with the Code of Ethics Administrator prior to engaging in a personal securities transaction, to determine if the security he proposes to trade is on the Restricted List and, if so, whether it is subject to the large-cap exception.
C. Request for Determination
An employee who has a question concerning the applicability of the Code of Ethics to a particular situation shall request a determination from the Code of Ethics Officer before engaging in the conduct or personal securities transaction about which he has a question.
If the question pertains to a personal securities transaction, the request shall state for whose account the transaction is proposed, the relationship of that account to the employee, the security proposed to be traded, the proposed price and quantity, the entity with whom the transaction will take place (if known), and any other information or circumstances of the trade that could have a bearing on the Code of Ethics Officer’s determination. If the question pertains to other conduct, the request for determination shall give sufficient information about the proposed conduct to assist the Code of Ethics Officer in ascertaining the applicability of the Code. In every instance, the Code of Ethics Officer may request additional information, and may decline to render a determination if the information provided is insufficient.
The Code of Ethics Officer shall make every effort to render a determination promptly.
No perceived ambiguity in the Code of Ethics shall excuse any violation. Any person who believes the Code to be ambiguous in a particular situation shall request a determination from the Code of Ethics Officer.
D. Request for Ad Hoc Exemption
Any employee who wishes to obtain an ad hoc exemption under Section I.D., Rule 2, shall request from the Code of Ethics Officer an exemption in writing in advance of the conduct or transaction sought to be exempted. In the case of a personal securities transaction, the request for an ad hoc exemption shall give the same information about the transaction required in a request for determination under number 3 of this section, and shall state why the proposed personal securities transaction would be unlikely to affect a highly institutional market, or is unrelated economically to securities to be purchased, sold, or held by any PanAgora client. In the case of other conduct, the request shall give
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information sufficient for the Code of Ethics Officer to ascertain whether the conduct raises questions of propriety or conflict of interest (real or apparent).
The Code of Ethics Officer shall make reasonable efforts to promptly render a written determination concerning the request for an ad hoc exemption.
E. Appeal to Code of Ethics Officer with Respect to Restricted List
If an employee ascertains that a security that he wishes to trade for his personal account appears on the Restricted List, and thus the transaction is prohibited, he may appeal the prohibition to the Code of Ethics Officer by submitting a written memorandum containing the same information as would be required in a request for a determination. The Code of Ethics Officer shall make every effort to respond to the appeal promptly.
F. Information Concerning Identity of Compliance Personnel
The names of Code of Ethics personnel are available by contacting the Compliance Department and will be published on PAMZone.
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Section VII: Sanctions
Sanctions Guidelines
The Code of Ethics Oversight Committee is responsible for setting sanctions policies for violating the Code. The Committee has adopted the following minimum monetary sanctions for violations of the Code. These sanctions apply even if the exception results from inadvertence rather than intentional misbehavior. The Code of Ethics Officer is authorized to impose the minimum sanction on employees without further Committee action. However, the sanctions noted below are only minimums and the Committee reserves the right to impose additional sanctions such as higher monetary sanctions, trading bans, suspension or termination of employment as it determines to be appropriate.
A. The minimum sanction for a violation of the following Rules is disgorgement of any profits or payment of avoided losses and the following payments:
Section IA, Rule 1 (Pre-clearance and Restricted List)
Section IB, Rule 1 (Short-selling)
Section IB, Rule 2 (IPOs)
Section IB, Rule 3 (Private Placements)
Section IB, Rule 4 (Trading with Inside Information)
Section IB, Rules 6-8 (Holding and trading of Putnam Funds)
Section II, Rule 2 (7-Day Rule)
Section II, Rule 3 (Black-out Rule
Section II, Rule 4, (Contra-Trading Rule)
Section II, Rule 5 (Trading for personal benefit)
|
|
Director/Officer
|
PM
|
Non-Investment Professional
|
|
1
st
violation
|
$500
|
$250
|
$50
|
|
2
nd
|
$1,000
|
$500
|
$100
|
|
3
rd
|
Minimum monetary sanction as above with ban on all new personal individual investments
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B. The minimum sanction for violations of all other rules in the Code is as follows:
|
|
Director/Officer
|
PM
|
Non-Investment Professional
|
|
1
st
violation
|
$100
|
$50
|
$25
|
|
2
nd
|
$200
|
$100
|
$50
|
|
3
rd
|
Minimum monetary sanction as above with ban on all new personal individual investments
|
The reference period for determining whether a violation is initial or subsequent will be five years.
NOTE
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These are the sanction guidelines for successive failures to pre-clear personal trades within a two-year period. The Code of Ethics Oversight Committee retains the right to increase or decrease the sanction for a particular violation in light of the circumstances. The Committee’s belief that an employee has violated the Code of Ethics intentionally may result in more severe sanctions than outlined in the guidelines above. The sanctions described in paragraph B apply to Restricted List securities that are: (a) small-cap stocks (i.e., stocks not entitled to the Large Cap exception) and (b) large-cap stocks that exceed the daily 1,000 share maximum permitted under the Large Cap exception. Failure to pre-clear an otherwise permitted trade of up to 1,000 shares of a large-cap security is subject to the sanctions described above in paragraph A.
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APPENDIX A: Policy Statement Concerning Insider Trading Prohibitions
PREAMBLE
PanAgora has always forbidden trading on material nonpublic information (inside information) by its employees. Tough federal laws make it important for PanAgora to state that prohibition in the strongest possible terms, and to establish, maintain, and enforce written policies and procedures to prevent the misuse of material nonpublic information.
Unlawful trading while in possession of inside information can be a crime. Federal law provides that an individual convicted of trading on inside information may go to jail for a period of time. There is also significant monetary liability for an inside trader; the Securities and Exchange Commission can seek a court order requiring a violator to pay back profits, as well as penalties substantially greater than those profits. In addition private plaintiffs can seek recovery for harm suffered by them. The inside trader is not the only one subject to liability. In certain cases, controlling persons of inside traders (including supervisors of inside traders or PanAgora itself) can be liable for large penalties.
Section 1 of this Policy Statement contains rules concerning inside information. Section 2 contains a discussion of what constitutes unlawful insider trading.
Neither material nonpublic information nor unlawful insider trading is easy to define. Section 2 of this Policy Statement gives a general overview of the law in this area. However, the legal issues are complex and must be resolved by the Code of Ethics Officer. If an employee has any doubt as to whether she has received material nonpublic information, she must consult with the Code of Ethics Officer prior to using that information in connection with the purchase or sale of a security for his own account or the account of any PanAgora client, or communicating the information to others.
A simple rule of thumb is if you think the information is not available to the public at large, don’t disclose it to others and don’t trade securities to which the inside information relates.
An employee aware of or in possession of inside information must report it immediately to the Code of Ethics Officer.
If an employee has failed to consult the Code of Ethics Officer, PanAgora will not excuse employee misuse of inside information on the ground that the employee claims to have been confused about this Policy Statement or the nature of the information in his possession.
If PanAgora determines, in its sole discretion, that an employee has failed to abide by this Policy Statement, or has engaged in conduct that raises a significant question concerning insider trading, he will be subject to disciplinary action, including termination of employment.
There are no exceptions to this policy statement and no one is exempt
.
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APPENDIX A
DEFINITIONS: Insider Trading
Gender references in Appendix A alternate.
Code of Ethics Administrator
The individual designated by the Code of Ethics Officer to assume responsibility for day-to-day, non-discretionary administration of this Policy Statement.
Code of Ethics Officer
The PanAgora officer who has been assigned the responsibility of enforcing and interpreting this Policy Statement. The Code of Ethics Officer shall be the chief compliance officer or such other person as is designated by the chief executive officer of PanAgora. If he or she is unavailable, the Deputy Code of Ethics Officer (to be appointed by the Code of Ethics Officer) shall act in his or her stead. The Code of Ethics Officer is Louis Iglesias. The Deputy Code of Ethics Officer is Robin Kelly.
Immediate family
Spouse, domestic partner, minor children or other relatives living in the same household as the PanAgora employee.
Purchase or sale of a security
Any acquisition or transfer of any interest in the security for direct or indirect consideration, including the writing of an option.
PanAgora
Any or all of PanAgora, and its subsidiaries, any one of which shall be a PanAgora company.
PanAgora client
Any of the PanAgora clients.
PanAgora employee (or employee)
Any employee of PanAgora.
Security
Anything defined as a security under federal law. The term includes any type of equity or debt security, any interest in a business trust or partnership, and any rights relating to a
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security, such as put and call options, warrants, convertible securities, and securities indexes. (Note: The definition of security in this Policy Statement varies significantly from that in the Code of Ethics. For example, the definition in this Policy Statement specifically includes all securities of any type.)
Transaction for a personal account (or personal securities transaction)
Securities transactions: (a) for the personal account of any employee; (b) for the account of a member of the immediate family of any employee; (c) for the account of a partnership in which a PanAgora employee or immediate family member is a partner with investment discretion; (d) for the account of a trust in which a PanAgora employee or immediate family member is a trustee with investment discretion; (e) for the account of a closely-held corporation in which a PanAgora employee or immediate family member holds shares and for which he has investment discretion; and (f ) for any account other than a PanAgora client account which receives investment advice of any sort from the employee or immediate family member, or as to which the employee or immediate family member has investment discretion. Officers and employees of PIL must also consult the relevant procedures on compliance with U.K. insider dealing
legislation set forth in PIL’s Compliance Manual (See Rule 3 of Section IV of the Code of Ethics).
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APPENDIX A
SECTION I: Rules Concerning Inside Information
Rule 1: Inside Information
No PanAgora employee shall purchase or sell any security listed on the Inside Information List (the Red List) either for his personal account or for a PanAgora client.
IMPLEMENTATION
When an employee contacts the Code of Ethics Administrator seeking clearance for a personal securities transaction, the Code of Ethics Administrator’s response as to whether a security appears on the Restricted List will include securities on the Red List.
COMMENT
This Rule is designed to prohibit any employee from trading a security while PanAgora may have inside information concerning that security or the issuer.
Every trade, whether for a personal account or for a PanAgora client, is subject to this Rule.
Rule 2: Material, Non-Public Information
No PanAgora employee shall purchase or sell any security, either for a personal account or for the account of a PanAgora client, while in possession of material, nonpublic information concerning that security or the issuer, without the prior written approval of the Code of Ethics Officer.
IMPLEMENTATION
In order to obtain prior written approval of the Code of Ethics Officer, a PanAgora employee should follow the reporting steps prescribed in Rule 3.
COMMENTS
• Rule 1 concerns the conduct of an employee when PanAgora possesses material nonpublic information. Rule 2 concerns the conduct of an employee who herself possesses material, nonpublic information about a security that is not yet on the Red List.
• If an employee has any question as to whether information she possesses is material and/or nonpublic information, she must contact the Code of Ethics Officer in accordance with Rule 3 prior to purchasing or selling any security related to the information or communicating the information to others. The Code of Ethics Officer shall have the sole authority to determine what constitutes material, nonpublic information for the purposes of this Policy Statement.
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Rule 3: Reporting of Material, Non-Public Information
Any PanAgora employee who believes he is aware of or has received material, nonpublic information concerning a security or the issuer shall immediately report the information to the Code of Ethics Officer, the Deputy Code of Ethics Officer or, in their absence, a lawyer in the Putnam Legal and Compliance Department and to no one else. After reporting the information, the PanAgora employee shall comply strictly with Rule 2 by not trading in the security without the prior written approval of the Code of Ethics Officer and shall: (a) take precautions to ensure the continued confidentiality of the information; and (b) refrain from communicating the information in question to any person.
IMPLEMENTATION
A. In order to make any use of potential material, nonpublic information, including purchasing or selling a security or communicating the information to others, an employee must communicate that information to the Code of Ethics Officer in a way designed to prevent the spread of such information. Once the employee has reported potential material, nonpublic information to the Code of Ethics Officer, the Code of Ethics Officer will evaluate whether information constitutes material, nonpublic information, and whether a duty exists that makes use of such information improper. If the Code of Ethics Officer determines either (a) that the information is not material or is public, or (b) that use of the information is proper, he will issue a written approval to the employee specifically authorizing trading while in possession of the information, if the employee so requests. If the Code of Ethics Officer determines (a)
that the information may be nonpublic and material, and (b) that use of such information may be improper, he will place the security that is the subject of such information on the Red List.
