DESCRIPTION OF CERTAIN INVESTMENT STRATEGIES AND RISKS

The following investment strategies and policies supplement each Fund’s investment strategies and policies set forth in the Prospectus. Some of the investment strategies and policies described in this Statement of Additional Information and in the Prospectus set forth percentage limitations on a Fund’s investment in, or holdings of, certain securities or other assets. Except where otherwise required by law, compliance with these strategies and policies will be determined immediately after the acquisition of such securities or assets by the Fund, and any subsequent changes in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Fund’s investment strategies and policies.

Lending Portfolio Securities

Each Fund may lend its portfolio securities to broker-dealers and financial institutions such as banks and trust companies, up to a maximum of one-third of its net assets, as a means of enhancing its return. The Advisor will monitor the creditworthiness of firms to which the Fund lends its securities. Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by the Fund. The Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return on the collateral. The Fund would have the right to call the loan and obtain the securities loaned at any time. The Fund would not have the right to vote the securities during the existence of the loan, but would call the loan to permit voting of securities during the existence of the loan if, in the Advisor’s judgment, a material event requiring a shareholder vote would otherwise occur before the loan was repaid. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays in liquidating the loan collateral or recovering the loaned securities and losses including (a) possible decline in the value of the collateral or in the value of the securities loaned during the period while the Fund seeks to enforce its rights thereto, (b) possible subnormal levels of income and lack of access to income during this period and (c) expenses associated with enforcing its rights.

Repurchase Agreements

Each Fund may from time to time enter into repurchase agreements. Repurchase agreements involve the sale of securities to a Fund with the concurrent agreement of the seller (a bank or securities dealer) to repurchase the securities at the same price plus an amount equal to an agreed-upon interest rate within a specified time, usually less than one week, but on occasion for a longer period. The Funds may enter into repurchase agreements with broker-dealers who are recognized by the Federal Reserve Bank of New York as primary dealers in U.S. Government securities, and with banks. When a Fund enters into a repurchase agreement, the value of the underlying security, including accrued interest, will be equal to or will exceed the value of the repurchase agreement and, in the case of repurchase agreements exceeding one day, the seller will agree that the value of the underlying security, including accrued interest, will at all times be equal to or will exceed the value of the repurchase agreement. If the seller of the repurchase agreement enters a bankruptcy or insolvency proceeding, or if the seller fails to repurchase the underlying security as agreed, a Fund could experience losses that include (a) possible decline in the value of the underlying security during the period that the Fund seeks to enforce its rights with respect thereto, and possible delay in the enforcement of such rights, (b) possible loss of all or a part of the income or proceeds of the repurchase, (c) additional expenses to the Fund in connection with enforcing those rights, and (d) possible delay in the disposition of the underlying security pending court action or possible loss of rights in such securities. The Advisor intends to cause the Funds to invest in repurchase agreements only when the Advisor determines that the Funds should invest in short-term money market instruments and that the rates available on repurchase agreements are favorable as compared to the rates available on other short-term money market instruments or money market mutual funds, circumstances that the Advisor does not anticipate will occur in the near future. The Advisor does not currently intend to invest the assets of any Fund in repurchase agreements if, after doing so, more than 5% of the Fund’s net assets would be invested in repurchase agreements.

Variable and Floating-Rate Securities

Each Fund may invest in variable and floating-rate securities. Variable-rate securities provide for a periodic adjustment to the interest rate paid on the obligations. These interest-rate adjustments are based upon an adjustment index that is provided for in the respective obligations. Adjustment intervals may occur at regularly scheduled intervals, ranging from daily to annually, or may be based upon the occurrence of events such as a change in the prime rate.

The interest rate on a floating-rate security is a variable rate that is tied to another interest rate, such as a money-market index or U.S. Treasury bill rate. The interest rate on a floating-rate security resets periodically, typically every six months. Its floating or variable rate may be determined by reference to a known lending rate, such as a bank’s prime rate or to the London InterBank Offered Rate (LIBOR).

Variable and floating-rate securities held by the Bond Fund generally are less sensitive to changes in interest rates, but changes in the interest rates of these securities may lag changes in market rates. Variable and floating-rate securities may also decline in value if their interest rates do not rise to the same degree or as fast as interest rates in general. The interest rate on an inverse floating-rate debt security resets in the opposite direction from the market rate of interest to which the security is indexed. An inverse floating-rate security may exhibit greater price volatility than a fixed-rate obligation of similar credit quality.

When-Issued and Delayed-Delivery Transactions

Each Fund may purchase or sell portfolio securities in when-issued and delayed-delivery transactions. In such transactions, instruments are bought or sold with payment and delivery taking place in the future in order to secure what is considered to be an advantageous yield or price to the Fund at the time of entering into the transactions. In such transactions, the payment obligations and the interest rate are fixed at the time the buyer enters into the commitment, although no interest accrues to the buyer prior to settlement of the transaction.

