WT MUTUAL FUND
Roxbury Mid-Cap Fund
Roxbury Small-Cap Growth Fund
Roxbury Micro-Cap Fund
1100 North Market Street
Wilmington, Delaware 19890
________________________________________
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2005
________________________________________
This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the Funds' current prospectuses, each dated
November 1, 2005, as amended from time to time. A copy of each current
prospectus and annual and semi-annual reports may be obtained without charge,
by writing to Professional Funds Distributor, LLC. (the "Distributor"), 760
Moore Road, King of Prussia, PA 19406 or by calling (800) 336-9970. A copy may
also be obtained from certain institutions such as banks or broker-dealers that
have entered into servicing agreements with the Distributor or by calling
(800) 336-9970.
Each Fund's audited financial statements for the fiscal year ended
June 30, 2005, included in the Annual Reports to shareholders, are incorporated
into this SAI by reference.
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT POLICIES..........................................................1
DISCLOSURE OF FUND HOLDINGS..................................................6
INVESTMENT LIMITATIONS.......................................................8
TRUSTEES AND OFFICERS........................................................9
CODE OF ETHICS..............................................................18
PROXY VOTING................................................................18
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.........................19
INVESTMENT ADVISORY AND OTHER SERVICES......................................20
ADMINISTRATION AND ACCOUNTING SERVICES......................................22
ADDITIONAL SERVICE PROVIDERS................................................23
DISTRIBUTION OF SHARES......................................................23
SHAREHOLDER SERVICE PLAN....................................................24
PORTFOLIO MANAGERS..........................................................26
BROKERAGE ALLOCATION AND OTHER PRACTICES....................................30
CAPITAL STOCK AND OTHER SECURITIES..........................................32
PURCHASE, REDEMPTION AND PRICING OF SHARES..................................32
DIVIDENDS...................................................................35
TAXATION OF THE FUNDS.......................................................36
FINANCIAL STATEMENTS........................................................42
APPENDIX A OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES.......A-1
APPENDIX B DESCRIPTION OF RATINGS..........................................B-1
APPENDIX C PROXY VOTING POLICIES AND PROCEDURES............................C-1
- i -
GENERAL INFORMATION
WT Mutual Fund (the "Trust") was organized as a Delaware business trust on
June 1, 1994. The Trust has established the following funds described in this
SAI: Roxbury Mid-Cap Fund, Roxbury Small-Cap Growth Fund and Roxbury Micro-Cap
Fund (each a "Fund," and collectively, the "Funds"). Each of these Funds issue
Institutional and Investor Shares. Each Fund is a diversified open-end
management investment company.
Prior to July 1, 2005, the Mid-Cap Fund and Small-Cap Growth Fund operated as
feeder funds in a master-feeder structure pursuant to which each of these Funds
invested in a corresponding "master series" of WT Investment Trust I (the
"Master Trust"), which invested directly in investment securities. The
investment objective, strategies, policies, and limitations of each of the
master series were identical to its corresponding Fund.
INVESTMENT POLICIES
The following information supplements the information concerning each Fund's
investment objective, policies and limitations found in the prospectus. The
Mid-Cap Fund seeks superior long-term growth of capital. The Small-Cap Growth
Fund and the Micro-Cap Fund seek to achieve long-term capital appreciation.
Except with respect to the Micro-Cap Fund, the foregoing investment objectives
may not be changed without shareholder approval. The Micro-Cap Fund's
investment objective may be changed upon 60 days' written notice to
shareholders.
The Mid-Cap Fund will invest at least 80% of its assets in securities of
companies with market capitalizations, at the time of purchase, within the
capitalization ranges of companies that make up the S&P MidCap 400 and Russell
MidCap Indices.
The Small-Cap Growth Fund will invest at least 80% of its assets in securities
of companies with market capitalizations, at the time of purchase, consistent
with the capitalization ranges of companies that make up the S&P SmallCap 600
and Russell 2000 Indices.
The Micro-Cap Fund will invest at least 80% of its assets in securities of
companies with market capitalizations, at the time of purchase, of less than
$1 billion.
The foregoing investment policies may be changed upon 60 days' written notice
to shareholders.
Cash Management. Each Fund will under normal market conditions invest no more
than 15% of its total assets in cash and cash equivalents including high-quality
money market instruments and money market funds in order to manage cash flow.
Certain of these instruments are described below.
Money Market Funds. Each Fund may invest in the securities of money market
mutual funds, within the limits prescribed by the Investment Company Act of
1940, as amended (the "1940 Act").
- 1 -
U.S. Government Obligations. Each Fund may invest in debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Although
all obligations of agencies and instrumentalities are not direct obligations of
the U.S. Treasury, the U.S. Government may provide support for payment of the
interest and principal on these obligations directly or indirectly. This
support can range from securities supported by the full faith and credit of the
United States (for example, Ginnie Mae securities), to securities that are
supported solely or primarily by the creditworthiness of the issuer, such as
securities of Fannie Mae, Freddie Mac, the Tennessee Valley Authority, Federal
Farm Credit Banks and the Federal Home Loan Banks. In the case of obligations
not backed by the full faith and credit of the United States, a Fund must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments.
Commercial Paper. Each Fund may invest in commercial paper. Commercial paper
consists of short-term (up to 270 days) unsecured promissory notes issued by
corporations in order to finance their current operations. The Funds may invest
only in commercial paper rated A-1 or higher by S&P or Moody's or if not rated,
determined by the investment adviser to be of comparable quality.
Bank Obligations. Each Fund may invest in U.S. dollar-denominated obligations
of major banks, including certificates of deposit, time deposits and bankers'
acceptances of major U.S. and foreign banks and their branches located outside
of the United States, of U.S. branches of foreign banks, of foreign branches of
foreign banks, of U.S. agencies of foreign banks and of wholly-owned banking
subsidiaries of such foreign banks located in the United States. Obligations of
foreign branches of U.S. banks and U.S. branches of wholly owned subsidiaries of
foreign banks may be general obligations of the parent bank, or the issuing
branch or subsidiary, or both, or may be limited by the terms of a specific
obligation or by government regulation. Because such obligations are issued by
foreign entities, they are subject to the risks of foreign investing. A brief
description of some typical types of bank obligations follows:
o Bankers' Acceptances Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft that has been drawn
on it by a customer. These instruments reflect the obligation of both
the bank and the drawer to pay the face amount of the instrument upon
maturity.
o Certificates of Deposit Certificates of Deposit are certificates
evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days
to one year) at a stated or variable interest rate. Variable rate
certificates of deposit provide that the interest rate will fluctuate
on designated dates based on changes in a designated base rate (such
as the composite rate for certificates of deposit established by the
Federal Reserve Bank of New York).
o Time Deposits Time deposits are bank deposits for fixed periods of
time.
- 2 -
Convertible Securities. Convertible securities have characteristics similar to
both fixed income and equity securities. Because of the conversion feature, the
market value of convertible securities tends to move together with the market
value of the underlying stock. As a result, a Fund's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuers and any call provisions.
The Funds may invest in convertible securities that are rated, at the time of
purchase, in the three highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") such as Moody's or S&P, or if unrated,
are determined by the investment adviser, as applicable, to be of comparable
quality. (See "Appendix B" Description of Ratings.") Ratings represent the
rating agency's opinion regarding the quality of the security and are not a
guarantee of quality. Should the rating of a security be downgraded subsequent
to a Fund's purchase of the security, the investment adviser will determine
whether it is in the best interest of the Fund to retain the security.
Debt Securities. Debt securities represent money borrowed that obligates the
issuer (e.g., a corporation, municipality, government, government agency) to
repay the borrowed amount at maturity (when the obligation is due and payable)
and usually to pay the holder interest at specific times.
Depositary Receipts. American Depositary Receipts ("ADRs") as well as other
"hybrid" forms of ADRs, including European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs"), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or elsewhere.
The underlying shares are held in trust by a custodian bank or similar financial
institution. 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 may be
available through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary. An unsponsored facility may be established by a depositary
without participation by the issuer of the underlying security. Holders of
unsponsored depositary receipts generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities. 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.
Foreign Securities. Each Fund may invest in foreign securities either directly
by purchasing foreign securities or indirectly by purchasing depositary receipts
or depositary shares of foreign securities. (See "Depositary Receipts" above.)
Foreign securities include equity or debt securities issued by issuers outside
the United States, and include securities in the form of ADRs
- 3 -
and EDRs. Direct investments in foreign securities may be made either on foreign
securities exchanges or in the over-the counter markets. Investing in foreign
securities involves certain special risks and considerations that are not
typically associated with investing in U.S. companies, including, but not
limited to, (i) generally less liquid and less efficient securities markets,
(ii) generally greater price volatility, (iii) exchange rate fluctuations and
exchange controls, (iv) the imposition of restrictions on the expatriation of
funds or other assets, (v) less publicly available information about issuers,
(vi) the imposition of taxes (vii) higher transaction and custody costs,
(viii) settlement delays and risk of loss, (ix) difficulties in enforcing
contracts, (x) less liquidity and smaller market capitalizations, (xi) lesser
regulation of securities markets, (xii) different accounting and disclosure
standards, xiii) governmental interference, (xiv) higher inflation, (xv) social,
economic and political uncertainties, (xvi) the risk of expropriation of assets,
and (xvii) the risk of war.
Hedging Strategies. Each Fund may engage in certain hedging strategies that
involve options and futures. These hedging strategies are described in detail
in Appendix A.
Illiquid Securities. Each Fund may invest no more than 15% of its net assets in
illiquid securities. Illiquid securities are securities that cannot be disposed
of within seven days at approximately the value at which they are being carried
on the Fund's books. The Board of Trustees has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to the
investment adviser, pursuant to guidelines approved by the Board. The
investment adviser will monitor the liquidity of securities held by the Fund and
report periodically on such decisions to the Board. If the limitation on
illiquid securities is exceeded, other than by a change in market values, the
condition will be reported by a Fund's investment adviser to the Board of
Trustees.
Investment Company Securities and Exchange Traded Funds. The Funds may invest
in investment company securities, including exchange traded funds ("ETFs").
Such investments are subject to limitations prescribed by the 1940 Act. These
limitations currently provide, in part, that a Fund may not purchase shares of
an investment company if (a) such a purchase would cause a Fund to own in the
aggregate more than 3% of the total outstanding voting stock of the investment
company or (b) such a purchase would cause a Fund to have more than 5% of its
total assets invested in the investment company or (c) more than 10% of a Fund's
total assets would be invested in investment companies. As a shareholder in an
investment company, the Fund would bear its pro rata portion of the investment
company's expenses, including advisory fees, in addition to its own expenses.
Although the 1940 Act restricts investments by registered investment companies
in the securities of other investment companies, including ETFs, registered
investment companies may be permitted to invest in certain ETFs beyond the
limits set forth in Section 12(d)(1) provided such ETF is granted an exemptive
order by the SEC subject to certain terms and conditions imposed by such
exemptive order. It is possible that a Fund will enter into an agreement with
an ETF pursuant to an exemptive order to allow the Fund to invest in such ETF
beyond the Section 12(d)(1) limitations.
Options on Securities and Securities Indices. Each Fund may purchase call
options on securities that the investment adviser intends to include in a Fund
in order to fix the cost of a
- 4 -
future purchase or attempt to enhance return by, for example, participating in
an anticipated increase in the value of a security. The Funds may purchase put
options to hedge against a decline in the market value of securities held in the
Funds or in an attempt to enhance return. A Fund may write (sell) put and
covered call options on securities in which they are authorized to invest. A
Fund may also purchase put and call options, and write put and covered call
options on U.S. securities indices. Stock index options serve to hedge against
overall fluctuations in the securities markets rather than anticipated increases
or decreases in the value of a particular security. Of the percentage of the
assets of a Fund that are invested in equity (or related) securities, the Fund
may not invest more than 10% of such assets in covered call options on
securities and/or options on securities indices.
Repurchase Agreements. Each Fund may invest in repurchase agreements. A
repurchase agreement is a transaction in which a Fund purchases a security from
a bank or recognized securities dealer and simultaneously commits to resell that
security to a bank or dealer at an agreed upon date and price reflecting a
market rate of interest, unrelated to the coupon rate or the maturity of the
purchased security. While it is not possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to a Fund if the other
party to the repurchase agreement defaults), it is the policy of each Fund to
limit repurchase transactions to primary dealers and banks whose
creditworthiness has been reviewed and found satisfactory by the adviser.
Repurchase agreements maturing in more than seven days are considered illiquid
for purposes of a Fund's investment limitations.
Restricted Securities. Restricted securities are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") or an exemption from registration. Each Fund is subject to
investment limitations on the purchase of illiquid securities. Restricted
securities, including securities eligible for re-sale pursuant to Rule 144A
under the 1933 Act, that are determined to be liquid are not subject to this
limitation. This determination is to be made by the investment adviser pursuant
to guidelines adopted by the Board of Trustees. Under these guidelines, the
investment adviser will consider the frequency of trades and quotes for the
security, the number of dealers in, and potential purchasers for, the
securities, dealer undertakings to make a market in the security, and the nature
of the security and of the marketplace trades. In purchasing such restricted
securities, the investment adviser intends to purchase securities that are
exempt from registration under Rule 144A.
Securities Lending. Each Fund may lend securities pursuant to agreements that
require that the loans be continuously secured by collateral equal to 100% of
the market value of the loaned securities. Such collateral consists of cash,
securities of the U.S. Government or its agencies, or any combination of cash
and such securities. Such loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans for a Fund exceeds one-third of the
value of the Fund's total assets taken at fair market value. A Fund will earn
interest on the investment of the cash collateral in U.S. Government securities.
However, a Fund will normally pay lending fees to such broker-dealers and
related expenses from the interest earned on invested collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities and even loss of rights in the collateral should the borrower
of the securities fail
- 5 -
financially. However, loans are made only to borrowers deemed by the adviser to
be of good standing and when, in the judgment of the adviser, the consideration
that can be earned currently from such securities loans justifies the attendant
risk. Either party upon reasonable notice to the other party may terminate any
loan.
Temporary Defensive Position. Each Fund may, without limit, invest in
commercial paper and other money market instruments rated in one of the two
highest rating categories by an NRSRO, in response to adverse market conditions,
as a temporary defensive position.The result of this action may be that a Fund
will be unable to achieve its investment objective.
Portfolio Turnover. Portfolio turnover rates for the past 2 fiscal years were:
12 Months 12 Months
Ended Ended
6/30/05 6/30/04
___________ ___________
Mid-Cap Fund 110% 79%
Small-Cap Fund 161% 172%
Micro-Cap Fund 77%* N/A
*For the period December 29, 2004 through June 30, 2005.
DISCLOSURE OF FUND HOLDINGS
The Funds have policies and procedures in place regarding the disclosure of
Fund securities of the Funds designed to allow disclosure of Fund holdings
information where it is deemed appropriate for a Fund's operations or it is
determined to be useful to a Fund's shareholders without compromising the
integrity or performance of the Fund. Except when there are legitimate business
purposes for selective disclosure of a Fund's holdings, a Fund will not provide
or permit others to provide information about the Fund's holdings on a selective
basis.
The Funds provide Fund holdings information as required in regulatory filings
and shareholder reports, disclose Fund holdings information as required by
federal or state securities laws, and may disclose Fund holdings information in
response to requests by governmental authorities.
The Funds may, but are not required to, post the Fund's schedule of investments
on a website at regular intervals or from time to time at the discretion of the
Fund. Such schedule of investments must be as of a date at least 30 days prior
to its posting on the website. In addition to its schedule of investments, a
Fund may post information on a website about the number of securities the
Fund holds, a summary schedule of investments, the Fund's top ten holdings, and
a percentage breakdown of the Fund's investments by country, sector and
industry. This additional information must be as of a date at least 30 days
prior to its posting on a website, provided, however, that a top ten holdings
list may be as of a date 7 days prior to its posting on the website. The day
after any Fund holdings information becomes publicly available (by posting on
the website or otherwise), it may be mailed, e-mailed or otherwise transmitted
to any person.
- 6 -
The Fund may distribute or authorize the distribution of information about a
Fund's holdings that is not publicly available (on a website or otherwise) to a
Fund's or an investment adviser's employees and affiliates that provide services
to the Fund. The Fund may also distribute or authorize the distribution of
information about the Fund's holdings that is not publicly available (on a
website or otherwise) to the Fund's service providers who require access to the
information (i) in order to fulfill their contractual duties relating to the
Fund; (ii) to facilitate the transition of a newly hired investment adviser or
sub-adviser prior to the commencement of its duties; (iii) to facilitate the
review of the Fund by a ranking or ratings agency; (iv) for the purpose of due
diligence regarding a merger or acquisition; or (iv) for the purpose of
effecting in-kind redemption of securities to facilitate orderly redemption of
Fund assets and minimal impact on remaining shareholders of an affected Fund.
In order to mitigate conflicts between the interests of Fund shareholders, on
the one hand, and those of the Portfolios' investment adviser, sub-adviser,
or principal underwriter, or any affiliated person of the Funds, their
investment advisers, sub-advisers, or its principal underwriter, on the other,
the Trust's Chief Compliance Officer must approve and either the President or
a Vice President of the Trust must approve a non-public disclosure of Fund
holdings. The Trust's Chief Compliance Officer must report all arrangements
to disclose Fund holdings information to the Trust's Board of Trustees on a
quarterly basis, which will review such arrangements and terminate them if it
determines such disclosure arrangements are not in the best interests of
shareholders. Before any non-public disclosure of information about a Fund's
holdings, the Chief Compliance Officer will require the recipient of such
non-public Fund holdings information to agree or provide proof of an existing
duty to keep the information confidential and to agree not to trade directly or
indirectly based on the information or to use the information to form a
specific recommendation about whether to invest in a Fund or any other security.
The Trust may request certifications from senior officers of authorized
recipients that the recipient is using the Fund holdings information only in a
manner consistent with the Trust's policies and procedures and any applicable
confidentiality agreement.
Under no circumstances may the Trust or an investment adviser or their
affiliates receive any consideration or compensation for disclosing Fund
holdings information.