B. An employee who reports potential inside information to the Code of Ethics Officer should expect that the Code of Ethics Officer will need significant information (and time to gather such information) to make the evaluation described in the foregoing paragraph, including information about (a) the manner in which the employee acquired the information, and (b) the identity of individuals to whom the employee has revealed the information, or who have otherwise learned the information. In appropriate situations, the Code of Ethics Officer will normally place the affected security or securities on the Red List pending the completion of his evaluation.
C. If an employee possesses documents, disks, or other materials containing the potential inside information, an employee must take precautions to ensure the confidentiality of the information in question. Those precautions include (a) putting documents containing such information out of the view of a casual observer, and (b) securing files containing such documents or ensuring that computer files reflecting such information are secure from
viewing by others.
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APPENDIX A
SECTION II: Overview of Insider Trading
Introduction
This section of the Policy Statement provides guidelines for employees as to what may constitute inside information. It is possible that in the course of her employment, an employee may receive inside information. No employee should misuse that information, either by trading for her own account or by communicating the information to others.
What constitutes unlawful insider trading?
The basic definition of unlawful insider trading is trading on material, nonpublic information (also called inside information) by an individual who has a duty not to take advantage of the information. The following sections help explain the definition.
What is material information?
Trading on inside information is not a basis for liability unless the information is material. Information is material if a reasonable person would attach importance to the information in determining his course of action with respect to a security. Information that is reasonably likely to affect the price of a company’s securities is material, but effect on price is not the sole criterion for determining materiality. Information that employees should consider material includes but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, reorganization, recapitalization, asset sales, plans to commence a tender offer, merger or acquisition proposals or agreements, major litigation, liquidity problems, significant contracts, and
extraordinary management developments.
Material information does not have to relate to a company’s business. For example, a court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a reporter for
The Wall Street Journal
was found criminally liable for disclosing to others the dates that reports on various companies would appear in the
Journal
’s “Heard on the
Street” column and whether those reports would be favorable or not.
What is nonpublic information?
Information is nonpublic until it has been effectively communicated to, and sufficient opportunity has existed for it to be absorbed by, the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the Securities and Exchange Commission,
or appearing in
Dow Jones, Reuters Economic Services, The Wall Street Journal
, or other publications of general circulation would be considered public.
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Who has a duty not to “take advantage” of inside information?
Unlawful insider trading occurs only if there is a duty not to take advantage of material nonpublic information. When there is no such duty, it is permissible to trade while in possession of such information. Questions as to whether a duty exists are complex, fact-specific, and must be answered by a lawyer. If you have any doubt, err on the side of caution.
Insiders and Temporary Insiders
Corporate insiders have a duty not to take advantage of inside information. The concept of insider is broad. It includes officers, directors, and employees of a corporation. In addition, a person can be a temporary insider if she enters into a special confidential relationship with a corporation and as a result is given access to information concerning the corporation’s affairs. A temporary insider can include, among others, accounting firms, consulting firms, law firms, banks, and the employees of such organizations. PanAgora would generally be a temporary insider of a corporation it advises or for which it performs other services, because typically PanAgora clients expect PanAgora to keep any information disclosed to it confidential.
EXAMPLE
An investment advisor to the pension fund of a large publicly-traded corporation, Acme, Inc., learns from an Acme employee that Acme will not be making the minimum required annual contribution to the pension fund because of a serious downturn in Acme’s financial situation. The information conveyed is material and nonpublic.
COMMENT
Neither the investment advisor or its employees, nor its clients can trade on the basis of that information, because the investment advisor and its employees could be considered “temporary insiders” of Acme.
Misappropriators
Certain people who are not insiders (or temporary insiders) also have a duty not to deceptively take advantage of inside information. Included in this category is an individual who misappropriates (or takes for his own use) material, nonpublic information in violation of a duty owed either to the corporation that is the subject of inside information or some other entity. Such a misappropriator can be held liable if he trades while in possession of that material, nonpublic information.
EXAMPLE
The Chief Investment Officer of Acme, Inc., is aware of Acme’s plans to engage in a hostile takeover of Profit, Inc. The proposed hostile takeover is material and nonpublic.
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COMMENT
The Chief Investment Officer of Acme cannot trade in Profit, Inc.’s stock for his own account. Even though he owes no duty to Profit, Inc., or its shareholders, he owes a duty to Acme not to take advantage of the information about the proposed hostile takeover by using it for his personal benefit.
Tippers and Tippees
A person (the tippee) who receives material, nonpublic information from an insider or misappropriator (the tipper) has a duty not to trade while in possession of that information if he knew or should have known that the information was provided by the tipper for an improper purpose and in breach of a duty owed by the tipper. In this context, it is an improper purpose for a person to provide such information for personal benefit, such as money, affection, or friendship.
EXAMPLE
The Chief Executive Officer of Acme, Inc., tells his daughter that negotiations concerning a previously announced acquisition of Acme have been terminated. This news is material and, at the time the father tells his daughter, nonpublic. The daughter sells her shares of Acme.
COMMENT
The father is a tipper because he has a duty to Acme and its shareholders not to take advantage of the information concerning the breakdown of negotiations, and he has conveyed the information for an improper purpose (here, out of love and affection for his daughter). The daughter is a tippee and is liable for trading on inside information because she knew or should have known that her father was conveying the information to her for his personal benefit, and that her father had a duty not to take advantage of Acme information.
A person can be a tippee even if he did not learn the information directly from the tipper, but learned it from a previous tippee.
EXAMPLE
An employee of a law firm which works on mergers and acquisitions learns at work about impending acquisitions. She tells her friend and her friend’s stockbroker about the upcoming acquisitions on a regular basis. The stockbroker tells the brother of a client on a regular basis, who in turn tells two friends, A and B. A and B buy shares of the companies being acquired before public announcement of the acquisition, and regularly profit from such purchases. A and B do not know the employee of the law firm. They do not, however, ask about the source of the information.
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COMMENT
A and B, although they have never heard of the tipper, are tippees because they did not ask about the source of the information, even though they were experienced investors, and were aware that the “tips” they received from this particular source were always right.
Who can be liable for insider trading?
The categories of individuals discussed above (insiders, temporary insiders, misappropriators, or tippees) can be liable if they trade while in possession of material nonpublic information.
In addition, individuals other than those who actually trade on inside information can be liable for trades of others. A tipper can be liable if (a) he provided the information in exchange for a personal benefit in breach of a duty, and (b) the recipient of the information (the tippee) traded while in possession of the information.
Most importantly, a controlling person can be liable if the controlling person knew or recklessly disregarded the fact that the controlled person was likely to engage in misuse of inside information and failed to take appropriate steps to prevent it. PanAgora is a controlling person of its employees. In addition, certain supervisors may be controlling persons of those employees they supervise.
EXAMPLE
A supervisor of an analyst learns that the analyst has, over a long period of time, secretly received material inside information from Acme, Inc.’s Chief Investment Officer. The supervisor learns that the analyst has engaged in a number of trades for his personal account on the basis of the inside information. The supervisor takes no action.
COMMENT
Even if he is not liable to a private plaintiff, the supervisor can be liable to the Securities and Exchange Commission for a civil penalty of up to three times the amount of the analyst’s profit. (Penalties are discussed in the following section.)
Penalties for insider trading
Penalties for misuse of inside information are severe, both for individuals involved in such unlawful conduct and their employers. A person who violates the insider trading laws can be subject to some or all of the types penalties below, even if he does not personally benefit from the violation. Penalties include:
• Jail sentences, criminal monetary penalties.
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• Injunctions permanently preventing an individual from working in the securities industry.
• Injunctions ordering an individual to pay over profits obtained from unlawful insider trading.
• Civil penalties substantially greater than the profit gained or loss avoided by the trader, even if the individual paying the penalty did not trade or did not benefit personally.
• Civil penalties for the employer or other controlling person.
• Damages in the amount of actual losses suffered by other participants in the market for the security at issue.
Regardless of whether penalties or money damages are sought by others, PanAgora will take whatever action it deems appropriate (including dismissal) if PanAgora determines, in its sole discretion, that an employee appears to have committed any violation of this Policy Statement, or to have engaged in any conduct which raises significant questions about whether an insider trading violation has occurred.
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APPENDIX B: Policy Statement Regarding Employee Trades in Shares of PanAgora or Putnam Closed-End Funds
Pre-clearance for all employees
Any purchase or sale of PanAgora or Putnam closed-end fund shares by a PanAgora employee must be pre-cleared by the Code of Ethics Officer or, in his absence, the Deputy Code of Ethics Officer. A list of the closed-end funds can be obtained from the Code of Ethics Administrator. The automated pre-clearance system is not available for PanAgora or Putnam closed-end fund clearance.
Trading in shares of closed-end funds is subject to all the rules of the Code of Ethics. Contact the Code of Ethics Administrator with these pre-clearance requests.
Special Rules Applicable to Managing Directors of PanAgora Investment
Management, LLC and officers of the PanAgora Funds.
Please be aware that any employee who is a director of PanAgora and officers of PanAgora will not receive clearance to engage in any combination of purchase and sale or sale and purchase of the shares of a given closed-end fund within six months of each other. Therefore, purchases should be made only if you intend to hold the shares more than six months; no sales of fund shares should be made if you intend to purchase additional shares of that same fund within six months.
You are also required to file certain forms with the Securities and Exchange Commission in connection with purchases and sales of PanAgora closed-end funds. Please contact the Code of Ethics Officer Administrator for further information.
Reporting by all employees
As with any purchase or sale of a security, duplicate confirmations of all such purchases and sales must be forwarded to the Code of Ethics Officer by the broker-dealer utilized by an employee.
If you are required to file a quarterly report of all personal securities transactions, this report should include all purchases and sales of closed-end fund shares
.
Certain forms are also required to be filed with the Securities and Exchange Commission in connection with purchases and sales of Putnam closed-end funds. You will be notified by the Code of Ethics Administrator if this applies to you. Please contact the Code of Ethics Officer or Deputy Code of Ethics Officer if there are any questions regarding these matters.
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APPENDIX C: Contra-Trading Rule Clearance Form
To:
Code of Ethics Officer
From: __________________________________________________________________
Date: ___________________________________________________________________
Re: Personal Securities Transaction of ________________________________________
This serves as prior written approval of the personal securities transaction described below:
Name of portfolio manager contemplating personal trade: _________________________
Security to be traded: ______________________________________________________
Amount to be traded: ______________________________________________________
Fund holding securities: ____________________________________________________
Amount held by fund: _____________________________________________________
Reason for personal trade: __________________________________________________
Specific reason sale of securities is inappropriate for fund: ________________________
________________________________________________________________________
________________________________________________________________________
(Please attach additional sheets if necessary.)
Director approval: ________________________________ Date:___________________
Compliance approval: ________________________ Date: ___________________
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APPENDIX D: CFA Institute Code of Ethics and Standards of Professional Conduct
The CFA Institute Code of Ethics (Full Text)
Members of the Association for Investment Management and Research shall:
• Act with integrity, competence, dignity, and in an ethical manner when dealing with the public, clients, prospects, employers, employees, and fellow members.
• Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession.
• Strive to maintain and improve their competence and the competence of others in the profession.
• Use reasonable care and exercise independent professional judgment.
The Standards of Professional Conduct
All members of the Association for Investment Management and Research and the holders of and candidates for the Chartered Financial Analyst designation are obligated to conduct their activities in accordance with the following Code of Ethics. Disciplinary sanctions may be imposed for violations of the Code and Standards.
• Fundamental responsibilities
• Relationships with and responsibilities to a profession
• Relationships with and responsibilities to an employer
• Relationships with and responsibilities to clients and prospects
• Relationships with and responsibilities to the public
• Standards of Practice Handbook
Fundamental Responsibilities
Members shall maintain knowledge of and comply with all applicable laws, rules, and regulations (including AIMR’s Code of Ethics and Standards of Professional Conduct) of any government, governmental agency, regulatory organization, licensing agency, or professional association governing the members’ professional activities.
Not knowingly participate in or assist any violation of such laws, rules, or regulations.
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Relationships with and Responsibilities to the Profession
Use of Professional Designation
AIMR members may reference their membership only in a dignified and judicious manner. The use of the reference may be accompanied by an accurate explanation of the requirements that have been met to obtain membership in these organizations.
Those who have earned the right to use the Chartered Financial Analyst designation may use the marks “Chartered Financial Analyst” or “CFA” and are encouraged to do so, but only in a proper, dignified, and judicious manner. The use of the designation may be accompanied by an accurate explanation of the requirements that have been met to obtain the right to use the designation.