Consistent with the requirements of the 1940 Act, securities purchased on a when-issued and delayed-delivery basis are recorded as an asset (with the purchase price being recorded as a liability) and are subject to changes in value based upon changes in the general level of interest rates.

At the time of delivery of the security, the value may be more or less than the transaction price. To the extent a Fund remains substantially fully invested at the same time that it has entered into such transactions, which the Fund would normally expect to do, there will be greater fluctuations in the market value of the Fund’s assets than if the Fund set aside cash to satisfy the purchase commitment. However, each Fund will maintain designated liquid assets with a market value, determined daily, that are at least equal to the amount of commitments for when-issued and delayed-delivery securities, and such assets will be earmarked specifically for the settlement of such commitments.

Each Fund will only make commitments to purchase portfolio securities on a when-issued or delayed-delivery basis with the intention of actually acquiring the securities, and not for the purpose of investment leverage, but the Funds reserve the right to sell the securities before the settlement date if doing so is deemed advisable. The Funds do not currently intend to purchase securities in when-issued or delayed-delivery transactions if, after such purchase, more than 20% of their respective net assets would consist of when-issued and delayed-delivery securities.

Illiquid Securities

No Fund will invest more than 15% of the value of its net assets in securities which are illiquid, including some types of restricted securities, securities for which there are no readily available market quotations and repurchase agreements providing for settlement later than seven days after notice. For the purposes of this restriction, the Funds do not consider variable rate demand notes to be restricted securities. See “Variable-Rate Demand Notes” below.

While these holdings may offer more potential for growth, they may also present a higher degree of business and financial risk, which can result in substantial losses. The Funds may have difficulty valuing these holdings and may be unable to sell these holdings at the time or price desired. Restricted securities that are eligible for resale to certain institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, are treated as liquid securities. See “Rule 144A Securities” below.

Rule 144A Securities

The Funds may invest in Rule 144A securities, which are restricted securities that are eligible for resale under certain circumstances to certain institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Rule 144A securities frequently trade in an active secondary market and are treated as liquid under procedures approved by the Board of Directors. However, because of the resale restrictions on Rule 144A securities, there is a greater risk that they will become illiquid than securities registered with the SEC.

Variable-Rate Demand Notes

Each Fund may purchase variable-rate demand notes, which are unsecured instruments that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate. Although the notes are not normally traded and there may be no secondary market in the notes, the notes allow the Funds to demand payment of principal and accrued interest at any time. The investment policy of each Fund is to purchase variable-rate demand notes only if, at the time of purchase, the issuer has unsecured debt securities outstanding that are rated within the two highest rating categories by Standard & Poor’s, Moody’s Investors Service, Inc., or Fitch Ratings Inc.

Mortgage-Backed Securities

Each Fund may invest in mortgage-related securities, which include securities that represent interests in pools of mortgage loans made by lenders such as savings and loan institutions, mortgage bankers, commercial banks and others, as well as dollar roll transactions.

Pools of mortgage loans are combined for sale to investors (such as the Funds) by various governmental and government-related entities, as well as by commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other private issuers. These pools generally provide for a “pass-through” of monthly payments made by individual borrowers on their residential mortgage loans, net of any fees paid to the issuer or guarantor of the securities.

The Government National Mortgage Association (“GNMA”) is the principal government guarantor of mortgage-related securities. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, timely payment of principal and interest on securities it approves that are backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. GNMA securities are described as “modified pass-through” in that they provide a monthly payment of interest and principal payments owed on the mortgage pool, net of certain fees, regardless of whether the mortgagor actually makes the payment. Other government-related guarantors of these securities include the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). FNMA and FHLMC securities are guaranteed as to payment of principal and interest by those agencies or instrumentalities, but are not backed by the full faith and credit of the U.S. Government. With respect to private mortgage-backed securities, timely payment of principal and interest of these pools is supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. There can be no assurance that private insurers or guarantors can meet their obligations under such policies.

Certain mortgage-backed securities purchased by the Funds provide for a prepayment privilege and for amortized payments of both interest and principal over the term of the security. The yield on the original investment in such securities applies only to the unpaid principal balance, as the Fund must reinvest the periodic payments of principal at prevailing market interest rates which may be higher or lower than the rate on the original security. In addition, the prepayment privilege may require the Fund to reinvest at lower yields than were received from the original investment. If these instruments are purchased at a premium in the market, and if prepayment occurs, such prepayments will be at par or stated value, which will result in reduced return on such transactions.

During periods of declining interest rates, prepayment of mortgages from underlying mortgage-backed securities can be expected to accelerate. Accordingly, the Funds’ ability to maintain positions in high-yielding mortgage-backed securities will be affected by reductions in the principal amount of such securities resulting from such prepayments, and its ability to reinvest the returns of principal at comparable yields will depend on prevailing interest rates at that time. The rate of prepayments is likely to affect the price and volatility of a mortgage-related security. Government actions, including legislative changes, could affect the manner in which the mortgage-related securities market functions, which could increase the likelihood that a Fund would realize losses on its investment in mortgage-related securities.