Each of the following third parties have been approved to receive Fund holdings
information: (i) the Trust's administrator and accounting agent; (ii) the
Trust's independent public accounting firm, for use in providing audit opinions;
(iii) financial printers, solely for the purpose of preparing Trust reports or
regulatory filings; (iv) the Trust's custodian in connection with its custody of
the Trust's assets; (v) if applicable, a proxy voting service; and (vi) the
following data aggregators and ranking and ratings services: Lipper Analytical
Services, Inc., Morningstar Inc., and Standard & Poors. Information may be
provided to these parties at any time so long as each of these parties is
contractually and ethically prohibited from sharing the Trust's Fund holdings
information without specific authorization. The Trust's investment advisers and
service providers will establish procedures to ensure that the Trust's Fund
holdings information is only disclosed in accordance with these policies. The
identity of persons with which the Trust has ongoing arrangements to provide
portfolio holdings information is set forth below.
- 7 -
Piper Jaffray & Company Stern, Agee & Leach
Stone & Youngberg Wachovia Securities
Loop Capital Markets Morgan Stanley
Commerce Capital Markets, Inc. Lehman Brothers
Stephens Inc. William Blair & Co., L.L.C.
Legg Mason Wood Walker Morningstar
Barclays Capital Inc. Lipper
Bear Stearns & Co. Inc. Thompson Financial
Starboard Capital Markets LLC Vestek
Banc of America Standard & Poor's
RBC Dain Rauscher
INVESTMENT LIMITATIONS
Each Fund has adopted the investment limitations set forth below.
Limitations which are designated as fundamental policies may not be changed
without the affirmative vote of the lesser of (i) 67% or more of the shares of
a Fund present at a shareholders meeting if holders of more than 50% of the
outstanding shares of a Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of a Fund. If any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or redemptions of shares will not be considered a violation
of the limitation.
No Fund will as a matter of fundamental policy:
1. purchase the securities of any one issuer, if as a result, more than
5% of a Fund's total assets would be invested in the securities of
such issuer, or a Fund would own or hold 10% or more of the
outstanding voting securities of that issuer, provided that (1) a
Fund may invest up to 25% of its total assets without regard to
these limitations; (2) these limitations do not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and (3) repurchase agreements fully
collateralized by U.S. Government obligations will be treated
as U.S. Government obligations;
2. purchase securities of any issuer if, as a result, more than 25% of
a Fund's total assets would be invested in the securities of one or
more issuers having their principal business activities in the same
industry, provided, that this limitation does not apply to debt
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
3. borrow money, provided that a Fund may borrow money for temporary or
emergency purposes (not for leveraging or investments), and then in
an aggregate amount not in excess of 10% of a Fund's total assets;
- 8 -
4. make loans to other persons, except by (1) purchasing debt
securities in accordance with its investment objective, policies and
limitations; (2) entering into repurchase agreements; or (3)
engaging in securities loan transactions;
5. underwrite any issue of securities, except to the extent that a Fund
may be considered to be acting as underwriter in connection with the
disposition of any portfolio security;
6. purchase or sell real estate, provided that a Fund may invest in
obligations secured by real estate or interests therein or
obligations issued by companies that invest in real estate or
interests therein, including real estate investment trusts;
7. purchase or sell physical commodities, provided that a Fund may
invest in, purchase, sell or enter into financial options and
futures, forward and spot currency contracts, swap transactions and
other derivative financial instruments; or
8. issue senior securities, except to the extent permitted by the
1940 Act.
The following non-fundamental policies apply to each Fund and may be changed by
the Board of Trustees without shareholder approval. No Fund will:
1. make short sales of securities except short sales against the box;
2. purchase securities on margin except for the use of short-term credit
necessary for the clearance of purchases and sales of portfolio
securities; provided that a Fund may make initial and variation
deposits in connection with permitted transactions in options or
future; or
3. purchase additional portfolio securities if its outstanding
borrowings exceed 5% of the value of its total assets.
TRUSTEES AND OFFICERS
The following tables present certain information regarding the Board of Trustees
and officers of the Trust. Each person listed under "Interested Trustees" below
is an "interested person" of the investment adviser, or the Trust, within the
meaning of the 1940 Act. Each person who is not an "interested person" of the
Funds' investment adviser or the Trust within the meaning of the 1940 Act is
referred to as an "Independent Trustee" and is listed under such heading below.
The address of each Trustee as it relates to the Trust's business is 1100 North
Market Street, Wilmington, DE 19890.
- 9 -
___________________________________________________________________________________________________________________________________
Number of
Principal Funds in Fund
Occupation(s) Complex(3) Other
Name and Position(s) Held Term of Office and During Past Overseen by Directorships
Date of Birth with Trust Length of Time Served Five Years Trustee Held by Trustee
___________________________________________________________________________________________________________________________________
INTERESTED TRUSTEES
___________________________________________________________________________________________________________________________________
ROBERT J. CHRISTIAN(1) Trustee, Shall serve until Executive Vice 19 None
Date of Birth: 2/49 President, Chief death, resignation President of
Executive Officer or removal. Wilmington Trust
and Chairman of Trustee, President Company since
the Board and Chairman of the February 1996;
Board since October President of Rodney
1998. Square Management
Corporation ("RSMC")
from 1996 to 2005;
Vice President of
RSMC since 2005.
___________________________________________________________________________________________________________________________________
NEIL WOLFSON(2) Trustee Shall serve at the Chief Investment 19 None
Date of Birth: 6/64 pleasure of the Officer of Wilmington
Board and until Trust Investment
successor is elected Management, LLC
and qualified. ("WTIM") since July
Trustee since 2004; Previously,
September 2005. Partner with KPMG
from 1996-2004.
___________________________________________________________________________________________________________________________________
ROBERT ARNOLD Trustee Shall serve until Founder and 19 First Potomac Realty
Date of Birth: 3/44 death, resignation co-manages, R.H. Trust (real estate
or removal. Trustee Arnold & Co., Inc. investment trust).
since May 1997. (investment banking
company) since 1989.
___________________________________________________________________________________________________________________________________
DR. ERIC BRUCKER Trustee Shall serve until Professor of 19 None
Date of Birth: 12/41 death, resignation Economics, Widener
or removal. Trustee University since July
since October 1999. 2004; formerly, Dean,
School of Business
Administration of
Widener University
from 2001 to 2004;
Previously, Dean,
College of Business,
Public Policy and
Health at the
University of Maine
from September 1998
to June 2001.
___________________________________________________________________________________________________________________________________
NICHOLAS GIORDANO Trustee Shall serve until Consultant, financial 19 Kalmar Pooled
Date of Birth: 3/43 death, resignation services organization Investment Trust;
or removal. Trustee from 1997 to present; Independence Blue
since October 1998. Interim President, Cross; IntriCon
LaSalle University Corporation (industrial
from 1998 to 1999. furnaces and ovens).
___________________________________________________________________________________________________________________________________
____________________
(1) Mr. Christian is an "Interested Trustee" by reason of his position as Vice President of RSMC, an investment adviser to the
Trust.
(2) Mr. Wolfson is an "Interested Trustee" by reason of his position as Chief Investment Officer of WTIM, an affiliate of RSMC.
(3) The "Fund Complex" currently consists of the Trust (19 funds) and the CRM Mutual Funds Trust (4 funds).
- 10 -
___________________________________________________________________________________________________________________________________
Number of
Principal Funds in Fund
Occupation(s) Complex(3) Other
Name and Position(s) Held Term of Office and During Past Overseen by Directorships
Date of Birth with Trust Length of Time Served Five Years Trustee Held by Trustee
___________________________________________________________________________________________________________________________________
INTERESTED TRUSTEES
___________________________________________________________________________________________________________________________________
LOUIS KLEIN, JR. Trustee Shall serve until Self-employed 23 CRM Mutual Fund Trust;
Date of Birth: 5/35 death, resignation financial consultant and WHX Corporation
or removal. Trustee since 1991. (industrial
since October 1999. manufacturers).
___________________________________________________________________________________________________________________________________
CLEMENT C. MOORE, II Trustee Shall serve until Managing Partner, 23 CRM Mutual Fund Trust.
Date of Birth: 9/44 death, resignation Mariemont Holdings,
or removal. Trustee LLC, (real estate
since October 1999. holding and
development company)
since 1980.
___________________________________________________________________________________________________________________________________
JOHN J. QUINDLEN Trustee Shall serve until Retired since 1993. 19 None
Date of Birth: 5/32 death, resignation
or removal. Trustee
since October 1999.
___________________________________________________________________________________________________________________________________
MARK A. SARGENT Trustee Shall serve until Dean and Professor of 19 None
Date of Birth: 4/51 death, resignation Law, Villanova
or removal. Trustee University School of
since November 2001. Law since July 1997.
___________________________________________________________________________________________________________________________________
As of the date of this SAI, none of the Independent Trustees nor any of their
immediate family members (i.e. spouse or dependent children) serves as an
officer or director or is an employee of the Trust, any of the Funds' investment
advisers or distributor, or any of their respective affiliates. Nor do any of
such persons serve as an officer or director or is an employee of any company
controlled by or under common control with such entities.
- 11 -
___________________________________________________________________________________________________________________________________
EXECUTIVE OFFICERS
___________________________________________________________________________________________________________________________________
Number of
Principal Funds in Fund(3) Other
Occupation(s) Complex Directorships
Name, Address and Position(s) Held Term of Office and During Past Overseen by Held by
Date of Birth with Trust Length of Time Served Five Years Trustee Trustee
___________________________________________________________________________________________________________________________________
ERIC K. CHEUNG Vice President Shall serve at the Vice President, Wilmington N/A N/A
1100 North Market Street pleasure of the Board Trust Company since 1986;
Wilmington, DE 19890 and until successor is and Vice President and
Date of Birth: 12/54 elected and qualified. Director, RSMC since 2001.
Officer since
October 1998.
___________________________________________________________________________________________________________________________________
JOSEPH M. FAHEY, JR. Vice President Shall serve at the Vice President, RSMC since N/A N/A
1100 North Market Street pleasure of the Board 1992.
Wilmington, DE 19890 and until successor is
Date of Birth: 1/57 elected and qualified.
Officer since November
1999.
___________________________________________________________________________________________________________________________________
JOHN J. KELLEY Vice President, Shall serve at the Vice President of RSMC N/A N/A
1100 North Market Street Chief Financial pleasure of the Board since July 2005; Vice
Wilmington, DE 19890 Officer, and until successor is President of PFPC Inc. from
Date of Birth: 9/59 Treasurer & elected and qualified. January 2005 to July 2005;
Secretary Officer since Vice President of
September 2005. Administration, 1838
Investment Advisors, LP
from 1999 to 2005; Chief
Compliance Officer, 1838
Investment Advisors, LP
from 2004 to 2005.
___________________________________________________________________________________________________________________________________
WILLIAM P. RICHARDS, JR. Vice President Shall serve at the Managing Director, Roxbury N/A N/A
100 Wilshire Boulevard pleasure of the Board Capital Management LLC
Suite 1000 and until successor is (registered investment
Santa Monica, CA 90401 elected and qualified. adviser) since 1998.
Date of Birth: 11/36 Officer since November
2004.
___________________________________________________________________________________________________________________________________
ANNA M. BENCROWSKY Chief Compliance Shall serve at the Chief Compliance Officer, N/A N/A
1100 North Market Street Officer pleasure of the Board RSMC since 2004; Vice
Wilmington, DE 19890 and until successor is President and Chief
Date of Birth: 5/51 elected and qualified. Compliance Officer, 1838
Officer since Investment Advisors, LP
September 2004. from 1998 to 2004; Vice
President, Secretary, and
Treasurer, 1838 Investment
Advisors Funds from 1995 to
2004; Vice President and
Secretary, 1838
Bond-Debenture Trading Fund
from 1982 to 2004.
___________________________________________________________________________________________________________________________________
CHARLOTTA E. NILSSON Assistant Shall serve at the Mutual Fund Regulatory N/A N/A
1100 North Market Street Secretary pleasure of the Board Administrator, Wilmington
Wilmington, DE 19890 and until successor is Trust Company, since 2003;
Date of Birth: 09/70 elected and qualified. From 2001 to 2003,
Officer since February Regulatory Administrator,
2003. PFPC Inc.
___________________________________________________________________________________________________________________________________
- 12 -
Responsibilities of the Board and its Committees. The basic responsibilities of
the Trustees are to monitor the Trust's financial operations and performance,
oversee the activities and legal compliance of the Trust's investment advisers
and other major service providers, keep themselves informed, and exercise their
business judgment in making decisions important to the Trust's proper
functioning based on what the Trustees reasonably believe to be in the best
interests of shareholders. The Board is comprised of nine individuals, two of
whom are considered Interested Trustees. The remaining Trustees are Independent
Trustees. The Board meets multiple times during the year (but at least
quarterly) to review the investment performance of the Funds and other
operational matters, including policies and procedures with respect to
compliance with regulatory and other requirements. The Board met 11 times
during the fiscal year ended June 30, 2005. Currently, the Board has an Audit
Committee, a Nominating and Governance Committee, and a Regulatory Oversight
Committee. The responsibilities of each committee and its members are
described below.
Audit Committee. The Audit Committee is comprised of Messrs. Giordano, Klein
and Quindlen, each of which is an Independent Trustee. Mr. Giordano serves as
the chairman of the Committee. Pursuant to its charter, the Audit Committee
has the responsibility, among others, to (1) select the Trust's independent
auditors; (2) review and approve the scope of the independent auditors' audit
activity; (3) review the financial statements which are the subject of the
independent auditors' certifications; and (4) review with such independent
auditors the adequacy of the Trust's basic accounting system and the
effectiveness of the Trust's internal accounting controls. During the fiscal
year ended June 30, 2005, there were four meetings of the Audit Committee.
Nominating and Governance Committee. The Nominating and Governance Committee is
comprised of Messrs. Giordano, Quindlen and Sargent, each of which is an
Independent Trustee. Mr. Sargent serves as chairman of the Committee. The
Nominating and Governance Committee is responsible for formulating a statement
of fund governance; assessing the size, structure and composition of the Board;
determining trustee qualifications guidelines as well as compensation, insurance
and indemnification of trustees; identifying Trustee candidates; oversight of
Board self-evaluations; and identifying, from time to time, qualified candidates
to serve as the Chief Compliance Officer for the Trust. During the fiscal year
ended June 30, 2005, there were three meetings of the Committee. The Nominating
and Governance Committee will consider nominee candidates recommended by
shareholders. Shareholders who wish to recommend individuals for consideration
by the Committee as nominee candidates may do so by submitting a written
recommendation to the Secretary of the Trust at: 1100 North Market Street, 9th
Floor, Wilmington, DE 19890. Submissions must include sufficient
biographical information concerning the recommended individual, including age,
at least ten years of employment history with employer names and a description
of the employer's business, and a list of board memberships (if any). The
submission must be accompanied by a written consent of the individual to stand
for election if nominated by the Board and to serve if elected. Recommendations
must be received in a sufficient time, as determined by the Committee in its
sole discretion, prior to the date proposed for the consideration of nominee
candidates by the Board. Upon the written request of shareholders holding at
least 10% of the Trust's shares in the
- 13 -
aggregate, the Secretary shall present to any special meeting of shareholders
such nominees for election as Trustees as specified in such written request.
Regulatory Oversight Committee. The Regulatory Oversight Committee is comprised
of Messrs. Arnold, Brucker, Moore and Sargent, each of which is an Independent
Trustee. Mr. Moore serves as the chairman of the Committee. The Regulatory
Oversight Committee (i) monitors the Board's compliance with its major specific
responsibilities under the 1940 Act; (ii) receives information regarding
proposed and newly adopted federal and state laws and regulations as they apply
to the Trust, and provides oversight of investment advisers, other major service
providers, and the Trust's Chief Compliance Officer ("CCO") regarding compliance
with such laws and regulations as needed; (iii) provides oversight of the
Trust's 12b-1 fees and shareholder service fees and the payment of such fees
to various investment advisers, broker-dealers and financial intermediaries;
(iv) provides oversight of the portfolio trade execution, brokerage commissions,
soft dollar usage, and revenue sharing arrangements of the Trust's investment
advisers, and make recommendations to the Board regarding such practices; (v)
provides oversight of the Trust's valuation and pricing policies, procedures and
practices and designated management valuation committee; (vi) provides oversight
of exemptive order(s), if any, granted to the Trust by the SEC or pursuant to
which the Trust is subject; (vii) provides oversight of the Trust, investment
advisers, sub-advisers and principal underwriter's 17j-1 Codes of Ethics,
including violations thereof, and makes recommendations to the Board regarding
approval of such codes and material changes thereto; and (viii) monitors, in
cooperation with the Nominating and Governance Committee, the CCO's performance.
During the fiscal year ended June 30, 2005, there were four meetings of the
Regulatory Oversight Committee.
Security and Other Interests. The following table sets forth the dollar range
of equity securities beneficially owned by each Trustee in the Funds and in all
registered investment companies overseen by the Trustee within the Fund Complex,
as of December 31, 2004.
- 14 -
Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Companies Overseen by
Dollar Range of Equity Trustee within the Family of
Name of Trustee Securities in each Fund Investment Companies
INTERESTED TRUSTEES Over $100,000
___________________
Robert J. Christian
Small-Cap Growth Fund $10,001-$50,000
Neil Wolfson NONE $10,001-$50,000
INDEPENDENT TRUSTEES
___________________
Robert H. Arnold NONE Over $100,000
Dr. Eric Brucker NONE $50,001-$100,000
Nicholas A. Giordano NONE $50,001-$100,000
Louis Klein, Jr. NONE Over $100,000
Clement C. Moore, II Over $100,000
Small-Cap Growth Fund Over $100,000
John J. Quindlen NONE Over $100,000
Mark A. Sargent NONE $10,001-$50,000
As of December 31, 2004, none of the Independent Trustees or their respective
immediate family members (spouse or dependent children) owned beneficially or
of record an interest in any of the investment advisers or the Distributor, or
in any person directly or indirectly controlling, controlled by, or under common
control with the investment advisers or the Distributor.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT. The Trust has retained Roxbury
Capital Management, LLC ("Roxbury") to manage the assets of each of the Funds
pursuant to an investment advisory agreement (the "Investment Advisory
Agreement").