Candidates in the CFA Program, as defined in the AIMR Bylaws, may reference their participation in the CFA Program, but the reference must clearly state that an individual is a candidate in the CFA Program and cannot imply that the candidate has achieved any type of partial designation.
Professional Misconduct
Members shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness, or professional competence.
Members and candidates shall not engage in any conduct or commit any act that compromises the integrity of the CFA designation or the integrity or validity of the examinations leading to the award of the right to use the CFA designation.
Prohibition against Plagiarism
Members shall not copy or use, in substantially the same form as the original, material prepared by another without acknowledging and identifying the name of the author, publisher, or source of such material. Members may use, without acknowledgment, factual information published by recognized financial and statistical reporting services or similar sources.
Relationships with and Responsibilities to the Employer
Obligation to Inform Employer of Code and Standards
Members shall inform their employer in writing, through their direct supervisor, that they are obligated to comply with the Code and Standards and are subject to disciplinary sanctions for violations thereof.
Members shall deliver a copy of the Code and Standards to their employer if the
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employer does not have a copy.
Duty to Employer
Members shall not undertake any independent practice that could result in compensation or other benefit in competition with their employer unless they obtain written consent from both their employer and the persons or entities for whom they undertake independent practice.
Disclosure of Conflicts to Employer
Members shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists.
Disclosure of Additional Compensation Arrangements
Members shall disclose to their employer in writing all monetary compensation or other benefits that they receive for their services that are in addition to compensation or benefits conferred by a member’s employer.
Responsibilities of Supervisors
Members with supervisory responsibility, authority, or the ability to influence the conduct of others shall exercise reasonable supervision over those subject to their supervision or authority to prevent any violation of applicable statutes, regulations, or provisions of the Code and Standards. In so doing, members are entitled to rely on reasonable procedures to detect and prevent such violations.
Relationships with and Responsibilities to Clients and Prospects
Investment Process
REASONABLE BASIS AND REPRESENTATIONS
• Exercise diligence and thoroughness in making investment recommendations or in taking investment actions.
• Have a reasonable and adequate basis, supported by appropriate research and investigation, for such recommendations or actions.
• Make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.
• Maintain appropriate records to support the reasonableness of such recommendations or actions.
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RESEARCH REPORTS
• Use reasonable judgment regarding the inclusion or exclusion of relevant factors in research reports.
• Distinguish between facts and opinions in research reports.
• Indicate the basic characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client.
INDEPENDENCE AND OBJECTIVITY
• Members shall use reasonable care and judgment to achieve and maintain independence and objectivity in making investment recommendations or taking investment action.
Interactions with Clients and Prospects
FIDUCIARY DUTIES
In relationships with clients, members shall use particular care in determining applicable fiduciary duty and shall comply with such duty as to those persons and interests to whom the duty is owed. Members must act for the benefit of their clients and place their clients’ interests before their own.
PORTFOLIO INVESTMENT RECOMMENDATIONS AND ACTIONS
Members shall:
• Make a reasonable inquiry into a client’s financial situation, investment experience, and investment objectives prior to making any investment recommendations and shall update this information as necessary, but no less frequently than annually, to allow the members to adjust their investment recommendations to reflect changed circumstances.
• Consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client. In determining appropriateness and suitability, members shall consider applicable relevant factors, including the needs and circumstances of the portfolio or client, the basic characteristics of the investment involved, and the basic characteristics of the total portfolio.
• Members shall not make a recommendation unless they reasonably determine that the recommendation is suitable to the client’s financial situation, investment experience, and investment objectives.
• Distinguish between facts and opinions in the presentation of investment recommendations.
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• Disclose to clients and prospects the basic format and general principles of the investment processes by which securities are selected and portfolios are constructed and shall promptly disclose to clients and prospects any changes that might significantly affect those processes.
FAIR DEALING
Members shall deal fairly and objectively with all clients and prospects when disseminating investment recommendations, disseminating material changes in prior investment recommendations, and taking investment action.
PRIORITY OF TRANSACTIONS
Transactions for clients and employers shall have priority over transactions in securities or other investments of which a member is the beneficial owner so that such personal transactions do not operate adversely to their clients’ or employer’s interests. If members make a recommendation regarding the purchase or sale of a security or other investment, they shall give their clients and employer adequate opportunity to act on their recommendations before acting on their own behalf. For purposes of the Code and Standards, a member is a “beneficial owner” if the member has:
• direct or indirect pecuniary interest in the securities;
• the power to vote or direct the voting of the shares of the securities or investments;
• the power to dispose or direct the disposition of the security or investment.
PRESERVATION OF CONFIDENTIALITY
Members shall preserve the confidentiality of information communicated by clients, prospects, or employers concerning matters within the scope of the client-member, prospect-member, or employer-member relationship unless a member receives information concerning illegal activities on the part of the client, prospect, or employer.
PROHIBITION AGAINST MISREPRESENTATION
Members shall not make any statements, orally or in writing, that misrepresent
• the services that they or their firms are capable of performing;
• their qualifications or the qualifications of their firm;
• the member’s academic or professional credentials.
Members shall not make or imply, orally or in writing, any assurances or guarantees regarding any investment except to communicate accurate information regarding the
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terms of the investment instrument and the issuer’s obligations under the instrument.
DISCLOSURE OF CONFLICTS TO CLIENTS AND PROSPECTS
Members shall disclose to their clients and prospects all matters, including beneficial ownership of securities or other investments, that reasonably could be expected to impair the members’ ability to make unbiased and objective recommendations.
DISCLOSURE OF REFERRAL FEES
Members shall disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect.
Relationships with and Responsibilities to the Public
PROHIBITION AGAINST USE OF MATERIAL NONPUBLIC INFORMATION
Members who possess material nonpublic information related to the value of a security shall not trade or cause others to trade in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.
PERFORMANCE PRESENTATION
Members shall not make any statements, orally or in writing, that misrepresent the investment performance that they or their firms have accomplished or can reasonably be expected to achieve. If members communicate individual or firm performance information directly or indirectly to clients or prospective clients, or in a manner intended to be received by clients or prospective clients, members shall make every reasonable effort to assure that such performance information is a fair, accurate, and complete
presentation of such performance.
APPENDIX E: Report of Entertainment Form
This form must be filed with the PanAgora Legal and Compliance Department and sanctions may apply if received after 10 business days of attending an event.
Planned absences, i.e., vacations, leaves or business trips are not valid excuses for providing late reports. Failure to meet the deadline violates the Code’s rules
.
Send to:
Robin Kelly
OR
Attach to an e-mail to:
rkelly@panagora.com
Name of employee: _______________________________________________________
Name of party providing entertainment:
Firm:
__________________________________________________________________
Person:
_________________________________________________________________
Date of entertainment: _____________________________________________________
Describe entertainment provided: ____________________________________________
(e.g., name and location of restaurant, sporting, or cultural event)
Value of entertainment (excluding meals): _____________________________________
Signature: ____________________________________ Date: _____________________
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POLARIS
CAPITAL
MANAGEMENT,
LLC
Code of Ethics
I. Introduction
The policies in this Code of Ethics reflect the assumption and expectation of Polaris Capital Management, LLC (“Polaris”) of unqualified loyalty to the interests of Polaris and its clients on the part of each employee of Polaris. In the course of their service to Polaris, employees must be under no influence which may cause them to serve their own or someone else’s interests rather than those of Polaris or its clients.
Employees should understand that this Code of Ethics applies to both direct and indirect business interests. Polaris’s policies reflect its desire to detect and prevent not only situations involving actual or potential conflict of interests, but also those situations involving only an appearance of conflict or of unethical conduct. Polaris’s business is one dependent upon public confidence. The mere appearance of possibility of doubtful loyalty is as important to avoid as actual disloyalty itself. The appearance of impropriety could besmirch Polaris’s name and damage its reputation to the detriment of all those with whom we do business.
II. Statement of General Principles
It is the policy of Polaris that all of its employees must comply with all federal securities laws (as defined below in Section IV) applicable to its business. The fundamental position of Polaris is, and has been, that its shall place at all times the interests of Polaris’s clients first. Accordingly, private financial transactions by Polaris employees who are “access persons” (as defined below in Section IV) of Polaris must be conducted consistent with this Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an access person’s position of trust and responsibility. Further, access persons should not take inappropriate advantage of their positions with or on behalf of any client of Polaris.
Without limiting in any manner the fiduciary duty owed by access persons to the clients of Polaris or the provisions of this Code of Ethics, it should be noted that Polaris considers it proper that purchases and sales be made by its access persons in the marketplace of securities owned by the clients of Polaris; provided, however, that such securities transactions comply with the spirit of, and the specific restrictions and limitations set forth in, this Code of Ethics. Such personal securities transactions should also be made in amounts consistent with the normal investment practice of the person involved and, with respect to investment personnel (as defined below in Section IV), with an investment, rather than a trading, outlook. Not only does this policy encourage investment freedom and result in investment experience, but it also fosters a continuing personal interest in such investments by those
responsible for the continuous supervision of the clients’ portfolios. It is also evidence of confidence in the investments made.
In making personal investment decisions with respect to any security, however, extreme care must be exercised by access persons to insure that the prohibitions of this Code of Ethics are not violated. Further, personal investing by an access person should be conducted in such a manner so as to eliminate the possibility that the access person’s time and attention is being devoted to
his or her personal investments at the expense of time and attention that should be devoted to management of a client’s portfolio.
It bears emphasis that technical compliance with procedures, prohibitions and limitations of this Code of Ethics will not automatically insulate from scrutiny personal securities transactions which show a pattern of abuse by an access person of his or her fiduciary duty to any client of Polaris.
III. Legal Requirements
Section 17(j) of the Investment Company Act of 1940, as amended (the “1940 Act”), provides, among other things, that it is unlawful for any affiliated person of Polaris to engage in any act, practice or course of business in connection with the purchase or sale, directly or indirectly, by such affiliated person of any security held or to be acquired by an investment company in contravention of such rules and regulations as the Securities and Exchange Commission (the “Commission”) may adopt to define and prescribe means reasonably necessary to prevent such acts, practices or courses of business as are fraudulent, deceptive or manipulative. Pursuant to Section 17(j), the Commission has adopted Rule 17j-1, which states that it is unlawful for any affiliated person of Polaris, in connection with the purchase or sale of a security held or to be acquired (as defined in the Rule) by an investment company:
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(i)
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to employ any device, scheme or artifice to defraud a client, which is an investment company;
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(ii)
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to make to a client, which is an investment company, any untrue statement of a material fact or omit to state to a client a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;
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(iii)
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to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon a client, which is an investment company; or
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(iv)
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to engage in any manipulative practice with respect to a client, which is an investment company.
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Rule 17j-1 requires Polaris, as an investment adviser to investment companies (as defined below in Section (IV), to adopt a written code of ethics containing provisions reasonably necessary to prevent its access persons from engaging in any of the prohibited conduct referenced above.
In addition, Section 204A of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), requires investment advisers such as Polaris to establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse in violation of the Advisers Act or the Securities Exchange Act of 1934, or the rules or regulations thereunder, of material, nonpublic information by such investment adviser or any person associated with such investment adviser. Pursuant to Section 204A of the Advisers Act, the Commission has adopted Rule 204A-1, which requires Polaris to establish, maintain and enforce a written code of ethics that, at a minimum, includes:
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(i)
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standards of conduct and compliance with federal securities laws;
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(ii)
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personal securities trading;
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(iii)
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initial public offerings and limited offerings;
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(iv)
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reporting violations of the code; and
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(v)
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educating employees about the code and obtaining an employee acknowledgement.
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IV. Definitions
For purposes of this Code of Ethics, the following definitions shall apply:
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1.
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The term “
access person
” shall mean any director, officer or advisory person (as defined below) of Polaris excluding any director, who would otherwise be considered an access person, because they are not involved in or have knowledge of the firm’s day to day activities or trading activity.
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2.
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The term “
advisory person
” shall mean: (i) every employee of Polaris (or of any company in a control relationship to Polaris) (a) who makes, participates in, or obtains or has access to information regarding, the purchase or sale of a security (as defined below) by a client, or whose functions relate to the making of any recommendations with respect to such purchases or sales or (b) who has access to nonpublic information regarding the portfolio holdings of a client; and (ii) every natural person in a control relationship to Polaris (a) who obtains information concerning recommendations made to a client with regard to the purchase or sale of a security or (b) who has access to nonpublic information regarding the portfolio holdings of a client.