The mortgages underlying privately issued mortgage-related securities are not subject to the same underwriting standards as mortgage-related securities comprised of a pool of mortgages underwritten with a guaranty of a government or government-sponsored entity; they therefore often carry greater credit risk and weaker underwriting standards and have less favorable collateral than mortgage-related securities backed with such a government or government-sponsored entity guaranty. This creates a higher risk of defaults.

Collateralized mortgage obligations are debt obligations collateralized by mortgages and divided into classes, or “tranches,” that each bear different stated maturities and are entitled to different schedules for payments of principal and interest, including prepayments. Collateralized mortgage obligations may be less liquid and may experience greater price volatility than other kinds of mortgage-related securities.

In a mortgage dollar roll transaction, the Bond Fund sells mortgage securities and simultaneously agrees to repurchase substantially similar securities—securities that, among other characteristics, are collateralized by the same types of underlying mortgages, have identical net coupon rates and have similar original stated maturities—at a later date and at an agreed-upon price. The Bond Fund may enter into dollar roll transactions with respect to securities issued or to be issued by GNMA, FNMA and FHLMC. During the period between the sale and repurchase, the Fund forgoes principal and interest paid on the mortgage securities sold. The Fund is compensated by the interest earned on the cash proceeds of the initial sale and from negotiated fees paid by brokers offered as an inducement to the Fund to “roll over” its purchase commitments.

Dollar roll transactions may result in higher transaction costs or higher taxes for the Bond Fund. Dollar rolls will not be used for the purpose of leveraging the Bond Fund’s assets or with the intention of changing its risk profile.

Asset-Backed Securities

Each Fund may invest in asset-related securities. Asset-related securities have structural characteristics similar to mortgage-related securities but have underlying assets that are not mortgage loans or interests in mortgage loans. These securities represent fractional interests in, or are secured by and payable from, pools of assets such as motor vehicle installment sales contracts, installment loan contracts, equipment leases (including rolling stock and aircraft), leases of various types of real and personal property, and receivables from revolving credit (for example, credit card) agreements. Assets are securitized through the use of trusts and special purpose corporations that issue securities that are often backed by a pool of assets representing the obligations of a number of different parties. Repayments relating to the assets underlying the asset-backed securities largely depend on the cash flows generated by such assets. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancements associated with the securities. Payments or distributions of principal and interest on asset-backed securities may be supported by credit enhancements including letters of credit, an insurance guarantee, reserve funds and overcollateralization. Asset-backed securities have structures and characteristics similar to those of mortgage-backed securities; as a result, they are subject to many of the same risks as mortgage-backed securities, though often, to a greater extent.

The asset-related securities in which each Fund may invest include collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), other collateralized debt obligations (“CDOs”), and other similarly structured securities. These securities are trusts backed by assets that represent the obligations of various parties. CBOs are often backed by a pool of high-risk below-investment-grade fixed-income securities, including high-yield (junk) debt and residential and commercial privately issued mortgage-related securities. CLOs are typically collateralized by a pool of loans, which may be secured or unsecured and which may include loans that are rated below investment grade or that are of equivalent quality but are unrated. CBOs, CLOs, and other CDOs are divided into multiple portions, or “tranches,” of seniority that vary in their risk and yield profiles. The “equity” tranche protects the other more senior tranches from default in most circumstances by bearing the bulk of defaults from the bonds or loans in the trust. More senior tranches typically carry higher ratings and lower yields than their underlying securities, and are sometimes rated investment grade. However, even the more senior tranches can experience substantial losses.

The degree of risk of an investment in a CBO, CLO or other CDO is largely driven by the class of the instrument in which a Fund invests as well as the type of the collateral securities. CBOs, CLOs, and other CDOs are typically restricted securities under the securities laws, though they may be Rule 144A securities and thus not considered illiquid. In addition to risks normally associated with fixed-income securities, they carry additional risks, including but not limited to deteriorating collateral quality and the possibility that distributions from collateral securities will be inadequate to make interest or other payments.

Zero-Coupon Bonds

Each Fund may invest in debt securities such as zero-coupon bonds that do not make regular cash interest payments, but that are instead issued at a discount to their principal or maturity value. While these securities do not pay current cash income, federal income tax law requires the holders of zero-coupon securities to include the portion of the original issue discount and other non-cash income on such securities accrued during that year in income each year. The Funds intend to pass along such interest as a component of the Funds’ distributions of net investment income.