The Investment Advisory Agreement has an initial term of two years and continues
in effect from year to year thereafter if such continuance is specifically
approved at least annually by the Board of Trustees or by a majority of the
outstanding voting securities of the Trust, as the case may be, and in either
event, by a majority of the Independent Trustees casting votes in person at a
meeting called for such purpose. The Investment Advisory Agreement was most
recently approved by the Board of Trustees of the Trust, including by a
majority of the Independent Trustees, at a meeting held on September 1, 2005.
In determining whether to approve the advisory agreements, the Trustees
considered information provided by Roxbury in accordance with Section 15(c) of
the 1940 Act, as well as accumulated information received during the course of
the year relating to Roxbury and its services provided to the Trust on behalf of
the Funds. The Trustees considered information that Roxbury provided regarding
(i) services performed for the Trust and one or more of its Funds, (ii) the size
and qualifications of Roxbury's portfolio management staff, (iii) any potential
or actual material conflicts of interest which may arise in connection with a
portfolio manager's management of a Fund of the Trust, (iv) investment
performance, (v) brokerage selection procedures (including soft dollar
arrangements), (vi) the procedures for allocating investment opportunities
between a
- 15 -
Fund and other clients, (vii) results of any independent audit or regulatory
examination, including any recommendations or deficiencies noted, (viii) any
litigation, investigation or administrative proceeding which may have a material
impact on Roxbury's ability to service a Fund, (ix) the compliance with a Fund's
investment objectives, policies and practices (including codes of ethics),
federal securities laws and other regulatory requirements, and (x) its proxy
voting policies. Roxbury also provided information regarding the advisory
fees received and an analysis of these fees in relation to the delivery of
services to the Funds, the costs of providing such services, the profitability
of the firm in general and as a result of the fees received from the Funds and
any other ancillary benefit resulting from Roxbury's relationship with the
Trust. The Trustees also reviewed comparative performance data and comparative
statistics and fee data for the Funds relative to other mutual funds in their
peer group.
The Trustees reviewed the services provided to the Funds by Roxbury as compared
to services provided by other advisers which manage mutual funds with investment
objectives, strategies and policies similar to those of the Funds. The Trustees
noted the substantial changes to the operations and management of the Trust over
the past year including the withdrawal from the master-feeder structure,
improved performance, and changes in personnel. The Trustees discussed
Roxbury's personnel changes over the last year and the depth of Roxbury's
personnel who possess the experience to provide investment management services
to the Funds of the Trust. The Trustees believe that the changes in management
have generally been favorable. The Trustees concluded that the nature, extent
and quality of the services provided by Roxbury to each Fund were appropriate
and consistent with the terms of the respective advisory agreements, that the
quality of those services had been consistent with industry norms and that the
Funds were likely to benefit from the continued provision of those services.
They also concluded that Roxbury had sufficient personnel, with the appropriate
education and experience, to serve the Funds effectively and had demonstrated
its continuing ability to attract and retain qualified personnel.
The Trustees noted that the performance of each Fund is also of particular
importance in evaluating Roxbury. The Trustees reviewed the performance data
provided with the Board materials distributed prior to the meeting including
each Fund's performance relative to other mutual funds with similar investment
objectives, strategies and policies, its respective benchmark index, and its
Lipper peer group rankings. The Trustees observed that they review and evaluate
each Fund's investment performance on an on-going basis throughout the year.
The Trustees considered the short-term and long-term performance of each Fund.
They concluded that the performance of each Fund and Roxbury was within an
acceptable range of performance relative to other mutual funds with similar
investment objectives, strategies and policies. The Trustees noted that
although the performance of some Funds lagged that of their peers for certain
periods, they also concluded that Roxbury had taken appropriate steps to address
the under-performance and that the more recent performance has been improving.
The Trustees considered the costs of the services provided by Roxbury, the
compensation and benefits received by Roxbury in providing services to the
Funds, as well as Roxbury's profitability. The Trustees reviewed Roxbury's
financial statements. In addition, the Trustees considered any direct or
indirect revenues received by affiliates of Roxbury. The Trustees
- 16 -
concluded that Roxbury's fees and profits derived from its relationship with the
Trust in light of each Fund's expenses, were reasonable in relation to the
nature and quality of the services provided, taking into account the fees
charged by other advisers for managing comparable mutual funds with similar
strategies. The Trustees also concluded that the overall expense ratio of each
Fund was reasonable, taking into account the size of the Funds, the quality of
services provided by Roxbury, the investment performance of the Funds and the
expense limitations agreed to by Roxbury.
The Trustees considered the extent to which economies of scale would be realized
relative to fee levels as each Fund grows, and whether the advisory fee levels
reflect these economies of scale for the benefit of shareholders. The Board
determined that economies of scale should be achieved at higher asset levels
for all of the Funds for the benefit of Fund shareholders due to break-points
in the advisory fees except with respect to the Micro-Cap Fund because the
investment advisory agreement for this Fund did not provide for asset level
breakpoints in the advisory fee as the Fund's assets increase.
After consideration of all the factors, and taking into consideration the
information presented during previous meetings of the Board, the Trustees
determined that it would be in the best interests of the Trust and its Fund
shareholders to continue the existing advisory agreement for an additional
one-year period. In arriving at its decision, the Trustees did not identify
any single matter as controlling, but made their determination in light of all
the circumstances.
Additional information regarding the Investment Advisory Agreement and the fees
paid to Roxbury may be found under the heading of "Investment Advisory and
Other Services."
Compensation. In addition to the fees below, the Trust reimburses its
Independent Trustees for their related business expenses. The following table
shows the fees paid during the fiscal year ended June 30, 2005 to the
Independent Trustees for their service to the Trust and the total compensation
paid to the Trustees by the Fund Complex.
Pension or
Retirement Benefits Estimated Annual Total Compensation
Aggregate Compensation Accrued as Part of Benefits Upon from Fund Complex(1)
Independent Trustee from the Trust Trust Expenses Retirement Paid to Trustees
___________________________________________________________________________________________________________________
Robert H. Arnold $ 39,375 None None $ 52,500
Dr. Eric Brucker $ 40,500 None None $ 54,000
Nicholas Giordano $ 49,875 None None $ 66,500
Louis Klein, Jr. $ 39,375 None None $ 52,500
Clement C. Moore, II $ 39,750 None None $ 53,000
John J. Quindlen $ 46,125 None None $ 61,500
Mark A. Sargent $ 52,125 None None $ 69,500
(1) For the year ended June 30, 2005, the Fund Complex consisted of the Trust (19 funds), WT Investment Trust I (25 funds), the CRM
Mutual Fund Trust (4 funds) and the Wilmington Low Volatility Fund of Funds (1 fund).
- 17 -
CODE OF ETHICS
In accordance with Rule 17j-1 of the 1940 Act, the Trust, Roxbury and the
Distributor have adopted Codes of Ethics. The Codes are intended to prohibit or
restrict transactions that may be deemed to create a conflict of interest among
Roxbury, the Distributor, or the Trust. Each Code identifies the specific
employees, officers or other persons who are subject thereto and all are
required to abide by the provisions thereunder. Persons covered under the Codes
may engage in personal trading for their own accounts, including securities that
may also be purchased or held or traded by a Fund under certain circumstances.
Under the Code of Ethics adopted by the Trust, personal trading is subject to
specific restrictions, limitations, guidelines and other conditions. Under the
Code of Ethics adopted by Roxbury, personal trading is subject to pre-clearance
and other conditions set forth in its Code.
On an annual basis or whenever deemed necessary, the Board of Trustees reviews
reports regarding the Codes of Ethics relative to the Trust, including
information about any material violations of the Codes. The Codes are publicly
available as exhibits to the Trust's registration statement filed with the SEC.
PROXY VOTING
The Board of Trustees' has adopted proxy voting procedures, and thereunder
delegated the responsibility for exercising the voting rights associated with
the securities purchased and/or held by a Fund to Roxbury, subject to the
Board's continuing oversight. In exercising its voting obligations, Roxbury
is guided by general fiduciary principles. It must act prudently, solely in the
interest of the Funds, and for the purpose of providing benefits to such Funds.
Roxbury will consider the factors that could affect the value of a Fund's
investment in its determination on a vote.
Roxbury has identified certain significant contributors to shareholder value
with respect to a number of common or routine matters that are often the subject
of proxy solicitations for shareholder meetings.
Roxbury's proxy voting procedures address these considerations and establish a
framework for its consideration of a vote that would be appropriate for a Fund.
In particular, the proxy voting procedures outline principles and factors to be
considered in the exercise of voting authority for proposals addressing many
common or routine matters.
Finally, Roxbury's proxy voting procedures establish a protocol for voting of
proxies in cases in which it may have a potential conflict of interest arising
from, among other things, a direct business relationship or financial interest
in a company soliciting proxies. In such instances, Roxbury will submit a
separate report to the Board of Trustees indicating the nature of the potential
conflict of interest and how the determination of such vote was achieved.
Roxbury's proxy voting policies and procedures are attached herewith as
Appendix C.
- 18 -
Each Fund's proxy voting record as of June 30, 2005 is available (i) without
charge, upon request, by calling 800-336-9970 and (ii) on the SEC's website at
www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Persons or organizations beneficially owning 25% or more of the outstanding
shares of a Fund are presumed to "control" the Fund. As a result, those persons
or organizations could have the ability to take action with respect to a Fund
without the consent or approval of other shareholders. As of October 11, 2005,
officers and Trustees of the Trust owned individually and together less than 1%
of the Fund's outstanding shares. As of October 11, 2005, the name, address and
percentage ownership of each entity that owned of record or beneficially 5% or
more of the outstanding shares of any class of a Fund were as follows:
Ownership
Name, City and State Percentage
____________________ __________
Roxbury Small-Cap Growth Fund - Institutional Shares 29.65%
Mars & Co.
c/o Investors Bank & Trust Co.
Boston, MA 02117-9130
Charles Schwab & Co. Inc. 5.87%
Special Custody Account for the Benefit of Customers
San Francisco, CA 94104
Amvescap National Trust Co. TR FBO 6.33%
Georgia Gulf Corp Savings & Capital Growth Plan
Atlanta, GA 30348
State Street Trust 10.29%
FBO American Crystal Sugar Master Trust
North Quincy, MA 02171
CITISTREET 7.04%
FBO American Family Mutual Ins. Co.
North Quincy, MA 02171
Roxbury Small-Cap Growth - Investor Shares
Brian C. Beh 19.16%
C/O Roxbury Capital Management, LLC
Minnetonka, MN 55305
Charles Schwab & Co. Inc. 80.84%
Special Custody Account for the Benefit of Customers
San Francisco, CA 94104
Roxbury Mid-Cap Fund - Institutional Shares
Wilmington Trust Company TTEE FBO 100.00%
Roxbury Capital Management 401(K)
Wilmington, DE 19899
- 19 -
Ownership
Name, City and State Percentage
____________________ __________
Roxbury Micro-Cap Fund - Institutional Shares
Brian C. Beh 37.51%
C/O Roxbury Capital Management, LLC
Minnetonka, MN 55305
Wilmington Trust Company TTEE FBO 62.49%
Roxbury Capital Management 401(K)
Wilmington, DE 19899
INVESTMENT ADVISORY AND OTHER SERVICES
Roxbury Capital Management, LLC
Roxbury, located at 100 Wilshire Boulevard, Suite 1000, Santa Monica, California
90401, serves as the investment adviser to Mid-Cap Fund, Small-Cap Growth Fund
and Micro-Cap Fund pursuant to an investment advisory agreement with the Trust
dated July 1, 2005 ("Investment Advisory Agreement"). Roxbury provides
investment advisory services to mutual funds and other institutional accounts,
including corporations, union and pension accounts, foundations, and endowments
as well as to individuals. Roxbury is registered as an investment adviser with
the SEC. Wilmington Trust Corporation has a controlling interest in Roxbury.
William Richards, a managing director of Roxbury, also serves as Vice President
of the Trust.
Several affiliates of Roxbury are also engaged in the investment advisory
business. Wilmington Trust FSB, a wholly owned subsidiary of Wilmington Trust
Corporation, is a registered investment adviser. In addition, Wilmington
Brokerage Services Company, a subsidiary of Wilmington Trust, and Wilmington
Trust Investment Management, are registered investment advisers and
broker-dealers. Cramer Rosenthal McGlynn, LLC ("CRM") is a registered investment
adviser. Wilmington Trust Corporation has a controlling interest in CRM. WTIM
is a wholly owned subsidiary of Wilmington Trust Corporation.
Under the Investment Advisory Agreement, Roxbury manages the assets of the
Funds. Prior to July 1, 2005, shareholders of each Fund had approved a
substantially identical agreement with Roxbury with respect to the management
of each Fund's assets. That agreement was replaced by the Investment Advisory
Agreement in connection with the reorganization of the Trust's and its
portfolios' investment structure from a master-feeder structure to a traditional
stand-alone mutual fund structure.
The Investment Advisory Agreement has an initial term of two years and continues
in effect from year to year thereafter if such continuance is specifically
approved at least annually by the Boards of Trustees including a majority of the
Independent Trustees casting votes in person at a meeting called for such
purpose, or by a majority of the outstanding voting securities of the Funds.
The Investment Advisory Agreement may be terminated by the Trust or Roxbury on
60 days' written notice without penalty. The Investment Advisory Agreement will
also terminate automatically in the event of its assignment as defined in the
1940 Act.
- 20 -
Pursuant to the Investment Advisory Agreement, Roxbury is entitled to receive
the following annual investment advisory fees, paid monthly, as a percentage of
average daily net assets:
Annual Fee As a Percentage
Fund of Average Daily Net Assets ("assets")
__________________________ _________________________________________
Mid-Cap Fund 0.75% of the first $1 billion in assets;
0.70% of the next $1 billion in assets;
and
0.65% of assets over $2 billion.
Small-Cap Growth Fund 1.00% of the first $1 billion in assets;
0.95% of the next $1 billion in assets;
and
0.90% of assets over $2 billion
Micro-Cap Fund 1.50%
For the past three fiscal years, Roxbury received the following fees:
12 Months 12 Months 12 Months
Fund Ended 6/30/05 Ended 6/30/04 Ended 6/30/03
________________________ _____________ _____________ _____________
Mid-Cap Fund* $95,131 $34,031 $3,641
Small-Cap Growth Fund* $1,222,587 $525,397 $13,345
Micro-Cap Fund $921 N/A N/A
*For the fiscal years presented, the amount reflects the advisory fee paid
by the Mid Cap Series and Small Cap Growth Series with respect to each of the
Mid-Cap Fund and Small-Cap Growth Fund's investment in such respective master
series of the Master Trust as a part of each Fund's former master-feeder
structure.
Roxbury has contractually agreed to waive a portion of its advisory fee or
reimburse expenses to the extent total operating expenses exceed 1.30% with
respect to the Institutional Shares of Mid-Cap Fund and 1.55% with respect to
the Investor Shares of Mid-Cap Fund; 1.75% with respect to the Institutional
Shares of Small-Cap Growth Fund and 2.00% with respect to the Investor Shares
of Small-Cap Growth Fund; and 2.25% with respect to the Institutional Shares
of Micro-Cap Fund and 2.50% with respect to the Investor Shares of Micro-Cap
Fund. Unless the Board of Trustees approves its earlier termination, the
undertaking with respect to the Mid-Cap Fund, the Small-Cap Growth Fund and the
Micro-Cap Fund will remain in place until November 1, 2015, January 1, 2006,
and December 31, 2016, respectively.
For the past three fiscal years, Roxbury waived and reimbursed the following
fees with respect to the Micro-Cap Fund and the particular master series of
the Master Trust in which the Mid-Cap Fund and Small-Cap Growth Fund invested:
12 Months 12 Months 12 Months
Fund Ended 6/30/05 Ended 6/30/04 Ended 6/30/03
_______________________ _____________ _____________ _____________
Mid-Cap Fund* $90,613 $110,210 $125,011
Small-Cap Growth Fund* $0 $0 $71,742
Micro-Cap Fund $47,483 N/A N/A
Advisory Services. Under the terms of the Investment Advisory Agreement,
Roxbury agrees to: (a) direct the investments of each Fund, subject to and in
accordance with the Fund's investment objective, policies and limitations set
forth in the Prospectus and this SAI; (b) purchase and sell
- 21 -
for each Fund, securities and other investments consistent with the Fund's
objective and policies; (c) supply office facilities, equipment and personnel
necessary for servicing the investments of the Funds; (d) pay the salaries of
all personnel of the Funds and Roxbury performing services relating to research,
statistical and investment activities on behalf of the Funds; (e) make available
and provide such information as the Funds and/or their administrator may
reasonably request for use in the preparation of its registration statement,
reports and other documents required by any applicable federal, foreign or state
statutes or regulations; (f) make its officers and employees available to the
Trustees and officers of the Trusts for consultation and discussion regarding
the management of each Fund and its investment activities. Additionally,
Roxbury agrees to create and maintain all necessary records in accordance with
all applicable laws, rules and regulations pertaining to the various functions
performed by it and not otherwise created and maintained by another party
pursuant to a contract with a Fund. The Trust and/or Roxbury may at any time or
times, upon approval by the Board of Trustees, enter into one or more
sub-advisory agreements with a sub-adviser pursuant to which the adviser
delegates any or all of its duties as listed.
The Investment Advisory Agreement provides that Roxbury shall not be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which the agreement relates, except to the extent
of a loss resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its obligations and duties under the agreement.
The salaries of any officers and the Interested Trustees of the Trust who are
affiliated with Roxbury and the salaries of all personnel of Roxbury performing
services for each Fund relating to research, statistical and investment
activities are paid by Roxbury.
Each class of shares of the Funds pays its respective pro rata portion of the
advisory fee payable by a Fund.