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3.
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A security is “
being considered for purchase or sale
” when a recommendation to purchase or sell a security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation.
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4.
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The term “
beneficial ownership
” shall mean a direct or indirect “pecuniary interest” (as defined in subparagraph (a) (2) of Rule 16a-1 under the Securities Exchange Act of 1934, as amended) that is held or shared by a person directly or indirectly (through any contract, arrangement, understanding, relationship or otherwise) in a security. While the definition of “pecuniary interest” in subparagraph (a) (2) of Rule 16a-1 is complex, the term generally means the opportunity directly or indirectly to provide or share in any profit derived from a transaction in a security. An indirect pecuniary interest in securities by a person would be deemed to exist as a result of: (i) ownership of securities by any of such person’s immediate family members sharing the same household (including
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother- or father-in-law, sister- or brother-in-law, and son- or daughter-in-law; (ii) the person’s partnership interest in the portfolio securities held by a general or limited partnership; (iii) the existence of a performance-related fee (not simply an asset-based fee) received by such person as broker, dealer, investment adviser or manager to a securities account; (iv) the person’s right to receive dividends from a security provided such right is separate or separable from the underlying securities; (v) the person’s
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interest in securities held by a trust under certain circumstances; and (vi) the person’s right to acquire securities through the exercise or conversion of a “derivative security” (which term excludes (a) a broad-based index option or future, (b) a right with an exercise or conversion privilege at a price that is not fixed, and (c) a security giving rise to the right to receive such other security only
pro rata
and by virtue of a merger, consolidation or exchange offer involving the issuer of the first security).
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5.
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The term “
client
” shall mean an entity (natural person, corporation, investment company or other legal structure having the power to enter into legal contracts), which has entered into a contract with Polaris to receive investment management services.
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6.
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The term “
control
” shall mean the power to exercise a controlling influence over the management or policies of Polaris, unless such power is solely the result of an official position with Polaris, all as determined in accordance with Section 2 (a) (9) of the 1940 Act.
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7.
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The term “
federal securities laws
” shall mean the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the 1940 Act, the Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.
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8.
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The term “
initial public offering
” shall mean an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934.
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9.
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The term “
investment company
” shall mean a management investment company registered as such under the 1940 Act and for which Polaris is the investment adviser or sub-adviser regardless of whether the investment company has entered into a contract for investment management services with Polaris.
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10.
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The term “
investment personnel
” shall mean all portfolio managers of Polaris and other advisory persons who assist the portfolio managers in making investment decisions for a client, including, but not limited to, analysts and traders of Polaris.
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11.
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The term “
limited offering
” shall mean an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) thereof or pursuant to Rule 504, Rule 505, or Rule 506 thereunder.
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12.
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The term “
material nonpublic information
” with respect to an issuer shall mean information, not yet released to the public that would have a substantial likelihood of affecting a reasonable investor’s decision to buy or sell any securities of such issuer.
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13.
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The term “
Performance Accounts
” shall mean all clients for which Polaris receives a performance-related fee and in which Polaris is deemed to have an indirect pecuniary interest because of the application of Rule 16a-1(a)(2)(ii)(C) under the Securities and Exchange Act of 1934, as amended, as required by Rule 17j-1 under the 1940 Act.
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14.
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The term “
purchase
” shall include the writing of an option to purchase.
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15.
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The term “
Review Officer
” shall mean the officer or employee of Boston Investor Services, Inc. designated from time to time by Polaris to receive and review reports of purchases and sales by access persons. The term “
Alternate Review Officer
” shall mean the officer of Boston Investor Services, Inc. designated from time to time by Polaris to receive and review reports of purchases and sales by the Review Officer, and who shall act in all respects in the manner prescribed herein for the Review Officer.
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16.
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The term “
sale
” shall include the writing of an option to sell.
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17.
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The term “
security
” shall have the meaning set forth in Section 2 (a)(36) of the 1940 Act, except that it shall not include shares of NON-CLIENT investment companies (
which also do not, either directly or through their underwriters or other investment advisers, control Polaris or are not controlled by or under common control with Northern
), securities issued by the United States government, short-term securities which are “government securities” within the meaning of Section 2 (a)(16) of the 1940 Act, bankers’ acceptances, bank certificates of deposit, commercial paper and such other money market instruments as may designated from time to time by Polaris.
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V. Substantive Restrictions On Personal Trading Activities
A.
Prohibited Activities
While the scope of actions which may violate the Statement of General Principles set forth above cannot be defined exactly, such actions would always include at least the following prohibited activities.
1.
All
employees
shall avoid profiting by securities transactions of a short-term trading nature (including market timing) involving shares of an investment company. Transactions which involve a purchase and sale, or sale and purchase, of shares of the same series of an investment company (excluding Money Market Funds and Short Duration Funds or similar short-term fixed income fund) within thirty (30) calendar days shall be deemed to be of a trading nature and thus prohibited unless prior written approval of the transaction is obtained from the Review Officer. This restriction shall also not apply to purchase and sales of shares an investment company pursuant to an automatic dividend reinvestment plan or automatic investment, exchange or withdrawal plan, which includes purchases of shares of an investment company through automatic
contributions to an employer sponsored retirement or employee benefit plan.
2. No
access person
shall, directly or indirectly, purchase or sell securities in such a
way that the access person knew, or reasonably should have known, that such securities transactions compete in the market with actual or considered securities transactions for any
client of Polaris, or otherwise personally act to injure any client’s securities
transactions;
3. No
access person
shall use the knowledge of securities purchased or sold by any client of Polaris or securities being considered for purchase or sale by any client of Polaris to profit personally, directly or indirectly, by the market effect of such transactions;
4. No
access person
shall, directly or indirectly, communicate to any person who is not an access person any material nonpublic information relating to any client of Polaris or any issuer of any security owned by any client of Polaris, including, without limitation, the purchase or sale or considered purchase or sale of a security on behalf or any client of Polaris, except to the extent necessary to effectuate securities transactions on behalf of the client of Polaris;
5. No
access person
shall, directly or indirectly, execute a personal securities transaction on a day during which a client of Polaris has a pending “buy” or “sell” order in that same or equivalent security until that order is executed or withdrawn;
6. No
access person
shall accept any gift or other thing of more than
de minimis
value from any person or entity that does business with or on behalf of client;
7. No
access persons
shall serve on the board of directors of any publicly traded company, absent prior written authorization and determination by the President of Polaris that the board service would be consistent with the interests of clients. Where board service is authorized, access persons serving as directors normally should be isolated from those persons making investment decisions through “Chinese Wall” or other procedures. All
access persons
are prohibited from accepting any service, employment, engagement, connection, association or affiliation in or with any enterprise, business of otherwise which is likely to materially interfere with the effective discharge of responsibilities to Polaris and its clients;
8.
Investment personnel
shall avoid profiting by securities transactions of a trading nature, which transactions are defined as a purchase and sale, or sale and purchase, of the same (or equivalent) securities within sixty (60) calendar days;
9.
Investment personnel
shall not, directly or indirectly, purchase any security sold in an initial public offering.
Access persons
shall not, directly or indirectly, purchase any security sold in an initial public offering without obtaining prior written approval from the Review Officer;
10.
Investment personnel and access persons
shall not, directly or indirectly, purchase any security issued pursuant to a limited offering without obtaining prior written approval from the Review Officer. Investment personnel who have been authorized to acquire securities in a private placement must disclose such investment when they are involved in a client’s subsequent consideration of an investment in the issuer. In such circumstances, the client’s decision to purchase securities of the issuer must be independently reviewed by investment personnel with no personal interest in the issuer;
11.
Investment personnel
shall not recommend any securities transaction on behalf of a client without having previously disclosed any beneficial ownership interest in such securities or the issuer thereof to the Review Officer including without limitation:
a. his or her beneficial ownership of any securities of such issuer;
b. any contemplated transaction by such person in such securities;
c. any position with such issuer or its affiliates; and
d. any present or proposed business relationship between such issuer or its
affiliates and such person or any party in which such person has a significant interest.
Such interested investment personnel may not participate in the decision for the client to purchase and sell securities of such issuer.
12. No
Investment personnel
shall, directly or indirectly, purchase or sell any security or equivalent security in which he or she has, or by reason of such purchase acquires, any beneficial ownership within a period of seven (7) calendar days before and after a client has purchased or sold such security.
B.
Exempt Transactions and Conduct
This Code of Ethics shall not be deemed to be violated by any of the following transactions:
1. Purchases or sales for an account over which the access person has no direct or indirect influence or control;
2. Purchases or sales which are non-volitional on the part of the access person;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases made by exercising rights distributed by an issuer
pro rata
to all holders of a class of its securities, to the extent such rights were acquired by the access person from the issuer, and sales of such rights so acquired;
5. Tenders of securities pursuant to tender offers which are expressly conditioned on the tender offer’s acquisition of all of the securities of the same class;
6. Purchases or sales for which the access person has received prior written approval from the Review Officer. Prior approval shall be granted only if a purchase or sale of securities is consistent with the purposes of this Code of Ethics and the federal securities laws and the rules thereunder; and
7. Purchases or sales made in good faith on behalf of a client, it being understood by, and disclosed to, each client that Polaris may make contemporaneous investment decisions and cause to be effected contemporaneous executions on behalf of one or more of the clients and that such executions may increase or decrease the price at which securities are purchased or sold for the clients.
VI. Compliance Procedures
A.
Ownership of Shares of an Investment Company
Every
access person
who beneficially owns shares of an investment company is required to own such shares either:
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(i)
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directly with the investment company in the name of the employee or in the name of an immediate family member (or other person or entity whose direct ownership causes the employee to be deemed to be the beneficial owner of the shares),
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(ii)
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through a retirement or employee benefit plan sponsored by a family member’s employer to the extent the
access person
is the beneficial owner of the shares as a result of the ownership of the shares by that family member.
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Every
access person
is required to notify the Review Officer in writing within ten (10) days of a list of the persons (other than the employee) who are the record owners of the shares of an investment company which are beneficially owned by the
employee
and the associated account numbers or name of employer sponsoring the retirement or employee benefit plan. Every
employee
is required to notify the Review Officer in writing within ten (10) days of any change to that list, including the addition of new persons to the list.
B.
Preclearance for Personal Securities Investments
Every
access person
or person with beneficial ownership interest shall be required to submit on Form III their intent to trade for their own account to the Review Officer. The Review Officer will be obligated to determine whether any prohibitions or restrictions apply to the relevant securities and respond to the access persons submitting such intent to trade forms in writing. The Review Officer shall approve or not approve the transactions and will respond in writing within two business days following the date of submission by indicating on the pre-clearance form if the transaction is approved or not approved. If the transaction is approved the trade may be considered “precleared” and the
access person
may execute such “precleared” trade anytime within two business days following the lapse of the
Review Officer’s two day period. If four business days have elapsed, not including the day the form was submitted, and the access person’s trade has not been executed, “preclearance” will lapse and the access person may not trade without violating this preclearance provision. The access person will be required to submit another Form III and have the intended trade “precleared” again.
C.
Records of Securities Transactions
1. Upon the written request of the Review Officer, access persons are required to direct their brokers to supply to Polaris on a timely basis duplicate copies of confirmations of all securities transactions and copies of periodic statements for all securities accounts in which the access person has a beneficial ownership interest. Such brokerage reports may be provided in lieu of the reports required under Paragraph D of this Section VI, provided that such brokerage reports contain all the information required by Paragraph D.2 and are provided within the time period specified in Paragraph D.2.
D.
Personal Reporting Requirements
1. Each
access person
shall submit to the Review Officer a report in the form annexed hereto as Form I or in similar form (such as a computer printout), which report shall set forth at least the information described in subparagraph 2 of this Paragraph D as to all securities transactions and any securities accounts opened during each quarterly period, in which such access person has, or by reason of such transactions or new account acquires of disposes of, any beneficial ownership of a security (including, in the case of the account information required under subparagraph D.2.B, securities excepted from the definition of securities in Section IV.17).
Any
access person
who
is the beneficial owner of shares of an investment company which are held through a retirement or employee benefit plan shall submit to the Review Officer a separate report in the form annexed hereto as Form I or in similar form,
in addition to the report required by subparagraph 2 of this Paragraph D
, which report shall set forth the information described in subparagraph 2 of this Paragraph D
solely
as to transactions in shares of an investment company. The
access person
is not required to include in this report transactions in shares of money market funds and short duration funds (or similar short-term fixed income fund) and purchases and sales pursuant
to an automatic dividend reinvestment plan or automatic investment, exchange or withdrawal plan, including purchases through automatic contributions to the retirement or employee benefit plan. If no transactions in any investment company shares required to be reported were effected during a quarterly period
,
such
employee
shall submit to Review Officer a report on Form I within the time-frame specified below stating that no reportable securities transactions were effected.