High-Yield Debt Securities

The LargeCap Fund and MidCap Fund may invest up to 5% of their net assets in debt securities (including convertible securities) that are rated below investment grade, i.e., rated below “BBB” by S&P or Fitch or “Baa” by Moody’s, and the Bond Fund may invest up to 10% of its net assets in debt securities rated below investment grade. Such securities are commonly referred to as “junk bonds” or “high-yield/high-risk” securities. Non-investment-grade securities are considered to be speculative with regard to the issuer’s capacity to pay interest and repay principal. Such securities involve a significantly higher risk of issuer default or bankruptcy and are more sensitive to economic conditions than higher-rated securities. In addition, the secondary market for such securities may not be as liquid as the market for higher-rated securities. From time to time, each Fund’s assets represented by debt securities below investment grade may exceed the limits noted above due to changes in the value of those securities and/or the Fund as a whole and downgrades that occur after such securities were acquired. No Fund will acquire any debt securities rated below investment grade while its net assets that are represented by such securities exceed these limits.

Inflation-Linked Bonds

Each Fund may invest in fixed-income securities whose returns are intended to track the rate of inflation, as that rate is reflected by the Consumer Price Index (“CPI”). The Funds may invest in U.S. Treasury Inflation-Protected Securities (“TIPS”), as well as in other inflation-indexed bonds that are issued or guaranteed by the U.S. Government or its agencies or instrumentalities or that are issued by corporations. The periodic adjustment of TIPS bonds is tied to the CPI, an index that is calculated monthly by the U.S. Bureau of Labor Statistics and that measures changes in the cost of living based on components such as food, housing, transportation, and energy.

Like conventional bonds, inflation-indexed bonds generally pay interest at fixed intervals and return the principal at maturity; however, unlike conventional bonds, the principal or interest on an inflation-indexed bond is adjusted periodically to reflect changes in a specified inflation index. Inflation-indexed bonds are designed to preserve purchasing power over the life of the bond while paying a return over and above the rate of inflation. These bonds typically are issued at a fixed interest rate that is lower than that of conventional bonds of comparable maturity and quality, but the bonds generally retain their value against inflation over time. Interest on a TIPS bond is paid twice a year. While the interest rate is fixed, the amount of each interest payment varies because the principal is adjusted for inflation.

The current market value of inflation-indexed securities is not guaranteed and will fluctuate. If the CPI falls, the principal value of inflation-indexed securities (including TIPS bonds) will be adjusted downward, and because of this downward adjustment, the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. However, with respect to TIPS instruments, the U.S. Treasury guarantees repayment of the original bond principal upon maturity (as adjusted for inflation), even during a period of deflation.

Inflation-indexed securities are subject to interest-rate risk. As a result, the total return on these securities may not actually track the return on the inflation indices to which the inflation-indexed bonds held by the Fund are linked during every year. Market values of inflation-indexed bonds can be affected by changes in the market’s expectations with respect to inflation and by changes in real rates of interest. Furthermore, the CPI may not accurately reflect the true rate of inflation. If the market believes that the inflation indices to which the inflation-indexed bonds are linked do not accurately reflect the actual rate of inflation, the market value of those bonds could be adversely affected.

Inflation-indexed securities other than TIPS instruments may or may not provide a similar principal-protection guarantee that TIPS instruments do. If a guarantee of repayment of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

While inflation-indexed securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation—for example, due to changes in currency exchange rates— investors in these securities may not be protected to the extent that the bond’s measure of inflation does not reflect these increases.

Hybrid Instruments

A hybrid instrument, or hybrid, is an interest in an issuer that combines the characteristics of an equity security and a debt security. A hybrid may have characteristics that in many respects resemble a bond, stock, or other traditional investment, while also having prominent features that are normally associated with a different type of investment. In addition, hybrid instruments may be treated as a particular type of investment for one purpose, such as taxation, and as a different type of investment for a different purpose, such as securities regulation.

Hybrids can be used as an efficient means of pursuing a variety of investment goals, including increased total return, duration management, and currency hedging. Because hybrids combine features of two or more traditional investments, and may involve the use of innovative structures, hybrids present risks that may be similar to but greater than those associated with traditional investments having similar characteristics.

Examples of hybrid instruments include, without limitation, convertible securities; perpetual bonds, which are structured like fixed-income securities, have no maturity date, and may be characterized as debt or equity for certain regulatory purposes; capital contingent securities, which are fixed-income securities that are converted into stock if the issuer’s capital ratio falls below a predetermined level; and trust-preferred securities. 

Some hybrid securities have interest rates that are initially fixed but that at some point prior to maturity change to a floating interest rate. (See “Variable and Floating-Rate Securities”).  Because many of these securities are issued with a call feature that allows the issuer to redeem the securities prior to maturity, the transition to the floating rate may make these securities particularly susceptible to being called.   Such a redemption would require a Fund to identify alternative investment opportunities that may only be available on less desirable terms than the securities being called. Hybrid securities also may carry customized features in order to meet the particular needs of an issuer, and therefore be less liquid than more traditional securities without these customized features.