ADMINISTRATION AND ACCOUNTING SERVICES
Pursuant to Administration and Accounting Services Agreements dated October 1,
2004, PFPC Inc. performs certain administrative and accounting services for the
Funds such as preparing shareholder reports, providing statistical and research
data, assisting Roxbury and other investment advisers of the Trust in compliance
monitoring activities, and preparing and filing federal and state tax returns on
behalf of the Funds. In addition, PFPC prepares and files certain reports with
the appropriate regulatory agencies and prepares certain materials required by
the SEC or any state securities commission having jurisdiction over the Funds.
The accounting services performed by PFPC include determining the net asset
value per share of each Fund and maintaining records relating to the securities
transactions of the Funds. From September 1, 2002 to October 1, 2004, RSMC, an
affiliate of the Trust, provided administrative and accounting services and
PFPC provided certain sub-administration services. Prior to September 1, 2002,
PFPC provided administrative and accounting services to the Funds. Accordingly,
the Trust paid administrative fees to RSMC and PFPC, whether as administrator or
sub-administrator of
- 22 -
$4,808,384, $3,633,484, and $2,552,225 for fiscal years
ended June 30, 2005, 2004, and 2003, respectively.
Pursuant to Compliance, Support and Recordkeeping Services Agreements dated
October 1, 2004, RSMC, an affiliate of the Trust, performs certain
non-investment related statistical and research services, execution and
administrative support services, recordkeeping services as well as certain other
coordination and fund related preparatory services for the Funds. In
consideration of the provision of these services, RSMC, an investment adviser to
certain series of the Trust, receives an asset based fee of 0.012% of the
Trust's average daily net assets and a portion of the Chief Compliance Officer's
total compensation.
ADDITIONAL SERVICE PROVIDERS
Independent Registered Public Accounting Firm. Ernst & Young LLP serves as the
independent registered public accounting firm to the Trust providing services
which include (1) auditing the annual financial statements for the Funds, (2)
assistance and consultation in connection with SEC filings and (3) review of the
annual federal income tax returns filed on behalf of each Fund. Ernst & Young
LLP is located at Two Commerce Square, 2001 Market Street, Suite 4000,
Philadelphia, PA 19103.
Legal Counsel. Pepper Hamilton LLP, 3000 Two Logan Square, 18th and Arch
Streets, Philadelphia, PA 19103, serves as counsel to the Trust.
Custodian. Wilmington Trust Company, 1100 North Market Street, Wilmington DE
19890, serves as the Custodian. The Custodian's services include, in addition
to the custody of all cash and securities owned by the Trust, the maintenance of
custody accounts in the Custodian's trust department, the segregation of all
certificated securities owned by the Trust, the appointment of authorized agents
as sub-custodians, disbursement of funds from the custody accounts of the Trust,
releasing and delivering securities from the custody accounts of the Trust,
maintaining records with respect to such custody accounts, delivering to the
Trust a daily and monthly statement with respect to such custody accounts, and
causing proxies to be executed. Wilmington Trust Company receives a fee for its
services based on the average daily net assets of the Trust and has appointed
PFPC Trust Company as Sub-Custodian of the Trust.
Transfer Agent. PFPC Inc., 760 Moore Road, King of Prussia, Pennsylvania 19406,
serves as the Transfer Agent and Dividend Paying Agent.
DISTRIBUTION OF SHARES
Professional Funds Distributor, LLC, the Funds' Distributor, is located at 760
Moore Road, King of Prussia, PA 19406. The Distributor serves as the
underwriter of the Funds' shares pursuant to a Distribution Agreement with the
Trust. Pursuant to the terms of the Distribution Agreement, the Distributor is
granted the right to sell the shares of the Funds as agent for the Trust. Shares
of the Funds are offered continuously.
- 23 -
Under the terms of the Distribution Agreement, the Distributor agrees to use
efforts deemed appropriate by the Distributor to solicit orders for the sale of
shares of the Funds and will undertake such advertising and promotions as it
believes reasonable in connection with such solicitation. Moreover, to the
extent that the Distributor receives shareholders service fees under the
shareholder services plan adopted by the Funds with respect to the Investor
Shares, the Distributor will furnish or enter into arrangements with others for
the furnishing of personal or account maintenance services with respect to the
relevant shareholders of the Funds as may be required pursuant to such plan.
The Distributor receives no underwriting commissions or shareholder servicing
fees with respect to the Funds.
The Distribution Agreement became effective as of January 1, 2004 and continues
in effect for a period of two years. Thereafter, the agreement may continue in
effect for successive annual periods provided such continuance is approved at
least annually by a majority of the Trustees, including a majority of the
Independent Trustees. The Distribution Agreement provides that the Distributor,
in the absence of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreements, will not be liable to the Funds or their
shareholders for losses arising in connection with the sale of Fund shares.
The Distribution Agreement terminates automatically in the event of an
assignment. The Distribution Agreement is also terminable without payment of
any penalty with respect to any Fund (i) by vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding voting
securities of the applicable Fund on sixty (60) days' written notice to the
Distributor; or (ii) by the Distributor on sixty (60) days' written notice to
the Fund.
Prior to September 1, 2005, the Mid-Cap Fund had adopted a separate Distribution
Plans pursuant to Rule 12b-1 under the 1940 Act ("the "Plan"). The Plan
provided for payment to the Distributor for certain distribution activities,
regardless of the Distributor's expenses, and permitted the Distributor to pay
certain financial institutions who entered into Servicing Agreements with the
Distributor for distribution and shareholders servicing activities. The Plan
provided for payment to the Distributor not exceeding 0.25% on an annualized
basis of the Investor Shares of each of the Small-Cap Growth Fund's and the
Micro-Cap Fund's average net assets. For the fiscal year ended June 30, 2005,
the Funds paid no 12b-1 fees to the Distributor pursuant to the Plan then in
effect with respect to broker-dealer compensation. The Board of Trustees of the
Trust terminated the Plan on September 1, 2005.
SHAREHOLDER SERVICE PLAN
The Trust has adopted an Amended Shareholder Service Plan ("Plan") with respect
to Investor Shares of the Funds pursuant to which the Trust may enter into
Shareholder Service Agreements ("Agreement") with financial institutions and
other persons who provide services for and maintain shareholder accounts
("Service Providers"). Each Fund will pay a monthly shareholder service fee to
such Service Provider at the annual rate of 0.25% of the average daily net
assets of the Investor Shares of each Fund with which the Service Provider
maintains a service relationship. Each Agreement provides that any compensation
payable to the Service Provider in
- 24 -
connection with an investment in Investor Shares of a Fund will be disclosed by
the Service Provider to its customers, will be authorized by its customers and
will not result in an excessive fee to the Service Provider.
The Shareholder Service fee compensates the Service Provider for certain service
activities which include: (a) establishing and maintaining accounts and records
relating to clients of a Service Provider; (b) answering shareholder inquiries
regarding the manner in which purchases, exchanges and redemptions of the Fund's
Investor Shares may be affected and other matters pertaining to such class of
share's services; (c) providing necessary personnel and facilities to establish
and maintain shareholder accounts and records; (d) assisting shareholders in
arranging for processing of purchase, exchange and redemption transactions; (e)
arranging for the wiring of funds; (f) guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder -
designated accounts; (g) integrating periodic statements with other shareholder
transactions; and (h) providing such other related services as the shareholder
may request.
The Plan may be terminated without penalty at any time by a vote of the majority
of the Trust's Independent Trustees. Any material amendment to the Plan must be
approved by the Trust's Board of Trustees, including a majority of Independent
Trustees.
- 25 -
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED. The following table provides additional information
about other accounts managed by portfolio managers and management team members
jointly and primarily responsible for the day-to-day management of the Funds
for the fiscal year ended June 30, 2005.
For other accounts managed by
Portfolio Manager(s) within each
Portfolio Manager(s) Total number of other accounts category below, number of accounts
jointly and primarily managed by Portfolio Manager(s) and the total assets in the accounts
responsible for the within each category below and the with respect to which the advisory
day to day management total assets in the accounts managed fee is based on the performance of
of the Funds' assets within each category below. the account.
____________________ _____________________________________________________________________________________________________________
Registered Other Pooled Other Accounts Registered Other Pooled Other Accounts
Investment Investment Investment Investment
Companies Vehicles Companies Vehicles
_________________ ________________ __________________ _______________ _______________ _______________
Number Total Number Total Number Total Number Total Number Total Number Total
of Assets of Assets of Assets of Assets of Assets of Assets
Accounts ($mm) Accounts ($mm) Accounts ($mm) Accounts ($mm) Accounts ($mm) Accounts ($mm)
_______ ________ ________ ______ _________ _______ _________ ______ ________ ______ ________ _______
Roxbury Capital
Management, LLC
Alfred J. Lockwood 1 $ 12.9 2 $ 38.4 977 $1,165.6 0 0 0 0 0 $ 0
Steve Marshman* 6 $ 323.7 1 $ 3.8 109 $ 758.7 0 0 0 0 0 $ 48.1
Robert Marvin* 6 $ 323.7 1 $ 3.8 109 $ 758.7 0 0 0 0 0 $ 48.1
Brian Smoluch* 6 $ 323.7 1 $ 3.8 109 $ 758.7 0 0 0 0 0 $ 48.1
Laurie Burstein 1 $ 0.14 0 0 17 $ 4.0 0 0 0 0 0 0
*The Small Cap portfolios are co-managed. The total amount of assets and number of accounts are shown on each Portfolio
Manager's row.
- 26 -
MATERIAL CONFLICTS OF INTEREST. Material conflicts of interest that may arise
in connection with a portfolio manager's management of a Fund's investments and
investments of other accounts managed include material conflicts between the
investment strategy of a Fund and the investment strategy of the other accounts
managed by the portfolio manager and conflicts associated with the allocation
of investment opportunities between a Fund and other accounts managed by the
portfolio manager. The table below discusses potential material conflict of
interests identified by Roxbury in connection with the management of the Funds.
Additional conflicts of interest may potentially exist or arise that are not
discussed below.
__________________________________________________________________________________________________________________________________
Portfolio Manager(s) Description of any material conflicts of interest that may arise in connection with the Portfolio Manager's
management of the Fund's investments and the investments of the other accounts managed.
__________________________________________________________________________________________________________________________________
Roxbury Capital Roxbury understands that potential material conflicts of interest exist in "side-by-side" management. As
Management, LLC. such, Roxbury has always had comprehensive procedures on the aggregation and allocation of transactions
across accounts managed in the same investment strategy. When possible, Roxbury aggregates the same
o Alfred J. Lockwood transactions in the same securities for many accounts to enhance execution. Clients in an aggregated
transaction each receive the same price per share or unit, but, if they have directed brokerage to a
o Steve Marshman particular broker, they may pay different commissions or may pay or receive a different price.
o Robert Marvin Certain clients may not be included in certain aggregated transactions because of cash availability, account
restrictions, directed brokerage, or tax sensitivity. Roxbury utilizes a trade rotation in these situations.
o Brian Smoluch The allocation is pro-rata basis within each aggregated group unless the size of the fill is such that a
pro-rata allocation is not appropriate. If the Roxbury Special Fund II, Roxbury's hedge fund, initiates a
o Laurie Burstein trade at the same time as other accounts, it is last in the trade rotation. Additionally, the hedge fund is
not permitted to enter into a position contrary to a current holding or holding included in Roxbury's
"Watch List" unless the position is entered into "against the box". The Watch List contains securities that
Roxbury is "closely observing" and "anticipating imminent action in".
Roxbury's Code of Ethics details additional guidelines and procedures to eliminate potential material
conflicts of interest.
__________________________________________________________________________________________________________________________________
- 27 -
COMPENSATION. Following is a description of the structure of, and method used
to determine the compensation received by the Fund's portfolio managers or
management team members from the Funds, the Adviser or any other source with
respect to managing the Funds and any other accounts for the fiscal year ended
June 30, 2005
__________________________________________________________________________________________________________________________________
Portfolio Manager(s) Structure of, and method used to determine, the compensation of each Portfolio Manager, including the
criteria on which compensation is based
__________________________________________________________________________________________________________________________________
Roxbury Capital For Mr. Lockwood, compensation includes a combination of base salary, a generous benefits package, an annual
Management, LLC performance bonus, and a profit sharing plan linked to the net income of the company.
o Alfred J. Lockwood
o Steve Marshman For Mr. Marshman, Mr. Marvin and Mr. Smoluch, compensation includes a combination of base salary, a generous
o Robert Marvin benefits package, and a profit sharing plan linked directly to the net income of Roxbury's Small-Cap Growth
o Brian Smoluch accounts.
o Laurie Burstein
For Ms. Burstein, compensation includes a combination of base salary, a generous benefits package, and a
profit sharing plan linked directly to the net income of Roxbury's Micro-Cap accounts.
__________________________________________________________________________________________________________________________________
- 28 -
OWNERSHIP OF SECURITIES. The following table sets forth the dollar range of
equity securities beneficially owned by each portfolio managed in the Funds as
of June 30, 2005.
Portfolio Manager(s) Dollar Value of Portfolio shares
Beneficially Owned
___________________________________________ _________________________________
Roxbury Capital Management, LLC
o Alfred J. Lockwood $100,001-$500,000
o Steve Marshman $100,001-$500,000
o Robert Marvin $100,001-$500,000
o Brian Smoluch $100,001-$500,000
o Laurie Burstein None
- 29 -
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage Transactions. Roxbury places all portfolio transactions on behalf of
each Fund, selects broker-dealers for such transactions, allocates brokerage
fees in such transactions and, where applicable, negotiates commissions and
spreads on transactions. Debt securities purchased and sold by Fund are
generally traded on the dealer market on a net basis (i.e., without commission)
through dealers acting for their own account and not as brokers, or otherwise
involve transactions directly with the issuer of the instrument. This means
that a dealer (the securities firm or bank dealing with a Fund) makes a market
for securities by offering to buy at one price and sell at a slightly higher
price. The difference between the prices is known as a spread. When securities
are purchased in underwritten offerings, they include a fixed amount of
compensation to the underwriter. When buying or selling securities, a Fund may
pay commissions to brokers who are affiliated with the investment adviser, a
sub-adviser or the Fund.
During the fiscal years ended June 30, 2005, 2004 and 2003, the Micro-Cap Fund
and each master series in which the Mid-Cap Fund and Smaller-Cap Growth Fund
invested paid the following brokerage commissions:
12 Months 12 Months 12 Months
Ended Ended Ended
Fund 6/30/05 6/30/04 6/30/03
________________________ _________ ___________ _____________
Mid-Cap Fund* $ 39,729 $ 19,208 $ 2,249
Small-Cap Growth Fund* $ 218,174 $ 543,161 $ 2,811
Micro-Cap Fund $ 2,099 N/A N/A
_________________________________________________________________
*For the fiscal years presented, the amount reflects brokerage commission
paid by the Mid Cap Series and Small Cap Growth Series which each of the
Mid-Cap Fund and Small-Cap Growth Fund paid indirectly through its
investment in the respective master series of the Master Trust under its
former master-feeder structure.
The variation in brokerage commissions paid by Mid-Cap Fund and Small-Cap Growth
Fund for the fiscal year ended June 30, 2004, as compared to the prior fiscal
year, was due to a significant fluctuation in assets and a volatile market,
which in effect resulted in an increase in transactions on which commissions
were paid.
Brokerage Selection. The primary objective of Roxbury in placing orders on
behalf of the Funds for the purchase and sale of securities is to obtain best
execution at the most favorable prices through responsible brokers or dealers
and, where the spread or commission rates are negotiable, at competitive rates.
In selecting and monitoring a broker or dealer, Roxbury considers, among other
things: (i) the price of the securities to be purchased or sold; (ii) the rate
of the spread or commission; (iii) the size and difficulty of the order; (iv)
the nature and character of the spread or commission for the securities to be
purchased or sold; (v) the reliability, integrity, financial condition, general
execution and operational capability of the broker or dealer; and (vi) the
quality of any research or statistical services provided by the broker or dealer
to the Funds or to Roxbury.
Section 28(e) of the Securities Exchange Act of 1934 provides that an investment
adviser, under certain circumstances, lawfully may cause an account to pay a
higher commission than the
- 30 -
lowest available. Under Section 28(e), an investment adviser is required to make
a good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided viewed in terms of
either that particular transaction or the investment adviser's overall
responsibilities with respect to accounts as to which it exercises investment
discretion." The services provided by the broker also must lawfully or
appropriately assist the investment adviser in the performance of its investment
decision-making responsibilities. Accordingly, in recognition of research
services provided to it, a Fund may pay a higher broker commission than those
available from another broker.
Research services received from broker-dealers supplement an adviser's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information with
respect to the performance, investment activities, and fees and expenses of
other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communications of trade information, the providing of
custody services, as well as the providing of equipment used to communicate
research information and the providing of specialized consultations with an
investment adviser's personnel with respect to computerized systems and data
furnished to the investment adviser as a component of other research services,
the arranging of meetings with management of companies, and the providing of
access to consultants who supply research information. The outside research
assistance is useful to an adviser since the broker-dealers used by the advisers
tend to follow a broad universe of securities and the research provided by such
broker-dealers may provide an adviser with a diverse perspective on financial
markets. Research services provided to an adviser by broker-dealers are
available for the benefit of all accounts managed or advised by such investment
adviser or by its affiliates. An investment adviser cannot readily determine the
extent to which spreads or commission rates or net prices charged by brokers or
dealers reflect the value of their research, analysis, advice and similar
services.
During the fiscal year ended June 30, 2005, the Micro-Cap Fund and each master
series in which the Mid-Cap Fund and Small-Cap Growth Fund invested directed
transactions and paid brokerage commissions because of research services
provided in the following amounts:
12 Months Ended 6/30/05
Fund Commissions Paid Transactions Directed
Mid-Cap Fund* $11,831 $7,816,662
Small-Cap Growth Fund* $64,862 $30,787,795
Micro-Cap Fund $620 $87,777
* The amount reflects brokerage commissions paid by the Mid Cap Series and
Small Cap Growth Series which each of the Mid-Cap Fund and Small-Cap
Growth Fund paid indirectly through its investment in the respective
master series of the Master Trust under its former master-series structure.