2. Every report on Form I shall be made not later than thirty (30) days after the end of each
calendar quarter in which the transaction(s) to which the report relates was effected and shall contain the following information:
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A.
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Transactions in Securities
.
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(1)
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the date of each transaction, the title, the exchange ticker symbol or CUSIP number (as applicable), the interest rate and maturity date (if applicable), the class and number of shares, and the principal amount of each security involved;
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(2)
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the nature of each transaction (i.e., purchases, sale or other type of acquisition or disposition);
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(3)
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the price at which each transaction was effected; and
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(4)
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the name of the broker, dealer or bank with or through whom each transaction was effected; and
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(5)
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the date the report was submitted.
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If no transactions in any securities required to be reported were effected during a quarterly period by an
access person
such
access person
shall submit to the Review Officer a report on Form I within the time-frame specified above stating that no reportable securities transactions were effected. However, if an
access person
has
provided for the Review Officer to receive all of his or her brokerage statements and confirmations with respect to all accounts over which he or she has beneficial ownership, that
access person
is not required to submit a report indicating there were no reportable securities transactions during that quarterly period.
An access person need not submit a transactions report under this subparagraph D.2.A:
(1) with respect to any securities (including those excepted from the if the access person has provided for the Review Officer to receive all of his or her brokerage statements and such statements contain all of the information required under this subparagraph.
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B.
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Securities Accounts Opened
(
NOTE: This includes accounts holding ANY securities, including those excepted from the definition of securities in Section IV.17.
)
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(1)
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the name of the broker, dealer or bank with whom the access person established the account;
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(2)
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the date the account was established; and
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(3)
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the date the report was submitted by the access person.
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An
access person
need not submit a report under this Paragraph D:
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(1)
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with respect to transactions effected for, and securities held in, any account over which the person has no direct or indirect influence or control;
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(2)
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with respect to transactions effected pursuant to an automatic investment plan; and
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(3)
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if the access person has provided for the Review Officer to receive all of his or her brokerage statements and such statements contain all of the information required by this Paragraph D.2 and are submitted within the required time period.
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E.
Disclosure of Personal Holdings
1. Each
access person
shall submit to Polaris an initial holdings report no later than 10 days after the person becomes an
access person
which contains the following information (with such information current as of a date no more than 45 days before the report is submitted):
(i) The title and type of security, the exchange ticker symbol or CUSIP number (as applicable), the interest rate and maturity date (as applicable), the number of shares and principal amount of each security in which the
access person
had any beneficial ownership when the person became an
access person
;
(ii) The name of any broker, dealer of bank with whom the
access person
maintained an account in which any securities (including the securities which are excepted from the definition of securities in Section IV.14.) were held for the direct or indirect benefit of the
access person
as of the date the person became an
access person
; and
(iii) The date the report was submitted.
2. Each
access person
shall submit to Polaris an annual holdings report which contains the following information (with such information current as of a date no more than 45 days before the report is submitted):
(i) The title, number of shares and principal amount of each security in which the
access person
had any beneficial ownership;
(ii) The name of any broker, dealer of bank with whom the
access person
maintained an account in which any securities (including the securities which are excepted from the definition of securities in Section IV.17.) were held for the direct or indirect benefit of the
access person
; and
(iii) The date the report was submitted.
If an
access person
is the beneficial owner of shares of an investment company which are held through a retirement or employee benefit plan, the
access person
shall submit to the Review Officer initial an annual holdings reports in the manner set forth above for access persons which disclose the beneficial ownership of shares of an investment company held through the retirement or employee benefit plan. In place of disclosing the name of any broker, dealer or bank with whom the account was maintained, the employee shall disclose the name of the employer sponsoring each retirement or employee benefit plan in which shares of the investment company are held.
An
access person
need not submit a report under this Paragraph E with respect to securities held in any account over which the person has no direct or indirect influence or control.
F.
Reporting of Code Violations
All employees of Northern shall have an obligation to report any suspected or actual violations of this Code of Ethics to Polaris’s Chief Compliance Officer who shall address the matter with Polaris’s President. If the President of Polaris, after consultation with the Chief Compliance Officer and, as necessary, legal counsel, determines a violation has occurred, he or she shall immediately impose sanctions as set forth in Section VII, inform the client affected and report such sanctions to the client.
G.
Review of Reports
1. The Review Officer or the Alternate Review Officer or their designee shall review and initial all reports required by Paragraphs D and E of this Section VI.
2. At the end of each calendar quarter, the Review Officer shall prepare a summary of all transactions by access persons in securities which were purchased, sold, held or considered for purchase or sale by each client during the prior quarter.
3. Both the Review Officer and the Alternate Review Officer shall compare all reported personal
securities transaction with completed and contemplated portfolio transactions of the client to determine whether a violation of this Code of Ethics may have occurred. The Review Officer and Alternative Review Officer shall also compare an
access person’s
reported personal securities transactions with the holdings disclosed on the
access person’s
annual holdings report. Before making any determination that a violation has been committed by any person, the Review Officer shall give such person an opportunity to supply additional explanatory material.
H.
Review of Performance Accounts
The Review Officer shall review and initial on a quarterly basis all transactions in securities on behalf of the Performance Accounts that were conducted simultaneously with transactions in the same securities on behalf of other clients.
I.
Annual Certification of Compliance
All Polaris employees
shall certify annually on the form annexed hereto as Form IV that they (i) have received, read and understand this Code of Ethics and recognize that they are subject hereto, (ii) have complied with the requirements of this Code of Ethics and (iii) will comply with all applicable requirements of this Code of Ethics.
J.
Joint Participation
Access persons
should be aware that a specific provision of the 1940 Act prohibits such persons, in the absence of an order of the Commission, from effecting a transaction in which an investment company is a “joint or a joint and several participant” with such person. Any transaction which suggests the possibility of a question in this area should be presented to legal counsel for review.
K.
Investment Company Board Approval and Annual Reports to Board
1. Polaris shall submit this Code of Ethics, and any material changes to this Code of Ethics, to the board of directors of any investment company for approval.
2. No less frequently than annually, Polaris shall submit to the board of directors of any investment company, a written report that:
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(i)
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describes any issues arising under this Code of Ethics or related procedures since the last report to the board of directors, including, but not limited to, information about material violations of this Code of Ethics or related procedures and sanctions imposed in response to such material violations; and
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(ii)
|
certifies that Polaris has adopted procedures reasonably necessary to prevent access persons from violating this Code of Ethics.
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L.
Sub-contractors and Polaris
Polaris may contract with other investment advisers to provide research and administrative services. Each such sub-contractor is subject to its own Code of Ethics, a copy of which has been made available to Polaris. Each sub-contractor is required to submit quarterly to Polaris a report that there have been no violations of the sub-contractor’s Code of Ethics during the most recent calendar quarter. If there have been violations of the sub-contractor’s Code of Ethics, the sub-contractor must submit a detailed report of such violations and what remedial action, if any, was taken. If the sub-contractor’s violation involved a client of Polaris, such violation will be analyzed by the Review Officer in Section VI F.3. (above); provided, however, that if the sub-contractor is Boston Investor Services, Inc., the analysis of the violation will be done by the President of Polaris.
M.
Compliance with Federal Securities Laws
All Polaris employees are required to comply with all federal securities laws applicable to Polaris’s business.
VII. SANCTIONS
Any violation of this Code of Ethics shall result in the imposition of such sanctions as Polaris may deem appropriate under the circumstances, which may include, but is not limited to, removal, suspension of demotion from office, imposition of a fine, a letter of censure and/or restitution to the affected client of an amount equal to the advantage the offending person shall have gained by reason of such violation.
The sanction of disgorgement of any profits realized may be imposed for any of the following violations:
a. Violation of the prohibition against investment personnel profiting from securities transactions of a trading nature;
b. Violation of the prohibition against access persons, directly or indirectly, executing a personal securities transaction on a day during which a client in his or her complex has a pending “buy” or “sell” order; and,
c. Violation of the prohibition against portfolio managers, directly or indirectly, purchasing or selling any security in which he or she has, or by reason of such purchase acquired, any beneficial ownership within a period of seven (7) calendar days before and after a client has purchased or sold such security.
VIII. RECORDKEEPING REQUIREMENTS
Polaris shall maintain and preserve in an easily accessible place:
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a.
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a copy of the Code of Ethics (and any prior code of ethics that was in effect at any time during the past five years) for a period of five years;
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b.
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a record of any violation of this Code of Ethics and of any action taken as a result
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of such violation for a period of five years following the end of the fiscal year in which the violation occurs;
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c.
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a copy of each report (or computer printout) submitted under this Code of Ethics for a period of five years, only those reports submitted during the previous two years must be maintained and preserved in an easily accessible place;
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d.
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a copy of each report to the board of directors of any investment company made under Paragraph K of Section VI; and
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d.
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a list of all persons who are, or within the past five years were, required to make reports pursuant to this Code of Ethics;
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e.
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the names of each person who is serving or who has served as Review Officer or Alternative Review Officer within the past five years;
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f.
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a record of all written acknowledgments made under Section VI.I;
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g.
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a record of ever decision and the reasons supporting it under Section VI.B to approve the acquisition of securities by an access person in any initial public offering or limited offering.
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IX. MISCELLANEOUS
A.
Confidentiality
All information obtained from any access person hereunder shall be kept in strict confidence by Polaris, except that reports of securities transaction hereunder will be made available to the Commission or any other regulatory or self-regulatory organization to the extent required by law or regulation.
B.
Notice to Access Persons
Polaris shall identify all persons who are considered to be “access persons,” “investment personnel” and “portfolio managers,” inform such persons of their respective duties and provide such persons with copies of this Code of Ethics.
Effective: June 15, 2005
Code of Ethics
This Code of Ethics has been adopted by the officers and directors of Analytic Investors, Inc. (“Analytic Investors” or the “Firm”) in accordance with Rule 17j-1 under the Investment Company Act of 1940, as amended (the “Act”), and Section 204A and Rule 204-2 and Rule 204A-1 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), to effectuate the purposes and objectives of those provisions. Section 204A of the Advisers Act requires the establishment and enforcement of policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by investment advisers. Rule 204-2 and Rule 204A-1 impose recordkeeping requirements with respect to the Firm’s Code of Ethics, violations, written acknowledgements and personal securities transactions of each access person (defined below). Rule 204A-1 specifically requires SEC
registered investment advisers to adopt codes of ethics prescribing ethical standards under which they operate. Rule 17j-1 under the Act prohibits the Firm’s access persons from engaging in fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by or for a Managed Fund (defined below).
While affirming its confidence in the integrity and good faith of all of its employees, officers, and directors, Analytic Investors recognizes that certain of its personnel have or may have knowledge of present or future portfolio transactions and, in certain instances, the power to influence portfolio transactions made by or for Analytic Investors’ clients and that if such individuals engage in personal transactions in securities that are eligible for investment by clients, these individuals could be in a position where their personal interests may conflict with the interests of clients.
The Board of Directors of Analytic Investors has determined to adopt this Code of Ethics based upon the principle that the employees of the Firm, and certain affiliated persons of the Firm, owe a fiduciary duty to, among others, the clients of the Firm to conduct their affairs, including their personal securities transactions, in such a manner as to avoid (i) serving their own personal interests ahead of clients; (ii) taking inappropriate advantage of their position with the Firm; and (iii) any actual or potential conflict of interest or any abuse of their position of trust and responsibility. This fiduciary duty includes the duty of the Chief Compliance Officer of the Firm to report violations of this Code of Ethics to the Firm’s Board of Directors and the Board of Directors of any Managed Fund. This Code of Ethics is designed to:
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Protect the Firm’s clients by deterring misconduct;
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Educate employees regarding the Firm’s expectations and the laws governing their conduct;
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Remind employees that they are in a position of trust and must act with complete propriety at all times;
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Protect the reputation of the Firm;
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Guard against violation of the securities laws; and
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Establish procedures for employees to follow so that the Firm may determine whether employees are complying with its ethical principles.
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I.