Convertible Securities

The LargeCap Fund and MidCap Fund may invest in convertible securities, including any bonds, debentures, notes, preferred stocks or other securities which may be converted into or exchanged for a specified amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. The only convertible securities in which the Bond Fund may invest are convertible debt securities, although the Bond Fund may hold other convertible securities due to the Fund obtaining such securities through a conversion, reorganization or other actions that do not involve the direct investment of the Fund in those securities. Convertible securities are hybrid securities that have characteristics of both bonds and stocks. Like bonds, convertible securities typically pay interest. Convertible securities also offer an investor the right to benefit from the capital appreciation potential of the underlying common stock upon exercise of the conversion feature.

The value of a convertible security is a function of its “investment value,” which is determined by its yield in comparison with the yields of other securities of comparable quality and maturity that do not have the conversion privilege, and its “conversion value,” which is the security’s worth if converted into the underlying common stock. Investment value is typically influenced by interest rates and the credit standing of the issuer. If interest rates go up, the investment value of the convertible security will generally go down, and vice versa. Conversion value is determined by the market price of the underlying common stock and generally decreases as the convertible security approaches maturity. As the market price of the underlying common stock goes down, the conversion value will tend to go down as well since the convertible security presents less opportunity for capital appreciation upon conversion.

Convertible securities are generally more secure than common stock but less secure than non-convertible debt securities such as bonds. Convertible securities are usually subordinate to bonds in terms of payment priority.

The LargeCap Fund and the MidCap Fund will only invest in preferred stock that is investment grade (that is, rated in one of the four highest rating categories by S&P, Moody’s, or Fitch).

Trust-Preferred Securities

Each Fund may invest in trust preferred securities. Trust preferred securities are hybrid securities that have characteristics of both subordinated debt and preferred stock. Generally, trust preferred securities are issued by a trust that is wholly owned by a financial institution or other corporate entity, typically a bank holding company. The financial institution creates the trust and owns all of the trust’s common securities. The trust uses the sale proceeds of its common and preferred securities to purchase subordinated debt issued by the financial institution. The financial institution uses the proceeds from the subordinated debt sale to increase its capital while the trust receives periodic interest payments from the financial institution for holding the subordinated debt. The trust uses the funds received to make dividend payments to the holders of the trust preferred securities. The primary advantage of this structure to the financial institution is that the trust preferred securities are treated by the financial institution as debt securities for tax purposes and as equity for the calculation of capital requirements.

Trust preferred securities typically bear interest at rates that are comparable to interest rates available on debt of a similarly rated issuer. Typical characteristics include long-term maturities, possible early redemption by the issuer, periodic fixed or variable interest payments, and maturities at face value. Holders of trust preferred securities have limited voting rights to control the activities of the trust and no voting rights with respect to the financial institution. The market value of trust preferred securities may be more volatile than those of conventional debt securities. Trust preferred securities may constitute restricted securities under the Securities Act of 1933 and therefore be less liquid because they may only be resold under Rule 144A or another exemption from registration. There can be no assurance as to the liquidity of trust preferred securities and the ability of holders, such as a Fund, to sell their holdings. In identifying the risks of the trust preferred securities, we will look to the condition of the financial institution as the trust typically has no business operations other than to issue the trust preferred securities. If the financial institution defaults on interest payments to the trust, the trust will not be able to make dividend payments to holders of its securities, such as a Fund.

Foreign Securities

Each Fund may invest in U.S. dollar-denominated debt obligations of foreign corporations and governments. Such securities may be subject to greater fluctuations in price than securities of domestic corporations. In addition, there may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic companies. With respect to certain foreign countries, particularly in emerging markets, there is a possibility of expropriation or confiscatory taxation, onerous government regulation, internal or external conflicts, diplomatic developments, or the imposition of sanctions, any of which could negatively affect investment in those countries.

Municipal Securities

Each Fund may invest in municipal securities, including taxable municipal securities. Municipal securities are issued by the states, territories and possessions of the United States, their political subdivisions (such as cities, counties and towns) and various authorities (such as public housing or redevelopment authorities), instrumentalities, public corporations and special districts (such as water, sewer or sanitary districts) of the states, territories, and possessions of the United States or their political subdivisions. In addition, municipal securities include securities issued by or on behalf of public authorities to finance various privately operated facilities, such as industrial development bonds, that are backed only by the assets and revenues of the non-governmental user (such as hospitals and airports).

Municipal securities are issued to obtain funds for a variety of public purposes, including general financing for state and local governments, or financing for specific projects or public facilities. Municipal securities are classified as general obligation or revenue bonds or notes. General obligation securities are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable from revenue derived from a particular facility, class of facilities, or the proceeds of a special excise tax or other specific revenue source, but not from the issuer’s general taxing power. Private activity bonds and industrial revenue bonds do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on whose behalf they are issued.

Municipal leases are entered into by state and local governments and authorities to acquire equipment and facilities such as fire and sanitation vehicles, telecommunications equipment, and other assets. Municipal leases (which normally provide for title to the leased assets to pass eventually to the government issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt-issuance limitations of many state constitutions and statutes are deemed to be inapplicable because of the inclusion in many leases or contracts of “non- appropriation” clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis.