- 31 -
Allocation of Portfolio Transactions. Some of Roxbury's other clients have
investment objectives and programs similar to that of the Funds. Occasionally,
recommendations made to other clients may result in their purchasing or selling
securities simultaneously with a Fund. Consequently, the demand for securities
being purchased or the supply of securities being sold may increase, and this
could have an adverse effect on the price of those securities. It is the policy
of Roxbury not to favor one client over another in making recommendations or in
placing orders. In the event of a simultaneous transaction, purchases or sales
are averaged as to price, transaction costs are allocated between a Fund and
other clients participating in the transaction on a pro rata basis and purchases
and sales are normally allocated between such Fund and the other clients as to
amount according to a formula determined prior to the execution of such
transactions.
CAPITAL STOCK AND OTHER SECURITIES
Each Fund issues two separate classes of shares - Institutional Shares and
Investor Shares. The shares of each Fund, when issued and paid for in accordance
with the prospectus, will be fully paid and non-assessable shares, with equal
voting rights and no preferences as to conversion, exchange, dividends,
redemption or any other feature.
The separate classes of shares each represent interests in the same portfolio of
investments, have the same rights and are identical in all respects, except that
Investor Shares of each Fund pay Shareholder Service Plan expenses (and have
exclusive voting rights with respect to the Shareholder Service Plan pursuant to
which fees may be paid). The net income attributable to Investor Shares and the
dividends payable on such shares will be reduced by the amount of any
shareholder service fees; accordingly, the net asset value of the Investor
Shares will be reduced by such amount to the extent the Funds have undistributed
net income.
Shares of a Fund entitle holders to one vote per share and fractional votes for
fractional shares held. Shares have non-cumulative voting rights, do not have
preemptive or subscription rights and are transferable. Each Fund and class take
separate votes on matters affecting only that Fund or class. For example, a
change in the fundamental investment policies for a Fund would be voted upon
only by shareholders of that Fund.
The Funds do not hold annual meetings of shareholders. The Trustees are required
to call a meeting of shareholders for the purpose of voting upon the question of
removal of any Trustee when requested in writing to do so by the shareholders of
record owning not less than 10% of a Fund's outstanding shares.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase of Shares. Information regarding the purchase of shares is discussed in
the "Purchase of Shares" section of the prospectus. Additional methods to
purchase shares are as follows:
- 32 -
Individual Retirement Accounts: You may purchase shares of the Funds for a
tax-deferred retirement plan such as an individual retirement account ("IRA").
To order an application for an IRA and a brochure describing a Fund IRA, call
the transfer agent at (800) 336-9970. PFPC Trust Company, as custodian for each
IRA account receives an annual fee of $10 per account, paid directly to PFPC
Trust Company by the IRA shareholder. If the fee is not paid by the due date,
the appropriate number of Fund shares owned by the IRA will be redeemed
automatically as payment.
Automatic Investment Plan: You may purchase Fund shares through an Automatic
Investment Plan ("AIP"). Under the AIP, the transfer agent, at regular
intervals, will automatically debit your bank checking account in an amount of
$50 or more (after the $2,000 minimum initial investment for Investor Shares,
and $100,000 minimum for Institutional Shares). You may elect to invest the
specified amount monthly, bimonthly, quarterly, semiannually or annually. The
purchase of Fund shares will be effected at their offering price at the close of
regular trading on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m., Eastern time), on or about the 20th day of the month. For an application
for the Automatic Investment Plan, check the appropriate box of the application
or call the transfer agent at (800) 336-9970.
Payroll Investment Plan: The Payroll Investment Plan ("PIP") permits you to make
regularly scheduled purchases of Fund shares through payroll deductions. To open
a PIP account, you must submit a completed account application, payroll
deduction form and the minimum initial deposit to your employer's payroll
department. Then, a portion of your paychecks will automatically be transferred
to your PIP account for as long as you wish to participate in the plan. It is
the sole responsibility of your employer, not the Fund, the Distributor, the
investment advisers or the transfer agent, to arrange for transactions under the
PIP. The Fund reserves the right to vary its minimum purchase requirements for
employees participating in a PIP.
Redemption of Shares. Information regarding the redemption of shares is
discussed in the "Redemption of Shares" section of the prospectus. Additional
methods to redeem shares are as follows:
By Wire: Redemption proceeds may be wired to your predesignated bank account in
any commercial bank in the United States if the amount is $1,000 or more. The
receiving bank may charge a fee for this service. Proceeds may also be mailed to
your bank or, for amounts of $10,000 or less, mailed to your Fund account
address of record if the address has been established for at least 60 days. In
order to authorize the transfer agent to mail redemption proceeds to your Fund
account address of record, complete the appropriate section of the Application
for Telephone Redemptions or include your Fund account address of record when
you submit written instructions. You may change the bank account that you have
designated to receive amounts redeemed at any time. Any request to change the
bank account designated to receive redemption proceeds should be accompanied by
a guarantee of the shareholder's signature by an eligible institution. A
signature and a signature guarantee are required for each person in whose name
the bank account is registered. Further documentation will be required to change
the designated bank account when a corporation, other organization, trust,
fiduciary or other institutional investor holds Fund shares.
- 33 -
Systematic Withdrawal Plan: If you own shares of a Fund with a value of $10,000
or more you may participate in the Systematic Withdrawal Plan ("SWP"). Under the
SWP, you may automatically redeem a portion of your account monthly, bimonthly,
quarterly, semiannually or annually. The minimum withdrawal available is $100.
The redemption of Fund shares will be effected at the NAV determined on or about
the 25th day of the month. This service is generally not available for
Wilmington Trust's trust accounts or certain service organizations, because a
similar service is provided through those organizations.
Additional Information Regarding Redemptions: If shares to be redeemed represent
a recent investment made by check, the Funds reserve the right not to make the
redemption proceeds available until it has reasonable grounds to believe that
the check has been collected (which could take up to 10 days).
To ensure proper authorization before redeeming Fund shares, the transfer agent
may require additional documents such as, but not restricted to, stock powers,
trust instruments, death certificates, appointments as fiduciary, certificates
of corporate authority and waivers of tax required in some states when settling
estates.
When shares are held in the name of a corporation, other organization, trust,
fiduciary or other institutional investor, the transfer agent requires, in
addition to the stock power, certified evidence of authority to sign the
necessary instruments of transfer. These procedures are for the protection of
shareholders and should be followed to ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within 7 days of acceptance of shares tendered for
redemption. Delay may result if the purchase check has not yet cleared, but the
delay will be no longer than required to verify that the purchase check has
cleared, and the Funds will act as quickly as possible to minimize delay.
The value of shares redeemed may be more or less than the shareholder's cost,
depending on the net asset value at the time of redemption. Redemption of shares
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of a redemption may be subject to backup withholding.
A shareholder's right to redeem shares and to receive payment therefore may be
suspended when (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted, (c) an emergency
exists as a result of which it is not reasonably practicable to dispose of a
Fund's securities or to determine the value of a Fund's net assets, or (d)
ordered by a governmental body having jurisdiction over a Fund for the
protection of the Fund's shareholders, provided that applicable rules and
regulations of the SEC (or any succeeding governmental authority) shall govern
as to whether a condition described in (b), (c) or (d) exists. In case of such
suspension, shareholders of the affected Fund may withdraw their requests for
redemption or may receive payment based on the net asset value of the Fund next
determined after the suspension is lifted.
- 34 -
Each Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption by making payment in whole or
in part with readily marketable securities (redemption "in-kind") chosen by the
Fund and valued in the same way as they would be valued for purposes of
computing the net asset value of the applicable Fund. If payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities into cash. Each Fund has elected, however, to be governed by Rule
18f-1 under the 1940 Act, as a result of which a Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the applicable Fund for any one shareholder during any 90-day period. This
election is irrevocable unless the SEC permits its withdrawal.
Pricing of Shares. The net asset value per share of each Fund is determined by
dividing the value of the Fund's net assets by the total number of Fund shares
outstanding. This determination is made by PFPC, as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) each day the Funds
are open for business. The Funds are open for business on days when the
Exchange, and PFPC are open for business.
In valuing a Fund's assets, a security listed on the Exchange (and not subject
to restrictions against sale by the Fund on the Exchange) will be valued at its
last sale price on the Exchange on the day the security is valued. Lacking any
sales on such day, the security will be valued at the mean between the closing
asked price and the closing bid price. Securities listed on other exchanges (and
not subject to restriction against sale by the Fund on such exchanges) will be
similarly valued, using quotations on the exchange on which the security is
traded most extensively. Unlisted securities that are quoted on the National
Association of Securities Dealers' National Market System, for which there have
been sales of such securities on such day, shall be valued at the last sale
price reported on such system on the day the security is valued. If there are no
such sales on such day, the value shall be the mean between the closing asked
price and the closing bid price. The value of such securities quoted on the
NASDAQ Stock Market System, but not listed on the National Market System, shall
be valued at the mean between the closing asked price and the closing bid price.
Unlisted securities that are not quoted on the NASDAQ Stock Market System and
for which over-the-counter market quotations are readily available will be
valued at the mean between the current bid and asked prices for such security in
the over-the-counter market. Other unlisted securities (and listed securities
subject to restriction on sale) will be valued at fair value as determined in
good faith under the direction of the Board of Trustees although the actual
calculation may be done by others. Short-term investments with remaining
maturities of less than 61 days are valued at amortized cost.
DIVIDENDS
Dividends, if any, from the Funds' net investment income and distributions of
net short-term capital gain and net capital gain (the excess of net long-term
capital gain over the short-term capital loss), realized by each Fund, after
deducting any available capital loss carryovers are declared and paid to its
shareholders annually.
- 35 -
TAXATION OF THE FUNDS
General. Each Fund is treated as a separate corporation for federal income tax
purposes. Each Fund intends to qualify to be classified under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code") as a "regulated
investment company" ("RIC"). To qualify or continue to qualify for treatment as
a RIC under the Code, a Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, interest, net short-term capital gain,
without regard to the deduction for dividends paid, and net gains from certain
foreign currency transactions) and at least 90% of its net income from
tax-exempt obligations (the "Distribution Requirement") as well as meet several
additional requirements. These requirements include, among others, the
following: (1) each Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to certain
securities loans, gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures and forward contracts) derived with respect to its business of
investing in such stock securities or those currencies; (2) at the close of each
quarter of each Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash, cash items, U.S. Government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of each Fund's total assets and that does not represent more than 10%
of such issuer's outstanding voting securities; and (3) at the close of each
quarter of each Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of (i) any one issuer or (ii) any two or more
issuers that a Fund controls and which are determined to be in the same trade or
business or similar or related trades or businesses, or (iii) one or more
"qualified publicly traded partnerships."
To the extent a Fund qualifies for treatment as a RIC, the Fund will not be
subject to federal income tax on ordinary income and net capital gains paid to
shareholders in the form of dividends or capital gain distributions. Each Fund
has elected to be treated as a RIC under the Code and intends to qualify as such
for each future year.
If a Fund failed to qualify for treatment as a RIC in any taxable year, it would
be subject to federal income tax on its taxable income at corporate income tax
rates with no deduction for dividends paid to shareholders and all distributions
from earnings and profits, including any distributions from net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
would be taxable to its shareholders as a dividend. In addition, a Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before qualifying again for RIC treatment.
Each Fund will be subject to a nondeductible 4% excise tax (the "Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all (at least 98%) of its ordinary income for that year and capital gain income
for the one-year period ending on October 31 of that year, plus certain other
amounts.
- 36 -
Each Fund's gains or losses on sales of securities will be long-term capital
gains or losses if the securities have been held by a Fund for more than twelve
months and short-term capital gains or losses if not so held. Each Fund will be
taxed on the amount of its undistributed net capital gain over the amount of its
deduction for dividends paid, determined with reference to capital gain
dividends only. Each Fund is permitted to elect to include all or a portion of
such undistributed net capital gain in the income of its shareholders on the
last day of its taxable year. In such case the shareholder is given credit for
the tax that the RIC paid and is entitled to increase its basis in its Fund
shares by the difference between (i) the amount of capital gains that the Fund
elected to include in the shareholder's income and (ii) the tax deemed paid by
the shareholder. A capital gain dividend is treated by the shareholders as a
long-term capital gain regardless of how long the investor has owned shares in a
Fund. Under present law, an individual's long-term capital gains are taxed at a
state maximum rate of 15%.
If a Fund invests in any instruments that generate taxable income, under the
circumstances described in the prospectus, distributions of the investment
company income will be taxable to its shareholders as ordinary income to the
extent of its earnings and profits, whether paid in cash or reinvested in
additional shares. If such distribution to its shareholders is in excess of its
current and accumulated earnings and profits in any taxable year, the excess
distribution will be treated by each shareholder as a return of capital to the
extent of the shareholder's tax basis and thereafter as capital gain. If a Fund
realizes capital gain as a result of market transactions, any distribution of
that gain will be taxable to its shareholders and treated as a capital gain. If
a Fund has dividend income that qualifies as qualified dividend income, as
provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003, the
maximum amount allowable will be designated by the Fund and such amount will be
taxable to individual shareholders at a stated maximum rate of 15%. This amount
will be reflected on Form 1099-DIV issued to each shareholder for the current
calendar year.
If a Fund has dividend income that qualifies for the dividends-received
deduction for corporations, it will be subject to the limitations applicable
under the Code. The qualifying portion is limited to properly designated
distributions attributed to dividend income (if any) the Fund receives from
certain stock in U.S. domestic corporations and the deduction is subject to
holding period requirements and debt-financing limitations under the Code.
Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in one of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, such distributions will be taxed to the
shareholders for the year in which that December 31 falls, regardless of whether
it is paid in January of the following year.
Investors should be aware that if Fund shares are purchased shortly before the
record date for any dividend (other than an exempt-interest dividend) or capital
gain distribution, the shareholder will pay full price for the shares and will
receive some portion of the price back as a taxable distribution.
- 37 -
Upon a sale, exchange (whether or not for shares of another fund) or redemption
of a shareholder's shares, the shareholder will realize taxable gain or loss
depending upon such shareholder's basis in the shares. The gain or loss will be
long-term capital gain or loss if the shares have been held for more than one
year and short-term capital gain or loss if held for one year or less. Any loss
realized on a sale or redemption of shares will be disallowed to the extent the
shares are purchased within a period of 61 days, beginning 30 days before and
ending 30 days after the shares are bought or sold. Any loss realized by a
shareholder on the redemption or sale of shares held by the shareholder for six
months or less will be treated as a long-term, instead of a short-term, capital
loss to the extent of any capital gain distributions (or undistributed capital
gain) to that shareholder with respect to those shares and are disallowed to the
extent of any distributions of exempt-interest dividends received with respect
to such shares. Capital losses are deductible only against capital gains except
for individuals, who may deduct up to $3,000 against any income.
It is anticipated that all or a portion of the dividends from the net investment
income of each Fund will qualify for the dividends-received deduction allowed to
corporations. Corporate shareholders of a Fund are generally entitled to take
the dividends received deduction with respect to all or a portion of the
ordinary income dividends paid (other than capital gain dividends), to the
extent of a Fund's aggregate dividend received. The aggregate dividends received
includes only dividends received from domestic corporations, other than certain
exempt organizations and REITs. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the alternative minimum tax ("AMT"). Moreover, the
dividends-received deduction will be reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed and
will be eliminated if those shares are deemed to have been held for less than 46
days. Distributions of net short-term capital gain and net capital gain are not
eligible for the dividends received deduction. Under current law, individual
shareholders who received qualified dividend income will be taxed on such
qualified dividend income at a stated maximum rate of 15% in lieu of a stated
maximum rate of 35% for ordinary income. Qualified dividend income generally
means dividend income received (1) from a domestic corporation or (2) from
qualified foreign corporations in limited instances.
Each Fund will inform shareholders within 60 days after their fiscal year-end of
the percentage of its dividends designated as (i) qualifying for the dividends
received deduction and (ii) qualified dividend income taxable as net capital
gain.
Foreign Securities. Dividends and interest received, and gains realized, by a
Fund may be subject to income, withholding or other taxes imposed by foreign
countries or U.S. possessions (collectively, "foreign taxes") that would reduce
the yield on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors. It is impossible to determine the rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known.
- 38 -
If more than 50% of the value of a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to benefit from any foreign tax credit
or deduction that is available with respect to foreign taxes paid by a Fund. If
the election is made, a Fund will treat those taxes as dividends paid to its
shareholders and each shareholder (1) will be required to include in gross
income, and treat as paid by the shareholder, a proportionate share of those
taxes, (2) will be required to treat such proportionate share of those taxes and
of any dividend paid by the Fund that represents income from foreign or U.S.
possessions sources as the shareholder's own income from those sources and (3)
may either deduct the taxes deemed paid by the shareholder in computing taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against the shareholder's federal income tax. Each Fund will
report to its shareholders within 60 days after each taxable year their
respective shares of its income from sources within, and taxes paid to, foreign
countries and U.S. possessions, as well as the amount of foreign taxes that are
not allocable as a credit, if it makes this election. If a Fund makes this
election, individuals who have no more than $300 ($600 for married persons
filing jointly) of creditable foreign taxes all of which is included on Forms
1099 and all of whose foreign source income is "qualified passive income" may
elect each year to be exempt from the foreign tax credit limitation and will be
able to claim a foreign tax credit without having to file Form 1116 that
otherwise is required.
Each Fund may invest in the stock of passive foreign investment companies
("PFICs"). A PFIC is a foreign corporation - other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder - that, in general, meets
either of the following tests: (a) at least 75% of its gross income is passive
or (b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If a Fund acquires stock in a PFIC and holds the
stock beyond the end of the year of acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, "PFIC
income"), plus interest thereon, even if the Fund distributes the PFIC income as
a taxable dividend to its shareholders. In general, an excess distribution is
the excess (if any) of (i) the amount of distributions received by a PFIC
stockholder during the taxable year; over (ii) 125% of the average amount
received during the preceding three taxable years (or, if shorter, the holding
period). The balance of the PFIC income will be included in a Fund's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders. Additional charges in the nature
of interest may be imposed on a Fund in respect of deferred taxes arising from
such distributions or gains.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain, even if
they are not distributed to the Fund by the QEF; those amounts most likely would
have to be distributed by the Fund to satisfy the Distribution Requirement and
avoid imposition of the
- 39 -
Excise Tax. It may be very difficult, if not impossible, to make this election
because of certain requirements thereof.