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Statement of General Principles
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In recognition of the trust and confidence placed in Analytic Investors by its clients and to give effect to Analytic Investors’ belief that its operations should be directed to benefit its clients, Analytic Investors hereby adopts the following general principles to guide the actions of its employees, officers, and directors:
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1.
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The interests of clients are paramount. All Analytic Investors personnel must conduct themselves and their operations to give maximum effect to this tenet by at all times placing the interests of clients before their own.
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2.
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All personal transactions in securities by Analytic Investors personnel must be accomplished so as to avoid even the appearance of a conflict of interest on the part of such personnel with the interests of any client.
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3.
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All Analytic Investors personnel must avoid actions or activities that allow (or appear to allow) a person to profit or benefit from his or her position with respect to a client, or that otherwise bring into question the person’s independence or judgment.
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4.
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All information concerning the specific security holdings and financial circumstances of any client is strictly confidential. Access persons are expected to maintain such confidentiality, secure such information and disclose it only to other employees with a need to know that information.
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5.
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All personnel will conduct themselves honestly, with integrity and in a professional manner to preserve and protect the Firm’s reputation.
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Federal law requires that this Code of Ethics not only be adopted but that it must also be enforced with reasonable diligence. The Chief Compliance Officer will keep records of any violation of the Code of Ethics and of the actions taken as a result of such violations. Failure to comply with the Code of Ethics may result in disciplinary action, including termination of employment. Noncompliance with the Code of Ethics has severe ramifications, including enforcement actions by regulatory authorities, criminal fines, civil injunctions and penalties, disgorgement of profits and sanctions on your ability to be employed in an investment advisory business or in a related capacity.
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1.
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“access person” includes any employee designated by the Chief Compliance Officer, or a designated compliance associate, who:
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1.
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has access to nonpublic information regarding any client’s purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any investment company the Firm or its control affiliates manage;
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2.
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is involved in making securities recommendations to clients, or has access to such recommendations that are nonpublic; or
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3.
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is a director or officer of the Firm (or other person occupying a similar status or performing a similar function)
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As the nature and philosophy of the Firm tends to expose a large range of employees to client information, all employees (including temporary workers, consultants or independent contractors of the Firm designated by the Chief Compliance Officer) are treated as access persons and, likewise, are subject to the pre-clearance and/or reporting requirements outlined below.
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2.
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“beneficial ownership” of a security is to be determined in the same manner as it is for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This means that a person should generally consider himself or herself the beneficial owner of any securities in which he or she has a direct or indirect pecuniary interest. In addition, a person should consider himself or herself the beneficial owner of securities held by (i) his or her spouse or domestic partner, (ii) minor children, (iii) a relative who shares his or her home, (iv) a trust, estate, or other account in which he/she has a present or future interest in the income, principal or right to obtain title to the securities, or (v) other persons by reason of any contract, arrangement, understanding, or relationship that provides him or her with sole or
shared voting or investment power over the securities held by such person.
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3.
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“Chief Compliance Officer” refers to the individual appointed by the Firm’s Board of Directors to oversee its Code of Ethics.
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4.
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“control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Ownership of 25% or more of a company’s outstanding voting securities is presumed to give the holder of those securities control over the company. This is a rebuttable presumption, and it may be countered by the facts and circumstances of the given situation. Any person who does not so own more than 25% of the voting securities of any company shall be presumed not to control such company. A natural person shall not be presumed to be a controlled person.
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5.
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“client” means any Fund, a series of any Fund, or a separately managed investment management account for whom Analytic Investors acts as investment adviser or subadviser.
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6.
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“disclosable transaction” means any transaction in a security pursuant to which an access person would have a beneficial ownership, as well as any transaction in any Fund.
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7.
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“Fund” means any investment company registered under the Act.
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8.
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“initial public offering” means an offering of securities registered under the Securities Act of 1933, as amended (the “1933 Act”), the issuer of which, immediately before the registration was not subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act. Limited offering means an offering that is exempt from registration under the Securities Act pursuant to Section 4(2) or Section 4(6) or Rules 504, 505, or 506 under the Securities Act. Limited offerings are commonly referred to as private placements.
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9.
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“investment personnel” means (i) any portfolio manager and (ii) research analysts, traders and other personnel who provide information and/or advice to any portfolio manager, or who execute or help execute any portfolio manager’s decisions or who otherwise in connection with his or her regular functions or duties makes or participates in making recommendations regarding the purchase or sale of securities by the Firm. Investment personnel also includes any natural person who controls the Firm and who obtains current information concerning recommendations regarding the purchase and sale of securities by the Firm.
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10.
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A “Managed Fund” is any Fund advised/subadvised by Analytic Investors.
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11.
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A “managed limited partnership” is any limited partnership of which Analytic Investors or any affiliate of Analytic Investors is the general partner or for which Analytic Investors or any affiliate of Analytic Investors serves as investment adviser.
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12.
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“Nonresident Director” means any director of the Firm (or any employee of Old Mutual (US) Holdings Inc. who is also on the Board of Directors of any Fund advised by Claymore Advisors, LLC and for which the Firm is investment subadviser) who (a) is not an officer, employee or shareholder of the Firm, b) does not maintain a business address at the Firm and c) does not, in the ordinary course of his business, receive or have access to current information regarding the purchase or sale of securities by the Firm, information regarding recommendations concerning the purchase or sale of securities by the Firm or information regarding securities being considered for purchase or sale by the Firm.
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13.
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“person” means a natural person or a company.
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14.
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“personal account” means any securities account in which an access person or Nonresident Director has beneficial ownership. However, an access person’s personal account shall not include such access person’s interest in any managed limited partnership in which not more than 5% of the total interests are represented by investments of the direct portfolio manager(s) managing the partnership and not more than 10% of the total interests are represented by investments of all access persons in the aggregate. All similar managed limited partnerships will be viewed as a single entity for this purpose. A managed limited partnership will not be considered a personal account of Analytic Investors in its capacity as general partner of such partnership or as investment adviser to such partnership.
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15.
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“portfolio manager” means an employee of the Firm entrusted with the direct responsibility and authority to make investment decisions affecting the client accounts managed by the Firm.
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16.
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“purchase or sale of a security” includes, among other things, the purchase or sale of an option whose underlying instrument would be classified as a security.
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17.
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The designated “Review Officer” is the Chief Compliance Officer of Analytic Investors. Each of (i) the Chief Investment Officers of Analytic Investors, (ii) the President of Analytic Investors and (iii) the Chief Operating Officer of Analytic Investors is an “Alternate Review Officer.” In the absence of the Review Officer, an Alternate Review Officer shall act in all respects in the manner prescribed herein for the Review Officer. The Review Committee shall consist of the Review Officer and any two of the Alternate Review Officers.
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18.
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A “related security” is any security whose value directly fluctuates as a result of a change in the value of a security in the security universe.
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19.
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“security” any stock, bond, future, investment contract or any other instrument that is considered a “security” under the Advisers Act. The term also includes:
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•
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options on securities, on indexes and on currencies;
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•
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interests in limited partnerships (including limited liability and other companies that are treated as partnerships for U.S. federal income tax purposes);
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shares of foreign unit trusts and foreign mutual funds;
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shares of closed-end investment companies; and
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shares of and/or interests in private investment funds, hedge funds, investment clubs and any other pooled investment vehicles exempt from registration under the Act;
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5
but specifically does not include:
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direct obligations of the U.S. government;
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bankers’ acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements;
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shares issued by money market funds (domiciled inside or outside the United States);
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shares of open-end Funds that are not advised or subadvised by the Firm (or certain affiliates, where applicable); and
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shares issued by unit investment trusts that are invested exclusively in one or more open-end Funds, none of which are Managed Funds (or are advised or subadvised by certain affiliates, where applicable).
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20.
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A “security held or to be acquired” by a client means (i) any security which, within the most recent 15 days, (a) is or has been held by a client or (b) is being or has been considered by Analytic Investors for purchase for a client or (ii) any option to purchase or sell any security convertible into or exchangeable for a security described in (i) above.
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21.
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A security is “being purchased or sold” by a client from the time when a recommendation has been communicated to the persons who place the buy and sell orders for that client until the time when such program has been fully completed or terminated.
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22.
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“security universe” means only the securities held or to be acquired by Analytic Investors on behalf of its clients or the securities held by Analytic Investors’ clients.
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III.
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Prohibited Purchases and Sales of Securities
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1.
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No access person shall, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by any client:
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a)
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employ any device, scheme, or artifice to defraud such client;
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b)
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make to such client any untrue statement of a material fact or omit to state to such client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
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c)
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engage in any act, practice, or course of business that would operate as a fraud or deceit upon such client;
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d)
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engage in any manipulative practice with respect to such client; or
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e)
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engage in any manipulative practice with respect to securities, including price manipulation.
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2.
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Subject to certain exemptions in Section IV (2) of this Code, no access person (other than a Nonresident Director) may purchase or sell, directly or indirectly, a security for a personal account at the same time that the same security or a related security is in the security universe without prior written approval of the Review Committee. Subject to certain exemptions in Section IV (2) of this Code, no Nonresident Director may knowingly purchase or sell, directly or indirectly, a security for a personal account at the same time that the same security or a related security is in the security universe, without the prior written consent of the Review Committee.
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3.
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No access person shall reveal to any other person (except in the normal course of his or her duties on behalf of any client) any information regarding transactions in securities by any client or any such securities in the security universe.
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4.
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No access person shall recommend any transaction in securities by any client without having disclosed his or her interest, if any, in such securities or the issuer thereof, including without limitation:
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a)
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the access person’s beneficial ownership of any securities of such issuer;
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b)
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any contemplated transaction by the access person in such securities;
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c)
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any position the access person has with such issuer or its affiliates (for example, a directorship); and
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d)
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any present or proposed business relationship between such issuer or its affiliates, on the one hand, and the access person or any party in which the access person has a significant interest, on the other; provided, however, that in the event the interest of such access person in such issuer is not material to his or her personal net worth and any contemplated transaction by the access person in securities of such issuer cannot reasonably be expected to have a material adverse effect on any such transaction by any client or on the market for the securities generally, that access person shall not be required to disclose his or her interest in those securities or the issuer thereof in connection with any such recommendation.
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5.
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No access person (other than a Nonresident Director) shall acquire beneficial interest in any securities in an initial public offering (“IPO”) or other limited offerings commonly referred to as private placements, without prior written approval of the Review Committee. The Review Committee must maintain a record of any decision, and the reasons supporting the decision, to approve the access person’s acquisition of an IPO or private placement for at least five years after the end of the fiscal year in which the approval was granted. Before granting
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7
such approval the Review Committee will carefully evaluate such investment to determine that the investment creates no material conflict between the access person and the Firm or its clients. The Review Committee may make such determination by looking at, among other things, the nature of the offering and the particular facts surrounding the purchase. For example, the Review Committee may consider approving the transaction if the Review Committee can determine that: (i) the investment did not result from directing Firm business to the underwriter of the issuer of the security, (ii) the access person is not misappropriating an opportunity that should have been offered to a client, and (iii) the access person’s investment decisions for clients will not be unduly influenced by his or her personal holdings, and investment decisions are based solely on the best interests of clients. Any
person authorized to purchase security in an IPO or private placement shall disclose that investment when they play a part in the client’s subsequent consideration of an investment in that issuer. In such circumstances, the client’s decision to purchase securities of the issuer shall be subject to independent review by investment personnel with no personal interest in the issuer.
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6.
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No access person shall profit from the purchase and sale, or sale and purchase, of the same (or equivalent) security within a 60-day calendar day period. Trades made in violation of this prohibition will be unwound, if possible. Otherwise, any profits realized on such short-term trades shall be subject to disgorgement to the appropriate client portfolio..
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Exception: The Review Committee may allow exceptions to this policy on a case-by-case basis when the abusive practices that the policy is designed to prevent, such as front running or conflicts of interest, are not present and the equity of the situation strongly supports an exemption. An example is the involuntary sale of securities due to unforeseen corporate activity such as a merger. The ban on short-term trading profits is specifically designed to deter potential conflicts of interest and front running transactions, which typically involve a quick trading pattern to capitalize on a short-lived impact of a trade by one of the client portfolios. The Review Committee shall consider the policy reasons for the ban on short-term trades, as stated herein, in determining when an exception to the prohibition is permissible. The Review Committee may consider granting an exception to this
prohibition if the securities involved in the transaction are not eligible for inclusion in the security universe. In order for a proposed transaction to be considered for exemption from the short-term trading prohibition, the access person must complete, sign and submit to the Review Committee a completed Securities Transaction Report Relating to Short-Term Trading, certifying that the proposed transaction is in compliance with this Code of Ethics. The Review Officer shall retain a record of exceptions granted and the reasons supporting the decision.