Each Fund may invest in Build America Bonds, which are taxable municipal bonds for which an issuer receives federal subsidies for a portion of the issuer’s borrowing costs. Build America Bonds were issued through the Build America Bond program, which was created as part of the American Recovery and Reinvestment Act of 2009. Unlike most other municipal bonds, interest received on Build America Bonds is subject to federal income tax and may be subject to state tax—interest the Fund receives from its investments in Build America Bonds will be included in a Fund’s taxable income and distributed to shareholders as taxable ordinary income.

Although most municipal securities have high credit ratings, they still are subject to many of the risks of other fixed-income securities, including a risk of default. In addition, many municipal securities carry call provisions that allow the issuer to redeem the bond prior to its stated maturity, and such a redemption would require a Fund to identify alternative investment opportunities that may only be available on less desirable terms than the securities being called. Like all fixed-income securities, municipal securities are susceptible to fluctuations in interest rates.

The municipal securities of issuers in territories and possessions of the United States (including issuers in Puerto Rico, many of which have faced significant recent financial difficulties) may be subject to constitutional limits on tax increases and significant uncertainty regarding their ability to restructure debts in an organized manner, such as through the federal bankruptcy process.

Short Sales

Each Fund may effect short sales of securities. To effect a short sale, a Fund sells a security it does not own and simultaneously borrows the security, usually from a brokerage firm, to make delivery to the buyer. The Fund then is obligated to replace the borrowed security by purchasing it at the market price at some future date. Until the security is replaced, the Fund is required to pay the lender any accrued interest or dividends and may be required to pay a premium. Each Fund may also make short sales “against the box”, i.e., short sales made when the Fund owns securities identical to those sold short.

A Fund will realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. A Fund will incur a loss if the price of the security increases between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or interest the Fund may be required to pay in connection with a short sale. A short position may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged.

No Fund will effect a short sale if, as a result, the aggregate value of all of the Fund’s open short positions will exceed 5% of the value of the Fund’s net assets. To secure a Fund’s obligation to replace any borrowed security, the Fund either will place in a segregated account, or U.S. Bank, N.A., the custodian for the Funds (the “Custodian”), will segregate on its books and records, an amount of cash or liquid securities at such a level that (i) the amount so segregated plus the amount deposited with the broker as collateral will equal the current value of the security sold short, and (ii) the amount so segregated plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time it was sold short; or otherwise cover its short position in accordance with positions taken by the SEC.

Each Fund may only engage in short-sale transactions in securities listed on one or more national securities exchange (including the Nasdaq Stock Market).

A Fund will use short sales to limit its exposure to possible declines in the market value of its portfolio securities and to attempt to realize a gain.

Options and Futures

Each Fund may engage in transactions in options and futures contracts, which are types of derivative securities. Some options and futures strategies, including selling futures, buying put options and writing (selling) call options, tend to hedge a Fund’s investments against price fluctuations. Other strategies, including buying futures, writing (selling) puts and buying calls, tend to increase market exposure. Each Fund is limited to 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that does not exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the Commodities Futures Trading Commission.

The LargeCap Fund and MidCap Fund may purchase or write (sell) listed call options on stocks and stock indices. A call option on a stock gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying stock at a stated price if the option is exercised before a specific date. The premium paid to the writer is the consideration for undertaking the obligations under the option contract. A call option written (sold) by a Fund exposes the Fund during the term of the option to possible loss of an opportunity to realize appreciation in the market price of the underlying stock, or to possible continued holding of a stock which might otherwise have been sold to protect against depreciation in the market price of the stock.

The LargeCap Fund and MidCap Fund may purchase or write (sell) listed put options on stocks and stock indices. A put option on a stock gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying stock at a stated price if the option is exercised before a specific date.

An option on an index functions in the same way as a stock option, except that the option is only settled in cash.

Whenever a Fund does not own securities underlying an open option position in an amount sufficient to cover the position, or whenever a Fund has written (sold) a put, the Fund will maintain cash or cash equivalents in a segregated account with its Custodian sufficient to cover the exercise price or, with respect to index options, the market value, of the open position. The Fund may ultimately sell the option in a closing sale transaction, exercise it or permit it to expire.

Each Fund may purchase and sell exchange-traded futures contracts on stock indices. A futures contract on an index is an agreement by which one party agrees to accept delivery of, and the other party agrees to make delivery of, an amount of cash equal to the difference between the value of the underlying index at the close of the last trading day of the futures contract and the price at which the contract originally was written. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of those securities is made.

When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its Custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities (an “initial margin”). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is akin to a performance bond or good-faith deposit on the futures contract and is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. Each Fund expects to earn interest income on its initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day a Fund pays or receives cash, called “variation margin,” equal to the daily change in value of the futures contract. This process is known as “marking to market.” Variation margin does not represent a borrowing or loan by a Fund, but is instead a settlement between the Fund and the broker of the amount one of the parties would owe the other if the futures contract had expired. In computing daily net asset value, each of the Funds will mark to market all of its open futures positions.