Alternatively, each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of each year. Pursuant to the
election, a Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
Fund for prior taxable years. A Fund's adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Under the PFIC rules, any
mark-to-market gains or losses are treated as ordinary income. Any mark to
market gain may have to be distributed by a Fund (even though no cash is
received) to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax.
Hedging Transactions. The use of hedging strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for federal income tax
purposes the amount, character and timing of recognition of the gains and losses
a Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations) and
gains from options, futures and foreign currency contracts derived by a Fund
with respect to its business of investing in securities qualify as permissible
income under the source of income requirement. The complex tax rules affecting
hedging strategies may affect the character, amount and timing of distributions
to shareholders and may cause a Fund to satisfy the Distribution Requirement
even though no cash was received for the income event.
Short Sales. Gain or loss from a short sale of property is generally considered
as capital gain or loss to the extent the property used to close the short sale
constitutes a capital asset in a Fund's hands. Except in certain situations,
special rules would generally treat the gains on short sales as short-term
capital gains and would terminate the running of the holding period of
"substantially identical property" held by a Fund. Moreover, a loss on a short
sale will be treated as a long-term loss if, on the date of the short sale,
"substantially identical property" held by a Fund has a long-term holding
period.
Wash Sales. A Fund may in certain circumstances be negatively impacted by
certain special rules of the Code and Regulations relating to "wash sales." In
general, the "wash sale" rules prevent the recognition of loss by a taxpayer
from the disposition of stock or securities at a loss in a case in which
identical or substantially identical stock or securities (or an option to
acquire such property) is or has been acquired within a prescribed period. Thus,
the wash sale rules could prevent the current recognition for tax purposes of a
loss realized by a Fund from the sale of a security if within 30 days before or
30 days after the sale, that Fund were to acquire substantially identical
securities or enter into a contract or option to acquire such securities.
- 40 -
Straddles. Code Section 1092 (dealing with straddles) also may affect the
taxation of options, futures and forward contracts in which a Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options, futures and forward contracts
are personal property. Under Section 1092, any loss from the disposition of a
position in a straddle generally may be deducted only to the extent the loss
exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules (described above), which
apply to transactions where a position is sold at a loss and a new offsetting
position is acquired within a prescribed period, and "short sale" rules
applicable to straddles, which would defer the loss. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions would be determined under rules that
vary according to the elections made. Because only temporary regulations
implementing the straddle rules have been promulgated, the tax consequences to a
Fund of straddle transactions may not be entirely clear in all instances.
Constructive Sale. If a Fund has an "appreciated financial position" -
generally, an interest (including an interest through an option, futures or
forward contract or short sale) with respect to any stock, debt instrument
(other than "straight debt") or partnership interest the fair market value of
which exceeds its adjusted basis - and enters into a "constructive sale" of the
same or substantially similar property, a Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward contract entered into by a Fund or a
related person with respect to the same or substantially similar property. In
addition, if the appreciated financial position is itself a short sale or such a
contract, acquisition of the underlying property or substantially similar
property will be deemed a constructive sale.
Backup Withholding. Each Fund will be required in certain cases to withhold at
the applicable withholding rate and remit to the U.S. Treasury, the withheld
amount of taxable dividends paid to any shareholder who (1) fails to provide a
correct taxpayer identification number certified under penalty of perjury;
(2) is subject to withholding by the Internal Revenue Service for failure to
properly report all payments of interest or dividends; (3) fails to provide a
certified statement that he or she is not subject to "backup withholding;" or
(4) fails to provide a certified statement that he or she is a U.S. person
(including a U.S. resident alien). Backup withholding is not an additional tax
and any amounts withheld may be credited against the shareholder's ultimate U.S.
tax liability.
State And Local Taxes. Shortly after the end of each year, PFPC calculates the
federal income tax status of all distributions made during the year. In addition
to the federal income tax consequences described above, shareholders should
consider and discuss with their own tax advisors the potential state and local
tax consequences of an investment in a Portfolio. State and local laws often
differ from Federal income tax laws with respect to the treatment of specific
items of income, gain, loss, deduction and credit. A shareholder's share of the
taxable income or loss of a Portfolio generally must be included in determining
his/her reportable income for state and local tax purposes in the jurisdiction
in which he/she resides.
- 41 -
The foregoing tax discussion is a summary included for general informational
purposes only. Each shareholder is advised to consult his/her own tax advisor
with respect to the specific tax consequences of an investment in a Portfolio,
including the effect and applicability of state, local, foreign and other tax
laws and the possible effects of changes in federal or other tax laws.
Each Fund will provide an information return to shareholders describing the
federal tax status of the dividends paid by the Fund during the preceding year
within 60 days after the end of each year as required by present tax law.
Individual shareholders will receive Form 1099-DIV and Form 1099-B as required
by present tax law during January of each year. If a Fund makes a distribution
after the close of its fiscal year, which is attributable to income or gains
earned in such earlier fiscal year, then the Fund shall send a notice to its
shareholders describing the amount and character of such distribution within 60
days after the close of the year in which the distribution is made. Shareholders
should consult their tax advisers concerning the state or local taxation of such
dividends, and the federal, state and local taxation of capital gains
distributions.
FINANCIAL STATEMENTS
Audited financial statements and financial highlights of the Funds for the
fiscal year ended June 30, 2005, are set forth in the Annual Report to
shareholders, including the notes thereto and the report of Ernst & Young LLP
thereon. The Annual Report is incorporated herein by reference.
- 42 -
APPENDIX A
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACT STRATEGIES
Regulation of the Use of Options, Futures and Forward Currency Contract
Strategies. As discussed in the prospectus, in managing a Fund, the adviser may
engage in certain options, futures and forward currency contract strategies for
certain bona fide hedging, risk management or other portfolio management
purposes. Certain special characteristics of and risks associated with using
these strategies are discussed below. Use of options, futures and forward
currency contracts is subject to applicable regulations and/or interpretations
of the SEC and the several options and futures exchanges upon which these
instruments may be traded. The Board of Trustees has adopted investment
guidelines (described below) reflecting these regulations.
In addition to the products, strategies and risks described below and in the
prospectus, the adviser expects to discover additional opportunities in
connection with options, futures and forward currency contracts. These new
opportunities may become available as new techniques develop, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures and forward currency contracts are developed. These opportunities may be
utilized to the extent they are consistent with each Fund's investment objective
and limitations and permitted by applicable regulatory authorities. The
registration statement for the Funds will be supplemented to the extent that new
products and strategies involve materially different risks than those described
below and in the prospectus.
Cover Requirements. The Funds will not use leverage in their options and
futures. Accordingly, the Funds will comply with guidelines established by the
SEC with respect to coverage of these strategies by either (1) earmarking or
setting aside cash or liquid, unencumbered, daily marked-to-market securities in
one or more segregated accounts with the custodian in the prescribed amount; or
(2) holding securities or other options or futures contracts whose values are
expected to offset ("cover") their obligations thereunder. Securities,
currencies, or other options or futures contracts used for cover cannot be sold
or closed out while these strategies are outstanding, unless they are replaced
with similar assets. As a result, there is a possibility that the use of cover
involving a large percentage of a Fund's assets could impede portfolio
management, or Fund's ability to meet redemption requests or other current
obligations.
Options Strategies. A Fund may purchase and write (sell) only those options on
securities and securities indices that are traded on U.S. exchanges.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange, on which the option is listed, which, in effect,
guarantees completion of every exchange-traded option transaction.
Each Fund may purchase call options on securities in which it is authorized to
invest in order to fix the cost of a future purchase. Call options also may be
used as a means of enhancing returns by, for example, participating in an
anticipated price increase of a security. In the event of a decline in the price
of the underlying security, use of this strategy would serve to limit the
potential loss to a Fund to the option premium paid; conversely, if the market
price of the
- A1 -
underlying security increases above the exercise price and a Fund either sells
or exercises the option, any profit eventually realized would be reduced by the
premium paid.
Each Fund may purchase put options on securities that it holds in order to hedge
against a decline in the market value of the securities held or to enhance
return. The put option enables a Fund to sell the underlying security at the
predetermined exercise price; thus, the potential for loss to a Fund below the
exercise price is limited to the option premium paid. If the market price of the
underlying security is higher than the exercise price of the put option, any
profit a Fund realizes on the sale of the security is reduced by the premium
paid for the put option less any amount for which the put option may be sold.
Each Fund may on certain occasions wish to hedge against a decline in the market
value of securities that it holds at a time when put options on those particular
securities are not available for purchase. At those times, a Fund may purchase a
put option on other carefully selected securities in which it is authorized to
invest, the values of which historically have a high degree of positive
correlation to the value of the securities actually held. If the adviser's
judgment is correct, changes in the value of the put options should generally
offset changes in the value of the securities being hedged. However, the
correlation between the two values may not be as close in these transactions as
in transactions in which a Fund purchases a put option on a security that it
holds. If the value of the securities underlying the put option falls below the
value of the portfolio securities, the put option may not provide complete
protection against a decline in the value of the portfolio securities.
Each Fund may write covered call options on securities in which it is authorized
to invest for hedging purposes or to increase return in the form of premiums
received from the purchasers of the options. A call option gives the purchaser
of the option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the exercise price during the option period. The
strategy may be used to provide limited protection against a decrease in the
market price of the security, in an amount equal to the premium received for
writing the call option less any transaction costs. Thus, if the market price of
the underlying security held by a Fund declines, the amount of the decline will
be offset wholly or in part by the amount of the premium received by a Fund. If,
however, there is an increase in the market price of the underlying security and
the option is exercised, a Fund will be obligated to sell the security at less
than its market value.
Each Fund may also write covered put options on securities in which it is
authorized to invest. A put option gives the purchaser of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. So long as the obligation of the
writer continues, the writer may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring it to make payment of
the exercise price against delivery of the underlying security. The operation of
put options in other respects, including their related risks and rewards, is
substantially identical to that of call options. If the put option is not
exercised, a Fund will realize income in the amount of the premium received.
This technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying securities would
A-2
decline below the exercise price less the premiums received, in which case a
Fund would expect to suffer a loss.
Each Fund may purchase put and call options and write covered put and call
options on indices in much the same manner as the more traditional options
discussed above, except that index options may serve as a hedge against overall
fluctuations in the securities markets (or a market sector) rather than
anticipated increases or decreases in the value of a particular security. An
index assigns values to the securities included in the index and fluctuates with
changes in such values. Settlements of index options are effected with cash
payments and do not involve delivery of securities. Thus, upon settlement of an
index option, the purchaser will realize, and the writer will pay, an amount
based on the difference between the exercise price and the closing price of the
index. The effectiveness of hedging techniques using index options will depend
on the extent to which price movements in the index selected correlate with
price movements of the securities in which a Fund invests. Perfect correlation
is not possible because the securities held or to be acquired by a Fund will not
exactly match the composition of indices on which options are purchased or
written.
Each Fund may purchase and write covered straddles on securities or indices. A
long straddle is a combination of a call and a put purchased on the same
security where the exercise price of the put is less than or equal to the
exercise price on the call. A Fund would enter into a long straddle when the
adviser believes that it is likely that prices will be more volatile during the
term of the options than is implied by the option pricing. A short straddle is a
combination of a call and a put written on the same security where the exercise
price on the put is less than or equal to the exercise price of the call where
the same issue of the security is considered "cover" for both the put and the
call. A Fund would enter into a short straddle when the adviser believes that it
is unlikely that prices will be as volatile during the term of the options as is
implied by the option pricing. In such case, a Fund will earmark or segregate
cash and/or liquid, unencumbered securities in an account with its custodian
equivalent in value to the amount, if any, by which the put is "in-the-money,"
that is, that amount by which the exercise price of the put exceeds the current
market value of the underlying security. Because straddles involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Each Fund may purchase put and call warrants with values that vary depending on
the change in the value of one or more specified indices ("index warrants"). An
index warrant is usually issued by a bank or other financial institution and
gives a Fund the right, at any time during the term of the warrant, to receive
upon exercise of the warrant a cash payment from the issuer of the warrant based
on the value of the underlying index at the time of exercise. In general, if a
Fund holds a call warrant and the value of the underlying index rises above the
exercise price of the warrant, a Fund will be entitled to receive a cash payment
from the issuer upon exercise based on the difference between the value of the
index and the exercise price of the warrant; if a Fund holds a put warrant and
the value of the underlying index falls, a Fund will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. A Fund holding a call
warrant would not be entitled to any payments from the issuer at any time when
the exercise price is greater than the value of the underlying index; a Fund
holding a put warrant would not be entitled to any payments when the
A-3
exercise price is less than the value of the underlying index. If a Fund does
not exercise an index warrant prior to its expiration, then a Fund loses the
amount of the purchase price that it paid for the warrant.
Each Fund will normally use index warrants as it may use index options. The
risks of a Fund's use of index warrants are generally similar to those relating
to its use of index options. Unlike most index options, however, index warrants
are issued in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other institution which
issues the warrant. Also, index warrants generally have longer terms than index
options. Index warrants are not likely to be as liquid as index options backed
by a recognized clearing agency. In addition, the terms of index warrants may
limit a Fund's ability to exercise the warrants at any time or in any quantity.
Options Guidelines. In view of the risks involved in using the options
strategies described above, each Fund has adopted the following investment
guidelines to govern its use of such strategies; these guidelines may be
modified by the Board of Trustees without shareholder approval:
1. Each Fund will write only covered options, and each such option will
remain covered so long as a Fund is obligated thereby; and
2. No Fund will write options (whether on securities or securities
indices) if aggregate exercise prices of previous written
outstanding options, together with the value of assets used to cover
all outstanding positions, would exceed 25% of its total net assets.
Special Characteristics and Risks of Options Trading. A Fund may effectively
terminate its right or obligation under an option by entering into a closing
transaction. If a Fund wishes to terminate its obligation to purchase or sell
securities under a put or a call option it has written, a Fund may purchase a
put or a call option of the same series (that is, an option identical in its
terms to the option previously written). This is known as a closing purchase
transaction. Conversely, in order to terminate its right to purchase or sell
specified securities under a call or put option it has purchased, a Fund may
sell an option of the same series as the option held. This is known as a closing
sale transaction. Closing transactions essentially permit a Fund to realize
profits or limit losses on its options positions prior to the exercise or
expiration of the option. If a Fund is unable to effect a closing purchase
transaction with respect to options it has acquired, a Fund will have to allow
the options to expire without recovering all or a portion of the option premiums
paid. If a Fund is unable to effect a closing purchase transaction with respect
to covered options it has written, a Fund will not be able to sell the
underlying securities or dispose of assets used as cover until the options
expire or are exercised, and a Fund may experience material losses due to losses
on the option transaction itself and in the covering securities.
In considering the use of options to enhance returns or for hedging purposes,
particular note should be taken of the following:
A-4
1. The value of an option position will reflect, among other
things, the current market price of the underlying security or
index, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility
of the underlying security or index, and general market conditions.
For this reason, the successful use of options depends upon the
adviser's ability to forecast the direction of price fluctuations
in the underlying securities markets or, in the case of index
options, fluctuations in the market sector represented by the
selected index.
2. Options normally have expiration dates of up to three years. An
American style put or call option may be exercised at any time
during the option period while a European style put or call option
may be exercised only upon expiration or during a fixed period prior
to expiration. The exercise price of the options may be below, equal
to or above the current market value of the underlying security or
index. Purchased options that expire unexercised have no value.
Unless an option purchased by a Fund is exercised or unless a
closing transaction is effected with respect to that position, a
Fund will realize a loss in the amount of the premium paid and any
transaction costs.
3. A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options.
Although a Fund intends to purchase or write only those
exchange-traded options for which there appears to be a liquid
secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any particular time.
A liquid market may be absent if: (i) there is insufficient trading
interest in the option; (ii) the exchange has imposed restrictions
on trading, such as trading halts, trading suspensions or daily
price limits; (iii) normal exchange operations have been disrupted;
or (iv) the exchange has inadequate facilities to handle current
trading volume.
4. With certain exceptions, exchange listed options generally settle
by physical delivery of the underlying security. Index options are
settled exclusively in cash for the net amount, if any, by which the
option is "in-the-money" (where the value of the underlying
instrument exceeds, in the case of a call option, or is less than,
in the case of a put option, the exercise price of the option) at
the time the option is exercised. If a Fund writes a call option on
an index, a Fund will not know in advance the difference, if any,
between the closing value of the index on the exercise date and the
exercise price of the call option itself and thus will not know the
amount of cash payable upon settlement. If a Fund holds an index
option and exercises it before the closing index value for that day
is available, a Fund runs the risk that the level of the underlying
index may subsequently change.
5. A Fund's activities in the options markets may result in a higher
Series turnover rate and additional brokerage costs; however, a Fund
also may save on
A-5
commissions by using options as a hedge rather than buying or
selling individual securities in anticipation of, or as a result of,
market movements.
Futures and Related Options Strategies. Each Fund may engage in futures
strategies for certain non-trading bona fide hedging, risk management and
portfolio management purposes.
Each Fund may sell securities index futures contracts in anticipation of a
general market or market sector decline that could adversely affect the market
value of a Fund' securities holdings. To the extent that a portion of a Fund's
holdings correlate with a given index, the sale of futures contracts on that
index could reduce the risks associated with a market decline and thus provide
an alternative to the liquidation of securities positions. For example, if a
Fund correctly anticipates a general market decline and sells index futures to
hedge against this risk, the gain in the futures position should offset some or
all of the decline in the value of a Fund' holdings. A Fund may purchase index
futures contracts if a significant market or market sector advance is
anticipated. Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of the underlying securities, which may then be
purchased, in an orderly fashion. This strategy may minimize the effect of all
or part of an increase in the market price of securities that a Fund intends to
purchase. A rise in the price of the securities should be in part or wholly
offset by gains in the futures position.