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7.
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Subject to Section IV (2) of this Code, new employees who at the date of their employment own any security included in the security universe and current employees with a security holding that subsequently is included in the security universe are prohibited from engaging in any transaction which might be deemed to violate this Code.
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8.
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No access person shall sell for a profit a holding of a Managed Fund (including exchange redemptions) prior to 90 days of purchase.
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Exception: The holding period requirement will not apply to sales of money market funds or other fixed income funds appropriate for short-term investment, nor will it apply to certain types of “systematic” withdrawals such as automatic withdrawal plans, purchases of related Funds through directed dividends, periodic rebalancing or similar transactions.
The Review Committee may, at its discretion, grant exceptions to this holding period requirement on a case-by-case basis. Such exceptions will be documented by the Review Committee.
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9.
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No access person shall purchase common, preferred or any other shares or debt securities of a closed-end Managed Fund.
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IV.
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Pre-Clearance of Transactions
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1.
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Access persons are strongly encouraged to limit personal transactions to the purchase and sale of open-end Funds and exchange-traded funds. All proposed transactions in a security by an access person (other than a Nonresident Director) must be pre-approved by the Review Committee. All pre-clearance requests will be considered by the Review Committee, which will document all decisions.
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Except as provided in Section IV (2) of this Code, every access person (other than a Nonresident Director) must pre-clear each proposed transaction in a security with the Review Committee prior to proceeding with the transaction. No transaction in securities shall be effected without the prior written approval of the Review Committee. Pre-clearance approval will expire at the close of business on the trading date one business day after the date on which authorization is received. For example, pre-clearance received Friday at 9:00 a.m. would expire as of the close of business Monday. If the trade is not completed before such pre-clearance expires, the access person is required to again obtain pre-clearance for the trade. In addition, if an access person becomes aware of any additional information with respect to a transaction that was pre-cleared, such person is obligated to disclose that
information to the Review Committee prior to executing the pre-cleared transaction.
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2.
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The pre-clearance requirements of Section IV (1) shall not apply to purchases or sales of direct obligations of the Government of the Untied States, bankers’ acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (including repurchase agreements), shares of open-end Funds, and exchange-traded funds.
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V.
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Additional Restrictions and Requirements
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•
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A conflict of interest occurs when the personal interests of employees interfere or could potentially interfere with their responsibilities to the Firm and its clients. No access person shall accept or receive any gifts, favors, entertainment or other things (“gifts”) of more than de minimis value from any person or entity that does business with Analytic Investors. Similarly, no access person shall offer gifts, favors, entertainment or other things of more than de minimis value that could be viewed as overly generous or aimed at influencing decision-making or making a client feel beholden to the Firm or the access person. All gifts with a fair market value in excess of $100 are viewed as gifts of more than de minimis value and require pre-approval by the Review Officer. In addition, no investment personnel may receive gifts from the same source valued
at more than $500 per individual recipient on an annual basis. No access person or member of his or her immediate family may utilize the receipt of a gift when acting in a fiduciary capacity. This general principle applies in addition to the more specific following guidelines:
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Gifts: No access person shall receive any gift, service or other thing of more than de minimis value from any person or entity that does business with or on behalf of the Firm. No access person shall give or offer any gift of more than de minimis value to existing clients or any entity that does business with or on behalf of the Firm without pre-approval by the Review Officer.
Cash: No access person shall give or accept cash gifts or cash equivalents to or from a client, prospective client or any entity that does business with or on behalf of the Firm.
Entertainment: No access person shall provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of the Firm. Access persons may provide or accept a business entertainment event, such as dinner or a sporting event, of reasonable value, if the person or entity providing the entertainment is present.
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2.
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Because of the high potential for conflicts of interest and insider trading problems, the Firm carefully scrutinizes any access person’s service on a board of directors of a publicly traded company. No access person shall accept a position as a director, trustee, or general partner of a publicly traded company or partnership unless the acceptance of such position has been approved by the Review Officer as consistent with the interests of the Firm’s clients. Authorization
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of board service shall be subject to the implementation by the Firm of “Chinese Wall” or other procedures to isolate such investment personnel from making decisions about trading in that company’s securities.
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3.
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No access person shall knowingly buy or sell a security within seven calendar days before and two calendar days after any portfolio of the Firm trades in that security. Any trades made within the proscribed period will be unwound, if possible. Otherwise, any profits realized on trades within the proscribed period shall be disgorged to the appropriate client portfolio.
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4.
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Every access person must direct each brokerage firm or bank at which the access person maintains a personal account to send duplicate copies of confirmations of all disclosable transactions and copies of periodic statements for all such accounts promptly to Analytic Investors. Compliance with this provision can be effected by the access person providing duplicate copies of all such statements directly to Analytic Investors. A Nonresident Director may direct each brokerage firm or bank at which he maintains a personal account to send duplicate copies of confirmations of all disclosable transactions or copies of periodic statements for all such accounts promptly to Analytic Investors. A quarterly transactions report under Section IV need not be filed by a Nonresident Director if it would duplicate information contained in broker trade confirmations or account
statements received by Analytic Investors in the time period required for reporting and all necessary information is included.
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VI.
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Reporting Obligations
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1.
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Every access person and each Nonresident Director shall report all disclosable transactions in which such access person or Nonresident Director has, or by reason of such transaction acquires, any beneficial ownership in securities; provided, however, an access person or Nonresident Director shall not be required to make a report with respect to transactions effected for any account over which such person does not have any direct or indirect influence. Reports shall be filed with the Review Officer each quarter. The Review Officer shall submit confidential quarterly reports with respect to his or her own personal securities transactions to an Alternate Review Officer, who shall act in all respects in the manner prescribed herein for the Review Officer.
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All access persons and Nonresident Directors shall disclose to the Review Officer (i) all personal securities holdings (i.e., the title, number of shares and principal amount of each security in which the access person had any beneficial ownership interest when he or she became an access person, including securities acquired before the person became an access person) and (ii) all personal accounts (i.e., the name of any broker, dealer or bank with whom the access person maintained an account in which any securities were held for the direct or indirect benefit of the access person as of the day the person became an access person) within ten days after commencement of employment. Reporting of personal accounts should
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include accounts of open-end Funds and other instruments exempt from the definition of security herein.
In addition to reporting securities holdings and accounts, every access person or Nonresident Director shall certify in their initial report that (i) they have received, read and understand the Code of Ethics and recognize that they are subject thereto, and (ii) they have no knowledge of the existence of any personal conflict of interest relationship which may involve a client, such as any economic relationship between their transactions and securities held or to be acquired by any client portfolio.
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2.
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Every report shall be made not later than thirty days after the end of the calendar quarter in which the transaction to which the report relates was effected and shall contain the following information:
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a)
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the date of the transaction, the title and the number of shares, interest rate and maturity date (if applicable), trade date and the principal amount of each security involved;
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b)
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the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
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c)
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the price at which the transaction was effected;
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d)
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the name of the broker, dealer or bank with or through whom the transaction was effected; and
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e)
|
the date the report was submitted to the Review Officer.
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In addition, with respect to any account established by an access person or Nonresident Director in which any securities or Fund shares were held during the quarter for the direct of indirect benefit of the access person or Nonresident Director, the access person or Nonresident Director must provide (i) the name of the broker, dealer or bank with whom the access person or Nonresident Director established the account, (ii) the date the account was established, and (iii) the date the report is submitted by the access person or Nonresident Director.
This quarterly report shall be made on the Securities Transaction for the Calendar Quarter Ended form and shall be delivered to the Review Officer.
In the event an access person or Nonresident Director expects to be out of the office during the thirty-day period after the end of the calendar quarter, a quarterly transaction report may be submitted prior to the end of the calendar quarter. Under such circumstances, because the access person or Nonresident Director will be representing that the report contains all disclosable transactions as of the calendar quarter ended, the access person or Nonresident Director may not enter
12
into any personal securities transactions between the date of the early submission of the quarterly transaction report and the last day of the calendar quarter.
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3.
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Any such report may refer to the information contained in the statements required by Section VI (2) of this Code.
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4.
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Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any beneficial ownership in the security or securities to which the report relates.
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5.
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Every access person shall report the name of any publicly traded company (or any company anticipating a public offering of its equity securities) and the total number of its shares beneficially owned by him or her if such total ownership is more than 1/2 of 1% of the company’s outstanding shares.
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6.
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Every access person who owns securities acquired in a private placement shall disclose such ownership to the Review Officer if such person is involved in any subsequent consideration of an investment in the issuer by a client. Analytic Investors’ decision to recommend the purchase of such issuer’s securities to any client will be subject to independent review by investment personnel with no personal interest in the issuer.
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7.
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In the event that no disclosable transactions occurred during the quarter, the report should be so noted and returned signed and dated.
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8.
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Every access person and Nonresident Director shall disclose to the Review Officer all personal securities holdings, personal holdings of a Fund and personal accounts as of the calendar year ended within 30 days after year-end. In addition to reporting securities holdings, every access person shall certify annually that he or she:
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a)
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has received, read and understands the Firm’s Code of Ethics and recognized that he/she is subject to it;
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b)
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has complied with the Code;
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c)
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has disclosed and reported all disclosable transactions;
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d)
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has not disclosed pending “buy” or “sell” orders for a client to any employees of any other management company, except where the disclosure occurred subsequent to the execution or withdrawal of an order; and
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e)
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has no knowledge of the existence of any personal conflict of interest relationship which may involve a client, such as economic relationship between his or her transactions and securities held or to be acquired by any client portfolios.
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This annual certification shall be made on the Annual Report of Access Person form and shall be delivered to the Review Officer.
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9. Analytic Investors shall provide access persons with any amendments for its Code of Ethics and access persons shall submit written acknowledgement that they have received, read, and understand the amendments to the Code. The Firm and members of its compliance staff will make every attempt to highlight important changes for employees.
10. All access persons must report violations of the Firm’s Code of Ethics promptly to the Chief Compliance Officer. Any reports pursuant to the Firm’s Code of Ethics will be treated confidentially to the extent permitted by law and investigated promptly and appropriately. Access persons may submit any violation report referenced herein anonymously. The Firm encourages access persons to report “apparent” or “suspected” violations of the Code of Ethics in addition to actual or known violations of the Code. Retaliation against any access person who reports a violation with respect to the Firm’s Code of Ethics is prohibited and constitutes a further violation of this Code.
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VII.
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Review and Enforcement
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1.
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The Review Officer or, in his or her absence, an Alternate Review Officer has been designated with the responsibility of reviewing and monitoring personal securities transactions and trading patterns of the Firm’s access persons. The review of personal securities holding and transaction reports by access persons will include: (i) an assessment of whether the access person followed any required internal procedures, such as pre-clearance; (ii) comparison of personal trading to any restricted lists; (iii) an assessment of whether the access person is trading for his or her own account in the same securities he or she is trading for clients and if so, whether the clients are receiving terms as favorable as the access person takes for himself or herself; (iv) periodically analyzing the access person’s trading for patterns that may indicate abuse, including
market timing; and (v) investigation of any substantial disparities between the percentage of trades that are profitable when the access person trades for his or her own account and the percentage that are profitable when he or she places trades for clients.
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Determination of whether a violation of this Code may have occurred will be made by the Review Officer. Before making any determination that a violation has been committed by any person, the Review Officer shall give such person an opportunity to supply additional explanatory material.
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2.
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If the Review Officer determines that a violation of this Code may have occurred, he or she shall submit his or her determination, and any additional explanatory material provided by the individual, to an Alternate Review Officer, who shall make an independent determination as to whether a violation has occurred.
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3.
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If the Alternate Review Officer finds that a violation has occurred, the Alternate Review Officer shall impose upon the individual such sanctions as he or she deems appropriate, including, but not limited to, a letter of censure, suspension or termination of the employment of the violator, or disgorgement of profits. There
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14
shall be no mandatory sanction for inadvertent non-compliance with the blackout trading restrictions set forth in Section III (2) or Section V (3).
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4.
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No person shall participate in a determination of whether he or she has committed a violation of this Code or of the imposition of any sanction against himself or herself. If a securities transaction of the Review Officer is under consideration, an Alternate Review Officer shall act in all respects in the manner prescribed herein for the Review Officer.