While a Fund maintains an open futures position, the Fund must maintain with its Custodian, in a segregated account, assets with a market value sufficient to cover the Fund’s exposure on the position (less the amount of the margin deposit associated with the position). A Fund’s exposure on a futures contract is equal to the amount paid for the contract by the Fund.

Index futures contracts in which a Fund may invest are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (contracts that are made on the same exchange and that have the same underlying index and delivery month), or in cash. If an offsetting purchase price is less than the original sale price, the Fund would realize a capital gain, or if it is greater, a Fund would realize a capital loss. Conversely, if an offsetting sale price is greater than the original purchase price, the Fund would realize a capital gain, or if it is less, the Fund would realize a capital loss. The transaction costs must also be included in these calculations in order to determine whether the Fund would realize such a capital gain or loss.

Options and futures contracts can be highly volatile investments. Successful options and futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. There may be an imperfect correlation between movements in prices of options and futures contracts and movements in the value of the stock or index that the investment is designed to simulate. Options and futures contracts also involve a high degree of leverage, and a relatively small price movement in an option or futures contract can result in immediate and substantial gain or loss to a Fund. There can be no assurance that a liquid securities market will exist for an option or futures contract at any particular time. On volatile trading days where a price fluctuation limit is reached or a trading halt or suspension is imposed, it may be very difficult for a Fund to close out positions or enter into new positions and to value the option or futures contract. If the secondary market is not liquid, it could prevent prompt liquidation of unfavorable positions and potentially require a Fund to continue to hold the position until delivery or expiration.

Investments in Exchange-Traded Funds and Exchange-Traded Limited Partnerships

The LargeCap Fund and MidCap Fund may invest in securities of exchange-traded funds (“ETFs”) and exchange-traded limited partnerships (“ETLPs”). ETFs and ETLPs are similar to traditional mutual funds and limited partnerships, respectively, except that their securities trade throughout the trading day in the secondary brokerage market, much like stocks of public companies.

ETFs and ETLPs have their own operating expenses that are deducted from their assets and thus are borne by their shareholders. Accordingly, a Fund will bear its share of the operating expenses of any ETFs and ETLPs in which it invests. As a result, shareholders of the Fund will bear two layers of operating expenses to the extent the Fund invests in these securities. An investment in an ETF generally presents the same primary risks as an investment in a traditional mutual fund, and an investment in an ETLP generally presents the same primary risks as an investment in a limited partnership, such as the risk that the prices of the securities owned by that entity will decline.

In addition to the risks described above, an investment in an ETF or ETLP is also subject to the following risks that do not apply to an investment in a traditional mutual fund or limited partnership: (1) the market price of securities may trade at a discount to their net asset value; (2) an active trading market for an ETF’s or ETLP’s securities may not develop or be maintained; and (3) trading of an ETF’s or ETLP’s securities may be halted if the listing exchange’s officials deem such action appropriate, the shares or interests are de-listed from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halt trading in general.

Each Fund’s investments in an ETF or ETLP are subject to the investment restrictions of the Fund. In particular, because most ETFs are investment companies, the Fund’s purchase of ETF shares are subject to the limitations on the Fund’s investment in other investment companies. See “Investment Restrictions” in this Statement of Additional Information.

Investments in Exchange-Traded Notes

The LargeCap Fund and MidCap Fund may invest in securities of Exchange-Traded Notes (“ETNs”). ETNs are senior, unsecured, unsubordinated debt securities that are typically issued by an underwriting financial institution. ETNs are linked to the return of a benchmark index and are designed to provide investors with a way to access the returns of market benchmarks or strategies. Like ETFs and ETLPs, ETNs are listed on an exchange and traded in the secondary market. However, an ETN also can be redeemed at any time or can be held until maturity.

Whereas ETF shares represent an interest in a portfolio of securities, ETNs are structured products that are an obligation of the issuing financial institution, whereby the financial institution agrees to pay a return based on the target index less any fees. Unlike fixed-income bonds, ETNs do not make periodic interest payments, and the principal investment is not protected.

ETNs are subject to credit risk, including the risk that the issuer of the ETN may default on its obligations. The value of an ETN may vary and may be influenced by, among other things, the time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the particular index. The value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying index remaining unchanged.

Investments in Other Investment Companies

An investment by a Fund in another investment company may cause the Fund to incur higher administration and distribution expenses. See “Investment Restrictions” in this Statement of Additional Information.