As in the case of a purchase of an index futures contract, a Fund may purchase a
call option on an index futures contract to hedge against a market advance in
securities that a Fund plans to acquire at a future date. A Fund may write
covered put options on index futures as a partial anticipatory hedge, and may
write covered call options on index futures as a partial hedge against a decline
in the prices of securities held by a Fund. This is analogous to writing covered
call options on securities. A Fund also may purchase put options on index
futures contracts. The purchase of put options on index futures contracts is
analogous to the purchase of protective put options on individual securities
where a level of protection is sought below which no additional economic loss
would be incurred by a Fund.
Futures and Related Options Guidelines. In view of the risks involved in using
the futures strategies that are described above, each Fund has adopted the
following investment guidelines to govern its use of such strategies. The Board
of Trustees may modify these guidelines without shareholder vote.
1. A Fund will engage only in covered futures transactions, and each
such transaction will remain covered so long as a Fund is obligated
thereby.
2. A Fund will not write options on futures contracts if aggregate
exercise prices of previously written outstanding options (whether
on securities or securities indices), together with the value of
assets used to cover all outstanding futures positions, would
exceed 25% of its total net assets.
Special Characteristics and Risks of Futures and Related Options Trading. No
price is paid upon entering into a futures contract. Instead, upon entering into
a futures contract, a Fund is
A-6
required to deposit with its custodian, in a segregated account in the name of
the futures broker through whom the transaction is effected, or earmark, an
amount of cash, U.S. Government securities or other liquid instruments generally
equal to 10% or less of the contract value. This amount is known as "initial
margin." When writing a call or a put option on a futures contract, margin also
must be deposited in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not involve
borrowing to finance the futures transactions. Rather, initial margin on a
futures contract is in the nature of a performance bond or good-faith deposit on
the contract that is returned to a Fund upon termination of the transaction,
assuming all obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a Fund may be required by a futures exchange to
increase the level of its initial margin payment. Additionally, initial margin
requirements may be increased generally in the future by regulatory action.
Subsequent payments, called "variation margin," to and from the broker, are made
on a daily basis as the value of the futures or options position varies, a
process known as "marking to market." For example, when a Fund purchases a
contract and the value of the contract rises, a Fund receives from the broker a
variation margin payment equal to that increase in value. Conversely, if the
value of the futures position declines, a Fund is required to make a variation
margin payment to the broker equal to the decline in value. Variation margin
does not involve borrowing to finance the futures transaction, but rather
represents a daily settlement of a Fund's obligations to or from a clearing
organization.
Buyers and sellers of futures positions and options thereon can enter into
offsetting closing transactions, similar to closing transactions on options on
securities, by selling or purchasing an offsetting contract or option. Futures
contracts or options thereon may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts or options.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
prices could move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of unfavorable
positions. In such event, it may not be possible for a Fund to close a position,
and, in the event of adverse price movements, a Fund would have to make daily
cash payments of variation margin (except in the case of purchased options).
However, if futures contracts have been used to hedge portfolio securities, such
securities will not be sold until the contracts can be terminated. In such
circumstances, an increase in the price of the securities, if any, may partially
or completely offset losses on the futures contract. However, there is no
guarantee that the price of the securities will, in fact, correlate with the
price movements in the contracts and thus provide an offset to losses on the
contracts.
In considering a Fund's use of futures contracts and related options, particular
note should be taken of the following:
1. Successful use by a Fund of futures contracts and related options
will depend upon the adviser's ability to predict movements in the
direction of the securities
A-7
markets, which requires different skills and techniques than
predicting changes in the prices of individual securities. Moreover,
futures contracts relate not only to the current price level of the
underlying securities, but also to anticipated price levels at some
point in the future. There is, in addition, the risk that the
movements in the price of the futures contract will not correlate
with the movements in the prices of the securities being hedged.
For example, if the price of an index futures contract moves less
than the price of the securities that are the subject of the hedge,
the hedge will not be fully effective, but if the price of the
securities being hedged has moved in an unfavorable direction, a
Fund would be in a better position than if it had not hedged at all.
If the price of the securities being hedged has moved in a favorable
direction, the advantage may be partially offset by losses in the
futures position. In addition, if a Fund has insufficient cash, it
may have to sell assets to meet daily variation margin requirements.
Any such sale of assets may or may not be made at prices that
reflect a rising market. Consequently, a Fund may need to sell
assets at a time when such sales are disadvantageous to a Fund. If
the price of the futures contract moves more than the price of the
underlying securities, a Fund will experience either a loss or a
gain on the futures contract that may or may not be completely
offset by movements in the price of the securities that are the
subject of the hedge.
2. In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in
the futures position and the securities being hedged, movements in
the prices of futures contracts may not correlate perfectly with
movements in the prices of the hedged securities due to price
distortions in the futures market. There may be several reasons
unrelated to the value of the underlying securities that cause this
situation to occur. First, as noted above, all participants in the
futures market are subject to initial and variation margin
requirements. If, to avoid meeting additional margin deposit
requirements or for other reasons, investors choose to close a
significant number of futures contracts through offsetting
transactions, distortions in the normal price relationship between
the securities and the futures markets may occur. Second, because
the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market, there
may be increased participation by speculators in the futures
market. Such speculative activity in the futures market also may
cause temporary price distortions. As a result, a correct forecast
of general market trends may not result in successful hedging
through the use of futures contracts over the short term. In
addition, activities of large traders in both the futures and
securities markets involving arbitrage and other investment
strategies may result in temporary price distortions.
3. Positions in futures contracts may be closed out only on an exchange
or board of trade that provides a secondary market for such futures
contracts. Although each Fund intends to purchase and sell futures
only on exchanges or boards of trade where there appears to be an
active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for any
A-8
particular contract at any particular time. In such event, it may
not be possible to close a futures position, and in the event of
adverse price movements, a Fund would continue to be required to
make variation margin payments.
4. Like options on securities, options on futures contracts have
limited life. The ability to establish and close out options on
futures will be subject to the development and maintenance of liquid
secondary markets on the relevant exchanges or boards of trade.
There can be no certainty that such markets for all options on
futures contracts will develop.
5. Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs are all
that is at risk. Sellers of options on futures contracts, however,
must post initial margin and are subject to additional margin calls
that could be substantial in the event of adverse price movements.
In addition, although the maximum amount at risk when a Fund
purchases an option is the premium paid for the option and the
transaction costs, there may be circumstances when the purchase of
an option on a futures contract would result in a loss to a Fund
when the use of a futures contract would not, such as when there is
no movement in the level of the underlying index value or the
securities or currencies being hedged.
6. As is the case with options, a Fund's activities in the futures
markets may result in a higher portfolio turnover rate and
additional transaction costs in the form of added brokerage
commissions. However, a Fund also may save on commissions by using
futures contracts or options thereon as a hedge rather than buying
or selling individual securities in anticipation of, or as a result
of, market movements.
A-9
APPENDIX B
DESCRIPTION OF RATINGS
Moody's, S&P and Fitch are private services that provide ratings of the credit
quality of debt obligations. A description of the ratings assigned by Moody's,
S&P and Fitch to the securities in which the Portfolios may invest is discussed
below. These ratings represent the opinions of these rating services as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality. The
investment advisers and sub-advisers attempt to discern variations in credit
rankings of the rating services and to anticipate changes in credit ranking.
However, subsequent to purchase by a Portfolio, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by a Portfolio. In that event, an investment adviser will consider
whether it is in the best interest of a Portfolio to continue to hold the
securities.
MOODY'S RATINGS
CORPORATE AND MUNICIPAL BONDS.
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
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 in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba offer questionable financial security. Often the
ability of these entities to meet obligations may be moderate and not well
safeguarded in the future.
- B1 -
"Ba," "B," "Caa," "Ca," and "C": Bonds that possess one of these ratings provide
questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (-) Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
(P): When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols, Aa1,
A1, Ba1 and B1.
CORPORATE AND MUNICIPAL COMMERCIAL PAPER. The highest rating for corporate and
municipal commercial paper is "P-1" (Prime-1). Issuers rated P-1 (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. P-1 repayment ability will often be evidenced by many of the
following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
MUNICIPAL NOTES. The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2" and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3"
in the case of an issue having a variable-rate demand feature). Notes rated "MIG
1" or "VMIG 1" are judged to be of the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing. Notes rated "MIG 2" or "VMIG
2" are of high quality, with margins of protection that are ample although not
so large as in the preceding group. Notes rated "MIG 3" or "VMIG 3" are of
favorable
B-2
quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow, and market access for refinancing is likely to be less well
established.
S&P RATINGS
CORPORATE AND MUNICIPAL BONDS.
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay interest and repay principal.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
"BB," "B," "CCC," "CC" and "C": Debt is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"BB": Debt has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B": Debt has a greater vulnerability to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business, financial
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
"CCC": Debt has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is
B-3
also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC": This rating is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC" rating.
"C": This rating is typically applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
"CI": This rating is reserved for income bonds on which no interest is being
paid.
"D": Debt is in payment default. This rating is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S & P believes that such payments will be made
during such grace period. "D" rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
CORPORATE AND MUNICIPAL COMMERCIAL PAPER. The "A-1" rating for corporate and
municipal commercial paper indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics will be rated "A-1+."
MUNICIPAL NOTES. The "SP-1" rating reflects a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be rated "SP-1+." The "SP-2" rating reflects a
satisfactory capacity to pay principal and interest.
FITCH RATINGS
DESCRIPTION OF FITCH'S HIGHEST STATE AND MUNICIPAL NOTES RATING.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA.
F-1+: Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
B-4
F-1: Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
BB: Issues assigned this rating indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
considered investment grade.
B-5
APPENDIX C
ROXBURY CAPITAL MANAGEMENT, LLC
Proxy Voting Policies and Procedures
____________________________________
I. GENERAL PRINCIPLES
Roxbury Capital Management, LLC ("Roxbury") recognizes its responsibility to
vote proxies in respect of securities owned by a client in the economic best
interests of its client and without regard to the interests of Roxbury or any
other client of Roxbury.
These Proxy Voting Policies and Procedures ("Policies") apply to securities held
in client accounts in which Roxbury has direct voting authority. The Policies
are subject to any proxy voting guideline or direction of a client as long as
following the proxy voting guideline or direction is prudent under the
circumstances.
Absent special circumstances such as those described below, Roxbury's policy is
to exercise its proxy voting discretion in accordance with the guidelines set
forth in Exhibit A ("Proxy Voting Guidelines"). Any changes to the Proxy Voting
Guidelines must be pre-approved in writing by the Proxy Voting Committee
("Committee").
II. VOTING PROCESS
Roxbury votes all proxies on behalf of a client's portfolio unless a) the client
requests in writing that Roxbury not vote, b) the proxies are associated with
unsupervised securities, c) the proxies are associated with securities
transferred to Roxbury's management then liquidated because Roxbury does not
follow those securities, or d) the costs of voting the proxies outweigh the
benefits.
In addition, Roxbury does not vote proxies for some accounts that it manages
under agreements it has with certain brokerage consultant firms whereby clients
pay a single fee based on a percentage of assets under management for brokerage,
custody and Roxbury's investment management services ("Wrap Fee Agreement"). If
Roxbury does not vote the proxies, it may make proxy voting recommendations to
the brokerage consultant firm with whom it has a Wrap Fee Agreement and that
firm votes the proxies.
The Data Integrity Department ("Data Integrity") is responsible for voting
proxies received by Roxbury. Data Integrity votes proxies according to the proxy
voting guidelines, which have been reviewed and approved by the Proxy Voting
Committee. Data Integrity will vote proxy proposals where the Proxy Voting
Guidelines indicate its general position as voting either "for" or "against."
Data Integrity will forward the proposal to the appropriate industry analyst
where the Proxy Voting Guidelines indicate its general position as voting on a
case-by-case basis, or the Proxy Voting Guidelines do not list the proposal.
The analyst will review the issues to be voted upon, related information, and
the research provided by a proxy research service. The proxy research service
also provides customized proxy research consistent with Roxbury's policies for
accounts with special vote sensitivities,
- C1 -
including socially responsible and Taft Hartley accounts. The analyst
will make a recommendation to the Proxy Voting Committee as to how the proxy
issues should be voted.
The Proxy Voting Committee provides centralized management of the proxy voting
process and makes all proxy voting decisions except under special circumstances
as noted below. The Committee:
a) supervises the proxy voting process, including the identification
of potential material conflicts of interest involving Roxbury and
the proxy voting process in respect of securities owned by a client;
b) determines how to vote proxies relating to issues not covered by
these Policies; and
c) determines when Roxbury may deviate from these Policies.
The Proxy Voting Committee has at least three members at all time. Members of
the Committee are comprised of portfolio managers, analysts, and one other
Roxbury employee.
The Proxy Voting Committee will review the recommendations provided by Roxbury's
analyst. After review of these recommendations, the proxy will be voted
according to the majority vote of the Committee. If a Committee member disagrees
with the recommendations of the analyst, the reasons for the disagreement will
be documented. Data Integrity will keep documents of proxy decisions made by the
Committee. Since Roxbury generally considers the quality of a company's
management in making investment decisions, Roxbury regularly votes proxies in
accordance with the recommendations of a company's management if there is no
conflict with shareholder value.
Roxbury may determine not to vote proxies in respect of securities of any issuer
if it determines it would be in its clients' overall best interests not to vote.
Such determination may apply in respect of all client holdings of the securities
or only certain specified clients, as Roxbury deems appropriate under the
circumstances. As an example, the Proxy Voting Committee may determine not to
vote certain securities positions if, in its judgment, the expense and
administrative inconvenience outweighs the benefits to clients of voting the
securities.
Roxbury uses a proxy voting agent to ensure that, as much as possible, votable
shares get voted and provide timely reporting for Roxbury and its clients. Data
Integrity submits proxy votes for a portfolio to the proxy voting agent if the
custodian of the portfolio's assets has a relationship with the agent. Proxies
for portfolios not set up at the proxy voting agent will be voted using other
means.
C-2
III. CONFLICTS OF INTEREST
Potential or actual conflicts of interest relating to a particular proxy
proposal may be handled in various ways depending on the type and materiality.
Depending upon the facts and circumstances of each situation and the
requirements of applicable law, options include:
1) Voting the proxy in accordance with the voting recommendation of a
non-affiliated third party vendor.
2) Voting the proxy pursuant to client direction.
Voting the securities of an issuer where the following relationships or
circumstances exist are deemed to give rise to a material conflict of interest
for purposes of these Policies:
a) The issuer is a client of Roxbury and Roxbury manages its portfolio or
its retirement plan. In such case, Roxbury will obtain an independent,
third party opinion and will follow the recommendation of such third party.
b) The issuer is an entity in which the Roxbury industry analyst assigned
to review the proxy has a relative (1) in management of the issuer or an
acquiring company. In such case, the analyst will not make any vote
recommendations and another analyst will review the proxy. Although the
proxy will be assigned to a different analyst, the industry analyst will
still be available to answer questions about the issuer from other Proxy
Committee members.
c) The issuer is an entity in which a Proxy Committee member has a relative
in management of the issuer or an acquiring company. In such case, the
Proxy Committee member will not vote on the proxy and a member of the
Executive Committee will vote instead.
d) The issuer is an entity in which an officer or director of Roxbury or a
relative of any such person is or was an officer, director or employee, or
such person or relative otherwise has received more than $500 annually
during Roxbury's last three fiscal years. In such case, Roxbury will obtain
an independent, third party opinion and will follow the recommendation of
such third party.
e) The issuer is Wilmington Trust Corporation. Due to Wilmington Trust
Corporation's partial ownership of Roxbury, Roxbury would have a conflict
of interest in voting proxies on Wilmington's stock; however, as a matter
of policy, Roxbury does not purchase shares of Wilmington Trust Corporation
for client portfolios.
____________________
(1) For the purposes of these Policies, "relative" includes the following
family members: spouse, minor children or stepchildren or children or
stepchildren sharing the person's home.
C-3
f) Another client or prospective client of Roxbury, directly or indirectly,
conditions future engagement of Roxbury on voting proxies in respect of any
client's securities on a particular matter in a particular way.
g) Conflict exists between the interests of an employee benefit plan's
portfolio and the plan sponsor's interests. In such case, Roxbury will
resolve in favor of the plan's portfolio.
h) Any other circumstance where Roxbury's duty to serve its clients'
interests, typically referred to as its "duty of loyalty," could be
compromised.
Notwithstanding the foregoing, a conflict of interest described above shall not
be considered material for the purposes of these Policies in respect of a
specific vote or circumstance if:
o The securities in respect of which Roxbury has the power to vote
account for less than 1% of the issuer's outstanding voting
securities, but only if: (i) such securities do not represent one of
the 10 largest holdings of such issuer's outstanding voting
securities and (ii) such securities do not represent more than 2% of
the client's holdings with Roxbury.
o The matter to be voted on relates to a restructuring of the terms of
existing securities or the issuance of new securities or a similar
matter arising out of the holding of securities, other than common
equity, in the context of a bankruptcy or threatened bankruptcy of
the issuer.
For clients that are registered investment companies ("Funds"), where a material
conflict of interest has been identified and the matter is not covered by the
Policies, Roxbury will disclose the conflict and the Proxy Voting Committee's
determination of the manner in which to vote to the Fund's Board or committee of
the Board. The Proxy Voting Committee's determination will take into account
only the interests of the Fund, and the Proxy Voting Committee will document the
basis for the decision and furnish the documentation to the Fund's Board or
committee of the Board.
For clients other than Funds, where a material conflict of interest has been
identified and the matter is not covered by the Policies, the Proxy Voting
Committee will disclose the conflict to the client and advise the client that
its securities will be voted only upon the recommendations of an independent
third party.
C-4
IV. RECORDKEEPING AND RETENTION
Data Integrity retains records relating to the voting of proxies, including:
a) a copy of these Policies and any amendments thereto;
b) a copy of each proxy statement that Roxbury receives regarding client
securities;
c) a record of each vote cast by Roxbury on behalf of clients;
d) a copy of any document created by Roxbury that was material to making a
decision on how to vote or that memorialized the basis for that
decision;
e) a copy of each written request for information on how Roxbury voted
proxies on behalf of the client, and a copy of any written response
by Roxbury to any oral or written request for information on how
Roxbury voted.
Roxbury will maintain and preserve these records for such period of time as
required to comply with applicable laws and regulations.