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Analytic Investors shall maintain records in the manner and to the extent set forth below, which records shall be available for examination by representatives of the Securities and Exchange Commission.
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1.
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A copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved;
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2.
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A record of any violation of the Code, and of any action taken as a result of such violation, shall be preserved for a period of not less than five years following the end of the fiscal year in which it was made;
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3.
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A record of all written acknowledgements of receipt of the Code and amendments for each person who is currently, or within the past five years was, an access person shall be preserved for a period of not less than five years following the date the individual ceases to be an access person of the Firm;
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4.
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A copy of each report made by an access person or Nonresident Director pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it was made;
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5.
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A list of all persons who are, or within the past five years, have been required to make reports pursuant to this Code and a list of all persons who were responsible for reviewing the reports shall be maintained;
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6.
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Each memorandum made by the Review Officer hereunder for a period of five years from the end of the fiscal year in which it was made;
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7.
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A record of any decision and supporting the reason(s) for approving the acquisition of securities by access persons in IPOs and limited offerings for at least five years after the end of the fiscal year in which approval was granted; and
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8.
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A copy of every report provided to a Managed Fund’s Board of Directors by the Firm which describes any issue arising under this Code and certifies that the Firm has adopted procedures reasonably necessary to prevent access persons from violating this Code.
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15
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1.
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Reports submitted pursuant to this Code of Ethics shall be confidential and shall be provided only to those employees of the Firm with a need to know the contents thereof, officers and directors of the Firm, chief compliance officers of any Managed Fund, counsel and/or regulatory authorities upon appropriate request.
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2.
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Analytic Investors may from time to time adopt such interpretations of this Code as it deems appropriate.
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3.
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The Review Officer shall prepare a report to Analytic Investors’ Board of Directors, upon request, as to the operation of this Code and shall address in any such report the need (if any) for further changes or modifications to this Code.
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4.
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The Review Officer shall provide to the Chief Compliance Officer of any Managed Fund any reports required under the Fund’s Code of Ethics.
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5.
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The Firm will include on Schedule F of Form ADV, Part II a description of the Firm’s Code of Ethics, and the Firm will provide a copy of its Code of Ethics to any client or prospective client upon request.
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Adopted this 3
rd
day of December, 1998
Dated: December 3, 1998
Amended: July 26, 2000
2
nd
Amendment: August 28, 2001
3
rd
Amendment: July 15, 2004
4
th
Amendment: September 30, 2005
16
POLICIES AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
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Section I.
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Policy Statement On Insider Trading
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Analytic Investors, Inc. (“Analytic Investors”) seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in mutual funds and advisory accounts advised by Analytic Investors is something we value and endeavor to protect. To further that goal, this Policy Statement prescribes procedures to deter the misuse of material, nonpublic information in securities transactions.
Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to severe penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years’ imprisonment. The Securities and Exchange Commission (the “SEC”) can recover the profits gained or losses avoided through the violative trading, impose a penalty of up to three times the illicit windfall and can permanently bar you from the securities industry. Finally, you may be sued by those seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, Analytic Investors views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including immediate dismissal.
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B.
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Scope of the Policy Statement
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This Policy Statement is drafted broadly and will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by directors, officers and employees of Analytic Investors (including spouses, domestic partners, minor children and adult members of their households).
The law of insider trading is continuously evolving and an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, your asking a single question can help avoid disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the Chief Compliance Officer. You also must notify the Chief Compliance Officer immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur.
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C.
Policy Statement on Insider Trading
The nature and style of the investment process conducted at Analytic Investors does not rely upon nonpublic information, whether material or not. Proprietary analysis performed on public information is not generally considered to be inside information, and as such Analytic Investors personnel can be confident that trading for a client account based on our proprietary analysis will not be regarded as insider trading. All relevant restrictions in the Code of Ethics regarding the use of Analytic Investors’ proprietary analysis for personal trading still apply. No person to whom this Policy Statement applies, including you, may trade, either personally or on behalf of others (such as for mutual funds and private accounts managed by Analytic Investors), while in possession of material, nonpublic information; nor may you communicate material, nonpublic information to others in violation of the law. This section
sets forth principles important to the Policy Statement.
Information is “material” when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information the disclosure of which will have a substantial effect on the price of a company’s securities. No simple “bright line” test exists to determine when information is material; assessment of materiality involves a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the Chief Compliance Officer.
Material information often relates to a company’s results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.
Material information also may relate to the market for a company’s securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. For example, the Supreme Court upheld the criminal convictions of insider trading defendants who capitalized on prepublication information about
The Wall Street Journal
’s “Heard on the Street” column.
Information is “public” when it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones “tape” or
The Wall Street Journal
, some other publication of general circulation, or a public internet website and after sufficient time has passed so that the information has been disseminated widely.
18
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3.
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Identifying Inside Information
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Before executing any trade for yourself or others, including investment companies or private accounts managed by Analytic Investors, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps:
(i.) Report the information and proposed trade immediately to the Chief Compliance Officer or, in his or her absence, the Chief Operating Officer.
(ii.) Do not purchase or sell the securities on behalf of yourself or others, including investment companies or private accounts managed by Analytic Investors.
(iii.) Do not communicate the information inside or outside Analytic Investors, other than to the Chief Compliance Officer or, in his or her absence, the Chief Operating Officer.
(iv.) After the Chief Compliance Officer has reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action the firm should take, if any.
You should consult with the Chief Compliance Officer before taking any action. This degree of caution will protect you, the Firm’s clients and the Firm.
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4.
|
Contacts with Public Companies
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For Analytic Investors, direct contact with public companies does not represent an important part of the Firm’s research efforts. Material, nonpublic information of a sort that might arrive through direct company contact may arrive to Analytic Investors, however, through brokers, research services, or other market contacts. Employees are advised that such information is not germane to Analytic Investors’ style of investment management. Such information should not influence trading of client accounts, should not be used to conduct personal transactions, and should not be passed on to others.
Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company’s securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule that expressly forbids trading and “tipping” while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Analytic Investors employees and others subject to this Policy Statement should exercise particular caution any time they become aware of nonpublic information relating to a tender offer.
19
|
Section II.
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Procedures To Implement The Policy Statement On Insider Trading
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|
A.
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Procedures to Implement Analytic Investors’ Policy against Insider Trading
|
The following procedures have been established to aid the officers, directors and employees of Analytic Investors in avoiding insider trading and to aid Analytic Investors in preventing and detecting against insider trading and imposing appropriate sanctions against violations of the firm’s policies. Every officer, director and employee of Analytic Investors must follow these procedures or risk serious sanctions, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures, you should consult the Chief Compliance Officer.
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1.
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Personal Securities Trading
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All officers, directors and employees of Analytic Investors (except Nonresident Directors, as that term is defined in Analytic Investors’ Code of Ethics) must direct each brokerage firm or bank at which they maintain a securities account to send duplicate confirmations of all disclosable transactions and copies of periodic statements for all disclosable transaction accounts promptly. Compliance with the provision can be effected by these persons providing duplicate copies of all such statements directly to Analytic Investors. In addition all access persons (as defined in Analytic Investors’ Code of Ethics) are subject to quarterly transaction reporting requirements and annual holdings disclosure to the Chief Compliance Officer.
All officers, directors and employees of Analytic Investors (except Nonresident Directors, as that term is defined in Analytic Investors’ Code of Ethics) shall obtain clearance from the Review Committee prior to effecting any relevant securities transaction in which they, or members of their immediate families (including spouses, domestic partners, minor children and adults living in the same household), or as the officer, director or employee of trusts of which they are trustees or in which they have a beneficial interest, are parties. The Review Committee, as appropriate, shall promptly notify the officer, director or employee of clearance or denial of clearance to trade. Notification of approval or denial to trade may be given orally; however, it shall be confirmed in writing within 24 hours of the oral notification. Such notification must be kept strictly confidential.
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2.
|
High-Risk Trading Activities
|
Certain high-risk trading activities, if used in the management of an Analytic Investors officer’s, director’s or employee’s personal trading portfolio, are risky not only because of the nature of the securities transactions themselves, but also because of the potential that an action necessary to close out the transactions may become prohibited during the pendency of the transactions. Examples of such activities include short sales of common stock and trading in derivative instruments such as option contracts to purchase (call) or sell (put) securities at certain predetermined prices. Analytic Investors’ officers, directors
20
and employees should understand that short sales and trading in derivative instruments involve special risks - derivative instruments, for example, ordinarily have greater price volatility than the underlying security. The fulfillment of the obligations owed by each officer, director and employee to Analytic Investors may heighten those risks. For example, if Analytic Investors becomes aware of material, nonpublic information about the issuer of the underlying securities, Analytic Investors personnel may find themselves “frozen” in a position in a derivative security. Analytic Investors will not bear any losses resulting in any personal account because of this Policy Statement and its procedures.
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3.
|
Restrictions on Disclosures
|
Access persons shall not disclose any nonpublic information (whether or not it is material) relating to Analytic Investors or its securities transactions to any person outside the Firm (unless such disclosure has been authorized by Analytic Investors). Material, nonpublic information may not be communicated to anyone, including persons within Analytic Investors, with the exception of the Chief Compliance Officer or, in his or her absence, the Chief Operating Officer. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted and conversations regarding such information, if appropriate at all, should be conducted in private to avoid potential interception.
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Section III.
|
Supervisory Procedures
|
|
A.
|
Supervisory Procedures
|
Analytic Investors has assigned the Chief Compliance Officer the primary responsibility for the implementation and maintenance of Analytic Investors’ policy and procedures against insider trading. The Firm’s supervisory procedures can be divided into two classifications - prevention of insider trading and detection of insider trading.
|
|
1.
|
Prevention of Insider Trading
|
To prevent insider trading, the Chief Compliance Officer will:
(i.) provide, on a regular basis, an educational program to familiarize officers, directors and employees with Analytic Investors’ policy and procedures;
|
(ii.)
|
answer questions regarding Analytic Investors’ policy and procedures;
|
(iii.) resolve issues of whether information received by an officer, director or employee of Analytic Investors is material and nonpublic and determine what action, if any, should be taken;
(iv.) review on a regular basis and update as necessary Analytic Investors’ policy and procedures;
21
(v.) when it has been determined that an officer, director or employee of Analytic Investors has material, nonpublic information:
|
1.
|
implement measures to prevent dissemination of such information, and
|
2. if necessary, restrict officers, directors and employees from trading the implicated securities; and
(vi.) as a member of the Review Committee, promptly review, and either approve or disapprove, in writing, each request of an officer, director or employee for clearance to trade in specified securities.
|
|
2.
|
Detection of Insider Trading
|
To detect insider trading, the Chief Compliance Officer will:
(i.) review the trading activity reports filed by each officer, director, and employee;
(ii.) review the trading activity of mutual funds and private accounts managed by Analytic Investors;
(iii.) promptly investigate all reports of any possible violation of Analytic Investors’ Policy and Procedures to Detect and Prevent Insider Trading; and
(iv.) coordinate the review of such reports with other appropriate officers, directors or employees of Analytic Investors.
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3.
|
Special Reports to Management
|
Promptly upon learning of a potential violation of Analytic Investors’ Policy and Procedures to Detect and Prevent Insider Trading, the Chief Compliance Officer should prepare a written report to management providing full details, which may include (1) the name of particular securities involved, if any; (2) the date(s) the Chief Compliance Officer learned of the potential violation and began investigating; (3) the accounts and individuals involved; (4) actions taken as a result of the investigation, if any; and (5) recommendations for further action.
|
|
4.
|
General Reports to Management and/or the Board of Directors
|
On an as-needed or periodic basis, Analytic Investors may find it useful for the Chief Compliance Officer to prepare a written report to the management and/or the Board of Directors of Analytic Investors setting forth some or all of the following:
|
(i.)
|
a summary of existing procedures to detect and prevent insider trading;
|
|
(ii.)
|
a summary of changes in procedures made in the last year;
|
22
(iii.) full details of any investigation since the last report (either internal or by a regulatory agency) of any suspected insider trading, the results of the investigation and a description of any changes in procedures prompted by such investigation;
(iv.) an evaluation of the current procedures and a description of anticipated changes in procedures; and
(v.) a description of Analytic Investors’ continuing educational program regarding insider trading, including the dates of such programs since the last report to management.
The Chief Compliance Officer must notify or clear his/her own proposed transactions with an Alternate Review Officer (as defined in the Code of Ethics).
23