Cybersecurity Risk

With the increased use of the internet and other technology to conduct business, the Investment Company is susceptible to operational, information-security, and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites (i.e., efforts to make network services unavailable to intended users). Cyber incidents affecting the Investment Company or its service providers have the ability to cause disruptions and affect business operations, potentially resulting in financial losses, interference with the Investment Company’s ability to calculate each Fund’s net asset value, impediments to trading, the inability of fund shareholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Similar adverse consequences could result from cyber incidents affecting issuers of securities in which the Funds are invested, counterparties with which the Investment Company engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions (including financial intermediaries and service providers for fund shareholders) and other parties. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While the Investment Company’s service providers have established business continuity plans in the event of, and risk management systems to prevent, such cyber incidents, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, the Investment Company cannot control the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Funds or their shareholders.

Temporary Defensive Positions

Each Fund may invest, without limitation, in short-term investments for temporary defensive purposes in response to adverse market, economic, political or other conditions. Short-term investments include U.S. Treasury bills, certificates of deposit, money market funds, commercial paper, variable-rate demand notes and repurchase agreements.

Portfolio Turnover

The portfolio turnover rates for the fiscal years ended November 30, 2015 and 2014 were as follows:

INVESTMENT RESTRICTIONS

Each Fund has adopted the following investment restrictions, none of which (except as otherwise noted) may be changed without the approval of the holders of a majority of the outstanding shares (as defined in the 1940 Act) of the Fund. A Fund may not:

(1)          Purchase the securities of issuers conducting their principal business activity in the same industry if immediately after such purchase the value of the Fund’s investments in such industry would exceed 25% of the value of its total assets, provided that there is no limitation with respect to or arising out of investments in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.

(2)          Purchase a security if, as a result, with respect to 75% of the value of the Fund’s total assets, more than 5% of its total assets would be invested in the securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.

(3)          Make loans, except through the purchase of debt obligations in accordance with the Fund’s investment objective and policies and through repurchase agreements with banks, brokers, dealers and other financial institutions, and except for securities lending activity as permitted by the 1940 Act.

(4)          Issue senior securities in violation of the 1940 Act or borrow money, except (a) as a temporary measure, and then only in amounts not exceeding 5% of the value of the Fund’s total assets or (b) from banks, provided that immediately after any such borrowing all borrowings of the Fund do not exceed one-third of the Fund’s net assets. The exceptions to this restriction are not for investment leverage purposes but are solely for extraordinary or emergency purposes and to facilitate management of each Fund’s portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments is deemed to be disadvantageous or not possible. While a Fund has borrowings in excess of 5% of the value of the Fund’s total assets outstanding, it will not make any purchases of portfolio instruments. If due to market fluctuations or other reasons the net assets of a Fund fall below 300% of its borrowings, the Fund will promptly reduce its borrowings in accordance with the 1940 Act. To do this, the Fund may have to sell a portion of its investments at a time when it may be disadvantageous to do so.

(5)          Mortgage or pledge any assets except to secure permitted borrowings, and then only in an amount up to 15% of the value of the Fund’s net assets, taken at cost at the time of such borrowings.

(6)          Purchase or sell real estate or commodities, except that a Fund may purchase and sell (a) securities issued by real estate investment trusts or other companies which invest in or own real estate, and (b) securities secured by interests in real estate, provided in each case that such securities are marketable.

(7)          Purchase securities of other investment companies, except to the extent permitted by the 1940 Act. Subject to certain exceptions, the 1940 Act currently prohibits a Fund from investing more than 5% of its total assets in securities of another investment company, investing more than 10% of its total assets in securities of such investment company and all other investment companies, or purchasing more than 3% of the total outstanding voting stock of another investment company.

(8)          Purchase more than 10% of the outstanding voting securities of any one issuer or invest in companies for the purpose of exercising control or management.

(9)          Act as an underwriter of securities issued by others, except in instances where the Fund has acquired portfolio securities which it may not be free to sell publicly without registration under the Securities Act of 1933 (if the Fund sells such securities, it may technically be deemed an “underwriter” for purposes of such Act).

In addition to the foregoing restrictions, the Investment Company’s Board of Directors has adopted the following restrictions, which may be changed without shareholder approval. A Fund may not:

(a)          Purchase securities on margin, but a Fund may obtain such short-term credits as may be necessary for the clearance of purchase and sales of securities.

(b)          Participate on a joint or joint-and-several basis in any securities trading account.

(c)          Invest more than 15% of its net assets in illiquid securities.

(d)          Effect any short sale of securities that the Fund does not own if, as a result thereof, the aggregate value of all of the Fund’s open short positions would exceed 5% of the Fund’s net assets.

(e)          Purchase an option or futures contract if, as a result, the aggregate initial margin and premiums required to establish such positions would exceed 5% of its liquidation value for initial margin and premium amounts, or to an aggregate net notional value of commodity interests that would exceed 100% of the liquidation value of its portfolio, in each case after taking into account unrealized profits and losses on futures, options, or swap positions considered non-bona fide hedging under regulations of the Commodities Futures Trading Commission.

The restrictions described above that involve a maximum percentage generally apply when an investment is made and will not be violated as a result of subsequent changes in the values of securities held by the Fund.