Roxbury may rely on proxy statements filed on the SEC's EDGAR system or on proxy
statements and records of votes cast by Roxbury maintained by a third party,
such as a proxy voting service (provided Roxbury had obtained an undertaking
from the third party to provide a copy of the proxy statement or record promptly
on request).
V. CLIENT DISCLOSURE
Roxbury will provide a report of how proxies were voted and copy of its Policies
to those clients who request such information. Requests for proxy information
may be sent to the attention of Proxy Department, Roxbury Capital Management,
LLC, 100 Wilshire Boulevard, Suite 1000, Santa Monica, California 90401.
C-5
EXHIBIT A
______________________________________________________________________________________________________________________
Roxbury Capital Management, LLC
______________________________________________________________________________________________________________________
Proxy Voting Guidelines
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
F = For A = Against C = Case by Case T = Take no action
______________________________________________________________________________________________________________________
General Issue
Position
______________________________________________________________________________________________________________________
1. Operational
______________________________________________________________________________________________________________________
1. A Adjourn meeting
______________________________________________________________________________________________________________________
2. A Amend quorum requirements
______________________________________________________________________________________________________________________
3. F Amend minor bylaws
______________________________________________________________________________________________________________________
4. F Change company name
______________________________________________________________________________________________________________________
5. F Management proposal: change date, time, or location of annual meeting
______________________________________________________________________________________________________________________
6. A Shareholder proposal: ability to change date, time, or location of Annual meeting
______________________________________________________________________________________________________________________
7. F Ratify Auditors
______________________________________________________________________________________________________________________
8. C Shareholder proposals asking companies to prohibit or limit their auditors from engaging in
non-audit services
______________________________________________________________________________________________________________________
9. A Shareholder proposals asking for audit firm rotation
______________________________________________________________________________________________________________________
10. A Proposals to approve other business when it appears as voting item
______________________________________________________________________________________________________________________
2. Board of Directors
______________________________________________________________________________________________________________________
1. C Voting on director nominees in uncontested elections
______________________________________________________________________________________________________________________
2. A Shareholder proposal to impose a mandatory retirement age for outside directors
______________________________________________________________________________________________________________________
3. F Proposal to fix the board size or designate a range for the board size
______________________________________________________________________________________________________________________
4. A Proposals that give management the ability to alter the size of the board outside of a specified
range
______________________________________________________________________________________________________________________
5. C Classification/Declassification of the Board
______________________________________________________________________________________________________________________
6. A Eliminate cumulative voting
______________________________________________________________________________________________________________________
7. C Restore or permit cumulative voting
______________________________________________________________________________________________________________________
8. C Director and Officer indemnification and liability protection
______________________________________________________________________________________________________________________
9. A Proposals to eliminate directors' and officers' liability for monetary damages for violating the
duty of care
______________________________________________________________________________________________________________________
10. A Indemnification proposals that would expand coverage beyond just legal expenses to acts, such as
negligence
______________________________________________________________________________________________________________________
1. F Proposal providing such expanded coverage in cases when a director's legal defense was unsuccessful
if certain criteria are met
______________________________________________________________________________________________________________________
12. C Establish/amend nominee qualifications
______________________________________________________________________________________________________________________
13. A Shareholder proposal requiring two candidates per board seat
______________________________________________________________________________________________________________________
C-6
______________________________________________________________________________________________________________________
14. C Proposals that provide that directors may be removed only for cause
______________________________________________________________________________________________________________________
15. C Proposals to restore shareholder ability to remove directors with or without cause
______________________________________________________________________________________________________________________
16. C Proposals that provide that only continuing directors may elect replacements to fill board vacancies
______________________________________________________________________________________________________________________
17. C Proposal that permit shareholders to elect directors to fill board vacancies
______________________________________________________________________________________________________________________
18. C Independent Chairman (Separate Chairman/CEO)
______________________________________________________________________________________________________________________
19. F Shareholder proposals asking that a majority or more of directors be independent unless the board
composition already meets the proposed threshold of definition of independence
______________________________________________________________________________________________________________________
20. F Shareholder proposals asking that board audit, compensation, and/or nominating committees be
composed exclusively of independent directors if they currently to not meet that standard
______________________________________________________________________________________________________________________
21. A Shareholder proposal: stock ownership requirements
______________________________________________________________________________________________________________________
22. A Shareholder proposal limiting tenure of outside directors
______________________________________________________________________________________________________________________
3. Proxy Contests
______________________________________________________________________________________________________________________
1. C Voting for director nominees in contested elections
______________________________________________________________________________________________________________________
2. C Reimbursing proxy solicitation expenses
______________________________________________________________________________________________________________________
3. F Shareholder proposal requesting that corporations adopt confidential voting, use independent vote
tabulators and use independent inspectors of election
______________________________________________________________________________________________________________________
4. F Management proposals to adopt confidential voting
______________________________________________________________________________________________________________________
4. Anti-takeover Defenses and Voting Related Issues
______________________________________________________________________________________________________________________
1. C Advance notice requirements for shareholder proposals/nominations
______________________________________________________________________________________________________________________
2. C Proposals giving the board exclusive authority to amend the bylaws
______________________________________________________________________________________________________________________
3. C Proposals giving the board the ability to amend the bylaws in addition to shareholders
______________________________________________________________________________________________________________________
4. F Shareholder proposals that ask a company to submit its poison pill for shareholder ratification
______________________________________________________________________________________________________________________
5. C Shareholder proposal to redeem a company's poison pill
______________________________________________________________________________________________________________________
6. C Management proposals to ratify a poison pill
______________________________________________________________________________________________________________________
7. A Proposal to restrict or prohibit shareholder ability to take action by written consent
______________________________________________________________________________________________________________________
8. F Proposals to allow or make easier shareholder action by written consent
______________________________________________________________________________________________________________________
9. C Proposals to restrict or prohibit shareholder ability to call special meetings
______________________________________________________________________________________________________________________
10. C Proposals to remove restriction on the right of shareholders to act independently of management
______________________________________________________________________________________________________________________
11. A Proposal to require supermajority vote
______________________________________________________________________________________________________________________
12. F Proposal to lower supermajority vote requirements
______________________________________________________________________________________________________________________
5. Mergers and Corporate Restructurings
______________________________________________________________________________________________________________________
1. F Appraisal Rights
______________________________________________________________________________________________________________________
2. C Asset purchases
______________________________________________________________________________________________________________________
C-7
______________________________________________________________________________________________________________________
3. C Asset Sales
______________________________________________________________________________________________________________________
4. C Bundled proposals
______________________________________________________________________________________________________________________
5. C Conversion of Securities
______________________________________________________________________________________________________________________
6. C Corporate reorganization/debt restructuring/prepackaged bankruptcy plans/reverse leveraged
buyouts/wrap plans
______________________________________________________________________________________________________________________
7. C Formation of holding company
______________________________________________________________________________________________________________________
8. C Going private transactions (LBOs and minority squeezeouts)
______________________________________________________________________________________________________________________
9. C Joint ventures
______________________________________________________________________________________________________________________
10. C Liquidations
______________________________________________________________________________________________________________________
11. C Mergers and acquisitions/issuance of shares to facilitate merger or acquisition
______________________________________________________________________________________________________________________
12. C Private placements/warrants/convertible debentures
______________________________________________________________________________________________________________________
13. C Spin-offs
______________________________________________________________________________________________________________________
14. C Value maximization proposals
______________________________________________________________________________________________________________________
6. State of Incorporation
______________________________________________________________________________________________________________________
1. F Proposals to opt out of control share acquisition statutes unless doing so would enable the
completion of a takeover that would be detrimental to shareholders
______________________________________________________________________________________________________________________
2. A Proposals to amend the charter to include control share acquisition provisions
______________________________________________________________________________________________________________________
3. F Proposals to restore voting rights to the control shares
______________________________________________________________________________________________________________________
4. F Control share cash out provisions
______________________________________________________________________________________________________________________
5. F Disgorgement provisions
______________________________________________________________________________________________________________________
6. C Fair price provisions
______________________________________________________________________________________________________________________
7. F Freezeout provisions
______________________________________________________________________________________________________________________
8. F Adopt antigreenmail charter of bylaw amendments
______________________________________________________________________________________________________________________
9. C Antigreenmail proposals when bundled with other bylaw amendments
______________________________________________________________________________________________________________________
10. C Reincorporation proposals
______________________________________________________________________________________________________________________
11. A Stakeholder provisions
______________________________________________________________________________________________________________________
12. C State antitakeover statutes
______________________________________________________________________________________________________________________
7. Capital Structure
______________________________________________________________________________________________________________________
1. F Adjustments to par value of common stock
______________________________________________________________________________________________________________________
2. C Proposal to increase the number of shares of common stock
______________________________________________________________________________________________________________________
3. C Proposals at companies with dual-class capital structures to increase the number of authorized
shares of the class that has superior voting rights
______________________________________________________________________________________________________________________
4. C Proposals to approve increases beyond the allowable increase when a company's shares are in danger
of being delisted.
______________________________________________________________________________________________________________________
5. A Proposals to create a new class of common stock with superior voting rights
______________________________________________________________________________________________________________________
6. F Proposal to create a new class of nonvoting or sub voting common stock
______________________________________________________________________________________________________________________
7. A Issue stock for use with rights plan
______________________________________________________________________________________________________________________
8. C Shareholder proposal: preemptive rights
______________________________________________________________________________________________________________________
9. A Proposal authorizing the creation of new classes of preferred stock with unspecified voting rights
and other rights
______________________________________________________________________________________________________________________
10. F Proposals to create "declawed" blank check preferred stock
______________________________________________________________________________________________________________________
C-8
______________________________________________________________________________________________________________________
11. F Proposals to authorize preferred stock where company specifies reasonable terms
______________________________________________________________________________________________________________________
12. A Proposal to increase the number of blank check preferred stock when shares have not been issued for
a specific purpose
______________________________________________________________________________________________________________________
13. C Proposal to increase the number of blank check preferred shares after analyzing the number of
preferred shares available for issue given a company's industry and performance in terms of
shareholder returns
______________________________________________________________________________________________________________________
14. C Recapitalization
______________________________________________________________________________________________________________________
15. F Proposal to implement a reverse stock split when the number of authorized shares will be
proportionately reduced
______________________________________________________________________________________________________________________
16. F Proposal to implement a reverse stock split to avoid delisting
______________________________________________________________________________________________________________________
17. C Proposal to implement a reverse stock split that do not proportionately reduce the number of shares
authorized
______________________________________________________________________________________________________________________
18. F Share repurchase programs
______________________________________________________________________________________________________________________
19. F Stock distributions: splits and dividends
______________________________________________________________________________________________________________________
20. C Tracking stock
______________________________________________________________________________________________________________________
8. Executive and Director Compensation
______________________________________________________________________________________________________________________
1. C Compensation plans
______________________________________________________________________________________________________________________
2. C Compensation plans for directors
______________________________________________________________________________________________________________________
3. C Plans which provide participants with the option of taking all or a portion of their cash
compensation in the form of stock
______________________________________________________________________________________________________________________
4. C Plans which provide a dollar for dollar cash for stock exchange
______________________________________________________________________________________________________________________
5. C Plans which do not provide a dollar for dollar cash for stock exchange
______________________________________________________________________________________________________________________
6. A Retirement plans for non-employee directors
______________________________________________________________________________________________________________________
7. F Shareholder proposal to eliminate retirement plans for non-employee directors
______________________________________________________________________________________________________________________
8. C Management proposals seeking approval to reprice options
______________________________________________________________________________________________________________________
9. C Employee stock purchase plans
______________________________________________________________________________________________________________________
10. C Proposal that amend shareholder approved compensation plans to include administrative features
______________________________________________________________________________________________________________________
11. C Proposals to add performance goals to existing compensation plans that comply with Section 162(m)
______________________________________________________________________________________________________________________
12. C Amend existing plans to increase shares reserved and to qualify for favorable tax treatment under
Section 162(m)
______________________________________________________________________________________________________________________
13. C Cash or cash and stock bonus plans submitted to shareholder for the purpose of exempting
compensation under Section 162(m)
______________________________________________________________________________________________________________________
14. F Employee stock ownership plans
______________________________________________________________________________________________________________________
15. F 401(k) employee benefit plans
______________________________________________________________________________________________________________________
16. F Shareholder proposal seeking additional disclosure of executive and director pay information
______________________________________________________________________________________________________________________
17. A Shareholder proposal seeking to set absolute levels on compensation
______________________________________________________________________________________________________________________
18. A Shareholder proposal requiring director fees to be paid in stock only
______________________________________________________________________________________________________________________
19. F Shareholder proposal to put option repricings to a shareholder vote
______________________________________________________________________________________________________________________
20. C All other shareholder proposals regarding executive and director pay
______________________________________________________________________________________________________________________
21. C Shareholder proposal on option expensing
______________________________________________________________________________________________________________________
C-9
______________________________________________________________________________________________________________________
22. C Shareholder proposal on performance based stock options
______________________________________________________________________________________________________________________
23. F Shareholder proposal to require golden or tin parachutes to be submitted for shareholder
ratification
______________________________________________________________________________________________________________________
24. C Proposals to ratify or cancel golden or tin parachutes
______________________________________________________________________________________________________________________
9. Social and Environmental Issues
______________________________________________________________________________________________________________________
Consumer Issues and Public Safety
______________________________________________________________________________________________________________________
1. C Proposal to phase out the use of animals in product testing
______________________________________________________________________________________________________________________
2. A Proposals seeking a report on the company's animal welfare standards
______________________________________________________________________________________________________________________
3. C Drug pricing
______________________________________________________________________________________________________________________
4. C Proposals to label genetically modified ingredients
______________________________________________________________________________________________________________________
5. A Proposals asking for a report on the feasibility of labeling products containing GMOs
______________________________________________________________________________________________________________________
6. A Proposals to completely phase out GMOs from the company's products
______________________________________________________________________________________________________________________
7. C Reports outlining the steps necessary to eliminate GMOs from the company's products
______________________________________________________________________________________________________________________
8. A Proposal seeking a report on the health and environmental effects of GMOs and the company's
strategy for phasing out GMOs in the event they become illegal in the U.S.
______________________________________________________________________________________________________________________
9. A Requests for reports on a company's policies aimed at curtailing gun violence in the U.S.
______________________________________________________________________________________________________________________
10. C Requests for reports on the company's procedures for preventing predatory lending
______________________________________________________________________________________________________________________
11. C All other tobacco related proposals
______________________________________________________________________________________________________________________
12. A Tobacco proposals seeking stronger product warnings
______________________________________________________________________________________________________________________
13. A Tobacco proposals prohibiting investment in tobacco equities
______________________________________________________________________________________________________________________
Environment and Energy
______________________________________________________________________________________________________________________
14. C Reports outlining potential environmental damage from drilling in the Arctic National Wildlife
Refuge
______________________________________________________________________________________________________________________
15. C Proposals to adopt the CERES principles
______________________________________________________________________________________________________________________
16. A Requests for reports disclosing the company's environmental policies
______________________________________________________________________________________________________________________
17. A Report on the level of greenhouse gas emission from the company's operations and products
______________________________________________________________________________________________________________________
18. C Proposal to adopt a comprehensive recycling strategy
______________________________________________________________________________________________________________________
19. C Proposal to invest in renewable energy sources
______________________________________________________________________________________________________________________
20. A Requests for reports on the feasibility of developing renewable energy sources
______________________________________________________________________________________________________________________
General Corporate Issues
______________________________________________________________________________________________________________________
21. A Proposal to review ways of linking executive compensation to social factors
______________________________________________________________________________________________________________________
22. A Proposals asking the company to affirm political nonpartisanship
______________________________________________________________________________________________________________________
23. A Proposals to report or publish in newspapers the company's political contributions
______________________________________________________________________________________________________________________
C-10
______________________________________________________________________________________________________________________
24. A Proposals disallowing the company from making political contributions
______________________________________________________________________________________________________________________
25. A Proposals restricting the company from making charitable contributions
______________________________________________________________________________________________________________________
26. A Proposals asking for a list of company executives, directors, consultants that have prior
government service
______________________________________________________________________________________________________________________
Labor Standards and Human Rights
______________________________________________________________________________________________________________________
27. A Proposals to implement the China Principles
______________________________________________________________________________________________________________________
28. A Requests for reports detailing the company's operations in a particular country and steps to
protect human rights
______________________________________________________________________________________________________________________
29. A Proposal to implement certain human rights standards at company facilities or those of its
suppliers to commit to outside, independent monitoring
______________________________________________________________________________________________________________________
30. A Reports outlining vendor standards compliance
______________________________________________________________________________________________________________________
31. A Proposals to endorse or increase activity on the MacBride Principles
______________________________________________________________________________________________________________________
Military Business
______________________________________________________________________________________________________________________
32. A Reports on foreign military sales or offsets
______________________________________________________________________________________________________________________
33. C Proposals asking a company to renounce future involvement in antipersonnel landmine production
______________________________________________________________________________________________________________________
34. C Proposals asking a company to renounce future involvement in cluster bomb production
______________________________________________________________________________________________________________________
35. A Proposals asking a company to cease production of nuclear weapons components and delivery systems
______________________________________________________________________________________________________________________
36. A Reports on a company's involvement in spaced-based weaponization
______________________________________________________________________________________________________________________
Workplace Diversity
______________________________________________________________________________________________________________________
37. A Reports on the company's efforts to diversify the board
______________________________________________________________________________________________________________________
38. C Proposals asking the company to increase the representation of women and minorities on the board
______________________________________________________________________________________________________________________
39. A Reports outlining the company's affirmative action initiatives
______________________________________________________________________________________________________________________
40. A Proposals seeking information on the diversity efforts of suppliers and service providers
______________________________________________________________________________________________________________________
41. A Reports outlining the company's progress towards the Glass Ceiling Commission's business
recommendations
______________________________________________________________________________________________________________________
42. C Proposal to amend the company's EEO policy to include sexual orientation
______________________________________________________________________________________________________________________
43. A Proposals to extend company benefits to or eliminate benefits from domestic partners
______________________________________________________________________________________________________________________
C-11